Category Archives: Regulation

The Politicization of Energy Regulation in Virginia

Photo credit: Richmond Times-Dispatch

Earlier this week the Richmond Times-Dispatch published an in-depth series tracing the history of the relationship between Dominion Energy, the General Assembly and the State Corporation Commission over the past twenty years. Michael Martz and Robert Zullo conducted dozens of interviews and reconstructed the complex history of electric utility oversight during a tumultuous period that saw a shift from regulation to deregulation, then back again.

The main thesis of the first article is that the relationship between the regulated and the regulators fundamentally changed around 1995. Until that time, the Virginia Electric & Power Co. (known as VEPCO) had its own board of directors and operated with considerable independence. Parent company Dominion amounted to little more than a holding company for the utility, which comprised 90% of its assets. But in a titanic boardroom struggle, which the Times-Dispatch recounts in great detail, Dominion CEO Thomas Capps ousted VEPCO President James T. Rhodes Jr. In the years that followed, Dominion acquired the Consolidated Natural Gas Co. in a $8.3 billion deal, transforming Dominion into a multi-state energy giant, dissolved the VEPCO board, and stepped up its involvement in Virginia politics and policy through its lobbying efforts and campaign contributions.

The second article chronicles the shift from regulation to deregulation and then, when experiments with deregulation around the country appeared to be failing, back to regulation — under the guidance of Dominion each step of the way. The end result of 20 years of legislative tinkering, the Times-Dispatch argues, was weaker oversight by the SCC, which Dominion cannot influence politically, and greater involvement of the General Assembly, which Dominion can influence. The culmination of this decades-long process was 2015 legislation that froze electric rates in response to uncertainty created by the unveiling of the Environmental Protection Agency’s Clean Power Plan and the locking in of what one SCC judge estimates will be $1 billion in excess profits over seven years.

In the final piece, the Times-Dispatch suggests that Dominion’s grip on Virginia politics may be loosening. The 2015 rate freeze has come under heavy fire for its proposal to build the Atlantic Coast Pipeline, its construction of unpopular transmission lines, its plans for disposing of coal ash, and the pace with which it is adopting renewable energy sources. Not since the 1970s when the old VEPCO was experiencing massive cost overruns and rate increases has the utility found itself embroiled in so much controversy.

Regarding the big picture, the Times-Dispatch makes an important point: The General Assembly has become increasingly assertive in defining Virginia energy policy, and in so doing, it has whittled down SCC power. Whether this was Dominion’s doing or the General Assembly’s, however, is less clear. The series describes how SCC Judge Hullihen Moore alienated many lawmakers by appearing before a House of Delegates committee and lectured them in a tone that many found condescending. That action adversely affected relations with key legislators and staff for a number of years.

The Times-Dispatch overlooked opportunities to describe other examples of lawmaker assertiveness. Especially noteworthy were laws initiated by Southwest Virginia legislators to spur economic development by creating favorable regulatory treatment to Dominion for building its $1.8 billion Hybrid Energy Center in Wise County and, in an encore, for building a proposed $2 billion pumped-storage facility in the region. The hybrid-energy plant, which burns coal, coal waste and wood, has a generating capacity of 600 megawatts. By way of comparison, the recently constructed Brunswick Power Station, which cost $1 billion, has a capacity of 1,358 megawatts. The two projects are not directly comparable because the hybrid energy center burns coal waste, which reduces an environmental hazard. But the fact remains that on a cost-per-megawatt capacity basis, the Hybrid Energy Center was four times as expensive — economic development for the coalfields courtesy of Dominion rate payers in eastern Virginia.

Similarly, responding to incentives created by the General Assembly, Dominion is giving serious consideration to a $2 billion pumped-storage project in Tazewell County that would have a capacity of 850 megawatts. These two cases appear to be driven by old-fashioned pork barrel politics: Southwest Virginia legislators stacked the regulatory deck to induce Dominion to invest in their economically depressed region regardless of the cost to Dominion rate payers.

The 2015 rate freeze has a very different background. That legislation arose in response to the Obama administration’s Clean Power Plan. Several years previously, the Obama EPA had pushed through tough restrictions on mercury and other toxic emissions, which forced Dominion to shutter several coal-fired units, and lawmakers were concerned that the Clean Power Plan could have a comparable impact. In an early estimate, Dominion said that write-offs on four coal-fired power plants could reach $2.1 billion, while the SCC estimated that ratepayers could be stuck with $5.5 billion to $6 billion to replace the lost capacity with new electric generating facilities. Governor Terry McAuliffe was so worried that he personally lobbied EPA chief Gina McCarthy to modify Virginia’s CO2 emission targets.

Nobody knew the cost for sure because the Clean Power Plan gave states several options for curtailing their CO2 emissions, and the final cost would depend largely upon which option the McAuliffe administration selected. Adding to the uncertainty, the plan faced legal challenges on constitutional grounds, and there was always the possibility, seemingly remote at the time, that a Republican might be elected president in 2016 and reverse the plan. The potential cost of compliance was a moving target, ranging from nothing to multiple billions of dollars.

The Times-Dispatch series did a fine job of summing up the political controversy that arose after the long-shot election of President Trump. If Trump was determined to scrap the Clean Power Plan, some legislators argued, what justification was there for a rate freeze any more? But the articles did little to illuminate the context that faced lawmakers and the McAuliffe administration when they negotiated the freeze. As should surprise no one, a lot of sausage-making went into the 2015 deal.

The law froze the base rates for Virginia’s electric utilities. Base rates, which cover mainly operating expenses, account for about half the total retail cost of electricity. They do not cover adjustments for volatile fuel prices, nor do they include “riders,” which are rate adjustments to cover the cost of specific projects such as new generating plants, new transmission lines, or underground burial of distribution lines.

