Economic Development Requires Grid Transformation

by Todd P. Haymore

Building a more diversified economy and regaining Virginia’s status as best for business were the overarching goals during my time as Secretary of Commerce & Trade under Gov. Terry McAuliffe’s administration.

Working in partnership with hundreds of companies, the General Assembly, regional entities, and colleagues in federal, state, and local governments, we were successful in our efforts to build a new Virginia economy, one less reliant on federal spending and more focused on private sector investment.

I have great confidence the momentum of the last four years will continue under Gov. Ralph Northam.

One way to help keep the positive results going is for state lawmakers to take steps needed to invest in the infrastructure of tomorrow. The Grid Transformation & Security Act of 2018 is an opportunity to address one of the state’s key economic building blocks and ensure we are best positioned for future investment, job creation, and prosperity.

Supported by state legislators on both sides of the aisle, this comprehensive energy policy package ensures a continued supply of clean, reliable, and affordable electricity from Dominion Energy and Appalachian Power for powering modern businesses.

Stakeholder input, which began last year, has continued during the current legislative session to ensure the proposal balances these needs with consumer protections and regulatory oversight. This work has led to greater immediate savings for customers, more opportunities for refunds and rate cuts, and an increase in State Corporation Commission reviews. The recent changes have been incorporated into both the House and Senate versions of the bill.

During my time in Gov. McAuliffe’s cabinet, we worked hard to keep Virginia at the forefront. We traveled the globe to open new markets to Virginia’s products and attract foreign direct investment. We promoted tourism, lured new employers, and supported existing businesses, which generated approximately 70 percent of the more than 200,000 jobs created from 2014-2018. The results included a record $20 billion in new capital investment, a drop in the unemployment rate from 5.4 to 3.7 percent, and significant increases in exports and tourism spending. Forbes, CNBC, and Site Selection magazine recognized the Commonwealth with top ten rankings for business climate.

Make no mistake about it, the affordability and reliability of energy is a key component of the site selection process.

Unfortunately, Virginia’s electric infrastructure is no longer keeping up with the pace of modern business innovation. Originally designed to take electricity one-way, from the power plant to your home, it wasn’t built to accommodate private solar generation from rooftop panels or spikes in demand from electric vehicle chargers.

As new technology emerges, so have the accompanying threats, which have been foisted upon our aging electric infrastructure. Cyber and physical threats are growing more complex, and frequent. Using secure communications networks and devices along with hardening for circuits and substations gives energy companies the ability to know with greater accuracy what is impacting their system.

With the influx of renewable energy sources in Virginia, come challenges we have never faced, or even imagined. A modern, or smart, grid would make it easier to continue the exponential growth of renewable energy needed to meet the clean energy demands of high-tech firms and continue to shrink the carbon footprint of residential customers.

The regulatory framework also needs to evolve. Policy experts, lawmakers, and stakeholders are working to redefine the current structure to ensure utilities can undertake a project of this scope without hiking rates on customers.

The Grid Transformation & Security Act allows investments to modernize the grid and expand the Commonwealth’s use of renewable energy primarily through existing rates. And it provides customers with bill credits, rate reductions due, and elimination of existing surcharges.

In short, I believe lawmakers want to ensure the costs of this transformation will not result in higher rates which would impact residential customers and hinder economic development. Indeed, transforming the grid is a necessary step to pave the way for the continued growth of a new Virginia economy.

If the General Assembly doesn’t act, others will overtake us and gain an upper-hand in retaining and recruiting businesses and the thousands of jobs that accompany them. Virginia can’t let this happen if we want to continue building a more diversified economy, and regain our title as the best state for business.

Todd P. Haymore served as Virginia’s secretary of commerce and trade under Governor Terry McAuliffe from 2016 – 2018. Prior to that, he served as Virginia’s secretary of agriculture and forestry under Gov. McDonnell and Gov. McAuliffe from 2010 – 2016.

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17 responses to “Economic Development Requires Grid Transformation”

  1. Steve Haner Avatar
    Steve Haner

    It is not necessary to reduce or eliminate the authority of the SCC in order to make investments in the grid. It is not necessary to allow the utility to retain 100 percent of its excess profits in order to make investments in the grid. It is not necessary to leave in place excessive base rates in order to modernize the grid. The grid modifications are going forward in other states with full oversight from their regulatory authorities, at fair and reasonable prices.

    Nobody in any hearing or any discussion on the bill before the General Assembly had questioned the need to modernize the grid, or doubted that ratepayers must pay for it in part (but perhaps not in full). But you do not need a 48 page bill with 24 enactment clauses to modernize the grid. You do need all that to hide from the voters and your customers what you are doing to them by handcuffing the SCC and jacking up your profit margins and providing special treatment to certain classes of customer.

