Category Archives: Energy

IRP Rejection Part of a Pattern of Trouble

The State Corporation Commission’s decision Friday to reject the Dominion Energy Virginia integrated resource plan is just the latest sign the energy package sold by the utility to a compliant General Assembly in early 2018 still has an uncertain future.

Two headline elements of the legislation – the promised massive renewable projects and a rebuild of the grid — are in limbo as the 2019 General Assembly looms.  Another headline element, the ability of the utility to use excess profits it is holding to pay for both and thus eliminate risk of rate cuts or refunds, won’t even be tested in front of the SCC until at the earliest 2021, when the utility might (might) undergo its next rate review. Continue reading

“Incomplete!” SCC Sends Back Dominion IRP

SCC Offices on Richmond’s Main Street

The State Corporation Commission today rejected the 2018 integrated resource plan (IRP) filed by Dominion Energy Virginia, stamping it “incomplete” and asking the utility for additional information in a supplemental submission.

The IRP is only a planning document, and the one for 2017 was just approved by the Commission a few months ago.  But in response to the 2017 plan and the massive revision to utility laws by the 2018 General Assembly, several specific directives were imposed for this next plan, which is supposed to have a longer shelf life.  The SCC asserts Dominion failed to comply with some of those directives.

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Updates: Deadly Road Diet? Rider T1 Case

The Powerful Law of Unintended Consequences

A raging forest fire is hard to imagine in Northside Richmond, but there could be other emergencies where the city and its residents would come to regret the loss of vehicle travel lanes on Brook Road. A recent deadly fire in California we all watched on television may be giving us a warning.

Apparently, evacuations from the lightning-quick brush fire around Paradise, California, were complicated by a 2014 decision there to impose a “road diet” on a four-lane road that became the escape route.  The push for “road diets” is also behind the argument for creating new bike lanes in both directions of several miles of Brook Road, a topic of earlier Bacon’s Rebellion posts and furious local debate.

A description of the bottleneck created by the highway adjustments in Paradise, and its impact on the fire evacuation, was published on wattsupwiththat.com, an interesting blog I only found because it linked to one of my posts on Dominion Energy.

The bottom line problem is that people just like building in dangerous places in California, including fire-prone areas.   When I lived in Southern California in the 60’s there were regular local stories about houses sliding into the ocean or homes destroyed by brush fires, only to be quickly rebuilt.  The population has grown, development has pushed further into countryside and mountains, and now there are regular national stories.

Bottlenecks have already developed on Franklin Street because of its seldom-used bike lane.  Just about any activity (parked or parking delivery trucks, leaf removal) in the one remaining travel lane causes a backup.  Similar bottlenecks will happen if the Brook Road project proceeds.  In both cases there are parallel streets that were not available to evacuees in the High Sierra, but it still calls into question whether safety ever trumps ideology with some people.

Next Step, Supreme Court of Virginia?

The State Corporation Commission issued an opinion Friday reaffirming its earlier decision that Dominion Energy Virginia must include payments it receives from the PJM regional transmission authority along with the payments it makes to PJM in the separate Rider T1 it puts on all our bills.

Following the commission’s August decision the utility filed for reconsideration.  The next step, should it decide to take it, is to the Virginia Supreme Court.

The amount of money in dispute is minor, so the precedent must be the point.  Dominion Energy is seeking to book the payments it is getting back from PJM into base rates, which increases the amount customers must pay in Rider T1 (for transmission) and increases the profit the company earns (and keeps) in base rates – base rates that seemingly will never be adjusted downward again and profits which may never be shared as rate credits again.

“Put simply, Dominion seeks to charge customers dollar-for-dollar for these transmission costs through Rider Tl but opposes crediting customers in the same manner for transmission revenues received for the exact same service,” the order reads.

Since 2007, more and more of the company’s operations are being paid for with stand-alone rate adjustment clauses outside of base rates.  New renewable generation may be funded that way, and the coming rebuild of the distribution grid might be as well.  If there are to be silos keeping all the costs in one place, the same silos should hold any and all related revenues to offset those costs.

The Uncertain Economics of Offshore Wind

Source: “Lazard’s Levelized Cost of Energy Analysis.” Click graphic for more legible image.

As Virginia hurtles towards a renewable energy future with lots of solar and wind power, ratepayers and taxpayers should acquaint themselves with the complexities of Levelized Cost of Energy (LCOE) analysis. LCOE incorporates the costs associated with electricity generation — up-front capital costs, fuel costs, ongoing operations and maintenance costs — to compare the economic viability of conventional and renewable energy sources with very different characteristics.

In almost anybody’s analysis, the cost of utility-scale solar power in Virginia is highly favorable. The up-front capital costs are modest, fuel costs are zero, and ongoing operations and maintenance costs low. A heavy reliance on solar, an intermittent energy source that varies with the level of sunlight, does raise issues of system reliability. But as an energy source, it’s the cheapest around. However, the same cannot be said of smaller-scale solar projects or wind power.

The Lazard Levelized Cost of Energy Analysis is widely regarded as one of the most authoritative comparisons of LCOE. The chart above shows Lazard’s calculation of LCOE for the major categories of conventional and renewable energy. Utility-scale solar is the least expensive. Community solar and commercial & industrial rooftop solar are considerably more expensive but potentially competitive, and residential rooftop are not remotely competitive on cost. Nearly all of Virginia’s solar is utility-scale. Although environmentalist and activist groups are fighting for more community and residential solar, those categories are likely to remain marginal contributors to Virginia’s energy mix — options for those whose environmental consciences weigh heavier than their pocketbooks.

Wind power is a trickier issue. Lazard shows the LCOE ranging from $30 to $60 per megawatt/hour (or 3 to 6 cents per kilowatt/hour). Even the higher-cost wind is cheaper than all conventional sources excepting combined-cycle natural gas (large gas plants that burn gas with jet-like turbines and recycle the waste heat to run steam generators).

However, LCOE analysis depends upon various assumptions that may or may not pan out. Lazard’s “wind” numbers are based primarily upon the cost of generating wind on land, not establishing an offshore wind sector on the Atlantic Coast from scratch. The only thing we know for certain is that early adopters of offshore wind, who build before a supporting infrastructure is fully established, will pay more.

