Dominion keeps trying to pull the wool over our eyes

 

Sheep like these are used to keep grass mowed around solar panels.

Dominion’s ad would have done a better job of distracting us if it had included baby animals. Their failure is my opportunity! These lambs keep the grass short around the solar panels at a farm near New Hope, Virginia. Owners Ann and Riley Murray shared this picture.

When your kid greets you at the door with the cheery news that he’s swept the floor for you without being asked, you are probably right to wonder which breakable item is no longer in its usual place.

I have the same feeling about the series of full-page ads Dominion Energy has taken out in newspapers over the past few weeks bragging about the company’s investments in solar energy. The ads are misleading—I’ll get to that in a minute—but the more interesting question is what the company is up to that it hopes we’re too busy looking at solar panels to notice.

Here are some possible answers:

• It was recently reported that Dominion Energy paid no federal income tax for 2018, in spite of earning over $3 billion in U.S. income. In fact, the company received a $45 million rebate, making its effective tax rate -1%. That’s pretty sharp manipulation of the tax laws. No wonder CEO Thomas Farrell II is the highest paid executive in the utility sector, with a reported $20.6 million in income.

• Most of that untaxed income comes from customers here in Virginia, but not all of it is earned. Let’s recap just a few of the high points: In 2014, the General Assembly passed a law letting Dominion charge customers for hundreds of millions of dollars incurred in planning for a new nuclear plant the company isn’t building. Then in 2015 Dominion persuaded legislators to “freeze” regulators’ ability to examine the books and order refunds of what turned out to be hundreds of millions more in customer overpayments. Regulators said the number might eventually rise as high as a billion dollars. When grumbling about that reached a fever pitch, Dominion persuaded the still-compliant (!) legislature to pass another billlast year letting it spend the money instead of refunding it.

• After getting authority to spend all that customer money, one of Dominion’s first moves was to interpret “spending” as “keeping.” Instead of the massive spending on energy efficiency that the legislature put into the law, Dominion tried to discount the number by 40 or 50% so it could keep the rest as “lost revenue.”

• Dominion’s Atlantic Coast Pipeline could shape up to be a huge profit center for the company, but also a huge financial burden for utility customers. Dominion fought hard against a bill this year that would have protected customers if and when the pipeline ever gets built. The company eventually defeated the bill in a Dominion-friendly Senate committee, but not before voting revealed deep fault lines in the House.

• Slides from a presentation to an investor meeting in March show Dominion bragging about Virginia having a favorable regulatory environment (read: utilities get their way).

• That presentation caught the interest of several House Democrats for another reason: it boasted customer-funded spending numbers at least $3 billion higher than it gave its regulators at the State Corporation Commission just two weeks before. In a news release May 2, the seven delegates demanded Dominion produce a full accounting of its future spending plans. Del. Elizabeth Guzman, D-Prince William, whose office issued the release, said “Dominion’s days of facing no consequences when telling Virginians one thing and Wall Street another are coming to an end. The SCC is right to uncover Dominion’s inconsistencies and hold the monopoly accountable since it is Virginia ratepayers who will ultimately pay the price.”

• The delegates also noticed Dominion has decided it wants to make even more profit from its Virginia customers. This spring the company asked the State Corporation Commission to raise its rate of return on common equity from 9.2% to 10.75%, an astounding increase at a time of low interest rates and easy access to capital. Dominion may believe that by overreaching, it will win some middle ground. In the March presentation, Dominion told shareholders the company expects to earn an average 10.2% return on equity from its Virginia investments, still a full percentage point higher than the utility is currently authorized to earn.

• The Virginia Attorney General’s Office is fighting Dominion’s attempts to collect $247 million from ratepayers for environmental upgrades at its Chesterfield power plant, calling the spending “imprudent” given that it will provide “little or no value to customers.”

All of this should feel pretty brazen to Virginia leaders and the public, but when you want something you don’t deserve, it helps to be shameless.

Yet at least some Dominion leaders seem to be aware that other people think the company should be ashamed of its greed, and that some of these people are voters who may eject its friendly legislators from office this fall. Their answer is to run an ad about solar panels to distract us and change the conversation.

But the ad just starts its own conversation — and not in the intended way.

The ad brags, “At Dominion Energy, we’ve increased the number of solar panels in Virginia from 5,250 to over 2 million since 2015. And we’re now the 4th largest solar producer in the nation.”

First off, a minor point, but a symptomatic one: that “fourth largest” claim doesn’t hold up. As of last September, a ranking of the largest solar owners put Dominion in 10th place. Even using the updated number (2,600 MW) from Dominion’s March 2019 investor presentation wouldn’t get the company to fourth place unless other companies have been hastily selling off projects. It does appear Dominion can rightly claim to be the fourth largest solar owner among energy holding companies that own electric utilities. But so what?

The Virginia number catches our attention, though. Two million solar panels sounds like a lot. It’s just that — well, somebody check my math here, but if those are average 300-watt panels, that comes out to 600 MW, which is a pitifully small amount compared to Dominion’s fossil fuel investments. We’re glad to have any solar at all, but it isn’t something to write friends in California about (they’ve got 24,000 MW of solar and counting).

Speaking of California, that and North Carolina are where the rest of Dominion’s solar projects are, in case you’re wondering. The laws are better there. Dominion didn’t write their laws.

Also, while we are at it, almost none of the solar Dominion is developing is for ordinary residents, in spite of what the ad implies. Almost all of it is for data centers and other large customers. Dominion is counting the 350 MW of solar it is developing for Facebook towards the commitment it made to the General Assembly last year to develop 3,000 MW of renewable energy by 2022.

Legislators who thought Dominion would build a lot of solar for regular folks when they agreed to last year’s boondoggle bill should find that disappointing. If they didn’t get solar for their constituents, what exactly did they get?

Unfortunately for Dominion, that brings us back to the long list of things the company was hoping we would ignore while we look at bright shiny objects. Ads about solar panels aren’t enough to distract people from the billions of dollars Dominion is taking from our pockets.

Perhaps the executives at Dominion will conclude the ad just wasn’t good enough. Next time they could try putting sheep in the picture with the solar panels. Especially baby sheep.

