Category Archives: Energy

A Sign of the Coming Grid Wars


It happened in Nevada first, but it could come to Virginia eventually — the effort by major electricity consumers to bypass their local utilities and purchase power from wholesale electric markets.

Three big casino companies — Wynn Resorts, MGM Resorts International and Las Vegas Sands — say they could slash millions of dollars from their electric bills if they could buy power directly from merchant power producers, reports the Wall Street Journal. Power-hungry casinos would like to use more renewable energy to live up to commitments to shareholders and customers but they say NV Energy, the monopoly utility, charges too much for green power. They could acquire the energy far cheaper by contracting directly with independent power producers.

NV Energy is doing everything it can to thwart the departure of some of its largest customers, and so far regulators have obliged. But as long as it’s possible to purchase solar power wholesale for 4 cents per kilowatt-hour (and conventional power  for 3.5 cents per kilowatt-hour) and the company charges big commercial clients between 9 and 10 cents per kilowatt-hour, big consumers will have enormous incentive to cut their own deals.

The WSJ didn’t explain the regulators’ thinking, but it should be obvious. The loss of major customers would throw the burden of supporting the vast sunk cost of the existing electric-generating infrastructure onto remaining customers, forcing the utility to raise rates in order to prop up profit margins. And Nevada needs a financially healthy power company to maintain a reliable source of electric power for those who don’t have the size and clout to cut their own deals with merchant power companies.

“The same struggle is occurring across the country,” writes the WSJ, “as large power users watch wholesale energy prices fall while their utility bills rise.” Some states allow residents and businesses to buy their electricity from competitive suppliers. While favoring the power companies, Virginia’s regulatory system does allow options.

Wrote the SCC in its 2015 report on Electric Utility Regulation in September:

The ability of most customers to purchase electric generation service from competing suppliers has been limited. The Regulation Act permits large customers (those exceeding 5 MW of electricity demand) to shop among licensed competitive service providers (“CSP”), and nonresidential customers may apply with the Commission to aggregate load up to the 5 MW threshhold to receive services from a CSP. Residential retail customers currently have the statutory right under the Regulation Act to purchase electric generation service from CSPs selling electric energy “provided 100% from renewable energy.”

The SCC lists 29 such CSPs licensed to sell 100% renewable energy in Virginia.

These retail aggregators can purchase green power from the PJM wholesale market, of which Virginia is a part, but they don’t appear to have made any meaningful inroads. Whether that’s due to a lack of consumer interest or an inability to deliver green energy at a competitive price, I don’t know.

As for big customers, Amazon Energy Services recently contracted with a merchant producer to generate solar electricity in the Eastern Shore for data centers in Northern Virginia. But Amazon is holding everyone to a non-disclosure agreement, so the terms of the detail are not generally known. Acbar, a frequent contributor to the Bacon’s Rebellion comments section, tells me that many of the documents outlining the terms of the deal are publicly available, but I have not had time to track them down. In any case, I have not risen to a level of competency to decipher the meaning of these hyper-technical documents, and I’m not sure, given all the other issues to write about, that it’s worth the effort.

But the electric power industry is changing fast, and my priorities could change with it.


When Dynamic Pricing Meets Energy Storage


Will Gathright

Other states are targeting energy storage as an industry of the future but Virginia may have the most hospitable climate for it.

by James A. Bacon

Will Gathright was living in New York, where he had earned a Ph.D. from Renssalaer Polytechnic Institute, when he got fired up with the idea to use storage batteries to help business customers cut their electric bills. The idea was to buy electricity when it is cheap to charge the batteries, then draw down the batteries during periods of peak demand to offset consumption when electricity is expensive. For the business model to work, he needed to find a location where there was a wide differential in the cost of electricity.

Initially, he figured he might wind up in Hawaii, California or New York, states that are putting a high priority on energy storage. But after conducting a national search to see where his value proposition would fare best, Gathright moved to Northern Virginia.

“Virginia has the winning combination of three factors not present elsewhere in the country,” he explains. First, although Virginia’s peak-demand rates aren’t the highest in the country, they are relatively high. Second, while a few states have cheaper base rates, Virginia’s are significantly lower than the national average. The spread between low base rates and high demand charges creates a bigger potential for savings.

A third factor, Gathright says, is that Virginia electric utilities belong to PJM Interconnection, which manages the electric grid and wholesale markets for 60 million people in the Midwest and the Mid-Atlantic region. When his batteries aren’t helping shave a building’s peak demand charge, they can help PJM fine-tune short-term fluctuations in the supply and demand of electricity.