During negotiations over the rate freeze, Dominion agreed to several concessions of value to McAuliffe. The utility promised to spend an estimated $25 million over five years on weatherization programs for the poor. The law declared it in the public interest to build 500 megawatts of utility-scale solar power. And the utility agreed not to collect an $85 million fuel cost increases from 2014. The law also gave GOP legislators something they wanted: a requirement that Dominion could not close a coal-fired power plant without first obtaining SCC authorization.

The law froze base rates and exempted electric utilities from biennial rate reviews for seven years. While the company had a chance of accumulating substantial excess profits, it shouldered several major risks: not just the risk of some $2 billion write-downs if it was forced to close coal-fired units but eating the clean-up cost from hurricanes and other natural disasters, which strike on average every three or four years. Unrecognized at the time, the company also took on the risk of closing its coal ash ponds under an EPA ruling that would be issued a half year later. Dominion has had to eat some $400 million in coal-ash expense, only some of which it has been able to pass on to rate payers. That liability could skyrocket if state regulators make the company bury the coal-combustion residue in landfills rather than cap it in place.

In sum, when the law went into force in mid-2015, there were a wide range of potential incomes for Dominion. If everything went perfectly, the company could make out like a bandit. If it had to take big write-offs, it could lose big time. In either case, rate payers were insulated from the uncertainty and guaranteed stable base rates.

It is only in retrospect, with the election of President Trump and his decision to kill the Clean Power Plan, that some have concluded that Dominion robbed the bank. SCC staff has calculated that Dominion earned between $133 million and $176 million in excess profits in 2015 and 2016, which it would have had to return to rate payers were it not for the rate freeze. (The sum would have been far larger had Dominion not incurred $174 million in coal ash clean-up costs.) Dominion disputes the accounting behind those numbers, but concedes that the company is probably ahead thanks to the freeze… at this moment in time. But the freeze has several years to run, and the company is still exposed to significant risk. Even the prospect of coal plant write-downs has not entirely disappeared. The McAuliffe administration is working on its own CO2 regulatory plan, the impact of which at this time is unknown.

The Times-Dispatch series could have benefited from some of this context. Zullo’s article leaves a strong impression that Dominion’s campaign contributions and political clout won it a sweet deal with the rate-freeze law. The picture is more complicated than portrayed. While critics say Dominion could rake in an extra $1 billion thanks to the rate freeze, at the time the deal was struck the company was exposed to $2 billion in write-downs, potentially hundreds of millions more for weather disasters, and potentially hundreds of millions of more for coal-ash disposal, a risk it had not even identified at the time.

For purposes of argument, let’s assume that the state CO2 regulations will be toothless and that Dominion’s write-off risk evaporates. Does that justify undoing the freeze, as some legislators have proposed? In effect, Dominion’s critics want a heads-I-win, tails-you-lose proposition. If the deal had worked out badly for the utility, would anyone be clamoring to let it off the hook? Not very likely. The critics only want out now that it appears that Dominion might — not will, but might — come out ahead.

That said, Martz and Zullo highlight an important trend that has gone largely unnoticed in all the reportage and commentary about Virginia’s electric power industry. The General Assembly has asserted ever greater authority over the industry recent years. The SCC still is influential — electric utilities still must win SCC approval for major capital expenditures such as new power plants and transmission lines. But the General Assembly has hemmed in the SCC’s latitude for decision-making by declaring everything from hybrid energy centers and pump-storage facilities to solar power generation to be in the “public interest.”

As long as legislators view utility investments as economic-development plums, as long as environmentalists and their allies seek to re-engineer the electric grid around renewable energy, and as long as the federal government feels free to dictate energy policy to the states, the politicization of the energy sector in Virginia is probably inevitable. Between its lobbying team and campaign contributions, there is no denying that Dominion exercises immense clout in state politics. But it’s not the steamroller that critics say it is.

Is Dominion Generating Millions in Excess Profits? It Depends on Who’s Doing the Accounting.

The SCC says Dominion generated up to $395 million in excess revenue in 2016 under the electric rate freeze. Dominion says the SCC is inflating the numbers.

Depending on how you crunch the numbers, Dominion Energy Virginia (DEV) is earning between $221 million and $252 million in excess profits. Had the company not expensed nearly $174 million in coal ash clean-up costs, excess earnings would have amounted to $395 million. That’s the analysis of the State Corporation Commission in a report released last week.

The report supports the narrative that Dominion and its counterpart in western Virginia, Appalachian Power Co., negotiated a lopsided deal for themselves when they pushed for a base-rate freeze in 2015. Invoking the uncertainty created by the Obama administration’s Clean Power Plan, which would have compelled a major re-engineering of the electric power industry, power companies persuaded the General Assembly that a rate freeze would provide stability for the companies and their customers.

Now that the Clean Power Plan appears to be a dead letter under the Trump administration, critics argue, it’s time to roll back the freeze. Sen. J. Chapman Petersen, D-Fairfax, who had sought in the 2017 General Assembly session to overturn the freeze, said the SCC report confirms his claims. “It simply proves what we suspected all along,” he told the Richmond Times-Dispatch. “Everything I filed last year that was even mildly controversial will be coming back.”

I wanted perspective on the SCC numbers, so I reached out to Dominion as well as Edward L. Petrini at Christian Barton LLP, who represents large industrial and commercial electricity customers in Virginia, and to Michael Kelly, director of communications for the Virginia Attorney General’s Office. Only Dominion responded to my interview request.

I spoke with Thomas P. Wohlfarth, senior vice president of regulatory affairs. Not surprisingly, he says there is a lot less to the SCC excess-earnings numbers than meets the eye.

