SCC Details High Customer Cost of RGGI

RGGI states

The State Corporation Commission staff has “shown its work” on an earlier estimate of electricity rate increases resulting from Virginia’s participation in the Regional Greenhouse Gas Initiative, despite a Democratic legislator’s complaint in Sunday’s Washington Post it was not being transparent.

“Even if you agree with the SCC, its analyses should be public information designed to inform the public debate. The SCC, however, has chosen a less transparent route, disadvantaging the public and the legislature from having all the necessary information to determine energy policy in the commonwealth,” Delegate David Toscano of Charlottesville wrote.  

Here it is.  The report was shared with Bacon’s Rebellion by Department of Environmental Quality staff.  DEQ requested that the SCC provide additional details on its claim in a short letter that RGGI compliance would cost Dominion Energy Virginia $3.3 to $5.9 billion and could add $7-$12 to a monthly residential bill.

As you can see, the report is addressed to a member of the DEQ staff and as such was treated by the SCC as the DEQ’s to release or not.  It is not part of any case. It was not requested by a legislative committee.  Once again, as we saw with the infamous Governor’s Mansion Kitchen tour, people allege things and the media prints them, but it is best to wait for details.

The existence of the detailed memo was no secret, but I was waiting to see if it would appear on the record during the comment process DEQ was conducting on the RGGI regulation.  The comment period closed March 6 and this report was not there when I scanned the record last week.

SCC estimates of future floor and ceiling amounts for the carbon tax at the heart of RGGI. DEQ’s figure is the right column. Click for larger view.

Is the SCC report still open to dispute and debate?  Certainly.  Any analysis looking out 25 years is filled with assumptions open to challenge. Somebody seeking to cross examine on the issue would probably want more detail.  One question not addressed, because nobody seems to be asking it, is whether changes in the pending regulation might alleviate some of those costs.

This longer document, written in the SCC’s semi-Socratic question and answer format, confirms what I surmised in a February Bacon’s Rebellion post citing that shorter communication from the SCC.  The SCC is using a higher estimate for the carbon tax revenue than DEQ used in producing its benign cost estimate for RGGI’s customer impact.  But the real problem is the way RGGI dictates capital decisions Dominion will make about closing some coal plants earlier than planned and building some new gas plants sooner than planned.

The SCC staff also seeks to tease out the cost impacts of RGGI compliance from the cost impacts of the renewable energy and energy efficiency programs authorized in the 2018 Grid Transformation and Security Act.  It then put the marginal cost of RGGI compliance at $2.4 billion.  Over the course of multiple years, that has a credible ring.

It also brings this SCC analysis  in line with information Dominion filed with the SCC as part of its amended Integrated Resource Plan.  It reinforces my point in that earlier post that the renewable generation called for in the 2018 bill accomplishes the CO2 reductions sought by the environmentalists, so joining RGGI is just layering on a big new tax.

Toscano, who apparently did have access to the memo before he wrote, just dismisses most of it without citing any of it.  The most important parts of it have the SCC staff instructing the staff over at DEQ about several aspects of the utility business they overlooked or don’t understand, and explaining that no other utility in RGGI is fully integrated with its own generation fleet.

If Dominion closes a power plant ahead of schedule, or cannot sell its output off system, ratepayers are still stuck with capital costs for that plant.  If Dominion builds a replacement plant earlier than planned, ratepayers get hit with those costs sooner than planned.  And Dominion has obligations to provide reliable generation as a part of the PJM regional transmission organization, obligations that are not easy to meet by simply installing solar, wind and batteries in the years to come.

The SCC projects early retirement of two Chesterfield and two Clover coal-fired units.  Early closure of the Clover 1 and 2 coal generation units will also impose costs on Virginians getting power from electric cooperatives, half-owners of that generation facility.  The SCC made no attempt to calculate that rate impact.

There remains a major disconnect in the SCC’s analysis between the cost of “linking with” RGGI and the cost of “joining.”  The different relationships implied by those two verbs are unclear, with the SCC’s highest cost tied to joining.  A huge disagreement between the DEQ estimates and the SCC’s involves the projected carbon tax per-ton utilities will pay for their emissions.  Based on what I read on RGGI’s website, I think the DEQ’s projection that those tax levels will stay steady is unrealistic.

