Who’s taking the hit — Dominion or rate payers?

Virginia’s biggest power company could benefit from the freeze in electric rates but it also could take a big hit to earnings from power-plant shutdowns. 

by James A. Bacon

One of the biggest stories of the 2015 General Assembly session was lawmakers’ efforts to prepare the state for the oncoming Environmental Protection Agency regulations that will compel Virginia utilities to reduce carbon dioxide emissions 38% from 2005 levels by 2030. Virginia political reporters, as is their wont, covered the debate as a political story, with an emphasis on Dominion Virginia Power’s role in shaping the final legislation. That coverage left me deeply dissatisfied, as I wrote last month in “Does Anyone Really Understand This Dominion Deal?” The argument I advanced then was that no one understood the deal. Legislators were buying a pig in a poke.

The overriding question was, and still is: Who will pay for the restructuring of Virginia’s electric power industry in order to meet EPA mandates? Dominion and the State Corporation Commission contend that write-offs on four coal-fired power plants could go as high as $2.1 billion while ratepayers could be stuck with $5.5 billion to $6 billion to replace the lost capacity with new electric generating facilities — as much as $8 billion all told. Environmental groups argue that energy-efficiency measures could reduce the impact on customers significantly. Still, that’s a lot of pain to spread around. Who will get stuck with the bill — Virginia’s electric utilities, ratepayers or someone else?

I have spent the better part of the past week reading documents, conducting interviews and checking facts. I don’t pretend to have definitive answers. Indeed, there may be no definitive answers. Every time I peeled away one layer of the onion, I reached another layer that raised more questions. But I do think I can clarify the issues and get us closer to the answers. In this blog post I will address how General Assembly legislation impacts Dominion, which supplies 80% of the electric power consumed in Virginia. In the next I will explain how the law affects rate payers.

First, some background…

Last year the EPA issued rules designed to reduce carbon-dioxide emissions implicated in global warming. Given the way the rules were formulated, Virginia will be required to make especially onerous cuts. In October 2014 the State Corporation Commission (SCC) staff weighed in with a letter contending that the proposed regulation would raise electric rates and jeopardize the reliability of Virginia’s electric grid. In November the McAuliffe administration, which supports the CO2-reduction initiative in principle, followed with a letter suggesting how the proposed guidelines could be made more equitable to Virginia.

Last fall legislators, too, were concerned what impact the EPA regulations would have on Virginia rate payers.  The SCC estimated that shuttering four of Dominion’s five coal  plants would result in a 22% increase to electric rates. In response, Sen. Frank Wagner, R-Virginia Beach filed Senate Bill 1349, which he characterized as a “place holding bill” to jump-start discussion of how to deal with the challenge.

An early version of the bill was “very hostile” to the EPA’s Clean Power Plan, says Cale Jaffe, attorney with the Southern Environmental Law Center. By the time the bill reached the governor’s desk, however, language that would have made it difficult to shut down the coal plants was stripped out and provisions were inserted to encourage investments in solar energy and energy efficiency. The capital press corps interpreted the legislative drama as a display of Dominion’s political muscle, making frequent mention of its outsized political contributions to legislators and its veritable army of lobbyists and PR staff.

Was the final legislative package, in fact, a giveaway to Dominion? Let’s start with a summary of the main features of the legislation. The new law:

  • Freezes base rates and exempts Dominion from biennial rate reviews for five years. The next rate review will be in 2022.
  • Requires the utility, not customers, to bear the risk of power plant closures due to federal carbon regulations over the next five years.
  • Requires the utility to forgo collecting $85 million in fuel costs from 2014.
  • Accelerates a reduction in fuel-cost cuts by 30 days.
  • Requires the utility, not customers, to bear the risk of all weather events and natural disasters over the next five years.
  • Establishes a pilot energy assistance program for low-income, elderly, and disabled customers.
  • Declares up to 500 MW of utility-scale solar capacity to be in the public interest.
  • Affirms the SCC’s ability to audit Dominion’s books at any time and requires SCC approval before any power plant can be permanently retired.

Now the gory details…Base-rate freeze.

