The Electricity Reality Report provides readers like you with news and timely analysis on policies, markets, and technology trends that affect our nation’s ability to power American homes and businesses with reliable low cost energy.
In today’s issue:
- The $3.5 trillion reconciliation bill’s huge program to boost clean energy gives funds to monopoly utilities but ignores competitive power producers. Senator Manchin also wants it to include natural gas.
- A new study finds states with monopoly power have more expensive, less reliable electricity with greater emissions.
- As Western states move toward an RTO, electric utility companies set up a group that could lead to more integration, but critics say it falls short.
- Virginia customers of Dominion Energy are entitled to less than 30% of the company’s overcharges. Why?
- Small businesses in Alexandria, Virginia bear the brunt of an outage; Is Dominion Responsible?
- Auditors in Ohio are urged to soften their criticism of consumer bailouts of failed power plants. An example of regulatory capture?
- A Georgia nuclear plant gets set to open in 2022 with ratepayers on the hook for billions in cost overruns and years of delay.
- As a former utility CEO heads to prison over a failed South Carolina plant, consumers are left to pay.
Glaring Omissions From $150 Billion Measure to BoostClean Energy in Congressional Reconciliation Bill
Sen. Joe Manchin of West Virginia, the centrist Democrat who has emerged as one of the most powerful elected officials in America, wants natural gas to play a key role in President Biden’s clean-energy agenda – a stance which, according to an Oct. 3 article in The Hill, “puts him on a collision course with Democratic lawmakers who worry he will have the power to water down what they see as a once-in-a-generation opportunity to address climate change.”
Manchin also recognizes another glaring omission in the bill. It favors monopoly utilities at the expense of the companies that are doing the most to drive clean energy: competitive power producers.
The chair of the Energy and Natural Resources Committee, Manchin is advocating that his panel have sole jurisdiction in the Senate over the $150 billion Clean Electricity Performance Program (CEPP). That program will give grants to utilities that boost their use of clean-energy sources.
The CEPP, a modified version of the Clean Energy Standard, was originally part of the bipartisan infrastructure bill but eventually dropped from the $1 trillion bill that passed the Senate bill in early August. Now, it is back as part of the Biden Administration’s $3.5 trillion reconciliation bill, which addresses, among other issues, social welfare, climate change mitigation, and taxation.
In the current model, independent power producers would not get direct payments from the CEPP because they sell their power to utilities instead of residents. Yet independent power producers generate most of the country’s renewable energy. In 2020, they were responsible for 89% of large-scale solar output and 85% of all other renewables according to the U.S. Energy Information Administration data.
Manchin is concerned that the CEPP gives preferential treatment to monopoly electric utilities with a captured ratepayer base. Manchin last month said that his party would be foolish to spend money promoting a change that is already occurring. “Now they’re wanting to pay companies to do what they’re already doing. It makes no sense to me at all for us to take billions of dollars and pay utilities for what they’re going to do as the market transitions.”
Another major complaint about the CEPP is that there is no “requirement that electric companies choose the cheapest way to add clean power to the grid, which would be done through a competitive bidding process,” reported a September 24 Politico article. “Some large renewable energy developers are concerned,” she wrote, that monopoly utilities “will opt to build all the clean energy projects themselves so they can recoup the cost of those capital investments plus earn a profit.”
The CEPP program has avid cheerleaders in Congress, however. It could lead to “the biggest change in our energy policy since the lights went on,” Sen. Tina Smith (D-Minn) told Vox.
But Manchin has his own ideas. He wants to define natural gas as “clean energy” – in direct opposition to the House Energy and Committee, which, according to The Hill, “specifically excluded natural gas from the clean energy program by defining clean energy as having a carbon intensity of less than 0.10 metric tons of carbon dioxide per megawatt hour.”
When The Hill asked Manchin whether he would insist on natural gas being part of Biden’s clean energy standard, Manchin said “it has to be.” He added, “I’m all for all of the above, I’m all for clean energy, but I’m also for producing the amount of energy that we need to make sure that we have reliability and I’m concerned about that.”
New Study Finds States With Competitive Electricity Markets Have Lower Prices, Better Reliability, and Reduced Emissions
A new study released Sept. 28 by the Pacific Research Institute, which publishes this newsletter, concludes that “states with competitive electricity markets saw cheaper energy prices, more energy infrastructure investment to improve efficiency and reliability, and greater emission reductions compared to monopoly states.”
