SCC Again Denies Escape from Dominion Monopoly

SCC: We’re All In This Together

The State Corporation Commission has denied another request from a major Virginia retailer for permission to escape from Dominion Energy Virginia’s monopoly electricity service.   The score for such petitions is now one approval, two denials, and the message is clear to all the other petitioners:  Go fight it out at the General Assembly.

The petition denied today was from Costco, seeking to aggregate 27 of its stores into a single electricity account that met the 5-megawatt demand trigger which allows large customers to seek a competitive supplier.  The final order is here.

“… [G]iven the context of a decade of rising rates and the likelihood of even higher rates in the future, the Commission does not find it consistent with the public interest for … captive customers – predominantly residential and small business – to experience the cost-shifting identified herein by enabling a larger commercial customer to seek its power supply elsewhere through aggregation,” the SCC wrote, noting that new Commissioner Patricia West did not participate in this decision.

The SCC said that it “respects the economic and business goals reflected in Costco’s pleadings and testimony,” but that “if Costco believes that the current statutory structure for setting vertically-integrated electric utility rates results in unreasonable or unnecessarily high rates, its potential for recourse may be found through the legislative process.”

Those quotes were used in the SCC’s official news release, which also cited Costco’s stated reasons for wanting to flee Virginia’s largest electricity supplier:

Costco had argued that Dominion’s rate structure was unfair.  During the case, Costco stated that it sought to leave Dominion’s system, “… based on Dominion’s piling on of rate adjustment clauses [(‘RACs’)], and [their] significant impact ….”  Costco also said, “under the current statutory structure Dominion has been over-earning on its frozen base rates for a number of years,” and “it is enormously frustrating that an incumbent utility has an incentive to keep what [Costco views] as the customer’s money.”

Costco also stated that “Dominion’s piling on of excessive costs … was the motivation for the Costco Petition.”    Costco further stated that, “Costco is also seeking to avoid the anticipated future rate increases” from “the huge potential cost impact if Dominion elects to fully implement the Grid Transformation and Security Act [Senate Bill 966 from the 2018 General Assembly Session].”

That’s pretty much the entire news release.  To paraphrase: “Yes, we know Dominion’s rates are unjust, unjustified and going higher, but we cannot let you escape and possibly shift major costs to smaller customers.”  Whether or not such cost shifts will really happen or amount to much has been the focus of new petitions or appeals since a Walmart request was rejected earlier this year.  Bacon’s Rebellion just reported on one of those.

One of the arguments is that the departures won’t matter because Dominion’s load is growing.  The SCC rejected that in a footnote, saying reallocation of costs still occurs and not all fixed costs are diluted by load growth.  It also said it is irrelevant that customers seeking to buy 100 percent renewable power can depart and that could also shift costs to other customers.  That was a General Assembly mandate, and the utility could recapture those customers if it had its own 100 percent renewable tariff.

In less than two weeks Virginia voters will be participating in numerous primaries around the state, with legislative allies of the power company in both parties being challenged.  Will their many votes for the company stockholders over the customers matter in the outcomes?  Stand by, but do not hold your breath.

Absent strong signs of voter discontent in June and November, telling the retail community to take their complaints to the legislature is like telling them to go pound sand.

Costco had also tried to argue that the SCC didn’t have full discretion in this matter, but this is one part of the law where SCC independent decision power is preserved.  The Commission wrote:

As evidenced throughout Title 56 of the Code, the General Assembly knows how to limit the Commission’s discretion if it so chooses and … knows how to mandate retail choice if it so chooses.

In Code § 56-577(A)(3) the General Assembly determined that it is consistent with the public interest to permit retail choice for large customers with a demand exceeding five megawatts, and it did not delegate any authority to the Commission to find otherwise. In stark contrast, in Code § 56-577(A)(4) the General Assembly did not determine whether it is consistent with the public interest to permit aggregated retail choice but, rather, directed the Commission to make such determination.

To recap an earlier comment, the SCC’s analysis fits personal memory.  The opportunity for retail aggregation, with SCC approval, was included in the 2007 legislation with no real expectation it would lead to anything (and it did not for  ten years).  The opportunity for large users to depart, more firmly established in the new law, was also gutted by allowing the utility to demand a five-year notice before large-demand customers could return.  That has helped keep the large industrial users locked in with the monopoly.

Retail choice was abandoned because the utility also agreed to fully review and adjust its excessive rates in a 2009 proceeding, to be followed by bi-annual reviews and possible additional rate cuts or refunds.  The utility has since found ways to break those promises, time after time, with the General Assembly’s collusion.

The recently announced Virginia Energy Reform Coalition has an outline (not a bill) for a new effort at creating real retail choice in Virginia.  Will it now have some new members – Costco, Walmart, Kroger, Harris-Teeter, Sam’s Club?  Again, stand by, but don’t hold your breath.

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39 responses to “SCC Again Denies Escape from Dominion Monopoly

  1. Virginians have to decide whether or not they want regulated monopolies to provide their electric service. All other considerations are secondary. If they do want regulated monopolies, the SCC’s logic is impeccable. Allowing big industrial customers to cut their own details will harm smaller customers who have no such bargaining power. That is a separate question from the equally pressing question of how much profit Dominion (and the smaller utilities) are allowed to make and what they do with those profits.

    Many people are understandably unhappy that Dominion seems to be getting its way on both issues — keeping surplus profits rather than giving them back to rate payers, and preventing most large companies from cutting their own deals. But allowing big companies to escape the monopoly does nothing for ordinary rate payers to address the excess-profit issue.

    A more productive line of thinking would focus on the merits of deregulating the generation and transmission of electricity (while maintaining distribution monopolies). Among other issues that would have to be addressed are (1) how would utilities be compensated for stranded assets made uneconomical in a deregulated environment, and (2) how can we be assured that a deregulated market could maintain the reliability of the electric grid, not just in routine circumstances but extraordinary circumstances?

