New Electricity Tax is Leading Edge of Rising Energy Costs

Posted on August 11, 2021 by Stephen D. Haner
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Next month, Dominion Energy Virginia customers will begin paying Virginia’s first direct carbon tax on their bills. The amount they pay to buy carbon dioxide allowances from the Regional Greenhouse Gas Initiative will not be listed on the bill separately but will produce a noticeable bump in price.

Not long after, another energy-related tax will be added to customer bills for both Dominion and Appalachian Power Company customers. This one, tiny at first but destined to grow, will create a fund to subsidize the electric bills of low income customers. If high use produces a big bill, above a level tied to their income, they will owe only part of it and the fund covers the rest.

Meaning you will help pay their bill. You will never see the words “Percentage of Income Payment Program” on the billing sheet, but you will start paying it soon. Legislation in 2021 capped the program at $125 million per year but that can and will be changed.

Both of these bill additions, each a tax per kilowatt hour, flow from recent State Corporation Commission decisions. Don’t blame the SCC. The General Assembly created both, just the leading edge of the wave of rising energy costs coming to Virginia.

Many but not all flow from the 2020 Virginia Clean Economy Act, a state level “green new deal” intended to end all use of coal or natural gas for making electricity by 2050. Other new laws are setting similarly aggressive goals for eliminating motor fuels and reducing fossil fuel use in home appliances and even agriculture.

Democrats openly promised to do all this if voters put them in charge. It is safe to assume more will be done in this direction if they stay in charge after November’s elections.

The SCC took one more recent step important in this transformation, starting the application and review process on Dominion Energy’s proposed offshore wind project 27 miles off Virginia Beach. That was the centerpiece of the 2020 VCEA, with the General Assembly all but ordering the SCC to approve up to 5,200 megawatts of offshore wind and dump the cost on its ratepayers.

The potential $37 billion all-in cost of the wind project will be the main reason for the huge electricity price spike that is coming. The SCC has issued warnings of 50 to 60 percent price increases in a relatively short period. When that wave hits, quite a few Virginians will be turning to that PIPP fund to cap their bills at a reasonable level. The rest of us will wish we could.

The carbon tax for RGGI will start at $2.39 for every 1,000 kWh of electricity use, for any kind of customers – residential, commercial, or industrial. Dominion will use the $170 million it collects annual to buy carbon allowances, and the money paid flows to state spending programs. According to the SCC order imposing the tax it could cost customers $3 billion over a couple of decades. Expect more.

One of the SCC judges, former Virginia Attorney General Judith Jagdmann, challenged the need for the RGGI tax. Writing her own version of the order on the tax, which was not something she could stop, she pointed to another part of the 2020 VCEA. It orders Dominion to stop all use of coal or gas by 2045. RGGI simply aims to reduce the use by 30 percent or so.

“The VCEA plainly states that the (Renewable Portfolio Standard) program requirements for Dominion shall be 100% by 2045. Thus, it remains unclear whether the significant cost required for participation in an additional cap-and-trade program – which is expected to cost customers billions of dollars – are necessary for Dominion’s and Appalachian’s ratepayers to bear in order to achieve the General Assembly’s carbon reduction objectives,” she wrote.

Jagdmann called RGGI and the RPS provisions “duplications.” They are not redundant if you understand the real purpose of Virginia’s participation in RGGI, which is the tax revenue. Money. It will give the government billions of dollars to spend, using a nearly invisible tax source. There was some discussion of the money flowing back to customers as bill credits. The General Assembly scotched that.

Once again, low-income Virginians are supposed to be direct beneficiaries, with RGGI dollars used to pay for energy-reduction home improvements.

This energy transformation has been largely under the radar for most Virginians, and it is not an accident that most of the costs will begin to arrive after the 2021, 2022 and even the 2023 elections. When discussed at all, the cost is obscured by claims that these steps are necessary to prevent a world-wide catastrophe from carbon emissions.

But as Jadgmann quietly underlined with judicial understatement, the program is riddled with duplications and contradictions. The wind application when dissected will demonstrate a massive profit motive at work for both utilities and the wind energy industry, eager to crush its fossil fuel and even nuclear competitors.

