No Simple Answers on the Electricity Rate Freeze

Muddy water -- still waiting for an impartial analysis of the rate freeze issue.

Murky waters — Virginia still waiting for an impartial analysis of the electricity rate freeze.

Former Attorney General Ken Cuccinelli joined state Sen. J. Chapman Petersen, D-Fairfax City, down at the General Assembly yesterday to put pressure on Governor Terry McAuliffe to resurrect Petersen’s bill that would roll back a rate freeze on Dominion Virginia Power and Appalachian Power.

Petersen summarized the argument in a nutshell: “In reality, it was a refund freeze.” The 2015 legislation, enacted in response to the Obama administration’s announcement of the Clean Power Plan, he artgued, locked in place excess profits that amounted in 2015 to $300 million for Dominion and $36 million for Apco. With the election of President Trump, it appears that the Clean Power Plan is a dead letter, and the justification for the rate freeze no longer exists.

According to Robert Zullo’s reporting in the Richmond Times-Dispatch, Dominion responded that the rate freeze has worked for consumers. Electricity rates are lower now than they were two years ago. Reversing the 2015 legislative deal also would un-do provisions that provided $57 million on weatherization programs for veterans and poor people, and a commitment to renewable energy that has produced nearly $1 billion in new solar energy projects.

Petersen’s bill was defeated in the Senate, but it could be revived if McAuliffe sends it back for reconsideration. The Governor has told him that he would do so if, in Petersen’s words, the senator came back to him with a plan to change the outcome from the previous bill. Describing himself as David fighting Goliath, Petersen said “I’ve done everything I could do.”

Bacon’s bottom line: It’s hard for the public to know who has the stronger case. Bits and pieces of information are floating around — each side citing the facts that supports its outcome — but no one has assembled them in a coherent format. Here are some of the key elements.

  • Refund of excess profits. Cuccinelli cites a State Corporation Commission staff finding that Dominion earned $300 million in excess profits before the freeze was enacted. In the absence of a freeze, the commission might have ruled that Dominion had to provide a refund. (Ditto for Apco which is said to have had $36 million in excess profits.) But Dominion and Apco undoubtedly would have disputed the numbers, and there is no way to know what the three commissioners would have decided.
  • Excess profits going forward. If Dominion and Apco had been charging too much before 2015, it is possible that they have been charging too much since then. Again, there is no way to know because under the terms of the legislative deal, the SCC suspended its biennial rate reviews until 2020.
  • Costs of coal ash clean-up. Dominion has said that it has eaten nearly $300 million in expenses relating to the clean-up of coal ash, an issue that was not widely known or discussed during the 2015 legislative session. There are more clean-up costs to come, and if environmentalists are successful in pressing demands to recycle and landfill the ash instead of disposing of it on site, the tab could run into the billions of dollars.
  • Clean Power Plan risk. In 2015 it was not clear how much it would cost Virginia utilities to live up to the CO2 reduction mandates in the Clean Power Plan. The SCC staff said the new rules could push electric rates 20% higher, although no one could say for sure because no one knew which of four main regulatory options Virginia would pursue. Environmentalists were pushing hard for the option that would have delivered the biggest CO2 cutbacks and also would have caused the most dramatic restructuring of power production and the electric grid. It’s not clear how big those costs would be, how much Dominion and Apco would have absorbed, or how much they could have deferred until after the rate freeze. Cuccinelli and Petersen assert that many of those costs could have been passed along to rate payers by means of Fuel Adjustment Clauses, which were not frozen, and, therefore, the utilities really weren’t taking  on any meaningful risk.

Both sides make plausible arguments. Indeed, one might say that both sides are right…. as far as they go. What we have yet to see, however, is an impartial analysis that clearly explains all the costs, benefits and risks.

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32 responses to “No Simple Answers on the Electricity Rate Freeze

  1. Dominion Virginia Power has supplied this chart comparing its electric rates with U.S., Mid-Atlantic and other regional averages.

  2. I don’t understand why we are spending so much time having different groups guessing what might be happening behind the curtains.

    There is an established process to compare the actual revenues and costs to produce the revenues of Virginia utility companies. It is accomplished by the professional staff and Commissioners of the SCC. Once the in-depth evaluation is complete it is fairly straightforward to determine whether the resulting profits are less than, equal to, or in excess of the authorized rate of return. If a difference exists between the actual and the authorized return, known measures can be applied to bring the profits into the authorized range (refunds or rate adjustments). This is a tried and true process in Virginia and throughout the U.S. The difficulty arose from legislative tinkering with an established regulatory process.

