SCC Staff: Convert A Dominion RAC Into A PPA

All-in lifetime revenue requirement for two solar projects related to Facebook. Key data is hidden. Operating and maintenance costs are also kept secret, perhaps to prevent simple math from disclosing the RECs. ARO stands for “asset retirement obligations” and ITC is the federal tax credits. Source: SCC staff testimony.

“Facts are facts, and the SCC does a really good job of compiling them.”  Former State Senator John Watkins of Chesterfield.

After demonstrating that two solar energy facilities Dominion Energy Virginia has proposed in a deal with Facebook leave ratepayers holding all risks, reported already in the Richmond Times-Dispatch, the State Corporation Commission staff suggested an interesting solution that shifts that burden.

“Should the Commission determine that the proposed US-3 Solar Projects are not prudent as filed, the Commission may want to condition approval on the implementation of cost recovery through a rate adjustment clause (“RAC”) based on the market index in lieu of the cost of service model proposed in this case,” wrote Gregory L. Abbott, deputy director of the utility division.  His and other documents are available online.

“This would reasonably protect the nonparticipating customers from performance risk as the customers would only pay for the actual MWhs that the proposed US-3 Solar Projects produce.  Implementing cost recovery through a RAC based on the beginning market index price of $31.82/MWh would also meet the Commission requirement in Case No. PUR-2017-00137 that Schedule RF should be implemented in a manner that holds nonparticipating customers harmless,” Abbott concluded.

So.  Instead of guaranteeing the utility a full return of its capital costs with profit, the SCC might instead charge ratepayers no more than the market value of the power produced.  On this deal, Dominion would be no better protected than an independent merchant power producer.

This little case, involving only 240 megawatts of production and $410 million of construction cost, is important because after Facebook come others with similar or larger appetites.  This is the first of many such arrangements the company expects under its experimental special rate for customers demanding the appearance of green energy virtue.  Any new plants need SCC certificates of public necessity and convenience.

The Commission last year approved the experimental “RF” tariff designed to serve the new Facebook facility and others like it, but included this in the order:  “As acknowledged by the Company, however, our approval herein does not represent a presumption or pre-approval of any subsequent proposals related to Schedule RF….We agree with Consumer Counsel that Schedule RF should be implemented in a manner that holds non-participating customers harmless.”

Here is how it appears to work:  Facebook will buy the same “tainted” power including from fossil fuels and nuclear from the grid as everybody else, but to keep its green cred intact also promises to buy 100 percent of the renewable energy credits and other “environmental attributes”  for a comparable amount of power from solar.  Those contracted payments are applied to the capital pay-off for 20 years and lower the cost of the project for other ratepayers, who will still see a rate adjustment clause (US-3) on their bills.

Dominion is not building solar to connect directly to Facebook, and should a third party try to do that in Dominion’s monopoly territory, heads would roll.  That monopoly is the most valuable asset its stockholders enjoy.  The only difference between this and any other solar project appears to be the sale of the RECs to Facebook instead of into some other market.  I’m open to correction on that point.

One point the SCC staff makes is it didn’t have to be a company-built project.  Staff witness Earnest J. White said Dominion could have met Facebook’s needs by purchasing an existing solar facility. “This option would have permitted the Company to know, rather than estimate, the benefits to customers before exposure to risk of performance,” he wrote.  (Unmentioned by him – that option does not produce 9.2 percent annual return on equity for the utility. )

Another instance of redactions rendering SCC data useless to the ratepayers and reporters.

The revenues from the renewable energy credits at the two plants, along with the tax credits, are applied to the 35-year payoff on the two new solar facilities, reducing costs to ratepayers.  But as the SCC testimony makes clear, two variables then become crucial.  The first is the capacity factor of the project (what percentage of the time power is produced) and the second is the market value of those renewable energy credits.  The two are interrelated because the RECS are based on actual output, not 100 percent capacity – less output, less REC revenue.

Complicating reporting on this case, as usual, are all the key data covered up with black ink or entire memos withheld from public scrutiny.  The projected REC revenue is kept confidential.

With solar sometimes the sun doesn’t shine, just like with wind sometimes the wind doesn’t blow.  Sometimes plants are just down.  Dominion’s application for these two solar fields in Surry County use accounting based on a 28 percent capacity factor, but the SCC staff argues existing solar in Dominion’s portfolio produces at 20 percent.

A 28 percent capacity factor means the equivalent of 6.7 hours per day of full power production, every day, versus 4.8 hours per day every day at 20 percent.  That extra 40 percent makes all the economic difference.  This exact same argument over what is reasonable to expect and base plans upon is underway in the integrated resource plan case.

Abbott’s testimony puts some dollars on the dispute.