According to the author, Wayne Winegarden, Ph.D., a senior fellow in business and economics at the California-based think tank, customers in monopoly states also “endure less reliable power systems.” He added, “Residents and businesses lose out when states cling to outdated government-mandated electricity monopolies.”
The 38-page study, titled “Affordable and Reliable,” found that “empowering generators to compete with one another in established wholesale markets has led to significant declines in wholesale electricity costs.” For example….
- Prices in PJM [a regional transmission organization, or RTO, serving Pennsylvania, New Jersey, Maryland, and 10 other states and the District of Columbia] were 41.7 percent lower as of 2020 and at $21.40/MWh were the lowest prices of the competitive markets examined.
- Prices in the New England ISO [Independent System Operator] were 44.3 percent lower as of 2020
- Prices in the Lower Hudson Valley zone of the New York ISO were 26.0 percent lower as of 2020
- Prices in the New York City zone of the New York ISO were 44.8 percent lower as of 2020.
The study also found that since competition was fully implemented in 2008, the 14 jurisdictions with retail electricity competition experienced an average price decline of 0.3% compared with a 20.7% increase in states lacking retail competition, according to U.S. Energy Information Administration (EIA) calculations.
“Four of the five states with the lowest price increases during the period (Pennsylvania, Illinois, New Jersey, and New York) were competitive states,” said the study, “while the ten states with the largest price increases were monopoly states.
As for reliability, the study looked at two common measures: SAIFI, which indicates frequency of sustained interruption, and SAIDI, which indicates the duration of a sustained recovery. SAIFI was 10.4% lower and SAIDI 6.5% lower in states with retail competition compared with monopoly states.
Competition was critical to reducing emissions as well. A review of EIA data found that between 2008 and 2018, emissions in competitive states fell an average of 12.1% vs. 7.3% in monopoly states. Said the study: “Competitive retail markets empower consumers to express their electricity preferences, including receiving power generated from lower-emission sources.”
As Western RTO Push Gains, Utilities Respond With Groupto Explore More Integrated Energy Grid
The movement to create a more integrated energy grid for the West gained strength as a group of utilities announced Oct. 6 they had formed the Western Markets Exploratory Group, which is “looking into a staged approach for new market services, including day-ahead energy sales, transmission system expansions, and other power supply and grid solutions,” according to a report in Power Markets Today.
The formation of the group, which aims to boost renewables, came as officials in several Western states have taken steps toward forming an RTO for the region – a more definitive encouragement to competition.
“It’s good to see the utilities publicly acknowledge the benefits of regional markets and collaboration, but, as described, this announcement by utilities falls short of the urgency of the moment,” said Amisha Rai, a managing director at Advanced Energy Economy, a national business organization that supports an RTO for the West.
“The stakes are too high,” said Rai, “for slow and small steps.” Instead, an RTO “is needed to achieve truly reliable, affordable and expanded clean energy in the region.” Rai was quoted in an Oct. 7 Politico report.
A market study backed by the Department of Energy recently found “annual benefits of up to $2 billion from a western RTO in 2030,” according to a news release last month.
We reported in our Newsletter No. 4 last month that “momentum is building in the West to establish one or more RTOs. Public officials in Arizona, Colorado, and Nevada are all exploring the concept, and Oregon is taking major steps.” Electricity Reality Report added:
There are currently seven RTOs operating around the country, covering 60% of the U.S. population. The main gaps are in the Southeast and the West, but interest in the West is accelerating, both in the region and in Washington. Richard Glick, the FERC chairman, said recently, “I believe there needs to be an RTO in the West. I think the time has come for it.” He added, “This commission has been very deferential and will continue to be deferential to the region. But, at the same time, I think those discussions need to move forward instead of working incrementally.”
Rai is paraphrased this way by Power Market Today: “Regional markets create substantial carbon reduction, improve grid reliability, and cut costs for consumers – but only a full RTO will maximize these benefits. Incremental steps would not meet the requirements of recent legislation in Colorado and Nevada and would fail to maximize benefits to consumers.”
Members of the Western Markets Exploratory Group include Arizona Public Service, Black Hills Energy, Idaho Power, NV Energy, PacifiCorp, Platte River Power Authority, Portland General Electric, Puget Sound Energy, Salt River Project, Seattle City Light, Tucson Electric Power, and Xcel Energy-Colorado (Public Service Co of Colorado).