Welcome to the new world of electric load management. Power companies around the country are experimenting with novel rate structures that encourage customers to curtail their electricity consumption during periods of peak demand — typically summer afternoons when air conditioners are running flat-out. One of the most promising strategies for shifting electricity demand is energy storage, usually using batteries, and other states are targeting the sector as a strategic priority. California is requiring its utilities to purchase 1,325 megawatts of energy storage by 2020 and the state of New York state has invested $1.4 million in six battery and energy storage start-ups.

Gathright thinks Virginia may be the most promising location in the country to implement energy storage — not that the idea has gotten much attention here. What Virginia has done is experiment with dynamic pricing: using the price mechanism to encourage customers to shift electric consumption away from periods of peak demand when it is most costly to supply.

The results of Dominion Virginia Power’s dynamic pricing pilot program have been modest so far — positive enough to encourage Dominion to continue the project but not dramatic enough to persuade the company that a revolution in electric consumption is in the offing. But the outlook could change if entrepreneurs like Gathright figure out how to help customers capture the savings that the dynamic-pricing rate structures make possible.

With the encouragement of the State Corporation Commission, Dominion rolled out its dynamic pricing program in 2011, branding it as the Smart Pricing Plan. “The basic premise,” explains SCC spokesman Ken Schrad, “is that if customers are willing to modify behavior and use less electricity during high price periods, they will have the opportunity to save money, and the company in turn will be able to reduce the amount of energy it would otherwise have to generate or purchase during peak periods.”

The pilot was limited to 2,000 customers under a residential tariff and 1,000 small and midsized commercial customers under two commercial tariffs. Participation required having Advanced Metering Infrastructure (AMI) or Interval Data Recorder (IDR) meters that record energy usage every 30 minutes, thus allowing Dominion to measure consumption with greater precision.

Dominion provides customers at least 280 days a year with low-priced electric rates (“C” days), up to 30 days with high rates (“A” days), and the balance with medium rates (“B” days). Dominion communicates the classification to customers the day before to allow them to plan accordingly. Additionally, the company designates up to 25 five-hour blocks, or critical peak events, per year to commercial customers with two-hour notice. The rate differential for the critical peak hours could be literally dozens of times higher than the lowest rates.

For most customers, the jet savings have been minimal. Between October 2013 and October 2014, residential customers saved an average of $48 annually (3% of their electric bills), small commercial customers saved $92 annually (3%). However, larger customers saved $5,900 annually (14%), according to Dominion’s 2015 annual report on the program filed with the SCC. Continue reading

Tracking Hurricane Outages Online


Dominion outage map, 3:00 p.m. Thursday

by James A. Bacon

Last month Dominion Virginia Power rolled out an interactive map that allows the public to report and track power outages and restoration. A nice touch, I thought at the time, but no big deal. That was before Hurricane Joaquin was bearing down on Virginia. All of a sudden, I’m very interested.

According to J.D. Power’s 2014 Electric Utility Residential Customer Satisfaction Study, communications about power outages is an important factor influencing customer satisfaction. Ratings for the industry have improved steadily over the past six years, J.D. Powers said, as companies have taken to communicating outage information via utility-initiated phone calls, emails, text messages and social media sites.

Dominion has gotten the message.

“Next to energy, the most important thing we can provide to customers is information,” said Becky Merritt, vice president of Customer Service in the September press release. “This new outage map provides greater access to the information customers need to help us restore their power quickly in the event of an outage. It also provides information to help manage their lives and reduce the inconvenience.”

New features include:

  • compatibility with most smartphones and tablets;
  • icons indicating the number and general locations of work requests;
  • customized views with street-level or satellite imagery and live weather radar;
  • improved search options, including searching by landmarks or road intersections;
  • faster updates— information refreshes every 15 minutes;
  • option to bookmark multiple outage locations to follow restoration progress; and
  • better tracking of a specific outage through the outage reporting system.

The outage map can be found here.

With an estimated three days before Juaquin arrives, Dominion is bracing itself. Hey, guys, special word of advice: Pay close attention to the Countryside subdivision in Henrico County. It took eleven days for electricity to be restored at the Bacon’s Rebellion global command headquarters after Hurricane Isabel. I’ll be blogging the hurricane — but only if the electricity stays on!

