Bacon's Rebellion

Democracy Thrives in Sunlight

Shareholders Pressure Dominion on Climate Policy

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by

James A. Bacon
in ,

At Dominion Energy’s annual meeting earlier this month, shareholders submitted numerous shareholder proposals requiring the energy giant to adopt more environmentally friendly measures. I took note of some of them in my story about the event but never bothered to inquire about the vote results. I’ve attended plenty of annual meetings in my time, and I’d never seen a shareholder proposal opposed by management approved, or even come close to being approved. I didn’t expect any differently this time.

My bad. As it turns out, 48% of participating shares voted in favor of a resolution that would require Dominion to publish an annual statement on the financial risks that climate change poses to the company, according to the Virginian-Pilot. That total was up from the 23.5% of the vote for a comparable resolution at the 2015 annual meeting.

It wasn’t just gadfly nuns and hippies owning a few shares who voted for the resolution. That many votes required heavy support from pension funds and other institutional shareholders. It’s entirely possible that a similar proposal could pass a year from now. The proposal must be taken seriously, for its sponsors surely will be back next year.

Backers of the proposal cast the issue in terms of what is best for Dominion, not environmentalists, the environment or Mother Gaia: Climate change caused by CO2 emissions is unleashing more frequent and more damaging storms, which can expose Dominion’s infrastructure to storm damage, and will engender tighter anti-carbon regulations that could endanger its multi-billion bet on natural gas electric plants and pipelines.

“The three costliest storms in Dominion’s 100-year operating history, Hurricane Isabel, Hurricane Irene and the June 2012 Derecho, have occurred in the last decade,” states the shareholder proposal in the 2016 proxy statement. “The consensus among climate scientists is that without significant reduction of greenhouse gas emissions, climate change will continue to result in more severe and frequent storms, among other effects.”

Dominion’s restoration costs were $128 million for Hurricane Isabel in 2003, $59 million after Hurricane Irene in 2011, and $42 million after the derecho. “Additionally, between 2011 and 2012, weather events, earthquakes, and environmental regulations imposed more than $450 million in costs on the company, adversely affecting its earnings.”

Also, argued a memorandum in support of the proposal, the company does not seem to be taking into account federal or state legislation that could “either mandate greater deployment of renewable energy or assess financial penalties for the continued use of fossil fuels.” Dominion could be “betting the company” that changing laws, regulation and consumer tastes won’t leave the company with billions in stranded, uneconomic assets.

“Dominion faces serious financial challenges with regard to climate change risks that are not being addressed,” says the memorandum. “Dominion should be required to provide adequate climate risk assessments, including clearly defined actions the Board intends to take to address these risks.”

Dominion responds. Dominion management advised shareholders to vote against the proposal. Committed to being a good environmental steward, Dominion is pursuing an integrated strategy to reduce greenhouse emissions based on a diverse fuel mix, including gas, nuclear, hydro, wind and solar, the company stated. Between 2000 and 2015, the company has reduced the carbon intensity of its generating fleet by 43%, and it has forecast that carbon intensity will fall another 25% as it expands solar production to 5,200 megawatts over the next 25 years.

Dominion says it is one of the lowest carbon-intensity electricity producers in the U.S. Producers at the lowest end of the scale are pure-play renewable companies.

Also, the company responded in the proxy statement, it already reports on financial risks relating to climate change in its 10-Q forms and in its Citizenship & Sustainability Report. Three years ago, it published the “2014 Dominion Greenhouse Gas Report.”

As for the charge that Dominion isn’t taking into account the potential for tighter carbon emissions, in remarks made during the shareholders meeting, CEO Tom Farrell said that carbon regulation is coming. While some politicians have suggested that the Trump administration will roll back the Obama administration’s Clean Power Plan, Farrell said that the EPA is legally required to regulate CO2 emissions, and that a McAuliffe administration study group will come out with state-level recommendations in June.

Bacon’s bottom line: One can argue with the premises of the shareholder proposal, but it really doesn’t matter if the authors are right or wrong in their particulars. What matters is whether shareholders owning a majority of shares believe they are right. If a few more shareholders agree, joining those in the 48%, they could push through their proposal a year from now.

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27 responses to “Shareholders Pressure Dominion on Climate Policy”

  1. CleanAir&Water Avatar
    CleanAir&Water

    Oh dear … this meeting stuff was so bizarre I am posting again

    That 48% vote is a huge change from prior votes. it represents nearly 198 million shares voting for the resolution with a value of $15.5 billion, based on Dominion’s May 9 closing stock price. And … contrary to prior practice the vote totals were not announced at the meeting. An effort to hide any controversy from the stockholders?

