SCC: RGGI To Cost Dominion Customers Billions

Virginia’s participation in the Regional Greenhouse Gas Initiative (RGGI), which would require the state’s utilities to pay a carbon tax on their fossil fuel power plants and to reduce operation of those plants, might cost the ratepayers of Dominion Energy Virginia $3.3 to $5.9 billion over the first decade, according to a State Corporation Commission staff estimate.

During a House of Delegates subcommittee hearing a week ago, a member of the SCC staff told legislators that joining RGGI would add $7 to $12 to the monthly bill of residential customers. He provided no details that day and a request to the SCC’s communications staff didn’t produce clarity.  

More details of impact on Dominion customers surfaced in a letter dated January 29 answering Delegate Terry Kilgore’s questions following up the cryptic comment.  Kilgore chairs the House Commerce and Labor Committee, which killed the bill which had prompted the question about cost.  House Bill 2735 would have allocated revenues from the carbon tax to various programs in Virginia, but never did designate how much money was involved.  That would depend on the price of carbon credits in future auctions.

Another bill dealing with Virginia membership in RGGI, House Bill 2611, passed the House of Delegates Wednesday on a straight party-line vote, and is now heading to the Senate.  That bill requires legislative approval before Virginia gets into RGGI, and previous versions have been vetoed by Governors Terry McAuliffe and Ralph Northam.  Virginia is preparing to participate in RGGI through an Air Pollution Control Board regulatory process with no legislative approval.  A new public comment period opens February 4.

The fiscal impact statement on House Bill 2611 cites Department of Environmental Quality estimates of $65 million a year in impact, at least at the start.  Under the proposed regulation pending at the Air Pollution Control Board the two utilities would be capped at 28 million tons of emitted CO2 in 2020, with the cap shrinking 3 percent a year.

The fiscal impact statement also claimed that 95 percent of the revenue from the carbon tax would flow back to ratepayers through the fuel factor.  The most recent RGGI auction set a tax of just above $5 per ton, placing the estimated cost of the 28 million tons allowed the utilities at about $15o million.

What the letter implies, but doesn’t state directly, is that payments for carbon credits in the cap and trade auction are not the only major cost to customers under RGGI.

RGGI’s declining emissions cap is on generation within the state, whether the power being produced is used in the state or dispatched to others through the regional transmission organization PJM.  The other states covered in RGGI do not have integrated utilities like Dominion, meaning they do not own their own generation.  Because Dominion owns the fossil fuel plants in question, disruptions to their costs or operations become the ratepayers’ problem.

“Dominion’s customers continue to pay for DEV’s generation resources whether a unit runs or not or is taken out of service due to RGGI compliance,” the letter states.  It is signed by Director of Public Utility Regulation William Stephens.  Later he writes: “RGGI compliance increases the dispatch cost of fossil fuel generation thereby making it less competitive.  As a result, such generation will run less or be taken out of service….”

Those generation-related costs above and beyond the price of the carbon credits are seldom mentioned, but if Dominion’s fleet of plants can’t sell power at a competitive cost into PJM, that falls back on customers as lost revenue and stranded assets.  If some plant shuts down, clearly the goal of RGGI proponents, the utility still recovers its costs for that idle plant from ratepayers.

There is no mention in the letter of costs on Appalachian Power Company or its customers.  The SCC’s Dominion estimate used the price floor for carbon emission allowances published by RGGI and Dominion’s current cost of capital.  It assumes that Dominion complies by going ahead with the 5,000 megawatts of solar, 30 megawatts or storage and $870 million of spending on energy efficiency programs in the 2018 energy regulation package approved by the General Assembly.

The letter indicates the lower cost of $3.3 billion over ten years is triggered by linking to RGGI and its auction process, with the higher cost of $5.9 imposed if Virginia takes full membership.  It is not clear why the difference, or whether the costs include the capital costs of those new projects in the 2018 legislation along.

With the General Assembly providing so many incentives (carrots) for new renewable generation, it not quite clear what Virginia gains from the tax and cap scheme of RGGI (a very big stick.)

The letter raises as many questions as it answers, will be vigorously disputed, and a full understanding will require some explanation from the commission staff.  The opportunity may arise as the House bill comes up in a Senate committee in the next weeks.  As previously noted here on Bacon’s Rebellion, the carbon tax is just one of several things pending likely to add costs to Dominion customers, with the coal ash settlement being the other major new charge.