Federal Judge OKs Pipeline Surveys

pipelineby James A. Bacon

A federal judge has dismissed a lawsuit filed by landowners seeking to block the Atlantic Coast Pipeline (ACP) from surveying their land for the purpose of building a pipeline.

Three landowners in the path of the proposed 550-mile project had challenged the constitutionality of a state law permitting the pipeline to survey their lands, as long as it abode by certain formalities of notification. After filing the suite, ACP altered the proposed route to bypass the properties of the three plaintiffs.

“The court concludes that the plaintiffs’ facial challenges to the statute fail because the statute does not deprive a landowner of a constitutionally protected property right,” wrote Elizabeth K. Dillon, with the U.S. District Court in Roanoke. Additionally, Dillon ruled, the challenges fail because they are not “ripe,” that is, they are abstract and hypothetical now that ACP has announced that it no longer intends to survey their property. The plaintiffs “face no immediate threat of injury.”

The ruling removes another legal obstacle to surveying and ultimately constructing the pipeline, which its owners, including managing partner Dominion, say will help meet the growing demand for natural gas in Virginia and North Carolina as electric utilities substitute natural gas for coal. In theory the plaintiffs can appeal to the U.S. Supreme Court, although it is not clear if they intend to do so.

In an email response, Charlotte Rea, one of the plaintiffs and co-chair of the “All Pain No Gain” group opposing the pipeline, stated the following:

As you might expect, I am disappointed.  I don’t think our forefathers when they wrote the Constitution expected its interpretation to allow for private investor owned corporations to violate the property rights of private citizens.  The Constitution only allows for private property to be taken if it is for proven public need and just compensation is provided the landowner.  Surveys by private corporations on private property should not be allowed.  There has been no determination made that the Atlantic Coast Pipeline project is for the public good.  Until that determination is made, private property owners should not have to cede any property rights.

In a press release, Dominion stated:

From the beginning, we have always believed that the Virginia law is consistent with the U.S. Constitution and allows surveys with proper notification and landowner protections. Yesterday’s ruling affirmed that belief and our actions.

ACP has followed the procedure as laid out in the Virginia law to survey the best route with the least environmental impact. The Virginia law allows survey only as necessary to meet regulatory requirements.

The plaintiff’s attorneys argued that the Takings clause of the Constitution protects property rights, specifically the right to exclude — to forbid others from trespassing. However, wrote Dillon, common law has long recognized that the right to exclude is not absolute. “Courts also have long recognized the common-law privilege to enter private property for survey purposes prior to exercising eminent domain authority.”

Consistent with the common law, Virginia has long permitted governmental entities to conduct surveys on private property before exercising eminent domain authority. For instance, Dillon wrote, the Code of 1819 gave a turnpike company “full power and authority to enter upon all lands and tenements through which they may judge it necessary to make said road.”

Foes have questioned whether the Atlantic Coast Pipeline provides a public purpose, given that it is one of four pipelines proposed to run through Virginia and that pipelines are being built to serve New York and nearby markets, freeing up capacity by the existing Transco mega-pipeline serving Virginia.

However, Dillon wrote:

In the Natural Gas Act, Congress ‘declared that the business of transporting and selling natural gas for ultimate distribution to the public is affected with a public interest.’ …  [The Virginia survey law] allows a natural gas company to gather … information required for the certificate by giving it the ability to enter property and conduct a minimally invasive survey. The statute thus facilitates the ‘transportat[ion] and selling’ of natural gas, and thereby serves a public purpose.”

Towards a Smarter Grid


Dominion Virginia Power is using big data to increase the reliability of its electric distribution network. The result: Fewer disruptions and shorter outages for customers.

by James A. Bacon

One day earlier this month, 10,000 people living in Fairfax County lost their electric power around 7:30 a.m. Thanks to sensors and devices that Dominion Virginia Power had installed in its electric distribution system, company operators were able to quickly identify and isolate the problem. Fifteen minutes later, they had restored service to 9,000 residents; within half an hour, electric power was back online for everyone.

If you’re a Dominion customer and it seems as if you’re suffering fewer and shorter electrical outages, it’s not your imagination. Harnessing data to target maintenance spending with better precision, the power company has made a concerted effort over the past decade to improve the reliability of its electric service. Since 2008, Dominion’s 2.5 million customers have experienced a 26% decline in minutes lost to routine service disruptions (excluding major storms) when calculated on a three-year rolling average.

