DEQ Pushes Back on RGGI Costs; Meeting Set

Current RGGI States

Virginia’s Air Pollution Control Board will meet April 19 to consider the next regulatory step to limit CO2 emissions from Virginia electricity plants through membership in the Regional Greenhouse Gas Initiative.

The agenda packet for the meeting, on-line here, contains more than 330 pages on the complicated issue, probably the best point counterpoint discussion on that already-voluminous record.  The entire record from the two comment periods is summarized, with DEQ staff politely thanking those who praise the regulation and vigorously disputing those who oppose it.  

DEQ takes quite a bit of space to answer or challenge the recent State Corporation Commission staff estimate of the cost impact (previously reported on Bacon’s Rebellion) and re-assert its own position that the cap and trade regime, accompanied by a 30 percent reduction in allowances over ten years, will not jack up retail costs.  To find that, read its response to Dominion Energy Virginia’s comment (number 20) starting on page 195.

RGGI will be the focus of discussion tomorrow as well.   The Virginia General Assembly’s reconvened session will take up Governor Ralph Northam’s veto of the bill requiring legislative approval for membership in RGGI, a veto likely to be sustained.  Less certain is the fate of Northam’s efforts to remove the same requirement from the budget, because for an amendment he will need a majority vote in both chambers to prevail.

The DEQ’s response to the claim of high customer cost basically challenges a couple of the key assumptions, and only time may prove who is correct.  It also basically dismisses the role of the SCC staff in the debate and assumes the SCC is merely parroting information or models provided by the utility.  There is a whiff of ad hominem in the response, which is unfortunate.  If DEQ is right that the staff just cut and pasted Dominion’s work, that would be unfortunate.

RGGI is a cap and trade regime and the market per-ton price for the carbon allocation credits is not set in advance. The credits will become more scarce over time.  DEQ projects the prices will remain basically flat and the SCC expects they will rise.  The higher they rise, the more impact it will have on customer bills, especially if the revenue in the future is diverted from the utility to the government.  That is clearly the goal of many advocates – a true carbon tax.

But there is also the impact on future capital decisions by the utility, with the SCC indicating early closures due to RGGI will stick ratepayers with stranded costs.  DEQ responds that that many of the coal-fired plants put under additional economic pressure by this new rule are probably going to close anyway, and those closings when they come cannot be blamed on RGGI membership.

“Dominion’s analysis for SCC staff assumes that certain coal units will not retire for economic reasons in the absence of a carbon cap…To assume that the Chesterfield coal units will continue to operate in the 2034-39 timeframe (70 years after that plant was put into operation) when similar coal units are expected to retire for economic reasons, raises questions about the validity of Dominion’s analysis for SCC staff.  Similarly, the units at Clover are assumed to continue to operate until their 55th birthday.

“In addition, based on publicly available information…operation of the Chesterfield units has decreased by approximately 50% over the past 10 years, and operation of the Clover units has decreased 33%. This suggests that these coal units–like coal units everywhere in the U.S.– are under considerable economic strain already because of low natural gas prices and low renewables costs.”

In an SCC proceeding, the claims and counterclaims would be followed by a wave of sworn interrogatories and an open hearing under oath.  Absent that the lay person just hears the two sides and wonders.

The second round of comments did seem to include more challenges and objections.  The expression of concern about customer cost was taken up by the Old Dominion Electric Cooperative, which has no stockholders to protect and is not known to stand with Dominion automatically.

“Even a modest increase in bills will be problematic, and larger increases in costs will turn electricity into a luxury item. The Cooperatives have only their ratepayers from which to recover costs; there are no separate stockholders. This fact makes the implementation of this rule all that much more troubling for the Cooperatives. This program has the potential to produce a multitude of unintended consequences, each of which could, individually, have sizable cost implications.”

There was also a focus on the question of energy from burned biomass, which also produces CO2 but is getting some level of exemption from the cap, requested by the forest products industry.  This brought a sharp complaint from an environmental coalition:

Allowing CO2 emissions from biomass combustion to go unregulated– when in fact, wood-burning power plants emit more CO2 per megawatt-hour than even coal plants–rewards cutting and burning forests for energy, when restoring and expanding forests is actually essential in the fight to reduce GHG. Virginia should show leadership by accurately counting CO2 emissions from burning biomass.”

Sorting out the competing claims would be hard for experts, and most of them enter this debate seeking a particular outcome.  The lay person is lost, but notes with nervousness that the retail price of residential service is more than 21 cents per kWh in New England, the heart of RGGI, compared to under 12 cents in Virginia.