“With a Company-build option, customers are responsible for the full cost of a facility over its life even if it does not achieve a 28% capacity factor. Staff calculates that in just the first year of operation, a capacity factor of 20% would result in over $1 million of cost recovery shifting from Facebook through lower-than-projected REC sales to the nonparticipating ratepayers.

“In addition, Staff calculates that in just the first year of operation, the lost energy production associated with a 20% capacity factor would cost the nonparticipating ratepayers over $6.5 million. In effect, the nonparticipating ratepayers would pay for lost energy production twice, first through the proposed Rider US-3 (for energy that was not delivered) and secondly through the fuel factor (to replace the energy that was not delivered).”

Facebook would still be one of those customers, but would only be on the hook for the minuscule share any other major customer would pay.  It would still have all the “environmental attributes” it contracted for.  But it does not have the risks it would face if it owned the plants, or directly contracted with Dominion to pay for the plants.

The story is all about risk, who is holding the bag if the projections are wrong or after some unexpected cock-up.  As with virtually everything else the utility has persuaded a pliable General Assembly to accept at face value, the risk is entirely with its customers, not its shareholders.  They get a profit margin based on risk without actually taking any.

John Watkins trusts the SCC on the facts.  You should too.

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31 responses to “SCC Staff: Convert A Dominion RAC Into A PPA”

  1. Reed Fawell 3rd Avatar
    Reed Fawell 3rd

    Well, the deal as structured is going to save the polar bears. We know that for sure. So the ratepayers got that added into their empty bank accounts, thanks to Facebook.

    1. Reed Fawell 3rd Avatar
      Reed Fawell 3rd

      “Environmental Protection Agency regulation have grown so tight ‘that Brussels, the capital of the EU, would be the single dirtiest city in the US, if it were here,” (says Oren Cass.)’

      Draconian environment policies (and environmental virtue signaling by leftist liberals and organizations they control), are the result of cost benefit (and leftist liberal social posturing) analysis that discounts the interests of workers.

      ‘Environmentalists have essentially consumerized air quality’, Mr. Cass says. ‘We now monetize the value of clean as something that you essentially get to consume.’ For the less well off households, ‘the EPA is claiming that the air quality that it is delivering (to a household) is worth almost as much as ALL OF THE MARKET INCOME, THAT HOUSEHOLD HAS.”

      (This is the same sort of thinking that is behind the leftist liberal establishment peddling the idea of redistributed FREE income for each individual in lieu of that person earning his money through working for it.)

      “…In both cases, the emphasis is on people’s well being as consumers, not the well being that comes (to them) from having a job and doing it well.

      As a result, Mr. Cass says, regulations (and leftist liberal virtue signaling) severely undermine employment, and (the well being – emotional, social and competence wise,) ” of those segments of society that can least bear them.”

      See weekend interview of Oren Cass, by Jason Willick in Nov. 24 WSJ. I have added above parentheticals to original text found in WSJ.

      1. Jane Twitmyer Avatar
        Jane Twitmyer

        Facebook VANITY? Yea Gods! How about Facebook’s bottom line? The cheapest forms of energy now is large scale solar and onshore wind. These resources have the advantage of not only being the cheapest, their cost is predictable for 20-25 years because they have no added unpredictable resource cost. Facebook can write into future budgets a secure long-term cost for whatever amount of energy is supplied by those renewable sources.

        Facts and figures brought to you by your liberal shakedown artist, but you can check them lots of places … try Lazards.

        I took the trouble to look up Oren Cass, the Manhattan Institute’s fellow who has written about economics and climate change. He is not one of the 3% of scientists who challenge the 97% because he is a lawyer. His recent WSJ article “Overheated” dismisses the potential impacts of Climate Change with the idea that we can just turn up the air-conditioners. Not sure what that will do for flooded cities but ….

        Cass is actually touting ‘adaptation’ because … here is the other flaw in his thinking … he says it will be cheaper. The economics of clean energy illustrate the opposite conclusion. Cass is using old numbers to reach his conclusion.

        Buildings use 70+% of our region’s electricity. Over all, most projections see a possible 30% reduction in the amount of electric energy we use by 2030. McKinsey estimates a 23% reduction by 2020. The Lawrence Berkeley National Lab sees only a 16% decrease in demand, but they also foresee a return on efficiency investments of 91%. With a payback in 1.1 years, efficiency investments go straight from operating expense to profit in year two. Pretty impressive.

