Make This Check To: Southwest Virginia

Source: Dominion Power website. Click for larger view.

Here is what I had to say in today’s The Roanoke Times about Dominion Energy Virginia’s proposed pumped storage facility in Tazewell County, addressed to the people so excited about the revenue it will generate. This posting is for the people here in the other part of Virginia who pay the bills for the utility.

Read here how Dominion is selling this to the Southwest Virginians who are not its customers, promising hundreds of millions of dollars in this propaganda. That all would come from our future bills. The $320 million in estimated benefits to them is just a start on what it will cost us because we will also be paying over decades for:

  • The profits to the stockholders,
  • The interest on any bonds or loans,
  • The massive construction project itself, and
  • No additional electricity generation, just a storage system for electricity generated elsewhere, much of it lost over the hundreds of miles of transmission lines.

The good news is perhaps this one can be stopped. This is one where we really need to have the State Corporation Commission study the costs and benefits closely with no more legislative games.

This one will be a serious gut check for Attorney General Mark Herring, ordered by state law to protect the interest of consumers in these matters, but eager to win favor out in the western regions.

When first proposed in 2017, the advocates were talking about filling a couple of abandoned coal mines and pumping water back and forth between them for pumped storage. You want to talk about endangering the water table? Polluting giant amounts of water with heavy metals? That idea was just nuts, and the bill received too little attention and almost no opposition.

Dominion representatives I asked disavowed the bill, claiming it wasn’t their idea. Yet it passed.

Somebody has pulled a bait and switch, and now the discussion focuses on a traditional approach with two reservoirs, very viable, proven technology. If it was for Southwest Virginia, if it was closely linked to say a major mountaintop wind field, then the economics might improve. If customers nearby were paying the bill and using the output, not Virginians hundreds of miles away, that’s very different. If the Bath County storage facility were running steadily at 95 percent capacity, that might change the economics. It’s not.

Worse for the proponents, battery storage really does seem to be improving in viability and cost. Imagine what the situation may be by the time this facility could be built. No valley need be flooded to install a bunch of batteries.

Which, of course, is why the legislation passed in 2017 seeks to prevent the SCC from considering alternatives and directs that the pumped storage project is “in the public interest.” Here’s the basic giveaway: If something actually is in the public interest, the General Assembly doesn’t need to declare it so. This the General Assembly substituting its judgement for the SCC’s and the engineers’.

We have yet another lesson in how Virginia does it wrong. There were no “nays” on Senate Bill 1814 in the House and only one in the Senate, Fairfax’s Chap Petersen. If inclined to ask your incumbent how this one slipped past, feel free.

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21 responses to “Make This Check To: Southwest Virginia

  1. Conceptually, pump-storage was originally designed to use the “wasted” Nuke electricity that would be generated at night and not be needed. It made sense to “store” in and then run hydroelectric during the day when demand was higher and exceeded what the Nukes were putting out. It was cheaper (I think) than just bringing on more coal/natural gas.

    This was also largely BEFORE wind/solar came along.

    Now we have solar putting out power – during the day and shutting down at night – the reverse.

    Wind does run 24/7 so that might play into it – as you say if turbines on the mountains did the “pumping” at night.

    But the thing not really acknowledged here is the fact that a lot of people are going to be forced off their land for this through the use of eminent domain for something that is not exactly a critical infrastructure need.

    Note that we DO NOT condemn mountain top or shore sites for wind nor other land for solar – Nope.. For that matter, we don’t even condemn sites for natural gas or coal. Did we condemn land for the Bath facility?

    Good article by the way. Thank you.

  2. My pleasure. I have a sneaking suspicion on this one, unprovable, that Dominion really knows this is a weak proposal but cannot tell the SW VA legislators no, not with all it owes them for prior votes.

    Utilities can use eminent domain for facilities like this. I suspect most of what we are talking about is largely uninhabited timberland. A big I-77 tunnel already runs through that mountain. (The old family homestead is actually a few miles away further west.) Renewable plus storage makes sense, but not renewable plus very expensive storage 200 miles away…..

  3. I don’t want to belabor this — but I think you’re making too much of the problem with losses and lack of proximity to the generation being stored — and too little of the final cost per megawatthour time-shifted to the people that invested in it — in this case, Dominion ratepayers.