 

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39 responses to “SCC: RGGI To Cost Dominion Customers Billions

  1. Seems like what we actually have in the way of a credible analysis is severely lacking.

    We have “letters” with opinions…

    I don’t think good informed decisions are going to come out of this kind of a process and I’m wondering why there is not a bill to have true analysis done.

    One thing is clear – if the price of electricity goes up – many people will find ways to reduce the consumption of it. That’s not an opinion – that’s a verifiable, proven fact.

    There are actually new appliances and HVACs that just their improved efficiency will save $5-10 a month.

    The problem that we have is that Dominion makes a profit out of selling electricity – and the more they sell the better it is for their investors.

    This is why their forecasts are always much higher than actual and in turn why they want to build more plants and build a pipeline to sell gas.

    Basically what RGGI is – is to reduce the consumption of electricity – in ways that money is saved. It’s counterintuitive in the way that opponents frame it and points are not given when one claims that because Dominion built more plants than needed – that – that is the fault and responsibility of consumers rather than investors.

    But it bears repeating – Dominion makes money selling electricity – the more the better. Selling LESS electricity is not beneficial to their company nor investors and so they are this “thing” in our economy that is selling a product – that harms the environment – and their business model is totally dependent on selling more.

  2. It is obvious that this is too complex an issue to hash out in a 45-day session. The GA needs to set up some sort of special study committee, with professional staff, to look at these issues during the interim.

  3. No, Larry, a key point you keep missing: Dominion makes its money building power plants. It earns a profit margin on the equity it gets from stockholders for those capital investments…(their grid investments earn a margin, as well.) RGGI radically alters and apparently diminishes the value of those generation investments.

  4. re: “making money from building power plants”.

    well,okay but if you build a plant and there is no demand for the electricity it produces… then what?

    I’m not a huge supporter of the RGGI per se by the way.

    Dominion could seek a rate increase and all of the increase would go back into a program that gives rebates to people who bought more energy efficient equipment – totally separate from RGGI.

    but then that would mean lower electricity sales and less need for new power plants.

    So the question is : Is something like that good for consumers and does reduced electricity consumption longer term have benefits?

    By the way – it sure looks like Dominion could run it’s Nukes 24/7 and sell that power at a premium under the RGGI – no?

    Do we all remember back when they set EPA mileage standards for cars and the skeptics predicted disaster – and what has happened since then? People are buying more fuel efficient cars and the air around our urban areas has gotten so much cleaner than the same skeptics that were yelling chicken-little – NOW want to do away with those mileage standards!

    Consuming less fuel is beneficial to society in a number of ways even if one doesn’t believe in global warming.

    • “..if you build a plant and there is no demand for the electricity it produces….then what?”

      If you are a regulated utility, having received appropriate authorizations for building the plant, your customers continue to pay for it. While the regulator would not give permission to a utility to build an unneeded plant, it is possible, though very unlikely that demand could fall off to such extent that the authorized plant becomes entirely excess. The utility would mothball or retire such plant, eliminating operating costs. This is a challenge of utility planning, anticipating where demand is going to be years in advance. The authorization process gets loads of scrutiny and is conducted in open court, where any interest, including that of an unregulated potential competitor, can be represented and have a say.

      If you are an unregulated competitor, and you miscalculate the market, you lose your investment and either sell out or go belly up. Maybe the regulated company who serves the area you built in gets to buy a unit at a fire sale price.

      The difference is that the regulated company is obligated to serve its customers and has to plan for meeting 100% of their demands, which means building capacity (or buying it in bulk) from time to time. The unregulated competitor has no such obligation and can try to strike the market while it is hot, so to speak.

  5. Note today’s lead editorial in WSJ labelled When Politicians Direct Capital regarding the Frankenstein Monster built by the lefties out on the Left Coast, the monster they named PG&E. The contagion has now apparently spread to the East Coast borne on the wings of Billionaire Leftists flying in from West Coast, loaded down with cash to buy local Virginia politicians. This is a repeat of history, the acid and pot that arrived in C’ville’s UVa., from the Left Coast in 1969, infecting the place now for some odd 50 years. The Plague is upon us.

  6. ” … might cost the ratepayers of Dominion Energy Virginia $3.3 to $5.9 billion over the first decade, according to a State Corporation Commission staff estimate.”

    Ok, “might” is an interesting word. But … more importantly … what happens to that money? Where does it go?

