Tag Archives: Dominion

Pushing Forward Virginia’s Solar Future

Dominion solar facility in Buckingham County.

A couple of years ago, the rap against Dominion Energy Virginia was that it was hostile to solar power. That line of thought is harder to maintain now that Dominion is committed to build at least 5,200 megawatts of solar power — roughly a quarter of its generating capacity — by 2042. Dave Mayfield at the Virginian-Pilot has taken notice:

After many years as a laggard, Virginia has lately been emerging as a leader in the field.

Last year, it placed 10th among the states in new solar capacity installed, up from 17th the year before, according to a report compiled for the Solar Energy Industries Association. North Carolina ranked second, behind California.

The association projects that Virginia’s total solar generating capacity will more than triple over the next five years to roughly 2,000 megawatts – enough to power upwards of 200,000 homes.

Some industry officials and clean-energy advocates expect even-sharper growth during that time frame, and say the solar expansion almost certainly will accelerate across Virginia in the decades beyond.

I nearly fell out of my chair when I read this: “I think you’re going to see a lot more discussion about Virginia being a hot state for solar,” said Ivy Main, affiliated with the Sierra Club’s Virginia chapter who writes the “Power for the People VA” blog. Main has been relentlessly critical of Dominion’s approach to solar over the years.

So the rap against Dominion has changed. Now the criticism is that, yeah, 5,200 megawatts is pretty good, but 25 years takes too long to reach that goal. And, yeah, Dominion is building more solar, but it’s not opening up the grid fast enough enough to homeowners, small businesses and independent solar producers.

Regarding the first criticism: I expect Dominion’s enthusiasm for solar will increase in direct proportion to the falling cost of solar generation, smart grid technology, and battery storage. Just as the utility has gone from a minimal commitment to solar two years ago to a large-scale commitment today in response to changing economics and market forces — especially growing demand by data centers and large corporations for renewable energy — this “problem” will take care of itself. The main brake on solar adoption will be Dominion’s comfort level with integrating a huge solar fleet into its transmission and distribution systems while maintaining grid reliability during periods of peak demand.

The second criticism, opening up solar production to outside competition, is a thornier issue. Many companies would like a piece of Dominion’s electricity market (as well as that of Appalachian Power’s and that of the electric co-ops). These interlopers are nimble and innovative, and, given current price trends, they likely would be able to sell solar for less than the cost of generating electricity from coal, nuclear or even gas — if not now, then five years from now. If competition opened up as critics would like, Virginia’s incumbent utilities stand to lose significant market share.

But here’s the rub: Electric utilities are monopolies, and they are monopolies for a reason. They have the responsibility for maintaining the integrity and reliability of the electric grid. If the lights go out, the North American Electric Reliability Council, PJM Interconnection, the State Corporation Commission, and millions of customers will look to the likes of Dominion, Appalachian Power, and the electric co-ops to get them back on again. They won’t look to homeowners. They won’t look to the independent solar producers. They won’t look to the Sierra Club. The utilities are the ones with skin in the game.

Society and the utilities have struck a bargain: In exchange for ensuring the reliability of the system, society will grant them monopoly service territories and regulate them to provide an assured rate of return on their capital (absent incompetence on the utilities’ part). Reneging on that bargain and opening up the system to wide-open competition would undermine the utilities’ revenues and profits, exposing them to potentially massive write-offs. It should surprise no one that the utilities resist such an eventuality.

Ironically, Dominion led the charge for opening up the utility industry to competition some twenty years ago. The experience was widely judged to be a failure; little competition materialized. Then in recognition of that failure a decade ago, Dominion led the charge to re-regulate the industry in Virginia. We can debate the success or failure of the experience since then, but it does seem apparent that if the industry were deregulated in 2018, there would be plenty of competition on the power-generation side of the business — from merchant producers selling into the wholesale market, from entrepreneurs partnering with big corporations, from intermediaries buying wholesale electricity off the grid and re-selling it to retail customers, and from energy- and eco-conscious homeowners installing their own solar.

One approach to opening up the market for competition is to demonize the utilities. That’s a favorite trope of the Left, which is hostile to corporate power and profits to begin with. Another approach is to give thought to how to realign the incentives for Dominion, Apco and the electric co-ops to do the kinds of things society wants them to do — generate more renewables, allow more competition, invest in energy efficiency, etc. — and to realign them in such a way as to not trigger massive write-offs for power plants made obsolete by the changes. Virginia can choose an ideological route or it can choose a pragmatic path forward.

