Miyares Challenges Secrecy

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Virginia Attorney General Jason Miyares (R) has moved to open to public inspection much of the secret data and analysis about Dominion Energy Virginia’s proposed Coastal Virginia Offshore Wind project. His petition filed with the State Corporation Commission April 29 comes about two weeks before formal hearings on the application begin in mid-May.

Dominion is seeking SCC approval to build the 176-turbine project off Virginia Beach, and to begin billing customers for it with a new monthly charge. Authorized and all-but-mandated by the Virginia Clean Economy Act of 2020, the current estimated capital cost is $9.8 billion, including the required transmission upgrades but not including financing costs and utility profits.

The liberal use in the initial application of claims that data were confidential or extraordinarily sensitive obscured much of the cost and risk the project imposes on the company’s customers. Once designated as secret, only parties who have signed non-disclosure agreements can see the data or be in the room when the data is discussed in a hearing.

Miyares’ push to open more of the CVOW record follows a similar effort by that office to reverse confidentiality assertions by Appalachian Power Company (APCo) in a pending application dealing with that utility’s proposals for new renewable energy projects. Miyares’ Division of Consumer Counsel had filed a 142-page argument in support of that motion, citing among other things specific instances where information APCo claimed as too sensitive to release had been public in other cases.

That first motion was the subject of a hearing at the SCC on April 25, most of it in a closed session, but two days later the hearing officer declined to rule. The court reporter on the virtual session had technical problems and failed to record the debate between the Attorney General’s staff and Appalachian’s lawyer.

In this new motion, signed by Senior Assistant Attorney General Meade Browder, the focus is on how Dominion’s initial claims of confidentiality on key data caused the SCC’s own professional staff to also file much of its analyses and commentary under seal. One key witness filed 129 pages of public testimony with 52 of the pages containing redactions, some lengthy.

The project is “all-but” mandated because the General Assembly included a cost cap in the 2020 legislation, based on the project’s calculated levelized cost of energy (LCOE). If the utility fails to stay below that cap, the SCC has the authority to reject the project, and the key staff witness mentioned above claimed the project could exceed the cap under certain circumstances. But details were redacted. Browder complained:

With the breadth and scope of Confidential and ES (Extraordinarily Sensitive) designation…it would appear to be difficult for any meaningful examination of this important testimony to take place in public session.

In some cases, Miyares noted, the staff testimony redacted information that it didn’t need to because Dominion had included the underlying data in public portions of its application or has since revealed the details on its own. Staff also referenced and then redacted information from financial ratings services, which is usually only available to subscribers but has often been referenced openly in earlier cases.

Another SCC staff witness redacted details about the 30-year lifetime revenue requirement for the project, drawing this objection from the Division of Consumer Counsel:

This a public utility project that will be funded entirely by captive ratepayers with a dollar-for-dollar rate recovery mechanism. Captive ratepayers have the right to know how much of their money is being committed to pay for a project at the time it is being proposed. This would necessarily include the total cost of the project, plus the amount of any benefits that the Company believes it may be able to monetize for the benefit of customers. This further includes the impact that would accrue through anticipated changes to the capacity factor or capacity value.

In both this case and the pending Appalachian application, the Attorney General is making no objection to secrecy for specific bids or technical information provided by third party vendors.

The presumption in the SCC’s rules is that information in applications and testimony should be public, and the burden is on the party requesting secrecy to justify that. The motion calls on Dominion to review the instances cited, and if the utility chooses not to contest the request, then the item will become public record. SCC staff testimony versions without the redactions would be filed.

Whether that will happen before the hearing begins on May 16 remains to be seen. A decision on the similar APCo motion either way would have been a good indicator, but now that is delayed until a new hearing can be scheduled.

Browder is correct that as it now stands, much of the key information on the CVOW project’s LCOE, total cost, reliability and risks will be questioned and debated at the May hearings with the people who will be paying the bills excluded.

A version of this commentary originally appeared on May 1, 2022 in the online Bacon’s Rebellion blog. Stephen D. Haner is Senior Fellow with the Thomas Jefferson Institute for Public Policy. He may be reached at steve@thomasjeffersoninst.org.