    Here is an excerpt from Seth Heald at Powerforthepeopleva …
    “As shareholders crossed an elevated pedestrian bridge across Marshall Street from the parking garage to the Richmond Convention Center, they found black curtains temporarily set up on floor stands to line the glass walls of the bridge, serving no purpose but to block any views of demonstrators on the street below. Then, when shareholders descended an escalator to the hallway outside the first-floor meeting room, they also found a long line of temporary stands of more black curtains. They were about eight feet high—just enough to block views through the wall of windows facing Marshall Street, where protesters had gathered on the sidewalk. This served to cast a bit of a funereal pall over the hallway, as shareholders drank coffee and ate Virginia ham biscuits before the meeting.”

    It is time for all Virginia to get our heads out of the sand

  2. Acbar Avatar
    Acbar

    Interesting observations from the meeting, CA&E.

    We’ve been discussing this subject here for some years. Now, Mr. Farrell’s new-found religion is Dominion’s environmental record; and now JB has explained why. There’s nothing like a large-scale near-successful shareholder insurrection to get the full attention of a CEO and the Board.

    Politically, changing conditions in the environment and on the grid are implicit in the lengthy report Dominion makes annually to the State Corporation Commission called the Integrated Resource Plan, or IRP. Here is what the VSCC said about Dominion’s IRP, Case No. PUE-2016-00049, in 2016: “The Commission finds, based on the record of this proceeding and applicable statutes, that the Company’s IRP is reasonable and in the public interest for the specific and limited purpose of filing the planning document as mandated by § 56-597 et seq. of the Code.” This is not a recommendation, let alone a decision, about anything, but pass-the-buck bureaucratic gobbledygook! It’s a shame when shareholders show more progressive spirit and financial common sense than the utility’s primary State regulators.

    This year’s IRP was filed with the SCC on May 1, in Case No. PUR-2017-00051. Jim posted about it here: https://www.baconsrebellion.com/39193-2/ ; and here’s a link to the IRP document itself: https://www.dom.com/library/domcom/pdfs/corporate/2017-irp.pdf

    If there’s a reader out there who’s at all interested in Dominion, read this year’s IRP! It is long, and has a wealth of information in it, not all of it helpful to DOM. Maybe, just maybe, the SCC will have the fortitude to say something substantive about Dominion’s filing this year and actually encourage Dominion in the direction it’s already moving to change its ways, perhaps at higher ratepayer expense today but with an eye to saving the ratepayers enormous “stranded costs” tomorrow. Generators and big transformers and transmission lines have long useful lives — and they are financed over that life, 20-40 years, whether or not they continue to be “plant in service” that’s “used and useful” for that long. That financing has to be paid off whether or not the plant continues earning revenue for Dominion, or has become worthless — so today’s decisions matter to future ratepayers.

  3. LarrytheG Avatar
    LarrytheG

    I saw that in the PFP blog and it reveals something about the corporate culture of Dominion.. are they really a company that tells staff to go out and get black drapes and put them up – just to keep attendees from seeing protesters?

    geeze

  4. TomH Avatar
    TomH

    I think what the shareholders are concerned about is the overall risk of Dominion’s 20th century energy strategy holding up in the changing climate of regulatory, economic and technological changes coming on at an accelerating pace. Thus far, Dominion has offloaded much of the risk of this strategy on to the ratepayers. If the SCC recovers its full regulatory and rate making powers, either with the help of the Virginia Supreme Court, with the push of outside parties, or on its own, the fragility of Dominion’s current plans could be exposed.

    Discussions are underway in PJM, NYISO, and New England ISO to institute a carbon price as part of the energy auctions. The Virginia EO 57 task force might also recommend some sort of carbon or climate adjustment here.

    It should be noted that dealing only with carbon gives a false sense of security that we are actually dealing effectively with climate change. Carbon is easier to price in the market place, but from an overall greenhouse gas perspective new gas-fired plants are as bad as coal plants (because of methane leaks along the supply chain). If we continue the proposed build-out of natural gas plants and related infrastructure, we will use up the nation’s entire target that was agreed to in Paris. Even with a 45% reduction in methane leaks we would exceed the target just with natural gas without any usage of coal or oil (how likely is that?).

    Dominion’s strategy seems to be predicated on its assumption that it can control the Virginia Assembly so the utility can continue to execute policies that favor the shareholders at the expense of the ratepayers and citizens of Virginia.