Maybe they thought about it and were afraid it would remind Virginians they were getting fleeced.

But they had better try something. Because right now, frankly, no one is distracted.

This article first appeared in the Virginia Mercury on May 6, 2019. 

In a last-ditch effort to stop climate regulations, Virginia Republicans try legislating by budget amendment

Dominion Energy Virginia's Chesterfield Coal Plant

Dominion’s coal-burning power plant in Chesterfield County.

The Northam administration is finalizing regulations to reduce the carbon pollution from Virginia power plants by 30 percent between 2020 and 2030. The Department of Environmental Quality (DEQ) estimates the move will cost consumers only about a dollar per month while accelerating the transition to clean energy.

Instead of celebrating this modest progress on climate action, Virginia Republicans have been fighting it every step of the way. Their latest effort takes the form of two amendments to the state budget that would effectively prevent Virginia from joining the Regional Greenhouse Gas Initiative (RGGI), a nine-state platform for trading carbon emission allowances. It would also stop the Commonwealth from participating in a new compact focused on reducing carbon emissions in transportation.

Virginia law gives the governor a line-item veto in the budget, which requires a two-thirds majority in the legislature to override. But for reasons known only to himself, Governor Northam has instead chosen to remove the amendments by offering his own amendments, which the General Assembly can reject by a simple majority vote.

This cues up the issue for a battle on the House floor on Wednesday, when the legislature returns for the “veto session.” The governor needs the votes of all the Democrats and at least two Republicans to prevail in the House, and those of at least one Republican and the Lieutenant Governor to prevail in the Senate.

Earlier this year, Republicans voted almost unanimously for legislation that, like the budget amendment, would have stopped Virginia from participating in RGGI. Northam vetoed that bill, saying it was bad policy and violated the state constitution. His action probably didn’t persuade any Republicans that he was right and they were wrong.

Still, there are reasons why a Republican who voted for the anti-RGGI bill might support the governor in the budget vote.

One is that using the budget to achieve a policy outcome you couldn’t reach through the legislative process makes a lot of legislators uneasy; it feels like bad governance.

Another is that the anti-RGGI bill was for show; everyone knew the governor would veto it. Moderate Republicans who privately acknowledge the urgency of the climate crisis were able to use their vote to demonstrate party loyalty without actually interfering with the DEQ program.

They bill vote also followed surprise testimony from State Corporation Commission staff members who claimed that trading with RGGI would cost Virginia households much more than DEQ modeling showed. The staff members provided no evidence, but hard-line Republicans saw the threat of rate increases as a gift horse they weren’t going to look in the mouth.

DEQ staff did look it in the mouth, however, and found a number of bad teeth.  DEQ Chief Deputy Chris Bast lambasted the SCC staff for coming into the discussion late, using incorrect assumptions, and failing to show their work.

The SCC staff members followed up after the end of the session with a letter stating their reasoning, though still without showing their math. The late release of the letter prompted Delegate David Toscano to write an editorial in the Washington Post decrying the staff members’ overtly political tactics as well as criticizing their analysis.

In its response to comments on the proposed carbon regulations, DEQ lists several flaws in the SCC staff’s analysis, ranging from significantly overestimating program costs to assuming that Virginia coal plants are immune to the economic stressors affecting coal plants across the U.S.

With time to reflect, many legislators will conclude the evidence supports DEQ. But more to the point, some Republicans may realize that holding Virginia back is bad economics and bad policy.

An analysisreleased this month shows wind and solar could replace 74 percent of coal plants nationwide at an immediate savings to customers; by 2025, that number will be 86 percent. Major utilities like Xcel and MidAmerican have targeted 100% renewable energy, saving money for customers in the process.

Meanwhile, voters across the country—and in Virginia—support renewable energy over fossil fuels by wide margins. Even polling by conservative groups shows strong support for clean energy.

It simply makes no sense for Virginia to opt out of the clean energy future. No doubt a lot of Republicans will vote to do it anyway in hopes of denying a win to a Democratic governor. But if they do, they run the risk of their constituents holding them accountable come November.

This article originally appeared in the Virginia Mercury on April 2. It has been updated to include DEQ’s response to the SCC staff’s letter.

Update April 4: Disappointingly but not surprisingly, the Governor’s amendments were defeated along party lines yesterday. If he wants to keep the carbon regulations moving towards implementation, he will have to exercise his veto authority. There have been questions raised about his authority to do that, so stay tuned. 

As Virginia prepares to join carbon-trading states, arguments erupt over the price of admission

photo courtesy of the Sierra Club

Virginia won’t enter the nine-state carbon emissions trading program known as the Regional Greenhouse Gas Initiative until 2020 under regulations being finalized by the state, but debate about how much it might cost utility ratepayers is already heating up.

Estimates range from little or no cost — or even a cost savings — to as high as $12 per month for the average household, depending on who is doing the calculations and the assumptions they make.

An Associated Press article reports that State Corporation Commission staff testified before a legislative committee that joining RGGI via the Virginia Coastal Protection Act, SB 1666 and HB 2735, would cost Virginia households an added $7-12 per month. The Northam administration disputed the SCC figure, saying the true cost would be about a dollar per month.

Republicans killed the bill in both the Senate and House committees that day.

A few days later, the anti-RGGI bill, HB 2611 (Poindexter), sailed through the House on a party-line vote. It would prevent Virginia from participating in RGGI or any other carbon-reduction regimen. If it also passes the Senate in coming weeks, it faces certain veto by the governor.

So is joining RGGI an inexpensive way to incentivize utilities to save energy and lower carbon emissions, or will it pile costs onto customers?

RGGI, for those of you who need a quick brush-up on your carbon policies, is a cooperative, market-based effort that has been running in New England and the Mid-Atlantic states as far south as Maryland for the past decade.

It works by auctioning carbon pollution allowances to major emitters, gradually ratcheting down the number of allowances made available each year to incentivize conservation and the use of lower-carbon fuels. States use the money they raise to fund energy efficiency, community solar, weatherization and other programs, often focusing especially on low-income residents.

First things first: RGGI works.