Legislators and Dominion justify the five-year freeze on base rates, which comprise roughly half of the total electric bill, as a way to provide a measure of certainty to both Dominion and consumers as the EPA regs work their way through the system. According to the Virginia Committee for Fair Utility Rates, a group of large industrial customers, this measure would fix Dominion’s base rates at a level deemed by the SCC in the last biennial review as likely to be excessive by $280 million a year. The freeze, critics say, allows Dominion to continue pocketing those excess earnings.

Dominion takes issue with the $280 million excess-earnings figure. That number does not include one-time costs like employee severance, unplanned environmental costs, storm costs and power plant impairments, which added up to $600 million in 2011 and 2012, according to David Botkins, Dominion media relations director. The excess-earnings forecast is meaningless, he says: There are always one-time expenses that must get factored in. Natural disasters like hurricanes, tornadoes and ice storms are recurring events. Dominion will continue to be affected by new rules emanating from the EPA. The $280 million number, says Tom Wohlfarth, senior vice president of regulation for Dominion Resources, “is a “picture-perfect” forecast of earnings that does not take into account “stuff that happens.”

It’s important to remember that base rates reflect only ongoing operational costs. The freeze will not affect fuel cost adjustments, which will continue to nudge electric bills up and down as the cost of purchasing fuel fluctuates, and it will not affect rate adjustment clauses (also called riders), which pass through the cost of building new power facilities and other capital expenditures such as hardening the grid to rate payers. The estimated $5.5 billion to $6 billion capital cost of replacing coal-fired power plants with renewables, nuclear or gas under the Clean Power Plan will be borne by consumers, not Dominion.

Bearing the risk of plant closures. Dominion will assume the risk of plant closures for five years, a huge potential liability that would be passed onto ratepayers in the absence of this legislation. On paper this could be a significant sum — the company would have to write off about $2.1 billion if the plants were forced to shut down tomorrow. This would be a direct hit to Dominion’s bottom line. But there are offsetting factors.

Coal-fired power plant assets (excluding the Virginia City Hybrid Energy Center) will depreciate at the rate of $80 million to $100 million yearly, according to Wohlfarth. If the shutdown of the power plants can be delayed until the expiration of the five-year rate freeze, the liability to Dominion will decline to $1.6 billion. “The longer you can delay having to shut down the coal plants, the more value you get out of those plants,” he says. If the shutdowns were delayed beyond the five-year freeze, the liability would be shifted back to the ratepayers. That doesn’t mean Dominion would suddenly give up the fight to keep the plants open, he hastens to add. The utility would gain nothing from losing the capacity; conversely, if rates go up, it would risk losing large industrial customers to competition.

What are the odds that Dominion can delay the coal plant closings? The EPA regulations are not set in stone. Strong pushback from the McAuliffe administration and the SCC might persuade the environmental agency to reduce the CO2 reductions imposed on Virginia, which might mean closing fewer coal plants. And there is always the prospect of litigation — from other states, if not Virginia. Says Sen. Wagner: “The Supreme Court will ultimately decide what the states have to comply with.”

Says Wohlfarth: “It’s not a foregone conclusion that [the four coal-fired power plants] will be shut down. It’s a very real risk, but not a foregone conclusion.”

Foregone fuel costs. Before Gov. Terry McAuliffe signed the bill into law, Dominion was entitled to collect some $85 million in past fuel costs. In 2014 the SCC had deferred passing on those costs with the thought that spreading out payments would ease the impact on customers. The utility has agreed to eat them instead.

Immediate rate cuts. Dominion residential customers will receive a 5.5% cut to their overall electric bills to reflect lower fuel costs; industrial customers will get a 10% cut . Before the bill was signed, the new tariff was scheduled to go into effect July 1. The law accelerates that date to April 1. Changes in fuel costs are automatically passed through to rate payers, so this measure has minimal impact on Dominion earnings.

Weather events. Dominion will assume the risk for extra expenses incurred during natural disasters such as hurricanes, earthquakes or snow storms. This is a crap shoot. Dominion may or may not experience a hurricane during the five-year rate freeze. Hurricane Isabel, a major hurricane that struck in 2003, cost the utility roughly $200 million. A more moderate hurricane would cost in the realm of $100 million.

