Category Archives: Regulation

You Can End this Folly, Governor Northam!

Children at the Virginia Tech Graduate School Child Play Group

At the Annandale Cooperative Preschool, parents volunteer three to six hours a month to serve as teachers and class assistants. One big benefit is the pleasure of watching their toddlers mature. Another is more affordable tuition.

Now comes a proposal from the Virginia Department of Social Services that would require school staff, including the parent volunteers, to take up to 30 hours of training. The purpose of the requirement is to align preschool standards with federal requirements for providers receiving money under the Child Care and Development Block Grant Act of 2014. Here’s the kicker: Cooperative preschools don’t receive block-grant funds.

Reports the Washington Post:

Parents and school directors say the training commitment would be disproportionate to the amount of time parents spend helping in classrooms, which administrators said equals about three to six hours a month.

Working families would be hard-pressed to find time to complete the training, said Marie Sloane, director of education at the Annandale school.

Without enough parents, the school would have to hire four assistant teachers for part-time slots that Sloane said are already difficult to fill — nearly doubling her six-teacher staff and probably increasing tuition. Cooperative preschools, she said, generally cost less than comparable schools because of parental participation. Monthly tuition at the Annandale Cooperative Preschool ranges from $233 to $416.

Bacon’s bottom line: What madness is this? There is a shortage of daycare workers and daycare facilities in Virginia, and even when the service is available, paying for it is financially burdensome for many families. Cooperatives that tap the volunteer labor of parents are a fantastic way to make daycare more affordable.

Regulators want to regulate. Bureaucrats want to expand their power. To borrow a phrase from GEICO, that’s what they do. Once in a while, when public safety and health is at stake, regulations are justified. But this is not one of those instances. There are 35 to 40 cooperative preschools in Virginia, a type of collaborative that has existed for at least 70 years. Parents undergo background checks and must meet health requirements, including tuberculosis testing. Social Services has proffered no evidence whatsoever that the children in these cooperatives are at any additional risk. What possible benefit can come from this?

Does Ralph Northam want to be known as the governor who presided over the demise of cooperative daycare in Virginia? Does he approve of the relentless advance of the administrative state into every sphere of our lives? I can’t imagine that he does. He needs to shut down this initiative right now.

State Solicits Input from Solar, Wind Stakeholders

A nonprofit company specializing in addressing complex public policy issues has begun holding a series of meetings to solicit input from solar and wind energy stakeholders that will be used to formulate the Northam administration’s update to the Virginia Energy Plan.

Discussion topics will address community solar, corporate procurement of clean energy, state/local barriers to the deployment of renewable energy projects, and net metering (connecting rooftop solar panels to the electric grid).

The nonprofit, Washington, D.C.-based Meridian Institute is organizing the sessions under contract with Dominion Energy, as provided for under the Grid Transformation and Security Act enacted earlier this year. Meridian will publish a compilation of comments around the end of August. The feedback from this and other stakeholder groups addressing energy efficiency, electric vehicles and battery storage will provide input into the Northam administration’s development of the state’s energy plan. The previous plan, written by the McAuliffe administration, was published in 2014.

The inaugural session was not organized to collect input on the designated topics but to discuss the way Meridian had organized and framed the issues. Stakeholders will have a chance to make specific comments in hearings scheduled in July and August.

Given the preliminary nature of discussions, no strong points of contention emerged at the meeting, which was held at Virginia Commonwealth University in Richmond earlier today.

A few members of the roughly 60 people in attendance did wonder if Meridian might suffer from a conflict of interest due to its engagement by Dominion. Tim Mealey, a Meridian managing director, responded that his group is committed to openness, transparency, and reflecting the voices of all stakeholders. Meridian will not be issuing a report or making policy recommendations — its work product will be a summary of the participants’ views. Dominion will not review or approve the summary.

Several others questioned the way Meridian framed issues relating to the siting of solar and wind projects: What is Virginia doing right regarding the siting of renewable energy projects, and do stakeholders believe there are impediments to siting renewable energy projects in the Commonwealth?

Adam Gillenwater with the American Battlefield Trust said members of his group do not see the preservation of battlefields as an “impediment” to solar farms but rather as a competing good to be taken into consideration in siting decisions.

Others noted that the problems encountered by utility-scale solar and wind projects are different from the obstacles experienced by small power producers generating electricity at the rooftop level. Perhaps Meridian would consider conducting separate discussions for utility-scale and rooftop-scale issues, suggested Katharine Bond, Dominion senior policy adviser.