    • I agree with Jim right down the line. Electric power generation, its capacity, reliability, flexibility, distribution, and cost, is far too important to break up and splinter so as to be run it as speculative entrepreneurial basis, thus risk society’s loss of effective, functional control. Only a monopoly can assure this. Yet, if there is a place and rationale for private capital, why can’t ROI be capped, if some risk of loss is passed onto others. Why can’t this be found?

      • “Costco petition, or the similar ones from Walmart (rejected) or Harris Teeter, Target, Cox Communications, and Albertsons (pending).

        Undeniably this 2009 statute gives the Commission broad discretion here — but what end, other than political, is being served by the Commission here?”

        Let’s put these big companie’s back into the same box as the average ratepayers and taxpayers – they should get exactly the same treatment as everyone else, no better, no worse. Aristocracy and oligarchy has no place in America. No one’s special here in America. No one gets special treatment in America. If they don’t like it if they demand and don’t get special treatment for no good and valid reason, let them leave Virginia, good riddance. Same for politicians too. And for Asians, black people, white people, poor people and the rich. No body gets special treatment in America.

        • “Aristocracy and oligarchy has no place in America. No one’s special here in America. No one gets special treatment in America.”

          By the way, if anyone thought UVa. would really change under its new president Ryan, check out this Report from UVA Today dated May 30 – Note here how smug, self inflated and ridiculous these “more than 90 of the nation’s most influential political minds” look preening before UVA’s camera. They just can’t get enough of themselves.

          Photos: The Many Faces of Democracy
          On stage, more than 90 of the nation’s most influential political minds gathered last week at UVA to facilitate a dialogue around the office of the president. Behind the scenes, we took their portraits. SEE:

          https://mail.yahoo.com/d/search/keyword=UVA/messages/45968

          Some 7 years ago I suggested here on BR that UVA host Aspen Institute like conferences. Well, it looks like UVA took up the idea and put it on steroids at Charlottesville per usual, trying to be Harvard, Yale, and Princeton.

        • Correction to above comment:

          Here is right link to UVA’s Photos: “The Many Faces of Democracy” that should be labelled “The Many Faces of UVA’s Today’s modern American Aristocracy and Autocracy:

          https://news.virginia.edu/content/photos-many-faces-democracy?utm_source=DailyReport&utm_medium=email&utm_campaign=news

    • Jim–

      Transmission has already been effectively “deregulated,” in that FERC requires each owner of transmission facilities to provide open access to their lines, permitting generators of all stripes–merchant plants, small renewable facilities, or affiliated utility-owned units–to gain access to the wires at the same rates.

      What most folks mean when they refer to “deregulation,” involves power supply, not delivery. I fully agree that distribution remains a natural monopoly that should remain regulated. Competitive supply of power (generation) has resulted in benefits in some areas, and less convincing results elsewhere.

      However, in responding to Reed’s comment, reliability of service is currently being adequately maintained in states that are regulated, such as VA, and states that have deregulated their power supply markets. Regulated monopoly providers have not proved to be necessary to the reliable delivery of electricity. PJM operates the power system serving Virginia and 12 other states, plus D.C., and at least half those states are deregulated.

      • Rowinguy, I disagree with you totally. No way this ideological jihad will not hit the rocks sooner rather than later, and we are speeding towards the debacle at warp speed. What is going on in Maryland is a perfect example of this political madness as regards out of control legislative mandate of renewable power. And it is going on madly around the nation. A reckoning is near.

        • I really don’t know what you are disputing here Reed. Power is being dispatched reliably all over PJM. If you disagree with the prices of that power to end users in those states, that’s a different battle.

          I share to some extent your skepticism that a deregulated power market can provide reliability as economically as in a regulated system, but the experience in Virginia shows that a determined regulated monopoly provider can manipulate the political system to provide itself with supra-competitive outcomes, i.e., excess profits!

        • I think this is self evident by reason of the dramatic rise in Electricity costs to consumers throughout the nation in states that combine a heavy political hand on the scales in flavor of renewable generation as well as their deregulation of the system in places like New York, Connecticut, and California, for example. Remarkably, Virginia’s SCC seems resigned to this as well. In fact, all the special interests today in the electricity game love to tack on extra costs for their social engineering to line their pockets, while lying through their teeth about how concerned they are about controlling costs for ratepayers and taxpayers. The truth be told the entire system is rigged to favor of the special interests against the ratepayers & taxpayers who keep the enrichment scheme afloat.

          • Reed Fawell 3rd

            For a taste of the debacle that would hit America’s electric power industry should today’s irresponsible state and federal legislative mandates for renewable power continue without challenge, here’s an extract taken from the 117 page American Enterprise Institute Study:

            “The electricity component of the (Green New Deal) GND is the least ambiguous. A highly conservative estimate of the aggregate cost of that set of policies alone would be $490.5 billion per year, permanently, or $3,845 per year per household, an impact that would vary considerably across the states if the GND were financed through electricity rates rather than the federal budget.

            Under such a ratepayer finance assumption, the lowest household cost of $222 per year would be observed in Vermont. The highest would be observed in Wyoming: $17,103 per house-hold per year.

            The GND electricity mandate would create significant environmental damage—there is nothing clean about “clean” electricity—and require massive land use of over 115 million acres (about 180,000 square miles), about 15 percent larger than the land area of California.

            Because of the need for conventional backup generation to avoid blackouts in a “100 percent renewable system” and because those backup units would have to be cycled up and down depending on wind and sunlight conditions, one ironic effect would be GHG emissions from natural gas–fired backup generation (would be) 22 percent higher than those resulting in 2017 from all natural gas–fired power generation. And those backup emissions would be over 35 percent of the emissions from all power generation in 2017.

            Without fossil-fired backup generation, the national and regional electricity systems would be characterized by a significant decline in service reliability—that is, a large increase in the frequency and duration of blackouts. Battery backup technology cannot solve this problem. It is unlikely that a power system characterized by regular, widespread service interruptions would be acceptable to a large majority of Americans. Accordingly, the emissions effects of backup generation as just described would in fact be observed, which is to say that to a significant degree the GND is self-defeating in its asserted climate goals. That is another reason to conclude that the true goals are an expansion of wealth transfers to favored interests and the power of government to command and allocate resources.