    Losses are not insignificant in electricity transmission but they are so low today at the highest voltages (765,000 volts and 500,000 volts) that the concept of the unified operating region, where all the generation in the region is dispatched as one giant system on a lowest-operating-cost basis, became feasible when those high voltages were achieved in the 1950s and 60s. One such giant system stretches, in the case of PJM today, across a 13 State region from Cape Hatteras to Michigan. Within that system, or grid, any storage is used by the system operator, PJM, when it’s economically optimal to serve the grid to do so, regardless of where the electricity being stored is coming from or, when it is released from storage, going to.

    Bath County is used that way today, and “Tazewell” would be also. The incremental operating cost of pumped storage is near zero — there is no fuel consumed, only incremental maintenance expense — which is low when spread over all that storage and regeneration. When compared with batteries, pumped storage has greater losses (i.e. you get back a little less than you put in) and less maintenance (batteries have to be replaced periodically).

    But the distinctive characteristic of pumped storage, like anything hydroelectric, is up front cost of construction. The sunk cost of this investment is not reflected in how the unit will be dispatched by the system operator. If this were investment by an independent generator the cost would be carried by the equity investors in that company and they would keep the profits, if any, from the unit’s operation. But no independent generation company today would build a pumped storage project — because the carrying cost of the huge investment would far exceed whatever operating profits may reasonably be expected. Batteries, which are far cheaper up-front and getting cheaper, are only now becoming cost-effective to build. Pumped storage is far from cost-effective in that, overall, sense.

    Dominion doesn’t ask its shareholders to pay that carrying cost. Instead it puts the cost into its retail customers’ regulated ratebase — so they pay it. And the State Corporation Commission, which ought to reject this as a bad deal for the ratepayers, has a bad track record in recent years of approving such investments by Dominion when backed by a political tidal wave in the GA. What you describe looks like another political tidal wave building.

    The bottom line is: pumped storage is not an economically wise investment for anyone, let alone the ratepayers. But as long as the ratepayers pay the investment cost to build it, pumped storage will make a tidy sum in operating profit for Dominion’s shareholders — not enough to reimburse the ratepayers’ costs but a tidy sum nonetheless.

  4. If this was not Dominion’s bill, then why are they proceeding with the project? Oops–obvious answer. Payoff to Kilgore and rest of Southwest delegation.

    Obviously, a lot of people were hoodwinked on this one. It passed the House unanimously and was signed by the Governor.

  5. Acbar, I’m no engineer and if told that the line-loss at those voltages isn’t a huge issue, fine. When Dominion was getting the Wise County coal plant approved, line loss was discussed and I recall being told by counsel the numbers were confidential but a matter for concern. Dominion keeps a bunch of stuff confidential. When things are kept secret, I assume the worst. I do understand that electrons are just as fungible as dollars. I’m educable. But the placement of this proposal is not being driven by engineering, not that I can see.

    • I think Dominion likes to promote the public perception that it operates a closed. stand-alone utility system where locational losses matter. That helps support the myth that its distribution grid requires all that expensive “modernization”: as noted below, most of those losses are at the distribution level. Dominion rarely acknowledges that its LSE function is one of many dozens like it within PJM (some even bigger) and all dependent upon PJM for energy market savings and capacity reliability sharing and transmission planning, for that would run counter to the myth that Dominion must build new generation within its own service territory (or at least within the State) for reliability purposes, when in fact Dominion’s operating economics and reliability is far greater as a part of the PJM grid than separate from it. That was why the FERC pushed Dominion to join PJM in the first place.

  6. Thank you Steve and Acbar, for helping to reveal that this is another Dominion Profit Subsidy bill.

    A pumped storage unit is just a huge peaking plant. Currently, it takes lower cost energy during the night from must-run nuclear units and releases it during the peak demand period of the day when prices are the highest.

    The Bath facility takes about 10-12 hours to pump up and discharges at full capacity in about 4-5 hours. There is a net energy loss of 20-30%, which is why this is not considered a generating unit, but the difference in wholesale prices between nighttime and the peak hours makes the marginal price at least break-even.