Mealey did not indicate what changes he might make to the discussion format. It is a “very unusual arrangement” to have an electric utility pay and contract for policy discussions mandated by a piece of legislation, he said. But he did not see that as a problem. His charge is to address the topics enumerated in the Grid Transformation and Security Act without being “unduly constrained” by the wording of the act.

SCC Examiner Rejects Dominion Tax Argument

A State Corporation Commission hearing examiner has rejected Dominion Energy Virginia’s arguments that it was correct to ignore a lower federal income tax rate in calculating transmission costs for 2018 and is recommending that the full commission give ratepayers the benefit of the lower tax rate immediately.

Chief Hearing Examiner Deborah V. Ellenberg’s ruling was issued July 9, following a June 29 hearing where Dominion employees said it had to use the 35 percent tax rate in calculating bills running into 2019, even though the federal corporate income tax rate had dropped to 21 percent effective January 1 of this year.  This was the subject of an earlier Bacon’s Rebellion post.

At issue is the rate adjustment clause (RAC) known at Rider T1, which passes along to customers the utility’s cost for transmission services.  It is one of several elements on monthly bills and the utility was seeking a substantial increase.  Dominion had put the higher monthly cost for a residential customer using 1,000 kilowatt hours at more than $4, with higher amounts hitting larger customers.

At the hearing Dominion argued that the T1 rate is driven by a formula approved by the Federal Energy Regulatory Commission (FERC) that includes as a factor the base federal rate, and it had to plug in the higher previous tax rate because it hadn’t consulted with stakeholders since the tax rate had changed.   Consumer advocates at the hearing said there was no prohibition on correcting the rates based on the new tax rate.   The hearing officer agreed.

“I find it disappointing that the Company has taken the position that the revenue requirement should include a 35% federal income tax rate that is no longer in effect rather than incorporate the significantly lower tax rate made effective even before the Company made its informational filing with the FERC in January 2018, and well before it filed this Application in May 2018,” she wrote. “It could, and should have, like other utilities, revised its annual filing to include the known and certain tax rate change. I recommend the Commission direct the Company to file a corrected annual filing with FERC effective January 1, 2018.”

The RAC tariff in question is due to be adjusted September 1 and stay in place 12 months.   Ellenberg suggested that the full commission adjust the new rate to reflect the lower taxes, saving consumers $71 million during the period.  She also suggested an additional reduction of $46 million to reflect the lower tax liability during the first eight months of 2018.  Dominion was arguing that consumers would have to wait until the true-up process in future cases to see rates adjusted to reflect the lower tax rates.

Ellenberg ruled against Dominion on a second point, involving a $13 million credit being paid to Dominion by the regional transmission organization PJM.  Dominion argued that payment was for generation services at its Yorktown plant, which is staying open longer than planned.  Ellenberg agreed with the SCC staff, the Attorney General and other consumer advocates that the payment was for transmission services and should reduce the revenue requirement for Rider T1.  The cost of operating Yorktown is fully recovered in base rates and the fuel charge.

If the full commission adopts her recommendations, Dominion’s request for $755 million for Rider T1 over the next 12 months will be reduced to $625 million, which is about the same as was approved a year ago.  That wipes out the 20 percent increase requested by the utility, with any increase in transmission costs being balanced by the lower taxes.

Virginia’s Political Class Isn’t Doing Much to Reduce CO2 Emissions — And It’s Working Out Just Fine

Source: “California, Greenhouse Gas Regulation, and Climate Change”

As faithful readers know well, I remain unpersuaded that the world is facing global-warming Armageddon or that we need to force a restructuring of the global energy economy to avert it. But as long as there’s even a remote chance that the emission of greenhouse gases (primarily CO2) might be driving cataclysmic climate change, I suppose, it’s good to see CO2 emissions heading down.

Unlike some holier-than-thou nations I could name, the United States actually is making progress in reducing its CO2 emissions. And Virginia looks pretty good by comparison to other states, which suggests that Virginia is looking pretty good by global standards. Arguably, the most useful measure of carbon intensity is the number of metric tons of CO2 emitted per million dollars of Gross Domestic Product. The lower the number, the more carbon-efficient the economy. As can be seen in the chart above, Virginia is the 13th most carbon-efficient state in the country. Somehow, despite all the caterwauling, we must be doing something right.

Source: Environmental Protection Agency

The debate over Virginia’s energy policy over the past few years has focused almost entirely upon the electric power sector. But electricity accounts for only 28% of the nation’s greenhouse gas emissions, according to the Environmental Protection Agency. An equal proportion comes from the transportation sector, which receives scant attention in the Old Dominion these days. Major contributions come also from industry, commercial & residential, and agriculture, which also goes largely ignored.