            Moreover, the reduction in individual and aggregate incomes attendant upon the GND policies would yield a reduction in the collective political willingness to invest in environmental protection over time.

            As shown in Table ES1, the annual economic cost of the GND would be about $9 trillion. These figures exclude the costs of the massive shifts in the transportation sector mandated by the GND, the building retrofit objectives, high-speed rail, and other policies. Those components of the GND are far more ambiguous than the electricity dimension and thus lend themselves less to a rigorous cost analysis.

            The (Cost) figures also exclude many of the economic costs of the adverse environmental effects of the GND electricity mandate and the costs of the inexorable increase in government authoritarianism attendant upon the GND, an effect difficult to measure but very real nonetheless …”

            See pages 3&4 within Executive Summary of new 117 page American Enterprise Institute Study by Benjamin Zycher published this month and found at:

            http://www.aei.org/wp-content/uploads/2019/04/RPT-The-Green-New-Deal-5.5×8.5-FINAL.pdf

        • The irresponsible legislative mandates for renewable power as reported by a new 117 page American Enterprise Institute Study is found at:

          http://www.aei.org/wp-content/uploads/2019/04/RPT-The-Green-New-Deal-5.5×8.5-FINAL.pdf

  2. Is it choosing between Dominion’s version of a monopoly or other variants without all these RACs and other add-ons that Dominion is seeking?

    I don’t know how we compare to other states – but at this point, I’d be wondering if this affects our economic development efforts for things like data centers and such.

    And if money in the GA is the game – does that mean companies like Costco , Facebook, Google, will get in that game?

    If you’re a General Assembly guy – and Costco is willing to replace Dominion’s money …. what next?

    • These customers that are attempting to aggregate and thereby exit from service by Dominion DO want to escape the spiral of increasing costs associated with the “RACs and other add-ons,” Larry. It seems that the SCC is telling them that the General Assembly constructed this system and if they (the customers) want to get out from under it, they need the GA to give them their get out of jail card.

  3. Perhaps another question which is – for other utilities across the country – both those that are some variant of a public service corporation – as well as other conventional investor-owned monopolies – are they configured like Dominion when it comes to issues like RACs, Grid Transformation, 3rd party solar/wind, aggregated contracts, etc?

    Is Dominion the creme-de-la-creme of investor-owned monopolies or is it pretty much run-of-the-mill with a lot of similar counterparts?

    My perception is that it’s almost unique and has far more ability to control/manipulate state law and regulations than other utilities.

  4. As young reporters Jim and I were drilled on avoiding words like “never, always, unique” but based on what I’ve seen and heard from others, Dominion’s control over its own fate is stronger than most of its peers enjoy. There is a telling moment in the recently posted VPAP “blooper tape” from the 2019 General Assembly when a Democratic Senator refers to the SCC as the KGB. You have to be taught to hate the SCC, too….he’s been well schooled. I found that five seconds chilling, but it will blow past most people. Heck, the person assembling the tape thought it funny enough to include.

  5. Steve, you say, “To paraphrase [the SCC]: “Yes, we know Dominion’s rates are unjust, unjustified and going higher, but we cannot let you escape and possibly shift major costs to smaller customers.” Emphasis on “possibly” here, can we assume?

    I’ve read the SCC’s order, which quotes the relevant parts of the statute. Costco (like Walmart and Sam’s Club and Reynolds Metals in earlier cases) blames Dominion’s high rates for the ability of competitors to undercut Dominion. Costco makes much of its belief that Dominion is overearning from retail customers; but there is no requirement whatsoever that the customer’s beliefs or concerns matter, in this case that Dominion is “over-earning” and that Costco would be perfectly willing to pay “to pay cost of service rates that include a reasonable return.” Costco’s views are irrrelevant; this retail-access-to-commercial-aggregators option exists, if at all, based on the effect on Dominion’s other customers. The sole statutory criterion for approval is that the Commission must find: “Neither such customers’ incumbent electric utility nor retail customers of such utility that do not choose to obtain electric energyfrom alternate suppliers will be adversely affected in a manner contrary to the public interest by granting such petition.” (The second criterion: that “Approval of such petition is consistent with the public interest” — merely restates the first, in broader terms, perhaps to give the Commission’s potential exercise of discretion for political purposes better protection on appeal.)

    The Commission received a Hearing Examiner’s report that refused to recommend whether or not to approve the petition. It rejected Costco’s petition on the grounds that costs “would be shifted to remaining customers” — citing “Specifically, Dominion’s estimates indicate that if Costco shops[,] approximately $1.57 million in annual Virginia jurisdictional non-fuel generation revenue would no longer be recovered from Costco that would instead be shifted to Virginia retail customers that continue to be supplied by Dominion[,] in order for Dominion to maintain the same rate of return.” I think it’s important to understand what generation costs the Commission is talking about that, according to Dominion, would be shifted. The Commission says,
    “Remaining customers would bear a greater share of Dominion’s fixed generation costs, including cost recovery for new generation investments that is relatively higher in the early stages of its depreciable life and for any deferred balances accrued while the departing customer was served by Dominion.”
    This, a direct quote from testimony by a Dominion witness, is both literally true and beside-the-point. Obviously if ten customers share a cost that must be paid, and one of them leaves, the other nine have larger shares. But wait: a share of what? We’re talking shares of the embedded cost of new generation! Yes, Dominion’s generation is still being added to the retail customers’ rate base — a practice that we should decry in this day of competitive wholesale markets — but even when ratemaking under the old utility model of ratebased generation, if an asset is no longer needed to serve the ratepayers but they are paying off its embedded cost, then they get any profit that can be achieved from that asset. Of course that new generation will still produce capacity and energy from sales in the PJM wholesale markets. Of course, Dominion will have less load to serve; therefore, of course, Dominion’s generation will make the same profit from the sale of capacity and energy while Dominion’s retail subsidiary, its “LSE” in PJM terminology, will have less consumption of capacity and energy to pay for. In other words, income remains the same, expenses drop. Dominion gets to pocket the difference.