Another critical question is how many years wind turbines last before they must be retired. Coal, gas, and nuclear power sources are assumed to last 30 to 40 years, although some have lasted longer. The National Energy Energy Laboratory, accused by some of having a fossil fuel bias, says solar has a 25-year to 40-year economic life, but wind turbines only a 20-year life. I don’t know what life span Lazard assumes for wind, but I did find a LCOE analysis for wind power in Iceland that assumes a 25-year life.

Writing in the Center of the American Experiment, Isaac Orr notes, however, that 14 turbines in an industrial wind facility in Kewaunee County, Wisconsin, “has been decommissioned after just 20 years of service because the turbines are no longer cost effective to maintain and operate” — confirming the NREL assessment.

If the NREL numbers are accurate, the implications for Virginia’s energy future are significant. The Grid Modernization and Security Act of 2018 enshrined the goal of increased wind power as in the “public interest.” The State Corporation Commission has protested the cost of electricity generated from two proposed experimental wind turbines would be astonishingly high but approved the project anyway because the General Assembly, without conducting any of its own analysis, had declared it to be necessary.

The two experimental turbines are mere prelude to development of a much larger, 2-gigawatt offshore wind farm at cost of billions of dollars. Thanks to economies of scale in erecting offshore turbines, the levelized cost of the larger wind project will be a fraction of that of the experimental project. But if the 20-year life span of the Wisconsin turbines is any guide, wind turbines may not last as long as assumed, and may cost more. Moreover, we still don’t have any data on how well wind turbines will hold up in East Coast conditions — especially when buffeted by hurricane winds and waves.

Complicating the analysis, a kilowatt of electricity generated by a conventional fuel source upon command is worth more for maintaining grid reliability than a kilowatt generated by a renewable energy source delivered only when the sun is shining and the wind is blowing.

Not that it matters. In its wisdom, the General Assembly has mandated wind generation with no clear idea of what it will cost.

Bacon Bits: Taxaginia, SCC Approvals, Blue VA

The Taxaginia Total:  $1.7 Billion in 2020

The four taxes I wrote about in “Taxaginia” last month could reach a combined fiscal impact of $1.7 billion by about 2020.  In preparation for a talk (which I will not get to give today after all), I did a bit more digging and some additional information has since come out.

The $611 million estimate for the state income tax hike resulting from conformity to federal tax changes is a Northam Administration estimate, known since summer.

The legislative money committee retreats last month produced a firmer estimate for the provider assessments (a.k.a. taxes) on private hospitals, with $719 million tagged as the revenue haul for 2020.  (Don’t you wish you could develop a futures market on these estimates?  That’s not going to hold.)

The Virginia Department of Taxation is now using $165 million as its projection of additional revenue once Virginia revises its sales and use tax to comply with the Wayfair decision and demand more tax collection by online merchants selling and shipping into the state.

The estimate on the carbon tax that will be imposed when Virginia joins the Regional Greenhouse Gas Initiative (RGGI) is a year old and is likely being revised as a new iteration of the regulation is considered. I’m using the number of $203 million, the upper range from last year’s Department of Planning and Budget estimate.

Under the newest version of the proposed regulation, electricity producers burning fossil fuels will need to pay for permission to emit 28 million metric tons of CO2, and the price per ton can only be estimated until the auction process gets underway.  As it stands now, the plan is that all the money the utilities pay for their carbon rights will be returned to ratepayers somehow and not spike rates, but that mechanism is unclear. 

Nobody Fights The Energizer Bunny

Not all the proposals Dominion Energy Virginia makes spark controversy. Proposed guidelines on planned pilot programs for utility-sized storage batteries have now cleared the State Corporation Commission.  No objections were raised, no pile of testimony accumulated, and only a few tweaks were made to the original language.

One provision in the massive 2018 electricity regulation revision authorized Dominion to install up to 30 megawatts of storage, and Appalachian Power up to ten megawatts.

Another New Option for Customers Who Want Renewable

Also uncontroversial, but far more complicated, is a new choice offered to large electricity customers, the so-called Schedule RG tariff.  This is a way for a Dominion Energy Virginia customer to buy exactly the kind of renewable power desired, but still remain under the umbrella of Dominion’s existing monopoly.

Attorney Will Reisinger of the Richmond firm GreenHurlocker has written about the SCC’s approval of the new tariff on that firm’s blog.  Limited to 50 large customers, it is designed to prevent any costs being borne by non-participating customers, in contrast to a recent solar project.

Reisinger represented Mid-Atlantic Renewable Energy in the case, and other participants included Wal-Mart Stores and Sam’s East, Inc., possible customers for the new rate schedule.  Your correspondent admits he has not plowed through the record but relies on Reisinger.

“Finally, it is important to note that Schedule RG was not approved under Va. Code § 56-577 A 5 and would not constitute a 100% renewable energy tariff under this statutory provision,” Reisinger wrote.  “As we explained in our Regulatory Guide, this Code section authorizes any Virginia customer to purchase electricity “provided 100% from renewable energy” from non-utility suppliers, so long as the customer’s incumbent electric utility does not offer an SCC-approved tariff for 100% renewable energy.

 “Therefore, if Dominion received approval to offer a 100% renewable energy tariff pursuant to Va. Code § 56-577 A 5, Dominion customers would lose their existing rights to shop for such energy.

“Currently, no Virginia utility offers an SCC-approved 100% renewable energy tariff. Dominion and Appalachian Power have both applied for approval to offer such tariffs, which thus far have been rejected.”  

So that one chink in the utility monopoly remains.

And Finally, A Stunning Endorsement for Bacon’s Rebellion!

The following excerpt is from no less than Blue Virginia!  It was part of a piece where Jim Bacon was attacked for being a damnable climate-denier, of course, and the Richmond Times-Dispatch was roundly condemned for hiring him, but it also included this:

Let’s be clear: Bacon’s Rebellion material is sometimes entertaining and, in some of the material, has a form of wonkiness that can be attractive/engaging for policy nerds. On its best days, it can provides (sic) valuable windows and thinking about policy interests with enough substance that can enable thoughtful engagement.

Dominion Grid Plan Battered in Testimony

Caroline Golin, Ph.D., witness for Appalachian Voices, SELC

Two witnesses told the State Corporation Commission Tuesday that Dominion Energy Virginia’s proposed grid transformation program will not bring the utility’s customers into the modern energy economy.