Under any scenario, building and maintaining the electric transmission and distribution remains a “natural monopoly” and would be subject to continued regulation. But deciding how to restructure electricity generation will be really complicated. In an ideal world, all power generators would sell into PJM’s wholesale market and the winners would be bidders who offer the best combination of price and sustainability. But if the incumbent utilities lose market share and revenues, who pays for cleaning up the coal ash ponds of coal-burning power plants? Who eats the cost of write-offs from obsolete generating units? Who pays to keep aging coal- or nuclear-power plants in reserve for back-up power? What are the implications of Virginia joining the Global Greenhouse Gas Initiative?

We haven’t begun to answer these questions. Indeed, only a handful of people are even asking them. After the exhaustive debate over the Grid Transformation and Security Act this year, there may be little appetite for any such conversations. But allowing for an appropriate respite from the recently concluded General Assembly session, perhaps we should begin the discussion.

Ruling Opens Electric Competition for Big Virginia Customers

Direct Energy Services Inc., a Houston-based retailer of electricity and energy-related services, is allowed to sell 100% renewable energy to large customers in Virginia without a restriction that would forbid customers from returning to their incumbent utility without a five-years’ advance written notice, under a Virginia Supreme Court ruling issued this morning.

The Supreme Court decision upheld a previous ruling issued by the State Corporation Commission against Dominion Energy Virginia.

“This appeal is about the intersection of these two subsections: What happens when a mega-consumer wants to buy from a green-energy company? Does that switch trigger the five-years-notice requirement, or not?” writes  Steve Emmert in his blog, “Virginia Appellate News & Analysis.” 

The bottom line: No, it doesn’t trigger the requirement.

The decision follows an SCC ruling two weeks ago that allowed Reynolds Group Holdings to aggregate demand from multiple properties to meet the 5-megawatt threshold required to purchase electricity from non-utility suppliers. Together, the SCC and Supreme Court rulings expand the options for large electric customers at a time when cloud providers and other major corporations are making big commitments to solar power.

The 5-year restriction, writes Emmert, “was likely designed to prevent bargain shopping on an annual basis, something that can play havoc with VEPCO’s planning.” The proviso also acted as a deterrent for companies thinking about purchasing renewable power from a non-utility. If a company wanted to preserve the safeguard of being able to switch back to Dominion, Appalachian Power, or an electric co-op, the inability to do so for five years added an element of risk.

Says Emmert: “This is clearly a win for those who seek greater competition in this field.”

Dominion Files to Recover Undergrounding Costs

Key metrics for Phase 2 and Phase 3 of Dominion’s Strategic Undergrounding Program

Dominion Energy Virginia has filed for a $73 million rate increase to cover the cost of Phases 2 and 3 of its Strategic Undergrounding Program (SUP). The two phases of the program, designed to limit outages from severe weather events and shorten recovery times, will bury 660 miles of tap lines between them.

The State Corporation Commission (SCC) had permitted a trial of the undergrounding program advocated by Dominion but limited expenditures to $4o million in Phase 2. In the recently approved Grid Transformation and Security Act, however, the General Assembly declared undergrounding to be in the public interest. Now Dominion is filing to recover the full $105 million it has spent on Phase 2 plus another $179 million for Phase 3.

Legally, the law removes the “rebuttable presumption” that the conversion of overhead lines to underground lines will provide local and system-wide benefits, and declares that the costs associated with new underground facilities “are deemed to be reasonably and prudently incurred.” The legislation contains two limits: The cost should not exceed $20,000 per customer, and the average cost per mile should not exceed $750,000 (exclusive of financing costs).

Said Alan W. Bradshaw, director of Dominion’s undergrounding program, in testimony included as part of the filing:

The Company remains firm in its belief that the targeted undergrounding of the most outage prone tap lines will continue to improve the resiliency of the Company’s electric distribution system. The Company believes that a targeted SUP will result in an annual reduction of the total number of outage events and a reduction of repair locations. When outages do occur, it will lead to a reduction in the time required to restore power, particularly as to outages resulting from severe weather events.

According to data provided in the filing, the two undergrounding initiatives would allow Dominion to bury 1,769 tap lines dispersed across the state for a total cost of $284 million. The cost per customer and the cost per mile are well below the limits defined in the legislation.

There are tangible benefits to this investment, but Dominion documents only some of them in the filing. The buried lines accounted for 9,368 outages over the past 10 years — or about $30,3000 per outage avoided. Assuming that a comparable number of outages would have occurred in the future without the undergrounding, how much will the company save in restoration costs? How much outage time will customers save, and what is the economic value of the time saved? Perhaps rate payers will see those numbers in the hearing so they can judge the value of the undergrounding program for themselves.