    Now remember, Dominion chose to ratebase that new generation. Had it built those units for competitive, deregulated operation, it would have counted on recovering from the wholesale markets enough [unregulated] profit to pay for the investment and and then some, i.e., to make a handsome return on it. But Dominion complains to the SCC, here, that “To the extent that the loss of load causes a [rate]reallocation, it would result in more costs being shifted to customers in other jurisdictions and potentially to other customer classes within the Virginia jurisdiction. These additional costs result in adverse effects to those customers.” If Dominion really believes that, the only conclusion we can draw from this is that Dominion knows (but has hidden) that it has built generation which is too costly for the wholesale markets to support.

    Dominion (and Staff witnesses) point to the difficulty of predicting precisely the complicated, interacting effects of its RACs and the triennial review of its base rates and its deferred fuel-cost amortization, all of which are complications self-imposed by Dominion (through its retail rate design and through the ratemaking legislation it has pushed through the GA). If the Commission had the discretion simply to fix all of Dominion’s rates at any time based on a comprehensive, forward looking test year cost of service, the way most State commissions do, these would not be obstacles. The Commission compounds this legislated myopia with its own: it looks beyond the test year in acknowledging “the current context of a decade of rising rates and the likelihood of even higher rates in the future” yet explicitly rejects the offsetting effects of Dominion’s forecast load growth as mitigation.

    The Commission also seems blind to the obvious potential impact on Virginia’s economy if large customers avoid (or leave) Virginia due to its electric rates. It acknowledges Costco’s arguments about the potential benefits to the public interest from retail competition on Dominion, thusly:

    “Costco also noted that there are many other petitions for aggregated retail choice currently pending at various stages of litigation before the Commission. As to this, Costco’s witness testified that “the raft of aggregation petitions now pending before the Commission … are due, in my estimation, to the fact that there is no penalty to Dominion for over-earning.” Thus, Costco “believes that [these] other petitions are motivated by the same desire to escape Dominion’s excessive rates….” Finally, Costco is also seeking to avoid the anticipated future rate increases (as also referenced by the Commission in its Walmart Order) from “the huge potential cost impact if Dominion elects to fully implement the Grid Transformation and Security Act.”

    But then, the Commission states, “the Commission also agrees with the Hearing Examiner’s finding that “[t]o the extent one company [(e.g., Costco)], but not its competitor(s) [(e.g., Walmart or Sam’s Club)], can shop for generation supply, this could confer a competitive advantage with public interest implications.””

    Finally, it bears repeating that the Commission has earlier approved a similar retail-access-aggregation petition from Reynolds Metals that cannot be distinguished from the Costco petition, or the similar ones from Walmart (rejected) or Harris Teeter, Target, Cox Communications, and Albertsons (pending).

    Undeniably this 2009 statute gives the Commission broad discretion here — but what end, other than political, is being served by the Commission here?

  6. Perhaps in that first petition, Dominion had not yet sharpened its argument against departure causing shifting costs, AC. Perhaps Dominion did not perceive the rush to the exits that approval of that first petition occasioned. You’d have to look at the evidence put before the Commission in that case, compared to these later petitions to know.

    • Granted; Dominion has become more sophisticated in its arguments. That first retail-access case was a wake up call for DOM. But I still think the Commission has chosen to back the wrong view of “public interest” — it’s not just rates that are at stake but also the importance to Virginia’s economy of those rates remaining competitive nationally; it’s about the unyielding consequences to customers of retail business competition, and about having a voice that will be heard by the utility as well as its regulator, especially when the utility compact has become skewed and rate regulation itself is under attack. Retail access is an important tool in that balancing act, in avoiding a greater economic crisis down the road.

      PJM runs wholesale electric markets in the mid-Atlantic region in which every utility with both generation and customers is both a seller and a buyer. Dominion joined PJM in 2000. In preparation for that, Virginia enacted a legislative framework intended to implement “retail access”: electric utilities were required to operate theirs systems as “common carriers” delivering power from any retailer (including themselves). In order to make this more transparent, these utilities were required to “unbundle” their rates into separate generation (production), transmission, distribution, and customer-service (billing) components (you can still see these components laid out separately on your retail electric bill). The idea was to allow customers to compare easily among competing retail suppliers — since every Dominion customer would pay the same transmission, distribution and billing charges, all the customer had to do was compare generation charges and pick the best offer.

      Who were these potential retail access “competitive service providers”? Some were other utilities; some were just middle-men. They had the same access to the PJM markets as Dominion, combined with different financial backing and different generation resources of their own, or at their disposal under contract. Dominion was an efficient, low cost provider in those years; in fact, from 2001 until just a few years ago, Dominion’s retail generation price was too low for competitors to beat, so Dominion was not threatened, at least immediately, by retail access. But Dominion had a problem: its load was growing and it hadn’t built new generation for years; building new generation would raise its costs.

      So Dominion began a campaign simultaneously to build new generation and to eliminate the threat of retail competition. It began disparaging the reliability of the wholesale markets — helped by an embarrassing instance of wholesale market manipulation by Enron in California. According to Dominion the only safe, reliable path forward was for Dominion to build its own new generation and not rely on anyone else to supply Virginia customers. And it touted the absence of competitors willing to beat Dominion’s prices in those early years as the “failure of retail access.” As a result, Dominion, with the SCC’s encouragement, engineered the 2007 repeal of retail access for most customers in Virginia. Only a few paths to retail access survived, in a compromise designed mainly to assuage large commercial/industrial customers — “large” meaning loads greater than 5 megawatts. Large customers with 5 MW at a single location have retail access by right; customers that qualify as “large” only by aggregating loads at multiple locations (e.g., Costco) have to obtain SCC permission. (There’s also an exception for certain suppliers of power from renewable resources.)