Both Scott Norwood of Texas, an expert witness often used by the Office of the Attorney General, and Caroline Golin, an expert from Georgia hired by environmental groups, paralleled their written testimony reported on in an earlier post.

The commission must agree that the company’s $917 million first phase of its plan, which includes a roll out of new automated metering technology, is reasonable and prudent before the company can proceed. Just how customers will pay for this – either through a rate adjustment clause or the use of excess profits retained by the company – is not yet before the commission. With financing costs and profits the long-term revenue requirement for all phases of the plan is estimated at $6 billion by the SCC staff.

“The company is not proposing to operate the grid in any new way,” Golin said Tuesday. If it were moving aggressively to distributed energy, to more customer-driven demand management, to time-of-day pricing, to use of storage, “then I would agree they need more control of the grid. But right now, they are not proposing any of those.”

Norwood noted that a major part of the plan’s cost will be spent to reduce average outages by a few minutes per year. “I’m skeptical most customers will notice. It’s like the break we took at midmorning.” Benefits of that kind of reliability flow to larger, commercial and industrial customers but will be paid for by the residential customers.

Golin picked up on the same point: “There is a difference between reliable and perfect” and the company is now shooting for perfect. “This is something the commission needs to be very critical of. The average customer does not require perfect power.”

Support from some of the environmental groups, and a neutral stance taken by others, was crucial to passage of the 2018 legislation. Dominion Energy packaged it to the public it as a grid modernization effort, but its final version also included major incentives and directives to build more renewable generation. Now the environmental groups are leading the charge against the grid-related element of the bill, claiming it is a lost opportunity to truly transform the utility for a renewable energy future.

Golin, who has joined Google since being retained in this case, has been involved in grid redevelopment cases around the country and has also been especially critical of Duke Energy’s North Carolina plan.  Her statement that Dominion had no plans to operate the grid differently was vigorously challenged by Dominion and even an SCC staff witness later in the hearing.

Since the first round of written testimony was filed, Dominion’s leaders have supplemented the record with rebuttal testimony, but it was picked apart at the hearing as more evidence that no real cost-benefit analysis had been done, much of the engineering work is preliminary, cost estimates have little valid basis, and some obvious grid-related issues were flat ignored.

Dorothy Jaffe of the Sierra Club used questions to a Dominion witness to point out no real plans were made for the growth of electric vehicles, and the initial $3 billion plan would have to be supplemented – perhaps at additional cost – to support that expected transformation.

The Office of the Attorney General and the SCC staff have not asked for a total rejection of the proposal, but acceptance with conditions or acceptance of only the early pieces that involve planning and engineering. 

As with most of the issues that have reached the commission growing out of that legislation, the key question is does the regulatory body have the power to say no. In some cases, such as the off-shore wind demonstration project, the legislative wording was a clear directive. In the case of the grid projects, however, the new language mandated a review for reasonableness and prudence. A separate hearing on the commission’s authority was held November 7.

“The new law does not require a single one of these projects to be implemented,” said Nate Benforado, an attorney for the Southern Environmental Law Center, who used his opening statement to dismiss the whole effort as “a plan to spend money” which “puts the customer last.”

“This is a huge issue for the coming decade,” Benforado said. Dominion really doesn’t need to build new generation. There is testimony in the current integrated resource plan case that demand is flat or dropping, with plenty of generation assets available through connection with other utilities. “Dominion is looking for ways to spend customer money and earn a rate of return.”

The decisions on this case and on the integrated resource plan will probably need to be viewed together to glimpse Virginia’s future. The IRP case appears ripe for a published opinion with no further hearings planned. The commission has until mid January to issue a decision on this matter.

SCC Staff: Convert A Dominion RAC Into A PPA

All-in lifetime revenue requirement for two solar projects related to Facebook. Key data is hidden. Operating and maintenance costs are also kept secret, perhaps to prevent simple math from disclosing the RECs. ARO stands for “asset retirement obligations” and ITC is the federal tax credits. Source: SCC staff testimony.

“Facts are facts, and the SCC does a really good job of compiling them.”  Former State Senator John Watkins of Chesterfield.

After demonstrating that two solar energy facilities Dominion Energy Virginia has proposed in a deal with Facebook leave ratepayers holding all risks, reported already in the Richmond Times-Dispatch, the State Corporation Commission staff suggested an interesting solution that shifts that burden.

“Should the Commission determine that the proposed US-3 Solar Projects are not prudent as filed, the Commission may want to condition approval on the implementation of cost recovery through a rate adjustment clause (“RAC”) based on the market index in lieu of the cost of service model proposed in this case,” wrote Gregory L. Abbott, deputy director of the utility division.  His and other documents are available online.

“This would reasonably protect the nonparticipating customers from performance risk as the customers would only pay for the actual MWhs that the proposed US-3 Solar Projects produce.  Implementing cost recovery through a RAC based on the beginning market index price of $31.82/MWh would also meet the Commission requirement in Case No. PUR-2017-00137 that Schedule RF should be implemented in a manner that holds nonparticipating customers harmless,” Abbott concluded.

So.  Instead of guaranteeing the utility a full return of its capital costs with profit, the SCC might instead charge ratepayers no more than the market value of the power produced.  On this deal, Dominion would be no better protected than an independent merchant power producer.

This little case, involving only 240 megawatts of production and $410 million of construction cost, is important because after Facebook come others with similar or larger appetites.  This is the first of many such arrangements the company expects under its experimental special rate for customers demanding the appearance of green energy virtue.  Any new plants need SCC certificates of public necessity and convenience.

The Commission last year approved the experimental “RF” tariff designed to serve the new Facebook facility and others like it, but included this in the order:  “As acknowledged by the Company, however, our approval herein does not represent a presumption or pre-approval of any subsequent proposals related to Schedule RF….We agree with Consumer Counsel that Schedule RF should be implemented in a manner that holds non-participating customers harmless.”