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14 responses to “DEQ Pushes Back on RGGI Costs; Meeting Set

  1. Do we not already have a history of RGGI in other states that we can use to help predict our experience?

    This is once again, a game of inside baseball between the SCC, DEQ, Dominion and the ratepayers. Who is representing the ratepayers’ interests?

    By the way – my Cooperative – REC – offers water heater installation and repair in exchange for a switch they can turn off the heating element in high demand periods. They also offer an Ecobee Thermostat that also can be “adjusted” by REC in high-demand periods. Both can be overridden by the homeowner if they need to.

    So there are real options available for ratepayers.

    The bigger question is WHO can REC buy power from? Can they go around Dominion and buy direct from PJM especially when the bid price is lower than Dominion or the ODU plant?

    And this goes back to WHO really is actually representing the ratepayers because it’s not necessarily the SCC it appears – I’m now thinking they’re stealthily in bed with Dominion. Why is the SCC NOT using the experience of other states with RGGI as a guide for Va?

    • Always good to have the Party Line appear in immediate response to my work….I keep trying different times of day…Look, I really don’t think the SCC is merely parroting Dominion, and if they thought RGGI would have no rate impact or minimal I think they’d say so. It stands to reason there must be some impact; no free lunches. Otherwise why do it?

      Another big difference between this blog and others. Neither Jim nor I go to the server and hit erase on comments, tempting as it might be. We want the debate. On the other matter I have no idea who your coop buys from but it is not locked into one supplier I think. How that whole ODEC setup works might be worth a story….its a quality operation, or that was my impression in the past.

  2. Sorry if I seem to be always listening and responding! I don’t sit here all day but I do check in every so often… and I seldom go back to older posts unless someone asks me to.

    I honestly don’t know WHAT the SCC is up to AND they don’t seem to be inclined to explain their thinking and further unsettling when the folks who follow the SCC don’t seem to know either!

    I do not understand how they can be so certain they know the outcome if they’re not even willing to look at other states experience and it troubles me further than they don’t agree with nor want to collaborate with DEQ which is not exactly a bunch of environmental firebrands – take a look at their behavior on the ACP and coal ash.

    No – there is no free lunch but just as people buy more fuel efficient cars to reduce their costs – so can they – and they do – for electricity – this happens in other states and if you capture the revenues and feed them back into energy credits – it “works”.

    There is NOTHING inherently wrong in conserving energy. It’s not some sort of Green “conspiracy” to punish people. MOST people WANT to conserve energy and not waste it. There are others who don’t give a rats behind but I think you’ll find that a sizeable percentage of people WANT to do something about emissions as well as coal ash. They KNOW it might cost more but they are willing to tighten up on their use – just as they have with more fuel efficient cars.

    It’s not really a political or partisan issue unless we want to make it that.

    RGGI is not an evil conspiracy to punish people. It’s a common-sense idea – the very same idea that we used to cure the acid rain problem! It was actually a Heritage Foundation idea!

  3. One of the more interesting debate points raised in Steve’s article is that of stranded costs for old carbon-intensive power plants. The DEQ contends that those costs should not be counted in any RGGI accounting because they would be retired anyway.

    Perhaps so, perhaps not. I’d like to see DEQ’s documentation for that.

    Here’s another possibility. Dominion would retire those plants before their costs are fully amortized but not right away. Perhaps RGGI would accelerate their retirement. Thus, the correct answer of cost to rate payers might be somewhere between the SCC and DEQ claims.

    • You can find your answers at page 16 of the Staff analysis found here:

      Four units, Chesterfield 5 and 6 and Clover 1 and 2, retire prematurely due to added compliance costs. The book value of these units to DEV (ODEC owns half of Clover) is $781 million. The entire $781 million is recovered from DEV customers. This “retirement cost” appears not to have been considered by DEQ’s retained analysts.

      Further, the capacity supplied by those 4 units (~ 1,500 MW) has to be replaced, under PJM rules. The Staff determined this capacity would be most economically replaced by new gas turbine construction (1,376 MW) and solar generation (560 MW, nameplate). The resulting “capacity replacement cost” of $1.3 billion was also left out of DEQ’s analysis. (Since solar is incapable of producing round the clock, its “capacity value” under PJM rules is about 24-25% of nameplace).

      DEQ’s responses to Dominion’s citation of the Staff analysis did not, as far as I can tell, address Dominion’s continuing capacity obligation as a PJM member, nor its status as a vertically integrated utility obligated, unlike competitive or merchant generators, to serve all customers in its area.

  4. So I ask again. What has happened in other states that adopted RGGI?

    Surely that experience would be relevant.