    My comments about Dominion’s plans come from my desire to the have the company choose a lower risk strategy that allows them to prosper while better serving the interests of the ratepayers and Virginia’s economy. Having healthy utilities is crucial to an excellent 21st century energy system, but they must adjust to the new reality where they can no longer be the only ones setting statewide energy policy.

    Dominion’s executives are skilled at navigating the financial and political landscape. They seized upon the public’s desire to do something about climate change as evidenced by the Clean Power Plan to exchange numerous old coal plants that they could not afford to retrofit to meet the new MATS regulations and received rapid regulatory approval for three new combined cycle plants (about 4600 MW). This was less about environmental stewardship than it was about taking advantage of low natural gas prices and low interest rates to add billions of dollars into the ratebase for a 35-40 year stream of new revenues guaranteed by the ratepayers.

    Dominion executives also recognized the decline in electrical load growth and moved into the natural gas transmission pipeline business where FERC was offering returns that are 50% higher than other types of utility projects, such as transmission lines and power plants. The acquisition of Questar along with the largest share of the Atlantic Coast Pipeline, provides Dominion Energy with another 35-40 year stream of high return income, that is also guaranteed by ratepayers.

    The market recognized these sizable future income streams, including the revenues soon to be coming from Cove Point, and considers Dominion stock one of the better performers in the utility sector.

    But these plans work well only if conditions remain relatively stable for a prolonged period. But the regulatory, economic and technological climate will not remain the same. In fact, the rate of change in those areas is accelerating. In a recent survey, 95% of the 600 utility industry participants responded that the business models of their organizations must change in order to deal with changing circumstances.

    Over-reliance on natural gas is an area of great vulnerability. In 2016, natural gas exceeded coal for the first time as the leading fuel for electrical generation. We will need natural gas-fired units for some time. But it might be hazardous to our economic and environmental health if we continue to build more of them.

    The lower cost electricity that Dominion has crowed about resulted from historically low natural gas prices and the shift from coal to gas in Dominion’s generating fleet. But the future does not look as bright.

    The natural gas price at Dominion South Hub is 100% higher in May 2017 (about $3) compared to May 2016. Cove Point coming on line in three months will cause the regional gas prices to increase more. The Sabine Pass LNG facility in Louisiana is now the nation’s largest consumer of natural gas. In Australia, where they embarked on aggressive exports of their abundant supplies of natural gas, prices rose 3-4 times within 10 years. Utility bills skyrocketed and factories closed.

    Two years ago, the U.S. Manufacturer’s Association warned about overzealous development of natural gas. They said rising gas prices would destroy the current competitive advantage that US manufacturer’s have because of low gas prices. This would halt the trend of bringing jobs back to America and could put many of Virginia’s 273,000 manufacturing jobs at risk.

    Several well-regarded forecasters have predicted that the production of $4 gas will peak in the early 2020s. We will have more gas. It will just be more expensive. Our energy security and our cheap gas will have been sent overseas.

    In California, Texas and Ontario, new gas-fired combined cycle plants are currently being undercut in price by energy efficiency and renewables. Energy from gas-fired plants will only get more expensive while that from renewables will only get cheaper. Low cost storage will remove the typical arguments about this type of generation.

    PJM says Dominion does not need to build any new combined cycle plants. If they are pushed through, ratepayers, shareholders or both could be exposed to stranded costs.

    The pipeline said to be needed to fuel these plants could also become a financial albatross. It would be far less risky to use the greater capacity in existing pipelines to meet whatever need might be required, especially since this option would save ratepayers hundreds of millions per year and would reduce the exposure to stranded costs.

    Dominion still clings to an exorbitantly expensive option of building a new nuclear plant, while the US nuclear industry is melting down as Westinghouse, the developer of nuclear units in South Carolina and Georgia, goes bankrupt.

    The zero carbon generation that is Dominion’s reason for investing in this option can be supplied at 2-3 cents per kWh by energy efficiency. This option is shunned by the utility because under the current cost-of-service regulatory scheme, the best choice for Virginians is not the best solution for shareholders.

    Well informed investors see the cracks in Dominion’s strategy and want to be better informed about the risks. With a concerted effort we can create a better future for Dominion and the citizens of Virginia. But we must choose a different path than the one we are on. Maryland is beginning to consider developing a 21st century energy system using many of the concepts being put to use in New York. If we wait too long, Virginia will be left behind.