Market forces are driving the push to renewable energy in the electricity sector, and we would be seeing more solar power regardless of what the activists and politicians were doing. The reason: Solar’s time has come. Solar is an economically competitive power source, and an increasing number of major corporations are demanding it. As a consequence, Virginia’s largest electric utility, Dominion Energy Virginia, has done a remarkable about-face over the past two years, as can be seen by comparing the narratives of successive Integrated Resource Plans. As Dominion plots its energy future, it foresees a continued shift away from CO2-intensive coal to zero-carbon solar, using natural gas combustion-turbine engines to counter the inevitable variability in solar production.

By contrast, public policy is central to shaping the carbon intensity of the transportation sector — not by setting miles-per-gallon standards for vehicles as much as by shaping land use patterns that determine how frequently people drive their cars and how far they drive. Once upon a time, Virginia environmental groups kept these issues in the spotlight. For whatever reason, they have faded from view. But look what’s going on:

This graph, based on Virginia Department of Transportation data, shows how the average daily vehicle miles traveled dipped after the 2008 recession, leveled off for five years, and then began climbing again in recent years. (2010 numbers were not available from the data source I consulted.) Increased VMT translates directly into increased CO2 emissions. Curiously, the recent increase seems not to have set off any alarm bells. Needless to say, staff-shriveled Virginia news outlets aren’t writing about it. Even environmental groups, absorbed by the dramas of Mountain Valley Pipeline and Atlantic Coast Pipeline construction, seem to be ignoring it.

One long-term solution to rising VMT is building more Walkable Urbanism — compact, pedestrian-friendly, mixed-use development — that enables people to conduct their daily business with fewer and shorter car trips. Another long-term solution is figuring how out to harness the fast-approaching transportation revolutions of self-driving cars and Transportation as a Service. Public policy discussions are occurring behind the scenes — I understand that the Northam administration wants to make its mark in transportation policy by emphasizing innovation — but so far the rubber has yet to meet the road.

Then there’s the other 44% of CO2 emissions from the manufacturing, agriculture, commercial and residential sectors. I have seen next-to-zero attention paid to these economic sectors. One way to reduce the carbon intensity of Virginia’s economy would be to encourage the conversion of grassland and cropland to forest, thus sequestering carbon in trees — the reverse of the clear-cutting of Amazonian rain forest. This is happening on its own, without state government prodding. Perhaps it’s best to leave a good thing alone. But I’m surprised that we’re not hearing more about ways to accelerate the process.

There is tremendous potential, too, in building automation to conserve energy for heating, cooling, and lighting. While individual property owners are investing in energy efficiency, the next frontier is in collaborative projects across office parks and downtown business districts. Virginia state and local government have been totally AWOL.

In sum, If Virginia is one of the more carbon-efficient states in the U.S., it is hard to give any credit to the political class. The General Assembly has ratified a large-scale commitment to solar energy and grid modernization that likely would have occurred if left to normal market and regulatory processes. Meanwhile, nothing substantive is being done about CO2 emissions in transportation, manufacturing and the built environment. Perhaps that’s just as well. All things considered, Virginia is doing just fine. There’s a good chance that the politicians would just screw it up.

An Argument Straight From Wonderland

Step One: Reassure the oysters all is well.

In late December of last year, after a long debate pushed forward by President Donald Trump and covered on an almost hourly basis by the nation’s media, the Congress of the United States adopted a new tax code.  On December 22 it was signed into law, to be effective January 1, 2018.   On the business side the centerpiece was reducing the federal corporate income tax rate from 35 to 21 percent.

Almost two weeks after the law went into effect, on January 12, Dominion Energy Virginia filed paperwork with a federal agency and stated that it’s federal income tax rate for 2018 remained at 35 percent.  This (let’s use a nice word) incorrect statement would result in the company being able to knowingly overcharge customers for 12 months by an estimated $71 million, and to keep that money for an additional 12 months before making a rate adjustment to compensate in late 2020.

If you or I make a known-to-be-false statement to a federal agency to obtain money to which we are not otherwise entitled, and which we know we will have to give back, the word for that is not nice at all.  The FBI might show up on our doorstep.  We might get to see how Martha Stewart decorated her former cell.