  7. “Might” was my word, intending to inject some skepticism. Some of the money presumably would be higher costs per customer for principal, interest and profit on under-used or retired power plants. And it is clearly the Governor’s intention to use the carbon tax as general revenue and not let it flow back to ratepayers.

  8. “Some of the money presumably would be higher costs per customer for principal, interest and profit on under-used or retired power plants.”

    Folks you better plan for them costs, ’cause they’re gonna explode sky high, thanks to the false costs numbers of solar and wind being peddled now, that’s gonna drive a whole bunch of hidden collateral costs sky high that you don’t know about now. That’s the scam, a big part of the scam being sold now.

  9. Saving energy – using less electricity. Clearly there are continuous efforts to develop products and to provide services in ways that are more efficient and that use fewer inputs, including electricity. That flows from basic capitalism and competition. And, over time, businesses, governments, nonprofits and individuals will purchase or use these products.

    But how often does anyone replace their furnaces or HVAC systems? How often would a commercial landowner, including an apartment operator, reinsulate its buildings? How many homes out of 1000 replace their windows in a decade? Etc.

    Most entities and individuals cannot afford to make these major renovations even though much new construction is much more energy efficient. Raising the price of energy will harm many people and businesses. It will reduce economic growth and disposable income for many.

    And activists and government officials and wannabes have not come out in favor of taxing those properties in areas to be protected from rising water levels to cover a significant portion of the protection. It’s easier to dump on the mass of people just trying to live their lives.

    • Yup, just think about that one example among many. And think hard about it as we might, we still are going to be flying blind during much of this, like Marines going into Saipan’s beaches. There is so much we do not know, and never will, till we try. So will we all die? Or just of us? And how? And how best to try?

    • Like with fuel-efficient cars , it happens over time as things wear out and get replaced. there is no magic – but it is common sense.

      The folks you’re calling “activists” are elected governments by the way.

      You’re not raising the price of energy either – you’re basically incentivizing buying more energy efficient equipment – that’s jobs..

      In the bigger scheme of things – which would more benefit your money – more efficient equipment that lowers your bill downstream or spending in on obsolete closed plants that Dominion built when they knew there was insufficient demand?

      • These should not be the only choices. We should see a new regulatory law that separates generation from transmission and distribution. And alternative generation sources should compete with Dominion for customers. Let’s see companies come in and offer kwh rates for renewable energy that are below those of Dominion. Dominion would then write down investment in old, inefficient plants and come back with lower prices.

    • In the real world, instead of the theoretical one, figuring out all the risks of change or of any meaningful act, known and unknown, and how those risk arise, interact and accumulate, if they arise, interact, and accumulate at all, and all the resultant consequences, seen and unforeseen, that follow in their wake is a terribly difficult and threatening activity, in which very few succeed, most will fail, and miserable so, in this world. Hence nothing of consequence can ever be taken for granted in this world, most especially in times of great change wherein only the paranoid will survive.

      A primer on this iron law of reality can be found in Only the Paranoid Survive by A. S. Grove (1996). ISBN 0-385-48258-2.

  10. I am very concerned that RGGI is not currently designed to be fair to the Southeast states who use heat pumps.

    Virginia’s utilites (Dominion et al) take much of the CO2 burden for home heat, whereas all other RGGI states give that CO2 burden to the homeowners. So Virginia’s electricity CO2 emissions look higher than the RGGI states, but it’s an apples and oranges comparison. The other RGGI states are excluding their home heating CO2 burden, whereas we are including it.

    As I showed below, Va. is actually much more energy effiicent than RGGI in the household segment :

    Household Energy Use, BTU, EIA Numbers
    Virginia = 86 MMBTU /8.5 million people
    = 10.1 BTU/yr/person
    Massach=109 MMBTU/7.0 million people
    = 15.6 BTU/yr/person
    NewJers=127 MMBTU/9.0 million people
    = 14.1 BTU/yr/person

    This does not include commercial energy use, but that varies from state to state. Just because the RGGI states chased away industry/commerce with high eletcric rates, does not mean we (Virginia) have to move in that direction.

    By the way, it looks like the other RGGI states are relatively dependent on natural gas as part of their solution, with New York looks like using about 2.5x more natural gas than Virginia. If Virginia Sierra Club wants to see Virginia ban natural gas, they will have their work cut out in getting rest of RGGI/Sierra Club to follow suit.