      Since then, Dominion’s retail rates have gone up — driven mainly by increases in the transmission, distribution and billing rate components. The generation component has been fairly stable — although Dominion’s overall embedded cost of power production plant has increased (due to the new generation construction), that increase has more-or-less been offset by the steep decline in natural gas prices. Dominion’s retail access problem is, over the same timeframe the wholesale costs of energy and capacity in the PJM markets have been dropping. Dominion no longer has that generation rate advantage; “competitive service providers” buying in the wholesale markets now can beat Dominion’s overall generation price. Moreover, generation levels in PJM have risen faster than loads in recent years, resulting not only in greater competition in the capacity market (driving down capacity prices) but also increased reserve margins for unprecedented regional reliability.

      I have to contrast this account with the official Dominion view of these events set out in Mr. Morgan’s testimony in the Costco case (PUR-2018-00088). He says:

      “It is important to recognize the history and background that preceded the [Virginia Electric Utility] Regulation Act, and the General Assembly’s shift in public policy to encourage investment in new generation by incumbent electric utilities. As the Commission is aware, the Commonwealth experimented with de-regulation from the late 1990s until 2007. By any account, this experiment failed, and left the Commonwealth with little to no actual retail choices for customers and, with little to no generation construction for about a decade, a state heavily reliant on imported power. The Regulation Act sought to remedy these problems. Responding to this directive, the Company has spent the last 10 years catching up on generation supply.”

      I strongly disagree with Mr. Morgan’s conclusion that the General Assembly had to “encourage investment in new generation by incumbent electric utilities” because the “de-regulation . . . experiment failed.” To the contrary, across the entire Northeast, the Midwest, and much of the mid-Atlantic (and even in California after the substantial reforms there), regional wholesale generating capacity and energy markets have proved reliable and cost-effective for consumers and independent generators alike and generation investment is high. Retail access works in those regions to limit higher-cost retail utilities from taking advantage of their monopoly status. The bottom line is, Virginia gutted its version of retail access too soon, before it was actually needed; before it had a chance to work. The only beneficiary thus far has been Dominion’s bottom line.

  7. In terms of Dominion’s monopoly being “whole” not only in terms of distribution but power generation – I’d once again point out that there are about 15 different electricity utility providers in Virginia including AEC and a dozen or more Electric Co-operatives.

    Each of them control their own infrastructure and to this point what I’ve heard is that the cooperatives get their power from Clover Power Plant but I do wonder if that is their only source of power – it’s about 840 MW.

    So, my bet is that the cooperatives do not produce their own power but instead buy it from producers and probably more than just Clover.

    So these cooperatives are … to those of us who don’t really know – in fact, split apart between distribution and generation and I’m wondering where they get THEIR power if not from Clover?

    Can they buy direct from 3rd party providers and/or from PJM ?

    Or … are they effectively captive to Dominion on their power needs?

    • The majority of Virginia’s electric distribution cooperatives are member-owners of Old Dominion Electric Cooperative (ODEC), which supplies power to them. The distribution cooperatives operate the distribution systems but don’t own generation; ODEC owns generation but not distribution plant.

      Some of the power does indeed come from the Clover Power Station, in which ODEC and Dominion each have a half interest. More power comes from North Anna nuclear unit 2, in which ODEC has an 11% interest. ODEC owns a large gas fired plant in Maryland and some other generation assets elsewhere. None of its member cooperatives are allowed (by mutual agreement with each other and with ODEC) to purchase power from any other source. If ODEC owned generation cannot meet the entire load of all the member distribution cooperatives (such as Rappahannock, which I believe you are a member of) then ODEC can purchase from PJM to meet that load.

      So, you are correct, the cooperatives have long been effectively split, with all the power supply requirements being met by ODEC.

      They are dependent on Dominion’s transmission system for the delivery of power from ODEC, but don’t purchase power from Dominion.

  8. How the coops work and get their juice might be worth a full column. It would take that. Through the ODEC association they have pooled and invested in Clover, they do buy on contract from Dominion or Apco, I think, and they often have some generation of their own (small, usually.) No shortage of supply these days except during serious weather days. Their prices are usually higher, not lower, than the major utilities but that might be the distribution costs rather than the energy costs.

    If Virginia is going to have an honest discussion about allowing choice on the energy supplier, then examining the coops would be instructive.

    That’s IF VA is going to have that discussion. All I see so far is politics and posturing.

    Going all the way back to their the initial stages of this in VA, as a member of the AG’s staff and the only non-lawyer type in the room when this was discussed, I’ve been very skeptical about abandoning the traditional regulatory model. The problem is with 2007, 2013,2014,2015, 2018 bills and the 2009 rate settlement where we sold away our rate cut for NPV pennies on the dollar, we have blown it all to hell so badly I’m not sure we could get back there.

  9. Acbar has provided a significant contribution above, which I wish I could say I “read and understood” before posting.

    Look, its embarrassing when you watch Cramer or read Wall Street Journal, and the financial analysts say what a humongously favorable profit margin Dominion is able to make in Virgina, due to friendly utility regulatory policies. But I must admit I do not know how commercial electric rates compare.

    I feel our Virginia system will probably be challenged by the blue side of the aisle. They want to outhaul megatons of coal ash at ratepayers expense, join RGGI carbon tax club, go to expensive types of renewable power, go big on rooftop solar, ban fossil fuels, etc.. So we probably need less profit margin and less influence from Dominion to allow adding all of this tax to the electric bills.

    Costco, Walmart, Kroger, all have a bad attitude. They should all be asking Dominion to ban fossil use and say they would be willing to pay whatever higher cost it takes to save the planet and please the liberals.

  10. PS- the other interesting thing with this news item, is they specifically say that high electricity cost is the complaint. In the past, it was never clear to me why they wanted another electric supplier (more renewables? etc).

  11. I think we are unable to form – informed opinions because we do not really understand the issues. Folks like Acbar know far more than the rest but I get wrapped around the axle trying to understand their points and at the end – I still do not understand a lot of simple things – like where my electric provider gets it’s power, how much is coal or gas, whether they can buy power from 3rd party generators or independent wind/solar providers or even PJM.

    I don’t know how Dominion’s “reliability” compares to other utilities nor do I know this about the electric cooperatives.