That two-digit tax rate was a key point of discussion Friday in a hearing at the State Corporation Commission on Dominion’s request for the higher rate adjustment clause, Rider T1, for transmission costs.  The new transmission charge is the largest of many increases coming in several elements of your bills, as outlined in a story last week.

Dominion employees and lawyers argued that it was correct for them to use the old tax rate when plugging factors into a formula used to determine what customers pay for transmission.  Dominion pointed to a stakeholder process it uses to reach out to customers about changes to elements of that complicated formula.  It holds those meetings in September and has a self-imposed deadline of December 18 to settle on all the elements before making the January filing.

“Any changes should have been agreed upon by December 18” said a Dominion witness.  “There was not enough time.”

There was not enough time to strike out the number 35 and insert the number 21 and recalculate the formula, which was not used to make a rate application with the SCC until May?  For a decision not due until July or August?  Dominion’s legal position Friday was the formula did not ask for its actual tax rate, but for the tax rate which it had discussed with stakeholders four months earlier.  Any change to it in the meantime could not be corrected for another entire year.

One lawyer for consumers asked:  Did the witness think any of the customers would object to a formula change that would lower their future cost?  “I would not want to speculate as to what position customers might or might not have taken.”  That produced some laughter in the room.

In response to another set of questions the witness could not point to anything in the guiding documents preventing an amendment to the formula.  The witness did stress that the protocol called for an “annual” adjustment, and if the calculation was adjusted more than once it would no longer be annual.

The witness and Dominion lawyers kept pointing to language in state law that allows it to fully recover from customers whatever is charged to it by the Federal Energy Regulatory Commission (FERC) or by the PJM regional transmission organization.  In fact, the legislators explicitly stated that those charges are deemed to be reasonable and prudent and cannot be challenged by the SCC. But Dominion determined those rates itself by plugging in the false tax figure.  FERC approves the formula, not the rate – Dominion calculates the rates using the formula – and the formula asks for the current tax rate.

Don’t worry, the Dominion folks assured the hearing officer.  Yes, customers will be charged too much from this September until September 2019 (unless the Commission says no), but the excess dollars will be tracked and will become a credit on the account when the “true-up” process for that 12-month period becomes part of the discussion in the summer of 2020.  FERC directs an interest payment of 3.5 percent or so on over payments.

(If somebody is struggling to pay their bill in the first place, and puts it on a credit card or takes a consumer loan, is 3.5 percent the rate they will pay?  If a large customer didn’t give Dominion those dollars, might it do a little better with it than 3.5 percent?  What will Dominion earn on in over two years?)

It also came out in this hearing that the figure in question is almost $120 million, not $71 million, since the current Rider T1 rate also reflects the old tax rate.  The $46 million excess recovery for taxes for the first eight months of 2018 (January to August) will also be held by the company for another year, to become part of the calculation for next summer’s case.  The $71 million covers the subsequent 12 months until August 2019.

The state’s other major utility, Appalachian Power, made no complaints about too little time and is adjusting its transmission rider to correspond to the lower taxes, with FERC’s blessing.  Adjustments to account for the lower tax rate have been made in other 2018 Dominion rider cases and will be made to its base rates. One 2017 Dominion case that was closing down as Congress acted was re-opened by the SCC so an adjustment could be made.  Yet in this instance DEV stands firm – using the defunct tax rate was mandatory.

Perhaps somebody just thought up this clever argument and decided to try it.  Perhaps a favorable ruling on this opens a door for some other plan.  Don’t be surprised if an adverse SCC ruling on this point has DEV back before the General Assembly in 2019 tweaking the statute.  When Dominion  and the General Assembly get together, a favorite Lewis Carroll poem comes to mind:

A loaf of bread,’ the Walrus said,

Is what we chiefly need

Pepper and vinegar besides

Are very good indeed —

Now if you’re ready, Oysters dear,

We can begin to feed.’

Revisiting Virginia’s Public Accommodation Laws

Virginia is for lovers haters. A sad scene unfolded in Lexington, Va., last Friday evening. Sarah Huckabee Sanders, President Trump’s press secretary, tried to enjoy a meal with her family at the Red Hen restaurant. The owner, a New York transplant named Stephanie Wilkinson, asked the Sanders party to leave the restaurant after starting their appetizers. Wilkinson claims that she spoke with the staff at her restaurant and they jointly decided to ask the Sanders party to leave. This was done because of Ms. Sanders employment by the Trump Administration.