  5. LarrytheG Avatar
    LarrytheG

    Burning gas for baseload is dumb – twice.

    gas is the only fuel that can run in tandem with renewables and is fast enough in response to essentially vary in output in concert with the variation in outpupt from wind/solar.

    gas is abundant right now but if we burn it for baseload and other uses – it could well become scarce much sooner than thought.

    That’s a fiscal risk..

    the other risk is environmental of which the science is saying that gas is dozens of times more potent as a green house gas than coal.

    however – I still do not understand PJM’s role in managing the Grid when it comes to distributed solar.

    Utility scale solar – yes .. I suppose it’s possible for PJM to not call for more power and a utility solar site just sits disconnected from the grid on a very sunny day.. i.e. in the PJM region there is a GLUT of available power generators including utility solar.

    But how would PJM and the utilities control distributed solar?

    Does each and every on-site consumer and commercial, institutional solar have a utility-controlled switch that essentially let’s the utility decide whether it wants solar from a given site?

    I think that’s the “risk” that shareholders are worried about – that solar will explode and in doing so – it will undermine the electricity that Dominion generates and wants to sell.

    Integrated Tesla roofs and powerwalls are now being installed… pricey – 50K+ but said to pay back and then some over 30 years which means it will be a candidate to install on new homes. Electricity happens to be one of the top expenses that people pay – a $200 a month average bill translates into more than $24,000 over ten years.

    How would Dominion and/or PJM control these solar roof homes connection to the grid?

  6. Acbar Avatar
    Acbar

    TomH, you cover a lot of important ground in your comment above. But I am particularly struck by one fact that most of us have heard before but you give renewed emphasis: “from an overall greenhouse gas perspective new gas-fired plants are as bad as coal plants (because of methane leaks along the supply chain).”

    This simple point bears repeating: it’s not just the carbon emissions from fossil fuel consumption that contributes to the greenhouse effect; it’s the carbon emissions from the entire process (extraction, storage, transportation, consumption), AND those emissions must be weighted by kind (notably, CH4, the dominant component of unburned n.g., is far more damaging per pound emitted than CO2).

    1. TBill Avatar
      TBill

      As far as we know, natural gas is far better than coal burning for the environment. The USA eco-group rhetoric condemning natural gas as worse than coal needs to taken in perspective as a uniquely American, and divisive liberal political position.

      As far as corporate annual meeting resolutions, even Warren Buffet had troubles with that this year, as activists were demanding more anti-fossil-fuel flavor from Berkshire Hathaway policies.

      I am not a corporate annual meeting expert, but I know I once had a (unusual) colleague with a grievance who liked to pester the company by submitting problematic resolutions to the corporate annual meeting agenda, that always got voted down. Suffice it to say, the corporate annual meeting format is a vulnerability for Corporations.

      I would ask why Dominion faced this vote outcome, despite rapid decreases in CO2 emissions? and how this compares to other utilities such as Duke with less apparent eco-mindedness than Dominion? I suspect we talking about stock-holder demographics, including liberal institutions such as universities asking for corporations to adopt more progressive liberal philosophies. But I am not sure…just asking.

      1. TomH Avatar
        TomH

        TBill,

        “As far as we know, natural gas is far better than coal burning for the environment.”

        No, that is the point I was trying to make. Science tells us that methane is 72 times more potent as a greenhouse gas than is CO2 over 20 years. However, it breaks down far more rapidly than CO2 so that over 100 years methane is 25 times more potent as a GHG than CO2 (from the Intergovernmental Panel on Climate Change).

        If we are talking about climate change, science tells us that this must be taken into consideration. This is a matter of measurement not politics. Although, partisanship has certainly entered into the debate.

        The energy industry would prefer to limit the discussion to CO2. It is easier to measure and price in the market and by discussing only CO2 it makes it appear that the move to natural gas will assist with climate change issues, even though it does not.

        Even the rhetoric with just CO2 can be misleading. It is true that from a strictly CO2 emissions comparison, natural gas plants emit less CO2 than equivalent size coal plants. However, Dominion plans to build many more MWs of natural gas-fired plants that run more often than the retired coal plants did. Their actual output of CO2 in Virginia will be greater than was the output of CO2 from the coal plants. Yet this is hailed as environmental stewardship.

        This twisting of the facts by PR departments gives our citizens and their shareholders a distorted view of what the actual impacts of their current policies will be. That is what I am attempting to clarify. Everyone wants to put their point of view in the best possible light. But it is very hard to have a reasonable dialogue these days when everyone uses a different framework for their “facts”.