    Now the plans for massive spending to place existing residential tap lines underground? That has the earmarks of a boondoggle.

    A state senator who is a friend, conceding the bill was indeed a way to vastly improve the profit margin of the utility at ratepayer expense, said “but if we don’t give them what they want, they won’t give us what we want.” In his case that was environmental provisions, but he was willing to throw ratepayers under the bus for his goals. I think the grid can be transformed quite well under the existing rules, and I’m fine with a legislative pronouncement that it is “in the public interest.”

  2. Steve Haner Avatar
    Steve Haner
    A coincidence, I’m sure….

    1. I understand that the column also has been published in Inside Business of Hampton Roads, and it has been offered to Bearing Drift.

  3. So this all part of well-thought out Master Plan, but it has been necessary to keep this s secret from the public. Got it.

  4. TooManyTaxes Avatar

    If consumer refunds are diverted to modernize the grid, the amount must be zero-cost capital. How do these sleazy lobbyists answer that challenge?

    Where are the environmental groups on this issue?

    1. “Where are the environmental groups on this issue?”
      Mixed but happy with solar push?

      1. TooManyTaxes Avatar

        Understandable. It proves to me why the consumers and the public interest cannot be represented by the environmental groups. The public interest is much broader than environmental issues alone. They need to be considered, but not exclusively.

  5. This bill doesn’t make solar cheaper. It makes it more expensive by giving Dominion control over most of its development and a 13.2% return on solar development (10% plus adders). Solar projects developed by third parties would not go in the rate base.

    Solar projects have a low enough cost and the skills needed to build them are widespread. We do not need to rely on a utility to build them. The same is true of gas-fired units. Independent power producers can build new gas-fired generation if there is truly a need to build them and the cost of the investment plus profit can be returned by wholesale energy prices. There is no need to double their cost by adding a 35-40 year stream of utility profits to them.

    Limiting the control of new generation to utilities considerably increases the prices that customers pay and does nothing to enhance reliability. The premise that underlies all of the decision-making on this bill is faulty. The narrative is directed by the organization that profits the most from lawmakers being misled about their choices and the consequences of those choices.

    Even the Secretary of Commerce’s article shows that he has bought Dominion’s sleight-of-hand. He says, “I believe lawmakers want to ensure the costs of this transformation will not result in higher rates which would impact residential customers and hinder economic development.” What he has not been told is even if rates stay the same, customer bills will go up considerably as a result of this legislation and Virginia already has the 10th highest electric bills in the nation. This isn’t good for economic development. The results of this bill (higher energy costs, less economic stimulus) will be exactly the opposite of the reasons that policymakers are supporting it.

    If Dominion wants to add new generation to the rate base to increase profits, it needs to be solar. Solar is the lowest cost means of generating a substantial amount of electricity in Virginia. Dominion’s own data shows that. It is also the only form of generation that Dominion’s new customers, the data centers, want.

    Solar would be more beneficial if a good portion of it was distributed throughout the distribution grid. But then Dominion would lose out on the profit and the extra profit from new transmission needed to attach utility-scale solar to the transmission grid.

    Dominion knows exactly what they need to do to get more money flowing to the parent company. That is why the bill is designed the way it is. The bill is dressed up with language to say it is better for customers, but it will raise their bills more than other alternatives. Most politicians are unable or unwilling to grasp what the true outcome of the bill will be (higher energy costs) so they just go along with it. Dominion cleverly masks this result by saying that “rates” will remain the same.

    This bill is designed to increase profits for Dominion Energy. Even the touted $1 billion in customer benefits must be run through Dominion’s profit machine first. And those benefits would be much greater and cost less if they were provided in other ways.

    Utilities in other states often propose projects that are better for the shareholders than the ratepayers. But in those states, there are fully empowered regulators on the job to assure a balance between the interests.

    1. Tom, please explain: If the proposed legislation prevents Dominion from raising rates, and if it calls for investing hundreds of millions in energy efficiency, which dampens consumption, how do overall electric bills go up?

  6. Steve Haner Avatar
    Steve Haner

    We are back with the walnut shells, Jim. They only promise base rates won’t go up. And they only promise that the investments they make in order to recapture dollars otherwise owed as refunds, those investments will not be the basis for base rate increase or new rate adjustment clauses. None of us think there will be enough “refund” dollars to pay for a $2 billion + grid upgrade, a 5,000 MW renewable expansion, and $1 billion in energy efficiency programs (which actually cost money because I think the utility gets paid for power it doesn’t sell!) Nope. After they have bled the ratepayers of what they owe us, expect a bunch of new rate adjustment clauses or higher existing rate adjustment clauses….