Accounting for coal ash expenditures. It is “ridiculous,” Wohlfarth says, to remove expenses tied to coal ash removal from the excess-earnings estimates. Dominion incurred a large liability when the Environmental Protection Agency ordered it to develop a permanent storage solution for millions of tons of coal combustion revenue accumulated over the decades. While about half the coal ash expenses qualify for recovery under a “rider” request not included in the base rate, about half of it does, he says.

“There are no circumstances under which it would be appropriate other than to record those expenses when the liability occurred,” Wohlfarth says. Referring to the SCC presentation of the excess-earnings data, he adds, “That’s the game they kind of play, trying to inflate the numbers worse than they are.”

Accounting for Return on Equity. Other accounting issues are more complicated to explain. First some background…. The key determinant in how much money electric utilities are allowed to earn before returning the surplus to ratepayers is Return on Equity (ROE), a ratio expressing earnings as a percentage of shareholder equity. The goal is to set the ROE at a level high enough to encourage power companies to invest in their utility operations — but no higher. Dominion Energy, DEV’s parent company, typically earns a corporation-wide ROE of about 14% to 15%. That includes the return on non-regulated business operations. Because regulated utilities are perceived as less risky, the SCC sets DEV’s ROE significantly lower.

The SCC calculates separate ROEs for Dominion’s generation business and its distribution business, which have different risk profiles. Here are the results based on SCC accounting:

“The combined generation and distribution earned ROE of 11.94% is above the 9.60% ROE approved by the Commission for DEV’s RACs (Rate Adjustment Clauses) during 2016 by 2.34 percentage points, or $358.2 million in revenues,” states the SCC report, “and is above the 10.0% ROE approved by the Commission in DEV’s last biennial review by 1.94 percentage points, or $297 million in revenues.”

Wohlfarth says that the SCC inflated the appearance of excess earnings by using the 9.6% ROE as the basis for its calculations. The SCC allows the company to earn a 10.7% ROE for the base rate, which applies to ongoing operations and are subject to the freeze. Why would the SCC pick the high ROE used for rate adjustment clauses rather than the low ROE used for the base rate when the freeze applies to the base rate?

An exceptional year. Another thing to consider, says Wohlfarth, is that “2016 was an anomalously good year for us.” Dominion benefited from a spike in revenue relating to the way PJM Interconnection, the regional transmission organization of which Virginia is a part, calculated its “capacity” payments. (PJM pays power companies separately for making generating capacity available, whether it is used or not, and for the electricity they actually generated.) That non-recurring revenue added $150 million in revenue.

“If you normalize for capacity revenue, we were down around 11% ROE, which doesn’t give us much of a buffer at all,” says Wohlfarth.

That leaves Dominion somewhat ahead of the game in 2016, concedes Wohlfarth, but that’s only one year. The company is still exposed to considerable downside risk in future years.

Future risks. Coal ash remains a potential liability. While Dominion has endeavored to pursue a “cap in place” strategy, environmental groups have pushed hard for Dominion to remove the coal ash and place it in synthetically lined landfills, which could be significantly more expensive. Dominion is expected to issue a report on the economics of coal ash disposal to the General Assembly later this fall.

Also, Dominion remains at risk for major weather events. In 2016, the company experienced only one hurricane remnant, but it was not an expensive one. A superstorm like Hurricane Harvey or Hurricane Irma could incur hundreds of millions of dollars in repair costs.

Yet another risk Dominion faces is plant “impairment.” The company still operates a handful of coal-burning power plants, but in an era of increased electric generation by wind, solar and gas, they are increasingly relegated to the sidelines. When natural gas is cheap and gas plants are more economical to run, coal plants are dispatched less frequently, which means they produce less revenue.

“We’ve got units that are not being dispatched very much at all,” says Wohlfarth. “It becomes difficult to keep them on the books at value. We’re not at that point right now. But it’s something we’re always reviewing.”

Impairment resulting from changing economic or regulatory conditions could result in write-downs of hundreds of millions of dollars, he says. That was one of the concerns about the Clean Power Plan, which, if implemented would have put some of Dominion’s remaining coal-generating assets in jeopardy. While the Clean Power Plan is on the back burner under the Trump administration, it is not dead. The initiative is tied up in the courts. Meanwhile, the McAuliffe administration is pursuing its own restrictions on carbon-dioxide emissions.

All things considered, says Wohlfarth, and Dominion’s ROE is about where it ought to be. Revenues might be a little high in 2016, but they could well be lower in the years ahead. “It’s part of the balanced equation. … Look under the hood, and you’ll see that our rates are adequate to deal with the risks we take.”

Why Would Dominion Want a $19 Billion Nuclear Plant?

North Anna Power Station

The Nuclear Regulatory Commission has indicated it will issue a license within the next few days to build a third nuclear reactor at Dominion Energy’s North Anna power station, the Richmond Times-Dispatch reported earlier this week.

Dominion has spent $600 million so far on planning, engineering and developing the 1,450-megawatt facility, which has been widely reported to cost an estimated $19 billion. While acknowledging the huge up-front expense, Dominion has argued that it needs to keep open the option of a third nuclear unit in case federal and state regulators impose strict carbon controls on Virginia’s electric utilities.

Robert Zullo has done a fine job of covering Dominion for the Richmond Times-Dispatch, and I rely upon his reporting to keep up with the energy and environmental issues the company is embroiled in. But I would not frame the North Anna 3 issue as he did:

Given the massive cost of the controversial project, which has been opposed by both consumer and environmental groups and has yet to be approved by the State Corporation Commission, it remains unclear whether the utility will actually build the reactor.