  7. LarrytheG Avatar
    LarrytheG

    re: ” AND those emissions must be weighted by kind (notably, CH4, the dominant component of unburned n.g., is far more damaging per pound emitted than CO2)’

    which calls into question – Dominion’s claimed commitment of being “environmental” and “reducing greenhouse emissions” over the longer term.

    It’s insane for corporations like Dominion – who play such a fundamental role in Climate Change – to deal with it primarily with their PR department and continue without change – their stated intention to burn gas as a baseload replacement to coal to produce electricity .

    It’s like they are on a different planet and as long as this idiot DT and his GOP “skeptics” are in control – they’ll take us down a really bad path when all the science screams – ” be careful”.

    Dominion’s current “plan” is to build a pipeline and burn as much gas as is available to burn.

    I bet if Dominion actually allowed free debate about this in their shareholder meeting – that the vote would be even higher than the 48%.

    1. Acbar Avatar
      Acbar

      Yes it’s just PR. Totally myopic! Just like all those gasahol fans claiming huge benefits from ethanol without counting the impact of all the energy consumed to make the fertilizer to grow all that corn, or the impact on world grain prices and thus on 3d world countries.

      But be fair to Dominion here. The basic facts really are laid out nicely in that IRP they just filed. Only, it’s so long and complex a document that few will bother to read it, least of all the politicians in the GA. The SCC needs to interpret the document, draw some conclusions from it, provide a bottom line and policy recommendations based on it; IMO the SCC are Virginia’s designated “experts” and that’s where the fortitude is sorely lacking.

      You should read the comments TomH filed on his own with the SCC last year on Dominion’s 2016 IRP. He for one actually spoke up about all this!

  8. Acbar Avatar
    Acbar

    LarryG, you ask, “But how would PJM and the utilities control distributed solar? Does each and every on-site consumer and commercial, institutional solar have a utility-controlled switch that essentially lets the utility decide whether it wants solar from a given site?”

    The short answer is no. Switches (some grid-controlled, some automatic) are generally required by the local utility that can disconnect the distributed solar generation for safety reasons (particularly if the local grid is down and the utility is trying to prevent back-feeding while repairs are underway). But that’s not what you are talking about. You have to remember, in general, PJM’s task is to run the generation that at any given moment in time has the lowest marginal operating cost. The marginal operating cost of solar and wind is close to zero (there’s a small cost for routine maintenance every so many hours of operation particularly for wind turbines). The marginal operating cost of hydro is also close to zero but it’s a finite resource valuable for its quick responsiveness so some is held in reserve. Basically, if wind and solar are available, they will be allowed to run. They are considered both “intermittent” and “non-dispatchable” — that is, normally no effort is made to “control” them on or off, they generate whenever they generate.

    So what happens if the sum of all the solar and wind generation (distributed plus utility-scale) gets very large? If the peak daily load (late afternoon/early evening) is 100%, the typical load late at night (speaking VERY roughly) runs around 50% of that. So if the grid has around 30% solar generation on it, there’s another 70% of generation of other kinds to pick up the load as the sun gets low in the sky. When storm clouds move in quickly over a wide area, solar can drop off quickly too, but PJM can handle that with quick-response fossil generation — up to a point. Beyond that point the swings from sudden loss of solar (or wind) can become overwhelming and the grid potentially unstable. PJM says that point with current technology and current alternative generation options is around 30% solar.

    Notice, I lumped all the solar together. PJM doesn’t care whether it’s distributed or not.

    Now what would happen if the PJM grid became saturated with more solar gen than 30%? They aren’t going to say to customers “you can’t build it.” The likely outcome would be, they would mandate that LSEs (including Dominion, REC, etc.) deliver to PJM enough fast-response alternative generation under contract to deal with sudden-loss-of-solar situations that they could keep the grid stable. That would get expensive; and that expense would be reflected in the charges paid by LSEs and their customers for power supplied from the grid. Obviously, a customer with lots of distributed solar and other generation as well could choose stay off the grid entirely, but then he would have his own expenses for alternative generation and those would probably be higher than the grid’s (due to the grid’s diversity and efficiencies of scale). Either way, this would, of course, provide a powerful inducement for customer energy efficiency investments and for use time shifting (through, e.g., batteries and timed consumption).

    This scenario actually has played out already in reality. In California, misguided State policies have over-promoted solar to the point where there is more solar generation than the grid operator can handle. The cost impact is not reflected in higher cost for solar but in the increasing cost of the backup power. There really is a point where too much of a good thing is not helpful.