    • Larry, there is a world of analysis of the impacts of RGGI, but alnost nothing of relevance to the issue of its potential impact on power prices in Virginia, mainly for two big reasons. First, most of RGGI is not in PJM. Only Maryland and D.C. are currently in both, although NJ was in for a time and is set to rejoin. So, the capacity supply obligations that Virginia utilities have does not pertain.

      Second, every RGGI member other than Vermont has de-regulated generation, so the costs of prematurely retired (and then replaced) utility generating units is not a factor in power pricing in those states.

  5. Well, for one thing – they all joined after legislative approvals, no unilateral executive decisions. I think most have different set ups, in that they are states where the generation and distribution are separated, meaning the utility and its ratepayers do not own power plants. They contract to buy power from merchant generators or their own regional marketplace (most are outside PJM.) How much of the cost differential (huge) is due to RGGI, I have no idea. It is not none. In most, the revenue from the CO2 auctions is a tax, kept by the government and spent on various other programs like conservation, helping folks with their bills, etc.

    Look, I agree that cap and trade is a reasonable method and I know its history. Where you and I deeply differ is that I do not consider CO2 a noxious pollutant like NOx or SOx in acid rain. When TMac first talked about this, he swore on the usual stack of Leftist Bibles that all the revenue would be returned to the ratepayer through the utility’s fuel factor, and if that were true, my angst would be reduced a bit. But that’s not The Plan, not at all. I think 80-90 percent of the change in the generation mix that RGGI may produce in Virginia would be happening anyway (kinda see DEQ’s point on the coal plants) so I see no real marginal benefit to joining. It’s part of TMac’s campaign for Prez, like those stupid gold plated wind turbines.

    As to cost to consumers I said it before Jim did – probably more than DEQ will admit but less than SCC fears. But not free.

  6. Well it sounds like it was good that I did not have time to voice my objections to RGGI on the public record. Not sure my fragile self could withstand the resulting DEQ’s vigorously disputing of all those who oppose it.

    Interesting point about about the wood waste biomass burning. That is something Virginia likes to do a lot of, and I would certainly wonder if it has merit. Obviously, if there is wood waste to burn, then it is good…but if we are just paying people to cut down good trees to burn them, that is not so good. Gov. Kaine was big supporter of the “hybrid” power plant.

    • I think burning ANYTHING is probably not good from an emission standpoint unless it is a high temp incinerator and even then – the
      goal is to reduce emissions by burning as much as you can – there still will be emissions.

      We may be burning more than wood if China no longer will accept our trash for “recycling”. Turns out we were never really recycling’ we were just bundling up the stuff and shipping it elsewhere. It’s not cost-effective to recycle it here. Maybe Trump can work out a deal with Mexico in exchange for their immigrants? 😉

      Oh , and one more. Remember all those drugs and hormones we now consumer as prescription drugs? Well.. we all pee the excess into the sewer system which then goes to the treatment plants which have no way to remove it and it goes into the waterways and fish and other critters are now also “consuming” those drugs and causing some troubling changes like intersex fish.

      We just can’t seem to help ourselves from crapping up the world we depend on!

  7. Re: done by fiat instead of ” legislative approvals, ” … geeze..there’s that commentary again! 😉

    Things WILL be different in other states and that obviously would have to be taken into account for analysis but since the big bugaboo is perceived to be adverse impacts on the cost of electricity – a simple cost matrix that has a row for each state and includes columns for the various states different situations and configurations along with years in RGGI and total cost increases – would be most helpful in trying to discern potential impacts to Virginia.

    NOT doing that just ends up with a he said/she said between competing interests like the SCC , Dominion, DEQ, etc.

    AND worse than that, it allows unverified info, opinions, and disinformation and misinformation to be put into the dialogue.

    It’s a big unknown with a LOT of room for mischief and FUD (Fear, Uncertainty and Dread).

    Finally, I THINK it could also be explicitly designed so that the tax money collected comes DIRECTLY back to the ratepayers as a reward/rebate for those who deploy demand-side conservation.

    I think that revenue could also be SHARED with Dominion to help pay for stranded plant costs and perhaps even coal ash cleanup!

    Finally, I think if such a well-designed plan is presented to ratepayers – they will support it because as I’ve said before – many folks are “conservative” when it comes to wasting money and resources – they want to conserve.. even those liberals do!

  8. re: ” Another big difference between this blog and others. Neither Jim nor I go to the server and hit erase on comments, tempting as it might be”

    so, I’ve been ruminating over this and if you or Jim want less comments or no comments – just say the word! I know I do a lot of them and I do notice that when I do less that others weigh in and if that’s a good thing then so be it. Just say the word!

  9. Pingback: No Appeal Filed on RGGI Regulation, Now In Force - Bacon's Rebellion

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