I have some sympathy for the Air Pollution Control Board, now presented with wildly different cost estimates.  Then again, customer cost has been secondary to environmental virtue signaling from the start on this process. Do not expect the state’s Attorney General – charged by law with representing consumer interests – to suddenly petition for a hearing.

We’ll find out what it costs when it starts to cost us, and keep learning for decades.

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34 responses to “SCC Details High Customer Cost of RGGI

  1. Excellent reporting, Steve. another great scoop.

    Wow, RGGI compliance at $2 billion. Coal ash disposal, another $2 billion or so. Excess utility profits built into the rate freeze — who knows how much? Rate payers are getting hosed.

    • Excellent reporting indeed, Steve. Thank you.

      I also share your general conclusions as to the issues and risks at play, including many future unknowns lurking here.

      I also see little reason to undertake these risks in order to “just layer on a big new tax.” As you too suggest, my concern is heightened because Virginia has a very different generation / consummation profile from the other RGGI members. This imposes risks to Virginia, and conflicts of interests, far into the future. I continue to be a amazed at how Virginians want to dismantle the overall excellent track record of Dominion over decades. And replace it with risk and speculation that almost surely will result in far higher costs like we see rising all over the country, most particularly in New York and New England. Is this the model and track record that Virginians want to join and emulate?

  2. There is no shortage of “in the weeds” here but I was curious about how RGGI and PJM “work”.

    Are members of the RGGI who buy power from PJM – penalized for buying “dirty” power and/or rewarded for buying “clean” or “cleaner” power?

    How does that work?

    So.. if Virginia has coal plants – is it still possible for them to run those plants and sell the power to PJM? Is it RGGI that forces the closure of those coal plants or are other force involved?

    It’s really hard to sort out what is real here and what is claims by those opposed.

    • Larry, those are all great and valid questions. I think it gets to the difference between “linking to” or “joining” RGGI. But my understanding is the utilities (its mainly D) are limited in their future emissions no matter where the power goes, so running fossil plants less often or simply closing them entirely is a way to meet those emissions goals. This is what the advocates want, isn’t it? Frankly I’m happy to see coal phasing out steadily. I also think the cost of the carbon credit needs to be charged to any and all customers, so when PJM considers calling on Dominion-provided coal power it will be an un-competitive price compared to some other PJM state, and Dominion won’t sell the power. We ratepayers share in the profit from that off-system sale, so that is money we lose, too. I doubt anybody at DEQ understands that.

      Then there is that most important, always ignored question about the Mt. Storm Dominion plant right across the line in West Virginia. It is in WVA. What does RGGI do to that?

      • “Then there is that most important, always ignored question about the Mt. Storm Dominion plant right across the line in West Virginia. It is in WVA. What does RGGI do to that?” Very interesting ratemaking question; I hope you follow up on this with the SCC someday. Because the plant is physically in WV it would not be affected by Virginia’s RGGI tax on emissions if operated competitively by Dominion. But because this plant is in Virginia ratepayers’ ratebase it could become the subject of an RGGI levy if calculated and applied at the retail level. My understand is that RGGI works only as a tax on the plant owner in proportion to the plant’s sales at the wholesale level.

      • Steve, you say, “when PJM considers calling on Dominion-provided coal power it will be an un-competitive price compared to some other PJM state, and Dominion won’t sell the power.” Yes, I think you’ve got the concept right. As load ramps up, PJM calls on units to run in economic order, lowest bid price first. The unit’s owner can bid whatever it wants but in fact the bid that works for maximum profit is a bid of marginal operating cost — which for an RGGI-taxed unit would include the cost of RGGI payments if any.

    • No, no no, Larry. RGGI simply becomes one more cost of operation for the owner of the generator. If the generator is a fossil plant, then every time it runs, the owner has to buy and consume emissions rights from RGGI. If the generator is not a fossil plant, it does not do so. But in either case the generator is dispatched in the PJM markets at the price it bids to be dispatched at. That price, of course, is set to cover its marginal costs (including the cost of RGGI rights if any).

