Jefferson Policy Journal

Given a choice between an energy future that is a) dependent on generation using sun, wind or falling water, or b) dependent on thermal sources using fossil fuels or uranium, or c) a combination of both, which do Americans prefer?  Should it surprise anybody that the answer is both?

Reliance on both, the need for at least a substantial amount of electricity not depending on weather, is at the heart of the recommendations coming at Virginians from many directions.  It came recently from the Federal Energy Regulatory Commission, including the Virginian on that panel, Mark Christie.  It is the premise for both Virginia Governor Glenn Youngkin (R) 2022 Energy Plan and Dominion Energy Virginia’s new integrated resource plan.

The message is being disputed by the advocates for the rapid retirement of existing coal and natural gas generation, many of whom are (sadly) also strongly anti-nuclear. But a recent poll shared with the Thomas Jefferson Institute for Public Policy indicates the message of maintaining traditional baseload strongly resonates.  It does so across party lines.

The American people are receptive to the message because they already believe that fossil fuels will continue to be around, and surprising percentages of them would like to see their use expanded.  The number of Americans dubious of reaching the poorly defined target of “net zero” by 2050 – a Shibboleth among Democrats — is higher than the percentage who believe it possible.

A recent poll by Hearts + Minds Strategies of Reston, with the Thomas Jefferson Institute an invited listener to the discussion (watch it in full or read a summary here), underscores this assertion. This was not a confab of climate catastrophe skeptics.  Quite the opposite.

Its polling found a large majority (72%) of Americans, even 69% of identified liberals, want the U.S. to be energy independent.  Asked about whether they wanted traditional energy sources, renewable, or both, 64% said both and 23% said traditional only.  Only about 1 in 8 respondents favored pure renewable.

That bears repeating.  Of the 1,000 polled, 87% favored either full reliance on thermal generation or some combination of traditional and renewable generation. Only 13% favored renewables exclusively.  The rigid Democratic positions of “green only” are in response to just a subset of their own core voters.

Looking at various energy sources, solar and wind were the most popular, with oil and coal the least popular.  But 67% favor either expansion or retention of natural gas, with only 19% advocating its retirement. A quarter of Democrats favor gas expansion.  Nuclear power’s support remains soft, with only 25% favoring expansion and 28% favoring retention, combining to a bare majority.

Given just two choices, support or opposition, 56% overall favored expansion of domestic energy production (oil and gas included) and only 14% opposed it.  On related infrastructure, 58% favored expansion and only 12% opposed.  The crosstabs were not shared, but those figures cannot represent just Republicans or conservatives.

Asked whether they believed “net-zero” was probable by 2050, only 5% said definitely yes and 22% probably yes.  The definitely not and probably not groups added up to 39% with 33% not sure.  Plenty of liberals and Democrats were among the skeptics, although one of the analysts said parsing the results by age in a different poll produced more dramatic gaps.

The youngest voters embrace the climate apocalypse narrative.  That is the case in both parties, although among the youngest Democrats the results approach unanimity (99.4%, the analyst says on the recording.) Look to the schools and 30 years of a unified media message of alarmism for explanation.

It is not surprising that people who have lived through five or six decades of weather are less susceptible to the nonsense that every storm or drought is a sign of imminent climate catastrophe.  The good thing about youth and inexperience is time cures both (but probably not before the next election.)

Again, the Youngkin Energy Plan and new Dominion IRP line up very well with those attitudes, even though the poll was national and not just a Virginia sample.  The people are ready to hear and accept the advice coming from FERC, the regional transmission organization PJM and our own FERC Commissioner Christie.

Every time anybody preaches the message that we can run a modern economy on wind and solar, it should be challenged.  Politicians and industry should not be afraid to engage with a contrary message of the need for balance, diversity and reliability.  The American people are smarter on this than many give them credit for.

Simpler is usually better.  Monthly electric bills for many Virginians are about to get less complex, and in the short run also lower.  Will that lower cost be long term?  It is too soon to tell.

On July 1 Dominion Virginia Power will stop collecting separate monthly payments on its bills for three of its newer power plants, all now covered by their own stand-alone rate adjustment clauses or RACs.  This change flows from the major regulatory revision the General Assembly recently adopted and does not need State Corporation Commission approval.  Dominion instead notified the SCC of this change.

This is a different filing than the one about collecting its unpredicted fuels costs, and while they were announced together on May 1, really needed its own analysis.

The three generation RACs to be retired are Rider R for the Bear Garden natural gas plant, Rider S for the Virginia City Hybrid Energy Center which burns coal and biomass, and Rider W for the Warren County natural gas plant.  Combined they are collecting about $350 million per year from customers for operations, capital costs and utility profits.

Dominion’s proposal to delay collection under Rider A of its excess fuel expenses from past years until it can roll them into a 10-year bond does not constitute “bill relief.”   Baking these RACs into base rates, on the other hand, may prove beneficial over time to its customers.  Whether that is true and by how much won’t be clear until Dominion files its next overall rate case.

Using the standard illustration for residential users of 1,000 kWh usage, this will save that account about $6.75 per month.  Different customer classes pay different amounts per kilowatt hour for these RACs.  Larger commercial and industrial customers pay less, in some cases about half the cost per kilowatt hour.  The changes to their bills from this consolidation will thus be less dramatic.

When the state rewrote its regulatory laws in 2007 and created the opportunity for the plethora of individual rate adjustment clauses now in place, the original intent was some would be short term.  As the company went through periodic rate reviews, the opportunity would exist to fold them into the base rates.  Under traditional ratemaking, pre-2007, these separate charges were rare and new generation plants were all paid for through base rates.

The intent to routinely retire the rate adjustment clauses was just one of several parts of that 2007 bill which never came to pass.  Now, however, it is finally happening.  When Dominion does file that application for a full rate review later this year, using the new rules in the 2023 bill, one of two things is likely to happen.

It may not seek any adjustment in its current base rates and may instead decide to continue paying the operational and capital cost for these three facilities with the existing charge.  That will be viewed by some as strong evidence that the base rates have been excessive all along, as many claim (including the SCC.)

Or Dominion may indeed seek an increase in base rates blamed in part on covering these costs.  Which will be fine.  But that will mean the “bill relief” now being claimed was only temporary, as with the fuel costs.  Theoretically, adding the cost of these plants into base rates might also prevent a base rate reduction the SCC would otherwise have ordered.  The SCC accounting process should sort that out.

Ideally, base rates should be designed to cover the cost of service, cost of capital and provide the allowed profit margin with no excess in either direction.  For the past fifteen years most cases have involved fierce arguments over whether the utility had earned excess profits, and if so whether customers were owed refunds.  In many years the SCC ordered such refunds.

This move won’t change that argument in the next review, which will look back at the period ending December 31, 2022.  For that period, all of the RACs will still be considered as outside of base rates and in their own silos.  It may still be that Dominion earned excess profits and owes customer refunds.

But the better outcome going forward is setting base rates which produce no excess or shortfall.  Putting these three RACs back into the general expense pot may move Dominion in that direction.  Perhaps one or two more conversions would be needed to complete the task, but whether the SCC has the authority to do that on its own may turn into another major legal battle.

The irrefutable bottom line which must always be remembered is one way or another, now or later, the customers pay for it all.  Shuffling the deck doesn’t change the outcome of the game.