Make Electric Conservation Part of Virginia’s Policy Mix

In yesterday’s column, “Power Politics,” I endeavored to present Dominion’s side of the electric re-regulation controversy fairly and even-handedly. Now it’s time to editorialize.

To refresh those who haven’t been keeping track: Responding to fears of rate spikes when rate caps expire at the end of 2010, Dominion proactively approached the General Assembly with a proposal to submit to “hybrid” regulation, what I call Regulation Lite. To help finance a massive new power-plant construction program, Dominion wants the State Corporation Commission to agree to an arrangement that would guarantee Return on Equity of of roughly 12 percent a year (pegged to the performance of peer utilities in the Southeast).

My main concern about the current debate over re-regulation is that most lawmakers and stakeholders are focusing on short-term challenges — warding off rate hikes — rather than thinking about long-term energy strategy. Not that I blame them — no one wants to see a repeat in Virginia of what happened in Maryland, where rates shot up 30 to 70 percent, depending upon the utility.

Regardless, there’s the larger point to consider: What happens to rates after 2010? Are the interests of Virginia citizens best served by Dominion’s plans to embark upon a massive infrastructure upgrade of new power plants and transmission lines? Or could an alternate set of policies — conservation, distributed generation and renewable energy sources — accomplish the same task?

Dominion gives lip service to conservation as a tool for taming Virginia’s growing thirst for electricity, but the company’s heart really isn’t in it. As Dominion executive David Shuford candidly explained, Dominion makes money by selling electricity, not by selling conservation. Not that it really matters, he added, because conservation isn’t likely to curtail electricity demand very much in any case.

In response, I would point to a study just published by the American Council for an Energy-Efficient Economy, which explores the impact of energy efficiency and renewable fuels on the demand for electricity in fast-growth Florida. States a press release summarizing the report: “The efficiency policies would moderate 2023 electricity demand by 19%, while the renewable policies would reduce conventionally generated electricity by an additional 26%, for a total reduction of 45%.”

The study’s executive summary lists 11 recommended policies, including a Renewable Portfolio Standard, utility savings targets, more stringent building codes, rate incentives and other initiatives. State the authors:

The economic savings from the policies recommended in this report can cut Florida consumers’ electricity bills by over $7 billion in 2013 and $84 billion in 2023. While these savings will require substantial investments, they cost less than the projected cost of electricity from conventional sources.

Reducing demand for electricity with efficiency and renewables will also reduce emissions from the combustion of fossil fuels at utility power plants, offering the state a more sustainable environmental future at an affordable cost.

I’ve learned to take such studies with a grain of salt. Invariably, they tend to use optimistic assumptions that bolster their case. Furthermore, there are important differences between Florida and Virginia. For instance, Florida’s utilities are far more dependent upon natural gas, which is far more expensive than coal and nuclear, than are Virginia’s. But even if the impact of these ideas upon Virginia were only half as great as in Florida, they need to be part of the public debate here.

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5 responses to “Make Electric Conservation Part of Virginia’s Policy Mix”

  1. Ray Hyde Avatar

    A guaranteed return of 12%? Is that on book value or current market value?

    Where can I get some of that action?

    Do you suppose that when they come to take my land I can ask for a guranteed return on equity of 12%?

  2. Jim Wamsley Avatar
    Jim Wamsley

    We can hope that the GA understands that that is a negotiation first offer. The counter offer should be the VA AAA bond rate. Return on investment for utilities is a blend of expected stock market return and bond prices. Both are public knowledge and JLARC or the regulators should hold VDOT to a return commensurate with the job they do. Higher KW cost means lower return.

  3. Groveton Avatar

    Guaranteed return of 12%.

    Very nice.

    Regulated business gets guaranteed return.

    Unregulated businesses get whatever return they earn.

    Executives of enterprises who have “guaranteed returns” get paid on the civil service scale.

    Generals, Admirals, Secretary of State, Governor of Virginia.

    Doesn’t Tim Kaine make $141,000 per year?

    What do Dominion’s executives make?

    Chairman – $2.76M / year w/o counting options exercise.

    CEO – $1.57M / year w/o counting options exercise

    CFO – $1.00M / year w/o counting options exercise

    COO – $741K / year plus $502K that was generated from the sale of options last year = $1.243M

    If Dominion wants the taxpayers to guarantee a return shouldn’t their executives get paid more like the other executives who work for the taxpayers?

    How about a total cap of no more than twice what the governor makes?

  4. Jim Bacon Avatar

    Groveton, I believe the guaranteed ROE would apply only to Dominion’s Virginia subsidiary. Dominion owns a large number of unregulated enterprises: gas distribution, oil & gas drilling, and lots more.

  5. Groveton Avatar


    I understand the point about the unregulated businesses. But why don’t they need guaranteed returns in all the states where they provide electricity? Is Virginia the only place where they sell electricity? If not, so they need guaranteed returns in the other states?

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