However, Ms. Wilkinson’s account of the event is at odds with what really happened. In an interview with the Washington Post Wilkinson said, “I am not a huge fan of confrontation,” in an effort to justify her confrontation with the Sanders party. However, subsequent to her Mahatma Gandhi impersonation it has come out that Wilkinson’s confrontation of the Sanders party didn’t stop at the Red Hen restaurant. During a talk radio interview Sanders’ father, former Governor Huckabee, related the rest of the story. After being tossed out of the Red Hen Sarah Sanders and her husband left their group. As the remainder of the group went to another restaurant Wilkinson followed them somehow arranging for people to continue the harassment at the new restaurant. It seems that Ms. Wilkinson is not only a huge fan of confrontation but a huge fan of the liberal art of lying through her teeth as well. I have looked and found no refutation of Sen Huckabee’s account of the story by Ms. Wilkinson. Following a group of people from restaurant to restaurant is certainly confrontational but is it stalking? Stalking is a crime in Virginia. The applicable code can be found here.

Let’s add knucklehead to the list. The original party at the Red Hen consisted of Ms Sanders, her husband and some of her in-laws. Her in-laws are described as liberals who do not support the Trump Administration. Therefore, the people Wilkinson followed and harassed were a bunch of anti-Trump liberals. So, at the second restaurant, a group of Trump-opposing liberals were harassing a group of Trump-opposing liberals. It seems we can safely add knucklehead to the list of adjectives describing Ms. Wilkinson.

The other Red Hen. In the City of Washington, D.C., there is another Red Hen restaurant with no affiliation to the Red Hen restaurant in Lexington, Va. People, presumably conservatives, who wanted to counter-protest the actions of Wilkinson managed to become knuckleheads themselves. The D.C.-based Red Hen restaurant has been “tarred and feathered” by people trying to protest Ms Sanders’ treatment at a wholly different restaurant located 200 miles away.  Interestingly, Ms. Sanders would not have been turned away from the Red Hen in Washington, D.C., since that city forbids discrimination in a public accommodation based on political affiliation. You can find the code here. The city of Seattle and the U.S. Virgin Islands have similar bans on discrimination based on political affiliation.

Has anybody seen my governor? If Ralph Northam maintained any lower of a profile his face would start appearing on milk cartons trying to locate our lost governor. The Red Hen incident happened in Virginia. Where is Virginia’s governor with his take on this? A web search of “Ralph Northam” and “Red Hen” produces no relevant results. Is this incident at the Red Hen restaurant how Virginia wants to be seen? Does public harassment help our “Virginia is for Lovers” image? I think not. Should Virginia broaden its public accommodation law to be more like D.C., Seattle and the USVI? I think so. While I’d hope that proper Virginians wouldn’t bring shame to the Commonwealth by refusing service to somebody based on their political affiliation, I have to recognize that carpetbagging asshats like Stephanie Wilkinson will do just that. Time to squelch this now.

— Don Rippert

Changes to Electric Bills Add Up To Increase

Net impact of pending Dominion rate adjustments on a residential bill for 1000 kwh. Source: SCC Staff

A recently-filed estimate by the State Corporation Commission staff projects that a typical residential bill for a Dominion Energy Virginia customer will rise more than $7, or more than 6 percent, by next April, despite expected adjustments in the customers’ favor due to the Tax Cuts and Jobs Act (TCJA) of 2017.

The utility is seeking to retain a $71 million portion of that tax reduction windfall until at least September 1, 2019 – a full 20 months after Congress cut the taxes and almost 18 months after the General Assembly confirmed that the tax cuts should flow through to customers.

A chart filed with testimony by David J. Dalton of the SCC staff, reproduced above, tracks 13 specific adjustments to the complicated billing process either approved by the SCC or pending.  Each of the riders listed is for a specific generation facility or cost, such as the separate charge for fuel which is adjusted annually and this year is expected to rise.  You can find a brief explanation of each here.

The testimony dealt with one of the larger upward adjustments, a separate rider charge for regional transmission services designated as Rider T1.  Arguments over that rider are set for Friday morning in front of an SCC hearing examiner.  As proposed it would add more than $4 a month to that 1000 kwh bill.

As part of the regional transmission organization PJM Dominion pays that entity for transmission services and then passes the costs directly to customers.  For 2018 Dominion is seeking to recover $755.5 million from customers, which is more than 20 percent higher than the amount approved in the 2017 annual review.

Like most of the matters before the SCC, a large record has already been built and in general the SCC staff agrees with the utility’s accounting and request.  There are two major points of disagreement, the largest of which involves the taxes.  Dominion made no reduction to its request even though it includes about $71 million more for 2018 taxes than may be paid, claiming Congress acted too late in 2017 to change it.

