Bacon's Rebellion

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SW Virginia to Share Pumped-Storage Tax Revenue

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James A. Bacon
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Dominion Energy Virginia is studying two potential sites for a proposed $2 billion pumped storage facility in Southwest Virginia, one in Tazewell County and one in Wise County. Over and above the jobs created, the facility would generate more than $7.7 million a year in new tax revenue. Under Virginia’s current tax structure, a single county — the one where the facility is located — would garner the lion’s share of the benefits.

However, companion bills sponsored by three coalfield-area legislators would divvy up the tax revenues between seven counties and the City of Norton, reports the Coalfield Progress. Under Senate Bill 780, revenues would be allocated as follows:

  • 16% each for Tazewell and Wise Counties, with a 6% bonus for the host county.
  • 12% each for Buchanan, Lee, Russell, and Scott counties.
  • 10% for Dickenson County
  • 4% for Norton

Likewise, any direct costs to the host localities for infrastructure improvements will be allocated between the localities in the same proportion.

Bacon’s bottom line: I’m intrigued by the logic behind this proposal, especially why Tazewell and Wise went along with it. Think of it this way: Let’s assume each of those two localities have a 50% chance of winning the whole kit and caboodle. (Actually, the odds look somewhat better for Tazewell, but let’s make the assumption anyway for purposes of argument.) Under the new proposal, they are guaranteed to get at least 16% but only 22% if they are the host locality. It’s a classic bird-in-hand-versus-two-in-the-bush situation, except that it’s really a bird in hand versus five birds in the bush.

If I were a gambling man, which I’m not, and the odds were 50/50 on two horses, one with a $1 payout and one with a $5 payout, I’d bet on the second horse. But Wise and Tazewell are foregoing that approach. One might think that local leaders are calculating that sharing the revenue will unify and strengthen the region politically in the bid for its biggest economic development prospect in years. But the enabling legislation for the pumped-storage facility is already law. Unless there is something that I’m missing, which is entirely possible, it seems that Wise and Tazewell are showing remarkable forbearance. The coalfields could serve as a shining example for other Virginia regions competing for big economic development projects.

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20 responses to “SW Virginia to Share Pumped-Storage Tax Revenue”

  1. TooManyTaxes Avatar
    TooManyTaxes

    Minnesota law provides that in the seven-county Twin Cities Metro Area, local taxing jurisdictions contribute 40% of growth in commercial, industrial, and public utility property tax base since 1971 into an area-wide shared pool of tax base. It’s intended to ease financial disparities among local governments and make development occur in what local government officials say makes good sense. It enables a bedroom community to stay that way.

    In college, I worked with a professor and another undergrad to document the existence and effects of the fiscal disparities among localities in the Metro Area. Interesting work that even paid me. The professor had received a grant from the Metropolitan Council – another layer of super-local government.

    Since I moved away in 1976, I cannot discuss how well it has worked and whether problems arose.

    I do think that one of the major factors that enabled this to work was the participation of the City of Minneapolis, which has a lot of low-income residents and old housing stock, but also contains much of the new commercial construction in the Twin Cities.

    My experience in NoVA leads me to fear that, if something like this were adopted for Fairfax County, it would wind up on the short end of the stick and by a large margin.

  2. Acbar Avatar
    Acbar

    “A bargain price is not a bargain if you don’t need it to begin with.”
    We’ve discussed this before. Why on earth do the ratepayers of Dominion stand to be better off for spending $2 billion for a pumped storage project? Sure, pumped storage is a giant “battery” with time-shifting potential that’s worth a lot over the unit’s usefule life even given the efficiency losses from pumping and re-generation — but it would take a hell of a lot of time-shifting to save $2 billion relative to the alternatives already existing or forecast to exist in the wholesale PJM energy market! Where are the numbers? Has the SCC seen them, let alone expressed an opinion on them? Or is this merely a back-door rationale to make further investment in another nuclear unit more appealing to a bunch of relatively uninformed legislators?