    • Wonder insights on how things work in the real world in Va. and elsewhere. Important things here to remember when confronting infomercials with facts.

    • Modern heat pumps are much more efficient than older ones – both for air conditioning in the south and heating in the north.

      It will take time to replace heat pumps. But the newer ones use far less energy than the older ones.

      Ditto with modern water heaters… and LED lights and programmable thermostats.

      The argument against them are weak in my view. If we use RGGI money to help people buy more energy-efficient equipment – isn’t that a win-win longer term?

    • TBill, I don’t understand how your numbers apply in this case. There’s no dispute that statewide average energy use per residential household is higher in the RGGI states than outside that region. Yes it’s true, the further south one goes the more of the space heating load is carried primarily by electric heat pumps rather than by direct natural gas (or oil) space heating because, at moderate outside temperatures, heat pumps are extremely efficient. Yes, if RGGI makes electricity any more expensive for the consumer than it currently is, that will slightly diminish the heat pump’s efficiency advantage over direct natural gas heating. But you say, “Virginia’s electricity CO2 emissions look higher than the RGGI states, but it’s an apples and oranges comparison. The other RGGI states are excluding their home heating CO2 burden, whereas we are including it.” I don’t understand that last sentence.

  11. I think the title should actually be … RGGI WILL MAKE DOMINION SHAREHOLDERS PAY FOR DOMINION CHOICES.

    I think transparency is clearly missing in the discussion about VA joining RGGI. … and the statement that joining will cost ratepayers more is clearly a Dominion position.

    In November 2017, the State Air Pollution Control Board approved draft regulations to cap carbon emissions by linking with the Regional Greenhouse Gas Initiative (RGGI). RGGI Is a flexible, market-based system to cap and then lower carbon emissions among the 9 participating states. The member states set the carbon cap and then power plants purchase allowances for every ton of carbon pollution that they emit. Revenue from the auction of pollution allowances goes back to the states to fund carbon reduction programs and other initiatives decided by each state.

    The Control Board’s proposal just links VA to RGGI, giving Virginia power providers the ability to trade within the wider RGGI market through a consignment auction. This means that Virginia regulators would give away allowances instead of selling them, and that Virginia’s Department of Environmental Quality (DEQ) would not have decision-making power about where auction proceeds are invested.

    The Virginia Coastal Protection Act (VCPA) makes VA a full RGGI member and gives the state the right to participate in setting the carbon caps and allowing the revenue from the auction of pollution allowances to go back to the state. Using the Air Boards proposed ‘link’ to RGGI without full membership, the Commonwealth would not be able to utilize the hundreds of millions of dollars in revenue raised from the carbon market or to guarantee a cap past the year 2030.

    The VCPA legislation on the other hand, stipulates funds go to the Commonwealth Resiliency Fund, a dedicated source of revenue to fund projects that will improve the lives of millions of Virginians. The act also specifies that funds go to energy efficiency improvements and workforce development in southwest Virginia.

    Are the monies Jim mentions the funds that go to workforce development and coastal protection? Sounds like membership in RGGI is not a loss but a shift of funds and with a different pilot at the helm. Not really sending the monies to general revenue but …

    RGGI has been a success. RGGI investments made up through 2016 equal:
    $1.7 billion in lifetime energy bill savings
    7.0 million MWh of electricity use avoided
    30.4 million MMBtu of fossil fuel use avoided
    6.4 million short tons of CO2 emissions avoided.
    Auction proceeds were invested in programs including energy efficiency, clean and renewable energy, greenhouse gas abatement, and direct bill assistance. Energy efficiency and clean and renewable energy continued to receive the largest share of investments which in turn has saved customers.

    Virginia has other clean energy issues that will cost the state in the future; issues like preparing for rising seas on our coast, and bringing new jobs to coal country. Joining RGGI offers a market-based solution to create clean electricity in Virginia.

    • The lack of transparency is on the side of the Dems mandating that we join RGGI, for what reason?

      I do not agree that RGGI is a success, RGGI was going nowhere when the bottom dropped out of the natural gas market. Like everyone else, RGGI states rode the wave of reduced CO2 emissions that resulted.

