A Fourth Force in Virginia Energy Politics

The political economy of energy in Virginia used to be simple. Three main interest groups contended to formulate energy policy in the state: environmentalists, consumers, and electric utilities. Consumers, both homeowners and businesses, pressed for lower electric rates. Environmentalists fought for cleaner air and, more recently, lower CO2 emissions. And utilities — the only parties responsible for keeping the lights on — lobbied for reliability at a reasonable cost (within a framework that preserved profits).

In the last few years, a fourth force has entered the picture, and the political dynamic is changing. The Old Dominion has seen a surge in the number of small, independent solar- and wind-power developers. They have exercised limited political clout, but now large, national corporations embracing a green energy agenda have entered the fray.

Half the Fortune 500 companies have committed to green agendas, and they signaled their desire earlier this year to see policies in Virginia that were friendlier to wind power, solar power and energy efficiency. (See “Clean Energy Options and Economic Development.”) Their message: If Virginia wants to attract outside corporate investment, the state had better get on board the solar-powered electric train.

Then, in an unprecedented flexing of political muscle last week, a green industry group injected itself into the Virginia gubernatorial race. Advanced Energy Economy (AEE), an association of green industry companies, delivered a policy memo to the campaigns of GOP nominee Ed Gillespie and Democratic nominee Lt. Gov. Ralph S. Northam.

“Evolving consumer preferences, dynamic new technologies and aging infrastructure are causing the energy system as we have known it to modernize,” states the memo. AEE outlines four priorities:

  • Allow competitive procurement to attract investment and benefit consumers. Virginia energy policy should open up third-party market alternatives. “While current Virginia law allows competition in statute, more could be done to attract investment and benefit consumers.”
  • Expand access to advanced energy options. The ability to control energy costs is a factor in where many corporations choose to locate. But they’re not just looking for cheap energy — they want green energy.
  • Maximize energy efficiency and demand-response. Under Virginia regulatory regime, electric utilities lose money when customers reduce their electricity consumption, discouraging utilities from investing in energy efficiency programs and demand response. Virginia should “decouple” electricity sales from profitability so utilities don’t lose when they invest in energy efficiency and demand-response programs that cut sales.
  • Modernize the electric grid. Evolving consumer preferences, new technologies, and the need to replace aging infrastructure have created a need to modernize the electric grid. The regulatory system, which inadvertently stifles innovation, needs to be modernized.

AEE wants more wind and solar, more electric vehicles, more energy efficiency, more innovation, and more freedom for entrepreneurs to design solutions for customers. At the same time, the association acknowledges that the way to achieve these aims is not to browbeat electric utilities into submission but to change their incentives, which would take a major re-writing of regulatory law.

Bacon’s bottom line: To advance AEE’s vision, Virginia would need an upgraded electric grid flexible enough to accommodate a less centralized, more distributed grid while still maintaining system-wide reliability. In effect, the green businesses are calling for a deregulation of electric power production. But no one wants to build a competitive and redundant electric transmission-distribution system.

Any viable energy system of the future must allow electric utilities to continue investing in, and earning a profit on, their transmission-distribution systems. Also, deregulation of electricity generation would require grappling with the issue of “stranded” investments — investments in generating capacity that utilities made in good faith under the existing regulatory environment that might not be economical and must be scrapped in deregulated environment.

Like the environmental movement, this Fourth Force in energy politics wants to see a fundamental transformation of Virginia’s electric power system. Unlike the environmentalists, many of whom see Dominion and Appalachian Power as the enemy, the Fourth Force acknowledges the need for a healthy utility sector. This new interest group has plenty of money, which means it can afford to hire lobbyists and spread cash to political campaigns. Plus, these new voices will be more credible to Virginia’s pro-business legislators than the more strident environmentalists had been. 

The politics of electric power in Virginia has reached an inflection point. We are entering a new era.

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9 responses to “A Fourth Force in Virginia Energy Politics”

  1. LarrytheG Avatar

    So when industry aligns with the same goals as enviros, it’s “different” because industry is more “reasonable” and they have.money that “speaks”? gadzooks!

    1. When industry goals align with enviro goals, it’s different in Virginia’s political economy because industry generally gets a better hearing among the state’s pro-business legislators. Very simple.

      I’ve always contended that there were two kinds of environmentalists in Virginia — those whose arguments were reasoned and fact-based (even from the point of view of those who ultimately disagreed with them), and a “progressive” group whose arguments were based more on appeals to emotion and prejudice, and which, frankly, were far less trustworthy. Lawmakers take the first group seriously, but not the second. The rise of a pro-green industry coalition will bolster the status of the first group of environmentalists. Their interests largely align.