        The old numbers that said clean energy would cost more and actually reduce our GDP are gone. “The U.S. economy has now grown by 10% since 2007, while primary energy consumption has fallen by 2.4%,” reports Bloomberg New Energy Finance (BNEF) in its newly-released 2016 Sustainable Energy in America Factbook. The key driver of the decoupling of electricity use and GDP growth is energy efficiency policy and investment.
        The retrofit of an office building in Denver reduced energy costs by 70%, and wind and solar costs fell so far, so fast that they are now undercutting the cost of new gas in a growing number of regions. Then there is them reduced costs of trading the grid needed to distribute large centrally generated electricity in for distributed generation, not just on-site but with microgrids. Microgrids seamlessly combine Distributed Energy Resources (DER) with your existing operation to achieve resiliency, optimize energy costs, enhance security and reduce CO2 emissions. The future means we will all pay less for our electricity.

        Joseph Stiglitz, who was awarded the Nobel Memorial Prize for economics in 2001 and has written extensively about environmental economics and climate change, makes an economic case that the costs of maintaining a fossil fuel-based economy are “incalculable,” while transitioning to a lower-carbon system will cost far less. So who do you want to believe?

        Oren also thinks we needn’t worry about air pollution because we have already done the job. WHOA!

      2. Reed Fawell 3rd Avatar
        Reed Fawell 3rd

        Regarding the subject at hand:

        Steve’s comment below as I translate it:

        Facebook gets the bragging rights that are built on a fraud wrapped in lies while the taxpayers and ratepayers get the bill and most all the risk. And the polar bears got nothing to do with it. It’s all about Facebook’s vanity brought on the sly with other far poorer peoples’ money. This classic crony capitalism. Except nowadays its the leftist liberals who are the con and shakedown artists.

        And of course we have yet to even touch the theft of other people private information for profit, and filtering their news.

        1. Jane Twitmyer Avatar
          Jane Twitmyer

          Just don’t understand how you can jump from … Facebook, and all the other IT companies who are major users of electricity and want that electricity to be made by renewable resources for several reasons, to the conclusion you arrived at. If you want electric energy in VA Dominion is in charge. The company who has prevented 3rd party generation from being developed, who pushes ALL risk onto the ratepayers and away from their stockholders if they can get away with it, and fudged numbers everywhere.
          Is this a good deal for Facebook. Sounds like it but Dominion is in Charge … How does this translate into a liberal leftist elite shakedown?

        2. Jane Twitmyer Avatar
          Jane Twitmyer

          Just don’t understand how you can jump from … Facebook, and all the other IT companies who are major users of electricity and want that electricity to be made by renewable resources for several reasons, to the conclusion you arrived at. If you want electric energy in VA Dominion is in charge. The company has prevented 3rd party generation from being developed, who pushes ALL risk onto the ratepayers and away from their stockholders if they can get away with it, and who fudges numbers everywhere.
          Is this a good deal for Facebook? Sounds like it but Dominion is in Charge … How does this translate into a liberal leftist elite shakedown?

  2. LarrytheG Avatar

    so all these non-Dominion solar projects are essentially stand-alone and assume all the risks so why isn’t Dominion’s solar projects structured similarly?

    Whether solar helps global warming or polar bears or not – is not the issue – plain ordinary ROI economics should – whether it be a Dominion project or a private party project. Neither of them should cost ratepayers a penny.

    It’s beyond me why we end up with these “issues” with Dominion

    If Dominion cannot do these solar projects the same way that the private party have to do them – then they not be allowed to do them – period.

    This is ridiculous … every time we turn around – there is another issue like this where ratepayers are being royally abused.

  3. Steve Haner Avatar
    Steve Haner

    Larry, I may not have been clear. People who buy the power always pay, whether to Dom or some other provider, and that’s fine. These are Dominion-owned projects, funded pretty much the same as any other generation plant (a 35 year payoff plan thru a RAC), with the one huge wrinkle that a green-conscious customer has agreed to buy all the RECs and “environmental attributes,” W(ever)TF that means. How this differs from naming rights on a stadium is hard to grasp. Two new solar plants, “sponsored” by Facebook, but Facebook does not own the plants, is not paying directly for the plants, and gets its power if the sun doesn’t shine for 180 days….no risk to it! But if the sun don’t shine we still pay off the plants.

    Things would be different if the monopoly were broken and we could say to Facebook – build as much solar for your own plant as you want, and buy and sell as needed into the grid. But there is that monopoly to protect, that ROI to grab.

    1. Reed Fawell 3rd Avatar
      Reed Fawell 3rd

      Steve’s comment as I translate it:

      Facebook gets the bragging rights that are built on a fraud wrapped in lies while the taxpayers and ratepayers get the bill and most all the risk. And the polar bears got nothing to do with it. It’s all about Facebook’s vanity brought on the sly with other far poorer peoples’ money. This classic crony capitalism. Except nowadays its the leftist liberals who are the con and shakedown artists.

      And of course we have yet to even touch the theft of other people private information for profit, and filtering their news.

