Retailers Still Push To Escape Dominion Monopoly

The large retail establishments seeking to aggregate their electricity demand and take their business away from Dominion Energy Virginia have not been dissuaded by a February ruling that went against them.  One of the petitioners in that case is seeking reconsideration, and the petitioner in another major case has sharpened its argument that the State Corporation Commission erred.

If the policy goal is now to slow demand, to prevent the need to build more utility-owned plants in Virginia, isn’t this the better and more reliable path?  The utility-managed demand response efforts funded by ratepayers aren’t having much impact, as previously reported.

The SCC ruled on February 25 that if large retailers Walmart and Sam’s Club took their load off Dominion’s service, that would produce a major shift of costs toward other customers, mainly residential customers, and thus would harm the public interest.

Walmart was back March 13 with a petition for reconsideration, asking the SCC if it can take some but not all its stores to a third-party supplier.

“… if only a portion of Walmart’s load was aggregated, the adverse impact identified by the Commission in its Final Order would be mitigated and therefore could fall within the realm of the Commission’s statutory discretion to conclude that the reduced impact is not contrary to the public interest (and is consistent with the public interest),” wrote attorney Carrie Harris Grundmann in her petition (here).

Target Stores, which started its effort after Walmart and Sam’s Club (several others are pending), filed supplemental testimony later in March after it read the February 25 opinion.  It also noted that it would accept a partial aggregation if it could not take its full load away from Dominion but added a very pointed rebuttal to the earlier decision.

“Public interest” is a fickle thing.  The General Assembly has deemed it in the public interest to discourage Virginians from using electricity by various means, including cash incentives.  A major case over those demand management programs is also pending, with the energy efficiency and environmental advocates quite open in their desire to reduce Dominion’s sales.  Their stated goal is to reduce the need for new generation plants (of the fossil fuel variety.)

If taking electricity load away from Dominion by those methods is a good thing (debatable, but it is in the law), then why is it against the public interest to allow this herd of major retail customers to leave Dominion’s monopoly corral?  The amount of energy savings achieved by the energy efficiency programs is speculative up front and hard to measure even at the end.  Many of the customers involved happily increase their usage at the same time they accept the incentives (bribes) for joining the programs.

Should Walmart, Sam’s Club, Target, Costco and the others depart, the amount of Dominion energy not used is substantial, not speculative, and the change in demand is easy to measure.  Enough of them leave and it is conceivable that some proposed power plant might not be needed down the line.  That outcome is a fairy tale under the “energy efficiency” scenario.

And, as is pointed out in the very interesting supplemental testimony from Target, Dominion is protected when big customers leave because it can keep selling any power it produces, but they no longer use, to other users outside Virginia through the PJM regional electricity market.  Holly Lahd, Target’s Lead Program Manager for Energy, has done some deep research on that.

She estimates the millions of dollars Dominion would earn selling the energy not used by Target into PJM, and notes – correctly – that the profits on off-system sales are split 75 percent to ratepayers and only 25 percent to the company.  That is not true of company profits on sales to its own customers.  That’s one of the remaining benefits to ratepayers from the 2007 re-regulation bill.

“In Dominion’s 2018 fuel factor case Dominion witness Scott Gaskill testified that, in 2017, it was often more economic for Dominion and its customers to purchase power from the PJM market instead of generating energy using Dominion’s system resources due to relatively low PJM market prices. In other words, PJM market prices were lower relative to Dominion’s self-generation costs and lower than in previous recent years. If Dominion sold the energy associated with Target’s 2018 load, using the same method described above, I estimate Dominion could have received $4.2 million in revenue,”  Lahd writes.

If the SCC finds in its scheduled 2021 review that Dominion has earned excess profits that must be shared with its customers, Target will not get its share and those dollars will be allocated among the remaining customers.  Given Dominion’s history of finding ways to evade rate reductions and refunds, Target may not be giving up much.  But the SCC staff cited that as a downside for other consumers if Target left, when it indeed might be an upside.

And she dismisses a complaint in Dominion’s testimony in the Target case that its investors and the Wall Street analysts would be dismayed by the defection of a large number of commercial customers.

“I am confident that the investor community is well aware that Dominion, compared to other investor-owned electric utilities, operates in a very favorable regulatory environment. For example, Dominion can recover numerous types of expenditures through rate adjustment clauses (“RACs”), which allow for the guaranteed recovery of costs while earning Dominion’s authorized rate of return. Additionally, the authorized rate of return for RACs and base rates cannot be set lower than the average earned returns of a “peer group” of southeast utilities.”

The worst of all four-letter words in Dominion’s view is risk.  It is supporting the various efforts to reduce its load through energy efficiency programs because it controls and profits from the programs, it is allowed under the law to eventually collect “lost revenue” payment for the power it doesn’t sell, and (perhaps) it knows the programs do not really change much.