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Most States Outperform Virginia Over Past Decade

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As measured by the American Legislative Exchange Council (ALEC), Virginia’s economic outlook has continued its precipitous drop and now barely ranks in the top half among the American states, 24th out of 50. A decade ago it was in the top five, ranking third in 2011 and 2012 and fifth in 2013.

Using three direct measures of actual economic performance, gross domestic product and job growth and population out migration, ALEC placed Virginia 30th among the 50 states over the past decade.  Neighboring North Carolina, on the other hand, ranked 12th in recent economic performance and second in economic outlook. 

Virginia’s number 24 ranking in the annual “Rich States, Poor States”comparison will be dismissed by some as less important than other indicators of competitiveness, including the ultimate bragging point of being number one in the last CNBC ranking of best states for business.  But the downward trend is dramatic, Virginia having ranked 17th last year and dropping seven places in this survey.

And Virginia’s economic performance, including job recovery since the bottom of the COVID-related recession, continues to lag several other states.  It was 31st in the 2021 ALEC survey, using data from before the pandemic.  Examining what has changed among the 15 criteria since Virginia ranked near the top may offer some explanations.  

On two of the fifteen criteria Virginia receives a perfect score, but in both cases, there have been recent legislative efforts to reverse them.  The first is the Right to Work Law.  The other is the lack of a state inheritance tax, which would surely be among the proposals if the Democratic-controlled Virginia Senate gets the comprehensive tax study it is demanding before any tax cuts.

Change those, and Virginia is down in the bottom half. 

During the period of full Democratic control of state government, the 2020 and 2021 General Assembly sessions, the state adopted a minimum wage higher than the federal requirement, now up to $11 per hour and heading higher.  That moved the state down in the ALEC rankings, as did a measure of “recently legislated tax changes.”  Those were projected to cost citizens $1.80 per $1,000 of personal income.

Only three states ranked lower than Virginia on the “recent changes” measure, a result of the various tax increases approved in 2020 and 2021.  On that same measure, North Carolina ranked second in the country because its recent legislative tax changes reduced collections $2.38 per $1,000 of personal income.

With several of the ALEC measures tied to individual tax burden, the tax cuts still pending at the overtime General Assembly session could improve a future report on Virginia’s economic prospects.

Should all or most of the stalled Virginia tax reductions pass, Virginia’s next “recent changes” measurement would go positive, indicating less tax burden per $1,000 of income, although we would still be competing with the many other states lowering taxes in the midst of the revenue surge.

The higher standard deduction would make the income tax more progressive, another of the ALEC tests, and the elimination of sales taxes on groceries would result in lower taxes from that source per $1,000 of personal income, another ALEC measure.

Worker’s compensation costs per $100 of payroll and the state’s legal climate are other areas where Virginia’s ranking deteriorated compared ten years ago, when it ranked third in the country.

Looking at some other nearby states:

  • South Carolina ranked 7th in economic performance and 26th in economic outlook.
  • Tennessee ranked 10th in economic performance and 13th in economic outlook.
  • Kentucky ranked 27th in economic performance and 34th in economic outlook.
  • Maryland ranked 37th in economic performance and 42nd in economic outlook.
  • West Virginia ranked 46th in economic performance and 25th in economic outlook.

The authors of the annual Rich States, Poor State report are economists Arthur Laffer and Stephen Moore, and ALEC Executive Vice President and Chief Economist Jonathan Williams.   Delegate Kathy Byron, a Republican from Forest and chair of the House Commerce and Labor Committee, is Virginia’s representative on the ALEC Board.

The data come from various sources, including the U.S. Census Bureau, Bureau of Economic Analysis, the Federation of Tax Administrators and the U.S. Chamber of Commerce Institute for Legal Reform.

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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SCC Staff Review Opens the Door to “No”

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Testimony filed by the State Corporation Commission staff on April 8 opened a slight possibility that the Commission could reject Dominion Energy Virginia’s proposed $10 billion wind project off Virginia Beach. It all depends on how the SCC decides to calculate the project’s levelized cost of energy (LCOE), the dollar cost of every megawatt hour of electricity it produces plus the transmission costs.

When the 2020 General Assembly adopted the Virginia Clean Economy Act and related legislation, it set a cap on that key LCOE measure, which is used to compare the costs of various methods of making electricity.

