The General Assembly is charging ahead with legislation to “re-regulate” the electric power industry in Virginia. The driving force is Dominion’s need to expand its electric generating capacity in the state by some 20 percent over the next 15 to 20 years — some $4 billion worth of capital expenditures that it would finance largely through borrowing. By allowing the State Corporation Commission to set rates based on a methodology that would aim for a Return on Equity of roughly 12 percent, the power company argues it can borrow the massive sums at a lower interest rate.
Dominion’s expansion plans are predicated on anticipated increases in demand for electricity — increases that will likely prove accurate in the absence of any meaningful conservation initiative.
If conservation and energy-efficiency programs could offset a portion of that anticipated demand for less than it would cost to build new nuclear and coal-fired plants, rate payers would come out ahead — and so would the environment. But Dominion has little interest in conservation. The problem, as I have noted in previous posts, is that Dominion is rewarded for selling more electricity, not less.
That problem, it turns out, is endemic in the electric utility industry. As the Wall Street Journal reports today, “In the electric power business, the more electricity you sell, the more money you make.” Faced with growing demand for electricity, states and utilities are inventing new regulatory regimes that would remove the incentive for selling more power and give utilities a stake in saving energy.
The first step is “decoupling,” a regulatory scheme that would give utilities a predetermined profit each year, separating profitability from the volume of electricity sold. The second step is rewarding utilities for investing in conservation and energy efficiency. Right now, most regulators allow utilities to recover their spending on conservation and increasing efficiency, but not to earn a profit on it. If regulators allowed utilities to generate a profit on energy-efficient investments, one California regulator told the Journal, “the people running the energy-efficiency departments in these utilities will become on a par with those running the transmission and distribution departments.”
There are endless cool ideas for conserving energy, if only the incentives and regulatory structure existed to support them. Many can be seen in a United Technologies ad in the same WSJ section, which touts the concept of a “zero net energy building” that “produces as much energy as it uses over the cost of a year.” Buildings account for 40 percent of an economy’s total energy demand. UTC sees photovoltaic solar arrays, green roofs (green, as in grass, which absorbs sunlight and reduces roof temperatures), and Gen2 elevators with regenerative drives that, like hybrid technology in cars, captures the energy of descending elevators.
To the best of my knowledge, the General Assembly is considering nothing like these alternatives. One “green” proposal, which would mandate the use of renewable fuels, would do nothing to encourage conservation or energy efficiency. The legislature is hurtling ahead with plans to encourage Dominion to build, build, build. The environment will suffer, and so will rate payers.