    We don’t need to rehash whether the need for the rate freeze was ever justified. We need only to agree that none is necessary now. If Dominion and APCo do not believe they are receiving a fair rate of return there is an opportunity for them to make their case in the normal rate review process.

    Let’s just get the train back on its tracks and go about our business of producing the energy we need at the lowest possible cost and enhancing Virginia’s economy.

    • I completely agree with TomH. It is an embarrassment to Virginia, and a reflection upon the GA’s lack of common sense, that it seems to think utility rates (and God knows what else) are its private play pen. “Imperial Clown Show” indeed! Of course utility rates are complicated; that’s why every State in the Union (as well as the federal government) regulates utility-like enterprises through a utility regulatory body like the Virginia State Corporation Commission. The VSCC does a good job, when allowed to do so. In fact, the SCC has a constitutionally-protected jurisdiction over utility rates. But the little qualifying phrase, “subject to such criteria and other requirements prescribed by” the GA, gives our legislature the right to override pretty much whatever the SCC does, and indeed they have. The law specifying the so-called “rate freeze” is in fact pages and pages of mind-numbing detail — and every aspect of this is something the legislature was supposed to understand back when it was passed??

      Back when I worked with utility regulators, there was a well-understood principle that the better regulators observed: let utility management make the difficult decisions, not only because the regulator doesn’t have the time to micromanage from the bench, but also because the political heat (when things goes wrong) will fall on any regulator whose fingerprints are all over it. This principle also applies at the legislative level. Let the SCC conduct the hearings and listen to the experts and sift through the evidence and write the 100-page orders and make the difficult decisions; don’t micromanage from the GA.

      I also daresay, in the long run, Dominion’s long-term interests are not best served by the arbitrariness and variability of legislative regulation — which requires a constant, very large lobbying effort to control with uncertain results year to year, invites powerful politicians to call in favors, and remains subject to abrupt, radical change anytime control over the legislature changes. And what about the public’s long term interests?

      Yes, Dominion’s rates are low. It is a well run utility, and its key decisionmakers over many decades have kept it that way. Not that those rates would stay low if NA3 gets into the mix. I don’t blame Dominion for asking its regulators for that rate freeze; I blame the GA for giving it to them, directly, gutting the SCC’s regulatory authority in the process. And I particularly blame the GA for the way it executed the freeze, exempting all those “rate adjustment clauses” covering everything that was actually likely to increase in cost, guaranteeing a windfall for the utilities covered by it. The whole point of having the SCC regulate utility rates is that it has the ability to look simultaneously at ALL the regulated costs. Or it did — until the GA interfered.

  3. From Robert Zullo’s article:

    “Sen. Frank W. Wagner, R-Virginia Beach, a gubernatorial hopeful who carried the 2015 bill, said the energy on display Tuesday by Cuccinelli and the group of lawmakers, which also included Sen. R. Creigh Deeds, D-Bath, and Dels. Sam Rasoul, D-Roanoke, and J. Randall Minchew, R-Loudoun, would be better directed elsewhere.

    “I wish they’d focus their attention on some of the rates that have gone skyrocketing, like health care and cable television as opposed to something that’s actually gone down in price,” he said.

    “Your kilowatt-hour rate is lower today than it was two years ago. Name me one other thing that’s cheaper today than it was two years ago.””

    Dominion’s “rates” have not decreased in the past two years, contrary to the assertion that Jim includes above and was made by Senator Wagner, not by anyone from DVP. Base rates for DVP have not changed in decades. The law enacted to “de-regulate” generation back in 1997 froze rates at their then level and they have not been either raised or lowered since that time due to that legislation and the subsequent “re-regulation” bill from the mid-00s.

    In the meantime, each customer is paying $$ each month for a variety of rate adjustment charges that have never been frozen and continue to increase each year as DVP and Apco build new facilities, spend money to comply with environmental regulations and adopt various energy efficiency programs.

    All those benefits of the legislation that DVP spokesman Botkins cited?

    “The law Petersen would undo resulted in Dominion providing $57 million to help military veterans and people in need to weatherize their homes, saving energy and money. The law produced another $90 million to reduce all customers’ bills. And, the law infused nearly $1 billion of new solar energy projects into Virginia’s power grid.”

    DVP didn’t pay for any of that stuff; it’s customers did.

    • “Your kilowatt-hour rate is lower today than it was two years ago. Name me one other thing that’s cheaper today than it was two years ago.”

      Two years represents classic statistical cherry picking. Lots of things are falling in price. From the FDA …

      Food-at-home prices declined overall in 2016, falling 1.3 percent below 2015 levels. This marks the first annual decline in supermarket prices since 1967. Looking at specific retail food categories, prices declined 21.1 percent for eggs, 6.3 percent for beef and veal, 4.1 percent for pork, and 2.3 percent for dairy and related products.”