Hurricanes are inherently unpredictable. Dominion lists the following hurricanes in the past 15 years as affecting a significant number of customers and generating storm-related expenses: Hurricane Isabel (2003), Tropical Storm Ernesto (2006), Tropical Storm Ida (2009), Hurricane Irene (2011) and Hurricane Sandy (2012). Demos, a liberal public policy think tank, published a 2012 paper, “Economic and Environmental Impacts of Climate Change in Virginia,” arguing that hurricane incidence will increase in the years ahead, although only marginally in the near future. The paper assigns the following probability, based on National Hurricane Center data, to major storm events in Virginia:


Thus, in 2020, the actuarial odds are that Virginia will experience a tropical storm every five years, a Category 1 hurricane every 15.6 years, and so on. On average (according to my calculations, very rough numbers) Virginia has a roughly 30% chance of experiencing some kind of tropical storm or hurricane event in any given year. That produces roughly $150 million in potential exposure for Dominion over five years, although the actual number could vary widely.

Additionally, Dominion incurs maintenance costs for frequent weather events such as snow and ice storms. The company lists the following significant events since 2000: Super Bowl ice storm (2000);  February wind storm,  March Daylight Savings wind storm and tornadoes/lightning storm (2008);  snow/wind storm (2009); February blizzard (2010); and the June 29th Derecho (2012). Weather-related events cost the utility $140 million in 2011 and 2012, an average of $70 million each year.

Energy assistance. Dominion operates an energy assistance program (Energy Share) as well as a weatherization program for the poor and elderly. EnergyShare, funded by voluntary contributions from Dominion customers and employees, varies year to year but runs roughly $1 million annually,  says Katharine Bond, Dominion’s director of policy. A previous weatherization program, which expired in 2014, spent $4 million to $6 million annually. No budget has been set for an expanded successor program, which will be operated in conjunction with EnergyShare as a coordinated assistance program. Dominion shareholders will fund the weatherization program. If the new, expanded weatherization plan operates on the same scale as the old one — an assumption that Dominion officials are not willing to make — it could cost Dominion $25 million over the next five years.

Solar capacity. The bill declares the building of 500 megawatts of industrial-scale solar energy to be in the public interest, allowing Dominion to accelerate construction of solar capacity. The cost, already identified in the utility’s long-term Integrated Resource Plan, will be passed on to customers.

Summing up…

Let’s boil all this down: What does Dominion win and what does it lose from this deal?

It is difficult to assign a value to Dominion of the five-year rate freeze. Using the SCC figure of $280 million a year and extrapolating it over five years, this measure would be worth $1.4 billion to the utility. But the figure is incomplete, failing to take into account one-time expense charges that would be included in a  biennial rate review. In the 2011-2012 period, for example, these charges averaged about $600 million, or roughly $300 million per year. Wohlfarth, the Dominion regulatory executive, says there likely will be more one-time write-offs relating to weather, new EPA rules and preparations for the restructuring of the utility’s fuel mix. Also offsetting the windfall, Dominion is giving up $85 million in fuel-cost increases, and it will fund a weatherization program, which, if it equals the previous program, would amount to roughly $25 million over five years. Wohlfarth contends that the benefit of the freeze to Dominion will be minimal.

In exchange, Dominion takes on the liability for the possible shutdown of four coal plants — a figure that, if it occurs within the next five years, would exceed $1.6 billion. There are tremendous uncertainties. Will EPA modify its methodology for calculating Virginia’s CO2 emission targets? What are the odds that a lawsuit filed by 13 states will overturn the EPA regulations? What are the prospects of the next president reversing the Obama administration’s interpretation of the Clean Air Act that led to the CO2 regulations? Any reduction or abolition of EPA emission targets could wipe out some or all of Dominion’s liability.

Bottom line: It is impossible to say whether Dominion will come out ahead or behind in this deal. The rate freeze could benefit the utility, but by far less than the $280 million-a-year in benefits repeated in the media. At the same time, Dominion takes on massive risk. If efforts fail to reverse or modify the EPA regulations, its losses could be massive. In the end, any appraisal of what kind of deal Dominion negotiated depends largely upon one’s analysis of the odds that the EPA regulations will go into effect as they now stand. And that is an analysis that will have to await another blog post.