Nuclear Fortress

North Anna’s nuclear containment domes

How safe are Virginia’s nuclear power plants from terrorists, hackers and natural disasters? Let’s put it this way: Dominion worries about such threats 24/7 so you don’t have to.

In addition to interfering in U.S. elections, Vladimir Putin’s busy cyber-servants have been probing information technology weaknesses in U.S. industry and infrastructure. Sophisticated cyber-attacks have been ongoing since at least March 2016. Perhaps most alarming, the Department of Homeland Security asserted last week, Russian hackers gained access to critical control systems at unidentified nuclear power plants.

“We now have evidence they’re sitting on the machines, connected to industrial control infrastructure, that allow them to effectively turn the power off or effect sabotage, the New York Times quoted Eric Chien, a security technology director at digital-security firm Symantec, as saying. “They have the ability to shut the power off. All that’s missing is some missing political motivation.”

Journalist Ted Koppel highlighted the vulnerability of the U.S. electric grid to attack in his 2016 book, “Lights Out: Cyberattack, a Nation Unprepared, Surviving the Aftermath.” Novelists have imagined the horrifying societal collapse following the collapse of the electric grid. As for nuclear plants, the potential for radioactive contamination makes the threat even more terrifying. Fear-inducing scenarios involve terrorist takeovers, the theft of spent radioactive fuel, and jetliners slamming 9/11 style into nuclear reactors. 

The issue of security was top of mind for me when I toured Dominion Energy Virginia’s North Anna Power Station last month. I had the opportunity to pose the kind of questions that members of the public might ask.

I’m not qualified to render judgment on the effectiveness of Dominion’s security efforts, but I can say one thing: Security at the nuclear facility is something the company thinks about around the clock. Utility officials have spent enormous time and effort anticipating and preparing for any scenario you can imagine. Earthquake? Check. Hurricane? Check. Cyber-attack? Check. Armed terrorist attack? Check. Hijacked airplane flying into the nuclear containment dome? Check.

Based on what I learned, I’m not worried about natural disasters or terrorist attacks. The threat of cyber-sabotage continues to unsettle me, but the danger is to the transmission and distribution grid, not to nuclear power plants. Dominion officials assured me — and for a simple reason that I shall explain in due course, I believe them — that their nuclear power plant controls are not vulnerable to a cyber-threat.

If there had never been a Chernobyl or Fukushima, I might not even be asking these questions. As it is, those calamities did occur. We learned that, as thorough as they try to be, nuclear engineers don’t foresee every conceivable contingency. With nation states from Russia and China to Iran and North Korea seeking to penetrate and compromise our infrastructure, we need to keep up our guard. At the same time, we should avoid creating unnecessary alarm. So far, I’ve seen nothing that makes me lose any sleep.

Earthquakes, hurricanes, and aircraft strikes

On August 23 at 1:51:04 p.m., the control room of the North Anna Power Station began to shake, as if it were sitting on a giant vibrating phone, recalls Lee Baron, who worked in the control room then and now runs the company’s simulation center. Lights on the control board began blinking. Alarms emitted shrill beeping noises. Tiles fell from the ceiling. Outside the facility, some electric transformers cracked. 

The earthquake, the worst trembler to shake the East Coast in at least a century, exceeded what the power station had been designed for, says Baron, but the facility “shrugged it off.” Following Electric Power Research Institute guidelines, the operators powered down the plant without incident. After minor repairs and two months of intensive inspections, the nuclear station was up and running again.

Media attention focused on the fact that the North Anna station was located on an ancient geologic fault line. The fact that the epicenter of the earthquake was just a few miles away under the town of Mineral led many to conflate the two. But, the two fault lines were unrelated, says Richard Zuercher, manager-nuclear fleet communications for Dominion.

Indeed, as College of William & Mary geologist Chuck Bailey concluded in a 2012 review of maps, photos, and reports, the fault underlying the North Anna Power Station had last been active about 200 million years ago. On the other hand, as the Mineral earthquake demonstrated, the geologic plate upon which the East Coast rests was more active than previously supposed.

Unlike some earthquakes that have a highly localized impact that creates heavy damage, Zuercher says, the Mineral shaker, which registered 5.8 on the Richter scale, diffused its energy and caused light damage over a vast area. The quake was felt as far away as Atlanta and New Brunswick. Virginia does not face a California-like threat of a massive killer quake.