True, consumer and environmental groups do oppose the project, and, true, it is unclear whether the utility will build the reactor. But the driver isn’t the cost, which is horrendous. The driver is what kind of regulatory regime federal and state governments enact to reduce carbon dioxide emissions from Virginia power plants. If regulators choose a “mass-based” approach that caps CO2 emissions on existing power plants and all new generation units built in the future, Dominion argues, the only way to meet electricity demand, maintain federally mandated reliability standards and stay within the CO2 limits is to construct a new nuclear unit, which emits zero carbon.

Dominion is not advocating construction of North Anna 3. It is not recommending construction of North Anna 3. There is no indication that it even wants to build North Anna 3. Rather it is preserving the option should political and regulatory developments leave it no alternative.

The company lays out its logic in its 2017 Integrated Resource Report, a planning document that provides a 15-year look into the future. There is so much political and regulatory uncertainty that Dominion examines eight different scenarios predicated on different schemes for restricting CO2 emissions. Building North Anna 3 appears in only one of the eight options, which the IRP refers to as “Plan H.” Here’s how Dominion describes that plan:

Plan H is a Mass-Based program that limits the total CO2 emissions from both the existing fleet of fossil fuel-fired generating units and all new generation units in the future, but also includes the construction and operation of North Anna 3 in 2030. This Alternative Plan was developed assuming that the Company achieves [Clean Power Plan] compliance through portfolio modifications with no market purchase of CO2 allowances. This Alternative Plan limits the generation of [the Mt. Storm coal-fired power station] to a 40% capacity factor.

Key assumptions include:

  • Retirement of up to four coal-fired units at the Mecklenburg and Clover power stations, totaling 577 megawatts, by 2025.
  • 3,360 megawatts of additional solar capacity;
  • 2,290 MW of additional natural-gas, Combustion Turbine capacity;
  • A 20-year extension of the four existing nuclear units at the North Anna and Surry power stations.
  • Addition of 1,452 of nuclear capacity at North Anna 3.

Dominion acknowledges that the compliance costs of Plan H would be extremely expensive — $14.79 billion over the IRP study period compared to $5.71 billion for the next most expensive alternative and $2.3 billion compared to the least expensive alternative.

The impact of Plan H on residential consumers would be considerable. Dominion estimates that average monthly electric rates for a typical residential customer using 1,000 kilowatt hours per month would increase 29.44% by 2030 and subside to 19.01% higher by 2042. That would be more than five times the increase of the next most costly plan in 2030.

Source: Dominion Energy

A key assumption embedded in Dominion’s projections is that electricity demand will increase by an average of 1.5% annually over the next 15 years. The IRP forecasts a compound annual growth rate of 2.04% for the Virginia economy, based upon data supplied by Moody’s Analytics. Thus, a 1.5% load increase implies continued energy-efficiency gains that reduce the energy intensity of each unit of economic growth.

Virginia’s success in attracting energy-intensive data centers plays into the utility’s Virginia forecast. “The Company has seen significant interest in data centers locating in Virginia because of its proximity to fiber optic networks as well as low-cost, reliable power sources,” the IRP says. (See yesterday’s post, “Building on Virginia’s Data Center Boom.”)

Some observers argue that Dominion’s forecast overstates demand growth. Most notably, PJM Interconnection, the regional transmission organization of which Dominion is a part, provides a significantly lower growth forecast for the Dominion transmission zone, as seen here:

Source: Dominion Energy

The IRP addresses this forecast discrepancy at length. Dominion says four factors account for the gap in projected demand growth. First, PJM eliminated new data center growth from its forecast. Second, PJM makes assumptions about Distributed Energy Resources (primarily solar) that overestimate how they would perform during critical system conditions. Third, PJM bases its forecast of appliance saturation and efficiencies on Southeast regional data, while Dominion uses historical data from its own service territory. And fourth, Dominion uses a different methodology to account for public sector energy growth, which accounts for 13% of company sales.

Another unknown is the likelihood that a Plan H scenario will materialize.

The Trump administration has expressed a desire to scrap the Clean Power Plan. Even if it succeeds in neutering the CO2 regulations, though, a future administration could reinstate them. Meanwhile, the Virginia environmental lobby is pushing hard for the CO2 caps contemplated in Plan H, and the McAuliffe administration will announce its own plan later this month to combat CO2. Furthermore, several environmental groups have gone on the record in opposition to extending the life of the existing Surry and North Anna nuclear plants. Should Dominion fail to renew those licenses, it would have to make up nearly 3,400 megawatts of capacity elsewhere. Unable to add fossil fuel capacity under a Plan H scenario, it would be limited to renewables or nuclear. An all-renewables approach could create an unstable grid with major reliability issues. That would leave North Anna 3 as the only alternative.

Many possibilities might obviate the necessity of building North Anna 3 under a Plan H scenario. The electricity load might increase at a slower pace than Dominion forecasts. The utility might succeed in extending the life of its existing nuclear units. Battery storage technology might advance to the point where it is feasible store massive amounts of sunlight-generated energy. There is no way to know at this time what will happen. But as the entity responsible for keeping the lights on, now and far into the future, Dominion is taking no chances. Despite the jaw-breaking cost, it is not taking the North Anna 3 option off the table.

The Nightmarish Complexity of Environmental Regs

As far as I’m concerned, the environmental regulatory process governing the proposed Atlantic Coast Pipeline and Mountain Valley Pipeline is incomprehensible. And that’s a bad thing. If only a handful of regulators, industry players and environmentalist activists can navigate the layers of bureaucracy and thicket of rules, the public is the loser.

In the latest hoo-ha, the Department of Environmental Quality (DEQ) has back-tracked on public statements regarding how it will regulate erosion and sediment control of pipeline construction crossing steep mountain slopes.