The effort by these medium-size commercial customers to aggregate their demand to a level above 5 megawatts, large enough to escape from the monopoly and its political stranglehold on the rate making process, represents actual risk.  Selling the power into PJM is not guaranteed, the price is set by the market and not by a compromised General Assembly.  Any profits need to be shared- no games with reinvestment credits.  Dominion’s resistance is logical.

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13 responses to “Retailers Still Push To Escape Dominion Monopoly

  1. I think the reference to California experience is not valid. It’s not what is happening nationally on electricity demand.

    And in Virginia – WHY should Dominion want to build additional plants if there is excess capacity in PJM to start with?

    Dominion is trying to squeeze every last penny it can out of it’s a monopoly – even if it means denying individual and business ratepayers the ability to lower their own costs and/or use less electricity.

    We keep pointing to RGGI as “evil” exploitation of ratepayers but compared to what Dominion is doing, RGGI is a piker. At least with RGGI – some taxpayers and ratepayers actually benefit.

    And finally, the VA GA is totally complicit in this – the same folks who cry about tax increases sticking it to taxpayers – those same guys are more than happy to let Dominion do it and they get away with it because these issues are essentially hidden inside the uber lobby world of the SCC.

    • The reference to that particular PGAndE program the SCC staff highlighted is perfectly on point. What that graph shows, and I agree, is there is a price point where conservation becomes widespread on its own.

  2. Steve, Two points:

    First, I’m confused. You say: “If the policy goal is now to slow demand, to prevent the need to build more utility-owned plants in Virginia, isn’t this the better and more reliable path?”

    I’m not sure that’s the policy goal. From the environmentalists’ perspective, the goal is to reduce demand in order to build fewer fossil-fuel power plants. The problem isn’t power plants, it’s fossil fuel power plants. The problem isn’t power plants built in Virginia, it’s fossil fuel power plants built anywhere.

    Right now PJM can supply electricity for lower cost than Dominion can build new capacity. Let’s accept that argument as true. What it does not take into account is the limited ability to import PJM electricity from outside Virginia. As transmission capacity gets maxxed out, PJM adds congestion charges for electricity to flow through chokepoints. does Holly Lahd take that into account in her analysis?

    Second, even if electric demand doesn’t grow by one KWh, as Dominion phases out older fossil-fuel plants, it has to replace them with something. There may be some slack in the transmission system, but if you want to rely upon PJM for more power, you have to build more transmission lines.

  3. Not saying its not complicated. But before I’m asked to pay more of my money to persuade somebody else to conserve, to use less power, shouldn’t we instead let someone who wants to leave just go? Why is one in the public interest and one not? Perhaps one of the others, who understand this better than I do, can explain.

    This just started as a story about the continued push for aggregation, but it was my idea to drag in a comparison of the two efforts – aggregation vs. demand management. Since the cases are both active.

    • re: ” But before I’m asked to pay more of my money to persuade somebody else to conserve, to use less power, shouldn’t we instead let someone who wants to leave just go? ”

      See the problem is that all ratepayers are allocated their share of the costs of the existing system and when one leaves and/or one uses LESS electricity – those saved costs get put on the others unless Dominion can find a way to put those costs back on the folks who want to leave or have utilized technology to save money on their bill.

      It’s the existing plants costs(plus new ones) that allocated across all ratepayers. That cost has to be paid no matter how many fewer ratepayers there are.

  4. Well , in terms of power plants and fossil fuel power plants – perhaps the issue is to NOT BUILD more plants if we can use less electricity and use solar when it is available.

    New plants – no matter coal or gas or Nukes will cost more money that will be added to ratepayers existing costs. The only way that makes fiscal sense is if you have more ratepayers so the additional plants are needed to serve them.

    And as pointed out here – demand-side conservation can essentially negate the need for more plants thus reducing costs for those that want to do so by adopting demand-side technology.

    The basic irrefutable problem in Virginia is that it’s clear that Dominion intends to maintain profits by essentially charging people for conserving and/or using cheaper 3rd party electricity.

    You can’t put that on environmentalists. That’s plain old crony capitalism aided and abetted by CINOS – Conservatives in name only!

  5. Steve- Why are these companies trying to escape the Dominion monopoly? Is it to lower their costs, or do they want to contract with green energy producers? I am under the impression elec costs are reasonable in Virginia, although I am concerned we may be hampering growth with higher than necessary electric costs.

    • The Dominion monopoly “model” was not designed for lower or less electricity use. It was always predicated on MORE “demand” AND everyone equally sharing the costs of existing and new plants. Think of it as an HOA where the costs per homeowner are based on the total costs of the facility amenities – equally divided among the homeowners. It does not let homeowners opt-out of the amenities to escape paying the costs of the amenities.

      So for instance, if a homeowner wanted to join some other swimming pool outside the HOA – they could – but they still would have to pay for the pool inside the HOA also.

