Bacon's Rebellion

Democracy Thrives in Sunlight

Power Politics

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by

James A. Bacon
in

If you want a good cross-section of the issues swirling around the move to re-regulate the electric power industry, read Michael Shear’s article today in the Washington Post, and then my column, “Power Politics,” in Bacon’s Rebellion. Shear emphasizes the conflict between power generators and electric customers over how electric rates will be determined. I focus on Dominion’s rationale for wanting to re-regulate the industry in the first place, and then discuss the issues that aren’t getting talked about… but should.

Here’s the Cliff Notes version of my column: Electricity consumption in Virginia is increasing. Dominion, which has been importing electricity from out-of-state to meet rising demand over the past decade, now wants to build new power plants to ensure “energy independence” for Virginia. To compete in the financial marketplace to borrow some $4 billion over the next decade or so, Dominion wants the security that goes with a regulated Return on Investment for its power plants. Dominion submitted its preferred legislation late last year, which is now being chewed over in the legislative process by the other vested interests: the power companies, the industrial customers and the citizen rate payers.

The resulting “hybrid” regulation — regulation lite, with financial rewards for Dominion to continue pursuing cost savings — will represent a evolutionary change from the status quo. What’s not getting serious consideration is anything that would encourage (a) conservation and energy efficiency, (b) a move from “Big Grid” power plants and transmission lines to a system of distributed generation, or, despite a rogue legislative proposal, (c) a move to renewable energy sources.

Virginia’s legislative process is designed to sort out the differences between the major vested interests, making sure that nobody walks away too happy. What’s entirely missing is a vision for Virginia’s energy future.

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17 responses to “Power Politics”

  1. Anonymous Avatar
    Anonymous

    Well stated. Where’s the long term thinking?

    Mercury poisoning continues…

  2. Gold_h2o Avatar
    Gold_h2o

    I think I may have the answer, at least for ROVA:

    http://www.nreca.org/AboutUs/Co-op101.htm

    The Electric Cooperative.

    Per the link –

    “Electric Cooperative are private, independent electric utilities, owned by the members they serve. Democratically governed businesses, electric cooperatives are organized under the Cooperative or Rochdale Principles, anchoring them firmly in the communities they serve and ensuring that they are closely regulated by their consumers.

    Electric cooperatives began to spread across rural America after President Franklin D. Roosevelt created the Rural Electrification Administration (REA) in 1935. The Executive Order establishing the REA and the passage of the REA Act a year later marked the first steps in a public-private partnership that has, over the last 70 years, bridged the vast expanse of rural America to bring electric power to businesses and communities willing to organize cooperatively and accept responsibility for the provision of safe, affordable and reliable electric power.

    Today more than 900 electric cooperatives power Alaskan fishing villages, dairy farms in Vermont and the suburbs and exurbs in between. They provide reliable and technologically advanced service to 40 million Americans while maintaining a unique consumer-focused approach to business.

  3. Groveton Avatar
    Groveton

    gold_h2o:

    Very interesting. I looked at the web site and pulled the members in Virginia. There are about 400,000 customers of electric cooperatives in Virginia today.

    The largest cooperative is NOVEC – the Northern Virginia electrical cooperative.

    I looked at NOVEC’s web site and found out that it is a distributor, not a generator.

    They buy their electricity from the Old Dominion Electrical Cooperative (ODEC). Apparently, ODEC generates electricity and also buys some from Dominion.

    So, I guess that NOVEC must have some way of getting the electricity from ODEC to NOVEC’s customers in Northern Virginia.

    It seems like the electricty shortfall in Northern Virginia can be solved by adding generating capacity at ODEC and using the same transmission rights-of-way that NOVEC already has.

    ODEC’s generating plant(s) is/are in Glen Allen, VA.

    All we have to do is add generating capacity in Glen Allen – where (apparently) generating capacity already exists and add to the transmission line capability on the lines that must already transport the electricity from Glen Allen to Northern Virginia.

    Nobody would have to put new transmission lines in their backyards.

    I wonder where Glen Allen is?

    Maybe Jim Bacon knows.

  4. Ray Hyde Avatar
    Ray Hyde

    Distributed Generation, in particular distributed generation with co-generation (capturing the heat loss) offers the single largest collective possibility for energy savings.

    The key phrase is collective possibility for energy savings. This does nothing for Dominion’s profits, so they have no incentive to pursue this.

    Where a cogeneration facility exists, it would likely be a cooperative, of sorts. An apartment building generates electricity. The tenants (members of the co-op) buy electricity from the cogeneration owner/operator (not necessarily the same as the aptment building owner). Probably, they pay a higher rate for electricity (small plants are not as efficient as buying from Dominion), but this is offset by free heat and hot water (and possibly cooling).