    One that is going to explode is Rider U for burying existing residential tap lines underground.

    And even those hollow promises not to raise the base rates expire in 2028, which is about when the full cost of these completed capital programs will kick in.

    Then all these people want to spend billions on moving coal ash from point A to point B….you don’t think the stockholders will take a hit on that, do you?

  7. Meh, not impressed by the article, sounds like a Dominion PR piece. Besides, isn’t this one of the clowns that gave the Chinese a wheelbarrow full of taxpayer cash in exchange for, well, nothing.

  8. Steve has it right. All of the investments considered as “in the public interest” are substantially in excess of the designated $200 million of ratepayers money that will be used to offset some of of the equity portion of these projects. (by the way what happened to the overcharges for 2015 and the rest of the $395-425 million overcharged in 2016? – some was coal ash expenses passed without evaluation – where is the rest?).

    So the investment not excluded by the new amendment will go in the rate base and will be repaid, plus interest recovery and profit – all under the current rate structure, so they can say there will be no “rate” increase. Some adjustment will be required to collect the amount of money needed to cover all of these new expenses, resulting in higher bills.

    The undergrounding of distribution and the Haymarket transmission lines are huge expenses, as is the $2 billion (for now) for the pumped storage boondoggle. Without legislative interference, it is possible that these projects would not withstand an objective regulatory review and either be trimmed back or abandoned as not being in the customers’ interest.

    Has the opportunity passed for putting the necessary language in the bill to assure that all of the tax savings will come back to customers?

    As a former utility guy, the simplest solution would be to return to 100% refunds, objective regulatory oversight, and a fair return, reviewed regularly. This works for utilities in other states, why not here?

    The ratepayers will be hit with big increases in their bills in the next few years as gas prices increase, the $200 million per year in extra charges for the ACP begin and the cost increases for the undegrounding, grid improvements and solar projects come home to roost. By the time the ratepayers recognize what has been put over on them, it will be too late. The Commerce Secretary and the politicians will wonder why people and businesses aren’t being drawn to Virginia and not realize that they were the reason.

  9. LarrytheG Avatar

    nothing in the opposition to Dominions “grab” is opposed to a modernized grid. The opposition is to the way Dominion wants to do it.

    We want competition on modernization to the extent it is possible with Dominion being a monopoly. We don’t want Dominion to be 100% in charge of what grid modernization is or is not – or whether 3rd parties can be part of it.

    I have expressed concern that the SCC could potentially be an impediment to modernization if they do not have sufficient expertise to judge what are good ROI investments and what are not… and do so in a fast evolving world.. without being sticks in the wheel spokes… but Dominion is not apparently calling out all it’s proxies… to make it sound like poor old Dominion just wants to make sure Virginia is keeping up with the times… and guide that ship… I might actually have bought that shtick for a minute until I saw the process that Dominion was following to get their way.

    no thanks even if you start sending in McAuliffe himself surrounded by the General Assembly with the GOP goobers hugging him… and grinning.

  10. TooManyTaxes Avatar

    So why doesn’t someone file a complaint with the VSCC? And perhaps there is something Dominion is doing that runs afoul of federal statutes and FERC rules. Has every “public interest” group sold out to the enviros?

  11. I don’t see this as a partisan issue or one group versus another. Larry said it correctly. There is nothing in standard utility regulation that is against improving the grid. If the grid modernization project makes sense and is also good for the customers the SCC will approve it. No special legislation is required to say it is in the public interest. The SCC exists to serve the public interest as well as to see that utility owners receive a fair return on their investment.

    During my utility days, if we felt the regulator was not going along with something that we thought was important to our utility we collaborated with the staff and showed them how what we are proposing was in everyone’s interest.

    Rather than doing that, Dominion runs to the GA to get a special dispensation and subvert the appropriate role of the SCC.

    There a lot of talented people at VEPCO. They can make a suitable case for their requests. If the an undergrounding project has real benefits to the ratepayers, there should be sufficient data to prove that to the SCC. Same for the Haymarket transmission, the pumped storage project, etc.

    Doing it the way it being done makes it appear to an outside observer that a proper business case for these proposals might not be there, so levers are pulled at the GA to generate the profit anyway.

    It is the point Delgate Toscano made with the amendment. If what Dominion says is really true, then doing it the right way will work out for everyone.

  12. I. Everyone here seems focused on the ratemaking aspects of this bill, which are admittedly atrocious, and the undermining of the SCC’s discretion to regulate in the public interest, which is pointless and tragic. But let me take a swipe at another factor: Mr. Haymore’s entirely unwarranted assumption that the current grid is in crisis and needs a “great leap forward” style modernization effort. Mr. Haymore says:

    “Virginia’s electric infrastructure is no longer keeping up with the pace of modern business innovation. Originally designed to take electricity one-way, from the power plant to your home, it wasn’t built to accommodate private solar generation from rooftop panels or spikes in demand from electric vehicle chargers.”