Here is how it appears to work:  Facebook will buy the same “tainted” power including from fossil fuels and nuclear from the grid as everybody else, but to keep its green cred intact also promises to buy 100 percent of the renewable energy credits and other “environmental attributes”  for a comparable amount of power from solar.  Those contracted payments are applied to the capital pay-off for 20 years and lower the cost of the project for other ratepayers, who will still see a rate adjustment clause (US-3) on their bills.

Dominion is not building solar to connect directly to Facebook, and should a third party try to do that in Dominion’s monopoly territory, heads would roll.  That monopoly is the most valuable asset its stockholders enjoy.  The only difference between this and any other solar project appears to be the sale of the RECs to Facebook instead of into some other market.  I’m open to correction on that point.

One point the SCC staff makes is it didn’t have to be a company-built project.  Staff witness Earnest J. White said Dominion could have met Facebook’s needs by purchasing an existing solar facility. “This option would have permitted the Company to know, rather than estimate, the benefits to customers before exposure to risk of performance,” he wrote.  (Unmentioned by him – that option does not produce 9.2 percent annual return on equity for the utility. )

Another instance of redactions rendering SCC data useless to the ratepayers and reporters.

The revenues from the renewable energy credits at the two plants, along with the tax credits, are applied to the 35-year payoff on the two new solar facilities, reducing costs to ratepayers.  But as the SCC testimony makes clear, two variables then become crucial.  The first is the capacity factor of the project (what percentage of the time power is produced) and the second is the market value of those renewable energy credits.  The two are interrelated because the RECS are based on actual output, not 100 percent capacity – less output, less REC revenue.

Complicating reporting on this case, as usual, are all the key data covered up with black ink or entire memos withheld from public scrutiny.  The projected REC revenue is kept confidential.

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Delayed, ACP Price Tag Reaches $7 Billion

Delays mainly caused by continuing regulatory battles have added another half a billion dollars to the price tag for the Atlantic Coast Pipeline project now crossing Virginia.  Dominion Resources CEO Thomas Farrell used a new top figure of $7 billion in a discussion of the project with investors and analysts on November 1.

Back in February it was the Duke Energy CEO who first floated a figure of $6.5 billion for a project that started out with a $5 billion or less advertised price.  Those costs do not include financing, which will add to the amount customers pay for the gas in coming years.  Dominion is the lead partner in the pipeline, along with Duke Energy and Southern Company, but owns slightly less than 50 percent of the project.

The transcript is rough in places, the fault of the transcriber I’m sure, so I may add some suggested translations here and there.

“The FERC stop work order in (and?) delays obtaining permits necessary for construction have impacted the cost and schedule for the project. As a result, project cost actions have increased the range of $6 billion to $6.5 billion to a range of $6.5 billion to $7 billion excluding financing costs,” Farrell told those assembled on a conference call to discuss the company’s third quarter results. The most recent dispute involves the proposed compressor station in Buckingham County, with its permit decision delayed at the last Air Pollution Control Board meeting.

“The Atlantic Coast Pipeline is pursuing a phase in service approach with its customers whereby we maintain a late 2019 in-service date for key segments of the project to meet peak winter demand in critically constrained regions. ACP will be pursuing a mid-2020 in-service date for the remaining segments.  Farrell said later their profits are not threatened if they don’t start pumping gas in 2019 because the are guaranteed to recover funds used during construction.

“Through this process, we’ve already been through one process with customers on the rates, and we’ll continue to work with them. The returns are going to be very adequate and comments (commensurate?) with the normal returns we get in projects like this in our midstream business,” Farrell said.

Dominion Energy Virginia, through another arm of the company, is one of those customers, meaning of course its millions of Virginia ratepayers will ultimately pay off the portion of the pipeline serving Dominion generation plants.

Opponents tend to focus on the top line number ignoring the fact that there will be other customers sharing the cost along the line.  Opponents are quite right when they point out that new pipelines cost more than old pipelines built at lower cost.  Those issues will be debated in future State Corporation Commission cases, where the higher transportation charges will be compared to cheaper alternatives. 

In speaking to the analysts, Farrell was positive about the prospects of another huge capital expense coming at ratepayers like a train – license extensions to add another 20 years of life for its four nuclear reactors.  In some recent State Corporation Commission testimony, the company has been equivocal on its plans.  Who’s getting the real story, the SCC or the stock analysts?

“Now, on October 16, we filed with the regulatory commission for subsequent license renewable (renewal?) for the [indiscernible] power station reactors. This is an important first step in which we expect will be a multiyear $4 billion investment program that will extend the lives of both the [indiscernible] (Surry?) and North Arizona (North Anna) nuclear stations by an additional 20 years. We expect to submit the North license suspension (extension?) application in 2020. As a result of this initiative, our customers will continue to benefit from clean, reliable and low-cost generation from these best-in-class facilities,” Farrell is quoted in the transcript.

And on a related note…..

Former State Senator John Watkins was actively promoted this past winter as a candidate to fill an opening on the State Corporation Commission.  He was apparently derailed by concerns about his votes on key utility regulation issues and his ties to various legislators who have shown little interest in protecting ratepayers when the utility was rewriting the law to its benefit.  Yesterday’s Wall Street Journal took note of how things work in Virginia.

Apparently that Clean Virginia group published something pointing to relatively high electricity bills in Virginia, and Senator Watkins rose to the company’s defense in a guest column in The Roanoke Times, a paper far from his Chesterfield County home.  Read it and form your own opinion of his fitness for the Commission job, which is still open after all.

One line of his did inspire me.  “Facts are facts, and the SCC does a really good job of compiling them. Legislators and the public count on the SCC to provide that information to make sound decisions,” he wrote.   My mission at Bacon’s Rebellion to report on the Commission process and the facts that drive its decisions will continue.

Environmental Racism and Conservation Easements

Farmland real estate values of conservation easements granted to African-American landowners between 2011 and 2015, as tracked by the Black Family Land Trust.

I have to give Governor Ralph Northam credit: It took a lot of guts to remove two members from the State Air Pollution Control Board knowing full well that it would open himself to charges of indifference to environmental racism.

Earlier this week, Northam informed Rebecca Rubin and Samuel Bleicher that they would be removed from the seven-member board, reports the Richmond Times-Dispatch. Environmental groups immediately connected the decision with concerns they had expressed about “environmental justice” in the Union Hill community of Buckingham County, where a predominantly African-American community would be exposed to low levels of pollution from an Atlantic Coast Pipeline compressor station. Northam has denied that his decision to replace the two air board members is tied to an upcoming vote on the compressor, but that hasn’t stopped some foes from doubling down on the race card as a way to halt construction of the compressor station and pipeline.