“We’re data driven. We’re a six-sigma company,” says Steven Chafin, director of reliability. Dominion, he says, has evolved from a company employing rough industry rules of thumb to one that collects data across the distribution system to drive continuous improvement.

Average customer minutes without electric service, excluding major storms, three-year rolling average

System Average Interruption Duration Index (SAIDI): three-year rolling average of annual customer minutes without electric service, excluding major storms.

Comparing reliability performance to that of other power companies is difficult because each utility contends with different terrain, weather and settlement patterns. Dominion benchmarks against itself, tracking the performance of 35,000 miles of overhead electric lines, 22,000 miles of underground lines and thousands of miles of high-capacity transmission lines. The numbers exclude major storm events, which are so random and are of such a magnitude as to obscure trends in routine operations. Five different events since 1998 — the Christmas Eve ice storm, Hurricane Dennis, Hurricane Isabel, Hurricane Irene and the Derecho wind storm — caused massive outages that took eight to fifteen days to fully restore.

A 2015 J.D.Power survey of electric utility customers found that the quality and reliability of electric power is a major factor influencing customer satisfaction nationally. Dominion scored a customer satisfaction ranking of 684, above average for large utilities and an improvement from 661 in 2013.

The heart of Dominion’s reliability initiative is a portfolio of more than a dozen programs ranging from tree-and-brush clearance to the upgrading of neighborhood transformers. “We adjust our investment in these programs annually,” says Chafin. The company allocates capital to programs that offer the greatest bang for the buck.

In 2015 more than a quarter of Dominion’s reliability spending was dedicated to clearing trees and brush, the greatest source of downed power lines, Chafin says. The company once hewed to a regular, three-year cycle for pruning vegetation near overhead lines. It was a reasonable rule of thumb, but analysis of the data showed that tree-related outages could be improved — some places need trimming more frequently, others less often, depending upon how fast the trees grow and the voltage of the line, among other factors. (Higher-power lines increase the chances of electricity arcing from the line to a nearby tree.)

The second largest reliability initiative is the “capital asset rebuild” program. Much of Dominion’s capacity was installed in the 1930s, ’40s and ’50s, an era with less advanced technology and less rigorous performance standards. Improving the design of older distribution facilities and rebuilding them to current standards reduces the number of disturbances.

Under its circuit reconditioning initiative, Dominion began ranking the performance of each of its 1,800 circuits for preventable failures and prioritizing the worst performers for fixing. Then, diving deeper, the company started collecting data on breakers, reclosers and fuses in each circuit, some 180,000 devices in all.

The neighborhood transformers program addresses increasing demand in residential neighborhoods. In the 1930s, ’40s and ’50s, the company installed distribution lines and transformers to meet electricity demand of an era before air conditioning, big-screen televisions, computers, appliances and other energy-sucking devices. The same houses today draw more electricity and transformers can get overloaded. To deal with the problem, Dominion has replaced 4,000 transformers during periods of low demand. That proactive maintenance, says Chafin, is preferable to waiting until a transformer blows out on a hot summer afternoon.

As much as electric customers fume at routine disruptions, the lengthy storm-related outages are the ones they really remember, says Le-Ha Anderson, manager for media relations. “When electricity stops, life kind of stops.”

Last year Dominion submitted to the State Corporation Commission (SCC) a plan designed to reduce the length of major-storm outages by burying critical stretches of overline wire. High winds blow branches and other objects into power lines and knock them out. Undergrounding the electric distribution system statewide would be prohibitively expensive — on the order of $83 billion, according to an SCC report. That would amount to thousands of dollars per customer and cost generations to complete, Chafin says. The benefits don’t justify the cost.

After examining the data, however, Dominion discovered that 20% of overhead lines were responsible for a disproportionate percentage of outages and time lost. By burying just the most outage-prone taps lines (the small lines that stem from feeder lines to individual houses), the company calculated, it could cut average restoration times after major storms in half. Dominion said the program would cost only $2 billion up front. (An SCC report concluded that the program would cost customers $6 billion in capital costs, property and income taxes, and financing costs over the life of the assets.)

In a hearing before the SCC last year, Dominion asked the commission to approve the first stage of the project, covering 526 miles of tap lines at an initial investment of $263 million. The project would require a rate adjustment of $24.4 million in the first year, less than $1 per month on the average electric bill.