    2. Jane Twitmyer Avatar
      Jane Twitmyer

      A PS to my new comment after reading the above … The companies do not want to own the energy source, but they are willing to invest in them. They want Power Purchase Agreements that bring them, and the earth, the benefits of using clean energy, long-term price stability. RECs give them bragging rights but they re buying the energy with a long term contract. The PPA gives the builder the security of long-term sales.
      Yes, maintaining the monopoly is the issue, but these tariffs, in a slightly different form, are developed in states that have deregulation.

  4. LarrytheG Avatar

    re: ” liberal leftist elite shakedown?”

    more like good old fashioned crony capitalism served up by the GOP in the GA…

    re: ” People who buy the power always pay, whether to Dom or some other provider, and that’s fine. These are Dominion-owned projects, funded pretty much the same as any other generation plant (a 35 year payoff plan thru a RAC),”

    yup. But what is being said is that electricity generated from solar – costs more than other types of generation – right? more than coal or gas or nukes?

    I don’t think the public is going to like the smell of this and perhaps that’s the real strategy, eh?

  5. Steve Haner Avatar
    Steve Haner

    Jane: I don’t claim to follow all the pieces and parts, but I just don’t think Facebook is doing what you say it is – admittedly because the rules Dominion impose make it impossible for it to generate its own power. Maybe it really doesn’t want to….. I do think there is an element of vanity because at the end of the day, its on the same “dirty” grid as I am.

    When the goal is cheapest generation, with fossil fuels dominant, Dominion write the rules and wins. When the goal is growing use of renewables (and no question, they now compete on cost), Dominion writes the rules and wins. We need new rules. We need real referees. For example, if its all so wonderful, why so much secrecy?

    1. LarrytheG Avatar

      None of these companies like Amazon or Facebook are relying 100% on solar-generated power land using on-site backup power when solar is not available or sufficient. Which they could do – there are lots of “off-grid” homes these days but they are truncated systems that lack things like heat pumps and other high draw equipment.

      Also true – none of them are generating their own on-site or nearby solar-power and switching to grid-power when the solar is insufficient.

      Here’s an interesting article about the difficulty of going truly off-grid:

      “Severing ties with utilities isn’t as easy as cutting the cable cord”

      so Facebook COULD conceivably go off grid if they were willing to invest in the rest of the stuff needed to operate when solar is not available.

      To point out here that MANY big box companies like Walmart as well as Hospitals and public-safety like 911 operations centers (as well as big data centers like FB) CAN operate for some time off-grid – when the grid itself is down. They have very large backup generators! Most of them run on diesel, or propane/natural gas.

      But if Facebook intended to do that – WOULD BE impressive AND very expensive AND they would have to burn fossil fuels themselves – at a cost far higher than fossil-fuel generated grid electricity.

      So – this is no question that FB and all those other data centers like Amazon – as Steve says – “use the same dirty grid that I do”!!!!

      But – apparently – the option used by others before now has been to contract with an independent 3rd party solar for the total amount of electricity that will be used – so that at least conceptually they are offsetting their grid use with an equal amount of solar.

      It’s actually a bit more than a purely symbolic gesture. Imagine if many more did that – and we used much more solar – when solar was available and only used fossil fuels when it was not. By doing that, all of us could cut our own need for fossil fuels. We’d just never totally eliminate it.

      But FB could, itself, have contracted with other 3rd party providers to do this and if they had – it would not have required Dominion to do a RAC to accommodate it.

      So something different is in play here especially if it were a choice for FB and they made this choice AND Dominion also made a choice – as I have pointed out that they have built other solar farms to this point and NOT asked for RACs for them.

  6. LarrytheG Avatar

    Amazon and now Microsoft are buying solar in Virginia. Why is Facebook not buying solar the same way they did – through a 3rd party, they still are connected to the grid – and no RAC is needed.

    “rules” – yes.. but we need to specifically call out what is going on right now.

    Why is Facebook entering into an agreement that will cause a RAC rather than doing what Amazon and now Microsoft are doing? Why is this “better”?

  7. Reed Fawell 3rd Avatar
    Reed Fawell 3rd

    I agree with Steve. And add that its dangerous to look at solutions in isolation. Then the group sponsoring those solutions grows myopic and zealous, fixated on just its version of how things should be done or resolved right now, without fully appreciating all the complexities, histories, variant futures and unknowns hidden within its solution, and how they interact with the systems and interests of others within the world their solutions must by necessity work. Wearing blinders, such solutions easily spark unintended consequences doing great harm. This result is the norm in the histories of human experience, not the exception.

    And we all wake up too late.

    There is very thought provoking book just published on this subject.

    It’s: Stubborn Attachments: A Vision for a Society of Free, Prosperous, and Responsible Individuals by Tyler Cowen published October 16, 2018.