“Governor Northam has now officially taken ownership of the Atlantic Coast Pipeline and ownership of this compressor station, a facility which involves strong elements of environmental racism,” said Harrison Wallace, Virginia director of the Chesapeake Climate Action Network & CCAN Action Fund.

Apparently, Northam isn’t buying that argument, although it’s hard to know what he thinks because he has not spoken publicly about the environmental-racism issue. The issue can be boiled down to this: About 80% of Union Hill residents are African-American. While Dominion says that the compressor station will have state-of-the-art pollution controls meeting the strictest standards in the state, foes say residents will be exposed to elevated levels of carbon monoxide and nitrogen oxide, putting their health at risk. You can read a detailed explanation of the allegations in a Southern Environmental Law Center letter to Michael Dowd with Virginia’s Department of Environmental Quality.

For purposes of argument, let’s grant the proposition that the compressor station would pose a small but measurable health risk. (I don’t know that to be the case, but I want to set that issue aside to get to the meat of my argument.) In a 600-mile pipeline with three compressor stations routed through demographically mixed counties, it is inevitable that the pipeline will encounter minority communities. The standard under federal law is whether African-Americans are disproportionately impacted by the pipeline route. By focusing on the impact on Union Hill to the exclusion of many white communities along the route, pipeline foes have created a new standard: Does the pipeline route impact any African-American community? And if it does, some critics assert, it constitutes environmental racism.

I’ve made that point in past blog posts, but now I want to expand on it. The irony here is that one can make an argument that the system promotes social inequity — but not in the way pipeline foes suggest. If you’re looking for disproportionate impact, look at the racial distribution of conservation easements that protect landowners from pipelines, highways, transmission lines and other infrastructure projects from intruding on their land. It doesn’t take a planning Ph.D. to predict that conservation easements as well as the tax benefits and land protections they confer are rewarded overwhelmingly to white landowners — especially wealthy white landowners.

The tax benefits are substantial: federal income tax deductions, a state tax credit equal to 40% of the value of the easement, estate tax reductions, and property tax deductions. So generous are the tax deductions that the state has capped the value of tax credits that the Department of Conservation can grant in any one year at $75 million. Easements are in especially great demand by gentleman farmers — owners of horse farms, vineyards and the like — who have spectacular vistas to protect. Small farmers set amidst mundane corn fields and timberland have far less incentive to pursue obtaining the easements.

The Virginia Outdoors Foundation, which holds the conservation easements, does not track the race of landowners granted easements. But the Black Family Land Trust (BFLT), which works to conserve black-owned farmland in Virginia, North Carolina and South Carolina, does have data which, though not comprehensive, gives a sense of the number and value of easements granted to black landowners.

The BFLT website displays data of easements granted between 2011 and 2015 in 28 designated Strike Force counties, 12 of which are in Virginia. Clearly, that does not represent a complete inventory of all the conservation easements in Virginia granted to black landowners. But the targeting of key counties likely does account for a significant percentage.

The four-year total for black landowners in Virginia’s eight targeted counties amounts to $3,o45,000. That works out to an average of $750,000 per year. That’s 1% of the total land value of conservation easements allowed by Virginia law. If we assume that the BFLT captured only half the easements granted black landowners in those years, we can guesstimate that black landowners were granted 2% of the total value of conservation easements and reaped 2% of the tax benefits. African-Americans comprise roughly 20% of Virginia’s population — a disproportionate impact if I’ve ever seen one.

(I could find no figures detailing the percentage of rural landowners, or even farmers, who were black. Nationally, black farmers tend to own smaller farms than the national average. I don’t know if Virginia is in line with national averages or not.)

When plotting their pipeline routes, the Atlantic Coast Pipeline made great efforts to avoid crossing conservation easements (although in a handful of instances it did not manage to do so). If you’re looking for institutionalized white privilege, there you have it. But the privilege is not that of the pipelines, it’s that of the white landowners. Curiously, pipeline foes and their allies in the environmental movement have ignored this gaping disparity. Why would that be? Perhaps because they are among the primary beneficiaries of the system.

Cynics might conclude that the hoo-ha about social justice at Union Hill is purely tactical, not borne of a principled concern for African-American communities. If Virginia’s social justice warriors were truly committed to fighting environmental racism, one might argue, they would target a system of conservation easements that protects wealthy white landowners far more than it protects poor black landowners. But I won’t make that argument.

Here’s the argument I will make: I don’t think the racial disparity in the dispensing of conservation easements constitutes discrimination against African-Americans. And I don’t think that the Atlantic Coast Pipeline’s selection of a compressor site in Union Hill constitutes discrimination. The Union Hill community comprises only one of many groups affected by the pipeline. I do think the racial justice angle on Union Hill is ginned up by mostly white pipeline foes desperately seeking any weapon they can to defeat the pipeline project — even if it means aggravating already-tender race relations. And I’m betting that Governor Northam is canny enough to see through the ploy.

Update: The Virginia Outdoor Foundation has responded that my view of landowners who take out conservation easements is out of date. Before 2000, a majority of easements were taken out by wealthy landowners who didn’t earn their income from farming/forestry. Today, a majority of landowners getting easements are working farmers. Read the full comment here.

Yeah, Recycling, Landfilling Coal Ash Will Cost Billions

Coal ash at the Chesterfield Power Station. Photo credit: Richmond Times-Dispatch

Under the gun to clean up its coal ash ponds, Dominion Energy hired a consulting firm to develop estimates of what various alternatives would cost. The alternatives preferred by environmentalists and activists — recycling the combustion residue and burying the rest in lined landfills far from rivers and streams — would cost billions of dollars, the study concluded. The environmentalists and activists said the study was flawed. The General Assembly ordered Dominion to issue an RFP to deliver a verdict from the marketplace. The verdict of the marketplace has come in. The alternatives preferred by environmentalists and activists will cost billions of dollars — but maybe not as many billions as Dominion’s worst-case scenario.

