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How Broken is Virginia’s Energy Regulatory System? Let Us Count the Ways

How badly broken is Virginia’s energy regulatory system? One recent State Corporation Commission decision on Dominion Energy Virginia’s proposed next wave of solar projects illustrates several of the problems. The projects are unimportant, routine. What matters are the policy failures revealed.

Only the rich can look at the future and yawn.

Virtually all of the participants in the case other than the utility itself, including consumer advocates and customers themselves, complained that the projects the utility wanted to build on its own were too costly, especially compared to alternative choices offered to Dominion by independent developers. The Attorney General’s Consumer Counsel was particularly aggressive. Even the Commission’s own hearing examiner agreed that two of the projects should be rejected over cost.

The Commission approved them all. So there is problem one: the Commission no longer has any real authority to decide what is reasonable and prudent and to deny projects on the basis of cost.

Virtually all of the participants in the case argued that Dominion is misreading the 2020 Virginia Clean Economy Act (VCEA), which set the share of wind and solar energy to be provided by outside sources under power purchase agreements at 35%. They argued that 35% is a floor but a higher percentage of energy could come from outside providers, especially if the costs were significantly lower that way.

The Commission, which had punted on the same question in earlier cases, came down firmly in favor of Dominion’s interpretation that the 65-35% split written into the law is not a floor but a mandate. Dominion is just getting started on building all the generation needed to satisfy the massive goals of VCEA, so the cost impact of this decision will grow. There is problem two: the General Assembly put a fixed limit into law on how much generation the utility must offload to less expensive providers.

The third glaring problem highlighted by this case, not a new issue but a basic one, is the level of secrecy surrounding the data.  Just how much cheaper electricity from the independent solar providers would have been has not been made public, and in arguing their points the advocates for competition couldn’t cite the hard numbers. They could only hint at the disparity, which will really add up over decades.

The SCC staff analysis once again is honeycombed with omissions and redactions, and entire testimony files are marked as too sensitive for the public to read.  The staff concluded many of the projects were not economical and would not normally make sense if not required by the VCEA. Their cost-benefit analysis is also highly dependent on future estimated costs for renewable energy credits, with those projections also marked secret and not disclosed.

The SCC staff analysis also illustrated problem number four. In drafting the VCEA, Dominion invented a cash penalty ($45 per megawatt hour) it would face for failing to meet VCEA targets. Having invented the fine out of thin air, it then uses avoiding the fine as a “benefit” to consumers in running the cost-benefit analysis on these projects. It also inserts into the calculation a social cost of carbon, an equally arbitrary number with no basis in real world costs.

So problem four is how the economic decisions on energy choices are now based on imaginary numbers, what others might deem to be fudge factors.  They make more expensive alternatives to reliable fossil fuel or nuclear generation seem to be of similar or lower cost, when in reality they are not.

Problem five is the remaining and seemingly persistent vacancies on the Commission itself, and the political stalemate that represents. The regulatory body is unable to perform its constitutional duty. This leaves the General Assembly in an even more dominant position.

This decision was signed by the panel’s only sitting member, Commissioner Jehmal Hudson. He was joined by former Commissioner Patricia West, sitting in as a substitute judge despite being intentionally removed by Democrats in the General Assembly a few years ago. The 2023 General Assembly has come and gone without filling two vacant seats, and any temporary appointment made by Governor Glenn Youngkin might last only until the General Assembly returns next January.

To recap:

1) The regulatory body lacks the authority to say no to a monopoly utility on the basis of excess cost, not if the projects are needed to comply with VCEA.

2) The General Assembly has locked in a guarantee that the utility will own 65% of the solar, battery and onshore wind projects and reap profits on billions extracted from ratepayers over decades. Dominion is developing 100% of the offshore wind, the main cost driver. Governor Glenn Youngkin’s recent effort to create competitive bidding for offshore wind was summarily executed by legislators.

3) The key financial analyses and comparisons are secret for no valid reason.

4) The key financial analyses are heavily tilted in favor of utility-owned wind, solar and battery and against fossil fuel or nuclear power by the invention of an arbitrary cash penalty for failing to meet the VCEA’s renewable energy goals and imposition of an arbitrary social cost of carbon. The majority Democrats in the Virginia Senate have killed efforts to include nuclear power as renewable.

5) The Commission itself is hamstrung by having two of its three seats vacant, leaving the legislature dominant. The blunt message of who is charge has been reinforced by the partisan removal of two duly elected SCC members, one rejected by Democrats and one by Republicans.

There are other problems, but those five are major.  Barring a course change, Virginia’s next decade will be dominated by an expensive, forced transition from reliable and diverse energy sources to almost totally electrified transportation, home and office heating and cooking, with more electricity drawn from unreliable, intermittent generation.

Working folks and the poor will feel real pain. Only the rich can look at the future and yawn.

Steve Haner is Senior Fellow with the Thomas Jefferson Institute for Public Policy. He may be reached at [email protected].

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