    I don’t blame Costco any more or less than I “blame” ANY corporation who wants the lowest price they can negotiate for anything they buy (like electricity, or water, sewer, internet, garbage, labor, etc) – that’s the nature of the private sector. This includes “clean power” that comes from renewable sources and no different than say… Tysons advertising that they do not use hormones in their chickens or that seafood is “wild caught” or “farmed”, etc…

    The question is – does Dominion have govt-provided competitive advantages over would-be competitors and do consumers have true “choice” or not.

    I consider Dominion a well-run, highly productive and highly profitable corporation – that’s what good corporations do. But I also think for Virginians who get their power from the dozen or so cooperatives also expect reliable and well-run companies and as far as I can tell – they are and are the equal of Dominion but of course since we do not have actual comparative data – folks can claim that Dominion is “more reliable” and if competition was “allowed” – that reliability would go to hell in a handbasket or whatever.

    • “The question is – (1) does Dominion have govt-provided competitive advantages over would-be competitors and (2) do consumers have true “choice” or not.”

      The answer is (1) yes, and (2) no. There are reasons for the government to grant a monopoly but State rate regulation was the tradeoff; and retail access was designed to backstop State regulation.

      For large, multi-state business customers like Costco and Walmart and Target, you are right, it’s all about the dollars. So is “retail access,” which is the ultimate competitive constraint on an abusive utility rate structure fostered by legislative complicity. I don’t blame those who have a monopoly for defending it, but they should not have the ability to buy legislative complicity through political donations and override sound regulation in order to abuse that monopoly.

      As for reliability, the regional grid operated by PJM has unprecedentedly-high capacity reserves, due in large part to the very successful PJM capacity market which has attracted many independent generation investors and new transmission. Every load serving entity on the PJM grid shares in that regional reliability — including Virginia Electric (Dominion) and Rappahannock Electric Coop. The reliability of the local distribution system, however, is up to the local profider.

      • re: ” the regional grid operated by PJM has unprecedentedly-high capacity reserves, due in large part to the very successful PJM capacity market which has attracted many independent generation investors ”

        Does this mean that the electric cooperatives buy power from PJM when they need it?

        I know the cooperatives have some joint ownership with Dominion for the Clover Plant – but does Clover provide all the power that the cooperatives use even at peak periods and if not – then how do the cooperatives go about obtaining more power and from where?

        The fact that the cooperatives also operate the “grid” in Virginia along side of Dominion but separate and apart from them – to me – pretty much proves that we already have multiple entities responsible for the grid and that Dominion is NOT the sole provider for power nor distribution nor grid reliability and thus the core premise for Dominion to have a state-wide monopoly for Virginia thus they are entitled to all these RACs including the Grid “transformation and reliability” is simple not true. They are but one of many multiple players that provide grid reliability to the State.

        … unless of course all of them are subservient to Dominion who dictates to them things like where they can get their generation from.

        so which is it? Do the electric cooperatives determine and choose where to get their power over and above what Dominion Clover provides or do they also have to go through Dominion to get additional power when needed?

        See how ignorant I am? (but not alone!).

        • “Does this mean that the electric cooperatives buy power from PJM when they need it?” Yes, they do. In fact they buy 100% of their energy requirements from the PJM grid, but at the same time receive credit from PJM for all generation deliveries they make to PJM. So they only pay PJM for net consumption. This is the same way Dominion is treated by PJM, except Dominion may have net deliveries to PJM because it owns so much generation.

          ODEC is a generating company owned by the Virginia coops. When ODEC delivers power to PJM, PJM of course pays ODEC, and ODEC distributes that revenue to its member/owners separately according to their contractual arrangements. Clover is part of the generation owned by ODEC and, I believe, Dominion jointly. Separately, the coops pay ODEC, Dominion and others for supplying generating capacity-on-call to meet PJM’s annual capacity requirement; PJM also runs a capacity marketplace, if any coop comes up short of capacity or contracts for too much and has an excess.

  12. so.. the dozen or so electric cooperatives are no less reliable than Dominion even without all those extra RACs?

    re: ” I don’t blame those who have a monopoly for defending it, but they should not have the ability to buy legislative complicity through political donations and override sound regulation in order to abuse that monopoly.”

    agree – but they are exercising their “free speech” rights and I presume other corporations and other electric cooperatives and rate payers can all “participate” to defend their respective interests.

    The funny part is that the ones that oppose Dominion are called “enviros” and “greenies” as if there are no legitimate “other” folks who want more freedom and choice with respect to what they buy.

    And then, because consumers can’t get what they want -they also oppose Costco and others from getting what they want!

    and in the end – Dominion gets what it wants.

    I still do not understand how all this works with respect to electric cooperatives. Can they buy 3rd party power – conventional or solar/wind or PJM power?

    If Amazon locates in an electric cooperative’s service area – can they do better than if they locate in Dominion’s service area?

    • “I still do not understand how all this works with respect to electric cooperatives. Can they buy 3rd party power – conventional or solar/wind or PJM power?” Yes, of course. Every generator sells capacity and energy so keep these separate in your mind. Capacity is the right to call on a generator when your load requires it; every load serving entity (LSE) in PJM (that includes coops) has to turn over to PJM, annually, enough capacity to meet its forecast peak load plus reserves. Capacity purchases are mostly by contract directly between the generator and the LSE, although PJM also runs a capacity market for adjustments. Energy is what happens daily, operationally. PJM operates each LSE’s capacity along with all the other capacity in PJM in the most efficient manner it can, lowest cost units first. Rappahannock Electric Coop, or REC, is an LSE. Each LSE gets charged for its withdrawals from the grid at all delivery points and paid for its deliveries into the grid from all its operating capacity, each hour of each day, at the marginal energy cost at the time — that’s the energy market.

