Tag Archives: Dominion

FERC Approves Atlantic Coast, Mountain Valley Pipelines

map credit: Marcellusdrilling.com

The Federal Energy Regulatory Commission (FERC) approved the Atlantic Coast Pipeline (ACP) and Mountain Valley Pipeline (MVP) in rulings issued Friday.

The three-person commission was divided on the issue of granting the pipelines a Certificate of Public Convenience and Necessity, with two commission members appointed by President Trump ruling in favor while an Obama administration holdover issued a dissenting opinion.

While FERC approval was required for the two natural gas pipeline projects to advance, the battle is not over. Environmentalists and landowners remain adamantly opposed to the projects, and they have vowed to continue resisting. Major sticking points are reviews by West Virginia, Virginia and North Carolina environmental agencies of pipeline impacts on water quality.

Naturally, Dominion Energy, which is the managing partner of the ACP, is delighted at news. Said Leslie Hartz, Dominion vice president of engineering & construction:

We are very pleased to receive FERC approval for this vitally important project. This is the most significant milestone yet for a project that will bring jobs, economic growth and cleaner energy to our region. In the coming days we will fully review the Certificate and finalize our plans for complying with its conditions. We will also continue working with the other state and federal agencies to complete the environmental review process and make this critically important project a reality.

All three commissioners acknowledge the need for more natural gas infrastructure to serve consumers in Virginia and North Carolina. In her dissent, Commissioner LaFleur noted that more than 90 percent of the ACP’s capacity is subscribed by public utility customers in the two states. The end use of this gas is well established on the public record and is a matter of urgent public necessity.

The FERC ruling also garnered kudos from Dominion’s business allies. This joint statement comes from Barry Duval, president of the Virginia Chamber of Commerce, and Matt Yonka, president of the Virginia Building & Construction Trades Council:

This is great news for our economy, our working men and women and energy consumers all across our region. This project will serve as a catalyst for economic growth, job creation and greater energy security in our region for years to come. The hardworking men and women who built our nation are ready to get to work rebuilding our region’s infrastructure. We’re eager to see the thousands of new jobs and billions of dollars in new income this project will bring to the region.

By lowering energy costs in Virginia and North Carolina by more than $370 million a year, this pipeline will allow businesses to grow and families to save. The pipeline will also mean lower emissions and cleaner air in all of our communities as electric utilities continue making the transition from coal to cleaner-burning natural gas.

Equally predictably, pipeline foes were appalled by the ruling. This from the Allegheny-Blue Ridge Alliance, a coalition of 52 organizations in Virginia and West Virginia:

The Commission’s judgment has been made in advance of necessary and required decisions by the U.S. Forest Service, the U.S. Army Corp of Engineers and the state environmental authorities in the affected states of Virginia, West Virginia and North Carolina on critical environmental issues. We concur with the thoughtful dissent of Commissioner LeFleur’s, who has served on the Commission for 7 years, raising serious questions about the basis of need for both the ACP and the Mountain Valley Pipeline and expressing concerns about environmental impacts that both projects present. The majority decision does not reflect an understanding of the issues at hand and is clearly not in the public interest. It calls into serious question the agency’s regulatory credibility.

Greg Buppert, a senior attorney with the Southern Environmental Law Center, said this: Continue reading

Inside the Facebook Solar Deal

As part of the $1 billion Facebook data-center deal, Dominion Energy Virginia will file a request with the State Corporation Commission to create a new kind of solar tariff called Schedule RF. (The RF stands for Renewable Facility.) The tariff, if approved, could be used by other big customers seeking renewable energy.

“We came together with Dominion Energy Virginia to create a new tariff that ensures renewable energy solutions are accessible not just to Facebook, but other companies as well,” said Bobby Hollis, director of Global Energy at Facebook in a press release issued last week. The tariff “opens the door to attracting more businesses and more jobs for the communities we serve,” said Robert M. Blue, president of Dominion’s Power Delivery Group.

Virginia is well positioned to win more data-center projects and, as major players in cloud services are committed to reducing their carbon footprints, there likely will be more Facebook-like deals in the future. Given the magnitude of data-center energy consumption — the Facebook facility is expected to consume as much electricity as 32,500 homes and the solar investment will run roughly $250 million — these deals could well influence Virginia’s energy mix and cost of electricity. Curious to know more about how the project is structured, I talked to Dianne Corsello, director of Dominion’s business development group.