  12. interesting chart:

  13. I agree there are many unanswered questions here. The Regional Greenhouse Gas Initiative (RGGI) was originally intended to create a proxy for a carbon tax within the context of the wholesale energy marketplace. I have no idea from what little has been published (including here) what is proposed be done in VA with the money raised by the sale of RGGI rights to DE and others. But take a moment to look at the effect of RGGI on Dominion’s generation. Steve, you say, “if Dominion’s fleet of plants can’t sell power at a competitive cost into PJM, that falls back on customers as lost revenue and stranded assets.” Yes, that is one cruel (to ratepayers) result of Dominion placing its new generation in the utility ratebase (more to the point, it is the result of the SCC allowing Dominion to do this). When these plants run (or don’t), they run for the account of retail ratepayers when they are in the retail ratebase. The net operating profit for a given generating plant (the amount by which operating income exceeds operating expenses) is reduced when the cost of RGGI borne by that plant is factored in. Now, generator operators don’t set out to run them at a loss, so when DE sets the price for its gas-fired generators in the PJM wholesale energy market, it will now include the cost of recovering RGGI costs in its bid to PJM. PJM will only dispatch a given unit when the marginal price across the market (adjusted only slightly for location) rises above the unit’s bid price. So, yes, these DE gas units will run less and that will impact the net fuel and interchange cost flowing to customers through the fuel clause.

    But there are other ways to measure that impact. Some questions: Is the SCC staff analysis just talking about reduced net income from these DE plants, or is that impact already built into DE’s calculation of the fuel clause and thus double counted in the numbers quoted here? And, crucially, how is the revenue from RGGI itself allocated, and what portion of that will be or should be counted as an offset in the fuel clause, and is that offset included in the Staff’s calculation of the ratepayer impact? And there’s a regulatory fairness question lurking out there too: many other PJM states are full RGGI participants; is the “lost” net income from the diminished competitiveness of these DE gas units really attributable only to taking away Virginia generators’ past advantage from selling without the RGGI cost burden to ratepayers in states that are in RGGI? Shouldn’t Virginia, then, join RGGI and join the other PJM states participating in RGGI in pressuring the remaining PJM states to join, too, so that everyone plays on the same level field? [Isn’t the lack of state-by-state uniformity here a perfect illustration of why a ‘carbon tax’ of any kind ought to be enacted at the federal level?]

    Steve also says, “If some [fossil-fueled] plant shuts down, clearly the goal of RGGI proponents, the utility still recovers its costs for that idle plant from ratepayers.” Yes, that’s the other long term risk from rate-basing any DE plants: if they become obsolete it’s the ratepayers, not the shareholders, who end up owning a useless asset yet continuing to pay for the unamortized investment in that asset. That risk of ‘stranded cost’ belongs in a non-utility subsidiary where it falls solely on the shareholders of DE, for better or worse. But there isn’t a high risk of that happening, in the short run anyway, with DE’s newer natural gas combined cycle (NGCC) units, with or without RGGI. These newer DE cycling units are going to still be needed to carry the nightime and cloudy-day loads even as the amount of solar power increases to much more than in PJM today. RGGI is not going to push them into obsolescence prematurely.

    • ACBAR … In my layman’s read of what I found online .. without reading the bill … the monies were to go back through the fuel clause only in the Air Board’s proposal to ‘link’ to RGGI. In the ‘link’ proposal the state has no control over the auction monies.

      In Northam’s proposed Coastal Act, which makes VA a full RGGI member, the monies from the auction are designated to go to the Commonwealth Resiliency Fund, a dedicated source of revenue to fund projects that will improve the lives of millions of Virginians. The act also specifies that funds go to energy efficiency improvements and workforce development in southwest Virginia.

      But I think a good guess on Dominion’s opposition could come from the currently ‘unlevel’ playing field in PJM and the fact that adding the Carbon fee would take away a Dominion advantage in the PJM auction against states that have the fee, as you point out.

  14. Acbar, you say: “These newer DE cycling units are going to still be needed to carry the nightime and cloudy-day loads even as the amount of solar power increases to much more than in PJM today. RGGI is not going to push them into obsolescence prematurely. RGGI is not going to push them into obsolescence prematurely.”

    Is RGGI going to make that obsolescence decision? Why? And whoever makes it, how can we be sure it is reliable and right decison, given vast changes going on? And what are consequences of a wrong decision on closure, if one be made?

    • Stated another way, assuming solar and wind power’s increasing penetration of Virginia’s market in the future, will we not need ever more gas fired plants, to handle ever increasing load instability, and how can we reliability predict that, and its myriad of potential costs and solutions, into the future, either sooner or later? After all, somebody somewhere has got to end up holding a bag on fire.