Consumer groups opposed the petition. Testified the Attorney General’s consumer counsel:

Despite the unprecedented size of the proposed [Strategic Underground Plan], the company has not conducted a cost-benefit analysis, has not provided any estimate regarding reliability improvements or economic benefits to customers, and has not considered any lower-cost alternatives.” Based on this record, we cannot conclude that it is reasonable, and in the public interest for Dominion to invest $263 million — and ultimately to charge customers over $700 million — for the first portion of the SUP…

The SCC proposed instead that Dominion conduct a pilot program targeting tap lines with the worst reliability record to gather data for a realistic cost-benefit analysis. Dominion has not publicly said whether it plans to submit a new proposal.

Meanwhile, the company is applying a cautious test-and-learn approach to integrating solar energy into its energy mix. Dominion worries that the intermittent shining of the sun creates fluctuations in voltage that could disrupt the transmission and electric systems. With new solar projects in its North Carolina service territory and the proposed Remington industrial-scale facility in Virginia, the company is building experience with solar that will enable it to model the impact of larger-scale projects in the future, says Anderson.

Whatever the future of solar facilities and underground lines, Dominion’s collection and analysis of data is likely to improve reliability in routine operations for years to come.

The Rule of Firsties

Statue of Captain John Smith overlooking the James River

Statue of Captain John Smith overlooking the James River

by James A. Bacon

I was chatting the other day with a friend, a William & Mary professor living in Williamsburg, about the Surry-Skiffes Creek transmission line project (see “An Intractable Dilemma“). Despite the high stakes involved, he said, he hadn’t paid much attention to the controversy, finding it hard to generate sympathy for a bunch of rich retirees in Kingsmill Resort raising a ruckus about their viewsheds.

His response amused me, for the controversy whirling around Dominion Virginia Power’s proposed construction of a 500 kV transmission line across a historic stretch of the James River is a lot more consequential than the views enjoyed by a few rich guys living on the river. The transmission line, designed to head off rolling blackouts for some 500,000 people living on the Virginia Peninsula, would traverse the closest thing that many Virginians have to sacred ground — “Virginia’s founding river,” as one foe described it to me.

I totally understand the concerns of the transmission line foes — even those of millionaires sipping martinis on the patios of their mansions as they soak up the river views. Plutocrats are people, too. But after several years of writing about controversial infrastructure projects in Virginia — highways, gas pipelines, transmission lines — I worry whether we have created institutional gridlock. At the rate we’re going, it will be impossible to build almost anything anymore.

The U.S. 460 Connector project was done in by wetlands. The U.S 29 Bypass ran into a buzzsaw of opposition engendered in part by fears that automobile exhaust would harm the health of children in nearby schools. (For what it’s worth, I was highly skeptical of both projects on economic grounds.) Now two proposed gas pipelines are being contested on a variety of grounds, the most potent of which is that, even though the pipelines are underground, landowners can’t abide the grassy right-of-way above ground. Businesses can’t even build wind turbines in the state because they’ll ruin the natural beauty of mountain ridges.

Think of all the project disqualifiers out there: wetlands, archaeological sites, old burial grounds, rivers, streams, wells, eagles’ nests, sturgeon breeding grounds, Indian tribal territories, schools, historical sites, and mountain ridge lines — and that’s just off the top of my head. Making the problem immeasurably worse for anyone wanting to build infrastructure, everyone’s got a viewshed and everyone wants to keep it as pristine as possible on the not-unreasonable grounds that the intrusion of ugly industrial infrastructure will hurt their property values. If eagles’ nests and burial grounds put thousands of acres off limits to development, view sheds rope off thousands of square miles.

There’s a philosophical issue worth exploring here. Whose viewshed matters? When Captain John Smith set foot upon Jamestown Island, Virginia was pristine. Waves of settlers descended upon the colony and chopped down much of the forest. No one objected (other than the Indians, and the least of their problems was the loss of picturesque views). Then came railroads and industry, but no one protested the loss of viewsheds. Then came roads and highways, and no one objected to them either. It wasn’t until the development of zoning codes and the growth of the environmental and conservation movements that viewsheds became a matter of concern. In the past few decades a new definition of property rights has come into play — the right to a view, asserted by the guy who got there first, over other peoples’ property. Call it the Rule of Firsties.

I’m far more sympathetic to property owners who want to preserve view sheds on their own land from disruption caused by utilities requiring easements, as is typically the case with property owners fighting the Mountain Valley and Atlantic Coast Pipelines. These people should be compensated for their loss of property values. I’m less sympathetic to those who assert a right to views of other people’s property. (In the case of the Surry-Skiffes Creek transmission line, the controversy is mainly over the view shed of the river, a commons.)