  3. LarrytheG Avatar
    LarrytheG

    I wonder for the amount of acres needed for pump storage how much solar would be generated? ROI compare?

  4. TomH Avatar
    TomH

    This whole proposal and the way it is being handled concerns me. The development of energy projects should be the primary domain of the state energy regulator. For a legislative body to determine that a project is in the “public interest” without detailed cost studies, analysis of the grid requirements, and an evaluation of the cost and benefits of other alternatives is beyond foolish. It is a taking of money from one group, the ratepayers, and redistributing it, primarily to Dominion shareholders, and a smaller amount to a few rural counties.

    This is a failure on the part of state legislators to represent the interests of their constituents in exchange for blindly supporting the interests of a private company. By the time this project would be available, the costs of other storage options will be much cheaper than the new pumped storage project and much better suited to the needs of the grid if various storage (and voltage & frequency control capabilities) are distributed throughout the grid.

    Our public representatives and our appointed regulators are supposed to look out for the interests of the citizens of Virginia and balance them with the needs of the private developers. Buying votes by spreading out tax revenues is not in the public’s interest.

    1. James A. Bacon Avatar
      James A. Bacon

      “This is a failure on the part of state legislators to represent the interests of their constituents in exchange for blindly supporting the interests of a private company.”

      Tom, I think the pumped-storage idea originated among SW Virginia legislators with the hopes, eyes wide open, of stimulating coalfield economic development — similar to what they did (successfully, from their point of view) with the Virginia Hybrid Energy Center in Wise County. The legislators created the incentive and Dominion pounced on the opportunity.

      I agree that the interests of Dominion rate payers are very different from those of SW Virginia legislators. As a Dominion rate payer, I would scrutinize the pumped-storage deal very carefully.

      1. TomH Avatar
        TomH

        The hybrid energy center was another project that provided local benefits and benefits to utility shareholders but higher costs to ratepayers.

    2. Acbar Avatar
      Acbar

      Well said, TomH. My problem, Jim, with what you point out about the tie-in with coal interests, is that pumped storage today does not solve any existing energy problem on the grid and therefore won’t be used enough to earn a decent return on investment. In short, at a cost of $2 billion it’s a loser.

      Electricity storage of any kind is used to help shift generation that’s occurring when you cannot use it to times when you can use it. Originally it was built to shift nuclear power generated in excess of the minimum night-time load to day-time hours when it was needed. But with the rise of cheap solar energy, we don’t need the excess nuclear power in the daytime either, most days. And because we haven’t built additional nuclear generation even as loads have grown, we don’t have the problem any longer of nuclear output exceeding nighttime loads. On the contrary, we are building so much cheap solar generation that solar output may exceed daytime loads, leaving any deficiency to night-times. Solar, however, is highly variable due to clouds, and the peak usage in some urban areas does not coincide with the middle of the day but extends into the evenings. That is why cheap natural gas fired cycling units are the rage right now, so they can fill in around the nuclear and solar which you want to use as much as possible.

      So why not use use pumped storage to supplement that cycling power to serve evening and nighttime loads? Well, we aren’t there yet with solar but when we get there, you will be able to use pumped storage for cycling power, of course — but gas fired cycling generation is far cheaper to build and to amortize than pumped storage generation. That’s why it’s a loser today, and will remain so for the foreseeable future. Cheap battery storage will have its heyday someday as the battery technology hurdles get solved, but pumped storage is simply too damned expensive to be anywhere close to worthy of consideration given the mix of generation on today’s grid.

      This is not rocket science; but you need a disinterested, viable SCC to sort through it, not a bunch of politially-motivated bozos in the GA.

  5. LarrytheG Avatar
    LarrytheG

    re: ” As a Dominion rate payer, I would scrutinize the pumped-storage deal very carefully.”

    but you won’t get to do that – as a ratepayer nor as a taxpayer.

    that’s TomH’s point, right?