On April 6, DEQ issued a press release stating that “in addition to utilizing the U.S. Army Corps of Engineers nationwide permit 12 for wetland and stream crossings, DEQ will be requiring individual 401 water quality certifications for each project.” The next day, DEQ issued another press release stating that the department “has provided water quality certification for the U.S. Army Corps of Engineers 2017 Nationwide Permits.”

Got that? Me neither.

Needless to say, that bureaucratese is unintelligible to the normal human being, and even to spokesmen and reporters whose job it is to translate the gobbledygook. In response to inevitable media inquiries asking what the April 16 press release meant, DEQ spokesman Bill Hayden said that DEQ would require certifications for each individual pipeline segment that crossed or affected any waterway. That meant hundreds of certifications. That is what the Richmond Times-Dispatch understood, what the Roanoke Times understood, and what I understood.

But DEQ Director of Operations James Golden is now saying that Hayden had spoken before he had been briefed by “technical” staff members at DEQ. (So explains the Times-Dispatch today.) DEQ will rely upon a U.S. Army Corps of Engineers national permit. Rather than duplicate the Army Corps’ work, Golden told the T-D, the state’s individual certifications will focus on “upland areas” outside the Army Corps’ jurisdiction.

Asked why DEQ took nearly seven weeks before correcting the widely published remarks, Golden conceded that “in hindsight, DEQ should have tried to provide additional clarity.”

DEQ’s statements never added up to environmental groups, and they made an issue of the seeming discrepancy between the April 16 and April 17 press releases. After endeavoring to understand what it all meant, I headlined the resulting post, “A Brain-Frying Foray into the Regulatory Maze.” In what was surely one of the least-read articles in the history of Bacon’s Rebellion, I tried to sort through the difference between 401 certifications and Permit 12, general permits, individual permits, blanket permits and more. (I never got around to explaining 404 permits, which are relevant somehow.)

Despite the fact that I tediously double-checked information in the article before publishing, I still got stuff wrong — or so says David Sligh with the Dominion Pipeline Monitoring Coalition, a former regulator himself. But I found his correction so incomprehensible that I just appended it whole to the post, and let readers figure out what it meant.

Bottom line: I don’t think harshly of Hayden for disseminating inaccurate information. He was probably as confused as I was. (Well, not that confused. But pretty confused.) Where DEQ fell down was in not correcting the inaccuracies when they began circulating in the media. Frankly, the fact that they didn’t do so makes me wonder if DEQ officials above Hayden knew exactly what was going on.

One conclusion seems unavoidable: When the regulatory system is so full of jargon, is so complex and has so many interlocking pieces that career administrators of DEQ can’t communicate the story accurately to the public, something is wrong with the system.

McAuliffe Moves to Cap Utility Carbon Emissions

Governor Terry McAuliffe. Photo credit: Associated Press

Big news yesterday: Governor Terry McAuliffe issued an executive order to cap greenhouse gas emissions from Virginia power plants. Unfortunately, I’m out of town on personal business today, so I don’t have time for anything more than a cursory analysis.

Said McAuliffe in a press release: ““The threat of climate change is real, and we have a shared responsibility to confront it. Once approved, this regulation will reduce carbon dioxide emissions from the Commonwealth’s power plants and give rise to the next generation of energy jobs. As the federal government abdicates its role on this important issue, it is critical for states to fill the void. Beginning today, Virginia will lead the way to cut carbon and lean in on the clean energy future.”

McAuliffe’s press release cited the job-creation benefits that would come from a shift from fossil fuels to solar energy. Last year, as solar production took off in Virginia, the solar industry employed 3,236 workers — twice the number supported by coal. McAuliffe said also invoked sea level rise to justify his move:

Virginia is already experiencing the effects of climate change in its coastal regions due to rising sea levels. The threat from frequent storm surges and flooding could cost the Commonwealth close to $100 billion dollars for residential property alone. The impacts extend far beyond our coast, as half of Virginia’s counties face increased risk of water shortages by 2050 resulting from climate-related weather shifts.

The action now moves to the Department of Environmental Quality, which the governor ordered to write the regulations.

Bacon’s bottom line: McAuliffe’s move will generate headlines and plenty of political heat — Republicans have already announced their opposition to what they call the governor’s executive overreach — but it’s far from clear what practical impact the move will have. Acknowledging that the cost of solar energy has plummeted, Dominion Energy and Appalachian Power already have forecast that they will move heavily toward renewable energy sources over the next 25 years.

The press release spoke of a “cap” on greenhouse gases and new regulations that will “reduce” carbon emissions — not merely reduce carbon intensity (carbon dioxide emitted per kilowatt of energy produced). It is possible to reduce the carbon intensity of the electric generating fleet while allowing total carbon emissions to increase, albeit it at a much slower rate, as the economy grows. If Virginia caps carbon emissions, Dominion and Apco might be required to close additional coal-fired power stations, and it is unlikely that Dominion would build a planned gas-fired power plant in the early 2020s. Cancellation of that facility could undermine the economics of the proposed Atlantic Coast Pipeline, construction of which McAuliffe has said he supports.

Expect trench warfare between utilities, environmentalists and consumer advocates in the DEQ hearings discussing how to implement the carbon caps. Also expect General Assembly Republicans to challenge McAuliffe’s legal authority to implement a cap.

Update: Apco spokesman John Shepelwich submits the following correction: “Appalachian Power no longer operates any coal-fueled power generation in Virginia and has not since 2015. Two of the three units of our Clinch River Plant in Russell County were converted from coal to natural gas; that plant is scheduled to be retired in 2026.”