One element of a complicated 2018 state law on electricity regulation directed the state’s major electric utilities to quickly adjust their bills to reflect the lower federal taxes, which are included in base rates as a pass-through cost.  You can also see the impact of that coming change on the SCC chart above, which includes a $2.52 reduction for the lower taxes.

The legislation directed the return of taxes included in rates for “generation and distribution” but did not mention transmission.  It made no specific mention of taxes paid by PJM and then charged to the utility and passed on to its customers.  The state’s other major utility, Appalachian Power Company, has made the tax adjustment in its request for the 2018 transmission rider approval.

Making that adjustment would cut Dominion’s request for additional Rider T1 revenue – and the resulting monthly increase to customers – by more than half.  The $71 million in question would increase the tax cut’s benefit to customers another 57 percent over the $125 million reduction in the legislation.

In company testimony Dominion pushed back and argues that there will ultimately be no harm to consumers as it will all come out in the wash in the 2019 Rider T1 review.  The SCC’s Patrick W. Carr writes that fixing it now will “minimize future over-recoveries that will result from a revenue requirement in this case that ignores the TCJA’s effects.”

The other dispute involves less than $13 million.  Because Dominion is being forced by PJM to keep its Yorktown generation facility open longer than planned, awaiting construction of a delayed power line, PJM is paying Dominion $13 million to cover the cost of operating the plant.

The SCC staff is arguing that money should be a credit on the Rider T1 transmission revenue requirement because PJM collects it as a transmission cost before paying Dominion.  If fact, Dominion is paying about $5 million to PJM toward that $13 million cost and collecting it under this rider. (The rest is coming from other load-serving entities on PJM).  Dominion is arguing the revenue belongs to its generation unit and should not reduce its need for T1 revenue.

Whether the money belongs in the rider or base rates matters because Dominion’s base rates remain frozen until at least 2022 so if the additional revenue is profit the company will keep it.  This illustrates the benefit to the utility of having its base rates protected from adjustment, while at the same time having near certainty that costs in other areas can and will be passed on to customers.  Expect similar skirmishes in coming years over the murky border between riders and base rates.

Virginia’s Date with RGGI

RGGI states: Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New York, Rhode Island, and Vermont

There’s a good chance that Virginia will participate in the Regional Greenhouse Gas Initiative (RGGI) to cut utility CO2 emissions. The impact of the cap-and-trade system would be mostly symbolic.

Barring litigation, Virginia could start participating later this year in the Regional Greenhouse Gas Initiative (RGGI, pronounced Reggie), a cap-and-trade program designed to reduce CO2 emissions of electric utilities and large industrial customers by 30% over a 10-year period. All it will take is for the State Air Pollution Control Board to approve regulations, now undergoing public comment, that have been drafted by the Department of Environmental Quality (DEQ).

Cap-and-trade programs have proven highly cost effective at bringing down emissions in sulfur dioxide and nitrous oxide, and proponents say that a similar approach could work just as well for carbon-dioxide, widely held to be the primary driver of global warming. Cap-and-trade, they say, avoids the inefficiencies of bureaucratic command-and-control regulations. Instead, the auction arrangement steers power output to entities that can reduce CO2 emissions the most cost effectively. Not only will RGGI cut emissions, they contend, it will flatten electric rate increases, lower electric bills, and stimulate economic growth.

There’s just one problem. Virginia’s largest electric utility, Dominion Energy Virginia, doesn’t believe it. In fact, in its 2018 Integrated Resource Plan, the utility fired a broadside against the regulatory initiative. The company maintains the following:

  • The program could impose $530 million in additional costs on Virginia customers between 2020 and 2030.
  • In effect, Virginia will subsidize other RGGI states through lower compliance costs to the tune of $876 million over the decade.
  • Virginia’s linkage to RGGI will not reduce CO2 emissions. To the contrary, the auctions will increase CO2 output by 5.7% more than it would have been otherwise.

PJM service territory

A big reason RGGI proponent’s optimistic forecasts won’t pan out, Dominion says, is that there is a geographic mismatch between the RGGI states and PJM Interconnection, the wholesale market of which Virginia is a part. The nine RGGI states are concentrated in the Northeast; the 14 states of PJM are located in the Mid-Atlantic and the Midwest. The only overlap between the two are Virginia, Maryland, and Delaware. Because Dominion, Appalachian Power Co., and other electricity producers don’t control which power sources are dispatched to meet electric demand — PJM does — generators in Virginia would suffer a cost disadvantage compared to competitors in neighboring states not subject to RGGI, such as North Carolina and West Virginia.