  9. LarrytheG Avatar
    LarrytheG

    re: ” But that’s not what you are talking about.”

    au contraire!

    I AM asking about how a large distributed solar capacity is controlled.

    beyond the central utility solar – but consider thousands, hundreds of thousands of site-installed consumer.. residential, commercial, institutional installations that will at some point be MORE than central utility generation sites.. gas or solar.. ?

    Does PJM or Dominion have the ability to shut down distributed solar if it is “too much” ?

    1. Acbar Avatar
      Acbar

      The ability? Yes. Would they? Not except in an emergency (but they get to decide what’s an emergency). If you want to read the details about exactly what switching and communications is required for distributed solar customers to interface with Dominion’s distribution system or the PJM-controlled transmission system, it’s all spelled out in their utility “tariffs” on file with the SCC and the FERC respectively.

    2. Acbar Avatar
      Acbar

      PG says, “You can split [the business community] into two types. The “New Economy” folks like Amazon and Google who see the need for renewables and believe the technology had grow to make them work well. The “Old Economy” companies including big metal, old style metal benders like shipyards and so on.”

      I can’t agree with that. It’s insulting to the many “old economy” business/ industrial/ institutional/military customers who have competent on site energy managers who are way ahead of the curve on energy efficiency measures, on signing up for curtailable load credits, on installing on site solar and other generation. Many others would do more but they are dying industries without the cash to make energy efficient improvements.

      And you overestimate the actual accomplishments of the likes of Amazon, a company that boasts about how much renewables energy it buys, but most of its arrangements are contracts for purchasing the output of remotely-located utility-scale generation — contracts that are designed for bragging rights — not on site distributed generation at Amazon’s facilities that might actually advance renewables technology or set a useful example for other businesses.

  10. TomH Avatar
    TomH

    Just a general note. The 30% limit for renewables in PJM is for the grid as it exists today. If we apply appropriate attention to the grid we can allow two-way flows of energy and information that will make it easy to incorporate a variety of distributed energy resources (renewables, storage, demand response, voltage and frequency support, etc.).

    This would provide a much more responsive energy system at a lower cost.

    We are at the crossroads of deciding which path to take. Continuing on the path of “all of the above” for new generation is risky, inefficient, expensive and loaded with environmental consequences. It might look good for utilities and their shareholders in the short run, but it could be disastrous for us all in the long term.

    We finally have solutions where we don’t have to make trade offs between the lowest-cost energy options and protecting the environment. It is only our unwillingness to explore options other than central station power plants, controlled by a utility that is regulated by a cost-of-service model that encourages them to build more whether needed or not that is holding us back.

    We have an opportunity to create a system where everybody wins, not just a few. Coal and nuclear interests might not fare too well, but market prices are likely to force them out in most any scenario, except forced policies and even higher subsidies.

  11. LarrytheG Avatar
    LarrytheG

    How is the 30% “limit” enforced?

    1. TomH Avatar
      TomH

      It is not “enforced” by PJM. That is the level at which they predict that today’s old grid that is managed by slow-to-respond electro-mechanical control devices might not be up to the task of maintaining stable operating conditions in the grid if variations in energy flow in the grid became too drastic. NERC, the national reliability council, spoke up about the reduction in reliability in the due to the closure of Yorktown 1&2. They do have the power of enforcement.

      Several states, New York and Maryland in particular, are looking to recast the role of utilities as Distribution System Platform providers (DSPS). Think of a “platform” as something like Google or Facebook. It is a space where information is exchanged and transactions are facilitated between numerous parties. Utilities would be well paid to develop a modern grid and to facilitate transactions between parties for grid services for distributed energy resources such as distributed renewables, storage, frequency and voltage control, demand response, and various other energy services. Scenarios have been run that show reliable grid operation at up to 80% saturation of renewables. This is the low-cost, maximum jobs producing option that our Virginia energy planners are so far failing to grasp. Energy efficiency is also a crucial part of this scenario.

      It would take a while to get all of this in place so we would not run the risk of unreliability while it was evolving. But if we selected this route, it would not make sense to invest in more expensive, less flexible modes of generation such as many of the units being proposed today.

  12. Peter Galuszka Avatar
    Peter Galuszka

    This is an old argument, but Dominion is scrambling to keep up with the changes that are coming along regardless of whether the utility likes it or not.