    The Kindle version goes for $9.99. Jane, you’ll like its take on Global Warming.

    1. Reed Fawell 3rd Avatar
      Reed Fawell 3rd

      You see it directly below, Jane. It’s precisely what I am talking about. The sort of mindless thing we do over and over again. Its resultant waste and missed opportunities are enormous, harming us for generations. “Its (all projection) of GRADE A Horse Manure! Jeezy Peezy, if the ‘left’ had their way… (heavenly utopia would descent upon us, and wrap its warm arms around us for eternity). It’s … exactly what crony capitalism smells like!” The circle from left and right is always rounded, until each extreme end is joined one to the other, making us all into dead end failures, unless we educate ourselves and our children to know better, and break free.

  8. LarrytheG Avatar

    re: ” re: ” liberal leftist elite shakedown?”

    and that’s GRADE A Horse Manure!

    Jeezy Peezy, If the “left” had their way – they’d decouple utility energy – and do it so it works like it has succeeded in other states. They’d make Dominion give back the excess profits as well as the reduced taxes and allow 3rd party solar (and offshore wind) companies to compete – without any RACs.

    This is exactly what crony capitalism smells like! The way they’re doing both wind and solar is to do it in the worst way possible – the same way they did de-coupling – so that then they can say “we tried solar.. and it did not work”.

    this is bad. The strategy here is to make offshore wind and solar – “fail”.

  9. LarrytheG Avatar

    so other solar projects have been done by Dominion in Va, apparently without them asking for RACs:

    ” POWHATAN – In a sea of blue panels stretched across a large field in Powhatan County, the only sounds that could be heard were the movement of the wind blowing through them and the occasional faint mechanical hum.

    The 71,800 solar panels that make up the 180-acre solar farm off of Old Buckingham Road have been operational since Dec. 15, 2016, and are proving to be a good addition to Dominion Virginia Power’s clean energy efforts, spokesperson Daisy Pridgen said during a recent tour of the facility. At peak capacity, the entire facility in Powhatan can produce 17 megawatts (MW), which is enough to power about 4,200 homes, she said.

    “Our customers have told us that the development of renewable energy is important to them and it is important for them to have their energy company investing in it. And that is exactly what we are doing by building all these solar farms,” Pridgen said.

    This is part of a statewide effort that has seen Dominion investing more than $800 million in solar power in Virginia with additional solar projects in the planning stages, including another one this year in Powhatan County. Dominion has announced it plans to develop 500 MW of solar energy by 2020, she said. Currently, about 398 MW is either in development or operational, which is enough to power 100,000 homes.”

    so something is different about the Facebook project.

    We currently have dozens of solar farms spread throughout the state – some by Dominion and some by 3rd party and as far as I known none of them involved RACs.

    I’ve said before that we’ll know when solar is truly cost-effective when we see it used in places that currently rely on diesel generators for electricity. I will never replace those generators entirely but it could reduce the amount of diesel oil burned when solar was available. Most inhabited islands in the world – right now – today rely on diesel generation and don’t have full solar.A few do – smaller and pilot projects and some like Hawaii are building more.

    Okay – so the point here is – I’m not a blind advocate of solar. I support it primarily because if it is economical and can be used – it should – like any other fuel that is lower cost. It has environmental/global warming benefits also but that’s secondary for this particular project.

    What’s relevant for the Facebook thing – that I’m not understanding all the verbiage – as to why it needs a RAC sense they have other projects they have done that did not.

    How about it – anyone have an idea of what is different here with the FB project? Amazon’s solar did not require a RAC. In fact they went to a different utility to do theirs. And Microsoft is contracting with an independent 3rd party called S-power to do their solar – neither require RACs.

  10. Jane Twitmyer Avatar
    Jane Twitmyer

    Here is my ‘not quite clear’ take … Amazon’s solar started the new corporate tariff in VA
    Yes, Steve … we need new rules “admittedly because the rules Dominion impose make it impossible for it to generate its own power”…. but I have to disagree with “Maybe it really doesn’t want to…” The invention of these tariffs are corporate customer driven, allowing Dominion to meet their customer’s demand for renewable energy and still retain their monopoly structure.

    I really don’t understand the intricacies of Dominion’s ledger and maybe I really don’t want to bother, but Dominion’s Green tariff, their Schedule MBR (market-based rate) was built on a special contract the utility developed with Amazon, according to a Utility Dive paper. “It gives companies the ability to tap into PJM’s wholesale market pricing and enables a PPA, like other Green tariffs, but allows Amazon to remain a Dominion customer … Amazon was already investing in wind and solar PPAs and selling into the PJM wholesale market. The company wanted to purchase their retail load in a similar way (PPA) but could not do that in Dominion’s regulated territory.”