Author’s note:  I have made my best effort to include all relevant data points, obtain accurate information and make reasonable assumptions. If anyone can suggest additions or changes to what I have written, please let me  know at jabacon[@], and I will consider amending this analysis.This version differs in important details from a version I posted last night. In particular, it deletes mention of $600 million expenses with which Dominion will be credited in relation to preparatory work for a third nuclear unit at North Anna. That credit will be applied to the 2013-2104 biennial review not subject to the freeze — even though the review is being conducted in 2015.Also, this story corrects an under-count of one-time expenses included in the calculation of Dominion’s excess earnings. I had assumed, based on the experience of 2011-2012, that such one-time expenses would average $150 million a year. In fact, the average would be $300 million a year.— JAB

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26 responses to “Does Dominion Win or Lose from the New Law?”

  1. painful to read all of this – but the effort is much appreciated.

    my understanding was that Dominion could pass on fuel costs. For instance if they buy power from PJM – they can add that on to the “frozen” bills. Same thing if natural gas goes up in price.. right?

    also – you talk about being able to write-down costs – is that part of the calculation of profit? I’m wondering how the SCC determines profit and if it takes into account all revenues and expenses or is something narrow and other factors Dominion is free to better their bottom line and provide more to it’s investors?

    perhaps you know some of this and can address it.

    also – just listening to Dominions and the Press’s viewpoint and not the folks on the other side -may miss some issues.. so did you consult the Power to the People folks?

  2. basically I see too much willingness on the part of the SCC and GA to give Dominion what they want – and almost no staff pro-con analysis.

    it basically appears to be carte blanche …have not seen one single thing that the SCC or GA disagreed with and stood firm on…

    how much real due diligence was done by the SCC and GA?

    how about one or more analyses from JLARC and the Auditor of Public Accounts?

  3. I’ve said in other places but will repeat it again.

    Dominion has a responsibility to all taxpayers and rate payers to demonstrate how they plan to evolve the grid that really belongs to all of us and is not DOminion’s private property.

    What’s especially troubling about their plans for Hampton is – if we close more coal plants and similar reliability issues arise – what is Dominion’s default plan for responding to it?

    what do we know ?

    what we know right now – is they plan to re-route power from the Surry nuke plant – across the river when demand for power exceeds capacity in Hampton.

    but that brings immediate additional questions about what if it’s a high demand day for much of the rest of Virginia and other places also have reliability issues?

    is Dominion’s plan to shunt power almost as if it’s going to do rolling brownouts or blackouts?

    that’s not a plan.

    but that’s what it sounds like their plan is.

    where in their plan is the strategic use of geographically distributed natural gas plants? where are their proposals for sites for these plants?

    what Dominion is doing – is individual proposals that are not a part of an overall plan… just piece by piece approval requests – without ever really disclosing what the overall plan is for dealing with coal plant closures.

    as I said above – Dominion does not own the grid. They are providing services to Virginians per an agreement with it’s citizens through government yet Va govt – treats Dominion like Dominion is in charge and
    has the right to arbitrarily decide what to do then get the necessary approvals rubber-stamp style.

    Dominion is acting like a super-sized cable TV company where the “customers” are essentially captives who really have two choices – take it or leave it.

    Talk about Crony Capitalism and Rent Seeking…. those two terms pale in comparison to Dominion’s behavior.. and the rest of us are basically clueless rubes just along for a ride on that turnip truck.

    Welcome to the Virgina “business-friendly” Way.

  4. Peter Galuszka Avatar
    Peter Galuszka

    WHile I respect you for the obvious amount of hard work you have put in this, it is just TMI and misses the point. I don’t think we need a micro analysis of this strange law. We need to ask Dominion some real questions about what its plans really are. I have tried to raise my own questions in a separate blog posting.

  5. Any time a regulated company asks to be excused from being audited every red flag in the worldwide inventory of red flags should be raised.

    Jim did good work but got the usual “corporatespeak” BS from Dominion.

    This law would be a lot more palatable to me if Dominion was forbidden from making any campaign contributions or giving any gifts to elected officials in Virginia for the next five years. Putting The Imperial Clown Show in Richmond through cold turkey withdrawal from the largesse of Dominion might make the “oh, don’t worry about us over charging you” idea worth the risk.

    Of course it was The Imperial Clown Show in Richmond which decided to take on the role of the SCC through legislation. Kind of like the way the Clowns regulate only one marine species – menhaden. Why? So Omega Protein can continue to fish them to extinction.