Hurricanes and tornadoes are another theoretical threat. The concern is that wind might pick up a cars or telephone poles and hurl them like projectiles. The nuclear reactors, a third of which are underground, are protected by massive containment domes made of compressed concrete lined by steel plate and reinforced by steel rebar.

The 4 1/2-feet-thick dome wall “is built to take a licking,” says B.E. Standley, the Dominion executive in charge of nuclear power plant safety. “It can survive anything short of an asteroid strike or zombie apocalypse.”  Continue reading

Heads I Win, Tails You Lose

This will be one of those blog posts where many readers will ignore the substance of my arguments and go straight for the jugular — Dominion Energy Virginia sponsors this blog, I’m a shill for Dominion, and, therefore, anything and everything I say can be discounted without further thought. If you’re one of those people, I know I won’t persuade you. But please, if you object to my conclusion, don’t settle for the cheap ad hominem shot. Explain to me why I’m wrong.

This post was triggered by a Washington Post op-ed by Del. Mark Keam, D-Fairfax, titled, “Why I’m Breaking Up with Dominion.” Keam wrote:

In 2017, President Trump made it clear there would be no Clean Power Plan, which put Dominion in a bind. Dominion couldn’t justify continuing the rate freeze when the reason it cited no longer existed and it held nearly a billion dollars of potential customer refunds.

On the other hand, as Virginia’s most powerful political donor, Dominion couldn’t admit its mistake and simply return to pre-2015 status. So, Dominion launched an all-out lobbying campaign to push for a different result.

First some background: In June 2014, the Obama administration began implementing its Clean Power Plan. The State Corporation Commission (SCC) staff estimated that the plan would cost Dominion between $5.5 billion and $6 billion for Dominion to shut down coal plants and replace them with power from other fuel sources. Environmental groups suggested that the cost would be much less. But nobody knew for sure, and nobody possibly could know until the Commonwealth adopted a definitive methodology for calculating CO2 goals to be attained. When the General Assembly convened in January 2015, uncertainty reigned.

A deal was struck to freeze base electric rates through 2022 (while continuing to allow the SCC to adjust rates for fluctuations in the cost of fuel and pay for major capital projects). The purpose was to guarantee rate stability for electricity customers. Whatever the outcome for Dominion and Appalachian Power, customers wouldn’t be subjected to higher base rates. Dominion and Apco absorbed the risk. They might make higher profits if the costs were lower than feared, but they might make lower profits if worst-case cost scenarios panned out.

In November 2016 something happened that no one anticipated — Donald Trump won the presidential election, and he effectively spiked the Clean Power Plan.

But what if Hillary Clinton had won, as virtually all informed political opinion expected? It’s no stretch to think that the Environmental Protection Agency and the McAuliffe administration would have continued implementing the Clean Power Plan. We cannot know which of the regulatory options the administration would have chosen — setting CO2 emission targets based on mass-based limits (or total tons emitted) or rate-based limits (CO2 emitted per unit of electricity) — but we can safely assume that the new regulatory framework would have been more costly than doing nothing at all.

Continuing our counter-factual scenario, let’s say the Clean Power Plan framework adopted by Virginia would cost the $5.5 billion to $6 billion postulated by the SCC, and that Dominion had to eat a billion dollars or two in write-offs when it shut down its coal-fired power plants. Now let’s say Dominion came to the General Assembly, saying, sniff, sniff, poor us, these regulations are ruinous, could you please bail us out? What answer would Keam and others of like mind have given? They would have said, “Not a snowball’s chance in hell! You took yer chances and you lost. Now beat it!” And rightfully so.

Of course, that’s not the way things turned out. Dominion lucked out. Trump won the election and he canceled the Clean Power Plan. By January of 2018, Dominion was accumulating earnings way above its normally allowed rate of return (although a major weather event or a regulatory order to pay of billions of dollars to clean up coal ash ponds could have negated those profits).

Inevitably, a hew and cry was raised that Dominion was making out like a bandit by pocketing huge excess profits. Dominion was on track to make a lot of money, all right, but not like a bandit. More like a poker player. Dominion didn’t steal anything — but it did win the bet.

A lot of politicians and consumer advocates couldn’t see the difference. And, politicians being politicians, they ignored the risk that Dominion absorbed back in 2015 and clamored for a rollback of the freeze. The game they were playing can be described forthrightly as, “Heads I win, tails you lose.”