“The effect of RGGI-equivalent reduction requirements in Virginia is likely to limit the dispatch of highly-efficient and lower-emitting [natural gas combined-cycle] facilities in Virginia and to encourage the dispatch of higher-emitting resources and increased emissions in neighboring states outside of the RGGI region,” states the IRP.

But environmentalists insist the cap-and-trade program will be beneficial. “Carbon pollution is a big contributor to climate change. Cap-and-trade is a market-based way of dealing with that environmental problem,” says Will Cleveland, an attorney with the Southern Environmental Law Center.

“We think this is a really good opportunity,” says Harry Godfrey, Virginia director of Advanced Energy Economy. “To the extent that there are still older, coal-fired plants online, we foresee … less utilization of those assets in the future. But we see less utilization anyway. All of our analysis shows a coal-to-gas shift. … Our analysis shows that you can limit cost impacts, and even reduce rates in the process.”

How RGGI works

In 2009 ten Northeastern and Mid-Atlantic states accounting for one-eighth of the U.S. population and one-seventh of its economic activity created the Regional Greenhouse Gas Initiative as an interstate cap-and-trade program. Broadening the geographic scope of the trading system beyond the boundaries of a single state, it was thought, would create a bigger pool of CO2-cutting opportunities.

Under RGGI’s “direct” auction trading system, RGGI sets a regional limit on the total amount of CO2 that power plants in member states are allowed to emit. Owners of fossil fuel power plants with capacity greater than 25 megawatts are assigned an allowance to release a certain amount of CO2. Then they are required to purchase pollution permits at quarterly auctions sufficient to meet that output. The plan is for RGGI to ratchet the CO2 allowances by 3% each year over a decade. Utilities and big industrial producers who can’t find ways internally to cut their CO2 emissions can go to the auctions to buy extra allowances. Power generators who can find ways to cut emissions economically can sell their excess allowances to those who need them.

In the first auctions between 2009 and 2011, RGGI sold 395 million tons worth of CO2 allowances. The cap was a generous one, so the auction price for allowances was low — ranging between $1.86 and $3.35 per ton — according to the Center for Climate and Energy Solutions. As the CO2 allowances tightened, prices increased, reaching a high of $7.50 per ton in 2015. Prices fell after the Trump administration nixed the Clean Power Plan but the next round of CO2 emissions cuts — 30% by 2030 — likely will push the price back up. Continue reading

Oh, Not Him. He’s A Lobbyist!

“Will Republicans Put a Health Insurance Industry Lobbyist on the Powerful Virginia State Corporation Commission?” screams the headline on the website which to me epitomizes the intellectual depth of that particular political party.

It is responding of course to news that Richmond attorney and lobbyist David Clarke is now considered the most likely choice by the House of Delegates for the open seat on the SCC.  By House of Delegates I of course mean the Republicans in the House, since judicial selection remains a highly guarded prerogative of the majority. With the Special Session firing back up next week, somebody may finally be elected to replace the retired Commissioner James C. Dimitri.

David W. Clarke

“If Clarke ends up on the powerful SCC, he will be one of a few people overseeing the regulation of health insurance plans — and likely approve double digit increases — in Virginia,” is one of Blue Virginia’s points.  How about this point:  He will also be one of the few people who actually understand that industry and that market.  You cannot know what somebody will do once he’s put on the bench – it’s a liberating experience, I hear.  Judge Dimitri had Dominion Energy as a client, and then he was liberated.

I can’t stop the beloved public sport of lobbyist-bashing but I won’t pass up a chance to respond on behalf of my peers.  Clarke is one of four persons mentioned in the media as under consideration, and truth be told he’s not my favorite candidate.  But the fact that he is a lobbyist and a lawyer who has practiced in front of the SCC is what makes him extremely well qualified if he emerges as the consensus.  Everybody around the Capitol has had a chance to see him in action for years.

Like most of us who ply this benighted trade, Clarke actually has a very diverse list of clients over the years and the health care industry is hardly dominant on the list.  I’m a little surprised Blue Virginia didn’t focus on the gas industry.  The one time he and I crossed swords professionally, I was actually representing real estate lawyers and he was working for lay persons doing real estate closings.

The communication and study skills required to handle a long list of unrelated clients transfer well to other jobs. Few know better than lobbyists (or lawyers) where our clients are right and where they might be wrong.  There may be matters where he needs to recuse himself, but his personal financial entanglements (if any) may be more of a factor there than his old client list.