    Henry Howell had it right – “Welcome to Virginia, a wholly owned subsidiary of Dominion Resources”. Note: He actually said Vepco but that was some years ago.

    1. mindful Avatar

      Any time a regulated company asks to be excused from being audited every red flag in the worldwide inventory of red flags should be raised.

      There may be reasons for that other than financial shenanigans. My guess is that Dominion doesn’t want some of its financial info in the hands of adversaries– such as various “green” interest groups and their allies in state and federal agencies.

      At any rate, in the final version of the bill, SCC maintains the right to audit at any time.

  6. Dominion did the same thing to Jim that they do to the GA and SCC.. and it does not speak well of them… it confirms some bad thoughts.

  7. Gov McAuliffe said he approved the legislation, he said because it was clear to him that Dominion management would have been devastated without it. OK but why? Of course, GA/Dominion agreed to remove some not-so-nice language in the draft legislation (oh please someone let me see the orig language).

    I just want to point out again that the 30% CO2 reduction target, is much greater when you consider the 2005-2030 population growth. It’s more like 50-60% per person CO2 reduction in the power sector. That’s a huge shift being mandated (some has already happened). I think saying just 30% reduction is a little bit false advertising.

    1. The kind of analysis you are engaging in is what I would have expected in communications between Dominion, the SCC and EPA rather than the politically-goosed language.

      The EPA proposal is a DRAFT proposal and they are, I’m quite sure, going to compare and contrast responses from the different states and see if there is consistency in what the states are saying – and then make a decision.

      some of this seems to be part of the States-Rights vs Obama’s thug EPA push back.

      You can bet that most GOP is “skeptical” about global warming and that most of Dominions executives are GOP-affiliated .. an opportunity to mix policy with politics…

      what’s going to trip them up – is other states who are taking it seriously and making real inroads.. ironically New Jersey is one.. has a large solar install.

      SOLAR is going to happen and chances are technology is going to progress like it has for other fields .. and Dominion may well find itself sitting on coal plants no longer needed regardless of the EPA.

      According to one of Jim’s charts, Dominion is counting on buying power from PJM more in the future.

      but where is PJM getting that power? from coal plants in other states?

      or natural gas plants in other states?

      how does that work if EPA is dealing with this on a bigger scope than individual states?

      someone has done an analysis on this.. one would think..

  8. There’s a perspective in the dialogue that if Dominion is “hampered” from carrying out their desired plan that it could result in reliability and cost issues.

    at the same time, they’re already blaming EPA if costs go up and they got legislation to protect them financially while still allowing them to pass on increased fuel costs including purchasing power from PJM.

    but if Dominion’s first priority is to protect it’s investors – who is to say that their plan is a cost-effective one for Virginians rather than Virginians being subsidizers of Dominion?

    or what even guarantees that DOminion is doing things smart rather than dumb – as in making excuses why they can’t effectively use solar when other states seem to not have that problem?

    If Dominion is guaranteed a profit, and shielded from other potential costs – what guarantees that they will function much different than a govt agency without a profit motive – who does things without regard to efficiency and cost effectiveness?

  9. Jim, this is a very perceptive analysis of the proposed deal and enlightening to me. Consider what follows from me to be quibbles for clarification. Regardless, I agree that even after a lot of digging, the deal overall remains hard for even a perceptive Dominion ratepayer to understand, and therefore it must be sold to the average voter or legislator on the basis of “trust me” which is a hell of a way to approach such regulatory matters.

    You say “base rates reflect only ongoing operational costs.” Not exactly. Base rates also reflect, as you correctly observe later, the cost of writing off any remaining investment in those older coal plants when they are scrapped. For rate purposes, what matters is how much investment has not already been depreciated (recovered by Dominion as an expense). You say it’s 2.1 billion if it happens right away. Very well; that sounds like a lot for generating plants built more than 40 years ago, but of course those plants include quite a lot of later investment for rebuilds, upgrades, scrubbers, that hasn’t been around for 40 years. My question: how would this write-off be handled for ratemaking purposes? You say, under the deal “Dominion takes on the liability for the possible shutdown of four coal plants — a figure that, if it occurs within the next five years, would exceed $1.6 billion.” Really? They would simply write-off the whole undepreciated amount in the year of retirement? Because if they amortized the undepreciated balance over many years, some of it probably would fall after the five-year mark and affect rates thereafter.