At full build-out, Facebook will require 130 megawatts of electricity. Power consumption at data centers is fairly constant, but the output of solar farms varies with weather and time of day. Assuming the panels are equipped with trackers, which rotate to follow the sun and generate more power, the solar farms will generate electricity only 25% of the time. Consequently, Dominion will need to build about 300 megawatts total solar capacity. (By way of comparison, the utility’s state-of-the-art gas-fired power station in Greensville is rated at 1,588 megawatts capacity and generates electricity approximately 85% of the time.)

Dominion soon will issue an RFP to solar developers with the expectation of bringing the solar capacity online in 2019 and 2020, Corsello says. The utility will draw from multiple facilities, none larger than 150 megawatts in size.

The SCC must approve the Schedule RF tariff, just as it will have to approve the rates charged by each proposed solar facilities using Schedule RF. Facebook will pay the full retail rate plus an add-on for the purchase of renewable. Under the tariff Facebook will receive Renewable Energy Certificates certifying that the company has paid for renewable energy equal to the volume of electricity it consumed. Facebook’s payments for these certificates will help offset the higher cost of solar power paid by all Dominion ratepayers.

The 300 megawatts of solar capacity arising from the Facebook project will be over and above Dominion’s commitment to derive 15% of its electricity from renewable power sources by 2025.

Trump Nixes Clean Power Plan, Gas and Solar Still Rule

Natural gas turbine at Dominion’s Greensville power plant. President Trump might have ended the regulatory “war on coal,” but he can’t change fundamental economics, which still favor gas and solar.

President Trump has never hidden his dislike of his predecessor’s Clean Power Plan, which would have required the 50 states to order their electric utilities to curtail carbon dioxide emissions in the cause of combating global warming. Nine months into the Trump administration, Environmental Protection Agency (EPA) chief Scott Pruitt finally has announced formal steps to repeal the plan. Reports the New York Times:

“The War on coal is over,” Mr. Pruitt said. “Tomorrow in Washington, D.C. I will be signing a proposed rule to roll back the Clean Power Plan.” …

Mr. Pruitt’s proposal for repeal will now have to go through a formal public-comment period before being finalized, a process that could take months. Mr. Pruitt will also ask the public for comment on what a replacement rule would look like, but the E.P.A. has not offered a timeline.

Admittedly, the regulatory battle is far from over. “Environmental groups and Democratic-controlled states are expected to challenge these rules on multiple fronts,” says the Times. Moreover, there is nothing to stop individual states from implementing tough CO2 standards on their own initiative. Indeed, here in Virginia, the McAuliffe administration has vowed to boost Virginia’s commitment to renewable energy.

But a rollback of the Clean Power Plan won’t change market fundamentals. Just as the natural gas fracking revolution led to natural gas displacing coal over the past decade, market forces will dictate that renewable energy assume an increasing role in the decade ahead — regardless of whether states set CO2 emission caps or not.

In its 2017 Integrated Resource Plan (IRP), Dominion Virginia Energy has laid out its vision for the energy future that calls for increased natural gas and renewable energy. Under its least-cost regulatory scenario, which looks increasingly likely, Dominion won’t build any new coal- or nuclear-powered plants. It will renew licenses for its existing nuclear units but will not build a third unit at its North Anna Power Station, which by some estimates would cost $18 billion or more. The utility will build new gas-powered plants to provide base-load capacity, supplemented by a mix of solar (up to 5,200 megawatts capacity) and gas-fired combustion turbines that can quickly ramp up and down in response to volatile solar output. (Since publication of the IRP, Dominion has demonstrated a keen interest in building a pumped storage facility in Southwest Virginia, which could eliminate the need for some natural gas combustion-turbine units, but the economics of such a scheme have not been fully explored.)

Meanwhile, environmental groups have been pushing aggressively for a future electric grid dominated by renewable electricity, using energy efficiency to reduce demand and battery storage to even out fluctuations in solar output. The greens are opposed not only to building a third nuclear unit at North Anna but to re-licensing the existing units, creating a void that would have to be filled by some power source other than coal. The greens also oppose construction of the Atlantic Coast Pipeline, which Dominion co-owns and is counting on to supply its growing fleet of natural gas base-load and combustion-turbine plants. The environmentalists are lobbying for essentially the same power mix advocated by their Green Party counterparts in Europe.

German energy policy: not working out as planned.

Interestingly, the New York Times published an article two days ago highlighting how Germany’s shift to green power has stalled. Since 2000 Germany has spent an estimated 189 billion euros, or about $222 billion, on renewable energy subsidies with the goal of cutting carbon dioxide emissions. Ironically, CO2 emissions have remained stuck at 2009 levels, even as the shift to natural gas has allowed the U.S. to reduce its CO2 output. As the retail cost of electric power has doubled since 2000 with little progress on the CO2 front to show for it, large blocs of the German electorate are getting fed up.