If the utility failed to stay under the cap, the SCC would have the authority to reject the proposal as imprudent and unreasonable. If the project remains below the cap, legislators mandated approval by the SCC, despite any other doubts about its prudence and without considering less expensive alternatives.

No party to the case so far has asked the SCC to reject the application, perhaps doubting that the two judges will thwart the utility’s plans absent an indisputable finding that the project exceeds the cost cap.

The cap set was $125 per megawatt hour, after deducting the value of the very large tax credits granted for wind projects under federal law. In the application it filed late last year to build the facility, it estimated the LCOE (after the tax credits) at about $83 per megawatt hour. But Katya Kuleshova of the SCC’s Division of Public Utility Regulation challenged several of the assumptions in her testimony and noted that if the assumptions prove wrong, that number rises substantially.

If a combination of the many assumptions – actual construction cost and schedule, energy output from the installed turbines, the assumed 30 years of operation – prove too optimistic, then the cost of energy can exceed that $125 per MWH target, she wrote. She also challenges Dominion’s failure to include $1.7 billion in future decommissioning costs, and questions whether at least some related energy storage batteries should have been included.

Unfortunately, most of the details of her analysis are based on data the utility has labeled as extremely sensitive or confidential, so her numbers are also either redacted or contained in sealed documents. The most important energy investment in Virginia’s history is being made with customers kept in the dark. Testimony from other witnesses is also riddled with redactions, and much of the May hearing will likely be behind closed doors.

Kuleshova also details the risks being imposed on Dominion’s 2.6 million Virginia ratepayers, again almost all of it hidden behind secrecy, pages and pages of inked-over text.

Dominion proposes to build 176 turbines, each capable of generating 14.7 megawatts of electricity, 27 miles off the coast of Virginia Beach. It hopes to start construction next year and be fully operational for 2027. The case has already built up a massive file of documents and exhibits. Public comments are being taken here until May 16.

If approved, the costs for the project will begin to appear on customer bills this September in a new stand-alone rate adjustment clause (RAC). It starts small but ramps up quickly during the construction process and should peak in 2027 to just over $14 for a residential customer using 1,000 kilowatt hours in a month. This RAC will work differently, with customers credited for certain avoided costs. Thus after plant operation begins the bill charge may start to decline.

President Joseph Biden has put the federal government on a crash course of offshore wind development on the Eastern Seaboard, with more lease areas expected to be claimed. Among all the projects so far, as testimony from the advocacy group Clean Virginia has detailed, Dominion’s is 1) the largest by far and 2) the only one that will be owned by a monopoly utility with its ratepayers directly providing the capital and profit and bearing great risk.

Every other project as of last year is owned by a third-party developer who will sell the power to a specific utility under a power purchase agreement or sell the related renewable energy credits to a state or utility. The Clean Virginia analysis does not provide evidence those are cheaper alternatives, but it becomes a fair question to ask. There is also (yet again) sealed testimony from that expert witness which may address that question.

The party to the case charged by law with representing Virginia’s consumers, Attorney General Jason Miyares (R), did not have his outside expert witness focus on the company’s calculation of levelized cost of energy. That testimony focused on how the project is not needed for its energy production, not really needed to meet emission reduction goals, and the company’s claims that the project is a net financial benefit to consumers is based on faulty assumptions.

Both the AG’s witness and the SCC staff go into detail arguing the claimed customer benefit (measured as net present value) is really negative, and substantially so. Like the calculation of levelized cost of energy, however, there is no firm guideline or agreed upon industry standard what to include and what to exclude in the formula. The two SCC judges (the 2022 Assembly failed to fill a vacancy) will decide.

Despite the finding that using different but still reasonable assumptions, the project might exceed its legislative cost target, the SCC staff did not recommend that the Commission reject the application. Neither did the Attorney General, the consumer’s representative at the table, despite his evidence that the project benefit numbers are wrong and lower cost approaches were ignored.

Attorney General Miyares, the SCC staff, and other parties have asked the SCC to impose a cost cap on the project, and to find some way to put the cost of any construction delays or overruns back on the utility. There are also solar projects previously approved where if the energy production, as measured by the capacity factor, falls too low consumers are protected from the downside cost.

Hearings are the next major step in the review, starting May 16.