Please, Norge, Don’t Go NIMBY on Solar Project

Norge residents gather to learn more about a proposed solar farm in their neighborhood. Photo credit: Virginia Gazette.

Report from today’s Virginia Gazette: Members of the Norge community of James City County are “concerned” that a proposed solar farm will impact their neighborhood negatively.

The James City County planning commission approved in April an application to build a solar farm on a 225-acre property on Farmville Lane. The developer, California-based SunPower, said that the lane would have to be widened and trees removed in order for trucks to be able to turn properly.

Residents expressed concerns about traffic and noise said Amanda Beringer, who organized a neighborhood meeting to educate neighbors. “As we did more research and watched the planning commission meeting we realized a lot of people didn’t know about the proposal.”

Bacon’s bottom line: Well, if someone proposed a major construction project near where I lived, I’d want to know more about it, too. So the Norge neighbors can’t be criticized for wanting to learn more about the project. But if concern morphs into opposition, I’ll have “concerns” of my own, but entirely different ones. I’ll be concerned how NIMBYs inevitably arise to block any kind of energy-related project in Virginia, be it electric transmission lines, gas pipelines, wind turbines or even solar farms that hum quietly behind hedges while — outside the construction phase — creating little traffic or human activity of any kind. Some energy projects are intrusive and resistance is understandable. But opposition to solar projects is incomprehensible to me.

Look, people, solar energy is coming. Dominion and Appalachian Power have both announced commitments to massive increases in solar generation over the next 25 years. While some of that solar capacity will be small-scale, distributed rooftop solar panels, most of it will be utility-scale solar farms like the one SunPower wants to build. Leasing land to a  power company is great news for suburban and exurban landowners struggling to make ends meet in farming, and the tax benefits to localities are significant — even after taking into account the 80% discount on property tax assessments.

Local governments across Virginia need to get proactive and update their zoning codes and comprehensive plans to prepare for the upcoming solar bonanza. They need to work out potentially conflicting issues ahead of time. The quicker solar projects sail through the regulatory process, the more that will get built to the benefit of all.

Eco-City Alexandria Kvetches about Accelerated Potomac Cleanup

Nasty! Oronoco Bay in eco-city Alexandria.

Nasty! Oronoco Bay in eco-city Alexandria. Image credit: Greater Greater Washington.

The City of Alexandria bills itself as an “eco-city.” In 2007, it published a “green-ventory” of environmental plans, policies and programs. In 2008, the city adopted an “eco-charter.” Since then, the city has launched initiatives to tackle invasive plants, expand the regional BikeShare program, bolster transit bus service, weatherize apartments of low-income Alexandrians, design LEED-certified city buildings, install energy-efficient lighting fixtures, and replace diesel buses with hybrid-electric buses — all trendy, green priorities.

Meanwhile, the city’s aging combined sewer overflow system dumps an estimated 70 million gallons of raw sewage, waste and rainwater into the Potomac River every time it rains. The city has had years to fix the problem, which it estimates will require $386 million in local funds. Until yesterday, the plan was to pay for the sum through a gradual 500% increase in city sewer fees over the next ten years.

Now city officials are “reeling,” reports the Alexandria Times, after Governor Terry McAuliffe signed into law a bill that will compel the city to accelerate its timetable for fixing the problem by two years to 2025.

“We appreciate the governor’s earlier efforts to substitute a more reasonable deadline, and we remain fully committed to getting all four outfalls in Alexandria done, and to getting them done right,” said Mayor Allison Silberberg in response to the news. “While we are moving full steam ahead, we are very concerned that this legislation requires a deadline engineers have indicated is not feasible.”

Bacon’s bottom line: Yeah, yeah, yeah. If Alexandria really wants to consider itself an “eco-city,” its first priority should be to stop dumping human excrement into the Potomac River. Which would have a greater positive impact? Investing in save-the-world efforts to reduce CO2 emissions, which, might reduce global warming by a hundred-thousandth of a degree over the next 100 years, or stop fouling the river? I’ll hazard a guess that people living downstream would prefer the latter.

Until Alexandria gets its act together and stops polluting the Potomac, maybe it could do the rest of us a favor and spare us the “eco-city” blather.

Rappahannock Water Quality Endangered by Fracking?

Rappahannock River

Rappahannock River. Image credit: American Rivers.

American Rivers has listed the Rappahannock River as the fifth “most endangered” river in the United States. The environmental group claims the river is threatened by industry interest in hydraulic fracturing (fracking) operations in the Taylorsville Basin lying thousands of feet beneath the river. The quality of drinking water of three million people in eastern Virginia are at stake.

The Rappahannock joins company with the Lower Colorado River (the most endangered), which is threatened by excess water consumption; California’s Bear River, which is imperiled by a new dam; the South Fork Skykomish River in Washington, which is jeopardized by a new hydropower project; and six other rivers. These rivers are not necessarily the most polluted. Rather, American Rivers highlights in its “America’s Most Endangered Rivers 2017” report ten rivers whose fates will be affected by the political process in the upcoming year.

The watershed of the Rappahannock, the longest free-flowing river in Virginia, encompasses all or parts of 18 counties, the report notes, and supports thriving agricultural and seafood sectors as well as recreational activity.

American Rivers is concerned that 85,000 acres in five counties along the tidal Rappahannock are leased for oil and gas exploration. Only one of the five counties has enacted a land use ordinance to protect against the impact of fracking. Last year, Governor Terry McAuliffe approved new regulations that would require baseline water testing and monitoring along with the disclosure of any chemicals used in the fracking process. The oil and gas lobby introduced legislation to weaken the regs in the 2017 General Assembly session, but the effort was beaten back. Says American Rivers:

It is clear that the threats that industrial gas development and fracking pose to the rural and agricultural communities along the Rappahannock River are not going away. The first line of defense lies with local government, which has the power to establish local protections to protect the drinking water for millions of citizens.