      Dominion’s monopoly was not set up so that people could leave or use other providers or, in fact, use less electricity or solar. Anything that would decrease the demand on a per ratepayer basis – would roll up on other ratepayers.

  6. Jim, you say ” as Dominion phases out older fossil-fuel plants, it has to replace them with something.”

    This is not necessarily true. It is true that Dominion must own or have under contract enough capacity to meet its peak demand, plus a reserve requirement.

    However, Dominion’s weather normalized peak demand has been stable or declining since 2009. With the addition of the new Greensville plant, Dominion has more than enough capacity to meet its needs.

    The old plants were not going to clear the capacity auction anyway so they would not have counted towards the PJM requirements. The ratepayers are still paying for them as if it was 2013. Closing them saves Dominion money, and it will be years before those savings make their way back to the ratepayers, if ever.

    Besides, those old plants ran infrequently and contribute little to Dominion’s total energy production. The numbers look big when you consider the capacity lost, but not when you consider the energy production that must be replaced.

    Fossil-fired power plants are attracting the most attention. But since the latter part of the 20th century, every time a vertically integrated utility like Dominion built a new power plant, the price of electricity went up.

    While the new fossil-fired projects catch the attention of those with an eye towards the environment, any new project built by the utility (including energy efficiency) should concern the ratepayers because they will have to pay more.

    Commercial and industrial users are more tuned into these price increases compared to residential users.

    Virginia’s rates are 24th out of 51 (including DC). We are a bit below the national average, but the average is highly skewed by very high rates in four or five states. We are losing ground compared to neighboring states. Virginia’s rates are higher than all of the states surrounding us, except Maryland, but their rates have decreased in the past year. Ours are headed up dramatically with all of the projects the GA has approved to give Dominion more revenue.

    Larry said it correctly, “The Dominion monopoly “model” was not designed for lower or less electricity use.”

    Virginia’s rate scheme, as in many other states, is the same as it was in the 20th century. Utilities are paid more when they build more. This worked well for much of the 20th century, but utility revenues stabilize when growth in electricity sales stalls.

    One way to keep the utilities flush with cash is to create building projects that will give them new 35-40 year revenue streams. This is what Virginia has chosen to do. However, this will raise our prices of electricity to families and businesses throughout the state. And the projects are likely to yield very little benefit to the customers in return.

    The commercial enterprises see this coming and they want to have more choices about how to respond, as exist for them in many other states where they do business. They already negotiated a way to avoid being hit by the poorly conceived plan to have Dominion in charge of the state’s energy efficiency programs and put them in the rate base.

    If electricity consumers in Virginia had the freedom to obtain their energy from a third-party provider or generate their own, the need for more electricity generated by the utility would decline. Nearly 40% of the other states have programs that allow this.

    This has been the basis of success in the RGGI states. The carbon limits themselves haven’t had that much to do with it. Actual emissions were always below the target, even as it declined. It was the freedom of choice given to customers accomplished in ways that did not harm the financial interests of the utilities that made the program work.

    We could do the same here in Virginia by revising our energy policies and the way we regulate our utilities, without the regulatory overhead of a carbon cap, and achieve the same ends.

    I continue to be surprised by the resistance of the libertarian/republican business community in Virginia to the idea of an energy policy that lowers energy prices, creates jobs and new opportunities for innovative businesses, and improves the long-term financial prospects for our utilities. Is it also because such a policy would result in more energy efficiency and more widespread use of renewables (because the customers chose to use them)? I find that it difficult to believe that a new policy that reduced prices and created jobs would be opposed because it also could result in lower energy use and a cleaner environment.

    Why should we artificially protect our utilities against new energy trends, if such protection hurts their customers? Wouldn’t it be better to find new ways for our utilities to prosper by doing things that are good for the rest of us?

  7. If Dominion retains 100% of profits on its “in-system” sales but only 25% of “off-system” sales profits, is it any wonder that it cries out for the “public” interest whenever one of its in-system large loads tries to leave the system?

  8. Rowinguy,

    You are misinterpreting how this works.

    When Dominion builds a new power plant it gets 100% of the allowed profit, no matter how much it is used. If Dominion builds a plant for $1 billion, it will collect the $1 billion invested plus an additional $2 billion in profit over 35-40 years from ratepayers.

    Dominion also earns a capacity payment for fossil and nuclear power plants.

    Plus it gets paid by PJM for every plant when they operate.

    If one of Dominion’s plants operates to serve a demand outside their system, they get an additional bonus profit that is 25% of what is received minus the operating costs. All of their costs are paid plus this bonus profit. The customers get 75% of the bonus profit back to offset other fuel costs, because they have already paid Dominion in full for the power plant that is now being used to make Dominion extra money serving some other utility’s customers. This is only a gain for Dominion not a loss of any sort. That is why they want to build excess capacity 1) to get the ratebase profit and 2) to get this extra bonus operating profit. The customers pay more. The shareholders love it.

    The system is set up so that the utility wins every time. Not the same for the customers.

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