After proposing an end to the freeze on base electricity rates and a reinvestment of excess profits into modernization of the electric grid, Dominion Energy Virginia has produced an ad touting renewable energy and the smart grid.
What if more of the energy we used came from renewable resources?
What if the electric grid could detect, fix and even prevent power outages?
What if our grid were less vulnerable, more secure?
What if all these “what ifs” became a reality?
Well, they are. At Dominion Energy, we’re completely transforming our power grid and the way we think about energy to move from “what if” to “what’s next?”
The ad appears on Youtube. I don’ t know if Dominion has purchased any air time yet. (Hat tip: Steve Haner.)
Bacon’s bottom line: As I read the tea leaves, Dominion’s push to modernize the electric grid may represent more than a tactical bid to shore up short-term profits and may reflect a deeper change in strategic thinking about the shift in the relative advantage of solar versus other sources of electric power.
Critics have asserted that the 2015 rate freeze has allowed Dominion to retain hundreds of millions of dollars in profits that it otherwise would have had to reimburse to rate payers. Dominion’s response was to concede that, yes, it has enjoyed higher profitability since the freeze but that critics over-emphasized the amount and under-emphasized the risks the company faced from absorbing the cost of massive weather events and regulatory burdens such as coal ash disposal.
Thus, it came as a surprise two weeks ago when Dominion executive Mark O. Webb announced that it was time to “transition away from the rate freeze as the outlines of state carbon regulation have become more clear and the need and the opportunity to reinvest in grid transformation becomes more pressing.” He proposed plowing back surplus profits into investments in the electric grid, which are needed to maintain reliability as more solar generation comes online and also to guard against cyber-security threats.
There is more at stake than a couple hundred million dollars (depending on whose estimate you believe) in excess profits. A bolstered commitment to solar energy and the smart grid would affect billions of dollars of future investment. Only a couple of years ago, emphasizing the difficulty of integrating intermittent renewable energy sources into the electric grid, the utility saw only a modest future for solar. In its 2017 Integrated Resource Plan, however, Dominion outlined a long-term future in which 5,200 megawatts of electric capacity would be produced by solar — the equivalent of four or five state-of-the-art natural gas power stations. Could Webb’s comments indicate a willingness by Dominion to tilt even more aggressively toward solar?
The major source of demand growth in Dominion’s service territory is coming from data centers, and leading data-center companies are committed to the use of green energy (either solar or wind). At the same time, the pooling of electricity through PJM Interconnection, the interstate transmission organization of which Virginia is a part, makes it easier to balance electric output and loads at the macro level of the high-voltage transmission grid, while smart-grid technology is making it easier to handle power fluctuations at the level of the lower-voltage distribution grid.
As an organization, Dominion Energy Virginia has two overriding imperatives — its public service mission of keeping the lights on, and its obligation to shareholders to maximize profits. The path to increasing profits has been to invest in new capital-intensive projects that generate a regulated rate of return on shareholder equity. It makes no difference to shareholders whether Dominion invests in gas-fired power stations, extending the life of its nuclear units, utility-scale solar, building new transmission lines, building pumped-storage dams, or upgrading the IQ of its transmission and distribution lines.
In a nod to the changing political climate in Virginia, Webb’s remarks and the new ad suggest that Dominion Energy Virginia is leaning more toward a growth formula of solar+smart grid. Such a view is bolstered by the utility’s pursuit of a pumped-storage facility in Southwest Virginia, which could provide an offset to the variability of solar output.
Dominion Energy Virginia’s strategy as a regulated utility must be viewed, however, in the context of the fact that parent company Dominion Energy has committed heavily to natural gas as an energy source of the future in Virginia and North Carolina, and potentially even in South Carolina. Insofar as gas-fired combustion turbines can be quickly ramped up and down in response to fluctuations in solar power, Dominion can claim that gas is a natural complement to solar. How all these moving parts — solar, smart grid, gas, pumped storage, pipelines, and massive sunk investments in coal and nuclear — come together is not yet clear. I would not be surprised if Dominion’s senior executives are still thinking it through.
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