Last  year Prince George County amended its zoning ordinance to require hefty setbacks for gas wells, effectively making 91% of the county unavailable for drilling. But Westmoreland, Essex, Caroline, and King and Queen Counties have yet to act.

Here’s the source of concern: Gas companies must drill through the Potomac Aquifer to reach the gas in the Taylorsville Basin, which is reported to contain more than 1 trillion cubic feet of gas, equivalent to two-and-a-half times the volume of gas consumed in Virginia in a year. Fracking injects sand and chemicals under high pressure to fracture the rock sufficiently for oil and gas to flow through it. Although oil and gas companies seal off drill holes where they pass through aquifers, environmentalists claim that potentially toxic chemicals still can leak into the Potomac Aquifer and, from there, eventually into the Rappahannock River.

Bacon’s bottom line: Environmental groups are adamant that fracking represents a danger to the aquifer and water supply. The oil and gas industry is equally insistent that fracking poses minimal risk. Each side cites seemingly authoritative studies. Who knows?

The Taylorsville Basin contains maybe one-fortieth the volume of gas contained in the famed Marcellus Basin, which has transformed energy economics in the United States, but it’s nothing to sneeze at. The gas has an economic value of $2 billion to $4 billion, maybe more, depending upon the current price of natural gas. That represents a lot of economic activity for five economically depressed rural counties.

Admittedly, a billion dollars or so in local payroll and royalties won’t be much consolation if fracking ruins the water supply. But more than 8,000 wells have been hydraulically fractured in Southwest Virginia with no documented instances of surface or groundwater contamination, according to state geologist David Spears.

The McAuliffe administration made a prudent decision, it seems to me, to establish a baseline of data on Potomac Aquifer water quality and to require gas companies to disclose the chemicals they use in fracking. If chemicals used in fracking are not found in the aquifer but suddenly appear after drilling begins, it is not unreasonable to conclude that fracking created the problem. Conversely, if none of the chemicals show up in the aquifer, no harm is likely being done.

Regardless, the American Rivers report signals that the Taylorsville Basin is on the radar screen of national environmental groups. I expect they will pour considerable resources into fighting development of the basin. Linking that fight to the conservation of the treasured Rappahannock River is shrewd public relations.

Will NIMBYs Thwart SolUnesco Solar Plan?

SolUnesco CEO Francis Hodsoll addresses the Albemarle County Board of Supervisors

SolUnesco CEO Francis Hodsoll addresses the Albemarle County Board of Supervisors. Photo credit: Charlottesville Tomorrow.

Not all barriers to solar energy emanate from Richmond. Take Albemarle County, for example. The county zoning code outlaws solar farms, we learn from Charlottesville Tomorrow.

“The current zoning ordinance allows for the transmission and distribution of energy, but not the generation of energy,” said county planner Margaret Maliszewski at Wednesday’s Board of Supervisors meeting.

The issue arose because Reston-based SolUnesco wants to submit an application to develop an 11-megawatt photovoltaic solar energy generation system in southern Albemarle. “Our project is for the wholesale supply of energy that goes onto a wholesale network of transmission and distribution lines and that allows people to buy energy from our project or for a utility to buy energy directly from us,” said SolUnesco CEO Francis Hodsoll.

Albemarle Supervisors directed the planning department to study the issue. But, while the Charlottesville-Albemarle area may be home to many solar-loving greenies, don’t take it for granted that county planners will roll over for SolUnesco.

“As a member of a rural neighborhood, the first thing that comes to mind is protection of the rural areas,” said Phillip Fassieux at the board meeting. “We all love solar power, but at what cost? … “How will residents of Albemarle benefit specifically from turning over part of our rural county to its use? Will we see reductions in electricity rates?”

Everyone loves solar in theory, but opposition frequently surfaces locally when someone proposes building a solar farm near them. Others object to the idea of vast solar farms displacing agricultural uses of the land. SolUnesco’s proposed 11-megawatt solar farm, big enough to supply demand for about 2,000 households, would require between 70 and 80 acres of land. Typically, solar farms include vegetated buffer zones to screen the solar panels from view.

(Another potential objection to solar is that, given the state formula for distributing school aid, a big capital investment in solar could actually hurt a county financially. I’ll deal with that issue in a separate post.)

Bacon’s bottom line: Call me a Neanderthal, but I support private property rights. I see no justification for Albemarle County — or any county — to impose zoning restrictions prohibiting solar farms. If a property owner decides that installing solar panels represents a use of land preferable to agriculture or timber, that should be his decision to make. Counties have no business intervening unless the land use creates a nuisance to neighbors. Unlike wind turbines, solar panels create no noise, are easily hidden from view, and don’t harm wildlife. NIMBYs need to get a life.

And one more thing… The SolUnesco pitch to landowners asserts that its 25-year leases will generate above-market returns for landowners with an inflation escalator. The company assumes all costs and risks associated with developing the project — the landowner just collects checks for 25 years.

Rural Virginia is hurting. It has few resources of value in the knowledge economy. One thing it does have is land. Solar energy represents a rare opportunity for Virginia’s rural economy. There are many complex issues surrounding the integration of solar into the electric grid that need to be resolved before we see widespread deployment, but land use should not be one of them.

The Right Way to Test for Coal Ash Contaminants

A North Carolina riverkeeper inspects testing samples of coal ash taken from the Dan River.

A North Carolina riverkeeper inspects testing samples of coal ash taken from the Dan River. Photo credit: WRAL.