When it became clear in the November 2017 elections that voters largely agreed with the anti-Dominion politicians, nearly obliterating the Republicans’ hefty majority in the House of Delegates, Dominion saw the writing on the wall. The utility seized the initiative with its proposal to end the freeze on its own terms — by reinvesting over-earnings into a massive grid-modernization plan. Politically, the ploy was brilliant. Dominion cut a deal with the new Northam administration, environmental groups, independent solar producers, and other constituencies, leaving Keam and his buddies to eat dust. I understand why the delegate is so sore.

The resulting Grid Transformation and Security Act may or may not be a good piece of legislation. I haven’t delved deeply enough into the details to conclude whether it will be harmful or beneficial to rate payers. We can be reasonably assured that it will be beneficial to Dominion, or the company would not have gone along with it. But if I were a senior Dominion executive, I’d be very wary of cutting a deal like the 2015 rate freeze ever again. Getting sucked into a heads-you-win, tails-I-lose political proposition is no way to run a business.

No Real Pipeline Story Here, But Read on If You Must

The public relations battle over the Atlantic Coast Pipeline continues unabated even as managing partner Dominion Energy edges closer to beginning construction of the 600-mile project. The latest flap surfaced in the Richmond Times-Dispatch this morning after the State Corporation Commission agreed, over Dominion’s objections, to accept expert testimony by natural gas industry analyst Gregory Lander in a hearing on Dominion’s Integrated Resource Plan.

Lander, who was retained by environmental groups opposed to the ACP, concluded that the pipeline will cost Dominion ratepayers between $1.6 billion and $2.3 billion. That conflicts with Dominion’s estimate, based upon an earlier study by its own consultants, that the pipeline will save rate payers $377 million annually. Dominion’s estimate will be harder to maintain now that the Duke Energy, an ACP partner, has acknowledged that the cost of project has escalated from $5 billion to between $6 and $6.5 billion as the company adjusted its route and incorporated environmental protections to accommodate the demands of landowners and environmentalists. But that cost increase doesn’t come close to accounting for the discrepancy between the two estimates.

The Southern Environmental Law Center trumpeted the SCC decision to accept the Lander study as a big victory. “This is proof positive that Dominion’s pipeline will not cut costs to customers but instead increase our bills,” said SELC attorney Will Cleveland. “It’s further evidence that Dominion’s original promise – that the pipeline would save customers money and spur job growth in the Commonwealth – has disappeared.”

The Times-Dispatch made the Lander testimony the lead of its story. But I’m thinking that reporter Robert Zullo is reading too much into the SCC decision. Sure, Dominion tried to prevent the SCC from considering the Lander study, but SCC proceedings are full of filings and counter filings. It’s what utility lawyers and environmental lawyers are paid to do.

Moreover, it is silly to read into the SCC’s decision to accept expert testimony into the public record an implication that the SCC is prepared to accept that testimony’s main conclusions. As Zullo quoted SCC spokesman Ken Schrad as saying, “the order merely allows the testimony to be part of the record in proceedings on the plan, which the commission determined is ‘reasonable and in the public interest.”

“That’s not saying it’s right, wrong or indifferent,” Schrad said of Landers’ testimony.

As Zullo further reported: “Last year, pipeline opponents urged the SCC to issue an order requiring the Dominion entities to file an application for the approval of the [natural gas contract with the ACP]. The commission dismissed the petition, stating that if the deal creates unreasonable costs, the remedy is to deny the utility the ability to recover them from customers in a fuel proceeding.”

At some point, the ACP will be built and will start supplying gas to Dominion Energy Virginia. Dominion will petition the SCC for a fuel rate adjustment. That rate hearing will be where the rubber meets the road. Dominion will submit its evidence, environmentalist and consumer groups will submit their evidence, all sides will get an opportunity to critique one another, and the SCC judges will weigh the testimony and decide whether a rate adjustment is justified and, if so, how much.

Zullo knows this — indeed he alluded to it in his article. But he’s a reporter like any other, and he hyped the clash between the SELC and Dominion. Otherwise, it looks like, there wouldn’t have been much from the IRP hearing to report.

Grid Transformation Controversy Shifts to SCC Nominees

The legislative logjam over a controversial electric grid modernization program appears to have broken. The much-modified legislation, backed by Governor Ralph Northam and Virginia investor-owned electric utilities, has passed the House of Delegates and state Senate, and in the estimation of Richmond Times-Dispatch reporter Robert Zullo, “could be headed to … Northam’s desk by the end of the week.”

The legislation will enshrine the “investment model” advocated by Dominion Energy Virginia of using rate over-earnings to help pay for building the electric grid of the future, including more solar and wind power, energy efficiency, power-line burial, a pumped-storage facility, a “smart” grid, and hardening against cyber-sabotage and terrorist threats. Opponents say the law could lock in excess utility earnings for years.