“Julian Hermneuwöhner is one such voter,” the Times reports. “Mr. Hermneuwöhner, a 27-year-old computer science student, said his family paid an additional €800 a year because of Energiewende.”

Germany obtains about one-third of its electricity from wind and solar, about double the rate for the U.S. But a decision after the 2011 Fukushima nuclear disaster in Japan prompted the Germans to accelerate the phase-out of nuclear power. The only other energy source available: coal. A doubling of electricity rates and no reduction in CO2 is not a winning electoral combination.

Chancellor Angela Merkel’s Christian Democratic Union still supports Energiewende, the shift to renewables, but two important parties, the pro-business Free Liberals and the anti-immigrant Alternative for Germany party, do not.

Bacon’s bottom line: If I were a betting man, I would wager that Virginia’s mid-term energy future will be dominated by gas and solar. Wind power will remain a niche contributor unless off-shore wind comes into play a decade or more from now. The North Anna 3 nuclear unit will never be built, although Dominion will succeed over furious opposition in re-licensing its existing Surry and North Anna units. The utility will keep its existing coal-fired units in operation through their design life-times. But all the expansion in capacity will come from gas and solar.

And, yes, Dominion will need to expand capacity, even as energy efficiency dampens electricity demand nationally. The recent announcement of the new Facebook data center in Henrico County demonstrates another side of Virginia’s energy future. That single server farm will consume as much electricity as 32,500 homes. Virginia is highly competitive in the data-center industry, and it could add dozens or more data centers in the next two decades. Other states might experience declining demand for electricity, but as long as data centers represent one of Virginia’s great hopes for economic development, electricity demand will continue to grow.

Crunching Numbers on the Facebook Deal

Visualization of Facebook’s Henrico data center. Says CEO Mark Zuckerberg on Facebook: “We’re building out 11th data center in Henrico, Virginia. Like all our new data centers, it will be powered by 100% clean and renewable energy and will create thousands of jobs over the next few years. Our community is growing quickly and we’ll need this infrastructure to serve people all around the world.”

Facebook’s $1 billion announcement is a big deal for Henrico County and for Virginia. The social media giant will invest $750 million to build a data center complex in Henrico’s White Oak Technology Park, and Dominion Virginia Energy Virginia will spend roughly $250 million to supply the facility with “100 percent renewable energy.” It is not yet known precisely where the solar facilities will be located, but they will be in Virginia.

This is one of the biggest economic development deals in the state this year — a massive one by RoVa (Rest of Virginia) standards. As with all mega-projects, the big question is this: Did we give away the store? At first blush, it appears that state tax payer and rate payers will do fine. The impact on Henrico County citizens is murkier.

Drawing upon a U.S. Chamber of Commerce data center study, the McAuliffe administration estimates that construction of the 970,000-square-foot data center will employ up to 1,688 local workers, provide up to $77.7 million in wages for those workers, and produce $234.5 million output along the local economy’s supply chain during construction. Once in operation, the data center will inject $32.5 million annually into the economy.

You can read the congratulatory comments from various politicians and poobahs in the press release from the Governor’s Office. Remarkably, state and local officials managed to close the deal without any direct subsidies or tax breaks from the commonwealth, which is almost unprecedented in a project of this magnitude. Moreover, Facebook and Dominion Virginia Energy have crafted a special tariff to cover the cost of solar power which appears to protect rate payers. However, Henrico County made two major concessions, the justification for which are impossible to evaluate based on information made public so far.

The Facebook plant will consume an estimated 130 megawatts of electric power at full build-out, the equivalent of about 32,500 homes, and will require close to 3.5 million gallons per day for its cooling systems.

Henrico, which competed with Loudoun County and Prince William County, for the deal, had invested $40 million in infrastructure improvements at the White Oak Technology Park. The park offers high-seed fiber-optic cable from multiple providers, it can accommodate a high-capacity electric customer, and it can deliver up to 10 million gallons a day of water.

To sweeten the pot, Henrico County enacted a major tax break and gave Facebook an $850,000 sewer-connection credit on a fee that otherwise would have cost the company more than $2 million.