So, it looks like the there will be a pause in the solid-waste permitting process for Virginia coal ash. Governor Terry McAuliffe had submitted an amendment to legislation that, if approved, would require Dominion Virginia Power to compile more information on contamination around its coal ash sites and study alternative closure methods before the state issues the permits. Now Dominion has decided to go along, which means political opposition to the idea could evaporate.

“We concur that it is a prudent course of action to seek and consider an evaluation of the assessments on the appropriate closure methods based on the individual features of each site before seeking necessary solid-waste permits,” wrote Dominion CEO Thomas F. Farrell II. “Dominion finds the proposed amendments to Senate Bill 1398 to be workable, and is committed to completing the site assessments before pursuing solid waste permits regardless of the outcome of the legislation.”

McAuliffe’s amendment would restore key provisions to a bill co-sponsored by Sens. Scott A. Surovell-D-Fairfax, and Amanda F. Chase, R-Chesterfield, whose legislative districts include Dominion’s Possum Point Power Station and Chesterfield Power Station, each of which has millions of tons of coal ash to dispose of. (See the Richmond Times-Dispatch story here.)

Dominion had originally opposed the testing and study provisions, which were stripped out by the House of Delegates. But if the power company drops its opposition to McAuliffe’s amendment, as Farrell’s letter indicates, Surovell and Chase likely will get their way.

According to the bill summary, HB 1398 will require owners of coal ash ponds (1) to identify water pollution emanating from the ponds and address corrective measures, and (2) evaluate the feasibility of “clean closure.” Clean closure would entail removing the coal ash from ponds where it has been stored to lined landfills. Dominion has estimated that the cost of landfilling could amount to $3 billion, but environmental groups have argued that the cost would be much lower if the utility recycled the material as an additive to cement and other products.

Bacon’s bottom line: Pausing the permitting process to get a better handle on what’s happening at the coal ash ponds is a good idea. Frankly, despite considerable testing by both Dominion, environmental groups and even Duke University, little can be said with certainty about the process at each of Dominion’s four sites by which groundwater migrates through the coal ash and contaminates either well water or nearby rivers and streams.

Any testing regime must be rigorous enough to provide definitive answers. The last thing we need is set of ambiguous results that Dominion and environmental groups try to spin to their advantage in another contest of P.R. and political clout. Any credible testing program should recruit outside experts, perhaps from Duke or perhaps from a Virginia university, who can identify the questions to be answered and what protocols will provide definitive answers.

Dominion has conducted tests on its property and found little evidence of contamination at Possum Point, Chesterfield and the Bremo Power Station, but a federal judge recently used Dominion data to conclude that coal ash its closed Chesapeake plant was contaminating groundwater. Testing by riverkeeper groups of groundwater and surface waters just outside of Dominion property show elevated levels of heavy metals which, at sufficient concentrations, can be toxic to aquatic life and human health. Additionally, Duke University has conducted extensive testing in North Carolina and Virginia using “forensic tracers” that have found elevated levels of heavy metals in groundwater near Bremo and Chesapeake. But other Duke tests have found that elevated levels of the carcinogen hexavalent chromium, also associated with coal ash, is endemic in piedmont groundwater and in many cases cannot be attributed to the coal combustion residue.

Complicating any analysis is the fact that trace levels of heavy metals and carcinogens are frequently found in groundwater and surface water as the result of natural processes. Levels vary depending upon local geology. The existence of trace elements of heavy metals in groundwater near coal ash ponds is not in itself proof that the heavy metals came from the coal ash. The trace elements could be ubiquitous in the area, but no one knows unless tests are conducted some distance from the power plants. Ideally, any testing regime for Dominion’s coal ash ponds should adjust for background levels of contaminants.

Another complication is ascertaining the movement of groundwater. For example, the water from several wells near Possum Point have shown elevated levels of heavy metals. It is easy to deduce from the proximity of the wells to coal ash ponds that the contaminants come from the ponds. But to demonstrate the point conclusively, one must show that the groundwater migrates from the coal ash ponds toward the wells, and not in some other direction. To make that proof, it is necessary to conduct extensive sampling and create detailed maps that mark the geographic scope and elevation (in feet above sea level) of the underground water and determine the direction of the water flow. Only if it can be documented that underground water is migrating from the coal ash pond toward the wells can one reasonably conclude that the coal ash is to blame for elevated levels of well-water contaminants. If the water is migrating away from the wells, the well-water contaminants probably have another source.

Adding another layer of complexity to the analysis is estimating how much contamination the groundwater picks up while migrating through coal ash. Dominion maintains that its coal ash pits do not come into contact with the water table; the deepest part of the ponds have a higher elevation than the underground water table. However, using Dominion’s own maps, the Southern Environmental Law Center (SELC) contends that the bottom reaches of the coal ash ponds at Bremo and Chesterfield intersect with the water table. If the SELC is right, groundwater that migrates through a portion of the coal ash could pick up contaminants along the way.

The question then arises, how long must the water be in contact with the coal ash in order to pick up trace metals? That is a function of the chemistry of the coal ash, how tightly or loosely the metals are bound to inert materials, and the speed of water migration, which depends upon the permeability of the clays and rocks. If the groundwater comes into contact with only a small percentage of the coal ash for a short time, the leeching of heavy metals could well be minimal.

If it can be demonstrated that measurable levels of metals leach into the groundwater, another question must be answered: What volume of contaminants, and how rapidly, does the groundwater feed into surrounding rivers and streams? While U.S. District Court Judge John A. Gibney Jr. found that Dominion’s Chesapeake Coal ash ponds did contaminate the groundwater and that the groundwater did reach the Elizabeth River in violation of the Clean Water Act, he also found no damages because the contaminants were so diluted by the massive water volume of the river that aquatic and human health were unaffected. Continue reading