      Third party sellers of generation are a substantial percentage of the generation in PJM. Some of that is solar. If REC wants to buy capacity from a specific seller, it is free to do so. If REC wants to buy the energy from a specific seller, it cannot, of course, buy those specific electrons which are probably delivered into the grid miles away from where REC is taking delivery of grid power for its customers, and in fact PJM, not REC, controls when the seller’s unit will operate; but REC can buy a contractual right to a portion of the output of a specific unit, such as a solar unit, measured in megawatthours. Then REC can tell its customers, “we bought X mWh, or X percent of our consumption, from solar units.” These rights to renewable power, or “renewable energy credits,” are bought and sold in a secondary market outside PJM, although PJM helps by keeping track of the solar output and billing for the credits, etc.

      • Thanks Acbar – always informative and always spurs more questions!

        I read that the other Coops purchase from ODEC so ODEC can buy larger blocks of power at a discount so I wonder if they do that for PJM also.

        Finally, it looks like NOVEC broke from ODEC in 2008 over rate increases and requirements for them to sign a long term contract with ODEC.

        ” The Northern Virginia Electric Cooperative (NOVEC) split from the Old Dominion Electric Cooperative in 2008. NOVEC had tried to modify its 1983 wholesale power purchase contract, even appealing to the Federal Energy Regulatory Commission. NOVEC proposed to continue purchasing the same amount of electricity from Old Dominion Electric Cooperative but, as demand increased in fast-growing Northern Virginia, to purchase all additional supply from alternative sources that offered better prices.

        The 1983 contract committed NOVEC to buy electricity from the Old Dominion Electric Cooperative until 2028. In 2007, NOVEC declined to sign a new contract committing to wholesale power purchases for 45 more years, and the two co-ops negotiated a divorce. The remaining 11 members of the Old Dominion Electric Cooperative committed to purchase power from Old Dominion Electric Cooperative until 2053.4″ (from Virginia Places:
        virginiaplaces.org/energy/odec.html

        NOVEC apparently gets ALL of it’s power from PJM these days and it’s service area includes Loudoun, Fairfax , etc… so I wonder how their rates compared to Dominion which also serves other locations in Loudoun, Fairfax, etc.

        I think I agree with Steve that we need “more” about how the electric cooperatives “work” in Virginia because even though they do not serve as large a population as Dominion – their service areas are likely equal to Dominion which means they have similarly large distribution and transmission grid facilities to maintain and keep reliable.

    • “If Amazon locates in an electric cooperative’s service area – can they do better than if they locate in Dominion’s service area?” Well, Amazon is a retail customer wherever they choose to locate. Is REC’s retail rate for a customer like Amazon higher or lower than DOM’s rate? I haven’t compared them but you can bet Amazon has.

      In addition there are perks such as, how quickly will the utility build whatever facilities are needed to supply the customer, and at what cost? Sometimes if the transmission or distribution or substation facilities are already strained in a given location it can take a while to upgrade them. This is not usually at the customer’s cost but it can impose time delays.

      In addition there is the question of green power. Amazon likes to tell its shareholders and others that it uses only power from renewables-fueled generators. It doesn’t do this by literally buying the power-plant and delivering its output to its warehouses by private transmission lines! No, it achieves the equivalent by buying renewable energy credits (RECs) which guarantee that somewhere, at some time, on the PJM grid, a solar or wind or hydro unit produced X amount of energy that Amazon (and nobody else) is now entitled to claim as its own X. Buy enough RECs to equal your consumption over the past month and you can say you consumed solely renewables power that month. Whatever floats your boat! The cost of RECs, however, is incurred by Amazon directly, not by its retail supplier, so that cost is the same whether Amazon locates in Dominion territory or in a coop’s. Unless — perhaps Dominion or the coop could offer RECs at a discount from its own account, as a way to makes its retail service package to Amazon more attractive.

  13. ODEC was/is literally a wholesale cooperative — that is, its members/owners are other cooperatives. It was formed, I believe, back when Dominion was looking for co-investors in North Anna and ODEC bought a percentage of that nuclear plant; later, ODEC bought shares in the Clover plant and others. These are all inside PJM; but ODEC also receives allocations of power from government-owned hydro plants that only sell to coops, I believe, and some of those may be outside PJM. Think of it as a basket of shares of other utilities’ generating plants. Now understand, when those plants run, ODEC does not distribute their energy at that time to the ODEC members; rather, ODEC receives a credit from PJM for sales into the wholesale market from those plants. And in addition, ODEC gets a credit for the MW of capacity from those units. ODEC distributes the dollars from the energy sales and the credits for the MW of capacity to its member/owners, like REC, who have to pay PJM for all their energy and have to come up with enough capacity annually to meet all of REC’s forecast load plus reserves. I don’t believe REC has any generating capacity of its own but obtains a chunk of its annual capacity requirement from its generation ownership shares in ODEC and buys the rest from Dominion and maybe a little more from the PJM capacity market. Apparently NOVEC found the capacity and energy prices when buying from PJM were as good or better than the price of the same amount of capacity and its associated energy bought through ODEC. I don’t know more than that, but you could easily find out from REC why they didn’t choose to do likewise.

  14. This is GOOD! I presume that both NOVEC and REC analyzed long term prospects for electric generation and price and NOVEC felt they could do better on their own with PJM and REC and the other cooperatives preferred sticking with ODEC which I perceive to be closely tied to Dominion since they share ownership of Clover and North Anna.

    That probably means whatever happens to Dominion legislatively and regulatorily will affect ODEC and in turn its’ “members” like REC.

    You are right about REC getting power from some southeastern power dams , Army Corps and others I think.

    their pie chart looks like this:

  15. interesting document about ODEC:

    http://www.myrec.coop/content-documents/2018-ODEC-Fact-Sheet.pdf

    ” Regulation
    • ODEC is rate regulated by the Federal Energy Regulatory
    Commission (FERC) in accordance with a rate formula that
    permits adjustments in rates without the filing of
    individual rate cases, with minor exceptions.
    » Rate formula allows recovery of all costs including a
    coverage for interest charges; additional equity may
    be collected when approved by ODEC’s Board.
    » Actual rates charged are a function of ODEC’s
    budgeted cost, and may be changed as approved by
    ODEC’s Board without FERC approval.”