    You say, under the deal “ratepayers could be stuck with $5.5 billion to $6 billion to replace the lost capacity with new electric generating facilities — as much as $8 billion all told.” OK, you’re assuming, I suppose, that in the short run the cost of replacing the output of the retired units will be borne by ratepayers as a cost of purchased power under the fuel rider, and that in the long run any new facilities are covered by a new investment rider that goes into effect down the road. This makes sense assuming the Surry to Skiffes Creek transmission link is built before the retirements have to occur, though I wonder, if the Peninsula remains transmission-constrained, how will Dominion deal with the resulting costs and at whose expense?

    You say, “Dominion takes issue with the $280 million excess-earnings figure [because that] number does not include one-time costs like employee severance, unplanned environmental costs, storm costs and power plant impairments.” A valid criticism; but does the Commission’s $280 calculation already reflect, for example, average (normalized) storm costs, on the order of that $70 million you mentioned, or is Dominion at risk for the full amount of any big-weather events? I agree with Botkins that “the excess-earnings forecast is meaningless,” indeed quite unrealistic, if all such expenses are excluded from the forecast. You say, “I had assumed, based on the experience of 2011-2012, that such one-time expenses would average $150 million a year. In fact, the average would be $300 million a year.” That suggests the ‘unrealistic’ interpretation is correct.

    Finally, let me step back and observe, I’ve seen a little frothing at the mouth in these comments but Peter’s reaction is the most concerning. “TMI” he says, and adds “I don’t think we need a micro analysis of this strange law. We need to ask Dominion some real questions about what its plans really are.” From what I can read, they are being pretty transparent with you about their intentions and it’s the press generally that’s not asking the perceptive, detailed questions you are. The dollars are in the details. Anyway, they aren’t going away anytime soon; their credibility will be assessed in five years and if they have tried to pull the wool over us at this time I expect we will remember.

    Full disclosure, I once did some legal work for a company called Vepco, but that was many years ago. Having worked in the regulatory arena, however, makes me appreciate how risk-averse most utilities are, because they are at the mercy of regulators and their staffs in sometimes perverse ways. Take this deal for example: the driving force behind it seems to be to avoid the pointless exercise of going through “meaningless,” hence arbitrary, yet very time consuming, biennial rate reviews until 2022, based on a reasonable crapshoot guesstimate as to how things would turn out without those reviews. This says to me that the Virginia way of regulating Dominion is faulty. Most public utilities undergo continuing oversight by the Commission Staff but rates aren’t formally at issue unless either the utility or a complainant asks for a change. In Virginia those rates have to be defended from the ground up every two years regardless of what has or hasn’t happened. That’s a waste of everyone’s time, particularly if the Staff comes in to start the process with a forecast of “overearning” based on grossly unrealistic assumptions.

    1. re: frothing

      well.. I do not .. I NEVER take as gospel something coming from the mouths of those whose actions are depicted to be in the public interest but there is an inherent conflict in their own interests – especially when there is conflict between the two.

      that’s why comparing and contrasting Dominion and their claims with other states and PJM is injecting a little bit of truth serum into the issue.

      From the get go with the SCC doing what they did in their letter to the EPA, I smelled a skunk – especially when Bill Howell starting waving the letter before it ever got posted on the SCC website.

      and I do not buy the ” if you don’t do exactly what we propose – Hampton will be put at risk for electricity reliability. That kind of way of dialoging is a red flag to me.

      and I still ask the question. If other states also have to close coal plants and PJM has to try to continue to do it’s job with coal plants closing down all around the region – where is their analysis and why does it not have the chicken little flavor to it ?

      and I still think if SOLAR sees more breakthroughs.. Dominion is going to have more problems than EPA with it’s stranded capital costs…

      Dominion appears to be politically doubling-down – but thoroughly asleep at the switch for the sustainability of their business.

      they’re not going to have the EPA to kick around and make excuses for – for much longer.. events (not POTUS) are going to overtake them.

    2. Acbar, Thank you for wading through the entire article. I do agree with Peter that it’s TMI in the sense that few people will bother to wade through it in order to understand what’s going on. I’m hoping that enough people, like you, will make the effort and add to a constructive conversation. On to your points…

      – Yes, $2.1 billion is a lot of money for a lot of aging coal plants. But, as you surmise, Dominion has sunk hundreds of millions of dollars into retrofitting them to meet the EPA’s previous toxic standards.