To be precise, the cost would range between $2.77 billion and $3.36 billion, according to a statement issued by the company today. The bids, if implemented would recycle about 45% of the ash into cement, wallboard and other products. The rest of the ash would be placed in a landfill over a 15-year period.

Dominion has accumulated millions of tons of coal ash, which can leak heavy metals that are toxic in sufficient concentrations, in ash ponds at its Chesterfield, Possum Point, Chesapeake, and Bremo power stations. To meet Environmental Protection Agency guidelines, the utility has de-watered the coal ash at Possum Point and Bremo but has been prevented from consolidating and capping the material on site, as it originally proposed. Environmentalists are concerned that groundwater might migrate through the impoundments and leach heavy metals that could reach rivers, streams, or well water.

Dominion already recycles 500,000 tons of coal combustion byproducts each year, but critics have argued that it could process more — Virginia actually imports coal ash from other states and overseas.

The company received 12 proposals for recycling ash for each of the four power stations. The total cost in the $3 billion range is somewhat less expensive than the $2.6 billion to $6.5 billion indicated by Dominion’s earlier study, but it is significantly more costly than critics had hoped for.

Dominion will report its bids to the General Assembly for follow-up.

In other coal ash action, Dominion announced that it had reached a Memorandum of Understanding with the state to close and monitor the coal ash ponds at the Chesapeake Energy Center. Also, groundwater monitoring at six power stations — Chesterfield, Possum Point, Bremo, Yorktown, Clover and Virginia City Hybrid Center — have been found to have no impact on drinking water or public health. Further, Dominion said it would submit a regulatory filing to recover costs associated with “managing coal ash at several power stations.”

“We plan to take a close look at this report and hope that it provides a more realistic take on recycling options in Virginia than the assessment Dominion provided last year,” said the Southern Environmental Law Center (SELC) in a statement today. “We know that coal ash can pose risks to our health and environment, and recycling offers a smart, cost-effective solution. It’s time Virginia joins the other states that are turning coal ash closure into a win-win.”

The SELC also lauded the Chesapeake Energy Center agreement, which it said will require the facility to meet the same standards as all coal ash facilities across the state. Said Deborah Murray, senior attorney, Southern Environmental Law Center: “This agreement is a strong signal that the administration is taking coal ash remediation in Virginia seriously. Dominion tried to keep most of the coal ash at the Chesapeake site—roughly 2.1 million tons of ash in leaking, unlined pits—off the radar, but under this agreement the company’s closure plan must deal with this ash in accordance with the standards set forth in the EPA’s Coal Combustion Residuals Rule.”

Update: The Richmond Times-Dispatch is reporting a larger number for the potential cost of recycling/landfilling than I did.  I should have made clear that the cost I reported, up to $3.36 billion, applies if all the work is given to a single bidder. The higher figure reported by the Times-Dispatch, $5.642 billion, applies if material at all four sites is recycled by individual bidders. I reported the lower number because I could see no reason why anyone would go with the higher-cost approach.

Could Co-ops Save Money Buying Cheap Electricity from Wholesale Markets?

Service territories of Old Dominion Electric Cooperative’s member co-ops.

The Old Dominion Electric Cooperative (ODEC) provides electric power to eleven regional cooperatives in Virginia, Maryland, and Delaware. The Virginia co-ops supply electricity to about 10% of Virginia’s population. Now comes a study by the Institute for Energy Economics and Financial Analysis (IEEFA) claiming that customers of Rappahannock Electric Cooperative (REC) are paying 1.4 to 2.4 cents per kilowatt/hour more than they would had they purchased it from the PJM wholesale electricity market.

REC purchases 89% of its energy from ODEC, with which it has a contract through 2054. ODEC generates its own power through three gas-fired plants, a 50% ownership stake in the Clover coal-fired plant, and an 11% share of the North Anna nuclear plant. It supplemented that power with purchases on the wholesale market.

In 2017, ODEC reported that it purchased power (energy and capacity) at an average of $46.56 per MWh (4.6 cents per kilowatt/hour). That is consistent, states the report, with the following chart comparing ODEC power costs with the costs from outside suppliers:

Concludes IEEFA: “It appears that REC customers could enjoy significant savings in power supply costs of REC were not locked into a long-term contract with ODEC.”

The study was commissioned by Repower REC, which describes itself as “a grassroots group of concerned REC members working in partnership with Solar  United Neighbors of Virginia, a nonprofit group that helps homeowners go solar, ‘to promote a more transparent and democratic Rappahannock Electric Cooperative (REC).”

Bacon’s bottom line: The comparison is useful. It shows how purchasing electric power from PJM’s wholesale market could be cheaper than building new generating capacity… at least in the short run. But, then, short-term benefits need to be weighed against long-term prospects. There is an abundance of electricity supply in the PJM territory right now. That may not always be the case, especially if power companies continue shutting down legacy coal and nuclear power plants. The advantage of signing a long-term contract is that it guarantees cost stability for decades at a time.

A prudent compromise might be to nail down a significant percentage of capacity — say, half — in long-term contracts and let the balance float with wholesale market conditions. And that appears to be exactly what ODEC has done. As the IEEFA report itself says, ODEC purchases between 55% and 63% of its total power supply from the outside.

One other cautionary note: The lower cost of purchased power requires maintaining an adequate transmission system to wheel in the power from other states. If Virginia starts pulling in too much power from the outside, capacity constraints result in transmission congestion charges. There are limits to how much power can be imported without building more transmission lines. And as we have learned in recent years, nobody likes transmission lines.

Experimental Turbines, Risk and the Looming Offshore Wind Boom

Despite major reservations, the State Corporation Commission has approved the two-turbine Commonwealth of Virginia Offshore Wind (CVOW) project at a cost of $300 million. The idea is to test a novel design of turbine blades and deep-water mooring before proceeding with a full-scale $1.8-billion wind farm off Virginia Beach. The logic, as I have understood it, is that it will be much easier to justify and finance the construction of dozens of turbines if we are secure in the knowledge that they will hold up in hurricane conditions, not disintegrate or topple over.

But now, based on his reading of SCC testimony, Steve Haner wrote recently on this blog, “The demonstration project will not be using the same turbine technology planned for that larger project and will not have time to demonstrate much of anything before a decision is made on the larger project.”

What?