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Youngkin Holds Winning Hand on Tax Cuts

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Passing the state budget, which is a blueprint of how state tax money in Virginia must be spent during the next two years, is one of the General Assembly’s most important jobs. So the failure of the legislature to pass a budget for the 2022-2024 biennium during this year’s regular 60-day session was a major abdication of legislators’ duty to their constituents.

Gov. Glenn Youngkin’s call for a special session in Richmond starting Monday, April 4, to do what state lawmakers should have already done puts them at a strategic disadvantage, especially since the governor is pushing them to return a large portion of the $16.7 billion state “surplus” back to taxpayers.

Due to the General Assembly’s failure to pass a budget during the regular session, Youngkin currently stands on higher moral, fiscal and even political ground. Here’s why:

So far, the Republican-controlled House of Delegates is proposing a tax cut of $5.1 billion, while the Democrat-controlled state Senate is only willing to return $2.2 billion to taxpayers.  But even the more generous House plan (if you can call it that) involves less than a third of the total “surplus” – and that’s not nearly enough.

Like the federal government, the state government has enormous power to extract wealth from its citizens. This power to tax is wielded by the General Assembly, which uses the money the state collects to authorize payment for all the goods and services the commonwealth provides, based on the state budget. But any money collected above and beyond that amount – a “surplus” – is in reality excess taxation that should be returned to the people.

This should not be controversial. It is a simple matter of fairness. If you accidentally overpay at a retail store, the merchant is not entitled to keep the “surplus.” He or she is ethically obligated to return any money received beyond the agreed-upon price of the item. Likewise, the state budget is the agreed-upon price of financing state government. So any excess funds collected should be returned to the taxpayers who were overcharged.

This is even more important during a time when inflation is raging after two years of state-mandated pandemic lockdowns, which wreaked havoc on many Virginians’ businesses and personal budgets. And because most of the general fund “surplus” was due to a conscious decision by both the Northam administration and the 2019 General Assembly to break with tradition and not conform state income tax rates for individuals and businesses in Virginia to the federal Tax Cuts and Jobs Act, creating what they knew would be a “windfall” by design.

But the “windfall” came at the expense of struggling Virginia families and businesses, who are in no mood to keep forking over more and more of their hard-earned money to Richmond. Youngkin knows this. It’s why he campaigned on promises to push for a slew of tax cuts, and it’s one of the reasons the political newcomer beat former Governor Terry McAuliffe.

Tax cuts and tax rebates are politically just as popular as stimulus checks, but without the borrowing. Lawmakers who try to block them may come to regret it.

“I do believe we can and should have the largest tax reduction in the history of Virginia,” Youngkin said. He’s right. But tax cuts are not just popular with voters. They’re also good public policy.

A recent review of the economic literature by the non-partisan Tax Foundation found once again that “tax cuts have positive effects on growth,” while “taxes, particularly on corporate and individual income, harm economic growth.”

Structural tax reform, such as conforming Virginia’s standard income tax deduction to the federal deduction, will allow Virginia to better compete with its neighbors. Taxes place an additional burden on companies’ profitability, and they tend to seek places where that burden is the lightest.

For example, former Gov. George Allen cut taxes by over $600 million in the mid-1990s. But since then, Virginia has lagged behind Tennessee and North Carolina in job growth,  according to the Bureau of Labor Statistics. Job growth is a good measure of economic growth because only businesses that are thriving can afford to hire more help.

More recently, during the year following the 2017 federal Tax Cuts and Jobs Act, federal tax revenues increased by $190 billion while unemployment hit historic lows and real wages increased.

The irony is that economic growth spurred by tax cuts will create even more tax revenue for state government down the line. Giving back the “surplus” will mean a larger pot of cash for legislators to spend later, a win-win for everybody if members of the General Assembly don’t let their egos and partisan interests get in the way.

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If U.S. Copies Europe, “It Will End in Tears”

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A major European voice for climate and energy rationality told a small Charlottesville audience March 30 that his home, the United Kingdom, and the rest of Europe face an immediate energy crisis that was brewing long before the war in Ukraine.

Benny Peiser of the Global Warming Policy Foundation said prices in Britain jump as of today, April 1.  Householders are seeing the rising electricity and natural gas costs suddenly double, from about 1,000 pounds to 2,000 pounds annually.  By the end of the year another jump to 3,000 pounds annually (almost $4,000) is predicted.  The parallel impact on business and transportation will push up food and other commodity prices.