According to a 2018 report by Analysis Group, the RGGI region has met its targets, and benefited economically as well:

“Over three years (2015-2017), the RGGI program led to $1.4 billion (net present value) of net positive economic activity in the nine-state region,” the report says. “Each RGGI state’s electricity consumers and local economy also experienced net benefits from the RGGI program. When spread across the region’s population, these economic impacts amount to nearly $34 in net positive value added per capita.”

Virginia’s carbon reduction plan, now in the final stages of drafting at DEQ, will have Virginia participate in the RGGI auctions but not raise money from auctioning allowances.

Beginning in 2020, RGGI will add Virginia carbon emissions (28 million tons, the baseline DEQ has chosen) to the total for the existing members (56 million tons), and our utilities will bid for and trade allowances with the utilities in the other nine states.

But unlike the existing RGGI states, under DEQ’s plan Virginia will distribute its share of carbon allowances to our utilities at no cost, based on their previous year’s electricity sales. Utilities will sell the allowances into the RGGI auction bucket and buy back as many as they need. Initially, at least, the effect on ratepayers should be pretty much a wash.

Chris Bast, chief deputy at the Virginia Department of Environmental Quality said DEQ’s modeling program estimated rates would increase about 1 percent as a result of the new regulations. That’s a much lower figure than the $7 per month the SCC estimated the program would cost even with free allowances.

State Corporation Commission spokesman Ken Schrad said the DEQ “has understated the price of carbon emissions and understated Dominion’s cost of money for future capital investments (borrowed from lenders or invested by shareholders).”

“DEQ modeled Dominion as if it was a deregulated utility in a competitive market,” Schrad said. “Dominion’s fossil fuel generating units must be paid for in rates regardless of whether they are generating electricity under its vertically integrated structure.”

Bast takes issue with this. “I don’t know where the SCC got its numbers,” Bast told me. “Many folks, including the DEQ, have done extensive modeling to determine the environmental and economic impacts of the rule. That modeling is part of the public record and is part of the extensive public process that has gone into crafting this regulation. The SCC’s analysis is an outlier by several orders of magnitude – nearly 600%. The SCC has not provided any comment about ratepayer impact during any of our regulatory proceedings.

“We’re simply asking the SCC to show their work. But, to date, they have refused to provide us with the analysis that supports their conclusions.”

Bast says DEQ has not modeled what the program would cost if utilities had to pay for allowances, as contemplated under the Coastal Protection Act. Paying for allowances, according to the SCC, could drive costs up by an additional $5 per month.

This is a moot point, for now, since the Coastal Protection Act did not pass. But advocates believe that auctioning allowances offers an opportunity to raise funds to invest in energy efficiency and climate programs, so the idea remains on everyone’s radar for next year.

How RGGI works:

Under the Coastal Protection Act, auction proceeds would go into the state’s coffers to fund energy efficiency and resiliency programs that benefit the public. Utilities would be able to recover the costs of buying allowances from their customers, so there would be more impact on rates than there would be if allowances are free.

The Coastal Protection Act takes an extra step and actually requires investor-owned utilities to build wind and solar to achieve at least 50 percent of the required emissions reduction. If that amount were to exceed what they planned to build anyway, it would mean more costs paid for by customers—though maybe not a lot, if it speeds up the retirement of old fossil fuel plants that ought to close anyway.

RGGI reduces carbon emissions over time by gradually decreasing the number of auction allowances available in the region year after year. As the carbon cap tightens, either allowances become more expensive, or utilities reduce emissions, or both.

So far the RGGI states have succeeded in reducing emissions without higher allowance prices. They have done this in large part by closing coal plants and investing in energy efficiency and renewable energy, including programs paid for by auctioning the carbon emissions allowances.

Most RGGI states also have mandates for efficiency and renewable energy, which Virginia lacks. (In spite of the hoopla around it, last year’s “grid mod” bill did not require utilities to achieve any specific efficiency or renewable energy outcomes.) The combined effect of all these actions is that the prices paid for auction allowances in RGGI have stayed low.

According to the Analysis Group, consumers in RGGI states have benefited:

“On the one hand, the inclusion of the cost of CO2 allowances in wholesale prices tends to increase wholesale electricity prices in the RGGI region at the beginning of the 2015-2017 period,” the report says.

“But these near-term impacts are more than offset during these years and beyond, because the states invest a substantial amount of the RGGI auction proceeds on energy efficiency programs that reduce overall electricity consumption and on renewable energy projects that reduce the use of higher-priced power plants. Consumers gain because their overall electricity bills go down.

“Since RGGI’s commencement in 2009, energy and dollar savings resulting from all states’ investments in energy efficiency and renewable energy has more than offset the wholesale market price increases associated with inclusion of allowance costs in market bids.”

Virginia is as well-positioned as any of the RGGI states to meet the carbon-reduction goals.

Utilities can reduce energy demand through energy efficiency, resulting in less need for carbon-emitting fuel to be burned. They can also replace coal-fired generation with power from gas (with about half the CO2 of coal) or renewables (zero C02 for wind, water and solar; biomass has CO2 emissions as high as coal, but decision-makers pretend it’s carbon neutral).

Our nuclear plants, which provide a big chunk of Virginia’s electricity, are already operating at full capacity, and that’s not expected to change.

Intuitively, the solutions wouldn’t be expected to cost very much. Some of Virginia’s coal plants aren’t running very much these days anyway, putting them precariously close to the point where it is cheaper to close them than keep paying to have them available. As for alternatives, Dominion says solar is the cheapest form of new energy.

And energy efficiency is, famously, the lowest-cost energy resource, and vastly underutilized in Virginia.

In fact, projections have Dominion coming in under the RGGI cap for at least several years, putting our utilities in the happy (for them) position of possibly making money in the auctions.

But that doesn’t quite settle the matter.

There is one other consideration that could affect rates: Virginia utilities participate in the regional transmission organization known as PJM, which runs the wholesale power market. Anything that makes Virginia power more expensive makes it less attractive to the market.

That is surely part of the SCC staff’s concern.

To understand this dynamic, I consulted economist Bill Shobe, a professor at the Center for Economic and Policy Studies at the Weldon Cooper Center for Public Service at the University of Virginia, who studies carbon markets.