      Meanwhile, other items have been falling price … Cell phones, network bandwidth, compute cycles, data storage, gasoline.

      So, a guy running for governor doesn’t want to upset the state’s largest private political donor. I’m shocked! Shocked, I tell you!

      A quick look at VPAP shows Wagner for Governor getting the largest donation from Wagner for Senate. Meanwhile, Wagner for Senate has raised a stupendous $3.5m since 2000, including a mind boggling $1.4m in 2015. Of course, most is PACs donating to PACs donating to PACs. Good luck ferreting out where the money originally came from. But that the point, isn’t it? Who knows where Dominion fits in this shell game of state political donations?

      And Dominion is weather proofing the homes of veterans by charging their customers more? An unelected corporation has become a de-facto legislature passing tax hikes and unregulated tax collector? And Wagner thinks this is a good idea? Sad.

      I’ll be honest – Wagner sounds like an idiot here.

      I hope Petersen runs for governor.

    • Funny thing that, as a benefit of the rate freeze, Dominion should cite those $millions spent “to help … people in need to weatherize their homes.” Energy savings due to weatherization not only helps the customers involved but can lower costs for all customers when the lowered demand delays the need for additional generating capacity. Better insulation in homes most directly helps an electric utility when the system peak is at the time of maximum winter heating load — as is Dominion’s. Even if weatherization is provided by Dominion at a net cost to ratepayers, it doesn’t cost ratepayers nearly what the out-of-pocket numbers indicate. And that’s without counting the public-relations benefit. Why isn’t Dominion providing weatherization services all the time, not just when the GA bribes it to do so?

    • Point of fact: I’m pretty sure that the cost of weatherization program is NOT passed on to rate payers, but comes from (a) contributions from Dominion employees and customers, and (b) Dominion shareholders.

  4. I didn’t mention this before but the rate reductions Dominion is taking credit for were primarily due to EPA MATS regulations taking old coal plants offline and to Wall Street money fleeing a deflating mortgage securities bubble that created a glut of natural gas. Neither one had to do with a nationwide improvement in utility management but it did reduce utility bills because of lower fuel cost adjustments. The cost of natural gas is beginning to climb as the massive buildout of natural gas infrastructure gets into full gear. The long-term increase in utility bills that will result might be blamed on other causes. Fuel adjustment charges are independent of the rate freeze.

  5. http://www.eia.gov/electricity/monthly/epm_table_grapher.cfm?t=epmt_5_06_a

    Another POV on rate comparisons…these are STATE figures, not utility specific, but if you nose around on the Energy Information Agency website there are also company specific reports on rates by consumer class.

  6. That would be the total cost, base rates plus the fuel factor plus the various rate adjustment clauses (RACs). The fuel costs have gone down in recent years all across the country, but not all states have a segregated fuel factor that adjusts annually. I use that chart to track the industrial rates, which do not produce quite the glowing “look how low we are!” chart that Bacon printed for residential rates. The Nov. 16 industrial rate for Virginia was right at the national average (having been higher in 2015) and there is a substantial differential between VA and most of the southeastern states we compete with.

  7. With the mild winter, I hear natural gas prices are crashing down. So any new nat gas power plants should make big money, I am thinking. It is so frustrating as home owners, we do not benefit much from the low cost of natural gas as the effective retail price is held artificially high. It would be nice to trickle down some of the benefits of low natural gas price. That’s an emotional argument, but OK.

    • Actually, all the gas companies pass the cost of purchased gas directly through to their end use customers without markup through their adjustment clauses. The benefit is not as noticeable because the gas itself is only a fraction of your total bill.

  8. The SCC staff estimate is in line with the figures from the Georgia Tech study of the Clean Power Plan and the southern states. The SCC says rates could be 20% higher.
    Here is what the GA. Tech study says, … “In contrast, the current trajectory would cause the electricity bills of a typical Virginia household to rise by about 19% over the next 15 years.”

    ‘Current trajectory’ means the structure of our utilities stays pretty much the same. However, if we take the advise the 2016 report describing energy opportunities in the Southern states Virginia can save money in addition to creating a cleaner energy economy. Building retrofits create a good portion of energy bill savings, but the savings also require adding DR, and wind and solar. The average Virginia household could cut its electricity bill in 2030 by $307 (or 12.6%) and could save a total of $2,899 over the next 15 years. Across all of Virginia’s households over the next 15 years, this would represent a cumulative electricity bill savings of $9.9 Billion. That leaves a lot of room for economic growth.