  2. TooManyTaxes Avatar

    Clearly, these are ideas that will enhance the debates over energy and environmental policies. That’s good from my perspective. But lets also keep in mind that the policy proposers are businesses interested in their business strategies, revenues and profits — as they should be.

    So who represents consumers and small businesses? Their interests may not be the same as those of the Advanced Energy Economy (AEE), any more than they are the same as those of Dominion. Again, the VSCC should designate a part of its staff with a mission to learn about, and advocate, the interests of consumers.

  3. It is nice to have a strong experienced voice join the conversation. Maybe now more of the policymakers will listen.

    A major reason that I have been advocating for new regulatory schemes is that we need them to keep utilities healthy and to serve the customers better with lower cost energy.

    I don’t see this as a partisan issue or a environmentalists vs utilities issue. One of the great opportunities now is that clean power is also the cheapest power. Utilities have a skilled workforce and executives who can get things done. What we need is a new set of policies that allow utilities to prosper by building a modern grid and providing services that have value to the customers.

    Continuing to pay utilities more only when they build more is not in the customers’ interest. The states that are actively adapting to changes in the energy landscape have focused utilities efforts on maintaining the grid (the transmission and distribution system) and becoming a platform (like Google or Facebook) that enables transactions between all of the providers of energy services (utilities and third-parties) and the customers they serve. Utilities that collaborate on a new regulatory design that best suits their state will do much better in the years ahead than those who fight to maintain the 20th century mindset. Investors will be attracted to those utilities who demonstrate that they can make more money by providing better service to their customers.

    We have an opportunity to design win-win-win outcomes if we do things right. Regulators will continue to have a central role in the process protecting consumer interests and balancing them with utilities’ interests. A modern energy system makes that much easier.

    Existing agreements should be honored so that legacy systems would still be covered by a cost-of-service rate. New revenues from grid improvements and customer services must be provided so that utilities will be open to third party participation and energy efficiency measures that will lower customer bills.

    This is a complex process with lots of give and take, but other states have already pioneered many of the concepts. It is more a matter of determining what customized version of what is already underway would be best for Virginia.

    The utilities must also have some tangible, near term proof that moving in a new direction would be good for them.

    We are also in a fortunate position, in this region and nationwide, in that we have a substantial excess of generating capacity. We can make a reasonable transition to a more modern system without worrying about reliability. But we must move quickly, because soon decisions will be made about projects that are not a good fit in a modern system. Authorizing them in conditions where they are unlikely to pay for themselves in a more competitive market is not a good idea.

    1. TooManyTaxes Avatar

      Forty years of regulatory advocacy has taught me a few things. These include no one will carry your water. Consumers’ interests are not the same as the environmentalists, Dominion, the Chamber of Commerce, renewable energy companies, or mega-billionaires and their companies. Unless consumers are represented by someone at the table every day there is a meeting and more, major changes in the electric power industry in Virginia will hurt consumers. Why doesn’t Bezos and company give $10 M to fund consumer representation for ten years?

      1. LarrytheG Avatar

        well I never thought that environmentalists and consumers had the same interest but I did think that environmentalists were being told that green energy is not economical and therefore not practical and it turns out that business does not agree with that

      2. TooManyTaxes Avatar

        The EU just fined Google 2.7 BILLION DOLLARS for cheating with its search engine by favoring its own services over those of its rivals. Now Google may have defenses that can prevail over what I have observed to be a very aggressive regulator. But Google and its colleagues are not benevolent. Who will represent Virginia’s consumers?

        Larry, I think you are too generous by your categorization of the companies behind the new energy push as being representative of business. A lot more probing into the entity and its funding and governance should occur.

      3. I agree TMT, each group’s interest in not the same. My point is that now the same solutions can address the concerns of various groups. Consumers want more choices, and excellent service at a lower price. Energy efficiency, renewables, and more distributed energy and energy services offered by third parties, will provide that. These same choices provide the least impacts and emissions for the environmentalists. Halting the construction of unnecessary new conventional generation will stop the rate increases through RACs, except for fuel price increases.

        The obstacle has been that moving in this direction reduces utility revenues. If regulations can be revised so that utilities and their shareholders can do well too in this new energy system – we have a winner. No group will have the same goals but they can be met with similar solutions.

  4. The SCC has the statutory power to protect ratepayer interests, but they have been opposed in that role by the GA. If utilities accepted a new role that gave them a brighter future, perhaps the SCC would feel more free to do their job (I know this is a big “if”).

    The NY REV process has involved a great deal of collaboration between the utilities and the state regulator. The utilities were reluctant at first, but now they see that the new scheme will provide them with more flexibility and greater opportunities. They also do not have as much control over the legislative process in that state.

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