    Facebook is far from the only company to push for utility green tariff designs. Companies, especially IT, have “stepped up their purchases of wind, solar and other clean energy this year, at a pace that far outstrips 2017. Amazon has bought more than 1.22 gigawatts of output to date from US clean-energy projects, second only to Alphabet Inc.’s Google, with 1.85 gigawatts. Google, the world’s largest corporate buyer of renewable energy, is now powering its entire global operation—including both data centers and offices—with 100 percent renewable energy.” (BNEF)

    Tariffs can be written so that they do not increase the cost of other customers. Not sure how or if Dominion’s does, but other state’s do.

    Corporations want the RECs as the demonstration of their renewable energy use which they receive as part of the package, and the tariff allows customers to mitigate the risk of future fossil-fuel price fluctuations in their electricity bill.”

  11. Reed Fawell 3rd Avatar
    Reed Fawell 3rd

    “Google, the world’s largest corporate buyer of renewable energy, is now powering its entire global operation—including both data centers and offices—with 100 percent renewable energy.” (BNEF)”

    How is that possible, Jane? Or is it just another fiction?

  12. Jane Twitmyer Avatar
    Jane Twitmyer

    GEEZ Reed! Bloomberg New Energy Finance… Your choice of who you believe baffles me … people making global statements with no facts behind them?
    Can’t find the address but here is one that is a list of companies ..

    AND for anyone who wants to digest the ins and outs of Green Tariffs …
    There is a description/analysis of all that is out there. Dominion has 3?? Do they write s new one for each corporate RE buyer?

    1. Reed Fawell 3rd Avatar
      Reed Fawell 3rd

      Well, Jane, when time permits I’ll look further into your material.

      But a quick glance claims that 100 companies have committed to go 100% renewals. Please add my household to that list. I am fully committed. Yes, Count Me In %100! Seriously so, soon as it works. So unlike Europe, committed %100 too, while falling for decades rapidly behind US in results last time I checked.

      And unlike Germany’s near suicide, too. What a result! Scrambling madly now for new coal plants while running back under the Russian gas lash & whip, crony capitalism Putin style, the German’s trying to scramble back out of the collapsing renewable energy hole they dug for themselves. But the Germans of course are still 100% committed, like the Italians and Greeks, I guess.

      But I try to dig into your material further.

  13. I have not had time to fully review what is happening with all of the new variations of Dominion’s solar tariffs and now this new Green tariff, so I can only comment in general terms.

    The basic flaw in the GA’s encouragement of Dominion to build solar is that it costs ratepayers much more than if the solar was built by an independent power producer (IPP) and sold to Dominion or a customer using a power purchase agreement (PPA). This is because with a 9-10% rate of return (using a RAC), Dominion earns about twice the capital cost of the project in profit over the 35 year life of the facility.

    The ratepayers are on the hook to repay the full cost of the solar project, plus financing costs, plus Dominion’s profit regardless of the amount of electricity produced. This is the same for all of the power plants owned by Dominion. Under our current regulatory scheme, the profit received by the utility is guaranteed but the risks of higher costs and reduced output is completely borne by the ratepayers.

    Dominion also receives a 30% tax credit for solar facilities. Although in the early 2020s, this will be reduced to 10% for utilities and disappear for other developers.

    Any customer connected to the grid receives electricity that is from a blend of sources that varies throughout the day. There is no way to identify what type of generating facility produced the power or where it is located. Dominion’s solar tariffs are designed to provide reliable energy 24 hours a day and include the cost of the renewable energy credits (RECs) equivalent to the amount of capacity needed to serve the customer. This allows the customer to claim that it is using 100% renewable energy.

    Many other states allow PPAs directly between an energy producer and a customer, with the transmission costs paid to the utility. But these states have decoupled the generation of electricity from the sale of electricity, so a utility is not harmed by such arrangements. In fact, they can be benefited by purchasing energy via PPAs themselves to resell to their customers.

    In Virginia, as in many other states, we still pay our utilities based on what they build (the ratebase). Currently, the only way for Dominion to earn more money is for them to build and sell more. Using the GA, they have developed many new ways to build more, but the new projects result in higher costs to customers.

    The plan for Facebook and the associated RAC follows this plan. Dominion will build a solar facility that they want to treat as if it was like any other generating facility. The utility will garner its usual profit and the ratepayers will assume the risks.

    But solar is different. Many companies are capable of building solar facilities. The ultimate cost of a PPA is lower for the customer than using the utility’s RAC scheme and does not require all of the utility’s customers to assume the risk. This is what the SCC staff is trying to point out.

    Our energy world has turned upside down. As Jane points out, it would be best for Virginia’s economy and its citizens if we invested in energy efficiency and low cost renewables (via PPAs). This would stabilize or reduce our energy costs and put us on a very competitive footing for attracting new industries and making existing ones more profitable.

