Why Can’t Virginia Try Conservation and Energy Efficiency?

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.

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16 responses to “Why Can’t Virginia Try Conservation and Energy Efficiency?”

  1. E M Risse Avatar

    Jim Bacon:

    Great post and great ideas!

    When one factors in the reality that human must consume less and less energy per capita these ideas become not just great but manditory.

  2. Anonymous Avatar


    Thank you again for bringing attention to this.

    Virginia citizens need to speak up against Dominion lobbyists.

    True conservatives understand what is at stake when you let a company like Dominion essentially write its own ticket.

    Also, related:


    On Thursday, a new bill was introduced in the House that could be the best chance to finally pass strong, national renewable energy policy?but early support is needed.

    H.R. 969 creates a renewable portfolio standard (RPS) requiring utilities to generate or buy 20 percent clean, renewable energy by 2020. This bill would create a large and growing market for clean and truly renewable sources of energy.

    Energy from the sun and wind lasts forever and conserves resources for future generations. By requiring utilities to generate an increasing percentage of their electricity from renewable resources?rather than fossil fuels which emit carbon dioxide, soot, mercury, and other pollutants?a national renewable energy policy would dramatically expand America?s use of solar, wind, geothermal, and energy from crops.

    Analysis by the Union of Concerned Scientists of a 20 percent RPS shows that the standard will:

    –create 355,000 new jobs, nearly twice as many jobs as generating the same amount of electricity from fossil fuels;

    –save consumers a total of $49 billion dollars on their utility bills for both natural gas and electricity

    –reduce carbon dioxide emissions?the main cause of global warming?by over 400 million metric tons, the equivalent of taking 71 million cars off the road or planting 104 million acres of trees.

    Please tell your representative to cosponsor H.R. 969. If your representative is listed below, they?ve already cosponsored the bill.

    Tom Udall (D-NM)

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  3. Larry Gross Avatar
    Larry Gross

    A couple of excellent articles on this is today’s Wall Street Journal.

    The New Math of Alternative Energy

    and ..

    The Bottom Line

    “Utilities typically have had little incentive to reduce demand for their product. States are trying to change the math.

    In the power business, the more electricity you sell, the more money you make.

    Now state officials and electric utilities — backed by environmental groups — have begun to change that equation. Faced with growing demand for electricity and the environmental consequences of generating it, states and utilities are considering new regulatory regimes that remove the incentive for selling more power — and give utilities a financial stake in saving energy.

    The ultimate goal is to eliminate the need for new power plants. Many energy experts predict the U.S. will need hundreds of new plants in coming years to satisfy demand. State and industry officials increasingly believe that by changing the financial incentives for utilities, they can significantly increase the efficiency of the grid and make many of these power plants unnecessary, saving billions of dollars in the process.

    Massachusetts, for instance, is considering new incentives for utilities, coupled with tough new efficiency standards. State officials recently proposed a sweeping measure to eliminate all electricity-demand growth through increased spending on energy efficiency. The spending would cover customers that aren’t served by competitive suppliers, which is 50% of the state’s total electricity load.”

    where is Dominion and Virginia on this?

  4. Darrell -- Chesapeake Avatar
    Darrell — Chesapeake

    What, you mean this state’s power was de-regulated? I never knew. The only bill I ever received was from Dominion, and no other company ever offered to reduce my rates by signing with them.

    Guess we can expect more regulation of cell phones in the future, since letting the market have free reign just doesn’t work.

  5. “Dominion is rewarded for selling more electricity, not less.”

    Virtually the same phrase was used in the WSJ article. So the answer is to find a way to make it profitable to sell less electricity: to make conservation PAY through incentives like Massachusetts is considering.

    Notice that this is similar to the argument I have made here before: if you want more conservation then you need to make it more profitable.

    Unfortunately the money has to come from somewhere, so don’t think that this will make a difference on your energy bill, except up. Anonymous ssms to think that we can simultaneously create 355,000 new jobs and also save money on fuel and electricity.

    I’d suggest that some of the savings on fuel and electricity will go to solar installers, engineers, and repairmen. Not that this is a bad thing, not at all, but I submit that the costs will be higher, not lower. At least in the short to intermediate term.

    Conservation is a good thing, but it isn’t cheap.