    There is some expense to the building owner, but this is offset by charging rent for the space used for generation.

    If Dominion wanted to profit from this business, they could offer cogeneration services. In a sense, they would be competing with themselves, but they would not need massive new distribution facilities.

    Unfortunately, the whole issue is probably moot, because you would be unlikey to get a stationary source permit in non-attainment areas, even if the net regional pollution is less.

    If power demands are increasing by an amount that is more than we can save/geneate with co-generation, then either new power plants, more distribution facilities, or both will eventually be needed. When (if) that time comes, Dominion will be guaranteed a return on its investment, AND be allowed to keep that investment low through eminent domain takings of private property, if necessary.

    Surely there is enough money in this game to ensure that the handfull of private property owners affected (wherever they are) can be fairly and fully compensated (whether or not the owners include conservation easement owners) without bankrupting the millions of electricity users.

    Co-ops are a way of lowering collective costs by short circuiting what would otherwise be profits to the risk taker. Generally, this is achieved by sharing the risks. For example, at the farm co-op, the bulk of the sales are to the members, who are the bulk users. But since the store and the staff is there to serve the members anyway, the co-op also sells at competitive retail prices to non members. The cost of doing this is (supposedly) marginal. To the extent that this occurs, it generates additional revenues, over and above those needed to provide the basic services to the members. At the end of the year, after costs and some money for future costs is set aside, the remainder is distributed among the members, and allocated according to how much they have spent during the year. Therefore, the largest spenders get the biggest rebates, and the biggest portion of the money “contributed” by the non-members.

    Produce co-ops are a little different. The farmer cannot afford to take the risk of growing a bounty and not being able to sell it. He sells “shares” in the crop up front, based on a minimum predicted amount of goods, say a bushel of mixed produce a week.

    If everything goes South, then the member may wind up with a bushel of radishes, but that isn’t likely. Probably, the member willget more than he bargained for, and sell or give the excess to his neighbors. As for the farmer, if he can provide a bargain to his customers who have “covered his risk” and still have crop left over, he can sellthat to non-members and increase his profit. If he chooses, he can use the profit to lower the offered basis for next year. This will attract more customers, and spread the risk further.

    What is not clear to me is how that works for electric co-ops.

    I think that what happens is that they generally act as distributors, and billing agencies.

    This is purely a guess, but I suspect the two-tier arrangement at NOVEC is there for a reason. NOVEC distributes electricity on their lines. The NOVEC members essentially share the cost of using (what was once) far flung distribution services, and the risk of repairing them after storm damage. Even if the cost is higher than it might be for more compact electrical distribution, it is lower than it might be if a single company had to take the risk.

    In turn, they buy power from ODEC. (Who the ODEC members are is a mystery to me.) One would guess, that the situation is similar to the farm co-op: a few big users willing to share the wealth, the risk, and the profits, with the profits coming mostly from the (marginal) useage of the smaller users.

    In turn, they buy additional electricity from Dominion, in the same way that insurors buy re-insurance: they are not willing to take ALL the risk, or else they are not willing to invest sufficiently to meet ALL of their peak needs.

    If you spin this properly, with a deep seated hatred of profits, you can make it sound quite nefarious, but in practice, it works OK, and mostly for the benefit of everybody involved.

    Having said all of that, it is also true that some co-ops have morphed from their original purpose into what is essentially a profit making organization. The best examples can be seen in what were formerly mutual insurance companies which have converted to either privately or publicly held for-profit companies, and sometimes at the expense of their former members.

    (A good bit of this is pure speculation, with regard to how the electric co-ops work, or used to work. I would be pleased to stand corrected, if someone has a better take. I think it is fair to say that the electric co-ops are a holdover from the days when the costs of rural electricity were much higher.)

  5. Ray Hyde Avatar
    Ray Hyde

    A couple of thoughts on Mercury poisoning, etc.

    Coal has mercury, certainly, and asenic, heavy metals, radioactive materiasl, etc. The formation of coal has concentrated what was once a dilute earthly (and natural) mixture of poisons. By burning it in a few decades, we are releasing millions of years of accumulated poisons, but we have not increased the poison that existed.

    So far as we know, the creatures that formerly lived with all those poisons, (the ones who later formed coal) were not sentient and therefore not as susceptible to some poisons as we are.

    So, if you ask, where is the long term thinking, you have to look at nuclear. Coal has a small amount of radiactive materials in it. However, we burn so much coal that it may be we release more radiaoctivity by burning coal that we would with nuclear power, primarily because nuclear power requires that we consider long term storage of the waste.

    It seems to me that the question we have to ask is this. Which is worse, slow and certain poisoning by burning coal (absent clenup technologies we don’t have yet), or the likliehood of an eventual but sudden catastrophic nuclear accident?