    • Reed, Those resource decisions belong to the utility, not to RGGI, modified by the SCC’s comments in the IRP process that haven’t been restricted by the GA.
      http://chesapeakeclimate.org/blog/faq-rggi/

    • No, RGGI won’t force the obsolescence decision. As PJM dispatches all those generators across its 13 state region to meet load, it chooses the lowest cost ones first — that is what “economic dispatch” is. If Dominion is right, there is going to be a need for those new gas-fired combined-cycle units for a long time in the PJM marketplace — hopefully more than long enough to pay off the debt financing for those units and fully depreciate them on the books, which is typically around 40 years. Dominion made the decision to build this type of generator based on the same information we all discuss here: the likelihood of lots of new solar power, the uncertain long term future costs of fuel including natural gas, the likely increase in customer energy efficiency measures and in electricity storage through batteries, forecast load growth due to simple population growth and also shifts in energy consumption, etc., etc. There are some very sophisticated consulting firms that specialize in such forecasts, and the SCC holds an annual review of all that, triggered by Dominion’s and Apco’s annual filing of their “integrated resource plan” forecasts for the next 20 years and how they intend to provide reliable electric service over that timeframe. To answer your question “how can we reliably predict that,” I think it’s a pretty good process and it generates some pretty good answers. RGGI is just one cost factor among all the others, and a relatively minor one, and they can forecast it as well.

      But of course the answers are educated forecasts, not certainty. Dominion could build all its new generation for the deregulated marketplace and take all the risk of that uncertainty on its own shareholders — meaning, they’d either make a bundle or lose their shirts in the wholesale marketplace. In the deregulated generation world, the shareholders keep 100% of the profits, or losses. Or Dominion could elect to build nothing and buy all the power it needs for its retail customers from the wholesale marketplace and let other generation owners take all that risk. Instead, Dominion has chosen to go to the SCC and ask to put all its new generation into the retail customers’ ratebase. The good news is that all operating profits from that generation will now go to Dominion’s customers. The bad news is that all operating losses will, too, and the investment in those units will be in the ratebase for 40 years into the future whether or not the units are still profitable to run for all that time.

      If the Grid evolves in unforeseen ways or natural gas prices go through the roof, such that an older natural gas combined cycle generator is not a competitive generator in the marketplace any longer, Dominion’s shareholders won’t lose, for all the loss will fall on those retail ratepayers. That’s why I’m opposed to any more ratebasing of new generation, by Dominion or any other electric utility — they should put their own money where their forecasts indicate and not be allowed to cling to the old “guaranteed rate of return” regulatory model. If somebody is going to “end up holding a bag on fire” it should be the generation entrepreneur not the ratepayers.

  15. The beauty of PJM is that power is produced 24/7 and the value of it is determined by the market and that’s especially true at night when solar is not producing.

    Back when coal was cheaper than gas – RGGI would have tipped the scales based on carbon intensity but now that gas is cheaper – what generation would be the cheapest at night – and especially so for DOminion?

    Dominion has a choice at night – they can use their own Nukes and/or fire up their gas plants and/or buy from PJM AND they could also fire up the gas plants to sell to PJM.

    So if DOminion gets approval to build new plants and put that cost on ratepayers AND also sell that power at times to the highest bidder – does that means that Virginia ratepayers are paying for plants that Dominion is generating power to sell on PJM at whatever level of profit they can – apart from what the SCC regulates on power sold to Virginans?

    I hope not. Surely this cannot be.

    • Right now, Dominion CANNOT “use their own nukes and/or fire up their gas plants” for their own customers. They buy 100% from the PJM market for their customers, and pay the PJM energy market price for it. They also sell into that market if PJM dispatches their generation, which it will if their generation is among the cheapest available. Nuclear is nearly always among the cheapest whenever it’s available, so it’s nearly always dispatched. Dominion’s gas plants are pretty cheap to run as well, so they are competitive in PJM today. Therefore, Dominion usually generates about as much as it withdraws from the wholesale market; but that is simply coincidence.