In April, the Board of Supervisors approved a cut in the business property tax rate on computer and related equipment for data centers from $3.50 per $100 of assessed value to $0.40 — an 88.6% reduction. It’s not clear how much that tax break is worth. The county has released no detailed numbers. But if one assumes that half of Facebook’s capital investment consists of computers and related equipment, about $500 million, then tax revenues would drop from $17.5 million to $2 million per year, making the tax break worth about $15 million a year. And that doesn’t include the loss in revenue from the roughly 20 other data centers located in the county that would benefit from the tax cut.

Whether the reduced tax rate is reasonable or not also depends on how the county financed those $40 million in improvements. Will the revenue stream from Facebook taxes cover the cost of paying down bonds or other financing mechanisms used to pay for the improvements? That data was not available from press reports or press releases.

Another big question mark involves how the special electricity tariff will be structured. To meet Facebook’s commitment to consume clean, renewable energy, Dominion plans to build solar facilities with a total capacity of 300 megawatts.

The proposed RF (Renewable Facility) tariff, which must be approved by the State Corporation Commission, will be structured so that only Facebook will pay the cost of solar generation, said Robert M. Blue, president and CEO of Dominion’s power delivery group. At present, solar is more expensive than other power sources. The rate structure, said Blue, “is designed to be neutral to our other customers.”

In summary, a quickie analysis suggests that the Facebook project is probably a good deal for Virginians — neither state taxpayers nor Dominion rate payers will be subsidizing the project. It’s less clear whether the project is a good deal for Henrico residents. It may be, but it may not be. The data needed to draw a conclusion has not been made public.

Update: The $40 million investment in the White Oak Technology Park dates back years to when the country geared up to serve the Infineon semiconductor plant (now closed). That investment was paid off within six or seven years, and the financing of the infrastructure was not an issue in the Facebook deal. I’ll have more to say in the next post.

Buried Lines and Microgrids

Downed power lines in Puerto Rico. Photo credit: ABC News.

Virginia has enjoyed a welcome respite from meteorological history, having dodged full-fledged hurricanes since Hurricane Isabel struck the Old Dominion in 2003 and Hurricane Gaston in 2004. But sooner or later, we’ll get hammered again. After surveying the devastation of Puerto Rico by Hurricane Maria, made worse by the total collapse of the territory’s electric grid, we Virginians should be asking ourselves how well our electric grid would stand up to a Category 4 hurricane — and what can we do to make it more resilient.

Two potential actions come immediately to mind: burying distribution lines and decentralizing the grid.

Last year Dominion Virginia Power advanced a $2 billion plan to bury the utility’s most outage-prone and difficult-to-repair electric distribution lines to limit the loss of electricity during severe weather events and speed the restoration of electric power. The company said the improvements would cut disruption of service to customers in half after a major hurricane. While the State Corporation Commission approved a small-scale version of the plan, it rejected the full-scale proposal as not worth the cost to rate payers.

There are alternatives to burying electric lines, such as hardening sub-stations, installing sensors that provide early-warning detection of damage, and aggressively pruning trees along right of way. But with the example of a prostrate Puerto Rico before our eyes, one might be more inclined to err on the side of caution. The wisdom of the line-burial policy depends upon the numbers — the cost of burying the lines, the cost of the alternatives, the number of people affected, the likelihood of a major hurricane or other natural disaster, and the economic value lost due to disrupted electric service. I don’t know if anyone has assembled all those numbers, but the topic is serious enough that someone — Dominion, perhaps, or state government — should pull them together for the public to digest.

Others have suggested that Virginia should move toward a distributed electrical grid, less dependent upon central power stations and endless miles of transmission and distribution lines. A distributed grid would rely instead upon wind and solar, batteries, and microgrid technology that allows local circuits to operate independently of the larger system. In theory, local islands of electric power would function even if the larger system were thrown into disarray.

Slate magazine describes Higashi Matsushima, Japan, in the aftermath of the earthquake that knocked out the Fukushima nuclear power plant:

After losing three-quarters of its homes and 1,100 people in the March 2011 tremblor and tsunami … The city of 40,000 chose to construct micro-grids and de-centralized renewable power generation to create a self-sustaining system capable of producing an average of 25 percent of its electricity without the need of the region’s local power utility.

The city’s steps illustrate a massive yet little known effort to take dozens of Japan’s towns and communities off the power grid and make them partly self-sufficient in generating electricity.

Sounds great. But questions arise. How well would Americans function with only 25% of their electricity supply? Also, how well do solar panels hold up in 120 mile-per-hour winds? Some pro-solar sources on the Web say that panels are designed to withstand up to 140 m.p.h. Do those claims withstand scrutiny?