      You ask, “Is it RGGI that forces the closure of those coal plants or are other force involved?” Of course it isn’t RGGI that “forces” anything! But in forecasting which new generator to build, a utility that knows it will pay an RGGI fee to run a new fossil plant, but not if it’s a solar plant, should conclude that a new solar plant will be more profitable to build. And if the cost of RGGI tips an old fossil plant into the category of economic “loser” then RGGI may accelerate the decision to retire it. This is an ECONOMIC signal, not a sledgehammer. That’s how markets work.

  3. re: ” Rate payers are getting hosed”

    apparently, when they are getting “hosed” by Dominion though – it’s a different issue, eh? And it apparently can drag on for years and still not be near as “bad” as RGGI. 😉

    I guess when Dominion is “hosing” – it’s a different thing and not near as nefarious! Profits for Dominion – good.. fees to reduce pollution – BAD!

    • It’s not a different issue in my reporting. That’s why all sides love me the same. 🙂

      • Well, I have to give you that!

        The bigger problem here is that the SCC essentially does business behind doors and it gives others – those of not pure motives – the opportunity to screw with the process and the politics.

        It’s a bad process that fosters disrespect of the interests of the ratepayer and encourages skullduggery, including the GA ….and those with partisan political motives.

        I have zero doubt that a large majority of ordinary folks in Virginia favor RGGI as well as coal ash cleanup but where are we with either? still deep in the weeds where all kinds of misbehavior out of public eyes is ongoing.

        If you put RGGI and coal ash to a referendum – it would be no contest.

  4. Steve, you mention, once again, an aspect of Dominion’s retail rates that is absolutely key here. Dominion rate-bases its new generation, unlike every other utility in New England, New York, New Jersey, Maryland and Delaware. As you correctly point out,

    “The most important parts of [the SCC memo] have the SCC staff instructing the staff over at DEQ about several aspects of the utility business they overlooked or don’t understand, and explaining that no other utility in RGGI is fully integrated with its own generation fleet. If Dominion closes a power plant ahead of schedule, or cannot sell its output off system, ratepayers are still stuck with capital costs for that plant. If Dominion builds a replacement plant earlier than planned, ratepayers get hit with those costs sooner than planned. And Dominion has obligations to provide reliable generation as a part of the PJM regional transmission organization, obligations that are not easy to meet by simply installing solar, wind and batteries in the years to come.”

    Why are we still content to allow Dominion to pass all these future uncertainties and risks onto the backs of ratepayers? The generation business has been de-regulated at the federal level for 25 years now, yet Dominion clings to regulation of these generation investments by the SCC here in order to invoke the ratepayers’ guaranteed rate of return. These investments are risk free for Dominion. As a consequence, Dominion’s behavior is not induced to change as the result of RGGI; it’s the behavior of Dominion’s ratepayers, not Dominion’s corporate decision to build new gas-fired generation, that is being penalized. How can the ratepayers possibly respond to the price signals that RGGI is giving?

    RGGI is a form of carbon tax, no question about it. But a tax whose benefits go back to the same people paying it is more a re-allocation or cross-subsidization within that group. To what end is this tax being imposed? What economic activity is being subsidized, and who are the losers? This post does not answer those questions. Thanks to BR for exposing this shell game, but the real change that exposure should bring about is to eliminate Dominion’s investment strategy in the competitive (NOT monopoly) generation markets, risk-free for shareholders at ratepayer expense.

    • AC, you ask:

      “Why are we still content to allow Dominion to pass all these future uncertainties and risks onto the backs of ratepayers? The generation business has been de-regulated at the federal level for 25 years now, yet Dominion clings to regulation of these generation investments by the SCC here in order to invoke the ratepayers’ guaranteed rate of return. These investments are risk free for Dominion.”

      These questions can only be answered by the General Assembly, which seem content taking Dominion’s money and elbowing the SCC out of its regulatory responsibilities one by one.

  5. Fundamentally the issue is that Virginia is already a state with very low CO2 emissions, due to nukes and lots of imports of elec and nat gas over coal. One study, Virginia was 39 out of 50 states in CO2 foorprint, whereas as 50 was the lowest CO2 footprint. The Virginia enviromentalists claim Virginia’s use of natural gas is equivalent to mass murder or genocide, but to be honest the whole RGGI northeast is heavily dependent on natural gas. Go tell New York.