Peiser noted the irony that only continued supplies of energy from Russia are keeping the lights on.  Knowing how Russia needs the cash, nobody expects that to change until Europe finds other sources.  The United States has saved Europe before and is likely to be one savior now, at least in the short term.

The idea that Europe will save itself by building more wind, solar and related battery facilities is utopian, but that is the prescription being offered by many in a political environment where even most of Europe’s conservative parties are afraid to advocate fossil fuels.

“Don’t follow our path.  Don’t copy the Europeans.  It will end in tears,” Peiser said.  “Pragmatism and realism have to come back.”

Global Warming Policy Foundation, founded in England in 2009, and the related communications outlet Net Zero Watch, publish several writers and researchers who challenge the climate catastrophe narrative.   It has a U.S. branch headed by Francis Menton, also known as the nom de plume Manhattan Contrarian, and he was also at the gathering that evening.

Peiser and Menton have been on a speaking tour of the U.S. and Canada, not producing much news coverage that will turn up in a search.  They spoke at the Jefferson Room of a Charlottesville country club, the Blue Ridge bathed in sunset outside the window.  Had they taken the message to Jefferson’s Rotunda on the University of Virginia grounds a few miles to the east, the reception would have been quite different probably.

One University of Virginia faculty member who has published similar views was present, and the meeting was hosted by a local attorney, Chris Horner, who files litigation on energy and climate matters through a non-profit called Government Accountability and Oversight.

“We have more to fear from climate policy than we have to fear from climate change,” attorney Horner said.  “Man did not take a safe climate and make it dangerous with fossil fuels, we took a dangerous climate and made it safe.”

“You are blessed in the U.S. with enormous resources of oil and gas and coal, and some states are using them while some states are not,” Peiser said.  Because of that, and because the electricity generated by fossil fuels flows between states, “You don’t feel the same hit that Europeans now face.”  California can extol its environmental virtue while buying power across the lines when needed.

In Europe, relying on your neighbor to take up any slack has largely meant Russia, which pre-crisis provided 40% of Europe’s natural gas, 50% of its coal and 30% of its oil.

For 30 years Europeans have pursued the dream of an economy run mainly on solar and wind production, and they have become dependent on them.  They prided themselves on declining fossil fuel emissions, ignoring how they achieved much of the change:  By sending manufacturing overseas to counties still burning oil, coal and gas.  The U.S. has done the same.

There is growing realization that the vision of a modern economy run entirely, or almost entirely, on wind and solar simply will not work without incredible (as in not reasonable) levels of storage.  That was Fenton’s topic for the evening.  “How many turbines does it take at midnight with no wind? It doesn’t matter how many you build because a million times zero is still zero.”

Fenton said the cost of the storage is roughly the same as a country’s entire gross domestic product, especially if all vehicles and home energy use go electric.  A recent analysis of the Virginia Clean Economy Act’s impact, if implemented as is, reached the same conclusion.

Many countries relied on nuclear power as a clean backup for wind and solar, but before this war were closing down that form of generation under pressure from the Green parties.  Some have changed their minds now and will retain the nuclear plants and consider more.  Even after this shock of the Ukrainian war, however, Germany still plans to shutter its final plants next year.  Its own Green Party would prefer to use coal, mainly because Germany has plenty of it.

The British Isles, also once known for coal, have a deep supply of the related asset shale gas, same as the U.S.  But like most Europeans they have prohibited the newer extraction techniques, derided by critics as “fracking.” The current British government is talking about expanding oil and gas production in the North Sea, but only because “there are no voters living in the North Sea,” Peiser said.

Changing the rules and allowing extraction of the shale, “the resource under our feet,” still seems politically untenable. If the dire predictions of energy prices tripling in one year, with all the other inflation that creates, come to pass there could be popular uprisings in Europe similar to the recent Yellow Vest movement in France.

“Most people in the U.S. and in Europe have never experienced hardship.” They think the wealth and comfort of the past 30 to 40 years is normal, and the financial means to help those now struggling re infinite.  More and more of their leaders see the challenge are seeking alternatives.

Peiser is not optimistic that attitudes will change quickly but is encouraged that about 60 British members of Parliament are started to work together to turn things.  “It’s not about solving the problem. It’s actually about acknowledging there is a problem.”

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