    That’s what the SCC role is supposed to be.

    right?

    1. Acbar Avatar
      Acbar

      Yes. Yes, yes and yes. Yes. And again: yes. Every State has a utility regulatory commission, but to my knowledge only the one in Virginia has no authority to investigate or change the retail rates of the utilities it supposedly regulates. What’s more, its members cannot stand up to this interference because they are elected by the legislature, not appointed by the Governor, a highly unusual if not unique arrangement. The situation here is absurd — as others have noted!

      1. djrippert Avatar
        djrippert

        Eleven states elect their utility regulatory commissions. Thirty-eight states allow the governor to appoint the commission. That’s 49 of the 50 states. Care to guess which state is the only state that lets the legislature elect the utility regulatory commissioners?

        You got it! The Thundering Herd of Corruption in Richmond is the only state legislature in the United States to elect the utility regulatory commission members. Add that “coincidence” the only state with a one term governor, the only state where cities aren’t routinely in counties, one of two states where the legislature elects the judiciary with no merit commission, the state with the hardest requirements for an independent to get on the ballot, the fifth most gerrymandered state, one of only five states to have no limits on political contributions to state politicians whatsoever, etc, etc

        https://ballotpedia.org/Public_Service_Commissioner_(state_executive_office)

        “Public service commissioners are elected in 11 states and appointed in the other 39. Of those states that appoint public service commissioners, all but Virginia give the power of appointment to the governor.”

        How many “coincidences” do people have to see before they realize that this level of corruption is anything but coincidental?

  6. TomH Avatar
    TomH

    Yes, Acbar!

    The pumped storage project has such poor economics that Virginia citizens would pay far less to directly subsidize economic development in the old coal-field region than to pass billions through Dominion to have a little bit trickle out the other end to these communities.

    Australia just installed 100 MW of battery storage in 100 days. The pumped storage project would take a decade to build and produce significant disruption.

    Our energy system is evolving rapidly. Proposing outmoded solutions and expensive regulatory responses that favor the utility instead of lower cost and more equitable solutions is a mistake that the GA is unaware of. They are hearing only a portion of the argument and consider the issue settled.

    The gas industry is undergoing considerable turmoil in response to market dynamics. Siemen’s laid off 7,000 workers in its gas turbine business. They had the capacity to make 400 100 MW gas turbines annually and only had orders for 110 in 2017. GE laid off 20,000 workers in its gas-turbine making teams around the world. Storage of various types is becoming cheaper and much better suited to modern needs than old technologies designed to be coupled with night-time output from nuclear units.

  7. LarrytheG Avatar
    LarrytheG

    In terms of “storage” , I wonder if hydrogen generated from solar is not going to advance.

    solar located next to an abundant water solar – if solar continues to get cheaper and cheaper… you could have some solar dedicated to producing enough hydrogen to power the night.

    https://www.nrel.gov/continuum/energy_integration/hydrogen.html

    if that comes to be – other competing “storage” included pump-storage will become as obsolete as buggy whips…

  8. TomH Avatar
    TomH

    Hydrogen has been talked about for a long time. But it is not a naturally occurring fuel. You either have to make it through electrolysis or by stripping the hydrogen atoms out from something like natural gas or ammonia. Electrolysis is very energy intensive, because the bond between hydrogen and oxygen is very strong. The means to convert the hydrogen back to useful energy, usually using fuel cells, is still very expensive and not very efficient. Using hydrogen for transportation presents its own storage problems for tanks in vehicles, fueling stations, the build-out of new pipeline transportation infrastructure, etc.

    There is time and abundant research is underway with a wide variety of storage options. But there are a lot of advantages to moving towards an energy system based on real-time sunlight (solar, wind, hydro) compared to using ancient sunlight (gas, oil, and coal).