    The Georgia Tech Report describes one set of alternative choices, the Stanford Solutions Project another. NREL has detailed Virginia’s enviable potential clean energy resources, and yet Virginia is not stepping up to the global changing energy economy. The state ranks 47th in the nation for energy efficient reductions. Only Kansas has less storage connected or commissioned than Virginia with a .2MW total. CA leads the way with 1.229MWs of commissioned and installed storage projects. North Carolina has installed ten times Virginia’s total solar, California … 100 times.

    If FERC allows the ACP to be constructed and refuses to look beyond business as usual in terms of our environment and our economy, FERC will doom Virginia to continue operating with their old central generation ‘build more, sell more’ monopoly system for an additional 40-50 years. The rate freeze is part of that ‘yesterday’ thinking that does not evaluate the benefits of new technology, a new distribution structure, and a 21st century utility system. Neither are in Virginia’s or her customers’ best interests.

    https://cepl.gatech.edu/sites/default/files/attachments/Virginia.pdf#
    https://cepl.gatech.edu/projects/ppce/clean-power-plan-and-beyond

  9. You guys are right on target. The lower utility bills of the past few years have been due to lower fuel costs (natural gas). We have no significant advantages in utility management or regulatory oversight that makes our rates substantially different from our neighbors. Our slight apparent advantage in retail rates is more than made up in higher commercial and industrial rates compared to most of our neighbors. We all share the benefits of geographic good fortune. We live in a mild climate where our summer and winter peaks are relatively similar so we get better usage out of our generating fleet and therefore lower costs. Compare that to the challenges of needing capacity to meet the extremes of really hot or very cold regions where the generation sits idle much of the time. ISOs have helped with that, but we have it easier than most.

    Marcellus gas prices popped up above $3 in December, but are back around $2 now. Henry Hub went to $3.50 but is back to $2.50 now. Wait until the LNG exports come up to speed. Every country that has had significant LNG exports has seen their domestic prices rise closer to international prices (especially Australia). The national manufacturers’ association warned against a rush to export saying we are throwing away a significant strategic advantage for American businesses from low-cost natural gas and Natgas liquids feedstocks. Our national energy policy runs counter to the policy to bring more manufacturing back to the U.S.

    In fact, the whole power plant/pipeline/fossil fuel agenda runs counter to the goal of having more jobs and lower cost energy. It is a mystery to me how we can say we are for more jobs and low-cost energy and then initiate actions that will have the opposite results.

  10. exporting natural gas is a very bad idea..for the country. It might be a good idea for those who want to make money doing it – but it’s a keystone fuel as it’s the only type of power plant that can vary it’s output in minutes… rather than hours which makes it the only kind of powerplant that can run in tandem with solar…

    Of course the silver lining is that if we flush natural gas to exports and it becomes scarce – and expensive – it will drive consumers to adopt more demand-side conservation technology..

    it’s no coincidence that the states with the most expensive electricity – also have the lowest rates of consumption of electricity per capita.

    • I view LNG import/exports as a strategically important energy source for the world. It may be in America’s best interest to help supply energy needs to Europe etc. At some future point, we may need to reverse the flow and import some LNG. I am not sure how the proposed U.S. LNG export projects are currently doing, but I do know the crash in crude oil prices from $100/barrel to $50/barrel (and lower) seriously hurt the financial attractiveness of the projects (because LNG trades more like a ratio of crude oil price). I am not saluting the idea that the US nat gas industry must be banned from taking part in the global trade business. LNG plants and ships are extremely expensive so right there you have some control on it.

  11. Helping Europe? Here is news from Germany … The direction is not toward more gas in most parts of Europe. It is toward trying to avoid more ‘stranded assets”
    https://www.bloomberg.com/news/articles/2016-10-06/innogy-priced-at-top-of-range-in-eu-s-biggest-ipo-since-2011

    Innogy SE ended its first day of trading in Frankfurt unchanged from the issue price. Innogy is RWE AG’s green energy business spin off IPO. It contains the grid, renewables and retail arms of its parent. … The aim of the spin off is to is seek a stand-alone credit rating for Innogy, what Terium calls “a very stable investment-grade company.”

    “RWE was the biggest loser on Germany’s benchmark DAX index, sliding 7.4 percent in its biggest intraday decline since June 24. … RWE, Germany’s biggest power producer, will instead focus on nuclear reactors, fossil-fuel generation and energy trading as the country’s shift toward wind and solar resources have pushed down wholesale energy prices and erodes profits. RWE’s peer EON SE last month distributed most of the shares in its conventional power-generation business Uniper SE to existing shareholders.”