    The Bath facility should be mostly depreciated. However, adding this new pumped storage facility for about $2 billion, would require ratepayers to repay Dominion about $8 billion ($4 billion in profit- in cash flow not NPV).

    Energy efficiency and demand response will continue to shave the peaks. And other storage options are rapidly declining in cost and offer more operational and reliability advantages.

    It would be better to disperse storage throughout the demand centers to reduce distribution and transmission congestion – lowering the cost to ratepayers, instead of putting one central facility hundreds of miles away from where the demand exists.

    Dominion will have to build some new transmission to connect this facility to the grid, adding more to ratepayers’ costs.

    There are line losses associated with long distance transmission. The EIA says Virginia has the 3rd highest losses in the nation at about 10%, but this includes distribution losses which are usually about twice transmission losses.

    Acbar is correct in saying the higher the voltage the lower the losses. For example, 765 kV lines lose about 1% , where 345 kV lines have losses of about 4.2%. A 500 kV line would be somewhere in between.

    The benefit to SW VA in the hundreds of millions of dollars sounds like one of those magic multipliers that Dominion used to puff up the supposed benefits of the pipeline.

    There would be property tax benefits, to be sure. But only a portion of the construction workers might come from the area. Like the pipeline, this would be just for a season or two. No full-time jobs. Those would number about 35-40 to operate a facility like this.

    If we wanted to boost economic activity in SW Virginia there would be many lower cost, more effective ways to do it. This will add billions to the energy costs of two-thirds of the residents of the state, for no good reason other than to increase the profits of Dominion.

  7. I just start these lessons and let the experts take over…..

    OMG, 10 percent line losses? That chart sparks plenty of questions…How does tiny Delaware get up near the top of that list? I know Idaho is sparsely populated and spread out….Do they have that by utility? How do APCO and Dom compare, Dom with Mt. Storm and Wise County and Bath outside its service areas?

    • Line losses for solar and wind generation are astronomical, and now in places one must also build an enormous amount of duplicate lines and related infrastructure (like this pump facility) to double and triple serve customers given the fact that wind and solar power generators are highly unreliable, inefficient, and sporadic, typically running at 70% generation loss just for starters. Thus the need for this pumped storage in the first place.

      • Do you have any evidence to back up these claims?

        • Yes, three major books on the subject all published in last few years and discussed at length on this website as found in the archives. And some point one must summarize here earlier discussion instead of endlessly repeating in detail the same commentary. Life is too short to do otherwise.

    • Idaho is heavily hydro. I assume they are willing to take the hydro power wherever they can get it (clean, free “fuel) and live with the losses.

    • Line loss is an interesting topic.
      To my eye, it looks like states the importing power from other states tend to have the highest line losses. So we do need more nat gas power plants in Virginia…oops political non-starter.

  8. Several observations:

    Economic development. “Economic development” is a lousy justification for pumped storage. I agree with the commentators above, if economic development is the goal, there are much higher-return investments that could be made.

    On the other hand…

    Batteries require capital investment, too. We all seem to agree that Dominion is incentivized to make capital investments in order to maximize its profits. What’s the difference between investing $1 billion in a pumped storage facility and investing $1 billion in batteries? Dominion gets a return either way. I suppose a pumped storage facility can be amortized over a longer period of time than batteries. Is that good or bad for rate payers? Could someone please explain.

    Let’s see the numbers. If batteries will be less expensive, then, by all means Dominion should invest in batteries. But what are the numbers? How hard are those numbers, and how much of the case for batteries is based upon the hope that the cost of battery storage will continue to fall? How much uncertainty is there with that expectation? I’d like to see the numbers and analysis before pre-supposing the batteries are a superior choice.

    Merchant generators require profits, too. I get a little impatient with the oft-made observation that rate payers will pay not only for the up-front capital cost of building a pumped storage facility, but the profit and the financing costs. News flash: Merchant generators may not be guaranteed a return on investment but they, too, want to make a profit, and they, too, would have to borrow money and pay interest on the bonds. Merchant generators will not make such an investment unless, in their calculation, they will generate enough revenue to recoup their capital costs, pay the interest, and make a profit to boot.