    1. Mom Avatar
      Mom

      Here’s a question for you then, the General Assembly enacted a rate freeze and less than a year later the SCC allowed Dominion to grant Amazon an enormous exemption. If “Our public representatives and our appointed regulators are supposed to look out for the interests of the citizens of Virginia and balance them with the needs of the private developers” explain PUE-2015-00103, VIRGINIA ELECTRIC AND POWER COMPANY’S APPLICATION FOR APPROVAL OF SPECIAL RATES, TERMS AND CONDITIONS PURSUANT TO VIRGINIA CODE § 56-235.2 AND FOR EXPEDITED CONSIDERATION for VAData aka Amazon

      Becaue I’m having a problem with this section from the final order “to the extent that such revenues ever become insufficient to fund Vadata’s share of the Riders fully, such insufficiency will be booked as a reduction to base rate revenues” See Below

      The Stipulation provides in part that: (i) the tariff revenues collected from Vadata under the SCR Rate Schedules will fund all Commission-approved generation rate adjustment clausesmand fuel charges (collectively, “Riders”), and, to the extent that such revenues ever become insufficient to fund Vadata’s share of the Riders fully, such insufficiency will be booked as a reduction to base rate revenues; (ii) approval of the Special Rate Contract will be limited to an initial five-year term through December 31, 2020, and extension beyond this five-year period will require Commission approval; (iii) in support of any application to extend the Special Rate Contract beyond the initial five-year term, the Company agrees to file certain documentation,
      including total revenues collected by year for each account served under the SCR Rate Schedules, total revenues that would have been collected by year for each account served under the SCR Rate Schedules assuming the accounts were instead billed by the appropriate Rate Schedule GS-3 or GS-4 charges, the rate of return on rate base for the accounts served under the
      SCR Rate Schedules, and the rate of return on rate base for the GS-3 and GS-4 customer classes, both including and excluding the accounts served under the SCR Rate Schedules; (iv) in future class cost of service studies, the Company agrees to allocate costs separately to accounts served under the SCR Rate Schedules; (v) certain information will be maintained by the Company and presented in the Company’s next biennial review proceeding and in any application to extend the Special Rate Contract beyond the initial five-year term, including calculations of Riders and base rate revenues for Vadata accounts taking service under the SCR Rate Schedules for calendar
      years 2016-2020, calculations of Riders and base rate revenues for Vadata accounts taking service under the SCR Rate Schedules as though such accounts took service under Rate Schedule GS-3 or GS-4 for calendar years 2016-2020, general ledger data separately showing the monthly base rate revenue journal entries recorded due to the difference between the revenues produced by the SCR Rate Schedules and the revenues that would have been produced by Rate Schedule GS-3 or GS-4, and cost data for any new employee the Company needs to add to support the SCR Rate Schedules; (vi) certain information related to the EMSA will be maintained by the Company and presented in the Company’s next biennial review proceeding and in any
      application to extend the Special Rate Contract beyond the initial five-year term, including a detailed calculation of EMSA revenues, general ledger data showing recordation of EMSA revenues, and detailed support for EMSA-related costs; and (vii) the Stipulating Parties agree that nothing in the Stipulation dictates the regulatory accounting treatment of any revenues or costs in future biennial reviews or other proceedings.12

      1. LarrytheG Avatar
        LarrytheG

        @Mom – can you decipher that into some basic things?

        1. Mom Avatar
          Mom

          If my quick reading of the file is correct:
          1. Amazon through Dominion applies to the SCC for a special base rate through a rider that will establish a rate for Amazon across the Commonwealth, a rate that is lower than those commercial tariffs currently approved for Dominion by the SCC.
          2. “to the extent that such revenues ever become insufficient to fund Vadata’s share of the Riders fully, such insufficiency will be booked as a reduction to base rate revenues”

          Thus, again if I am reading this correctly, if the rate does not cover Dominion’s expense of providing power to Amazon, the losses are written off against the base rate revenues. My reading of that is that in such instances, the other rate payers would be subsidizing Amazon’s commercial power usage.

          Now, there is some other language in the application regarding Amazon’s construction of renewable energy sources but I haven’t had the time to thoroughly digest that and suspect it may be a little above my pay grade.