Dominion Earns $1.1 Billion Over Proper Rate of Returnin Virginia, And Customers Are Shortchanged
In an ongoing review of the company’s books, the State Corporation Commission (SCC) staff filed testimony Sept. 17 that found Virginia monopoly power provider Dominion Energy had earned more than $1.1 billion above its state-guaranteed rate of return.
The staff discovered that Dominion earned a profit of 13.61% from 2017 to 2020, compared with a fair return on equity [ROE] of 9.2%, according to state law. But because of what the Richmond Times-Dispatch calls “several state laws friendly to the utility,” Dominion’s customers are entitled to a refund not of $1.1 billion but of $312 million.
The article states:
Dominion is the largest electric utility in Virginia, with about 2.6 million residential customers, and in exchange for a monopoly to provide electricity, the company agrees to a fair return under regulation by the SCC. If the company earns too little, the SCC could increase rates paid by customers. Or if it earns too much, the SCC can order refunds and rate cuts that are limited, however, because of Dominion-friendly laws.
Years of Dominion-backed legislation by members of the General Assembly has limited the SCC’s powers, even when it finds that Dominion earns too much.
A Sept. 25 editorial in the Fredericksburg Free-Lance Star stated that “state law basically gives Dominion a huge financial incentive to gouge its customers. And because the company is a state-sanctioned monopoly, they have nowhere to purchase electricity, one of the necessities of life.”
Also, stated the editorial, after “overcharging ratepayers far in excess of what state law allows, Dominion then had the gall to ask the SCC for an increase in its future profits, from a 9.2 percent ROE to 10.8 percent.” The SCC staff wants to reduce ROE to 8.7%, but the editorial says that the reduction – $50 million annually – is “a pittance compared to the $831 million in customer overcharges Dominion will apparently be allowed to keep.”
That extra $831 million is the result of several adjustments approved by friendly legislators. One is an “earnings collar” – that is, an allowance for an ROE that is over, but “close” to the statutory requirement. Another is extra profits to account for pandemic-related arrearages from customers who couldn’t pay their bills because of COVID-19 job losses. Rather than using federal money for this purpose, the legislature decreed that Dominion could keep excess earnings.
To add insult to injury, a Richmond Times-Dispatch article from Oct. 8 recently reported that the ongoing review of Dominion finances revealed “hefty dollar amounts” paid by the company to media influencers and lobbyists. While the company commented that customers do not pay for lobbying, civic, charitable giving and advertising expenses, amounts totaling close to $3 million to elected officials, former policymakers and journalists clearly support efforts to perpetuate these Dominion-friendly laws.
The Fredericksburg editorial concludes: “Dominion should be punished for gouging its customers. If that isn’t against the law, it should be.”
Small Businesses in Alexandria, Virginia Suffer Outages;Is Dominion Responsible?
Not only is Dominion earning more than the law says it should but the company on Oct. 2 perpetrated an embarrassing and, for some small businesses, costly power outage.
According to a report by AlxNow, an online news service for Alexandria, Va., when an estimated 50,000 people descended on Mount Vernon Avenue for the 26th annual Art on the Avenue festival, they found many restaurants and shops “forced to shut down” because of a power outage on the “busiest day of the year” in the Del Ray section of the city.
Dominion reported that the outage was the result of an underground switch malfunction and cable equipment failure. Power was restored only around 10:30 p.m. – after the event was over.
For example, Homegrown Restaurant Group’s Pork Barrel BBQ Restaurant, The Sushi Bar, and Holy Cow Del Ray lost a combined $30,000 in sales, according to their co-owner Bill Blackburn. The Dairy Godmother, another business, said on Facebook that it lost “4,000 kolaches [a type of pastry] and 1,500 donuts…due to the power failure.”
Mayor Justin Wilson said the City of Alexandria was considering a variety of options to improve service but was not specific. It is not easy to change the habits of a monopoly.
These hardships may sound minor, but they are especially harmful to small businesses at the mercy of an unreliable power provider. As the PRI study notes, states with monopoly power providers lack the reliability of states with competition.