    One of the problems on this sponsored blog (or maybe even before the sponsorship), there was a steady, unassailable dogma:

    (a) Only big, base-loaded plants like coal or nukes can produce enough reliable power.
    (b) Big industry in Virginia likes it this way.
    c) Consumers should just shut up and appreciate what their all-wise, all-knowing utility does for them.
    (d) Forget all of those payments to political campaigns and do-gooder, big profile charities.

    The fact is the power mix IS rapidly changing. Solar is coming on strong. Coal has been upended by natural gas, which itself has plenty of issues. Nuke is dead after Toshiba and high costs.

    A lot of the “business” community gets this. You can split them into two types. The “New Economy” folks like Amazon and Google who see the need for renewables and believe the technology had grow to make them work well. The “Old Economy” companies including big metal, old style metal benders like shipyards and so on.

    It’s all tipping for renewables because most bright people in the world believe that climate change is real.

    So, you are seeing a slow and quiet change in Dominion’s tune. They realize that the strong arm approach on muscular base loaded plants isn’t really a solution with a long-term future. It’s also poor salesmanship, as Bogie might say. Renewables are where it’s at along with distributed networks that threaten to remove Dominion from the energy chain, leaving them and their shareholders with billions in stranded assets.

    The fact that so many shareholders are concerned about climate change should not be news. The thinking that had been expressed by the blog author is, like, SOOOO 1990s or earlier. No, shareholder naysayers are no longer exclusively nuns and the Birkenstock crowd. They have moved on.
    At least he admits it.

  13. TooManyTaxes Avatar
    TooManyTaxes

    Any sort of carbon charge will soon be manipulated by Wall Street; will not reflect any economic reality, any more that oil futures have represented supply and demand consistently over time; and will hurt most people economically. If the price of renewables is sinking and their reliability is climbing, market forces will cause much more renewable energy to be used. Shouldn’t market forces be permitted to work?

    And if you don’t think Wall Street will manipulate the artificial market, please tell what leads you to this conclusion?

    1. TomH Avatar
      TomH

      TMT,

      I think you might be referring to cap-and-trade programs for carbon reduction when you reference Wall Street manipulation. It is true that these types of programs have generally favored the Wall Street interests and have not had dramatic effects on choices for generation.

      The market forces are working within the auctions at the Independent System Operators (ISOs) such as PJM. Two weeks ago, FERC held a technical conference involving PJM, NY- ISO, and New England-ISO, who are the major players in the Eastern Interconnect Zone (the Midwest ISO is also involved). These groups seriously talked about adding a carbon price to the auction prices so that selections for new generation could be market driven. This process would not be subject to direct Wall Street manipulation as cap-and-trade schemes can be.

      This was a big issue because of the huge subsidies New York ($7 billion over 12 years) and Illinois gave to certain nuclear plants that the other utility operators said severely distorted the market process.

      Exelon, the big winner in the bailouts, complained that a carbon price might not be enough to adequately prop up nuclear units that are far out of the money.

      A carbon price also ignores the issue that I raised earlier about controlling carbon will incentivize natural gas over coal without actually creating lower overall greenhouse gases.

      1. TooManyTaxes Avatar
        TooManyTaxes

        TomH – who gets the proceeds from the carbon charge? What do they do with the revenue? What are the costs? What happens to the price of retail electricity? This has screw the consumer written all over it.

        This sounds to me like price fixing that violates the Sherman Act.

        1. LarrytheG Avatar
          LarrytheG

          @TMT – how much would the carbon charge actually be if Dominion installs a lot more solar?

          You seem to think that there is no way to reduce carbon so fines have to be paid.

          the whole point of the carbon tax is to incentivize reduction of carbon.. not fines…

          1. TooManyTaxes Avatar
            TooManyTaxes

            Larry, is this a tax? If so, a legislative body must enact it. Since we are dealing with interstate commerce, only Congress has that authority.

            If it’s not a tax, it has to be a legitimate expense/investment subject to depreciation/amortization that also earns a rate-of-return. A utility cannot simply propose to charge more to recover an non-existing expense. That’s just a higher profit in excess of a reasonable rate-of-return.

            This is no different than if Dominion were to impose a charge for every vehicle that drives on I-95 through Richmond. It’s a bogus cost not incurred by PJM or Dominion.

            We live in a system that allows government to do or to authorize others to do things when there is a law that clearly permits or implies the power to do something. We don’t live in a world where government can do or allow others to do something unless there is a law prohibiting it. Where is the justification for PJM et al. to impose a carbon fee?

        2. TomH Avatar
          TomH

          TMT,

          They have not gotten that far in the discussions. One option that was mentioned was to give it back to the states and they could invest the funds in improving the energy efficiency of substandard housing which would help low-income residents and would lower the costs to all of the users on the grid by lowering peak usage.