    This is a true but misleading statement: indeed the grid wasn’t built for these uses, but it can accommodate them relatively easily and cheaply. Besides which, most of the heavy lifting to adapt the grid for the future is being done on the higher voltage portions of the grid, which isn’t even reflected in Dominion’s Virginia-regulated rates. It’s Dominion we are talking about and for Virginia rate regulatory purposes Dominion only plans and operates its distribution system — essentially those facilities operating at 69kV and lower. Dominion still owns, but neither plans nor operates, its transmission system these days — the facilities operating at 115kV or higher, except at the direction of the independent system operator in the mid-Atlantic, the PJM Interconnection (PJM). The transmission system is regulated by the FERC, not the SCC, and the operation and planning of that portion of the grid have been turned over to PJM as required by FERC in a series of federal regulatory orders in the 1990s. It is FERC (not the SCC) that regulates Dominion’s transmission rates and PJM’s plans for the transmission grid. Not one dime of retail ratepayers’ money regulated by the SCC is supposed to go to improve the long-distance, bulk power transmission system; that money is collected from the transmission customers, which are the load-serving-entities (LSEs) in the Dominion Zone of PJM, and shows up on customer bills as a separate “transmission” charge. If Dominion’s shareholders ever end up paying any of the cost to improve the transmission system it’s because Dominion has failed to persuade the FERC that a transmission rate increase was warranted.

    So what’s so damned expensive or necessary about rebuilding the distribution system, which IS regulated by the SCC? Mr. Haymore again:

    “As new technology emerges, so have the accompanying threats, which have been foisted upon our aging electric infrastructure. Cyber and physical threats are growing more complex, and frequent. Using secure communications networks and devices along with hardening for circuits and substations gives energy companies the ability to know with greater accuracy what is impacting their system.”

    Again, this fails to distinguish between transmission and distribution. The cyber work is being spearheaded by PJM at the transmission level; Dominion needs to implement those grid-wide protections across its portion of the grid, including the communications between its control center and its lower voltage substation facilities, but that is not revolutionary. It’s the computerized communications between distribution substations and Dominion’s operations center that allows such modern miracles as the remote diagnosis of local downed wires and tripped breakers, resulting in the faster, automatic dispatch of repair crews when Dominion’s central computers detect outages. Centralized control and monitoring of substations began in the 1970s and has grown exponentially; it simply is not a new phenomenon. Much of this distribution communications and control upgrade work has been planned for years; the upgrades have been ongoing for years too, and therefore much of the cost is already built into Dominion’s distribution rates (so collecting for it again would be double-dipping). This really falls into the category of routine maintenance incorporating upgrades for new technology: it’s work done in the “ordinary course of business,” NOT work worthy of extraordinary or special, one-time, “great leap forward” style funding.

  13. djrippert Avatar

    You know the clowns of The Imperial Clown Show in Richmond, a wholly owned subsidiary of Dominion Resources are up to no good when they start trotting out their cheerleaders. First, we’re treated to a bi-weekly gushing about “The Virginia Way” by Chris Saxman and now this guy Haywire or Hayseed or Haymore pops up with yet another inane defense of Dominion and their personal prostitutes in the General Assembly.

    Here’s part of Todd’s bio …

    “In addition, Todd worked from 2011-2016 to secure new funds to create a global infrastructure of trade offices in Canada, China, Costa Rica, India, Mexico, Singapore, the United Arab Emirates and the United Kingdom to assist in the marketing and promotion of Virginia’s diversified portfolio of agricultural and forestry products.”

    I’ve been to every one of those countries on legitimate business (vs sloshing taxpayer provided funds). A trade office (and part of a “global infrastructure” of such trade offices, no less) to sell Virginia agricultural and forestry products in Costa Rica. I hope Todd caught a few roosterfish on his junket, errr, ah, critical government trip to Costa Rica. Pura Vida amigo!

    Wouldn’t it be nice to see a graph of total sales of Virginia agricultural and forestry products in, say, Singapore before and after we added that city-state to our global infrastructure of trade offices.

    One good thing you can say about Todd … he doesn’t piss away a lot of money on expensive haircuts. But that may be changing. Next month Todd starts his new career as Managing Director of the Global Economic Development, Commerce and Government Relations Group, based in the Richmond, Virginia office of Hunton and Williams.

    Who will The Imperial Clown Show in Richmond, a wholly owned subsidiary of Dominion Resources trot out next to justify the unjustifiable?

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