PSC in Ohio Urges Softening Auditor’s Criticism ofCoal-Fired Plant Bailouts
Monopolies often have the benefit of cozy relationships with both legislators and utility regulators. A recent example of the latter case, which economists call “regulatory capture,” comes from Ohio. According to an Oct. 4 report by the Ohio Capital Journal’s Jane Zuckerman, staff at the Public Utilities Commission of Ohio (PUCO), which sets electricity rates, “asked an auditor it hired to use ‘a milder tone and intensity’ when describing bailouts of coal fired plants funded by residential and industrial electricity users.”
Zuckerman wrote that after reviewing a “non-public draft of the audit,” a PUCO employee cited “a few specific lines of concern in a September 2020 email to auditors, obtained via a public records request.” The reporter wrote that the employee specifically flagged language that stated, “keeping the plants running does not seem to be in the best interests of the ratepayers.” That phrase does not appear in the final publicly released version of the audit. Other phrases were also tempered after criticism.
There’s a backstory here.
Beginning seven years ago, PUCO approved requests from three utility companies – American Electric Power, Duke Energy and Dayton Power and Light (now AES) – to charge customers “riders” on monthly bills “to pay for coal bailouts through 2024,” said the Ohio Capital Journal article. “The utilities are some of the largest shareholders of a cooperative called the Ohio Valley Electric Corp., which owns the plants.” A PUCO audit was part of the deal.
The article continued: “In 2019, Ohio lawmakers codified the bailouts, expanded them to all residential and industrial utility customers statewide, and extended them through 2030 in House Bill 6.That legislation is now at the center of a federal bribery case.”
Zuckerman wrote, “Ohio ratepayers have spent $166 million bailing out the plants, one of which is in Madison, Indiana, and the other in Cheshire, Ohio.” The PUCO-commissioned audit ultimately concluded the plants “cost customers more than the cost of energy and capacity.'”
Ratepayers on the Hook for an Uneconomic Georgia Nuclear Plant
The Ohio case is not unusual. Throughout the country, monopoly power providers have found themselves with failed or hugely costly projects and have insisted that their customers pay for the mistakes.
As we have previously reported, in Georgia the Alvin W. Vogtle Electric Generating Plant was originally expected to cost $14 billion when regulators approved it in 2009. In June, the Wall Street Journal reported, “The only nuclear-power plant under construction in the U.S. is facing delays and additional costs. Again.” It’s now expected to open in the summer of 2022 – 13 years after approval – at a price tag of nearly twice the original estimate.
By opening, according to a report in the Atlanta Journal-Constitution, the average Georgia Power residential customer will have paid $854 toward the Vogtle expansion – with nothing to show for it during that period. Construction has proceeded, with the Georgia Public Service Commission’s blessing, despite PSC analysts saying back in 2017 that the project was “no longer economic.“
Ex-CEO Heads to Prison in South Carolina Nuclear Power Plant Debacle, With Consumers Again Covering the Costs
Meanwhile, according to an Oct. 5 Associated Press report, “An executive who spent billions of dollars on two South Carolina nuclear plants that never generated a watt of power, lying and deceiving regulators about their progress, is ready to go to prison.”
The PRI study released last month made reference to the South Carolina debacle:
Customers of South Carolina Electric & Gas (SCE&G) were forced to cover billions of dollars in costs for the construction of nuclear reactors that were never completed and generated no electricity because state regulators ruled that SCE&G could pass these costs along. It is important to note that these cost over-runs are not indicative of the technology but are an indictment of the cronyism inherent to the monopoly regulation model.
The executive, who was sentenced on Oct. 7 to two years in federal prison is Kevin Marsh, former CEO of SCANA Corp., who agreed to a federal plea deal with a two-year sentence. Working with Southern Co., the utility giant, SCANA had the goal of bringing nuclear power to South Carolina with a project estimated to cost $14 billion. The project included federal loan guarantees of $8.3 billion.
But, despite false promises about winning federal tax credits and other claims, the project failed. Last December, SCANA and a subsidiary, South Carolina Electric & Gas, “agreed to a $137.5 million settlement to resolve civil-fraud related charges,” the Wall Street Journal reported.
In a complaint filed in February 2020, the Securities and Exchange Commission stated:
By regularly communicating to the public that the project was progressing, SCANA misled investors and others as to the true status of the project and failed to disclose material information revealing that the schedule was unreliable, significant additional delays were likely to occur, and the critical tax credits were at risk.
Again, through the system of monopoly utilities under friendly regulators, the burden for this disaster fell on the electricity ratepayers of South Carolina.