  12. wait… we have to export all our natural resources to “help the world”?

    hmmm…

    • Europe depends on Russia for nat gas, so therefore they are between a rock and hard place if they are to stand up to Russia on strategic issues. In any case, my point is LNG should be considered an important energy trading material for the world. It’s not the same as gaseous natural gas. It’s a whole new clean energy resource, is the way I think of it. I see it in USA strategic long term interest to play some LNG game.

      • Not all think so … and hat do you mean about a whole new clean energy resource?

        https://www.snl.com/InteractiveX/article.aspx?CDID=A-35102058-13363&KPLT=4
        January 28, 2016 – U.S. LNG exports could face increasing competition from potentially cheaper renewable power sources in key European and Asian markets, according to a recent Brattle Group study.
        “[E]ven though the availability of substantial supplies of low-cost unconventional gas resources in North America would point to significantly increased market potential for LNG exported to Asia and perhaps Europe, the traditional comparison of delivered LNG prices to prevailing oil prices may miss an important dynamic, namely the fast progress of renewable technologies capable of providing an alternative to one or more of the major sources of demand for LNG, electricity production and in the future perhaps heating,” the Jan. 15 study stated. “Advances in renewable energy technology and related cost improvements, which are further helped by an increasingly mature supply chain, economies of scale and increased competition … could lead to lower demand for LNG relative to current forecasts.”

        U.S. LNG export project developers, the study also concluded, should therefore not necessarily think the supply glut is bound to end soon.
        “Since many LNG forecasts suggesting that the LNG supply glut is temporary rely on the assumption that natural gas demand from China and other countries in Asia will more than double in the next 20 years … these forecasts should be seen as highly uncertain given the potential for a significant shift towards more renewable power in China and throughout Asia,” the study said.

        An earlier analysis concluded ….
        https://www.snl.com/InteractiveX/articleabstract.aspx?id=33162460&KPLT=8
        “An analysis by the Carbon Tracker Initiative concluded that if the U.S. and Canada comply with global greenhouse gas emission reduction targets, as much as $153 billion of planned North American LNG export projects may no longer be economic in the next decade as projects to convert shale gas to LNG would not fit neatly in a low-carbon future.”

        And earlier from Forbes … Most of the positive for exports comes from the industry.
        https://www.forbes.com/sites/kenrapoza/2015/05/05/the-u-s-cannot-compete-with-russia-in-europes-natural-gas-market/#78c1ecc11491
        “American natural gas will be for Americans.
        Gazprom, meanwhile, might go from 30% of the European Union’s current foreign supply to 25% or even 20%. Some of that might be replaced by the U.S. But the real competitors are the European Arctic Circle producers who, for the most part, have good relations with the Russians.
        For those of us who like to think that wars in foreign lands are due to oil and gas dealings…if Washington plans on kicking Russia to the curb in its own backyard, it has a lot of work to do. And a long way to go to achieve it.”

      • Using natural gas for geopolitics was a central component of Hillary Clinton’s diplomacy when she was secretary of state. Europe has worked hard the past few years to develop non-Russian sources of natural gas from Azerbaijan and elsewhere around the Black Sea to reduce their dependence on Russian gas and therefore the influence Russia had on European affairs. But Russia still produces about as much natural gas as we do.

        As was mentioned, European gas prices are often indexed to the price of oil. As oil prices fell, the European market price fell below the price that LNG could be profitably exported to Europe. It costs about $4-5 MMBtu to liquefy and transport LNG to Europe. With recent gas prices of $2-3 in the US that would mean a delivered price of $6-8 in Europe. The current price in Europe is $5.63.

        This is considerably different from the gas prices of $10-12 that Europe experienced in 2013-2014 before the oil price collapse.

        Most of the US LNG from Texas and Louisiana is going to South America now. Dominion’s Cove Point has take-or-pay contracts to provide the service of liquefying natural gas for export to Japan and India.

        The more gas we export, the faster we use up the most productive wells in the Marcellus (the cheap gas) and the higher our domestic prices will rise. Playing geopolitics with LNG will definitely have an effect on our domestic economy.

        In any case, the great push to expand the natural gas infrastructure in the US in order to “increase jobs and lower energy prices” will have the opposite effect. Few long-term jobs will be created, American manufacturers will be disadvantaged, and domestic energy prices will rise (natural gas and electricity).

        I think President Trump is getting bad advice from his Goldman Sachs advisors. Wall Street wants natural gas prices to rise so they can cash out (with a profit) their failing investments in oil&gas developers. His advisors from the energy industry just want a quick profit opportunity regardless of the long-term consequences to the economy.