    And our carbon footprint includes the data centers. If we could shut down our industry like the the other Northeast states would even have lower carbon footprint.

    • Exactly. This comment ties in with mine below Jim’s 1st comment.

      Why mate one healthy apple with a half dozen spoiled oranges?

      And why turn over your assets creating these mixed uncertain results to other people outside your control and whose interests may well disagree with your own?

  6. Momentarily, putting aside my concerns about illegal action by Virginia’s governors in joining RGGI without GA approval and, perhaps, approval of Congress for an interstate compact, application of a carbon tax on consumers in a monopoly power generation market makes no sense. There is no price signal, only higher rates. If a carbon tax addon is to be effective, consumers must have the ability to purchase power from non-taxed sources (i.e., renewable energy) at market and/or carbon-taxed power.

    Presumably, this should involve multiple suppliers but could be done in a monopoly environment by giving Dominion ratepayers the ability to chose renewable or nonrenewable sources. Of course, Dominion must have the capacity to serve customers with all the power of their choosing. A consumer who is willing to pay the carbon tax because the total cost is still lower than renewables should not be required to purchase higher-priced renewables.

    As far as unneeded plants are concerned, SCOTUS ruled in 1989 (Duquesne Light Co. v. Barasch, 488 U.S. 299 (1989)) that a utility did not have a right to recover the investments in uncompleted or abandoned power plants so long as its overall earnings were reasonable. While this case is different than writing off obsolete plants no longer used and useful, an argument can be made that, so long as Dominion’s earnings are fair, it should not be allowed to recover all the costs of plants not needed. A better argument can be made that the costs of ocean wind power that are higher than land wind power should not be recoverable by Dominion.

    • To compound this carbon tax regulatory scheme built on a hoax is the plain and obvious fact the renewable power generation, its very survival and whatever limited success it may enjoy, depends on the flexibility, sustainability, reliability and full operating capacity, of fossil fuel generation combined with nuke power. We can eliminate the carbon problem with Nukes alone. Absent miracles, we will never solve the carbon problem in the foreseeable future with wind and/or solar. To the extent wind and solar reduce carbon to any degree, it will be because nukes and fossil fuel generation enables that result. The carbon tax scheme works to thwart the chances of success of the renewable solution.

  7. If you tried to run solar in concert with a nuke – it would never work.

    The Nuke runs at one speed and cannot ramp up and down.

    that means in that scenario that Nukes would have to run at peak demand – all the time and there would be no opportunity for solar to run at lower demand periods because the Nukes cannot ramp down during those periods.

    This is why gas is so important when trying to bring on solar.

    It’s the reason that both California and Germany have had problems getting rid of coal and relying on Nukes.

    In an ideal world – you’r run nukes to cover the basic load demand 24/7 and you’d run gas and solar to meet higher demand periods.

    You’d run the solar instead of the gas when solar was available and when solar was not – you’d run the gas.

    so, essentially you use solar when you can – and when you can – you don’t have to burn gas.

    That’s where we need to go.

    So in Virginia – Dominion could rely on it’s nukes for the 24/7 base load and then on gas and solar to meet higher level demand.

    They could sell the excess Nukes to PJM if they have any.

    Solar, by the way could be built around the gas plants and in the right-of-way for major power lines and gas pipelines and even in places like this:

    • The liberal assumption is battery storage will eliminate the need for Nat gas. Until such time we should just say “no” to fossil fuels for elec gen (and import needed extra power until utility scale batteries are widely available).

      • Yes, but no reliable expert I can find is able to say when such batteries will be available and capable of coming anywhere close to solving the storage problem. In addition there are a vast array of other problems, ranging from land use, to finance, to demographics, economics and politics worldwide, that stand in the way of any practical renewable solution anywhere in the foreseeable future. This industry today is being driven by ideology, not any real sense of practical capability. Many are willing to bet our future on a hope and a dream.

        • PJM has been a leader in installing utility-scale batteries for several years. They are cost-competitive in many situations today because they provide many services in addition to just storage.

          You are correct in saying that we in the early phases of adoption. Battery chemistries are undergoing a revolution. We will see higher energy densities, faster charging times, and declining costs.

          Some battery storage is included in last year’s energy bill (GTSA). We don’t have a very high penetration of renewables yet in Virginia. But batteries have value without being paired with renewables. Stay tuned.

