By Peter Baqué
Richmond Times-Dispatch
The customers of Virginia’s two largest electric companies will pay over $1 billion more than necessary for new power plants and renewable energy programs under the state’s utility regulation law, according to a report by Attorney General Ken Cuccinelli.
Bonuses, called “adders,” allowed by Virginia’s electric utility law cost customers of Dominion Virginia Power and Appalachian Power far too much for the benefits they produce, Cuccinelli said.
The two utilities disputed Cuccinelli’s claims, saying the law is working as intended for the public benefit.
The report, released Thursday, focused on the law’s financial incentives for meeting renewable energy portfolio standards and for building power plants.
“This is a very favorable deal for the two utilities,” Cuccinelli said.
The renewable energy portfolio incentives — which will cost customers of the two utilities about $740 million — “are outrageously expensive in relation to what we get, which is nothing,” the attorney general said.
And the companies will be earning an estimated $284 million as incentives to build power plants they would have constructed even without the bonuses, Cuccinelli said.
“And if that’s true,” he said, “that just makes the electricity more expensive than it needs to be without changing whether or not the utilities would have gone through with the projects.”
The two investor-owned utilities took issue with the attorney general’s analysis of the bonuses’ efficacy.
“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,” Thomas F. Farrell II, Dominion Resources Inc.’s chairman, president and chief executive officer, said in a statement Thursday.
“Highlighting a few isolated elements of this act,” Farrell said, “without considering the whole fabric of this thoughtfully crafted legislation threatens to unravel the common good.”
An Apco spokesman said the state’s utility regulation law “has indeed resulted in increased investment in the commonwealth, and, in our case, increased renewable energy going to our customers, which is what the General Assembly intended to happen.”
According to Cuccinelli’s report:
• Dominion Virginia Power’s renewable energy portfolio will cost its customers $616 million through the program’s life, ending in 2025.
• Dominion Virginia Power’s bonuses for four new power plants will add $274.4 million to customers’ bills over their terms.
• Appalachian Power’s renewable portfolio will cost its customers $124 million.
• Apco’s eventual bonus for its Dresden power plant — located in Ohio — will be $10.2 million.
The renewable energy and power generation adders should “be eliminated or significantly changed,” Cuccinelli’s report said, “as they are not meaningfully advancing the goals of protecting customers from price volatility and unnecessary rate increases, promoting reliable electricity, promoting fuel diversity, providing environmental benefits and stimulating economic development.”
The adders, created when Virginia’s electric utility law was revamped in 2007, allow utilities a higher return on equity — or potential profit — for meeting renewable energy goals and building new electric generation facilities. The law only applies to Dominion Virginia Power and Apco.
Richmond-based Dominion Virginia Power is the state’s largest electric company with 2.3 million customers, most in the state’s heavily populated urban crescent. A subsidiary of American Electric Power, Appalachian Power serves about 500,000 customers in Southwest Virginia.
“It’s important that Apco and Dominion be healthy, well-run companies,” Cuccinelli said Thursday. “We’re not trying to starve them.”
But, the report said, the renewable portfolio standard adder has not improved the environment “because, by and large, the utilities have not built any new renewable energy facilities to comply with the (program’s) goals.”
The power companies have instead met the program’s goals largely by buying renewable energy certificates from existing renewable facilities, including hydroelectric plants that have been in service for more than 80 years, the study said.
Renewable energy certificates — also called RECs — are tradable commodities representing the renewable energy attributes of energy generated from a renewable source. For example, if a hydroelectric plant produces 50 megawatt-hours of electricity, a utility can buy the attributes of that energy as 50 RECs without buying the actual energy output.
The renewable bonus on the utility’s rate of return is awarded on most of a utility’s assets, including those that have nothing to do with renewables, the report noted.
“The (renewable portfolio standard) program as currently drafted does not provide incentives to actually build real-world projects,” said attorney Cale Jaffe with the Southern Environmental Law Center in Charlottesville, which represents environmental interests in utility rate cases before the State Corporation Commission.
“If the utility wants to meet the goals,” Jaffe said, “then it should have to come forward with real-world iron-in-the-ground wind and solar projects.”
Dominion Virginia Power pointed out that its typical residential bills are lower today than they were in 2008, “despite the company’s ambitious electric infrastructure upgrade program.” Its electric rates are 16 percent lower than the national average and 22 percent lower than the East Coast average, the company said.
The utility also is converting three coal-fired power stations to burning wood waste, and launching a pilot solar generation program.
Bonuses for constructing power plants have “substantially increased” what the utilities charge customers, Cuccinelli’s report said. The generation adders for the projects already approved will increase the companies’ combined revenue requirements by an estimated $284 million over the adders’ term.
But the state’s big power companies “should not be criticized for making beneficial business decisions based on choices provided or incentives offered by the law,” Cuccinelli said. “The question going forward is, Should Virginia leave them with all of those same incentives funded by ratepayers?”
As attorney general, Cuccinelli represents the interests of customers in electric rate cases before the State Corporation Commission. Cuccinelli said he will seek reform of the state’s electric utility regulation law.
He also is seeking the Republican nomination for governor in 2013.