      You ask, “does that means that Virginia ratepayers are paying for plants [where] Dominion is generating power to sell on PJM at whatever level of profit they can”? Yes. Whatever level of profit they can get from PJM’s energy market, yes. But here’s the critical step I think you are missing: if the SCC has allowed Dominion to rate-base these plants, meaning that ratepayers are paying off the cost to build them, then the SCC will also credit that operating profit to the ratepayers (through the fuel clause), not to shareholders. Of course if the unit doesn’t get dispatched by PJM, there is no operating profit, so the ratepayers lose out if that happens.

  16. I respect your opinion, Larry, and it conforms with that of many expects. But, I believe this entire energy system in the US is a house of cards. This system on its present course is going to collapse face first into the mud, at rate payer and taxpayer expense, if it does not go again all current popular opinion to the contrary, and confront today’s and our future’s reality, ugly as it is.

    Another words, the greatest and most successful government program in world history in the second half of the 20th century, was Fannie Mae, until it collapsed into a cesspool of government corruption and crony capitalism, that blew up the US economy, and now at this very time, the US energy system is going to blow up the American economy, like Fannie and Freddie did a decade ago, without radical adjustment.

  17. Reed, I don’t share your pessimism; but Larry, your comment indicates you too don’t get one big factor in all this: PJM, not Dominion, is the operator of the PJM wholesale energy and capacity markets; and all the power consumed by Dominion’s customers (retail, or wholesale like REC) comes from the PJM market even if it comes from a Dominion owned generator. PJM takes bids from every generator owner in PJM daily, and sometimes hourly. PJM determines as the load increases which generators have offered the next lowest bid to operate and tells that generator to come on line and start generating. PJM tells which generators to go offline as the load decreases because they are the most expensive generators running. Dominion does not make these decisions for any generating unit it owns that’s located inside PJM.

    Therefore, when you ask, “So if Dominion gets approval to build new plants and put that cost on ratepayers AND also sell that power at times to the highest bidder” you miss the point: Dominion is not taking bids from others to run its unit. on the contrary, Dominion is offering a bid to PJM to run its unit – at price X, or whatever, a specific price, if called upon. Dominion’s unit will be called upon to run (“dispatched”) only if the PJM energy market needs it to run. The operating profit Dominion gets from that unit depends on how much it runs and at what price, which depends upon how competitive Dominion’s bid is relative to all the other generators in PJM. Every electron delivered to a Dominion customer comes from that market, from all the commingled outputs of all the generators that PJM called upon to run at any given moment. In other words, no generator owned by Dominion sells directly to Dominion’s customers.

    BUT as an accounting and ratemaking matter, if Dominion’s generator makes an operating profit, you have to look at who is paying the cost of financing the unit to see who gets that operating profit. If the unit was built and paid for by Dominion’s shareholders, then Dominion’s shareholders would get the profit; and conversely, if there was an operating loss, they would get stuck with that instead. But if the unit’s investment cost was “ratebased” (as requested by Dominion and approved by the Commission) and so reflected in Dominion’s retail rates, then Dominion’s ratepayers would get the operating profit, or loss as the case may be, based on how competitive the unit was in PJM’s dispatch of the PJM energy market. There is no way Dominion can stick the cost of construction on ratepayers and not give them the benefits if any from running the generating unit they paid for.

    So if Dominion chose to build a generating unit unwisely, too expensive to compete in the regional market or using the wrong fuel or subject to too many environmental restrictions or whatever, that risk falls entirely on Dominion. PJM doesn’t care; PJM dispatches the unit based on what its owner bids, not whether or not the owner’s bid is profitable for the owner. AND when that risk falls on Dominion, that operating profit or loss falls on the ratepayers if the unit is ratebased, or on the shareholders if it isn’t.

  18. Acbar –

    With all respect, you have not answered my question.

    Have you read Taming the Sun, By Varun Sivaran? And much else available.

    How can you square your statement against the findings in his book? Findings that now surely are, or should be, widely known to everyone serious about the subject at hand, much of it known for years in many cases?

    And how do you square Varun Sivaran’s findings against all the propaganda we have been hearing from the advocates for Solar and Wind without any honest mention of the true challenges, costs, and threats, that are inherent in any proposal for 100% renewable’s, or even 30%, if not 15%? Much of that propaganda riddled with misinformation, omissions and outright lies, how do you square all that, against any hope for a competent deployment of renewables?

    Would you put your future in the hands to those true believers, who now include likely a majority of the nation? Why would their policies not collapse the grid, and drive our economy, and all of our future into the ditch?

    Are we not living in a dream world full of misinformation, mendacity, and competency? Need we all wake up, at least for once, from that delusional dream and get serious for a change? And tell the truth?