      • Nope. Batteries are not in the mix today – but gas and solar – together – are.

        I’m not a believer in batteries that will be cost-effective with current technologies. It will take some kind of a technological breakthrough – that we should not count on in the near term.

        But there is no reason at all that we cannot install solar and run it in tandem with natural gas.

        See – the problem here is that the folks that oppose “green” – oppose any/all variants of it – even the ones that are practical right now.

        Why can’t we do that – right now – what’s the argument against doing the things we CAN do right now?

    • If global warming can be stopped by the elimination of carbons through the actions of mankind, then only man’s deployment of nuclear power worldwide has any reasonable chance of accomplishing that task in the foreseeable future. That is increasingly clear with every passing day.

      • I have long wondered why we don’t go toward more nuclear-generated power. It’s clean and relatively cheap. The only problem I haven’t solved is what to do with all those spent nuclear fuel rods. There is only so much room in Yucca Mountain. (By the way, is Dominion still storing its spent rods in pools on site?)

        • There is indeed only so much room in Yucca Mountain, but it would be plenty if anyone could use it. But Harry Reid saw to it that Yucca Mountain was closed before it ever opened. There is not one micro-Curie of nuclear waste stored there today. I’m not sure there is any alternative to what Dominion is doing on-site.

          As for clean and relatively cheap, that used to be the case. Today, nuclear power is clean enough but not cheap enough to run at a marginal cost below the most efficient natural gas units. The nukes actually have to run at a loss in order to avoid shutting down on some nights. This is due to higher fuel cost, the result of many other countries (including China) competing today for the limited supply of uranium and of processing capability. While the units’ capacity also has value, it’s not enough to pay to keep them in operating status. As a consequence, for example, First Energy recently announced plans to shut down prematurely four nuclear plants it owns in OH and PA. See, e.g.: http://www.presspublications.com/22508-firstenergy-solutions-still-on-track-to-shutter-davis-besse-plant

  8. Yes, stored on site, in large casks. We are paying for a nuclear spent fuel storage solution, built in the rates, and the money sits in an account, but the federal government is stymied. You would be surprised now little space it takes to hold all the spent fuel from nuke power plants, especially if we got our heads out of our hind ends and reprocessed it like other countries do. Jimmy Carter’s biggest mistake….

    The cost of meeting the incredible safety requirements and the dropping cost of alternatives have nuclear on the back shelf for electricity generation. Still the solution of choice for the Navy’s capital ships.

    • There is a growing conviction that nuclear power is the only real answer to solving the carbon issue in a timely, cost effective, reliable and efficient way.

      This long know fact and issue has been very seriously updated and explored in a fine new book “A Bright Future: How Some Countries have solved Climate Change and the Rest Can Follow, by Joshua Goldstein, and Staffan Quivst. This book substantially updates ideas to fight global warming with Nuclear and Renewables that have been seriously around since the late 1990s. The merits of the case were very obvious back then as well. I was involved in one of those efforts. Since then the case for the nuclear as the primary solution to carbon reduction has only grown more powerful since the late 1990s, while the case for Renewable generation, based on solar and wind as the primary solution, is fading fast, collapsing into a secondary roll at best. Not practical, too weak, inefficient, and unreliable.

      So now, at long last, serious environmentalist are climbing aboard this solution publicly. See for example:

      https://e360.yale.edu/features/why-nuclear-power-must-be-part-of-the-energy-solution-environmentalists-climate

      Frankly, serious environmentalists have known this since the late 1990s. But didn’t know how to speak out, without being driven out of movement.

      • For an example of the sorts of ill conceived notions on the energy industry in Virginia that now flood the state, see the commentary of Ivy Main, long time volunteer with Sierra Club, who writes regularly for The Virginia Mercury.

        See, for example: https://www.virginiamercury.com/2019/03/20/a-revised-generation-plan-leaves-dominions-case-for-its-pipeline-in-shambles/

        • Reed,

          If you follow the data provided by Dominion and Duke, you will find the following:

          1. All of Dominion’s large gas-fired power plants have long-term contracts with existing pipelines that can transport gas at a fraction of the cost of the ACP.