  9. I certainly agree, let’s see the numbers. I’m no expert. The law should let the SCC run an honest and open comparison, battery vs. reservoir, company-owned vs. merchant, open data and full cross examination. That’s my big complaint – Dominion gets the General Assembly to rig the process. This bill was a perfect example.

    The one huge difference with merchant generators? No ratepayer guarantees to back them up. Dominion runs a plant at 30 percent capacity instead of the promised 55 percent, and we’re stuck – not their stockholders.

    Reed, line loss is line loss, just physics (impedence? Been a long time.) I don’t think it matters what form of generation is used, but I could be wrong…..What you do have with those of course is variable output, a different problem.

    • Steve – Reed, line loss is line loss, just physics (impedence? Been a long time.) I don’t think it matters what form of generation is used, but I could be wrong.”

      You might be right technically. I was thinking primarily about the inevitable distance of fully built out solar and wind generation sources from customers, and the enormously complicated and extensive new grid necessary to serve it. One great obstacle is that huge amounts of space are required for these vast new industrial uses. Wind and solar require vast amounts of space, so as to cover and link up vast amounts of land acreage with industrial uses, some say a space that is a multiple of California’s total land mass, all of it located within “special places” that will get increasingly hard to find and build on. And increasingly over time, very little of these spaces will in fact be built near customers for a growing host of reasons. This will include fierce local opposition that will grow like Topsy. These inherent problems of wind and solar are compounded by its great inefficiency and unreliability that will require the continued operation, and in many cases, the increased operation, of fossil fuel plants, as is now happening the world over. This duplication will continue into the foreseeable future.

      The future of battery storage technology also remains highly speculative. Most serious observers give it zero chance of solving the problem soon enough or full enough, to make a meaningful difference in solving the problem for a variety of reasons. These include outstanding technical obstacles, huge cost obstacles, and the simple fact that wind and solar is highly unlikely to solve the problem on its own, with or without any hoped for battery technologies.

  10. Interesting story, Steve. It doesn’t seem that Dominion has made public much information about the real need for this project. If they are going to say that they need some energy storage if they move into solar why don’t they make their case. I also note that D started building its experimental offshore wind towers today.

  11. Wish I could pay for them with experimental dollars…

  12. The check ain’t going to Southwest Virginia, it’s going to Dominion stockholders, including nearly all Virginia Power and Dominion executives….

  13. “What’s the difference between investing $1 billion in a pumped storage facility and investing $1 billion in batteries? Dominion gets a return either way.”
    Short answer: hardly any difference at all. PJM will use them the same way in its system operations decisions. Per megawatthour stored, they yield comparable net operating income. The operating losses are a little higher for pumped storage, as TomH says; the operating expense of replacing the batteries periodically offsets that; so they are roughly the same cost to operate.
    Except for one thing: the amount of storage you can build for your initial investment of $1 billion is much greater with batteries than with pumped storage. How much greater, I’m not up to date enough to guesstimate today, but it’s a big difference. Pumped storage did make economic sense back in the 50s and 60s when the nukes were planned: they would run at zero marginal cost at night, and the storage was justified on the basis that it cost less [including carrying the cost of the investment] to shift some of that nightime nuke generation through pumped storage to the daytime peak hours when it was needed, than it would have cost to run alternative generation during those peak hours. Pumped storage made sense because the time shift saved more money than the storage cost.
    Today, the same logic supports time-shifting, but now it’s to shift solar generation from the middle of the day (and wind whenever it blows) into the evening hours when there’s generally the greatest generation shortfall and the highest marginal cost of energy. But over the 60 years between 1959 and 2019, heavy construction and land and environmental costs have skyrocketed while battery technology has dramatically improved and battery costs have plummeted. Now batteries are the better storage medium. Yet even batteries are only barely breakeven in regions with lots of solar, like California. I know of no independent generation builder willing to install bulk-power batteries anywhere on the eastern grid purely for the profit derived from time-shifting (in contrast, there are plenty of independents willing to build gas-fired generators, for example). They would laugh at the suggestion that pumped storage might somehow be more profitable than batteries. Yet that is what Dominion wants to build here, at retail ratepayer expense, even when the wholesale marketplace is saying loud and clear, “no way.”