    However, our utilities would suffer a loss of revenues and profits. That is why, as Steve suggests, we need new rules to keep our utilities financially healthy by doing what is good for their customers. Instead of using their ingenuity and political clout to help design a modern energy system for Virginia, our major utilities are attempting to extend the outmoded regulatory schemes of the 20th century several decades in to the 21st century. This will end badly for everyone.

    While we are working out a suitable new regulatory scheme, we might consider developing some better solutions for new solar facilities. Perhaps we could consider a hybrid arrangement where utilities could use their lower cost of capital and ease of using the tax credits to completely or partially finance new solar facilities built by independent producers. This would provide a financial advantage to the utility. The energy would be sold via a PPA to the utility at a pass-through cost to a solar tariff customer that provides a lower cost with no risk to the other ratepayers.

    As we develop a new scheme that keeps utilities healthy in this new energy era, we could consider direct to customer PPAs. We might also consider direct to customer PPAs now for small to moderately sized customer-sited solar installations within the distribution system. They are many capable people who could help advise the GA/SCC on how to establish an equitable system for dealing with new energy technologies.

    But it appears clear that the current RAC proposal for new solar facilities favors only the utility and its solar tariff customer not the remaining ratepayers. We need to find new ways for utilities to prosper without overburdening the ratepayers.

    1. There were 2800 MW of corporate renewable PPAs negotiated in 2017 in the U.S. Up 19% from the previous year. About one-third of this came from tech-companies. Contracts are often recommended as a result of corporate sustainability goals, but contracts must be approved at the highest-levels, so they must provide pass economic muster as well.

  14. LarrytheG Avatar

    Thank you Jane and Tom. Tom you really added a lot to the understanding for me.

    Having read your explanation – I do have a question and that is how do independent power producers who use gas and coal work with Dominon?

    It would seem those companies ( like Birchwood Power) would assume the risk and Dominion could buy power from them when they need it (or perhaps via PJM)… and when they do that – it seems to be different than when they (Dominion) builds and generates.

    Additionally, if PJM auctions solar-generated electricity – why can’t FB buy it like the other tech companies are right now and still hook up to the utility grid and buy grid power when needed under the existing tariffs?

    I totally agree with your conclusions by the way. We want and need Dominion to be a strong and capable company but they are headed in a direction that benefits them no matter what happens to others and perhaps they are doing that because they do not have confidence that the legislators and regulators would work for change that benefits both them and ratepayers – although I have to say the GA seems to be more than accommodating these days.

  15. Dominion does have some contracts with non-utility generators (identified as NUGs in the IRP.)

    I am not familiar with the specifics of these arrangements. I suspect that they allow Dominion to meet their PJM capacity requirements. PJM requires all Load Serving Entities (LSEs) to own or have under contract enough generating capacity to meet their peak load plus their required reserve capacity.

    PJM conducts an auction three years in advance for capacity. Not all existing facilities clear the auction. This means they cannot be used to the meet the capacity/reserve requirement but can be used to generate power, if required.

    All generators participate in the day ahead and 1-hour ahead auctions and are dispatched in the order of the price they bid – the cheapest being dispatched first.

    Dominion bids its nuclear units as “must-run” and they are paid the auction clearing price which varies throughout the day.

    Renewable sources are governed by a separate auction since they are not dispatchable sources of energy (they cannot be turned on as needed).

    As far as I know, only LSEs can purchase from PJM’s wholesale market. There is a small segment of Dominion’s customers that can qualify for a direct provider-to-customer PPA, where the cost of energy is established by agreement plus the cost of transmission. Everyone else must have a connection with an LSE in Virginia using one or more of the existing tariffs.

  16. LarrytheG Avatar

    Ben Sasse – Conservative Republican:

    “.@SenSasse responds to National Climate Assessment: I think it’s clear that the climate is changing. I think reasonable people can differ about how much and how rapidly. But I think it’s clear that it’s changing and it’s clear that humans are a contributing factor”

    National Climate Assessment

    The federal government released on Friday a report that stated the impacts of climate change — from wildfires to increasingly destructive weather events, such as hurricanes, heat waves and droughts — are already affecting the United States, and the danger of more of these natural catastrophes is worsening.

    The report said the related losses from climate change, including lower labor productivity and deaths because of extreme heat and weather events, would amount to the hundreds of billions of dollars by 2090.