Assuming the bills in both houses can be reconciled and enacted into law, the battle between Dominion, Appalachian Power Co. and their detractors won’t be over. The action just moves to the State Corporation Commission. The SCC staff and three judges will hold a series of evidentiary hearings on a long list of proposed investments, and they will balance the broad objectives of affordability, reliability and sustainability when deciding whether to approve the requests. Presumably, they will take into account the declaration of the General Assembly that grid-transformation projects are in the “public interest.”

The SCC judges will have latitude — exactly how much is not clear — to draw their own conclusions. So it very much matters who serves on the commission. And it very much matters who will fill the position to be vacated by Judge James C. Dmitri, who, among the three judges, arguably has been the most critical of the electric utilities.

Yesterday the Senate Commerce and Labor Committee interviewed three candidates to replace Dmitri:

  • C. Meade Browder, Jr., assistant attorney general,
  • David W. Clarke, a Richmond lobbyist representing gas and insurance companies, and
  • Maureen Matsen, legal counsel for Christopher Newport University and a former deputy secretary of natural resources under former Governor Bob McDonnell.

Committee Chair Sen. Frank Wagner, R-Virginia Beach, a long-time friend of the electric utilities, made it clear that he wants to see the SCC get with the program. Wagner accused the commission, reports Zullo, of an inability to “see the big picture” because of a narrow focus on electric rates and consumer costs.

Wagner compared the commission to a short-sighted business owner who can hoard money by failing to invest in his company but “will end up going out of business for failing to keep up.

“They take that myopic approach despite many statements, getting more and more bold, from the General Assembly as to what the policy is for the future of Virginia and ensuring that those investor-owned utilities make the necessary investments for the long-term good of all Virginians,” Wagner said.

The SCC judge candidates, who are appointed by the General Assembly, expressed support for the new direction of electricity regulation.

Said Brouder: “I’m aware of your particular interest in that area. … I think any commissioners would work within the regulatory framework that y’all have laid out.”

Said Clarke: “It’s clear to me that the sense of the General Assembly is that we need to have more investment. Those things don’t come without a price tag on them, no question.”

Said Matsen: The commission “needs to be a broader, wider vision” on how it handles “a tremendously dynamic and exciting time for the energy industry.”

Economic Development Requires Grid Transformation

by Todd P. Haymore

Building a more diversified economy and regaining Virginia’s status as best for business were the overarching goals during my time as Secretary of Commerce & Trade under Gov. Terry McAuliffe’s administration.

Working in partnership with hundreds of companies, the General Assembly, regional entities, and colleagues in federal, state, and local governments, we were successful in our efforts to build a new Virginia economy, one less reliant on federal spending and more focused on private sector investment.

I have great confidence the momentum of the last four years will continue under Gov. Ralph Northam.

One way to help keep the positive results going is for state lawmakers to take steps needed to invest in the infrastructure of tomorrow. The Grid Transformation & Security Act of 2018 is an opportunity to address one of the state’s key economic building blocks and ensure we are best positioned for future investment, job creation, and prosperity.

Supported by state legislators on both sides of the aisle, this comprehensive energy policy package ensures a continued supply of clean, reliable, and affordable electricity from Dominion Energy and Appalachian Power for powering modern businesses.

Stakeholder input, which began last year, has continued during the current legislative session to ensure the proposal balances these needs with consumer protections and regulatory oversight. This work has led to greater immediate savings for customers, more opportunities for refunds and rate cuts, and an increase in State Corporation Commission reviews. The recent changes have been incorporated into both the House and Senate versions of the bill.

During my time in Gov. McAuliffe’s cabinet, we worked hard to keep Virginia at the forefront. We traveled the globe to open new markets to Virginia’s products and attract foreign direct investment. We promoted tourism, lured new employers, and supported existing businesses, which generated approximately 70 percent of the more than 200,000 jobs created from 2014-2018. The results included a record $20 billion in new capital investment, a drop in the unemployment rate from 5.4 to 3.7 percent, and significant increases in exports and tourism spending. Forbes, CNBC, and Site Selection magazine recognized the Commonwealth with top ten rankings for business climate.

Make no mistake about it, the affordability and reliability of energy is a key component of the site selection process.

Unfortunately, Virginia’s electric infrastructure is no longer keeping up with the pace of modern business innovation. Originally designed to take electricity one-way, from the power plant to your home, it wasn’t built to accommodate private solar generation from rooftop panels or spikes in demand from electric vehicle chargers.