Let me repeat that. WHAT?

Rhode Island has completed a small wind farm off Block Island, and other states along the Atlantic Coast have committed to billions of dollars of wind farm projects. More than 8,000 megawatts of offshore wind development are supported by state policy in five Atlantic states, according to “Wind Power to Spare: The Enormous Energy Potential of Atlantic Offshore Wind,” a report of the Frontier Group. As of February 2018, 13 Atlantic offshore wind projects had leases and were “moving forward.”

None of the other states have expressed reservations about the ability of their turbines to withstand harsh weather conditions. None of them are building their own experimental turbines. They seem ready to charge right ahead. Indeed, Danish energy giant Ørsted is so confident that a U.S. offshore market is developing that it has created a new entity, Ørsted US Offshore Wind, and has spent $510 million to acquire Deepwater Wind, which built the Block Island project.

Said Thomas Brostrøm, CEO of Ørsted US Offshore Wind and president of Ørsted North America, as reported by the Virginia Mercury: “We are moving quickly to integrate the two U.S. organizations so we can deliver large-scale clean energy projects as soon as possible. We look forward to continuing Deepwater Wind’s first-class work along the Eastern Seaboard and taking the U.S. market to the next level.”

Dominion’s own wind farm project won’t be using the same design and technology as the experimental turbines. Will Ørsted, which is partnering with Dominion Energy to build the experimental turbines, use the knowledge in other projects? Will anybody be using it? What happens if Virginia doesn’t have a hurricane in the next five or ten years? Will people wait to see the results before deploying conventional wind turbines? Do the experimental turbines serve any useful purpose at all?

Conversely, are Virginia and other states proceeding recklessly with their wind farm designs without benefit of the knowledge to be gained from Virginia’s experimental turbines? Aren’t seabed conditions on the continental shelf different than the seabed conditions in the North Sea? Aren’t hurricanes more ferocious and more frequent than North Sea storms? Perhaps the experimental wind turbines are a good idea and should be built, but everyone is in such a rush to build offshore wind that they’re taking on huge risks that could put the projects and much of the electric grid in jeopardy.

None of this makes sense to me.

Energy-Efficiency and Unintended Consequences

Electric vehicles are great for the environment, right? Usually, but not always. It depends on geography and when the cars are recharged.

Long ago Benjamin Franklin produced an economic analysis of Daylight Saving Time (DST). He showed how much tallow and candles would be saved if Americans arose earlier during long summer days to take greater advantage of natural sunlight. Similar energy-efficiency arguments are advanced today in support of the practice. The practice persists despite the lack of solid evidence that the troublesome time switch makes a difference.

Matthew J. Kotchen, a Yale economics professor, was able to take advantage of a “natural experiment” to find out. In 2006 Indiana switched to DST while simultaneously shifting some of its counties to a different time zone. The combination of policies allowed Kotchen and his colleague to compare differences in residential electricity consumption before and after. They found that the demand for heating and cooling differs across hours of the day and that the shift to DST increased both.

Environmentalists and public policy wonks have proposed all manner of ideas for encouraging energy-efficiency and conservation, says Kotchen, but it’s often difficult to know if they save energy or not. Some do work as advertised, but others, like Daylight Saving Time, do not.

Kotchen’s admonition should be borne in mind as Virginia plunges ahead under the Grid Transformation and Security Act and the Regional Greenhouse Gas Initiative to invest hundreds of millions of dollars in energy-efficiency and conservation. Not all energy-efficiency programs offer the same bang for the buck. Indeed, we cannot assume that all energy-efficiency programs even conserve energy!

The Yale economist found a natural experiment in Florida, which increased the stringency of its code in 2002. He compared the residential characteristics of electricity and natural gas consumption before and after the change. Initially, as expected, he found that stricter building codes reduced consumption of energy sources. But subsequent research based on California data raised questions whether the effect persisted over the long run. Kotchen revisited his Florida case study and found that electricity savings were no longer evident after five or six years, although natural gas savings did persist.

Another object of inquiry is electric vehicles (EVs). EVs run on electricity,thus reducing CO2 emissions from gasoline combustion. But charging EVs draws from the electric grid, and electricity is generated by a wide range of power sources, some green and some not. Kotchen’s research shows that the CO2 emissions attributable to EVs varies by geography — some regional transmission organizations have more renewable energy than others — and by time of day. If EVs are charged during daylight hours when solar output is at a peak, the CO2 emissions are lower than if the vehicles are charged at night when utilities rely more upon fossil fuels. In the Upper Midwest states, Kotchen found, EVs could generate more CO2 emissions than a car with an internal combustion engine.

(You can read Kotchen’s article, “Environment, Energy, and Unintended Consequences,” in the NBER Reporter.)

Human behavior is complex and often ill understood. Public policies often have unintended consequences — and energy conservation is no exception. As Dominion Energy proposes a raft of energy-saving measures in the years ahead and the State Corporation Reviews those proposals, they should adopt an attitude of humility regarding their efficacy. Virginia should not set up and run conservation programs on auto-pilot assuming that they will work as billed. Benchmarks should be established, resulted monitored, and programs periodically reassessed.

Updates: VCCS Transfers and Dominion Taxes

A Good Idea Which Is Spreading

A recent announcement from the Virginia Community College System provides a nice enhancement to an earlier Bacon’s Rebellion story about the smooth transition VCCS students can make to certain Virginia public universities.  A new articulation agreement has been signed with private Randolph-Macon College in Ashland.

The new agreement covers transfers from any of the state’s community colleges and “expands on an existing transfer program between R-MC and (J. Sargeant) Reynolds Community College, which already has facilitated transfers for more than 200 students over the past two years,” to quote the news release.

Not long ago there was a major cost difference between private schools such as Randolph-Macon and public universities.  Public-school price hikes have narrowed any gap and the private schools often have far more scholarship funds or work-study opportunities available.  Spending your first two years at a community college is still a substantial cost savings wherever you choose to finish.

“R-MC academic scholarships range from $14,000 to $21, 000, depending on the student’s GPA. All students are automatically considered for academic scholarships once they are granted admission to R-MC, and no separate scholarship application is required. In addition, (Guaranteed Admission Agreement) students who earned their Associate Degrees at a VCCS school will be eligible for a two-year College Transfer Grant from a program administered by the State Council of Higher Education for Virginia.”