A disappointing note to close on: Jadgmann’s voice was a lonely one. The other two commissioners, both elected by the Democratic majorities in power since 2020, chose not to join her and kept those comments out of the main body of the ruling. The cost and duplications may not trouble them as much as they do her.

Stephen D. Haner is Senior Fellow at the Thomas Jefferson Institute for Public Policy. He may be reached at steve@thomasjeffersoninst.org.

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Ready to Spend $26,000 to Eliminate Your Gas Appliances?

Posted on August 5, 2021 by Stephen D. Haner
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Maybe not today or tomorrow, but soon the War on Fossil Fuels will be fought in the equipment room or garage of your house. A push to prohibit new natural gas connections and remove existing home gas services is inevitable if Virginia’s current leaders are serious about zero carbon emissions within 20 to 30 years.

Refitting a home with natural gas appliances to all-electric, the dream of some utilities who need not be named, is likely to cost well over $20,000. That figure has been helpfully compiled in a state-by-state analysis by the Consumer Energy Alliance (CEA), with a fact sheet specifically on Virginia. It reads in part:

An energy ban could cost as much as $26,132 for a Richmond household to retrofit existing appliances. depending on the appliance models, home configuration, labor, and reliance on natural gas. These findings dovetail with previous CEA research that found that the cost to replace major gas appliances in homes nationwide would be more than $258 billion. Further, as the report shows, a tremendous amount of new transmission infrastructure will need to be built at significant cost to Virginians to meet the demands to “electrify everything.”

One third of Virginia’s homes use natural gas for heat. The largest part of the conversion expense would be replacing gas heat with electric, which CEA estimated would cost $20,000 (and with all the labor and if you need ductwork, it could).

Then the CEA review adds in the cost of an electric hot water heater and range, plus the cost to upgrade your electric service to at least 200 amps. That decorative gas log fireplace in the family room? Forget about that. Gas is used in some clothes dryers, and propane is also a popular fuel choice. In a zero-carbon- emissions world, they must go.

The advocates of these pie-in-the-sky energy transformation promises, either at the federal level or here in Richmond, never own up to the consumer costs. They shy away from discussing how much that Transportation and Climate Initiative will tax motor fuels, how much the Regional Greenhouse Gas Initiative is going to add to electric bills, and the massive capital expense behind the Virginia Clean Economy Act.

No Virginia locality has been proposing this, but elsewhere (California, Washington) it has been adopted by local governments. The issue is also active in three of the Regional Greenhouse Gas Initiative states in the Northeast. Virginia, now a RGGI state, cannot be far behind.

Nineteen U.S. states have passed a ban on these bans, prohibiting such local ordinances, according to an S&P Global article. The map used as illustration above shows them. A recent Wall Street Journal article discussed how California restaurant chefs are fighting to keep their gas stoves.

In Great Britain it is a national effort, with the government pushing to replace 600,000 gas and oil boilers per year by 2028, but anti-CO2 activists are pushing for 900,000, according to an article in The Telegraph cited by the website wattsupwiththat.com. There people are waking up to the billions of pounds it will cost.

Maybe you will wake up when you get the order to rip out the gas furnace and buy a heat pump. Or when your old water heater dies, and you are told you cannot use gas or propane anymore but must go electric. “Who says so?” you will yell, and you will learn the foundation was laid by the Virginia General Assembly in 2020 and 2021. (“…net-zero emission by 2045 in all sectors, including the electric power, transportation, industrial, agricultural, building, and infrastructure…”)

One candidate for governor this year, Democrat Terry McAuliffe, is promising to accelerate the transformation schedules already on the books.

The CEA analysis also taps into Princeton University’s Net Zero America data on what this planned energy transformation will do to the transmission and distribution grids, also a cost which will come your way as consumers. The total national investment works out to $12,000 per household. Specific Virginia predictions from Princeton are on page 5 of the CEA report about Virginia.