          The carbon price in the ISO auctions would affect only the wholesale price. The effect on retail prices would still be up to the individual state regulatory commissions. Some price changes could flow through as part of the fuel cost adjustment.

          The intent behind a carbon price is to include some of the external costs of fossil fuels (health effects, environmental degradation, climate change, etc.) in the price of the commodity itself. To the extent that the carbon price reduces fossil fuel use, consumers would actually save money because only a portion of the true costs of fossil fuel use is likely to be reflected in a carbon price. The electricity industry would rather have a market signal determining the choice of new generation than a hodgepodge of state regulations and incentives variously affecting generators throughout a multi-state region.

          There is a Regional Greenhouse Gas Initiative that various states have joined to make a regional approach to controlling GHGs (not just carbon). Virginia is not a member.

          This is not price fixing. It is adding a cost that is already being paid in other ways and making it a bit more visible. The cost is reflected in an open market so people have a choice about whether to use one option or another. With price fixing, the entire market (or a majority of it) colludes to fix a price for the benefit of suppliers and the detriment of consumers.

          Wholesale electricity suppliers would not benefit from a carbon price. To the extent that non-carbon generation such as renewables would be selected over fossil sources that will only increase in price during their service life, consumers would benefit from a lower wholesale price and lower external costs.

          A carbon price would also keep financially marginal nuclear plants in the market. But it would not be large enough to allow very high-priced old or new nuclear units to be price competitive.

          This is all in transition and transitions are difficult. Certainly merchant generators that have a high proportion of fossil units in their fleet are not excited about this change. But the energy industry would prefer a market based solution rather than a regulated one. Agreeing on the right price won’t be easy. It will still ignore the overall GHG effects so it will be a distorted price signal that appears to deal with climate issues, but really won’t.

          That is why I recommend we start with energy efficiency in Virginia, so we postpone the need to build new large central station generation of any type. Renewables can be added to deal with intermediate and peak loads and lower our costs. And we can take the time to decide the best way to recast the role of our utilities and find the best way to pay them so they can prosper by doing the things that are important to our energy future.

          1. TooManyTaxes Avatar
            TooManyTaxes

            Where does PJM get the authority to charge a carbon fee and spend the money on rehabbing housing? Or pocketing it? And if the costs are sustained by others, why aren’t the costs going to those incurring the injuries – say those developing COPD due to bad air quality. This is the filth that constitutes the greater D.C. area in action – trying to take money from ordinary people to satisfy some people’s political goals.

            If the wholesale market for electricity is at all competitive, then any agreement among those competitors to establish a higher price for electricity is price fixing. The FTC says: “Price fixing is an agreement (written, verbal, or inferred from conduct) among competitors that raises, lowers, or stabilizes prices or competitive terms. Generally, the antitrust laws require that each company establish prices and other terms on its own, without agreeing with a competitor. When consumers make choices about what products and services to buy, they expect that the price has been determined freely on the basis of supply and demand, not by an agreement among competitors. When competitors agree to restrict competition, the result is often higher prices. Accordingly, price fixing is a major concern of government antitrust enforcement.”

            And under the Sherman Act, this can be a criminal offense. If I had a client who was a member of PJM, I’d instruct the client to leave any meetings/calls whenever a carbon charge was being discussed.

            The truth of the matter is that those seeking these changes cannot get a majority of votes in both houses of Congress to do this and are working to gouge the consumer illegally. It’s the same as the Paris Accord. Obama didn’t have the votes to get a treaty confirmed, so the U.S. is not bound.

  14. LarrytheG Avatar
    LarrytheG

    re: “market forces”

    any talk of Wall Street “market forces” in the same sentence as Dominion is …. ummm… should I be “nice” or not?

    The reality is that Dominion is a powerful monopoly that successfully manipulates the market through favorable laws it has sought through the Va Ga despite the cries of would-be competitors as well as others.

    We should be so lucky as to have a “market” in Va and it’s getting to point that without real market forces that Dominion is doubling down on it’s stance to slow down/inhibit widespread adaptation of solar.. to everyone’s detriment – including itself.

  15. TomH Avatar
    TomH

    The Governor’s EO 57 task force has just issued a recommendation to develop methods in Virginia to reduce our carbon footprint. I expect it will take some time to develop the details of this initiative.

    Again, this gives a disproportionate advantage to natural gas by ignoring the high GHG contribution from methane.

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