      – $5.5-$6 billion cost to ratepayers. I’m not sure that the fuel rider has anything to do with it. My understanding is that Dominion would recoup its capital expenditures on replacement power plants through the Rate Adjustment Clause. (I’m always willing to stand corrected. This is new stuff for me.)

      – No, the SCC’s $280 million forecast of excess earnings does not include storm-related costs. It strips out unknown or impossible-to-predict costs. I don’t think the problem is the SCC — they have a precise meaning and use for the calculation of excess earnings. The problem is that it has been either misinterpreted or misused by others. (Again, I’m always willing to stand corrected, but that’s my understanding.)

      – I’ve been impressed so far by Dominion’s responsiveness and transparency. The Integrated Resource Plan spells out the company’s thinking very clearly. That’s not to say that we should take everything Dominion says as Gospel. I pushed Dominion very hard on a number of points that I didn’t address in the article because their responses ended up making sense. Meanwhile, I’m hoping other articulate and knowledgeable critics of Dominion will weigh in here. If Dominion is omitting information, I want to know about it.

  10. re: Dominon’s responses?

    huh? where are they?

    they’ve had every opportunity to directly engage the public and what have they done instead?

    very little of what Dominion is saying makes sense in the context of PJM’s approach to, what seem to be, very similar issues.

    Part of Dominons “strategy” to coping with the loss of coal plants is to buy power from PJM. Why do they think PJM will have power available to sell if PJM is being affected also by the proposed EPA rules?

    where is PJM going to get the additional capacity to sell to Dominion from?

    you want to know what would get my attention big time?

    PJM coming out with a report like Dominions – expressing concern about their ability to maintain reliability in the light of the EPAs Clean Power Proposal.

    where is that concern?

    1. The SCC analysis on the cost of closing four power plants is similar to Dominion’s. Of course, your theory is that the SCC is in Dominion’s pocket.

      Tell me, Larry, how does that work? Dominion doesn’t make contributions to the SCC or SCC judges. Do you really think the SCC staff is a bunch of Dominion hirelings?

      1. Jim – yes I’m suspicious and suspect there are industry folks, perhaps Dominion folks on SCC staff.. they make the CPP a political issue rather than an objective analysis that addresses Dominion’s Plans as well as the PJM.

        Why not a JLARC or Auditor of Public Accounts analysis if the SCC one sounds like the same thing DOminion is saying but very different than what PJM is saving?

        so – yes – the two of them talk too much alike for my liking.

      2. re: ” Tell me, Larry, how does that work? Dominion doesn’t make contributions to the SCC or SCC judges. Do you really think the SCC staff is a bunch of Dominion hirelings?”

        Jim – Do you know how SCC commissioners and judges are appointed?

        geeze guy – YOUR’RE the one who thinks gov sucks.. and can’t be trusted, right?

        how many times have you alluded to crony capitalism in your writings?

  11. Off the topic but is Dominion planning for potential Grid/Load defection?

    1. Good article – and I believe the day will come when that is true – and it might well be much sooner than later.

      but one curious thing does trouble me about SOLAR and that is there are hundreds of islands on the planet and virtually all of them have to import bunker oil or others fossil fuels to generate electricity – and the price can be 4 or 5 times as much as coal-nuke-generated grid electricity in the US.

      Yet – very, few islands have gone solar – a few – but not many and not on a large scale for larger islands.

      so why is that?

      One would think that of all the venues where SOLAR would have the best opportunities for use – would be – those islands that now generate electricity from bunker oil… at 40 cents a kw hour.

      so why is that? or am I missing something?

      here’s my theory.

      that we’ll all know – including Dominion – that SOLAR is for real as well as a real threat to Dominion’s coal generation – when most of the world’s islands go SOLAR.

      until that time – I’m a bit of a skeptic …..

  12. The problem with solar is that it is intermittent. Until it’s economical to store excess solar energy in batteries or some other device, it will always require backup. Dominion is phasing in solar to function as summer daytime peaking capacity. But no one would ever depend upon it for base capacity.