    The U.S. Global Change Research Program, made up of 13 federal departments and agencies, produced the Fourth National Climate Assessment, which was put together with the help of more than 300 experts, guided by a 60-member Federal Advisory Committee. The material was extensively reviewed by the public and experts, as well as a panel of the National Academy of Sciences, according to the report.
    The 13 federal departments and agencies involved in the report by the U.S. Global Change Research Program:

    Department of Agriculture

    U.S. Agency for International Development

    Smithsonian Institution

    National Science Foundation

    National Aeronautics and Space Administration

    Environmental Protection Agency

    Department of Transportation

    Department of State

    Department of the Interior

    Department of Health and Human Services

    Department of Energy

    Department of Defense

    Department of Commerce

    some folks continue to insist the those who believe in climate change do so because it’s like a “religion”… so I guess it looks like Trump needs to clean house, eh?

  17. Jane Twitmyer Avatar
    Jane Twitmyer

    Nice … and in line with this talk of ‘Doomsday” science … it’s is worth taking a look at the IPCC’s reports. They have probability numbers connected to all the statements about the future effects of our emissions, numbers arrived at by combining all the judgements of the scientists participating.

  18. […] Attorney Will Reisinger of the Richmond firm GreenHurlocker has written about the SCC’s approval of the new tariff on that firm’s blog.  Limited to 50 large customers, it is designed to prevent any costs being borne by non-participating customers, in contrast to a recent solar project. […]

  19. […] million to build and $843 million in total over its lifetime.  In response to SCC staff concerns, reported in Bacon’s Rebellion in November, it put various conditions on the approval intended to protect […]

  20. Larry, you ask good questions and yes, Tom and Jane have the big picture quite right. But I would also like to acknowledge where Steve is coming from: This posting is about the SCC Staff developing some backbone (maybe not enough for full consumer protection, but more than they have shown lately) to stand up to the Dominion regulatory bulldozer. As Steve says, “The story is all about risk, who is holding the bag if the projections are wrong or after some unexpected cock-up.” There is no reason for ratepayers to hold any of the risk of a modern generating plant’s failure to operate efficiently (i.e., capacity factor) or becoming obsolete before its useful life is up (i.e., it is fully depreciated). These plants should be built by the utility for operation in the competitive wholesale marketplace, just like an independent generator, at shareholder risk. And this one is being built basically at ratepayer cost and risk and a regulated return on equity, but with a few protections around the edges for ratepayers as discussed here.

    There’s also risk for the SCC — political risk, of a backlash in the GA, if they get too “uppity” with Dominion.

    You ask, “how do independent power producers who use gas and coal work with Dominon?” Every independent power producer located within PJM sells its energy output into the real-time PJM marketplace, and sells its capacity through the PJM capacity auctions in increments up to three years in advance (assuming it clears the auction, meaning, it wasn’t priced so high that nobody bid on it). The independent generator CANNOT sell electricity to a retail customer, because that would be a retail sale pursuant to Virginia law and SCC regulated tariffs. Virginia law and the SCC have carved up all of the State geographically and assigned exclusive retail franchises to an electric utility in each of these “territories.” Dominion has the largest such territory in Virginia, and Facebook wants to locate within it, so ONLY Dominion can sell electricity to Facebook at retail at that location.

    You also ask, “if PJM auctions solar-generated electricity – why can’t FB buy it like the other tech companies are right now and still hook up to the utility grid and buy grid power when needed under the existing tariffs?” Here’s why: Facebook, and Google, and other large corporate customers, CAN build their own independent generators, of any kind, and CAN sell their generators’ output and capacity into/through the PJM markets, because those are wholesale sales (regulated by the FERC); but they cannot sell at retail, directly to themselves or anyone else. There’s no getting around that rule — with one important exception: if the generator is owned by and located on the same premises as the retail customer’s load, the customer can sell to itself without using the Grid. But Facebook wants to buy solar power generated miles away and have it delivered over the Grid. Dominion won’t allow that, because it would be a retail sale, and State law lets them refuse to do so.

    So Dominion is going to serve Facebook with generic electricity from the Grid, at Dominion’s retail price, pursuant to the tariff that Steve has looked at here and that the SCC has under consideration currently.

    TomH and Jane have talked above about “PPAs” — aka, Power Purchase Agreements for retail sales directly to customers by independent generators. PPAs are allowed in some states and they would be a fine, competitive solution to the problem here — EXCEPT that PPAs are not legal in most States (including Virginia) with assigned, State-regulated retail service territories (like Virginia). Dominion is not about to let the GA amend Virginia law and punch holes in Dominion’s exclusive retail sales franchise. So you might as well forget about that solution as far as Virginia is concerned.

    What Facebook CAN do is buy the RECs — the Renewable Energy Credits — created by the solar generation it contracts with. In this case that generator is to be owned by Dominion, but it could be anybody, including Facebook itself. The RECs are based on actual output; so the capacity factor the solar plant achieves makes a difference in the flow of dollars here. Re-read Steve’s discussion of the REC sales involved here and maybe this explanation will clarify things a bit.

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