          1. LarrytheG Avatar
            LarrytheG

            Thank you. And if you are correct… and I hope an answer if forthcoming from Bacon or Tom, etc… then TMT will be joined in his outrage by a significant number of others including me.

          2. TomH Avatar
            TomH

            I don’t have a lot of information about this, but here are my impressions from what little I have seen.

            1. The Amazon tariff was produced by Dominion in response to the SCC saying that the only way utilities could avoid allowing third-parties to create PPA’s for direct sales to customers was for utilities to create their own suitable solar tariffs. As far as I know, this was one of the reasons this specific tariff was created. Dominion has created several other tariffs specifically for data centers, but this is the latest iteration I think.

            I believe the tariff also describes how the utility will apply the Renewable Energy Credits so that energy supplied 24-hours per day can still be regarded as “renewable”.

            I was not aware that this tariff will last for only five years, but that is probably to allow the SCC to review how well it is capturing the costs of providing the service so that other ratepayers will not end up subsidizing Amazon.

    2. LarrytheG Avatar
      LarrytheG

      the thing about creating hydrogen with solar though is that solar is becoming dirt cheap and there is so much fallow land now available that having enough solar to quietly labor away creating hydrogen is possible.

      I’m not thinking about it in terms of transportation but rather generation plants that burn the hydrogen fuel as a gas like they do natural gas and to do this at times when solar is not available. You use hydrogen in a combustion engine… not a fuel cell.

      So essentially SOLAR creates it’s own backup “storage” .. you just need enough solar to do that – excess to the solar you want to generate electricity directly.

      I think hydrogen “storage” is a lot more probable than battery storage as a way to put power on the grid like a gas turbine would . Right now battery storage like you see in some places is so expensive that it cannot compete with fossil fuels.. even gas… and so most of the worlds island that don’t have native fossil fuels and conceivably COULD use “storage” instead of imported diesel fuel – are still largely using diesel fuel electricity generation.

      here’s an excerpt from MIT Review in 2013:

      ” By making a solar photovoltaic material more resilient, researchers may have found a way to make artificial photosynthesis—that is, using sunlight to make fuel—cheap enough to compete with fossil fuels.

      If you want hydrogen to power an engine or a fuel cell, it’s far cheaper to get it from natural gas than to make it by splitting water. Solar power, however, could compete with natural gas as a way to make hydrogen if the solar process were somewhere between 15 and 25 percent efficient, says the U.S. Department of Energy. While that’s more than twice as efficient as current approaches, researchers at Stanford University have recently developed materials that could make it possible to hit that goal. ”

      https://www.technologyreview.com/s/521671/cheap-hydrogen-from-sunlight-and-water/

  9. TomH Avatar
    TomH

    Larry,

    Hydrogen currently loses from an efficiency and cost perspective compared to batteries. Using electricity to create hydrogen is about 70% efficient. The platinum electrodes required are expensive, perhaps prohibitively so for large scale production. Then you take another efficiency loss when using hydrogen to create electricity again or to produce motive power. Fuel cells are about 40-60% efficient for converting hydrogen back to electricity and about 35-50% efficient for combustion uses.

    Storing and returning electricity from batteries is about 90-95% efficient and using electricity for motive power (electric motors) is about 95% efficient.

    The DOE article that you reference is for creating a process that uses sunlight to create hydrogen directly. They were hoping to achieve efficiencies of 15-25% converting sunlight to hydrogen. But they are still in the laboratory stage and have concerns about the materials lasting long enough.

    PV cells are 17-21% efficient now and moving towards 26%+ and will last for more than 35 years.

    Batteries will probably be the preferred storage method for the foreseeable future because they can be deployed rapidly and are continuing to decline in price. But we should continue to explore many different types of storage technologies. We never know where the next technological breakthrough might occur. Someday we will look back and see what a primitive stage we are in with all of our energy technologies.

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