  13. How would Europe – or the US incorporate solar into the grid if the only other grid power generation was base load generators?

    I don’t discount that SOME DAY -there WILL BE significant “storage” of solar so it could be harvested during the day and stored until needed at night but right now -my perspective is that someone thing is powering the grid at night, not solar, so what kind of generation is powering the grid at night?

    and what happens to that base load power generation come morning?

  14. I return to the point that storage is not required for solar to be useful today. Any time solar is available, it is less expensive than the intermediate and peak load generation that is running during the day. Those units will be turned off and solar will meet whatever portion of the load that it can at that time. If cloud cover lasts for a prolonged period, solar output will decline a bit, but this can be compensated for by turning some of the units back on that were displaced by solar. PJM is doing this all of the time throughout the day with conventional generation and it can easily adapt to increases in renewable contribution, up to about 30% of system capacity. But we are far from that and as we approach that level, storage will cost 1/2 to 1/4 of what it does today and will easily fill in the variations and do much more (frequency and voltage control, etc.).

    Current base load generation is provided by nuclear, coal and gas-fired generation. Nuclear and coal units do not vary their output easily so they are best suited to 24-hour duty (base load). The new gas-fired combined cycle units do have some flexibility in following variations in load but lose efficiency when doing so. It is most economical for them to run steadily at maximum output. The definition of base load is the minimum load that exists throughout the day, so the nuclear, coal and combined cycle units run not only at night but throughout the day.

    The difficulty is that the cost of renewables is continuing to decline and the cost of conventional generation is increasing. In California, there is a large portion of the load that can be met by solar. At times, the solar displaces all of the intermediate and peak load generation, lowering the auction clearing price for what is normally the period using the most expensive generation. This reduces utility revenues for all of its conventional generation. During peak sunlight periods solar even cuts into the baseload generation and the gas-fired plants are forced into a cycling mode which increases costs and reduces revenues. Ramping up conventional generation as the sun goes down is also an operational challenge, especially during peak seasons.

    In Ontario, about 60% of their generation is nuclear and they have replaced nearly all of their coal plants with combined cycle units. Electricity use is not increasing (similar to all other developed countries) and energy efficiency and renewables are reducing the need for conventional generation. The new gas-fired combined cycle plants are dispatched just 10% of the time rather than the 60% capacity factor they need to break even. Ratepayers are paying huge sums for these new plants from which they gain little value.

    This is exactly the path that we are on but we are early enough to learn from others and avoid the stranded costs. Energy efficiency and renewables are a great boon to a state’s economy because they lower the cost of energy to families and businesses and provide thousands of new long-term jobs. But lacking a revision in the way that utilities are regulated, you can see what it does to their business models. No wonder utilities are fighting against energy efficiency and renewables. Unfortunately, by doing so they are also working against the interests of their customers and the economic well-being of the states in which they operate.

    There is a solution where everyone can win, but it is not the one that is being proposed at the state and national level.

  15. Okay – let me be MORE PRECISE.

    How does solar WORK with base load plants if baseload cannot vary in output much?

    This is why I say that in order for solar to “work” it has to be complemented by generation that can vary in output to compensate for the variability of solar.

    What happens at night? You MUST have baseload to power most ALL of the night demand. Any nigh time peak load is met with gas or oil.

    And what happens to that baseload come morning? Does it power down? Nope… it continues to run.. at the same 24/7 tempo.

    So what happens to the baseload plants when morning comes and Solar comes online?

    In pre-solar days, increased daytime demand over baseload was met with peakers fueled by gas/oil/pumped storage.

    With the advent of solar – essentially what happens is the peakers lower their output so the solar can be harvested.. but that’s only possible because peakers CAN lower their output fairly quickly.

    This means the peakers are absolutely essential if solar is
    going to be “harvestable” WHEN it is available and peakers pick up the slack when solar diminishes.

    Pretend you have a system where there are no peaker plants and only baseload. How would you accommodate Solar under that system?

    the peakers – gas powered peakers are absolutely essential for solar to “work”. That makes gas an exceptionally important fuel.

    right?

  16. Okay, let’s try this one more time. Perhaps the drawings below can explain things better than I did before.

    “What happens at night? You MUST have baseload to power most ALL of the night demand. Any nigh time peak load is met with gas or oil.”

    There is no peak load at night. By definition, baseload is the minimum load that exists all day long. The load in that 24 hour period does not go below the “minimum” so no load following capability is required.

    “So what happens to the baseload plants when morning comes and Solar comes online?”