Another issue is what happens when a massive weather system blots out the sun for days at a time. Batteries might be able to store power for a day, but solar + batteries could leave leave owners of rooftop solar bereft of electricity until the storm front passes and the sun reappears. On the other hand, Inside Climate News reports that, while Hurricane Irma cut power to 6.7 million Floridians, homeowners with rooftop solar arrays did just fine.

If unbiased reporting and analysis backs up such claims, perhaps Virginia needs to discuss how to move more expeditiously towards a distributed grid. That would mean solving tricky issues like net metering — whether to charge rooftop solar owners for access to backup power from the larger grid. A mediation initiative is trying to work through that question now. Perhaps Puerto Rico’s plight will provide the stakeholders with a heightened sense of urgency.

Dominion Touts Economic Benefits of Pumped-Storage Project

“Technology Risks and Maturity Level of Energy Storage Technologies.” Graphic credit: Dominion 2017 Integrated Resource Plan.

A proposed pumped hydroelectric storage power station in Southwest Virginia would bring more than $576 million in economic benefits to the Commonwealth, including $320 million in economic impact for Southwest Virginia, according to a study prepared by Richmond-based Chmura Economics & Analytics and commissioned by Dominion Energy.

The hydroelectric project, proposed by Dominion Energy, would support 3,000 Virginia jobs during development and construction, including 2,000 in the coalfield region. Once in operation, the facility would produce about $37 million annually in economic impact for Southwest Virginia including $12 million annually in tax revenues for local governments in Southwest Virginia, states Dominion in a press release.

“We are very excited about the prospect of bringing another major capital investment to the coalfield region of Southwest Virginia,” said Mark Mitchell, vice president of generation construction. (Dominion already operates a hybrid coal-biomass generating plant in Wise County.) “The entire grid system will benefit from having this new generation once it comes online, and the local area will benefit from the jobs and economic benefits that will come from it.”

The Dominion press release did not address the potential impact of the pumped-storage project on Virginia rate payers. While the facility would entail a hefty up-front capital cost, it could generate electricity during periods of peak demand or, potentially, offset fluctuations in output by Dominion’s increasing fleet of utility-scale solar farms. In its 2017 Integrated Resource Plan, Dominion describes pumped storage as the most mature and economically feasible form of energy storage, adding that the “proven dispatchable technology … would complement the ongoing development of renewable solar and wind resources.”

While Dominion operates the nation’s largest pumped storage dam in Bath County, it had not indicated much interest in second major facility until this year when the General Assembly enacted a bill that encourages a Virginia utility to build a pumped-storage facility in the coalfields. The law would allow the utility to petition the State Corporation Commission to recover project costs as they are incurred rather than waiting until the project is complete. Legislators made no secret of the fact that they saw the project as a boon for the economically depressed coalfield region, and some speculated that the pumped-storage facility might be accompanied by extensive local investment in solar power.

A pumped storage facility uses gravity-fed water from an upper-level basin to a lower-level basin to power the generators during periods of peak demand, when electricity is most expensive, and uses electric power to pump the water back to the upper basin when electricity is cheap.

After examining more than 150 potential sites in far Southwest Virginia for suitable geology and topography, availability of water, proximity to electric transmission lines, impact on landowners and other factors, Dominion has selected a site in Tazewell County “for further study.” Should its in-depth, on-the-ground studies show the site to be not suitable, it has identified other candidate locations for the facility.

Another option, touted by coalfield legislators, was to use a mine cavity as a lower reservoir. Dominion has engaged Dr. Michael Karmis at Virginia Tech to evaluate the idea. “Based on information provided to Dominion Energy Virginia,” says the Dominion website, “the former Bullitt mine near the town of Appalachia was identified as a top site for evaluation and will be evaluated in the Virginia Tech study.”

The company website says that the project is “in its very early stages and the project’s final size and scope have not yet been determined.” After scrapping with landowners along the route of the proposed Atlantic Coast Pipeline, of which it is the managing partner, Dominion is “sensitive to the needs and concerns” of homeowners who might be impacted by a pumped storage facility, the website says. The company “will make every effort to keep them informed and work with them throughout the process.”

Bacon’s bottom line: While Dominion is careful to say that it has not committed to a pumped-storage project, the fact that it has commissioned a positive economic impact report suggests that it is laying the political/PR groundwork for one. Could this be a harbinger of a greater commitment by Dominion to solar and wind power in the future? Or does Dominion plan to sell electricity into wholesale markets to for purchase by other utilities with big plans for renewables? That’s another economic analysis I’d like to see.