Despite the cheap partisan shot at Clarke, Blue Virginia is silent on the other known candidates:  a long-serving member of the Attorney General’s staff who specializes in utility matters, a former deputy AG who is now a university counsel, and a former member of the State Senate who is not an attorney (but that is not required by law.)  I suspect the qualifications of the candidates are secondary and any choice will become fodder for criticism.

“Don’t tell my mother I’m a lobbyist,” goes the old joke. “She thinks I play piano in a whorehouse.”  Well to the extent I did that, I listened and learned a few things along the way and it would be a very interesting experiment to try a session with none of us lobbyists around.  I predict you would not actually like the outcome.

Only A Brief Romance After All

The key to Dominion Energy’s successful efforts in the 2018 General Assembly was an alliance with the major environmental advocacy groups who saw several of their key goals achieved by the massive bill:  promises of more wind and solar generation and massive spending of ratepayer funds on energy efficiency programs, coupled with weaker cost-benefit requirements for those programs.

It was the environmental groups that brought substantial Democratic votes and the support of the Governor’s Office to the Dominion team.   The environmental advocates dominated the list of supporters highlighted in the final committee meetings (see above.)  As has been noted on Bacon’s Rebellion before, the major environmental groups give far more financial support to some Virginia politicians than do the utilities.

But the partnership didn’t hold as Dominion sought State Corporation Commission approval of a 100 percent renewable energy tariff, rejected by the SCC earlier this week.  Customers who want 100 percent renewable power (or want to claim that is what they are using, given who knows where each electron flows from) are currently free to seek a competitive supplier.  Many do.  The only way Dominion can drive the competition out of its territory is to create its own approved green tariff.

Years ago the General Assembly authorized an exception to the utility monopoly for any customer seeking 100 percent renewable power, unless or until the utilities came up with their own way to provide it.  It has proven to be a challenge.

The SCC rejected Dominion’s latest proposal after a hearing examiner found it really wasn’t a tariff but merely a formula for calculating a price based on several variables that would fluctuate.  It was not a fixed price, nor was it a predictable price, so how could the SCC rule it was a fair price?  (The term of art is just and reasonable.)  Should the SCC approve a formula that produced an unreasonable price, nobody would actually seek 100 percent renewable service – clearly not the General Assembly’s goal.

The other major problem:  Lacking its own green power, much of the renewable power would be bought from third-party providers or through PJM, and Dominion sought to layer on its own profit margin – the same margin in fact as is allowed for investments of its own capital.

The flaws in the proposal were gleefully highlighted by many of the same environmental activists and competitive energy companies who showed up on the supporter list for House Bill 1558.

“At its core this case is about retaining competition to provide a specific type of renewable energy in Virginia,” wrote attorney Will Cleveland of the Southern Environmental Law Center, on behalf of a coalition of environmental advocacy groups.  “If the Commission approves tariffs in this case, the competition for 100 percent renewable energy disappears, and participating customers with over one megawatt peak demand can no longer shop.”

Elsewhere in the same document:  “(T)he CRG Rate Schedules do not contain a rate, but instead they contain a formula for a rate with many key unknowns. The Company plans to base the inputs for several of these unknowns on internally-developed forecasts, which will not be subject to Commission oversight or review.  As a result, the ultimate rate produced by the CRG Rate Schedules may be higher than market prices depending upon the accuracy of the Company’s forecasts.”

Opposition also came from the existing third-party providers who are now able to compete with – and beat – Dominion.  These of course also make a profit on their business, but surely material gain could not be their motive!   In its final comments Direct Energy focused on the hearing examiner’s finding that the proposed profit margin was “inconsistent with traditional ratemaking principles because a utility makes no up-front investment in a (power purchase agreement) justifying a return to compensate investors for the cost of their capital.”

The SCC agreed with them and they stay in business in Dominion’s territory.  Dominion is free to compete with them, and has already done special contracts with companies like Amazon and Microsoft for Virginia-based facilities – but the operative word is “compete.”

Virginia’s other major investor-owned utility is advancing its own proposal at the SCC, and the case is in its earlier stages.  I’m still feeling my way in this minefield, but its proposed Rider WWS (Wind, Water and Sunlight) seems very different than Dominion’s, and seems to produce a more predictable price based on the market value of renewable energy credits (RECs) from its own assets.  Wal-Mart Stores and one other entity have already provided opposing comments, but the environmental groups have not weighed in yet.  Getting that camel’s nose of competition back out of the tent?  Not so easy.