    The baseload generation stays at a steady maximum output 24 hours per day. The solar picks up the intermediate and some of the peak load requirements. In Spring and Fall when baseload requirements are the lowest, combined cycle units, which can operate as both baseload and intermediate load units, will be used to meet both types of load.

    “Pretend you have a system where there are no peaker plants and only baseload. How would you accommodate Solar under that system?”

    You would never have a system where you did not have rapid response generation. You need peakers whether or not you have solar. PJM has surplus capacity, a surplus that is growing each year. There might be excess capacity in the PJM system that has been generated by lower cost intermediate load units that can be used to supply temporary variations in load or generation here in Virginia. PJM is a very resilient system because of its size, that is why it is not very difficult to accommodate a significant amount of renewable generation (30+%) before something other than the typical responses must be considered.

    “the peakers – gas powered peakers are absolutely essential for solar to “work”. That makes gas an exceptionally important fuel.”

    Gas is an important fuel because it allows for rapid response units (combustion turbine peakers) at a fairly affordable price. But gas is not going to go away, it is just going to get more expensive. Faster responding combustion turbines are now available, but they might not be a good investment because storage options are coming down in price so quickly. Batteries will respond far more quickly than combustion turbines and they can provide other valuable grid services too (frequency and voltage regulation).

    Demand side management tools are becoming more widely used. They would work just like peakers but instead of adding to the supply they would be reducing the load so that supply and demand remain in balance. DSM is cheaper than firing up peakers. This is part of the shift to a modern grid. It is a matter of changing our thinking as much as it is a matter of changing our equipment.

    • good conversation and we pretty much agree… I’d only point out that modern-combined cycle are 1. rapid response and 2. also depend on gas.

      What PJM does won’t really change the baseload – peak conundrum.

      no matter where solar is generated or used. .. the users of it will have to have some way of supplants it when it goes away. On a wide-region cloudy day -there is going to be more demand for solar than solar can provide and so the peakers and/or modern combined-cycle (gas) will be relied on to provide the demand that exceeds base load.

      I’m just trying to get some level of agreement as the the reality of how solar fits into the current system – AND that we do rely on gas fuel to provide the rapid response to varying conditions.

      I agree.. it can get more scarce an more expensive but I also point out that exporting it … will hasten that… and that plans to export from a Dominion-built pipeline is not in the best long term interests of ratepayers. .. even if the exporting of it is lucrative to those who sell it and those who enable the exporting (Dominion).

  17. Larry,
    I know this isn’t exactly what you’re asking but … 3 things that are changing to make the old way of meeting grid demand very different in the future…and soon…
    I like the analysis by BNEF and M. Liebreich. They are calling it “base-cost” renewables.
    “The old rules were all about locking in cheap base-load power, generally from coal or hydro plants, then supplementing it with more expensive capacity, generally gas, to meet the peaks. The new way of doing things will be about locking in as much locally-available base-cost renewable power as possible, and then supplementing it with more expensive flexible capacity from demand response, storage and gas, and then importing the remaining needs from neighboring grids. Demand will be suppressed by energy efficiency and self-generation, and augmented by electrified transport and heat.”
    “We are reaching the point in the story where power system regulation will have to be fundamentally rethought. Simply layering on a capacity market is the wrong response: creating guaranteed demand for obsolete technologies has never ended well.”

    1. Demand will be suppressed by energy efficiency and self-generation,
    A Synapse Report argues the Access Northeast pipeline is not needed, said in a blog post that existing laws and regulations “will cumulatively require New England’s use of natural gas for electric generation to decrease by 27% by 2023, relative to 2015 levels.”
    By 2030, natural gas-fired electric generation is estimated to be 41% lower than in 2015, Synapse found.
    2. Demand Response… Hawaii will move ahead with a first-of-its-kind community renewables program designed to incentivize dispatchable power at times of peak grid demand.
    https://www.greentechmedia.com/articles/read/hawaii-shared-renewables-program-incentivize-dispatchable-peak-capacity
    3. FERC issued a proposed rulemaking that would require each regional transmission organization and independent system operator to remove any barriers in their tariff structure that are inhibiting the market participation of storage resources.
    Lots of examples coming online….. https://mail.aol.com/webmail-std/en-us/suite
    Colorado’s Xcel Energy is partnering with two storage companies, Sunverge and Northern Reliability, to explore how batteries can help maintain grid reliability in areas with high levels of solar penetration … and PG&E will use the batteries to improve the management of peak demand and to reduce the need to call on peaking power plants.
    http://www.utilitydive.com/news/pge-brings-2-mwh-tesla-battery-storage-unit-online-at-substation/436486/

    I think I should also have added the enlarged footprint of the interconnected grid …

  18. Clean Air – all points I recognize and agree with. But right now, today- I’m trying to establish concurrence of how things work.. right now.. and what it takes, right now, to accommodate solar..