If you doubt this will show up on your doorstep, remember that the Atlantic Coast Pipeline was crushed by Virginia opponents, a fairly minor capital upgrade proposed for existing pipelines in existing rights of way to serve Hampton Roads was killed, and the battle over the Mountain Valley Pipeline rages on. This is a war on fossil fuels, every single one you use in your daily life.

The future cost of the electricity that may soon be mandatory for your home appliances and personal car? That’s another story.

This commentary originally appeared August 4, 2021 in the online Bacon’s Rebellion.

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Union Executives Have More Sway than Employees or Voters

Posted on August 2, 2021 by F. Vincent Vernuccio
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Local government leaders are negotiating with union executives who have not been officially recognized by public employees they claim to represent.

Counties in northern Virginia are taking steps to allow public sector collective bargaining. But they are doing it with the support of union executives – not a groundswell of voter or public employee support.

On July 16 the Arlington County Board of Supervisors gave government unions the ability to have a monopoly on representing public employees by passing an ordinance allowing for collective bargaining. Similarly, Loudoun County on July 20 voted to have county staff draft an ordinance doing the same thing.

Staff and elected officials admitted they are working closely with unions. Arlington’s model ordinance discussion draft stated “the county manager, the county attorney and senior staff have continued to meet with representatives of employee associations to resolve as many issues as possible.”

Elected officials in both Arlington and Loudoun seem to assume unionization is a forgone conclusion, forgetting it is still up to the employees to decide if they want representation or not. The union leaders attending these closed-door negotiations have not been formally elected to speak for public employees.

Still, the American Federation of State, County and Municipal Employees bragged about how they helped take the City of Alexandria’s more focused ordinances to one which would give unions the ability to bargain over almost any subject not preempted by state law. And the union was even more blunt about their involvement with the Arlington ordinance: “AFSCME, the International Association of Fire Fighters and the Arlington Coalition of Police have been in discussions for many months with the county board since the board passed a resolution to adopt an ordinance. Like the City of Alexandria, Arlington County management initially sought a narrow ordinance only allowing public workers to negotiate for a specific set of issues.”

Loudoun now seems to be going down the same road. Before the public hearing, Loudoun supervisors will hold a private closed session in September so attorneys can address their questions. While this is understandable, there is a general feeling that any issues would be worked out before a public hearing on the bill – denying public employees and voters the chance to weigh in.

Phyllis J. Randall, chair of the Loudoun County Board of Supervisors, said the public hearing on Oct. 13 “is just a required thing as we go through this process. But what should be said is if the closed session is going to be on September 21 there will be an ordinance in its fullness before that closed session, before that package goes out the Thursday before.”

Unions have been spending more time working with politicians than actually telling public employees why they should represent them. As Randall acknowledged, unions are not doing a good job communicating to their potential members. While acknowledging a strong showing in the firefighters’ union and an online effort, she scolded the unions, saying despite a vote from the board indicating unions should hold membership information drives, “that hasn’t really happened.” She singled out The Service Employees International Union specifically for not doing more to communicate to employees. 

Supporters of the ordinance have hurled insulting rhetoric at their opposition. Loudoun Supervisor Koran T. Saines dismissed opponents as “outside agitators bringing these comments to the board.” To her credit, Randall pushed back on some of these inflammatory remarks.

Still, politicians supporting these ordinances are jumping the gun – bypassing the employee trigger in the state law,which allows public employees to petition a locality to vote on collective bargaining. While the law does give the power to local politicians to allow bargaining on their own, it is telling that they are not waiting for a demand from employees themselves calling for unions to come in and represent them. 

It should be noted that Arlington County and the City of Alexandria are the only local governments in Virginia that have passed laws allowing government unions to bargain since the state gave localities this power by enacting a state law that went into effect on May 1, 2021. 

While Arlington County and the City of Alexandria have passed these laws, it does not mean unions will automatically gain a monopoly. All workers in Virginia, public and private, are protected by the commonwealth’s secret ballot protection law, which gives them the right to a private vote on whether they want a union to represent them.