Shobe said that if Virginia utilities get CO2 allowances for free based on their previous year’s electricity generation, as the DEQ plan calls for, there should be no impact on their power plants’ competitiveness in PJM. The cost to customers would be little or nothing.

But if a coal or gas plant has to add the cost of CO2 allowances to its price of power, as happens in other RGGI states, power plants from non-RGGI states that don’t have to charge for CO2 will have a price advantage.

Shobe said if a Virginia utility adds the cost of CO2 allowances to the price of power from its own fossil fuel plants, those plants won’t run as much. Even the utility itself might buy cheaper wholesale power rather than run its own plants. Worse, the imported power could be higher in CO2 than the Virginia power it displaces, a problem known as “leakage.”

Dominion Energy Virginia’s 2018 Integrated Resource Plan, a document that forecasts how the utility will meet electric demand, predicted that if Virginia joined RGGI, its four big gas plants would run only an average of 64 percent of the time in 2025, compared to 79 percent in a scenario with no carbon constraints.

Dominion also claimed the cheaper imported power would come with such a higher carbon footprint than the power it was replacing that the whole deal would be counterproductive as a CO2 reduction strategy.

Skeptics should note that Dominion didn’t report the assumptions behind the modeling. Even its consultant, ICF, included a disclaimer that it was using the information Dominion gave it but “makes no assurances as to the accuracy of any such information or any conclusions based thereon.”

It’s also not clear that Dominion recognized any difference between getting free allowances and having to pay for them.

Shobe explained that Dominion’s modeling program didn’t account for DEQ’s use of “output-based allocation”— that is, distributing carbon allowances for free based on a utility’s generation in the previous year. This approach, said Shobe, incentivizes the utility to keep generating as much zero- or low-carbon electricity as it can so it will get as many allowances the next year as possible, and it will use its allowances to keep its own power competitive with imports.

The modeling that ICF did for Dominion, say Shobe, “treats all allowances as if they are sold at auction. Period. They don’t even attempt to model free allowances much less output-based allocation.”

With free allowances, customer costs should be minimal.

What if we auction the allowances?

Shobe said auctioning allowances instead of distributing them for free would make the power from Virginia’s fossil fuel plants less competitive in the PJM market. Yet customers will still have to pay for the capital cost of these huge gas plants that the SCC itself foolishly allowed Dominion to build, even if the power they generate is less competitive in PJM.

(“Foolishly” is obviously my term for it. The SCC not only doesn’t admit it did anything wrong, it rejected Dominion’s IRP in part because the company didn’t propose building yet another giant gas plant.)

The SCC’s high-end estimate seems to be based on this concern, but its numbers are much higher than even Dominion’s.

Dominion’s IRP estimated that joining RGGI would “cost Virginia customers about $530 million over the period 2020 to 2030,” or $53 million per year. The IRP says the impact would be about $3.50-$5 per month for residential customers, depending on the approach taken.

Even that estimate has to be taken with a bucket of salt. As the SCC staff noted at the time, Dominion overestimated the costs of joining RGGI by using overly high demand projections and failing to assume any decrease in demand from the hundreds of millions of dollars in efficiency programs the utility is required to design.

Obviously, those programs will also lower carbon emissions, helping Virginia meet the RGGI targets—as will building the solar energy envisioned by the grid mod bill.

So how the SCC staff has now come up with cost estimates even higher than Dominion’s is a head-scratcher. Nothing in the Coastal Protection Act appears to add costs beyond what Dominion knew about for its IRP.

This debate is surely not over.

We hope DEQ and the SCC will come together on a shared set of facts and assumptions, but meanwhile it is worth noting two points.

One is that even Dominion agrees some sort of carbon regulation at the federal level is likely eventually, even if it doesn’t happen under President Donald Trump’s administration.

Starting to shrink our carbon footprint now instead of later is going to save us money, even apart from its climate and health benefits.

The other is that the RGGI approach brings proven economic benefits to customers. As the Analysis Group report showed, customers in RGGI states actually saw lower bills in spite of higher rates because of the investments in energy efficiency.

If that happens in Virginia, joining RGGI will actually put more money in the pockets of customers.

 

A version of this article first appeared in the Virginia Mercury on February 6, 2019. 

Appalachian Power gets approval to sell 100 percent renewable energy to customers. Hold the champagne.

Photo credit Andy Beecroft via Wikimedia.

Last week the State Corporation Commission (SCC) approved a request from Appalachian Power Company (APCo) to offer its customers the option of buying electricity entirely from renewable sources. The sources will be primarily wind and hydro, with some solar to be added as it gets built. Participants will pay a premium of less than 4% over ordinary “brown” power, resulting in bill increases of $4.25 per month for a customer who uses 1,000 kW per month.

The approval gives APCo more than a new way to meet customers’ desire for renewable energy. It also triggers a provision in Virginia law that blocks competitive service providers from selling renewable energy to all but the largest of a utility’s customers once the utility itself has an approved offering. Both APCo and Dominion Energy Virginia have long sought to close off competition, but this marks the first time either has succeeded.

The SCC order goes against the recommendation of hearing examiner D. Matthias Roussy, Jr., who had advised against approval of APCo’s tariff.

The SCC had previously rejected a similar program APCo proposed in 2016, primarily due to its high cost. That program, too, would have repackaged the utility’s existing wind and hydro projects that all ratepayers currently pay for, and passed on the cost of those contracts to participants in the renewable energy program. The result was a price premium for the program of about 18%, which the SCC deemed unreasonable.

But APCo didn’t go back to the drawing board and redesign its program; it just changed the pricing. The cost to participants will now be based on the market value of renewable energy certificates (RECs) generated by facilities like the ones APCo owns.

REC prices are set by supply and demand, and an oversupply of wind RECs in the market has pushed prices way down over the past few years. Using REC prices allowed APCo to slash the cost of its renewable energy program by more than 75%.

On the one hand, this is a false calculation, since the value of RECs has little to do with the actual cost of developing and operating a project. On the other hand, the SCC liked the result: a lower cost to participants.