    It’s “right now” that is driving Dominion’s behavior.. right?

    You’ve got a view of what the future might look like – and I agree but Dominion is not buying it yet..

    so what does Dominion do right now about accommodating solar?

    will it build enough distributed rapid-response gas plants to harvest as much solar as can be done or will it do only as much solar as it will be forced to or somewhere in between?

    I just don’t see Dominion designing and configuring their system for a distributed grid that leverages solar…

  19. Dominion Resources has probably been one of the most effective utility holding companies in creating new projects that will yield results for shareholders in the long-term. Recognizing the lack of growth in electricity use, they moved their emphasis from their electric utility subsidiaries to get into the gas business in a big way. The acquisition of Questar gave them the tax shelter of an MLP and the advantage of early distributions of free cash flow. The Atlantic Coast Pipeline will give them a 50% higher rate of return than other types of utility projects. This long-term flow of new revenues makes the shareholders very happy and is a primary reason that Dominion Resources is considered one of the best utility stocks to own.

    The top Dominion executives are savvy about financial returns and are well rewarded by their shareholders as a result. Unfortunately, the gains for the shareholders will be accomplished on the backs of the ratepayers.

    In order to support the appearance of the need for a pipeline, Dominion Virginia Power continues to over forecast load growth which creates the need to build new power plants. A more modern method of load forecasting would not identify the need for more power plants but the old way has worked so far. Every time a new plant is built, rates go up. Putting new power plants in the rate base, rather than operating them as a merchant generator, puts the ratepayers on the hook to pay for the project for the next 36-40 years whether the power plant will pay for itself or not.

    Bloomberg New Energy Finance has documented how these plants are likely to end up as stranded costs. The pipeline is likely not going to be used to the extent projected either, but FERC will allow the tariffs to increase until the ACP is profitable. This creates an additional burden for ratepayers.

    We have given DVP 20th-century rules by which to operate so it is not surprising that they keep offering 20th-century solutions. Dominion will not buy into a modern grid on their own. We must provide them with a new pathway to prosperity that is also good for the ratepayers.

    This will be an uphill climb in a state where the legislature is so greatly controlled by private interests.

    Greater use of energy efficiency and renewables will lower everyone’s energy costs and create thousands of jobs, but with no change in regulations, will also lower DVP’s revenues.

    Progress in this area will have to be lead by a courageous governor and a well-informed electorate. New policies can be developed that will allow everyone to win, but it could be a challenge.

    I don’t expect Dominion to build out solar at anywhere near the level that will occur in North Carolina. Besides, solar is best done by third-parties not by utilities in order to keep the costs lower and to have a good mix of distributed generation.

    We need a breakthrough in awareness by Virginia citizens and ratepayers that the current path will not yield the jobs and lower energy costs that they have been promised.

  20. Well.. give Dominion credit for adapting to changing conditions and basically re-inventing themselves so that they will continue to perform well financially!

    Perhaps they see that the Utility business – longer term is not going to be as lucrative or safe as it has been and so they’re rearranging themselves and trying to get into ancillary areas that will be profitable – though I wonder if the path for the ACL is going to be smooth.. we’ll see.

    Actually Dominion is doing what ANY business will do and that is to do whatever it takes to hobble the competition (3rd party) while further empowering yourself!

  21. “Actually Dominion is doing what ANY business will do and that is to do whatever it takes to hobble the competition (3rd party) while further empowering yourself!”

    You are right, but I take issue with the principle. Public utilities are not like “any” business. They are granted a special competitive advantage, a monopoly, and are then regulated in a way that is supposed to protect the interests of the ratepayers and the shareholders.

    The growth in utility holding companies owning regulated utilities in several states has tipped this delicate balance. The holding companies are like “any” business. They exist to increase shareholder value and the executives are incentivized to take the short-term view to keep the stock price high.

    Increasingly, the profit motive of the holding companies is overriding the “public service” nature of the utilities. Unregulated parent companies are choosing to favor shareholder interests over ratepayers in the policies and plans selected by their regulated utility subsidiaries.

    In a state like Virginia, corporate control over the legislative process is subverting the statutory role of the regulators to protect the ratepayers. Until we create a formula that provides a profitable way for utilities to serve their customers’ interests, the ratepayers and the economy of Virginia will continue to serve as grist for the utility holding company’s profit mill.

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