    1. solar IS intermittent but natural gas turbines can ramp up fast to supplement solar.

      why is that not a reasonable approach?

      you build a natural gas turbine plant and you surround it with solar – and you tie the two together to modulate output.

      why is that not an answer?

      people can do that very thing right now by putting solar on the roof and having a propane backup generator.

  13. “Build a natural gas turbine plant and you surround it with solar – and you tie the two together to modulate output.”

    That’s pretty much the way it works. But building redundant backup capacity is expensive.

    1. it’s expensive if you have to close a coal plant anyhow and you want to replace that plant with distributed replacements.

      they have the added advantage of building geographic resilience into the grid…

      I thought you had bought into that “resilience” idea….

  14. I see closing the coal plants as an opportunity to modernize and upgrade the grid to be more reliable and more resilient. It’s not “expensive” if you’re investing in the future – you’re saving money – long term.

    but the other point is – if ratepayers and customers start doing that themselves and using the grid power as fall back power – is that outcome better than Dominion doing that themselves and making a profit off of doing it as a service to customers?

    My perspective is that Dominion is doubling down on one thing – generating electricity from sources other than solar… and what happens downstream does not concern them – in very much the same way that Kodak never believed digital was a serious threat to their business model.

    You keep talking about disruptive technologies.. isn’t this a prime potential?

  15. it would seem to me – that anywhere Dominion puts a natural gas turbine plant – that the geographic area around it could support solar and in doing that – it would be an opportunity for both Dominion and electricity users.

    imagine a grid – where the baseload nuke and coal runs 24/7 and nat gas makes up the gap – and essentially opportunistically scavenges solar – when available.

    every kw of solar – saves a kw of nat gas-generated electricity.

    here’s a question for you – do you know what Dominion does when demand falls below what coal and nukes are generating?

    what do you think they do ?

    here’s what they do.

    they disconnect the turbines – but they continue to burn fuel.

    coal and nuke plants are “dumb” – they are basically on or off.

    they don’t modulate.

    how do you minimize having coal plants burning coal but not driving turbines because there is no demand for more electricity?

    Coal and Nuke cannot be modulated up and down … it takes days.. even weeks to modulate them.

    what do Nat Gas plants do? they ramp up and down much faster. they can fire up or shut down in a few hours or even less.

    so we’re burning coal just to be burning coal . not to generate electricity – at times. We’re running Nuke plants – with the turbines turned off, just wasting nuke fuel and shortening the lifespan of the fuel.

    Natural Gas is how you minimize burning coal and nuke fuel when you don’t need the baseload.

    You say this can’t be done?

    au contraire.

    there is a nifty little agency known as PJM that does exactly that – it essentially scavenges excess coal and nuke generation and re-routes it to places that need it.

    it works pretty good – but there is a phenomena known as “line loss”.

    ” Transmission and distribution losses in the USA were estimated at 6.6% in 1997[11] and 6.5% in 2007.[11] By using underground DC transmission, these losses can be cut in half.[citation needed] Underground cables can be larger diameter because they do not have the constraint of light weight that overhead conductors have. In general, losses are estimated from the discrepancy between power produced (as reported by power plants) and power sold to the end customers; the difference between what is produced and what is consumed constitute transmission and distribution losses, assuming no theft of utility occurs.”

    so the further you transmit – the more the loss…

    but please also note that on the James River Crossing – Dominion claimed that underground power was not viable. This seems to contradict that.

  16. Several locations across the United States are replacing coal fired power plants with hybrid natural gas and solar. Although burning natural gas is not ideal, it is preferable to coal in that it provides low emissions for cleaner air, decreases dependence on foreign oil and eliminates the coal ash disposal dilemma.

    Increasingly strict emission controls have increased pressure on coal plant operators with the Obama administration recently adding more inducements. Unfortunately, most plant operators do not know how hybrid plants work having no experience with them. The solar community must stay abreast of conversion projects and begin educating utility operators and regulators on solar options as soon as possible so projects can be grandfathered before expiration of state solar incentives.

    The U.S. Energy Information Agency says at least half of the 15 gigawatts (GW) of power generation retiring in the next two years are in locales where a solar hybrid plant could be used to produce half of the generating capacity. The potential new solar installation capacity through 2015 is almost 4 GW, about 2 GW annually, or a 37 percent increase in annual solar capacity growth.

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