That reminds me of a story about the hamlet of Waterford, a community in Loudoun County that had preserved its character intact since the days of its founding by Quakers in the 18th century. The houses fronted on charming small-town streets; the back yards looked upon bucolic farmland. Several years ago, a developer acquired (or threatened to acquire) a neighboring farm and proposed developing a subdivision there. Talk about disrupting a viewshed! What made Waterford residents different from others is that they didn’t sue to deprive the developer his right to build on his property. If I recall the story rightly, they raised money to buy out his property and set up a trust to preserve their viewshed in perpetuity.

Waterford did not invoke the Rule of Firsties. But across Virginia, other people are doing so. As long as Virginia’s population and economy continue growing, we will need new roads, pipelines, transmission lines and other infrastructure. We have to find a way to build these things. At the same time, Virginia is a state that values history and property rights. We do not achieve progress by trampling historic sites or property rights. Finding the right balance will be difficult. It helps to remember that the tension between property owners and utilities is built into the nature of things. There are no angels or demons here, just people trying to do the right thing.

An Intractable Dilemma


When Dominion shuts down the Yorktown Power Station, Virginia’s Peninsula will need another source of electric power. Dominion says a 500 kV transmission line over the historic James River is the best option. Conservationists disagree.

by James A. Bacon

Communities in the historic Virginia Peninsula face a devil’s alternative: Immediately accept a high-voltage transmission line that foes say could mar views of a historic stretch of the James River or face the prospect of rolling blackouts that Dominion Virginia Power says could disrupt the economy for 500,000 people.

The State Corporation Commission (SCC) and the PJM Interconnection regional transmission organization have given the go-ahead to build the 500 kV Surry-Skiffes Creek transmission line to balance electricity lost when Dominion Virginia Power shuts down two antiquated coal-fired units at the Yorktown Power Station. But many residents in and around the history-rich region are up in arms, and Dominion cannot begin construction on the line until it obtains necessary switching-station zoning approval from James City County and a nod from the U.S. Army Corps of Engineers.

If a decision isn’t made immediately, contends Dominion, the power company will be unable to complete construction of the transmission line before it shuts down the Yorktown power plants in April 2017 at the latest.

At that point, reliance upon four existing 230 kV transmission lines will put the electric grid only one or two “contingencies” — unplanned transmission-line outages — away from a meltdown that could send uncontrolled blackouts cascading to the Richmond region and beyond. Rather than risk such a catastrophe, federal regulations would require Dominion to take customers offline on a rotating basis. Depending upon weather conditions and other events, the Virginia Peninsula will be at risk of rolling blackouts 50 to 80 times a year.

“If there’s a one in million chance of a breakdown, PJM tells us to shed load,” says Kevin Curtis, Dominion’s director of transmission planning, referring to the regional transmission organization that would issue the command to pull the trigger. If Dominion failed to follow through, it could face fines of $1 million per day for violating North American Electric Reliability Corporation standards.

But foes of the transmission line are still fighting back. In early August, the James City County Planning Commission recommended denial of a rezoning request that would allow Dominion to construct a sub-station critical to the project. Meanwhile, the USACE says,  “Due to the many variables yet to be addressed, we are unable to provide a discrete timeline” for when it might decide whether or not the project requires a full-fledged Environmental Impact Statement, which could delay it yet another year.

Margaret Nelson Fowler, founding member of the Save the James Alliance, isn’t buying Dominion’s warning of rolling blackouts. Dominion is making a business decision to shut down the Yorktown power plant, she says. Dominion can continue operating the coal-fired units in a non-compliant status. It will have to pay fines, but fines are Dominion’s problem, not the community’s, she says. “We’ve been told by people who know that blackouts would never be permitted. … This is all scare tactics.”

Surry-Skiffes Creek is perhaps the most controversial of some three dozen transmission line projects that Virginia’s major power companies are planning or implementing as they undertake a sweeping re-engineering of Virginia’s electric grid. Under heavy regulatory pressure, power companies are shifting from coal-fired generating plants to gas, wind and solar energy sources; transmission lines must be built or upgraded to accommodate the re-routed flow of electricity. Dominion lists 27 Virginia projects at some stage of approval or construction; Appalachian Power lists seven approved and pending projects.