    Assuming we could find the technology to trap all the poison in coal, we would still be faced with the poblem of sequestering it somewhere. This would be no less of a NIMBY problem that disposing of nuclear wastes.

    We could use “renewable” sources of energy, but it is not certain that they are any more renewable or less damaging than our current sources, given our usage rates.

    Or, we could dramatically reduce our usage. Not very many of us can actually do that without very serious consequences.

    So, to reiterate the comment above, where is the long term thinking?

  6. Larry Gross Avatar
    Larry Gross

    Folks – this is about two things:

    1. – Congestion
    2. – Profits

    Take a look at an exerpt from the Wall Street Journal that discusses the new transmission lines.

    “by providing additional paths over which electricity can flow.
    … others eliminate choke points that frustrate grid operators and result in higher power prices by reducing the size of market areas.”

    Translation – When Dominion has to buy power – at RUSH HOUR/Peak Load, they have to pay MORE for it because other utilities are also competing for it at the same time and it’s the size of the pipe (the transmission grid) that is limiting the flow thus driving up prices.

    What Dominion wants is to be able to sell MORE electricity at Peak Hour.

    If Dominion did the OPPOSITE thing, they would install SMART METERs on each residence which would then charge MORE for peak hour electricity useage.

    This would have 3 big impacts:

    1. – It would reduce/eliminate the need for more transmission lines

    2. – It would effectively “CAP” Peak Hour useage and the average consumer would be able to keep their bill at the level that THEY want to pay.

    3. – Dominion’s profits would not go up as fast – because demand would be moderated.

    This is ALL ABOUT Profits and it’s worse than that because Dominion has the opportunity to implement market-based supply/demand mechanisms that would also result in LESS mercury pollution AND less need for NUKES.

    I cannot believe how gullible we all are on this.

    Dominion Power is the Number 2 provider of cash to General Assembly reps – OUR REPS – who are, as we speak, falling all over themselves to accomodate what Dominion wants.

  7. Jim Bacon Avatar
    Jim Bacon

    Groveton, Glen Allen is a P.O. box north and west of Richmond. There’s an independent power generation plant in Hanover County, I think. I wonder if that’s what’s supplying electricity to NOVEC. Also… very interesting observation about transmission line rights of way. There must be some surplus capacity from south to north if Dominion is going to build two new nukes in South Anna.

  8. Jim Bacon Avatar
    Jim Bacon

    I concur with Larry’s analysis. Dominion’s entire re-regulation strategy is geared to building more power plants and selling more electricity. No surprise there, that’s what power companies do. It doesn’t make Dominion bad, or evil. That’s what it’s in business for. The failure of imagination, it seems to me, is on the part of legislators and regulators. If Dominion wants a guaranteed Return on Equity, they ought to be insisting upon meaningful conservation programs.

  9. Larry Gross Avatar
    Larry Gross

    I agree with JB except for one very important point.

    When any business’es profit-making activity has a component that is NOT in the public interest and the choice is to let them do more of it or to balance it with the public’s interest what is the correct answer?

    What I’m speaking of is the mercury that harms the eco-system AND humans.

    Making MORE electricity and MORE mercury pollution when one of the choices is to NOT MAKE more but conserve by demand-side capitalism market principles…

    Dominion does not pay for the damage to the environment – so there is no incentive for them to NOT pollute.

    WE … are subsidizing Dominion’s Return on Investment …. rather than letting the market work as intended.

    Wrong.

    and legislators in Richmond who choose to NOT act in the public interest are wrong too.

  10. Ray Hyde Avatar
    Ray Hyde

    I think Larry is mostly right on this, but also think that rising population and rising usage will mean that you need more infrastructure eventually. We can’t expect to do it all with conservation forever, whether we are talking power lines or roads.

    I’m not sure I buy his argument on return on investment. If Dominion is guaranteed a return, then why should they care if the money is spent on more pollution control equipment, smart meters, or more power lines? Because more power lines means they can sell more electricity, and selling more electricity means more income, even if it is at the same rate of profit. I imagine they have a guaranteed minimum return on investment, combined with some cap on windfall profits and rate increases, but that is different from saying they can’t make more money by selling more power.

    Pollution control equipment does not generate more electricity or expand their market, but it is an investment on which they would make a guaranteed return. We are “subsidising” Dominion by accepting more pollution in exchange for a lower price. Whether this is a practice we should or can continue is of considerable doubt. But, if the alternative is freezing in the dark I imagine the present practice will continue. At least it is a burden we all share more or less equally.

    Part of the point of utility deregulation is to allow customers to designate their provider: that way they can pay a higher price for less polluting electricity if they want. I imagine they can also request a smart meter if they like.