Some customers agreed. A number of APCo’s customers offered support for the program at the SCC. For them, this marks the first opportunity they will have to buy energy from specific wind and solar projects (okay, and a lot of decades-old hydro, too). Currently their only option is buying RECs to offset the dirty power they use, so they are willing to accept a price premium based on REC values.

Other customers were less impressed. Wal-Mart Stores opposed the program because the company prefers to save money by buying renewable energy, not spend more on it. As summarized by the Hearing Examiner, Wal-Mart felt the APCo tariff would be okay as a REC offering, but a real renewable energy tariff ought to “permit the customer to realize the benefits and risks of taking service from renewable energy sources”—i.e., offer at least the potential of saving money for the customer.

Wal-Mart has a point. Given the plunging costs of building and operating new renewable energy projects in recent years, a utility could, in theory, offer a renewable energy tariff at below the cost of brown power. Wind and solar increasingly outcompete even existing coal plants, and APCo is still heavily reliant on coal.

But APCo isn’t going to do any such thing. If its customers can buy renewable energy at a discount, who would want to buy power from fossil fuels?

So APCo had to make sure its program costs more. Tying it to REC prices means it always will, because RECs are always an additional cost.

Just as importantly, APCo has to make sure no other seller of electricity can be allowed to compete with a better or cheaper product. That’s where section § 56-577 A 5 of the Virginia Code comes to the aid of our monopoly utilities. Now that APCo has an approved tariff for a 100% renewable energy tariff, no competitive supplier can come on to its turf with a product that’s better, or simply different. (The Code contains an exception for very large customers.)

Concern about this squelching of competition drove most of the opposition to APCo’s tariff at the SCC, from both competitive suppliers like Collegiate Clean Energy and environmental advocates like the Southern Environmental Law Center, as well as a number of customers. For them, the SCC Order approving APCo’s program represents a loss for consumer choice that will inevitably lead to less renewable energy development.

Separately, Dominion Energy Virginia filed for approval of its own renewable energy tariff, following the Commission’s rejection of the company’s initial proposal last year (correctly in my view). Last month a hearing examiner recommended Dominion’s new tariff be approved, though with changes that would make it significantly cheaper than what Dominion wants. Dominion’s proposal as filed would have cost the average customer an extra $20 per month.

But on January 9, two days after the SCC approved APCo’s tariff, Dominion filed a request to withdraw its application. The request states that the company intends to file a new application “consistent with the principles outlined” in the APCo order.

Although Dominion’s request doesn’t specify which principles it has in mind, they likely include the SCC’s determination that a renewable energy tariff need only match demand on a monthly basis, not the hourly basis Dominion used. According to the hearing examiner’s report, Dominion’s insistence on hourly matching was a significant factor in the program’s high cost.

Dominion’s withdrawal of its renewable energy tariff grants a temporary reprieve to competitive service providers like Direct Energy, which wants to offer renewable energy to Dominion customers. But if Dominion re-files with a program that meets SCC approval, the window of opportunity for competition in the electric sector in Virginia will close permanently in both major utility territories, absent a change in the law.

Anticipating this, Direct Energy sought legislation in the 2018 session that would have ensured the ability of competitors to offer renewable energy even after the SCC approved a utility’s own tariff. Neither the House bill (from Delegate Michael Mullin, D-Newport News) nor the Senate bill (from Senator David Sutterlein, R-Roanoke) made it out of the Commerce and Labor committee. Delegate Mullin is trying again this year; his bill is HB 2117.

Cliona Robb, a lawyer with the law firm of Christian & Barton who represents Direct Energy, says her client hopes for a better outcome in the General Assembly this year.

With the SCC’s order approving APCo’s program, harm to competition is no longer hypothetical. If legislators are serious about renewable energy development in Virginia, keeping the door open to competition has to be a key priority.


This article first appeared in the Virginia Mercury on January 10, 2019.

Update: Senator Sutterlein has also filed a bill this year that would continue to allow competition even once a utility has an approved green tariff. The Senate bill is SB 1584.

SCC cracks open the door on Dominion’s Atlantic Coast Pipeline costs

map showing VA and NC route of Atlantic Coast Pipeline

Costs to build the Atlantic Coast Pipeline are pegged at $7 billion. Partner Dominion Energy plans to charge captive electricity customers for the cost, regardless of whether the pipeline is needed. Image via the Federal Energy Regulatory Commission.

Dominion Energy Virginia employees were briefing a stakeholder group on the company’s Integrated Resource Plan (IRP) last Friday morning when text messages started popping up on phones all over the room: the State Corporation Commission had just rejected the IRP and ordered a do-over.

Awkward.

The SCC has never rejected a Dominion IRP before, mostly because the plan doesn’t have a binding effect. It is simply a way for Dominion to show regulators how it might meet the needs of customers over a 15-year period. If the company actually wants to build new generation or implement new programs, it still has to get permission through a separate proceeding.

But the IRP is important in establishing the context for new generation or programs. The SCC’s order on Friday shows commissioners think the company has presented a picture so distorted as to be unreliable.

The SCC order gives Dominion 90 days to correct a list of items it says the company got wrong, from unrealistically high demand forecasts to overly-optimistic assumptions about solar energy.

The order also instructs Dominion to look at an option the company ruled out: building yet another big combined-cycle gas plant. The SCC says it doesn’t necessarily want Dominion to build such a plant, only that the company ought to construct a true least-cost scenario to compare all other options against, and a least-cost option might include more baseload gas.

Then, buried down in footnote 14, the SCC added this:

The record reflects that the Company did not include fuel transportation costs in the modeled costs of certain natural gas generation facilities. Tr. 610. For purposes of the corrected 2018 IRP, the Company should include a reasonable estimate of fuel transportation costs, including interruptible transportation, if applicable, associated with all natural gas generation facilities in addition to the fuel commodity costs.

Wait a moment. Did the SCC just ask Dominion about the cost to ratepayers of its Atlantic Coast Pipeline?

Or does it just want to see different kinds of natural gas facilities modeled on an apples-to-apples basis, which Dominion failed to do? Even if it is the latter, can the SCC really open the door on transportation costs at all without letting the $7 billion elephant into the room?