Consumer Group Calls for Scrapping North Anna 3

 

 

 

Dominion Energy may have declared a “pause” in the development of a third nuclear unit at its North Anna Power Station, but a consumer advocacy group says that’s not good enough. It’s time to shut down the project permanently.

“Dominion needs to kill North Anna to protect rate payers,” said Irene Leech, president of the Virginia Citizens Consumer Council (VCCC). Critics have estimated that the project will cost roughly $19 billion, which would make it the most expensive power plant ever built in Virginia by a factor of ten or more. “If Dominion doesn’t do it, the SCC (State Corporation Commission) should intervene.”

Leech made her comments while introducing Dr. Mark Cooper, senior fellow for economic analysis, Institute for Energy and the Environment, at Vermont Law School, in a media conference call. Cooper, who had predicted the recent cancellation of the V.C. Summer nuclear plant in South Carolina after massive construction cost overruns, filed testimony with the SCC today on behalf of the VCCC in regards to Dominion’s 2017 Integrated Resource Plan.

“Dominion’s recently announced decision to suspend development of North Anna 3 is welcome, but long overdue and not as decisive as it should be,” Cooper said. “The Commission should order North Anna 3 removed from the IRP and refuse to allow any cost recovery associated with the development of North Anna 3 other than through the normal rate-making process, in which the utility demonstrates that it is the least cost option and useful to ratepayers.”

While acknowledging that the nuclear plant is extremely expensive, Dominion has argued that the utility should preserve the nuclear option to cope with a worst-case regulatory scenario restricting carbon-dioxide emissions. In its integrated resource plan, the company explores six scenarios. In one of them, Plan H, Dominion would be have to cut carbon emissions 7% compared to a 2012 baseline by 2030, compelling the closure of up to four coal-fired units at its Mecklenburg and Clover power stations, and making it impossible to make up the lost base capacity with natural gas. The plan contemplates 5,760 megawatts of new solar capacity, but solar output is intrinsically variable. That would leaves nuclear as the only option when the sun didn’t shine, the company has said. The company would not need to build the nuclear plant under any other regulatory scenario.

While some observers assume that Dominion hit the pause button on North Anna 3 because of horrendous construction cost overruns at plants in South Carolina and Georgia, spokesman David Botkins says the company made the decision more than a  year ago. Regulatory uncertainty made it prudent to put the project on hold but not to spike it. The Clean Power Plan, which orders states to impose CO2 emissions on their electric utilities, is not dead. Its legality is tied up in the federal court system, and the McAuliffe administration is moving ahead with his own low-carbon plan for Virginia. The company has not made the decision to build the nuclear unit but thinks it worthwhile, after spending roughly $600 million to obtain a Combined Operating License (COL), to keep the option open.

Given the momentum of technology, Cooper argued, there is no chance of nuclear becoming economically viable. “Nuclear construction costs escalate relentlessly, driven by complexity,” he said. “Nuclear is the most expensive way imaginable to reduce carbon emissions. It’s a bad investment. I have wind, solar, and energy efficiency in hand today at a third of the cost of North Anna 3. I want to get [nuclear] off the table.”

The United States electric system is transitioning “to flexible, small-scale, renewable, distributed” energy sources like rooftop solar. Meanwhile investments in energy efficiency and demand-management strategies are holding down growth in electricity consumption, Cooper said. The ability to store large volumes of electricity in batteries will make it possible to overcome the problem of volatile energy output.

“Think about your laptop, tablet, or cell phone. Ten years ago … the battery life was an hour. Now it’s ten hours. They’re making huge progress in energy storage,” Cooper said. Meanwhile, solar + batteries can increase generating capacity in increments rather than in one a big chunk when the nuclear plant comes online. Utilities talk about solar plants sitting idle at night or under cloudy skies. Large swaths of the electrical infrastructure, such as combustion turbine plants that run only during periods of peak demand, spend much of their time idle as well. Nuclear isn’t cost competitive now, and it never will be, he said.

Putting the North Anna 3 project on hold is not an adequate response, Cooper said. The General Assembly allowed Dominion to capture $570 million from rate payers to defray the cost of obtaining the North Anna 3 operating license. That sum has economic value. Assuming rate payers could earn 3% annually on that money, the opportunity cost amounts to almost $300 million over ten years. Even with the project on hold, said Cooper, “rate payers are bearing a burden.”

Dominion thinks of the North Anna 3 option as a form of insurance policy. “As has been shown throughout history, forecasts change over time,” says a prepared Dominion statement. “Fuel diversity is a key component of any energy plan. Our customers enjoy some of the lowest rates in the United States, due in large part, to the safe, reliable, clean and dependable nuclear units at Surry and North Anna.”