Thankfully public employees in Virginia are protected by the secret ballot. And even though politicians and unions are enacting laws which allow for collective bargaining, public employees will get the final say. Still, it is clear who is really pushing the effort for bargaining in the commonwealth, and it is not the average public employee. 

This commentary originally appeared July 31 on the VirginiaWorks blog.  

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Virginia Should Not Tax Income If Washington Doesn’t

Posted on July 27, 2021 by Stephen D. Haner
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In 1972, a Virginia taxpayer needed a taxable income of $12,000 before the state’s maximum income tax rate kicked in.  Adjusted for inflation, that threshold should be $78,000 today.

There has been one adjustment since, to $17,000 in income before the maximum rate is now applied.  Adjusting that for inflation since 1987, when last amended, that should now be $40,000.  In Virginia today, even a lower middle income couple can paying the same maximum tax rate as the richest Virginians on parts of their income.

That is an illustration of the impact of inflation over time on Virginia’s tax code.  It is a built-in bonanza for the government, effectively raising taxes constantly as more and more income is pushed up over those frozen breakpoints.  With inflation about to kick in again, the Thomas Jefferson Institute for Public Policy continues to recommend that all elements of our tax code be adjusted annually for inflation.  That is already done at the federal level.

Step two of our plan, which actually represents a massive cut in income tax for Virginia citizens and unincorporated Virginia businesses, involves the standard deduction.  Virginia is now benefitting from another sneaky tax increase it implemented in 2019 by failing to make a serious change in the state’s standard deduction when it had the chance.

In 2017 Congress raised the federal standard deduction above $24,000 for a couple, which meant far more Virginians switched to the standard deduction on their federal taxes.  If you use the standard deduction on your federal taxes, you must do the same on your state taxes.  Millions of Virginians who used to itemize deductions began to use Virginia’s penurious (cheapskate) standard of $9,000 for a couple.

That one fact is the single biggest explanation for Virginia’s pending $2.6 billion surplus, even larger than previously expected.  Correcting the problem is easy:  Simply raise Virginia’s standard deduction, perhaps in phases, eventually equaling the federal amount.  Once you get there, the companion decision to index for inflation will keep Virginia in line with the federal amount.

The fiscal impact of suddenly going to the full $24,000 standard deduction for a couple would be major, perhaps in excess of the pending surplus funds.  A 2019 bill introduced in the state Senate produced an estimate of $1.25 billion in lower taxes in the first year, and about $1.8 billion after six years.  The General Assembly that year did increase the standard deduction for a joint return from $6,000 to $9,000, so the impact of going further would be less.

For the 2018 tax year, about 3.25 million individual or joint returns were filed using the standard deduction. Each additional $1,000 in standard deduction per return would produce an aggregate tax cut of at most $186 million.  For argument’s sake, assume 40 percent of those are joint returns and an additional $1,000 in standard deduction per person might cost the state (and save the taxpayers) $260 million.  Again, compare that to the pending $2.6 billion surplus.

To estimate the revenue loss (from our point of view “tax cut”) produced by indexing the tax code to inflation would require an estimate of future inflation.  It actually produces no revenue loss, but merely slows the growth in future taxes.  At one or two percent per year, the state can absorb it easily.  If we do reach 1970s-level inflation again, the change will be substantial.

But where the people who spend tax money see a revenue loss, the rest of us are correct in seeing lower taxes, putting more money into consumer or business-owner hands, even more important when their own costs are spiking.

Ending Virginia’s income tax entirely, either for individuals or also for corporations, is challenging because that really could blow a hole in Virginia’s basic budget.  Another tax increase somewhere else may be needed to compensate.  Politically, ending the income tax on the wealthy and funding it with a broader tax hike on everybody would not fly.

Using the $2.6 billion surplus we now see and the likely revenue growth the next forecasts will provide, both of the proposals discussed above could be implemented starting in Tax Year 2022 without cutting the budget.  The standard deduction increase could easily be phased in, as other state’s have done with income tax changes.  Indexing would start slowly and build.