If that happens, Dominion will find this the most expensive footnote in company history.

Dominion says the footnote is absolutely not about the ACP, and the company is shocked that anyone might think that. In a statement quoted in Energy News Network, the company lambasted environmental groups for perceiving a link between fuel transportation costs and a pipeline that provides fuel transportation:

“Instead of supporting Dominion Energy and policymaker’s (sic) push for carbon-free generation, [the Sierra Club and SELC] are distorting the SCC’s official order to pander to their donor base without regard for the truth,” the statement said.

This begs the question of how Dominion plans to comply with the order without mentioning its parent company’s pipeline. The company’s hysterical attack on its environmental critics seems designed to beat back expectations for the ACP’s cost to ratepayers becoming an issue in the IRP.

Footnote or no footnote, the SCC really should look at those pipeline costs

Admittedly, dropping a bombshell in a footnote would be only slightly more surprising than the SCC taking up the pipeline question at all right now. Pipeline critics have been trying in vain for two years to get the SCC to examine the contract between various Dominion subsidiaries obligating Virginia customers to pay for 20 percent of the ACP’s capacity. This blatant self-dealing is central to the pipeline’s profitability.

The SCC has previously refused to question the deal, and the Virginia Supreme Court refused to force the Commission to do it. The SCC maintained at the time that it could wait for the pipeline to be built before it decides whether it is fair to charge ratepayers for it. But it doesn’t have to wait; the Supreme Court says the SCC can take up the question any time.

And it should, because the SCC’s very silence encourages Dominion to think it will get away with charging customers for a hefty portion of the $7 billion pipeline. It is long past time for Dominion to present its evidence on the ACP.

As the SCC’s IRP order found, “the load forecasts contained in the Company’s past IRPs have been consistently overstated” and the SCC “has considerable doubt regarding the reasonableness of the Company’s load forecasts.” These questionable load forecasts, of course, underpin Dominion’s case for the ACP.

William Penniman, an energy lawyer who served as an expert witness for the Sierra Club in Dominion’s 2017 IRP case, testified that, based on publicly-available ACP filings, the contract with the ACP could cost utility customers in Virginia over $200 million of fixed charges annuallyfor 20 years—over $4 billion over the 20-year life of the contract, whether or not it ships any gas at all. He also showed that, even if more gas were needed, other pipeline options were much cheaper than Dominion’s affiliate deals.

And, given that Dominion already has contracts with another pipeline company to serve the utility’s existing gas plants, the money paid for capacity in the ACP will be entirely wasted—unless, of course, Dominion builds a bunch of new gas plants or drops lower-priced transportation arrangements in favor of its costly affiliate deals.

The pipeline came up again in the 2018 IRP. Gregory Lander, a witness for the Southern Environmental Law Center pointed out that Dominion’s IRP merely embeds the costs of the ACP into its generation scenarios without quantifying or justifying them.

“In essence,” Lander testified, “the IRP asks the Commission to accept that the Atlantic Coast Pipeline is built and that ratepayers should pay for it without ever explaining to the Commission what those costs are and why they are justified in a least-cost planning exercise.”

Rather than challenging the expert testimony, Dominion sought to exclude it, hoping to keep all mention of the ACP out of the case. In another footnote in its IRP order, however, the SCC specifically admitted Lander’s testimony, without finding facts.

Dominion would prefer the SCC to consider the ACP a “sunk cost.” Dominion’s theory goes like this: Since the contract obligates the utility to pay reservation charges for roughly half of the ACP’s capacity regardless of actual usage, that expense shouldn’t be factored into the cost of building any new gas plant. Instead, it argues, the SCC only needs to consider the cost of paying for the fuel itself.

That’s like buying a Ferrari and then saying the only expense of owning it is the gasoline. (And meanwhile, the trusty station wagon is running just fine.)

If the SCC is finally interested in the ACP’s cost to ratepayers, Dominion’s IRP do-over will have to be just the first step in a more thorough analysis of what Dominion’s self-dealing will cost Virginia consumers. There is plenty of evidence to suggest that will not go well for Dominion.

But what’s up with the SCC and gas?

Footnote 14 is not the only oddity in the SCC’s order. On the one hand, the SCC rightly says a fair accounting of a gas plant’s cost necessarily includes all the cost of transporting the fuel. On the other hand, even before it sees the transportation costs, the SCC seems to assume that a new baseload gas plant would be the economic thing to build, were it not for pesky carbon regulations and the General Assembly’s measures to promote renewable energy.

A major theme of the SCC’s order is the commission’s desire to force lawmakers to confront their own profligacy in passing the giant 2018 energy bill that the SCC opposed. SB 966 allows Dominion to redirect billions of dollars in over-earnings away from ratepayer refunds to massive spending on grid projects like undergrounding wires, with only limited regulatory oversight. The SCC thinks this is going to be bad for customers, and it wants legislators to appreciate just how bad.

That’s understandable, but it doesn’t excuse the SCC’s insistence on regarding gas as a low-cost option. Even Dominion knows better.

Dominion just announced the opening of its latest huge new combined-cycle plant in Virginia. The Greensville station joins a glut of new gas plants fed by Appalachia’s fracking industry. The oversupply is so bad that our regional grid already has almost 30% more power supply than it needs to meet peak demand—and grid operator PJM doesn’t expect this situation to change any time soon.

Most of the other new gas plants in PJM are funded by private equity. If they go bust, utility customers won’t be the ones to suffer. But Virginia’s regulated monopoly system means customers are precisely the ones who suffer when a utility’s bet on gas goes sour.

So Dominion’s IRP instead envisions a steady build-out of smaller gas plants it hopes to justify as complements to new solar farms. The idea is that these combustion turbines, often called “peaker” plants, will provide electricity to fill in around the variable output of solar panels.

Yet peakers are idle most of the time, making them questionable investments as well. Other states achieve the same reliability results at lower cost using demand response and battery storage.

The Rocky Mountain Institute (RMI) issued a report in May of this year comparing new gas generating plants—both combined-cycle and peakers—to well-designed clean energy generation portfolios. In almost every case, renewable energy, storage and demand response already beat gas on cost, even without considering environmental benefits.