  6. Jim Bacon Avatar

    Ray, as you said, conservation is a good thing, “but it isn’t cheap.” It depends. Investment in different types of conservation projects offer a wide range of Return on Investment. I would not advocate investing in conservation for conservation’s sake, as in, if it were very expensive and yielded a low return. But there many conservation and energy-efficiency projects offer a competitive rate of return. The key is to change the regulatory regime so that these investments warrant the same consideration as investments in new power plants and transmission lines.

  7. Anonymous Avatar

    Keep in mind Dominion owns a solar subsidiary it could make money on if it wanted…

    The people of Virginia have been resented with only a false choice between conventional fossil fuels and nuclear power.
    Based on the work of governments, universities and other organizations in the United States, Europe and Japan, it is technically and economically feasible for a diverse mix of existing renewable technologies to
    completely meet Virginia’s electricity needs over the coming decades.
    Virginia has vast renewable
    resources, which can be harnessed effectively and reliably. This can be done without producing carbon emissions, radioactive waste, or other significant pollution.

  8. Jim, I haven’t lived in Virginia long enough to say this definitively, but I get the impression Dominion calls the shots in Richmond. What do you think?

    Great point about it not being in Dominion’s financial interests to promote conservation. Wouldn’t zero-net-energy buildings put Dominion out of business?

  9. Jim Bacon Avatar

    Miles, It’s a tricky balancing act. We don’t want to put Dominion out of business. Indeed, I would argue that it’s in everyone’s interest to have an electric power company that is strong enough to finance its projects at favorable interest rates and strong enough to launch innovative programs. Unlike some, I don’t demonize Dominion. I don’t demonize profits. I just want to make sure that our regulatory system incentivizes Dominion to do the right thing — and that means investing in conservation and energy efficiency as well as new capacity. How do we do that? Frankly, I’m not sure. “Decoupling” may be one approach, but I don’t know. I’m just trying to get the conversation started.

  10. Anonymous Avatar

    I don’t demonize profits, but I will demonize Dominion.

    They will not take responsibility for what their business is doing to Virginians’ health and environment.

    They have the ability to change, they just won’t.

    I hope they burn in hell.

  11. Larry Gross Avatar
    Larry Gross

    I don’t demonize them either but I think it’s not realistic to think that Dominion will do anything other than make as much money as they can selling electricity as long as they have a government-granted monopoly, the right of Emminent Domain and more than a few legislators willing to take part in the 500K bonanza.. which ironically is provided by ratepayers.

    Being honest about Dominion is not the same as demonizing them.

    Jim- I don’t think you can have it both ways.

    Profit engendered by a government-protected monopoly is not the same as small government staying out of the way of entreprenurship and capitalism.

    Dominion is not evil. They’re normal. Anyone who is given that good of a deal.. is going to hang on to if they can.

  12. Jim Bacon Avatar

    Larry, how am I trying to have it both ways? When I say that Dominion is not evil, just pursuing its self interest, I’m not implying that it should be given whatever it wants. Au contraire, I’m saying that it’s up to the state to set the ground rules — to create incentives for Dominion to conserve.

  13. Incentives could work, although such programs are always a risk for gaming and manipulation (one reason the LCP and DSM programs of the early 90s were unsuccessful).

    One easy way to incent conservation is to increase price transparency (i.e. get rid of the rate caps). Another easy fix is to implement time-of-use and seasonal pricing, shich doesn’t reduce demand, but can shift it to times when there is underutilized generation capacity.

    Decoupling isn’t a new concept – I’ve been in the industry for ten years, and we’ve been talking about and around it for longer than that.

  14. Larry Gross Avatar
    Larry Gross

    Jim – twas gentle tweaking

    I don’t consider Dominion to be a forward-looking business.

    Basically they seem to have our GA by the short hairs… and fend off any changes to their core business of selling electricity at a guaranteed price.

    We essentially agree except I think it is way past scandalous that our GA does not act in the public interest.

    Even my little cooperative – Rappahannock Electric – offers more incentives than Dominion and as I speak I have a box on my water heater that shuts off the water heater in high-demand periods.

    They’re engaged in other services such as selling wireless from their tower infrastructure and looking into internet over their lines… etc,

    And I’d glady pay the money for a Smart Meter to help me determine how to smartly cut back on use – my bill.

    Dominion is like the Model T – one model.. one color… that’s it.

  15. Jim Bacon Avatar

    Larry, I find it interesting that your electric co-op provides incentives for conservation. I guess that’s what you get with a co-op, which is (in theory) owned by and run for the benefit of its customers.

  16. Larry Gross Avatar
    Larry Gross

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