    ” The Members provide retail electric service to their
    member-owners who number more than 560,000 (in
    terms of meters served), representing a population of
    approximately 1.4 million. Consumers are located in
    70 counties along 60,000 miles of distribution lines
    that range from the extended suburbs of Washington, D.C.
    south across Virginia to the North Carolina border, and
    from the Atlantic shores of Virginia, Delaware, and
    Maryland to the Appalachian Mountains.

    This map clearly shows that on a geographic basis – APCO as well as the CO-OPs cover as much geography as Dominion does .

  16. And THIS is pretty interesting:

    What the new electric co-op law means for Virginia’s solar homeowners
    By Aaron Sutch on April 15, 2019

    Late last month, Governor Ralph Northam signed an extensive net metering bill

    (HB2547/SB1769). Although the bill is part of a compromise between solar advocates and utilities, it marks a significant step forward for solar energy rights in the Commonwealth.

    Expansion of rooftop solar options in cooperative territory
    The legislation will apply to territories served by Virginia’s 13 rural electric cooperatives, which provide electricity to nearly one in five Virginians. These territories tend to be less densely populated, but cover roughly one-third of the Commonwealth’s geography. The legislation does not apply to customers of Dominion Energy or Appalachian Power, Virginia’s investor-owned utilities.

    The legislation raises the cap on net-metered solar from 1% to 5% (with further expansion based on each co-op’s board’s approval), it expands power purchase agreements (PPAs) for non-profits in cooperative territories, and increases limits for sizing solar systems on homes from 100% of previous electricity usage to 125% to allow for more electric vehicles, occupancy changes, and beneficial electrification. These three provisions will allow more non-profits and homeowners to go solar and provide market certainty for solar customers of cooperatives that were close to hitting the 1% net metering cap.

    https://www.solarunitedneighbors.org/news/what-the-new-electric-co-op-law-means-for-virginias-solar-homeowners/

    I have to say – I don’t remember reading ANY of this in BR….

    • Well, BR can’t cover it all; but it’s doing better than most! BTW, the Greenies love net metering for solar; I’m a fan of rooftop, homeowner solar too but not of net metering as a promotional tool. Because net metering pays the homeowner far more than the solar is worth, it has to have all sorts of restrictions on eligibility to keep it from seriously harming the utility’s cost structure; and solar is now so cheap it doesn’t need the subsidy to promote it. I’d much rather see payments for the solar power reflecting its true costs and benefits, and no restrictions at all on who can do it or how much. That also would give businesses and residences the same treatment, and it’s small businesses where solar offers some of its best benefits.

      Yes, PJM’s rates for sales to ODEC, and ODEC’s rates for its sales, are regulated by the FERC because they are wholesale seller to their customers. REC’s sales to its customers are retail sales and so its rates are on file with the VSCC.

  17. I’m not a fan of net metering either but what I thought SIGNIFICANT is that such changes for the electric cooperatives passed the GA almost unanimously when Dominion and APCO have fought to keep that provision from applying to investor-owned utilities!

    here’s the law:

    https://lis.virginia.gov/cgi-bin/legp604.exe?191+sum+HB2547

    So the big point here is that several of the changes advocated by some for Dominion that Dominion has fought, successfully, tooth and nail in the GA – passed easily for the cooperatives!

    So I presume the Cooperatives were “okay” or supported it and so now (unless there is a gotcha somewhere) – people who get their power from the cooperatives can do all these things that many consumers wanted to be able to do – while those who get their power from Dominion still cannot do them.

    In effect, Dominion’s “monopoly” is NOT at all – across Virginia – but instead only for Dominion’s service area while the cooperatives are headed in a different direction and one more tuned to what consumers/greenies have been advocating for.

    So, one more thing – NOVEC, the one cooperative in Virginia that does not get it’s power through ODEC – it apparently gets 100% of it’s power from PJM! I’m wondering if the other co-opts also can get power from PJM directly if they want instead of buying power from ODEC if they can get it cheaper from PJM.

    So Dominion’s “control” over the “grid” in Virginia is not absolute at all – there are significant geographic swaths of the State that are not under the thumb of Dominion and it’s ability to seek RACs and additional charges for anything that would potentially reduce their “profits” – the Cooperatives are operating under different models which, in fact, appear to benefit and reward consumers instead of penalizing them.

    We’ve had so much focus on Dominion here in BR, we’ve missed these important changes going on right under our collective noses for many consumers in Virginia!

    • Agree with you in general here — but one interesting thing in the legislation you link to is that the coops received permission to do net metering but gave up the right to impose standby charges (a standby charge for grid power is an alternate way for the retail grid utility to recover wires costs from a customer that mostly relies on his own generation but occasionally falls back on the grid). Was this a quid pro quo? I don’t know the back story. As far as differences in treatment of REC and DOM, they get their rates approved under the same Virginia statutory framework (was not always this way but that’s another story), so any exceptions for the coops or for the investor-owned utilities (IOUs) have to be explicit and they are few. The Commission generally treats them the same.

      I don’t know much about why NOVEC parted ways with ODEC, but it was over ten years ago. See: https://www.novec.com/About_NOVEC/News_Release/nr03072006.cfm https://www.novec.com/About_NOVEC/News_Release/nr08182008.cfm
      One of these quotes Jack Reasor, the fearless-leader of ODEC, as saying NOVEC “management and board have sought to pursue alternative power supply resources” because FERC agreed with ODEC that it didn’t have to allow “NOVEC to modify its contract and seek lower cost power from the market.” I’ll take that at face value, but if you want to read more (there could be a lot more to it) you could look up the FERC case and read the testimony and briefs in that case (available to the public online). PJM operates the real-time energy market but many purchases of capacity normally take place on a direct, two-party basis between generation owners and LSEs and that could include NOVEC.

  18. Double my pay and I’ll write more. The coops haven’t been my focus because they 1) do not seek to corrupt the process with political dollars (nor does APCO much, for that matter) and 2) whatever incentives they have, enriching stockholders is not among them. Their member/customers reap a fair share of the benefits of good financial management (or pay the cost of bad.) The rocky relationship of ODEC and NOVEC is an interesting story.

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