And moreover, the trends favor clean energy, as RMI’s press release stresses: “More dramatically, the new-build costs of clean energy portfolios are falling quickly, and likely to beat just the operating costs of efficient gas-fired power plants within the next two decades.”

So in telling Dominion to present a gas-heavy scenario as low-cost, the SCC is asking the impossible. Whether the Commissioners know it or not, Dominion isn’t the only one here presenting a distorted picture.


This post originally appeared as a column in the Virginia Mercury on December 14, 2018.

SCC rips into Dominion’s offshore wind pilot, approves it anyway

Photo credit: Phil Holman

The Virginia State Corporation Commission (SCC) approved Dominion Energy Virginia’s proposed Coastal Virginia Offshore Wind (CVOW) project on Friday, but not happily. A press releasefrom the SCC complains about the project’s “excessive costs” and the way it is structured to make customers, rather than the developer, shoulder risks:

The offshore wind project consists of two wind turbines to be built by Dominion that would begin operating in December 2020. In its factual findings, the Commission determined that the company’s proposal puts “essentially all” of the risk of the project, including cost overruns, production and performance failures, on Dominion’s customers. Currently, the estimated cost of the project is at least $300 million, excluding financing costs.

The Commission found that the offshore wind project was not the result of a competitive bidding process to purchase power from third-party developers of offshore wind. Doing so would likely have put all or some of the risks on developers as has been done with other offshore wind projects along the East Coast of the United States. The Commission also found that any “economic benefits specific to [the project] are speculative, whereas the risks and excessive costs are definite and will be borne by Dominion’s customers.”

In spite of these harsh words, the SCC goes on to conclude that the language of the giant energy bill passed by the General Assembly last winter, SB 966, leaves regulators no choice but to approve CVOW:

The Commission concluded that the offshore wind project “would not be deemed prudent [under this Commission’s] long history of utility regulation or under any common application of the term.” However, the Commission ruled, as a matter of law, that recent amendments to Virginia laws that mandate that such a project be found to be “in the public interest” make it clear that certain factual findings must be subordinated to the clear legislative intent expressed in the laws governing the petition.

Obviously, the SCC has a point about the high cost of CVOW. Even Dominion agreed that if you just want 12 megawatts (MW) of power, you can get it a lot more cheaply than $300 million. The SCC’s Final Orderis even harsher on this topic. Moreover, the SCC doesn’t see any future for offshore wind as a matter of pure economics.

Nor is it all that reassuring that Dominion has said the price tag won’t have any impact on rates. What Dominion means is that we ratepayers have already paid for it, and as we aren’t going to get our money back anyway, we may as well enjoy seeing it put to use in building an offshore wind industry.

That’s where Dominion is (sort of) right, and the SCC (sort of) wrong. CVOW is the first step in the Northam administration’s plan to build an offshore wind industry in Virginia and install at least 2,000 MW of offshore wind turbines in the coming decade, a goal shared by many members of the General Assembly.

Northam says CVOW will lead to the commercial projects. Dominion says maybe, maybe not (“It’s too soon to have that conversation,” in the words of Dominion’s Katharine Bond). At any rate, it sure won’t happen without CVOW first.

Critics have said it’s silly to insist on a pilot project when other states are going forward with full-scale wind farms. That’s not entirely fair. As the first project in federal waters, the first in the Mid-Atlantic, and the first to be located 27 miles out to sea, CVOW’s two turbines will have much to teach the industry about offshore wind installation and performance in this part of the world. The whole U.S. offshore wind industry stands to benefit.

And also, Dominion has us over a barrel. Dominion holds the lease for the 2,000 MW; nobody else can come in and build it. So if Northam wants an offshore wind industry with thousands of new jobs, he has to do it Dominion’s way or not at all.

Clearly the SCC would choose not to do it at all. But then, the SCC has never shown any understanding of the climate crisis and the pressing need for Virginia to respond by developing as much wind and solar as possible, as rapidly as possible.

In the long term, we have to build out much more than 2,000 MW of offshore wind. As we do, and as costs decline in response to increasing economies of scale and technological improvements, the price tag of one pilot project will shrink in proportion to the billions of dollars flowing into the offshore wind industry and decarbonizing our electricity supply.

If it’s Dominion’s way or the highway, we have to do it Dominion’s way—for now—and then make sure it gets done.

No doubt the SCC would disagree. Yet to its credit, on Friday the SCC also approved Dominion’s purchase of power from a proposed 80-megawatt solar facility dubbed the “Water Strider” project. Unlike the offshore wind project, the solar project met the Commission’s prudency test because it involves a purchase from a private developer and followed a competitive bidding process. This resulted in a price to customers that the SCC felt is “in line with market rates.”

Though the Water Strider project looks like a clear winner for ratepayers, its approval wasn’t a foregone conclusion either. After a long history of approving one fossil fuel project after another, the SCC has belatedly begun to question Dominion’s projections about its need for more generation, at precisely the time when the new generation happens to be solar and wind.

For now, the SCC believes it must bow to the will of the General Assembly. For these two projects, that’s a good thing, but ratepayers will be in trouble if the SCC declines to assert its oversight authority in other filings under SB 966. Dominion wants to spend billions of dollars over the coming years on smart meters, software, burying power lines and other grid projects. Customers still need the SCC to make sure we get our money’s worth.

This article originally appeared in the Virginia Mercury

After the grid mod bill, the SCC wants to know how much authority it still has over utility spending

offshore wind turbines

Offshore wind turbines, Copenhagen, Denmark. Dominion Energy has asked the SCC for permission to proceed with building two wind turbines off the Virginia coast as a test project. Photo by Ivy Main.

It’s no secret the State Corporation Commission didn’t like this year’s big energy bill, the Grid Transformation and Security Act. SCC staff testified against SB 966 in committee, and their objections played a major role in amendments removing the “double dip” provision that would have let Dominion Energy Virginia double its earnings on infrastructure projects. Since passage of the bill, the SCC has raised questions about the constitutionality of the law’s provisions favoring in-state renewable energy, and its staff has issued broadsides about the costs of the legislation.