    Bottom line is that Dominion wants more money, and is entitled to earn it, just not at our expense. We want more and cheaper power, or some of us do. In an ideal world, they would be self motivated to use the best available practices in pollution control. In an ideal world they would pay for the bad effects the remaining pollution has on us. But, who would they pay? How would the money be spent? Or is it just as well that they “pay” in the form of lower rates than we might have otherwise?

    It seems to me that smart meters have the same problem as congestion charges. The people who really need the service (a portion of the population) pays more to get what they need, by driving off others pricewise. Then, that extra money goes off into willy nilly land to be spent for whatever.

    And, there is still a limit to what we can achieve through conservation. sooner or later those power lines, power plants, and highways are going to start eating up people’s property, just as it is in the ICC today. At a very minimum, we need to ensure that those people are fully and fairly compensated. It is bad enough if we all subsidize Dominion coal burning plants by breathing the dirt, but we should not compound the prob lems many times over by taking people’s property on an unfair basis.

    When and if we need to do that, we need to pay fairly for what is provided, and for what is lost.

  11. Larry Gross Avatar
    Larry Gross

    Here is a really simple example of what Dominion does not do and has no interest in it.

    Offer consumers a smart meter instead of a rate increase.

    Offer Northern Virginians the choice between new power lines and smart meters.

    Offer Virginians smart meters instead of new mercury-producing power plan expansions.

    Ray is right… conservation may not keep the overall demand from ultimately going up.. but it would do so at a much slower rate and would allow better mercury-reduction technologies to come online.

    The bottom line is that Dominion is in the business of making money selling electricity – AND polluting as collareral damaged and they have demonstrated absolutely no commitment to do anything other than make money selling electricity.

    Dominion’s Business model is basically pedatory.

    If the guys in Richmond had a spine instead of their hands out for Dominion goodies.. they’d put some of this to the voters in Referenda.

  12. Ray Hyde Avatar
    Ray Hyde

    On this, Larry and I agree.

  13. VSEP Avatar
    VSEP

    Dominion’s plan lacks any foresight or consideration of any factors outside of increasing their profit. I have commented here before, but will remind everyone that I work with Virginians for Sensible Energy Policies. We are demanding that Dominion and its Board members cease with the transmission line plan whether the current route, along interstate 60 or anywhere in Virginia.

    We all know that Dominion isn’t exactly a good corporate citizen, when it comes to pollution, but I didn’t realize the extent until recently. As my organization’s latest newsletter highlights,

    “As America wakes up to the reality of global warming, many corporations such as BP America, Exxon Mobile, and Duke Energy are taking steps to decrease their negative impact on the environment. However, Dominion, one of the nation’s largest producers of energy, is not on the list. It emitting roughly 33 million metric tons of carbon annually. This makes Dominion the 20th largest polluter in the S&P 500. If Dominion were a country it would rank 34th in the world in terms of pollution!”

    http://app.bronto.com/public/?q=message_preview&t=0&fn=Key&id=bhpnfjhnybobotifrdydbroqdpmsbee

    Also, if the facts are on their side, why is Dominion spending millions, not only in lobbying and gifts, but on misleading media buys to gain support for their plan? They have spent nearly a half million dollars on misleading full-page advertisements in The Washington Post alone.

  14. Larry Gross Avatar
    Larry Gross

    A half million dollars…. that you and I will ultimately pay no matter how it gets recorded on their financial statements…

    we PAY to have our own interests usurped….

  15. Ray Hyde Avatar
    Ray Hyde

    Well, Larry, you can always go off the grid. Buy a bunch of solar panels and put them up on that lot the county stole from you.

  16. Ray Hyde Avatar
    Ray Hyde

    VSEP:

    I don’t think there is any point in claiming that DOMINION is one of the largest polluters, as long as it is WE who are demanding more power. That is a lousy argument. You should go find one you can win with.

    However, I do appreciate your point about the ads. If your organization and PEC and others, along with individuals writing to their legislators were not having an effect, then why would Dominion spend the money?

    I still think you are missing the real point. That is that every landowner should expect full and fair compensation for their losses, including those conservation agencies that own part of the value of the land through conservation easements. That way everybody is protected regardless of when this comes to pass or what route is selected, and whether it is Dominion or some other ogre.

    If we had that in place, then Dominion would HAVE to plan with more foresight and consideration for other factors.

  17. Larry Gross Avatar
    Larry Gross

    I want to point out an article in this mornings Wall Street Journal.

    “The government should encourage development of alternatives to fossil fuels, economists said in a WSJ.com survey”

    Forty of 47 economists who answered the question said the government should help champion alternative fuels. Economists generally are in favor of free-market solutions, but there are times when you need to intervene,”

    link upon request…

    This tax would then be used to provide smart meters, require Dominion to buy back power at a fair rate and to provide tax incentives for solar/wind similiar to deductions for owning a home.

    We should be rewarding people who choose to install solar….not penalizing them…

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