As new technology emerges, so have the accompanying threats, which have been foisted upon our aging electric infrastructure. Cyber and physical threats are growing more complex, and frequent. Using secure communications networks and devices along with hardening for circuits and substations gives energy companies the ability to know with greater accuracy what is impacting their system.

With the influx of renewable energy sources in Virginia, come challenges we have never faced, or even imagined. A modern, or smart, grid would make it easier to continue the exponential growth of renewable energy needed to meet the clean energy demands of high-tech firms and continue to shrink the carbon footprint of residential customers.

The regulatory framework also needs to evolve. Policy experts, lawmakers, and stakeholders are working to redefine the current structure to ensure utilities can undertake a project of this scope without hiking rates on customers.

The Grid Transformation & Security Act allows investments to modernize the grid and expand the Commonwealth’s use of renewable energy primarily through existing rates. And it provides customers with bill credits, rate reductions due, and elimination of existing surcharges.

In short, I believe lawmakers want to ensure the costs of this transformation will not result in higher rates which would impact residential customers and hinder economic development. Indeed, transforming the grid is a necessary step to pave the way for the continued growth of a new Virginia economy.

If the General Assembly doesn’t act, others will overtake us and gain an upper-hand in retaining and recruiting businesses and the thousands of jobs that accompany them. Virginia can’t let this happen if we want to continue building a more diversified economy, and regain our title as the best state for business.

Todd P. Haymore served as Virginia’s secretary of commerce and trade under Governor Terry McAuliffe from 2016 – 2018. Prior to that, he served as Virginia’s secretary of agriculture and forestry under Gov. McDonnell and Gov. McAuliffe from 2010 – 2016.

Wall Street’s Perspective on Virginia Rate Re-regulation

Ken Cuccinelli

What follows is a letter from former Attorney General Ken Cuccinelli to members of the House of Delegates two days ago. His discussion of the Wall Street perspective on electric rate regulation adds a new element to the debate, so I publish the letter here with his permission. — JAB 

Dear Delegates,

One of the benefits of being Virginia’s Attorney General is the opportunity to pick various areas of the law into which one can “dig in.” After working on energy projects in the private sector prior to becoming Virginia’s A.G., I was enthusiastic about digging into electricity rates. I learned a lot, including learning about my own mistakes when I was in the General Assembly.

One other thing I learned was that while the issue of electricity regulation is the most complicated with which legislators must contend, “clarity” is often not encouraged but discouraged.  Why would that be so?  Because confusion and the speed of the General Assembly session are used to skew bills against ratepayers (read: taxpayers) while downplaying or denying the worst possible real-world applications of the proposed bill.

This was the case in 2015, and it appears to be the case again this year.

The SCC staff has done an admirable job in their bill summaries of clarifying a complex and confusing issue.  That provides one source of clarity.

Where else might we find clarity?  While you might not think about it, another source of clarity is Wall Street. Any perceived misdirection or incompleteness in Dominion or APCo statements to Wall Street subjects them to lawsuits – a consequence that does not exist within the General Assembly. For example, what was the consequence to Dominion of the fact that their main argument for the 2015 bill was not, shall we say, … accurate?

The main consequence is that Virginia’s taxpayers have electricity rates that amount to the equivalent to almost a $500 million tax increase (combining the cost of both Dominion and APCo).  The 2015 bill thus qualifies as one of the biggest tax increases in Virginia history, except that instead of those dollars being used for transportation, education, public safety, etc., they just go as a windfall to Dominion and APCo shareholders.

So, what does Wall Street think of HB1558/SB966 (hereafter “SB966” or “the bill”)?

On February 1st, investment bank UBS issued a report to their clients that gushed over how spectacularly Dominion handles the General Assembly and Governors of Virginia to boost Dominion’s value (at the expense of Virginia ratepayers). UBS called SB966 a “catalyst” that drives Dominion’s stock price higher, and Wall Street is so sure the General Assembly will pass the bill, and Gov. Northam will sign it, that it has already priced the benefits to Dominion of the bill into Dominion’s stock price!

UBS, in a model of understatement, opens its discussion of the bill by saying “Dominion has proven adept at navigating VA politics.” UBS continues by noting “…the state’s history of constructive utility legislation…” leads them to believe “that the bill has a good chance of passing.”

Of course to Wall Street, “constructive utility legislation” means legislation that makes it even easier for Dominion to make a lot of money, which would be a great thing, if it didn’t amount to legalizing seizure from Virginians and our businesses.  This grab is ‘legalized’ by the General Assembly and the Governor.