          2. Dominion’s demand is not increasing as they have claimed for a decade.

          3. New gas-fired peaking units aren’t needed as they thought. If so, they would likely be located near load centers, not along the ACP corridor. I would say they are likely to be displaced by more useful lower cost batteries, but you are not likely to accept that until it happens.

          4. The earliest any new power plant might need the ACP is 2025 in North Carolina. Until then only 20% of the ACP capacity might be used by traditional users of gas (local gas distribution companies).

          5. North Carolina’s forecasts have been inflated just like those by Dominion. The plants proposed when the pipeline was announced have been canceled or pushed back at least 5-7 years. None have been approved by state regulators.

          6.Dominion told FERC that Transco has enough capacity to meet all of Duke Energy’s reservation on the ACP, about 60% of the ACP’s capacity.

          7. Actually, Transco has already expanded its capacity in Virginia and North Carolina by an amount greater than what the ACP would provide. And will transport gas much cheaper.

          There never was a proper justification for the ACP. It is not needed and will add $20 billion to the energy costs of utility customers in VA and NC over the next 20 years.

          You are an intelligent man. Follow the real numbers and draw your own conclusion. New energy projects must have a public benefit, not just be a source of private profit for developers. Otherwise, you are approving the seizure of private property without a public benefit, which is against the protection provided by the Constitution.

  9. New idea – don’t recall if I shared this tidbit:
    I recently learned NoVA sits atop geologic basalt deep down, which is fairly uncommon resource to have available. The basalt layer is thought to be a valid fututre “CO2 sponge” to pump CO2 down there for permanent disposal.

    So we could build natural gas power plants in NoVA, recover the CO2, which is relatvely easy to recover/sequester the CO2 from nat gas sources, and pump it down there to the basalt. Problem solved!

    Might make more sense to do that with H2 manufacture, not sure. In that case we make H2 from nat gas, sequester the CO2, and pump it down there. Then we would need H2 fuel cells in cars and things, which is however an anathema to electric vehicle enthusiasts, but H2 is the way Japan is going or hoping to go.

  10. New idea – don’t recall if I shared this tidbit:
    I recently learned NoVA sits atop geologic basalt deep down, which is a fairly uncommon resource to have available. The basalt layer is thought to be a valid fututre “CO2 sponge” to pump CO2 down there for permanent disposal.

    So we could build natural gas power plants in NoVA, recover the CO2, which is relatvely easy to recover/sequester the CO2 from nat gas sources, and pump it down there to the basalt. Problem solved!

    Might make more sense to do that with H2 manufacture, not sure. In that case we make H2 from nat gas, sequester the CO2, and pump it down there. Then we would need H2 fuel cells in cars and things, which is however an anathema to electric vehicle enthusiasts, but H2 is the way Japan is going or hoping to go.

    I guess I thought I might do a blog article on that idea.

    • Just an update. No project has shown a cost-effective method of carbon sequestration associated with power production, so far.

      Southern Company recently abandoned their very expensive pilot project.

      Investment for this type of project is getting harder to find because most see that coal plants don’t have a long-term future even if sequestration could become economical.

      Hydrogen production has been discussed for decades. But you would have to build a whole new infrastructure for it. Some hydrogen fuels cells have been used in buses and for backup power sources.

      The hydrogen-oxygen bond (electrolysis of water) or the hydrogen-carbon bonds (methane) are very strong and require a lot of energy to break. Electrolysis is easy but the platinum electrodes are too expensive to do it on a large scale cost-effectively. It’s easier to use methane as it as instead of turning it into hydrogen.

  11. There is a difference of opinion between the DEQ and the SCC about what the cost of controlling carbon emissions in Virginia might be. As a regulator trying to put carbon emission controls in place in Virginia, the DEQ wants a lower cost of compliance. As a regulator trying to maintain a fair cost of electricity to ratepayers, the SCC is pointing out that the cost of carbon controls might be higher than what DEQ estimates.

    DEQ is looking at it from how RGGI operates. In its first nine years, through 2017, the RGGI auction raised about $2.8 billion from electricity generators. The proceeds of those auctions were distributed among the RGGI states. The states invested in energy efficiency programs, customer-sited and community solar projects, especially for low-income residents, etc. As a result, customers received $2.5 – $2.7 billion in energy savings and accrued about $5.7 billion in health benefits.