    “OMG, 10 percent line losses? That chart sparks plenty of questions…How does tiny Delaware get up near the top of that list? ”
    On the subject of line losses, the chart from TomH is total losses from supply to load, I believe. Outside of its urban areas Virginia, hence Dominion, has a low density pattern of settlement that has resulted in lots of long, radial lower-voltage distribution systems delivering power from its substations, and long, radial lower-voltage transmission lines delivering power from the big grid transmission substations down to Dominion’s distribution substations. That’s a formula for high losses, though hardly Dominion’s fault. Delaware for example is even worse off because the highest voltage lines on the entire Delmarva peninsula are 230kV. On the other hand, the losses on the high-voltage transmission grid alone are relatively low — more like 2-3% on average. I don’t know the exact figures but will try to get a few examples from PJM. More importantly, high-voltage grid losses are so low that they generally do NOT drive most operating decisions. If a big gas-fired generator in Ohio is the next lowest-cost unit to dispatch, it rarely makes a difference if the increase in load that day on the PJM grid is in Illinois or in New Jersey whether to use that Ohio unit to satisfy the increase. Line losses, hence location, simply isn’t much of a variable at the grid voltage level. And pumped storage is definitely a grid-level input, like a big generator. Batteries can be installed in smaller batches at the distribution level and so some battery installations may, therefore, incur lower line losses with respect to nearby loads sharing the same distribution facilities, but at the grid operating level line losses are simply not so much of a cost variable that the location of a pumped storage unit (with respect to the location of load) matters, so long as the storage is connected to the grid at high voltage.

    “Line loss is line loss, just physics (impedence? Been a long time.) I don’t think it matters what form of generation is used, but I could be wrong. . . .”
    No, you are right.

    “The future of battery storage technology also remains highly speculative.”
    Yes, true; lithium ion batteries today do work (as in for example electric automobiles) but they are expensive to build, use scarce rare earth components, pose fire/explosion risks, and have limited cycling capabilities before they must be replaced. Better technologies are not here yet. There will be an explosion of uses for cheap bulk power batteries when they get here; but that day is always “next year.”

    “If batteries will be less expensive, then, by all means Dominion should invest in batteries. But what are the numbers? How hard are those numbers, and how much of the case for batteries is based upon the hope that the cost of battery storage will continue to fall?”
    The efficiency and cost effectiveness of large batteries today assumes the use of Lithium ion technology, such as manufactured by Mr. Musk. Those costs today and for the near term are pretty well known and predictable. How soon that technology will be undercut by something vastly cheaper and better is anyone’s guess. Whether Dominion should invest in batteries OR in pumped storage depends entirely on the money to be made from time shifting generation from mid-day to the evening hours. “Buy cheap, sell high” is the mantra for any business; but whether there are enough hours of the day in enough days in PJM when the proposed storage could operate at a net operating profit or “margin” given all the alternative resources in PJM is something Dominion should be required to demonstrate. The PJM data certainly exists and is available to Dominion and the SCC for a definitive analysis of this “what if” potential contribution to operating profit. And Dominion itself should be required to demonstrate what it will cost to build either batteries or pumped storage and how it will finance that cost and how that investment will be amortized through rates and whether the investment will cost ratepayers more than the net operating profit from the storage facility will benefit them.

    “The check ain’t going to Southwest Virginia, it’s going to Dominion stockholders, including nearly all Virginia Power and Dominion executives….”
    True, though there will be some employment benefits during construction out in the southwest. More importantly, the check for the entire return on investment will go to the shareholders because the entire investment will be covered by retail rates. Whether that would be through ratebasing or another RAC remains to be determined, I suppose.

  14. Smith Mountain & Leesville Lakes are pumped storage projects. When built, AEP failed to purchase most of the shoreline surrounding the lakes and instead obtained flood easements. The shoreline developed under local land use regulations until about 20 years ago, when AEP’s license came up for renewal. FERC decided AEP needed to be more involved in shoreline development, requiring restrictions never approved by locals, and AEP reinterpreted its easements to comply. You can read more about the debacle that ensued here:

    http://www.curb-ferc-aep.com/

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