  19. I’ve spent a lifetime around electric utilities trying to educate people how to question the true believers, how to make rational decisions in the face of disinformation, how to counter those who would push the process too far towards favoring the shareholders or the ratepayers when the interests of both must be protected; and how to do it all so that the public interest is best served in the end by reliable, low cost electricity.

    Various fads have come and gone — huge coal-fired plants, and nuclear power, for example. Environmental concerns have become a huge factor (fortunately, in favor of electricity in many respects as the cleaner alternative to other ways of consuming energy). Electricity used to be a luxury and now it’s considered essential, almost like food and shelter. Electricity for transportation had its day with the railroads, and probably will come again for automobiles and trucks, but its promise for transportation remains unproven.

    What will the future Grid be like in a developed country? A lot depends on how the consumer is choosing to consume energy. The Grid simply offers a way to tie consumers together to provide electricity more efficiently and cheaply than without it; the Grid does not create their choices. We can use a mix of solar and gas-fired generation that meets the daily load curve as efficiently as possible; or we can build equipment based on the latest fad. If people insist on building more solar power than the daily load curve on the local Grid can absorb, they are going to have to time-shift some of that solar power to the dark hours, or they are going to have to shift more loads to the daytime hours, or they are going to have a less-than-optimally-efficient Grid, which, if left to the markets, will sort itself out eventually. That’s a fact. That choice is up to consumers.

    Consumer education matters. Knowing the importance of energy efficiency, and little things like how best to heat your hot water (gas? electricity? rooftop water heating?) will come to matter even more than they do today here, as places like Germany and Israel illustrate. We don’t spend enough time teaching these practical skills, but there’s hope for doing that better.

    I do believe that because it’s so complicated and interrelated, we need experts to sort it out for us and regulators to tame the profit-driven instincts of those who provide these services for us. You and I can follow the broad outlines of the debate but the details require more than the average consumer has time for, let alone the interest. Where we can help is by rebutting the disinformation, and by pushing for collateral policies not regulated in Richmond but locally, like better home insulation, and building codes that are friendly to distributed generation, and zoning that doesn’t preclude solar collector farms, and the policing of old mines and utility coal and ash sites.

    Yes there is much mendacity out there. The current federal executive and his administration is sickening to me, and Virginia’s regulatory climate is not entirely healthy. But the utility regulatory process overall, nationwide, is stodgy but sound, with hundreds of good people serving on its commissions and professional staffs, and it has held together pretty well despite the current assaults upon it, and the industry has taken the long view for the most part and done what was right anyway even as rules like the CPP were repealed. I don’t think that’s a dream world, and I have hope for the future sorting through all this current upheaval on the Grid successfully.

    • It might be useful for the VSCC to adopt a new rule that would require any proposals that affect the safety, reliability and/or price of electricity to include a cost study that both states the assumptions underlying the study and shows the results of the proposal on safety, reliability and/or price of electricity. Then other parties could challenge the study.

      I suspect that both Dominion and the environmental groups would both lose a lot of credibility when they could not demonstrate positive results under stated assumptions. Dominion’s new pipeline would likely have crashed, and we would likely see that the environmental groups are wearing no clothes.

      • TMT, that was the premise of the Utility Facilities Act, passed in the 1950s or 60s, which required advance approval of the assumptions underlying the need and cost-benefit for a utility’s additions to rate-based plant in service. And there are hearings held on those applications, which still occur today. But there has been a tendency to say, well, we already looked at X, Y and Z in the IRP proceeding so we won’t do that again here, and these cost factors V and W over here are going to be reviewed in the next rate Annual Review proceeding so we won’t do that again here. So then the Commission’s order comes out and they’re trying to tiptoe around GA support for a big generating construction project in Southside and so the order comes out a whitewash.

        There may have been an SCC review under the Facilities Act or its related statutory cousin, the Affiliates Act, in the case of the ACP also, although the SCC’s jurisdiction over interstate gas pipeline plant, booked in a non-electric-utility Dominion subsidiary, is largely preempted by federal law and regulated by the FERC.

        • Acbar – what I am going to do is lay out my concerns point by point as I understand them from others who I respect, as I do you as well, and try to get your opinion on their specific findings and opinions. That will take a bit of time since I owe Steve Moret’s earlier important question on education a long overdue answer. Thanks Reed

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