The problem is that no one likes looking at power lines, and proposals often encounter local resistance. The Surry-Skiffes Creek proposal arises from a set of circumstances that is particularly complex and intractable. The engineering logic that dictates building a 500 kV Economic transmission line across the James River is persuasive. But so are objections by conservationists and property owners, who say Dominion’s cost-benefit analysis fails to take important non-monetary values into account. The result is institutional gridlock as the proposal works its way through federal, state and local oversight. In this case, the economic consequences of a failure to reach a timely resolution could be highly debilitating to the Peninsula economy. Continue reading

The SCC’s Last Crack at Dominion before the Rate Freeze

electric_meterby James A. Bacon

The State Corporation Commission is conducting a two-week hearing to determine whether or not Dominion Virginia Power should rebate $66 million in excess profits to ratepayers, as calculated by the SCC staff.

This review of Dominion’s base electric rates (which cover operating costs, not fuel or rate adjustment clauses) will be the last until 2022. Rates will be frozen until that time as part of a legislative deal designed to provide rate stability as Virginia electric utilities implement Clean Power Plan mandates. The Virginian-Pilot explains the issues at stake here.

According to SCC staff calculations, Dominion earned a profit of 11.34% over the two-year period covered, significantly more than the 10% allowed. The SCC maintains that Dominion owes a refund; Dominion contests the SCC’s accounting. A key issue is how to account for the closure of coal ash ponds at three power stations under the threat of litigation from environmental groups.

The SCC also contends that Dominion will generate a return on equity of 12.9% going forward, which could create $300 million in extra profit each year. Thanks to the rate freeze, the SCC cannot adjust Dominion’s base rate or order rebates for six  years. Dominion maintains that the SCC analysis is flawed, assuming no storm or environmental costs going forward.

The accounting issues are all very interesting, but what’s most fascinating to me is the number that’s not discussed — the 10% Return on Equity (ROE). Earning 10% on your money is a pretty good deal if you can get it, especially given the relatively low-risk nature of the business. While Dominion isn’t guaranteed a profit, the rules are structured in such a way as to make it likely that the company will meet the target. No small-time investor can hope for a risk-adjusted return anywhere near that high. And given the prolonged interest rate suppression engineered by the Federal Reserve Bank, even the braniacs administering the nation’s biggest pension funds are adjusting the projected long-term return on their portfolios downward from 8% or thereabouts to 7%.

Dominion’s 10% ROE compares to 9.76% ROE for the electric utility industry as a whole in the 2nd quarter of 2015, according to CSI Market, up from 8.48% the same quarter in 2014. By a different set of metrics published by New York University, the utility industry (electric and gas) was earning 11.0% as of January 2015. That was higher than 32 other industry sectors and lower than 61.

The electric utility business is undergoing massive change. Environmental Protection Agency regulations are pushing the industry into a shift from coal-fired generation to natural gas and renewables, which entails the shuttering of old power plants and rerouting of electricity flows. Meanwhile, renewables and smart grid technologies are challenging the old business model of building large-scale, centralized power plants and giant transmission lines. It is easier than ever for electric customers to generate their own power. Yet everyone needs backup, and someone has to maintain the electric grid.

These are interesting times indeed for the State Corporation Commission: many questions and no easy answers.

Dominion Does the Right Thing, Eats Cost of Some Charitable Giving

moneyI’m a few days late getting to this, but it’s still worthy of note… Dominion Virginia Power has told the State Corporation Commission that it will not try to recover $2 million in charitable deductions made in 2013 and 2014. The Associated Press had reported that the power company had sought to include in its rate base the cost of tens of thousands of dollars donated to causes for what could be construed as political motivatations.

“Some have cynically suggested that certain charitable organizations to which we have contributed are motivated not by the civic good but instead by political considerations. We do not agree with those suggestions or that our charitable giving practices are anything other than well-intentioned,” said Paul D. Koonce, Dominion vice president, in filed testimony, reports the AP in an update.

The State Corporation Commission had declared in 2011 that it was legal to seek recompense for the contributions, but SCC staff had raised the issue anew in filed testimony. The AP story specifically mentioned $40,000 donated to a tort reform group and a $10,000 gift to a college solicited by a lawmaker who is the school’s paid fundraiser.

Bacon’s bottom line: The amount of money was miniscule — less than a penny per month per customer — but the optics were terrible. Dominion is arguably the most politically powerful corporation in Virginia, fielding a small army of lobbyists, communicators and community relations professionals while also donating major sums to political candidates. Fairly or unfairly, the company is widely said to “own” the SCC and/or legislators. For a minimal impact to shareholders, Dominion has eliminated a practice that feeds negative perceptions about the company.


