By Kenric Ward | Watchdog.org Virginia Bureau
FREDERICKSBURG — In a campaign of strange bedfellows, an environmental group and Attorney General Ken Cuccinelli are attacking a complex bonus system that pads the profits of Virginia’s two largest electric utilities.
The conservative Cuccinelli — the bete noire of liberals and Democrats — found common cause with the Chesapeake Climate Action Network when he issued a report blasting $1 billion in rate “adders” bestowed by the state’s renewable-energy law.
“Cuccinelli’s critique is spot on,” said Dawone Robinson, Virginia policy director of CCAN. “We’re in lockstep agreement that the law isn’t building new-generation facilities. We’re in complete agreement that it isn’t producing ‘clean’ jobs in the state.”
Quirks and cozy loopholes in the five-year-old law have enabled Dominion Power Virginia and Appalachian Power Co. to cash in on the state’s “green” energy subsidy program, while not building a single wind or solar facility in the commonwealth.
“The Renewable Portfolio Standard adder has not served to advance the environmental concerns that led to its inclusion in (Virginia’s 2007 energy) legislation because the utilities have not built any new renewable energy facilities to comply with the RPS goals, but instead, have primarily relied on buying Renewable Energy Certificates from existing renewable facilities (in other states), including hydroelectric plants that have been in service for more than 80 years,” Cuccinelli’s report noted.
“The RPS adder has contributed to increases in customer bills and will likely have a significant future impact by allowing utilities to keep profits that exceed their (state)-approved fair return on investment, and reducing the chance that customers will be entitled to future rate decreases,” Cuccinelli said.
“Any benefits of the RPS adder are outstripped by its cost because the adder applies not just to investments in renewables, but rather, applies to a utility’s entire rate base,” the attorney general explained. The bonus formula is also referred to as a “gross up.”
“Thus, the bonus is awarded on most of a utility’s assets, including those that have nothing to do with renewables.”
The attorney general’s office, which represents Virginia consumers in utility rate cases, also blasted a related power “generation” adder, which Cuccinelli predicted will hike bills by $284 million over the next decade.
“For a typical large industrial customer … the (added) cost is estimated to be $57,000 per year,” he said.
And Cuccinelli warned that electric bills will go even higher if the utilities undertake more nuclear power projects, as planned.
“Under conservative assumptions, (that) would likely cost customers an additional $1.8 billion over and above actual construction costs and the (state)-approved rate of return.
“In this scenario, a large industrial customer would pay an additional $351,000 annually just to pay for the adder, over and above the ordinary cost of the project,” said Cuccinelli.
Dominion Power, taking a broader view, disputed the report’s contentions.
“An even-handed review of Virginia’s regulatory model would show it is producing the best of both worlds — more than $2 billion of well-documented customer savings combined with the largest privately funded catalyst of economic growth in the state,” said Thomas F. Farrell II, Dominion chairman, president and chief executive officer:
“By its own admission, this report largely ignores many key benefits of the law, including low electric rates, consumer protections, thousands of much-needed jobs, cleaner air and moving the state toward energy independence. Highlighting a few isolated elements of this act without considering the whole fabric of this thoughtfully crafted legislation threatens to unravel the common good.”
Dominion spokesman Jim Norvelle told Watchdog.org that the utility’s “typical residential bills” are lower today than they were 2008.
Chmura Economics & Analytics reported last year that more than $3.3 billion in economic activity and 14,000 jobs were created by the construction of Dominion generation projects.
Norvelle said Dominion “was on its way to becoming one of the largest biomass generators in the country.” He added that the company has a solar project pending before the State Corporation Commission.
Cuccinelli said that he was not necessarily criticizing the utilities.
“Their conduct and decisions are consistent with what reasonable companies would have done given the statutory framework that was put in place in 2007,” said Cuccinelli, who is the presumptive Republican for governor in 2013.
But Dominion, in a report to the State Corporation Commission last month, acknowledged that none of the resources used to meet renewable-energy goals to date were placed into service since 2000, seven years before the RPS legislation became law.
“In fact, it appears that the majority of Dominion’s RECs used to satisfy its initial RPS goals were purchased from out-of-state hydroelectric facilities placed into service in the 1920s,” Cuccinelli found.
“Because none of the resources that Dominion used to meet its RPS goals were placed into service during the current century, it is clear that the RPS goals have not resulted in Dominion’s construction of any new renewable facilities.”
CCAN director Mike Tidwell welcomed Cuccinelli’s critique, calling it “one more incentive for state lawmakers to strengthen Virginia’s renewable energy standard in the coming legislative session.”
The 2007 RPS legislation benefiting the utilities was sponsored by former state Delegate Clarke Hogan and Sen. Tommy Norment, R-Williamsburg. Hogan could not be reached and Norment did not respond to Watchdog’s request for an interview.
Both CCAN and Cuccinelli now recommend an overhaul of the law — though they’re taking different tacks.
While some conservatives in other states have opposed setting Renewable Portfolio Standards, Cuccinelli has not formally called for a wholesale abolition of Virginia’s voluntary green-energy goals. At least not yet.
“A review of the facts reveals that the (bonus) program adds to what customers pay, but returns virtually nothing in terms of environmental or other benefits,” Cuccinelli spokesman Brian Gottstein said.
“At present, the attorney general is seeking to have the RPS and generation adders repealed. He will be consulting with interested parties, including environmental groups, about ways to do that.”
For now, Cuccinelli’s report proposes a new formula that caps costs, eliminates generation adders and empowers the state to cut a utility’s rates for poor performance or inadequate customer service — even if the company met RPS goals.
House Speaker William Howell, R-Falmouth, could not be reached by deadline to discuss the legislative proposals.
Lt. Gov. Bill Bolling, who presides over the Senate and last week dropped his GOP gubernatorial bid, was at a lieutenant governors’ meeting in Iowa Monday and unavailable.
Contact Kenric Ward at [email protected] or at (571) 319-9824.
— Edited by John Trump at [email protected]