If a new and indexed standard deduction eventually removes $10,000 from a family’s taxable income, that saves them up to $575 per year.  If Virginia could (within five or six years) reach the federal level of $24,000, the savings climbs to $862.50.  This would benefit individuals with income either from salary or wages or from an unincorporated business. It does not cut corporate taxes.

One argument against using the consumer price index to adjust the tax code in the past has been that other key economic measures were not adjusted in that manner by the state.  But the 2020 General Assembly blew that precedent to smithereens by applying automatic inflation hikes to both the state’s gas tax and its minimum wage law.  Now indexing should be applied to help the taxpayer, not just the tax collector.

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The PRO Act would take away Choice from Virginia’s Workers

Posted on July 19, 2021 by F. Vincent Vernuccio
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A bill under active consideration in Congress would allow unions to get Virginia workers fired for not paying union fees. The Protecting the Right to Organize Act, among many other things would end right-to-work laws in Virginia and in 26 other states.

According to a recent report by the Institute for the American Worker, 89,000 Virginia workers are unionized and currently protected if they change their minds by our state’s right-to-work law.   Those that have chosen not to join a union would be forced to pay union fees if the PRO Act passes. Those that are already members would lose the ability to choose to opt-out and stop paying union fees if they feel they are not getting good representation.

Another 2,971,327 Virginians could be forced to pay union fees if unions organize their workplace and the PRO Act kills right-to-work.

Union dues in Virginia average $544 per year with some unions charging over $1,000, not insignificant sums for middle- and lower-income families.

Right-to-work laws ensure that private sector workers unionized under the federal National Labor Relations Act (NLRA) are given a choice to join and pay a union or not. Without right-to-work, a union can tell an employer they have unionized that one of their employees is not paying union fees and cannot work there anymore.

Virginia was one of the first states to pass right-to-work and since worker freedom was enacted in the 1940s has enjoyed bipartisan support from both Republicans and Democrats.

Right-to-work is popular in Virginia. A recent survey from the bipartisan government affairs and research firm Forbes Tate Partners shows that 72 percent of Virginian voters are concerned that the law will be repealed and 65 percent supporting worker freedom.

In addition to giving workers the freedom to choose whether to support a union or not, right-to-work states enjoy higher personal income growth, lower unemployment and more jobs. Some union leaders even say that right-to-work helps them.

In 2014 Gary Casteel, who would eventually be the Secretary Treasurer of the United Auto Workers, remarked that  right-to-work is good for union organizing  because “[y]ou don’t have to belong if you don’t want to. So if I go to an organizing drive, I can tell these workers, ‘If you don’t like this arrangement, you don’t have to belong,’ versus, ‘If we get 50 percent of you, then all of you have to belong, whether you like to or not.’” 

It also means that workers get better representation because unions need to earn union dues and cannot take their members for granted.

Sen. Mark Warner has known these facts throughout his career and it may be why he has not come out in support of the PRO Act.

Even before being elected to the Senate then candidate Warner noted his support for Virginia’s right-to-work law. Clairvoyantly he also opposed federalizing the issue as would be done in PRO Act. In a 1996 debate against then Sen. John Warner Mark Warner pledged “I strongly, strongly support Virginia right-to-work laws but I don’t think we ought to federalize them.”

Another of the PRO Act’s many harmful provisions is that it would take away opportunities for independent workers to work for themselves and box them into a traditional employer/ employee model. This is another reason why Sen. Warner is urging caution on the PRO Act stating “My fear is that parts of the Pro Act try to fit all work into kind of a 20th century, classic W-2 employment status.”

This idea was already implemented in California with disastrous results. The California law was so bad that even the bill’s sponsor introduced and passed legislation limiting it. California voters then went to the ballot to further water down the law. Unfortunately, no such protections exist in the current version of the PRO Act.

Warner is standing strong to protect workers and entrepreneurs and should be applauded for not supporting the PRO Act even as unions use both pressure and weekly cakes to try to win him over.

Worker freedom is right for Virginia and the PRO Act would harm both workers by removing their choice to support a union or not and the state itself by taking away jobs and opportunity.

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