The Solar Path Forward

Lighting_the_wayby James A. Bacon

Solar energy is economically competitive in many parts of the United States today, and it soon could become competitive in Virginia. The power source has a higher hurdle to overcome here than in many states — electric rates that are 13% lower than the national average, according to U.S. Energy Information Administration data. But relentless progress in the science of converting sunlight into energy suggests that solar will steadily erode the competitive advantage of other fuels, even in Virginia.

Over and above the fact that solar’s fuel source — the sun — is free, solar enjoys other economic advantages. Because residential and commercially generated solar electricity can be consumed in place, there is no need to invest in long-distance transmission lines, nor is there “line loss,” the leaking of electricity from electric lines. Solar panels also provide “peaking power” — they generate the most electricity in the afternoon when temperatures and electricity demand are the highest. And then there are the environmental advantages — solar power doesn’t pollute or emit CO2, the greenhouse gas implicated in global warming.

Solar power is so all-around awesome that Environment America Research & Policy Center has published a paper, “Lighting the Way: What we Can Learn from America’s Top 12 Solar States,” which makes the case that solar energy is good for consumers, the environment and the economy. The paper points to the 12 leading solar states for others to emulate. Arizona, the national leader, has installed solar capacity of 167 watts per capita. By comparison Virginia ranks 30th, with a mere 12 watts per capita.

Of course, Arizona is further south and has far fewer cloudy days, so one would expect solar to perform well there. But a less-than-ideal geographic location shouldn’t stop a state from installing solar, the paper says. North Carolina, which has lower overall electric rates than Virginia, averages 23 watts per capita, while Maryland averages 19.

“We have plenty of sunshine here in the state,” Lilias Gordon, campaign organizer with Environment Virginia, told the Richmond Times-Dispatch. “We just have to make sure we are capitalizing on it with good clean-energy policy.”

According to the report, here is what states and localities can do to encourage the use of more solar:

  • Local governments should adopt policies guaranteeing homeowners and businesses the right to use or sell power from the sunlight that strikes their property (establishing net metering and overruling covenants in homeowner associations), enact solar-friendly zoning, and adopt bulk purchasing programs for solar installations.
  • State governments should use their regulatory powers to implement rate structures that maximize the benefits of solar energy to consumers and support a smart electric grid in which distributed sources of energy such as solar play a larger role.
  • All levels of government should install more solar energy in government buildings.

The biggest obstacle to large-scale adoption of solar is intermittent nature of the power source. Electric output of solar panels very directly with the strength of the sun. Clouds reduce solar generation, which compels an electric utility either to find power from another source or to curtail consumption. The study acknowledges the problem.

In states where large amounts of solar or wind power are going online, one emerging challenge for regulators is ensuring that [the] grid remains stable when the sun isn’t shining or the wind isn’t blowing. In California, for example, where solar energy is growing quickly, the state’s major grid operator has warned that, by 2020, daily patterns of electricity consumption could change to result in the need for a rapid ramp-up in power generation each evening after the sun sets. … In order to keep the amount of power on the grid stable with increasing penetrations of solar energy, grid operators need efficient and flexible power resources that can mirror the variability of solar output.

California has taken steps to accelerate the adoption of battery storage technology. The idea is to capture excess solar production during the day, store it in batteries, and draw it down at night. Analysts are optimistic that battery storage costs will decline dramatically over the next five years. Who pays for that storage, and how much it will add to the cost of electric power use, is still hazy. Also, a reliance on solar/battery-driven electric system could collide with another environmental desiderata — the use of electric vehicles, which would recharge primarily at night.

Bacon’s bottom line: Solar is coming sooner or later, and Virginia needs to have a serious discussion on how to integrate it into the grid. “Lighting the Way” illuminates the wide array of policy options available to the state. But other than pointing to battery technology that may or may not materialize, it doesn’t seriously address the issue of grid stability.

From my semi-informed perspective (I know enough to be dangerous), we have to ask a fundamental question. Do we want to stick with our current model, which relies heavily upon large, centralized plants, including industrial-sized solar facilities, that shuttle excess power across a multi-state region over a centralized transmission grid? Or do we shift to a more flexible, distributed “smart” grid that incorporates a wider diversity of small-scale power sources. Put another way, do we go with a centralized, economies-of-scale model or a distributed, small-is-beautiful model?

We’re not having that conversation, and we need to.