How easy does Wall Street think Virginia is on Dominion? UBS thinks Virginia’s regulatory environment is SO favorable to Dominion that they add a full 5% to the expected value of Dominion’s Virginia business just because of Virginia’s anti-consumer/pro-Dominion regulatory structure.  Now THAT is quite a return on Dominion’s “investments” in lobbying and donating to campaigns!

Dominion spends mere millions on TV commercials, on lobbying and on political contributions to candidates and legislators and in return Dominion gets to write its own legislation that returns billions of dollars in cash and value. That means that Wall Street thinks Virginia is among the easiest regulators of utilities in the entire country – i.e., Virginia’s General Assembly and Governors are pushovers for Dominion.

To use a dating analogy, if Virginia were dating utilities, her name and phone number would be on the boardroom wall of every utility in the Commonwealth under phrases like “for a good time call….”  And that “good time” doesn’t even cost Dominion very much.

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How Is the New Double Dip any Different from the Old Double Dip?

The House of Delegates passed its own version of electric-utility regulatory reform yesterday. The big news is that the House amended the legislative compromise struck between Governor Ralph Northam, the electric utilities, and other key stakeholders to ensure that it prevents the dreaded “double dip.”

Reports the Richmond Times-Dispatch:

The Virginia Attorney General’s Office and the commission have warned that the bill still restricts the ability of the commission to order refunds and lower base rates and also allows utilities to double charge for the grid and renewable investments: Once by canceling out refunds and again by including the projects in the rate base upon which they earn a profit.

“The governor’s office doesn’t believe that there is a double dip in the bill,” Toscano said Monday. “The entire Democratic caucus was taking the position that if there was no double dip in the bill like everyone has asserted, we will make sure the language is absolutely, positively clear.”

I don’t understand how this arrangement would differ substantively from the way rate regulation always worked. Permit me to express my perplexity with a hypothetical example:

Let’s say Dominion Energy Virginia wants to spend $100 million on burying distribution lines prone to disruption in severe weather events. That may or may not be a sound use of the money, but that’s not the question. The question is how Dominion would be compensated for that investment under the proposed new rules.

First, let’s assume that the utility is raking in excess revenue. Rather than rebate the excess to rate payers, Dominion gets to “reinvest” that money in a panoply of grid modernization projects of which distribution line undergrounding is one. Rate payers don’t get the money rebated to them. That’s the first dip. Then Dominion gets to build that $100 million investment into its rate base, and it gets to generate a return on investment — let’s say 10% for purposes of simplicity — until it is fully depreciated. Instead of rate payers getting to generate income on that $100 million, Dominion gets to pocket the income. That extra $10 million constitutes the double dip.

But that’s not the whole story! Under the pre-rate freeze regulatory regime that governed rate setting until 2015, Dominion would have filed for a rider, or Rate Adjustment Clause, to cover the $100 million capital investment of burying the power lines. As I understand it, Dominion also would have been entitled to recover not just the up-front capital but the cost of capital — about 10%.

Under the Northam-Dominion compromise, Dominion would not get to file a rider. Call that a reverse double dip. Rate payers would benefit the once because Dominion doesn’t get its $100 million back through a rider. And they would benefit twice because Dominion wouldn’t get to recover its cost of capital. In other words, it’s a wash. The only difference is that the expense is embedded in the “base” rates instead of in a rate adjustment clause.

Now, there are many other issues one might raise about the re-regulation legislation. Does it undermine the State Corporation Commission’s role overseeing electric utilities? Should the General Assembly declare massive “grid modernization” investments in solar power, wind power, pumped storage, energy-efficiency, smart grid investments, and underground burying of transmission and distribution lines to be in the “public interest,” thus lowering the bar for SCC approval? Great questions, let’s debate!

But double dipping? Dominion won’t get any more licks of ice cream than it did before — unless I am missing something. If I am, I beg you, please explain how the proposed new double dipping differs from the old double dipping. If your explanation makes sense, I will publish it on the blog.

Update: As you can read in the comments, Tom Hadwin and I went back and forth on this issue. Here is how I now understand it:

(1) Rate payers lose the $100 million rebate.
(2) Then the $100 million goes into the rate base, where it must be repaid to Dominion. (That’s the point I wasn’t comprehending before.)
(3) Plus ratepayers pay Dominion a 10% rate of return on the $100 million.
(4) Dominion does not file a Rate Adjustment Clause (RAC), saving rate payers $100 million.
(5) With no RAC, Dominion doesn’t earn 10%, and rate payers don’t have to pay it.