This is a testament to the recognition throughout the higher education establishment that affordability is everybody’s problem, which of course requires recognition there is a problem at all.  It also indicates community colleges are providing a good educational outcome for students willing to do the work, which is always the essential ingredient.

Taxing Any Layman’s Ability to Understand

The State Corporation Commission is being asked to rule on yet another argument over recent federal corporation income tax reductions and how they should be reflected on utility bills.  Effective January 1, 2018, the tax rate dropped from 35 to 21 percent and the SCC quickly issued a directive to all public service companies that the benefits should pass directly to customers as soon as possible.

In a ruling earlier this year the SCC denied a Dominion Energy Virginia request to continue using the old, higher tax rate in calculating future bills for transmission costs.

The accounting behind that transmission issue was easier to explain than this latest issue, which centers on another of those specific rate riders which show up on your bill to pay for a specific purpose.  In this case the argument involves Rider W, for the Warren County gas combined-cycle generator, but the same question will crop up in all the other riders in effect during the change in the tax rates.  The decision on Rider W will be the precedent for all.

That charge on your bill is intended to collect the total lifetime cost of those individual projects, construction cost, operating cost, profit on capital, depreciation and taxes.  As the plant opened, a projection was made for how much to charge customers annually to cover all that, and it adjusted annually.  The adjustment looks back and includes an element of true-up, adding or subtracting a bit based on the actual experience of the prior year.

The argument at hand involves how to look at taxes which were accrued but deferred during the higher-rate period and paid later at the lower rate.  When I hit a phrase like “amortization of the deferral balance related excess deferred income taxes (“EDIT”) over the Projected Factor Rate Year” in written testimony, I’m going to step back and let the experts have it out.  For Rider W the dispute involves less than $3 million of the tax bill, and the total amount across all the various riders is not reported.  Forward-looking charges will reflect the lower 21 percent tax rate.

Two points, however:

  • Those folks down at the utility will not walk past one nickel on the sidewalk if they can help it.  They may have found a creative way to earn excess profits in a rider, which is supposed to be immune to excess profits. We need the SCC to be just as vigilant over small sums as large.
  • Should the General Assembly drop the ball on state tax policy adjustments to the new federal taxing regime, this process is going to work in the opposite direction at the state level. Dominion’s Virginia corporation income tax will grow, substantially, and every dollar will pass on to customers, not stockholders. Every dollar.

Imprudent, Unreasonable, Unnecessary, Approved

The State Corporation today found as a factual matter that the two-turbine Commonwealth of Virginia Offshore Wind (CVOW) demonstration project 27 miles off the coast is imprudent and places unreasonable costs and risks on Dominion Energy Virginia’s ratepayers.  It then approved the project citing the clear legislative mandate in an omnibus energy regulation bill passed earlier this year.

Other news outlets will provide the highlights, so focus on the words of the opinion from Commissioners Mark Christie and Judith Jagdmann:

“The Commission has considered the entire record. The Commission finds — as a purely factual matter based on this record — that the proposed CVOW Project would not be deemed prudent as that term has been applied by this Commission in its long history of public utility regulation or under any common application of the term. The Commission further finds, however, that as a matter of law the new statutes governing this case subordinate the factual analysis to the legislative intent….

 “As listed above, the General Assembly declared, in at least six separate locations, that a project such as CVOW is in the public interest. For specific purposes of offshore wind, the General Assembly further mandated that “the Commission shall liberally construe the provisions of this section.” In addition, the General Assembly made the new prudency proceeding in Code § 56-585.1:4 F merely voluntary.”

 “While we agree with the Sierra Club that, “the General Assembly wants this project,” we do not believe that the General Assembly has directed that facts regarding cost, need or other serious issues pertinent to a prudency petition should not even be developed or included in the factual record, if only for purposes of transparency. Nor do we rule herein as a matter of law that there can never be a set of facts regarding prudency that could overcome the multiple mandated public interest findings in the statutes. (Emphasis added.) There may be, but we need not speculate on which hypothetical factual record would be sufficient to overcome the governing statutes and require disapproval of the petition.”

In truth, it is hard to imagine a worse factual record, a worse example of wasting ratepayer money and imposing ratepayer risk.  For $300 million or more the company will receive only 12 megawatts of power and with the assumed operational efficiency of the turbines that will work out to 78 cents per kilowatt hour.  Then a hurricane may wreck it.

A few additional bullet points from the order’s text.  These are now findings of the Commission, not assertions by skeptics:

  •  Dominion’s ratepayers bear almost all the risk of a project design failure except for a limited amount of risk retained by the EPC contractor during the limited warranty period.
  • CVOW’s energy cost is 9.3 times greater than the average cost of the Vineyard Wind offshore wind project off the coast of Massachusetts, which is 8.40/kWh.
  • CVOW’s energy cost is 13.8 times greater than the cost of new solar facilities, which is 5.60/kWh.
  • The Company estimates that the construction cost of the larger scale offshore wind project would be approximately $1.77 billion, excluding financing costs.
  • The cost of energy from large-scale offshore wind is 13.10/kWh, which is also significantly costlier than several other conventional and renewable energy alternatives as listed above.

That $1.8 billion estimate for a larger wind field in the same location off Virginia Beach, and the estimated 13.1 cent per kWh energy cost, are numbers that had been held confidential during the proceedings.  But the demonstration project will not be using the same turbine technology planned for that larger project and will not have time to demonstrate much of anything before a decision is made on the larger project.

  • The Company asserts that it may seek additional cost recovery from customers if the Project exceeds $300 million.
  • Based on Dominion’s prior CVOW risk assessments, the contingency amount built into the projected $300 million appears low.

The order is very specific that only the $300 million initial estimate (excluding financing) is approved, leaving open the question of who pays for any cost overrun or how such an overrun might be treated in a future review of earnings and costs.   The $300 million plus financing is money that will not be available for future customer rebates.

To further drive home its point, the SCC also approved a Dominion request for a power purchase agreement for 80 megawatts of solar from a third party.  The news release paired the two announcements and highlighted that the other project is prudent, was competitively bid, and places the risk squarely on the shoulders of the third party provider.  The contrast is clear.