Emerging Lines of Conflict in Virginia Energy Policy

The General Assembly may have ushered Virginia’s energy sector into a new era with its passage of the Grid Transformation and Security Act of 2018, but the battle over energy policy is far from finished. It’s just entering a new phase under new ground rules.

New battlefronts are emerging over energy efficiency and onshore wind power, and the potential exists for controversy to erupt over the necessity (or non-necessity) of preserving coal and nuclear generating capacity.

The grid-modernization legislation declared it a matter of public benefit to promote clean solar and wind power, to invest in energy efficiency, and to upgrade the electric grid so it will be more secure and better able to handle intermittent power sources like wind and solar. To pay for these priorities, the General Assembly agreed to let Dominion Energy and Appalachian Power Co., reinvest earnings over and above allowable rates of return instead of returning the money to rate payers.

The ink has hardly died on the governor’s signature on the legislation before new conflict points became painfully clear.

Energy efficiency. The new law commits Dominion to spend $870 million on regulated efficiency programs over the next 10 years and contribute $6 million annually to a state weatherization fund — and that doesn’t include money spent by Apco. Advocates of a low-carbon energy future envision funds flowing to programs that allow customers to buy smart thermostats, add insulation, and replace inefficient lighting and appliances.

“Unfortunately, all of that potential could easily slip away,” Chelsea Harnish, executive director of the Virginia Energy Efficiency Council, told Energy News Network. Likewise, Harrison Godfrey, executive director of Virginia Advanced Energy Economy, said he is “not convinced utilities will invest in technologies that are real game-changers.”

It seems to have dawned upon energy-efficiency advocates that the real obstacle is not the electric utilities but the State Corporation Commission, which takes a hard-nosed view on the value of energy-efficiency programs. Last month, SCC staff rejected a lighting program, appliance recycling program, and three other proposals submitted by Apco on the grounds that they did not pass cost-effectiveness tests.

“I think there is a concern that the SCC will continue to ov­­erly scrutinize these programs in a way that they’ll continuing being rejected,” Harnish said.

Energy efficiency advocates say the conservation programs will reduce electricity demand, thus delaying the need to add new generating capacity at great expense to rate payers. But the SCC likes to see solid evidence that the programs actually deliver the promised benefits at reasonable cost to rate payers. The big question: Now that the General Assembly has declared energy efficiency to be in the public interest, will the SCC modify its cost-benefit methodology and become more receptive to utility submissions?

Photo credit: Kent Mason

Onshore wind power. In an effort to create a lower-carbon electric generating portfolio, Apco announced plans last July to buy the Beach Ridge II Wind Facility in West Virginia and the Hardin Wind Facility in Ohio. The company proposed to finance the development of the two projects with an $84.6 million construction surcharge spread out over 10 years to ratepayers.

According to the Charleston Gazette-Mail, in early April the SCC denied Apco’s request to recover its costs from Virginia ratepayers. The commission said the company doesn’t need the additional power generation.

Apco argued that its electricity-demand forecast expects CO2/greenhouse gas regulation to be implemented by 2024. Indeed, Virginia appears to be poised to participate in the Regional Greenhouse Gas Initiative (RGGI), a regional cap-and-trade program that would shave Virginia utility CO2 emissions by 30% over 10 years. Final regulations are being drafted for approval by the State Air Pollution Control Board.

“The Companies would be justly faulted if, in their planning, they ignored likely and expected developments simply because they hadn’t yet occurred,” Apco said. “There are many influential elements in American society today that favor such regulation.”

Still, the SCC appears to be acting as a guardian of the rate payer’s interests, and it needs to be persuaded that the acquisition or construction of new power sources can be economically justified. Whether the Grid Transformation and Security Act changes the commission’s calculus remains to be seen.

PJM territory

Coal and nuclear baseload. Virginia participates in the PJM Interconnection service territory, which maintains a wholesale electricity market for the Mid-Atlantic region. One of PJM’s primary goals is to ensure that sufficient reserves of electricity exist to sustain customers through extreme weather events such as January’s sustained deep freeze that put the grid under unprecedented stress. The PJM region made it through the cold snap largely without incident because it had maintained ample reserve capacity. But what happens if reserve capacity shrinks?

FirstEnergy Solutions, a subsidiary of Akron, Ohio-based FirstEnergy Corp., announced two days ago that it is closing three nuclear power plants with a generating capacity of 4,048 megawatts. The plants can no longer compete effectively in wholesale power markets where prices are set by super-efficient gas turbine plants and wind farms. The company has appealed for subsidies to keep the plants open but the pleas have so far fallen on deaf ears, reports the Plain Dealer.

PJM has acknowledged that the shutdown might pose localized problems until additional transmission lines were built to move surplus power into northern Ohio and southwestern Pennsylvania. There is no indication that the loss of those nukes would affect electricity supplies to Virginia. But the FirstEnergy decision demonstrates how uncompetitive many nuclear power units are in the age of gas and renewable energy.

Tom Hadwin, a retired electric utility executive who comments extensively on Virginia energy policy, cites the FirstEnergy shutdowns as reason to question the re-licensing of Dominion’s Surry and North Anna nuclear units over the next decade or so at a cost of roughly $3 billion to $4 billion. He writes Bacon’s Rebellion:

Spending billions on extending the life of 60-year old units will only make the energy from those units considerably more expensive. It is only the subsidy from the ratepayers (by putting the investment in the rate base or a RAC) that would make such an investment possible.

Investing in energy efficiency or renewables would avoid far more CO2 per dollar than would refurbishing the nuclear plants. The inflexible operation of the nukes is an increasingly poor fit with the needs of a modern grid. Small capacity, distributed renewables make the grid more resilient and our energy less expensive.

While renewables, energy efficiency and a modernized grid might provide a reliable supply of electricity during routine weather conditions, it’s not so clear how they would handle extreme weather events like this year’s Bomb Cyclone or the Polar Vortex of several years ago. Solar and wind have no surge capacity — they generate electricity at the whim of weather conditions. Nuclear doesn’t have surge capacity either — it runs 24/7 — but if nuclear plants shut down, their baseload capacity has to be replaced by another source. Coal, which does have surge capacity, is one alternative, but coal plants are increasingly uneconomical as well — and could be even more so if Virginia takes part in RGGI. That leaves gas as the main surge power source, but gas is subject to pipeline constraints.

How all these factors play out over the next decade or two are less than obvious. But someone will have to sort out the implications for Virginia, and that body is likely to be the SCC. Striking a balance between grid reliability, costs to ratepayers, and environmental sustainability won’t be easy.