“The [Combined Operating License] is good indefinitely, and, while no decision has been made to build it, we could make a decision to move forward with it if business conditions change,” said Richard Zuercher, spokesman for Dominion Energy’s nuclear power operations. “We would not do so, however, without authorization from the State Corporation Commission.”

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.”

Do Utilities and Coal Companies Run Virginia? Hardly.

Statue of Gov. Harry F. Byrd outside the Virginia state capitol building. A “traditionalistic” political culture? Maybe once upon a time, but not anymore.

Vivian Thomson argues that utilities and coal companies dominate Virginia’s energy policy. Her simplistic view ignores the reality that environmentalists wield significant power now.

Vivian E. Thomson has a big beef with state government. The University of Virginia environmental sciences professor contends that the political system in the Old Dominion is rigged in favor of the electric utilities and fossil fuel industries against selfless crusaders, such as herself, fighting for the public interest. She persists in this belief even though the State Air Pollution Control Board, of which she was a member in the early 2000s, prevailed in the two major controversies she describes in her book, “Climate Capitulation: An Insider’s Account of State Power in a Coal Nation.”

In that book, she lists three factors that allow “entrenched business elites” to exercise “undue power” in the making of air pollution policy through legislative and administrative processes:

(1) campaign contributions that, in the energy and natural resources sector, are dominated by one electric utility and coal interests, (2) a reactive, part-time legislature that has virtually no independent analytical capacity, and (3) a traditionalistic political culture.

Thomson’s view of Virginia’s political economy is widely shared among environmentalists and left-of-center activists and politicians. A friend of mine, a professor of environmental law whose opinion I respect, gave the book fulsome praise. Accordingly, Thomson’s thesis deserves a thoughtful response, and that’s what I will endeavor to provide in this post.

Although Thomson provides nuggets of genuine insight, her analysis of Virginia’s political economy is as one-sided as her chronicle of the regulatory controversies in which she was embroiled. (See my critique of her book in “Rogue Board“). She focuses exclusively on how corporations exercise power and influence in Virginia while ignoring the increasing clout of its opponents, who have won numerous victories in the realm of politics, public opinion and the law. Yes, corporations have clout. But so do their foes. Sometimes Big Business gets its way. Often, it doesn’t.

I will start by addressing Thomson’s comments about the part-time legislature, which have considerable merit, move to the meaningless characterization of Virginia as having a “traditionalist” political culture, and close with a discussion of the role of campaign contributions in Virginia politics.

Asymmetry of information. The disparity in political power issues not just from business campaign donations, Thomson argues, but from an asymmetry in information. Virginia has a part-time citizen legislature, and legislators have tiny staffs. As a practical matter, senators and delegates in the General Assembly are reliant upon the expertise of state employees and outsiders such as lobbyists.

Writes Thomson:

Virginia’s legislature is designed to be a part-time body, with the notion that citizens serving as representatives can remain closely attuned to their constituents’ needs and preferences. … [But] even the most dedicated legislators cannot be independently well informed if they have small staffs, low pay, and short sessions.

Less professionalized legislatures are handicapped when it comes to analysis of complicated technical issues such as those commonly encountered in the environmental and public-health policy arenas. When Virginia’s legislators need information they turn to lobbyists or to the executive branch. Companies take advantage of their ongoing relationships with state civil servants and lawmakers to get deals that favor their interests. Large companies are especially well positioned to push for light-handed regulation, since they can expend considerable resources on attorneys and consultants to fight limits they do not like. …

In the environmental policy arena, power flows to those who can collect and interpret complicated scientific, legal, and economic information. The question is, who will provide legislators that information and how will we know who those sources are?

Thomson makes a valid point. Part-time legislators cannot possibly master the infinite complexities of topics as varied as health care, transportation, state-local governance, fiscal issues, K-12 education, higher education, energy and the environment. As a consequence, Virginia lawmakers do rely heavily upon the expertise offered by state employees and lobbyists, many of whom have long memories and deep knowledge, not only of the pros and cons of issues, but of the long legislative and regulatory histories behind the controversies.

She errs, however, in supposing that only corporations and industry groups play the game. The Virginia Public Access Project (VPAP) database lists 72 organizations employing lobbyists on issues relating to “energy.” Dominion Energy. with five lobbyists, had one of the largest profiles in the General Assembly. But, then, the Southern Environmental Law Center (SELC) also listed five lobbyists.