Now the SCC is mulling the question of how much authority it still has to reject Dominion’s proposals for spending under the bill. Dominion has filed for approval of a solar power purchase agreement (case number PUR-2018-00135) and two offshore wind test turbines it plans to erect in federal waters 24 nautical miles out from Virginia Beach (PUR-2018-00121). The utility has also requested permission to spend a billion dollars on grid upgrades and smart meters (PUR-2018-00100).

In an order issued September 12, the SCC asked participants in the solar and offshore wind cases to brief them on legal issues arising from the legislation. The SCC has focused in on two new sections of the Virginia Code. One is the language making it “in the public interest” for a utility to buy, build, or purchase the output of up to 5,000 megawatts (MW) of Virginia-based wind or solar by January 1, 2024. The SCC noted that subsection A of the provision says such a facility “is in the public interest, and the Commission shall so find if required to make a finding regarding whether such construction or purchase is in the public interest.”

The other new Code section gives a utility the right to petition the SCC at any time for a “prudency determination” for construction or purchase of a solar or wind project located in Virginia or off its coast, or for the purchase of the output of such a project if developed by someone else.

Together these sections give Dominion a good deal of latitude, but they don’t actually force the SCC to approve a project it thinks is a bad deal for ratepayers. In other words, wind and solar may be in the public interest, but that doesn’t mean every wind and solar project has to be approved.

The SCC asked for briefs on seven questions:

  • What are the specific elements that the utility must prove for the Commission to determine that the project is prudent under Subsection F?
  • Is the “prudency determination” in Subsection F different from the “public interest” findings mandated by Subsections A or E?
  • Do the public interest findings mandated by either Subsections A or E supersede a determination under Subsection F that a project is not prudent? If not, then what is the legal effect of either of the mandated public interest findings?
  • If the construction (or purchase or leasing) is statutorily deemed in the public interest, is there any basis upon which the Commission could determine that such action is not prudent? If so, identify such basis or bases.
  • In determining whether the project is prudent, can the Commission consider whether the project’s: (a) capacity or energy are needed; and (b) costs to customers are unreasonable or excessive in relation to capacity or energy available from other sources?
  • Do the statutorily-mandated public interest findings under either Subsections A or E override a factual finding that the project’s: (a) capacity or energy are not needed for the utility to serve its customers; and/or (b) costs to customers are unreasonable or excessive in relation to capacity or energy available from other sources, including but not limited to sources of a type similar to the proposed project?
  • Does the utility need a certificate of public convenience and necessity, or any other statutory approval from the Commission, before constructing the proposed projects?

Even if the Commission decides it has latitude in deciding which wind and solar projects to approve, that doesn’t necessarily spell disaster for the two projects at issue. The SCC could still decide they meet the standard for prudency and approve them.

Oral argument on the issues is scheduled for October 4.

Should approval of smart meters depend on how the meters will be used?

The SCC is also mulling over its authority in the grid modernization docket. One day after it asked lawyers in the solar and offshore wind cases to weigh in on the meaning of prudency, it issued a similar order asking for input on what the new law means by “reasonable and prudent” in judging spending under the grid modernization provisions. (Yes, the grid mod section of the law insists that spending be “reasonable” in addition to “prudent,” begging the question of whether spending can be prudent but not reasonable. Perhaps thankfully, the SCC order does not pursue it.)

The SCC’s questions to the lawyers show an interest in one especially important point: Dominion wants to spend hundreds of millions of dollars of customer money on smart meters, without using them smartly. Smart meters enable time-of-use rates and customer control over energy use, and make it easier to incorporate distributed generation like rooftop solar. None of these are in Dominion’s plan. Is it reasonable and prudent for Dominion to install the meters anyway, just because they are one of the categories of spending that the law allows?

Or as the SCC put it:

If the evidence demonstrates that advanced metering infrastructure enables time-of- use (also known as real-time) rates and that such (and potentially other) rate designs advance the stated purposes of the statute, i.e., they accommodate or facilitate the integration of customer-owned renewable electric generation resources and/or promote energy efficiency and conservation, may the Commission consider the inclusion or absence of such rate designs in determining whether a plan and its projected costs are reasonable and prudent?

Reading the tea leaves at the SCC: Staff comments on Dominion’s IRP

The SCC’s question about smart meters surely indicates how the commissioners feel about the matter: they’d like to reject spending on smart meters, at least until Dominion is ready to use them smartly. If the SCC concludes it has the authority to reject this part of Dominion’s proposal as not “reasonable and prudent,” it seems likely to do so.

It is harder to know where the SCC might land on the solar and offshore wind spending. The SCC’s staff, at least, are skeptical of Dominion’s plans to build lots of new solar generation. In response to Dominion’s 2018 Integrated Resource Plan (IRP), Commission staff questioned whether Dominion was going to need any new electric generation at all, given the flattening out of demand. But if it does, according to the testimony of Associate Deputy Director Gregory Abbott, Dominion ought to consider a new combined-cycle (baseload) gas plant, not solar. (Combined-cycle gas was the one generating source Dominion almost completely ruled out.)

Abbott criticized Dominion’s presentation of the case for solar, though he took note of the technology’s dramatic cost declines. Instead of seeing that as a reason to invest, however, he suggested it would be better to wait for further cost declines, or at least leave the construction of solar to third-party developers who can provide solar power more cheaply than the utility can. Remarkably, he also suggested Dominion offer rebates to customers who install solar, urging that Dominion’s spending under the grid transformation law “is designed specifically to handle these [distributed energy resources].”

Abbott also seemed supportive of Dominion’s venture into offshore wind. The only offshore wind energy in the IRP is the 12 MW demonstration project known as CVOW, but as Abbott noted, “the Company indicated that it will pursue a much larger roll-out of utility-scale offshore wind, beginning in 2024, if the demonstration project shows it to be economic.”

This suggests staff are inclined to support Dominion’s spending on the CVOW project, but for Abbott, it was one more reason Dominion should not invest in solar. He concluded, “If the demonstration project proves that utility-scale offshore wind is economic compared to solar, then it may make sense to get the results of the CVOW demonstration project before deploying a large amount of solar.”

This post originally appeared in the Virginia Mercury on September 24.