By Steve Haner
Just how much the huge increase in energy capacity prices within the PJM Dominion Zone next year will cost Virginians depends on a several variables. Do not accept claims of negligible impact on face value.
In its most recent integrated resource plan filed with the State Corporation Commission, Dominion Energy Virginia projected it would need to secure 1,100 megawatts of outside capacity through the PJM regional power market for 2025. At the new price in the most recent auction, should it do that, the cost would be more than $178 million. At the old price it would have been only $12 million.
A report on the issue in Virginia Mercury today quoted Dominion assuring its customers they would not see any impact on bills this year. That states the obvious. The new $444 per megawatt day price doesn’t apply until July 2025. The question is what the rate impact will be, if any, in future years. Especially if the next auction has similar results, the first big variable.
Dominion told the Mercury and Utility Dive its ratepayers will be insulated from this because capacity purchases represent only 1% of its current costs. But that 1% will be up to 14 times more expensive and Dominion’s own IRP projections show growing dependence on outside capacity suppliers, far more than in past years. It shows that need to buy outside capacity despite a parallel buildout of new generation.
At some point this will impact prices for Dominion and its customers, including federal agencies and municipal providers, and could also raise prices for the rural electric cooperatives within its geographic territory. To parse all this out, either the State Corporation Commission or the legislative Commission on Electric Utility Regulation or both should hold hearings.
One thing not clear (it may be buried in the fine print of the PJM auction report) is how much outside capacity Dominion actually has or will put under contract. Again, the IRP called for 1,100 megawatts and actually projected it to start exceeding 2,000 megawatts by 2035. All of this needs a public airing.
In the field of energy regulation and management, this is the hard stuff, the graduate level stuff. The 13-state PJM Interconnection exists to make sure there is a match between power demand and power supply, with a fixed reserve margin of supply. As part of PJM, Virginia’s two major utilities are required to have enough power to meet their demand, with reserves, either with their own power plants, with long term power purchase agreements, or by buying “capacity” from other suppliers to PJM.
For the money they receive ($444 per MW next year in the Dominion Zone), the outside supplier promises to provide that power whenever called up. In effect, the utility is buying a contract for power it may or may not need at any given time, but on its worst days will definitely need.
The first complication: as an integrated utility that owns generation directly, Dominion provides its capacity into PJM along with buying capacity from PJM. Usually it is a wash, but Dominion seems to be moving toward buying more capacity in excess of its own generation, which is where this monster charge will bite.
To really make things complicated, this was the auction selling future generation capacity. PJM also manages a daily, even hour-to-hour, marketplace in actual energy. That price is all over the map as supply and demand shift. The interaction between those two is something else Virginia’s energy overseers need to understand.
Dominion can also sell energy into PJM and regularly does, which usually more than balances out the cost of its energy purchases. When it buys more energy than it sells, the customers cover the difference through the fuel factor on monthly bills. The cost of net excess capacity, on the other hand, is part of the base rates.
Dominion had left the PJM capacity market for a while but rejoined earlier this year. When not part of the capacity market, it simply used the energy auctions when needed to balance its supply and demand. The decision to leave and then return to the capacity market was up to the utility and not something reviewed by the State Corporation Commission.
Within the rural cooperatives, apparently those which are part of the Old Dominion Electric Cooperative generation pool have most of their demand needs covered by their own power plants or contracts and don’t rely much on purchased capacity. One major cooperative, however, is outside that pool and thus more exposed to these higher capacity costs. The Northern Virginia Electric Cooperative (NOVEC) owns very little generation.
There is much absolute nonsense in the Mercury report. For example: “Current rates, which on average are about $128 for a residential customer, are locked in until Dominion undergoes its next rate review next year.” No, the bills are changing all the time as various rate adjustment clauses change, and as of September 1, the bill will be up 11% to $143, as Bacon’s Rebellion reported.
And, as could be expected, Mercury did its best to assert that these higher capacity costs are the result of “climate change” and “extreme weather.” No. To the extent Dominion’s generation and demand do not match, and it needs to buy extra capacity, the higher demand from the burgeoning data center industry is the principal culprit. The utility, and in fact all of PJM, now have peak demand in the winter, and “global warming” didn’t cause that.
And Mercury sought out an environmental activist and quoted him claiming the reliability issues are being caused by the natural gas and coal plants, not by the wind and solar which are the current focus of Dominion’s capital expansion. Wrong again.
PJM has a measure of which plants are the most and least reliable called the “effective load carrying capability” or ELCC. Those numbers are being changed based on growing experience with the renewable sources, and their reliability values are dropping fast. Here’s a good illustration. Solar plants that move the panels to track the sun are rated at 11%, a gas combined cycle plant at 79% and a nuclear plant at 95%. Which should we be building again?
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