Perusing the VPAP database, I identified seven other environmental organizations with registered lobbyists addressing energy issues: Appalachian Voices, the Chesapeake Climate Action Network, the Nature Conservancy, the Piedmont Environmental Council, the Sierra Club-Virginia Chapter, the Virginia Conservation Network, and the Virginia League of Conservation Voters.

They were way outnumbered by business lobbyists, but the business lobbyists were a fractured group. The largest number by far represented businesses with an interest in alternate energy sources (wind, solar, biomass, nuclear) or energy efficiency. A significant number represented industrial consumers of energy. Depending on the issue, any of these interest groups might align themselves with the electric utilities one day or the environmentalists the next. 

The impression one gets from studying the list is that the legislature is open to a cacophony of voices on energy issues which no single company, trade association or environmental group could possibly dominate. No one has a monopoly on information. Continue reading

Pipelines and “Environmental Justice”

“Environmental Justice” has been a much bigger rallying cry in the pipeline controversies out west than here in Virginia.

As I was perusing the federal court ruling on the Sierra Club vs. FERC lawsuit (see previous post), I encountered a realm of administrative law with which I was entirely unfamiliar: environmental justice. I’d heard of the concept, of course; I just didn’t realize that it had insinuated itself into environmental impact statements (EISs) for pipelines, transmission lines, and the like.

The majority opinion explained the relevance of the concept this way: “The principle of environmental justice encourages agencies to consider whether the projects they sanction will have a ‘disproportionately high and adverse’ impact on low-income and predominantly minority communities.”

In this particular instance, involving the EIS for the Southeast Markets Pipeline Project, the Sierra Club argued that FERC had failed to adequately take the principle into account. According to the EIS, 83.7% of the pipeline complex’s proposed routes would cross through, or within one mile of, environmental-justice communities.

However, an adverse impact on a minority/low-income community is not necessarily a deal killer. FERC, the court opined, simply must “take a hard look” at the effect on minority/low income areas when drafting an environmental impact statement, and disclose relevant information to the public. And that the commission did. FERC concluded that feasible alternative routes would affect a comparable percentage of environmental-justice populations, the court said. “FERC’s decision to directly compare the proposed alternatives to one another, rather than to some broader population, was reasonable under the circumstances.”

“Environmental justice” has been a rallying cry out west, most prominently in the Dakota Access Pipeline controversy. We don’t hear much of it in Virginia, but I was curious: How does the proposed Atlantic Coast Pipeline rate according to environmental justice criteria?

Here are the numbers, as extracted from the ACP environmental impact statement: In Virginia the percentage of minorities census tracts within one mile of the ACP pipeline and related facilities varies from 0.2% to 100%. In ten of the 63 census tracts, the percentage of minority population is meaningfully greater than that of the county in which it is located. But in 53 tracts, it is not. In other words, it appears that minorities are less impacted than whites.

Likewise, 11.5% of all Virginians live below the poverty line. Thirty-four of 63 census tracts in Virginia within a one-mile radius of ACP facilities have a higher percentage of persons living below the poverty line. In other words, despite the fact that pipelines don’t run through urban areas and suburbs where incomes tend to be highest, but through rural areas where incomes are lower, only 54% of the census tracts affected by the pipeline have a higher poverty rate.

The primary adverse impacts on environmental-justice communities would be temporary increases in dust, noise and traffic from construction work. But, according to the ACP environmental impact statement, “these impacts would occur along the entire pipeline route and in areas with a variety of socio-economic backgrounds.”

These numbers undoubtedly explain why pipeline opponents have not made environmental justice an issue here in Virginia.

It’s not as if the engineers working for Dominion Energy, the managing partner of the pipeline, were especially socially conscious. Rather, in selecting a route, they were threading the needle between national parks, the Appalachian Trail, conservation easements, and other environmental, historical and cultural assets, any one of which could have spiked the project. That the pipeline had so little impact on minorities and low-income Virginians was the luck of the draw.

Sometimes infrastructure projects like highways, natural gas pipelines and electric transmission lines will disproportionately affect minorities and the poor, as it happened with the Southeast Markets Pipeline Project, and sometimes they won’t. Route selection is driven mainly by geography, terrain, market considerations, and economics; the socioeconomic impact is incidental and random.

For all practical purposes, the closest thing to a social-justice issue in Virginia is landowner rights — justice for the propertied class. Are landowners getting fair compensation for the loss of value to their land? That’s a fair question, but if it doesn’t affect the poor and minorities disproportionately, it’s not a matter of “social justice.”