    Results like this make the DEQ hopeful that the cost of carbon control in Virginia will be a low net number.

    It might be if we fully “joined” RGGI. We have not. That bill was defeated again in the GA.

    Instead, the DEQ is pursuing regulations to control carbon emissions that are within its legal responsibility without requiring GA approval. This requires “linkage” to RGGI rather than full membership.

    By linking to RGGI our electricity generators would purchase the carbon allowances equivalent to their emissions from the RGGI auction at the quarterly prices. But without joining RGGI, our process diverges. I have heard two versions. One is that the Virginia generators would be granted free allowances that could be sold on the RGGI auction. They would then buy the allowances they need at the auction price. The other process requires generators to buy RGGI allowances. But Virginia’s share of the auction proceeds would mostly go back to the generators rather than the state.

    This is a major divergence from the process that has worked in the RGGI states. But Virginia law does not allow a state agency, such as DMME, to spend money acquired from a process like the RGGI auction. That is why a new law was required from the GA to allow our process to work like RGGI’s.

    I have not followed the details about the latest proposals. If someone can explain this more accurately, I would welcome the input.

    In many other ways, Virginia’s situation differs from what seems to work for RGGI. Generators in RGGI states (except Vermont) are merchant generators. They must earn their keep from wholesale energy markets without the subsidy provided by ratepayers by putting power plants in the rate base. Utilities are often owners of these plants, but they have no incentive to build more unless they can be cost-effective in the wholesale market over the long-term.

    Most RGGI states are governed by the wholesale auctions run by ISO-New York or New England-ISO, so the extra cost of obtaining carbon allowances is the same for everyone and the generators compete on an equal basis.
    This is not the case in Virginia. Our investor-owned utilities put their units in the rate base. Ratepayers repay the cost of the unit, the cost of its financing, and about twice the cost of the facility in profit to the utility, over the 35-40 year financial life of the project (non-discounted).

    If a Virginia generator incurred a net cost paying for RGGI allowances, it would now generate at a more expensive cost. If that cost was included in its bid to PJM, the unit might be dispatched less often, receiving lower revenues, which could increase customer costs.

    DEQ has lowered the initial base budget of CO2 emissions from 33-34 million tons down to 28 million tons in 2020. This cap will decrease by 3% a year. Virginia’s contribution would add 50% to the 2020 carbon dioxide emissions limit for all nine RGGI states (56 million tons). Keep in mind the $5.7 billion in health benefits that RGGI achieved in its first 5-6 years, when considering the cost of compliance.

    Meeting the declining cap limits could cause earlier than expected closure of older coal, oil- and gas-fired units in Virginia. Ratepayers would likely have to continue to pay for these until the end of their financial life. Or Dominion could put them in cold storage, as it plans to do for other units. This way they still get the rate base payments, plus the payments for payroll, O & M expenses, etc. that they will no longer have, but are still being recovered from rates based on what was incurred in 2013, until the rates are reviewed again.

    Several merchant generators are proposing new units in Charles City County (1650 MW and 1050 MW). These would cut into the cap space available to utility generators and potentially increase costs to ratepayers.

    Nuclear units won’t help solve the problem. New nuclear facilities have recently been shown to be outrageously expensive and not practical alternatives. Many older nuclear units are no longer cost competitive. First Energy is going bankrupt and is closing three nuclear units that currently supply PJM. Refurbishing aging nuclear units will cost many billions, pricing their energy above market rates. It will still make sense for Dominion to extend their license because they will make a bundle by putting billions more in the rate base. They can make them “must run” units and collect revenues from PJM, but ratepayers will pay a heavy price for 20 more years of operation from units that are no longer cost-competitive.

    The main thing that this RGGI discussion has highlighted is that we are stuck with a 20th century energy system in Virginia – one that cannot properly respond to market signals. It is moving forward because ratepayers are being burdened with increasingly higher prices to prop up utility profits. Until we modernize it, by disconnecting generation from the rate base, among other things, we will have a greater drain on the families and businesses in Virginia. Other states can reduce energy use, produce cleaner energy, and save customers money, while maintaining financially healthy utilities. Why can’t Virginia do the same?

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