Will RGGI Tax Return to Your Dominion Bill?

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The on again, off again, direct tax on your Dominion Energy Virginia bills to pay for the Regional Greenhouse Gas Initiative (RGGI) may be on again.  If you feel like you are watching a shell game and just cannot find the pea, that is intentional.

In its sales pitch for its latest effort to create a more favorable regulatory environment, Dominion Energy Virginia is touting its proposal to take several of its existing stand-alone rate adjustment charges (RACs) and roll them into its base rates.   The claim is that will save ratepayers $350 million.

Don’t plan on spending that money.  Dominion will take it right back to cover the cost of all the carbon emissions allowances it continues to buy every quarter so it can operate its coal, natural gas, oil and biomass generators.  And, frankly, the move with the RACs really saves you nothing, but more on that in another column.

Virginia joined the RGGI interstate compact two years ago, with Dominion being the largest purchaser in the state of the mandatory emissions allowances.  The money collected by the carbon tax has now passed the half a billion dollar mark. Governor Glenn Youngkin (R) is working through the slow regulatory process to end Virginia’s participation as of the end of this year, when the current RGGI contract period ends.

As part of that regulatory process, another major public comment period is now open, lasting until March 31.  The portal to file comments electronically is here.  A first round of comments was heavily dominated by individuals or groups seeking to maintain the tax and arguing that RGGI has been extremely effective in reducing CO2 emissions that otherwise will melt the polar regions, flood Virginia up to Richmond and kill thousands in heat waves.

All indications are the current Air Pollution Control Board, with a majority appointed by Youngkin, is committed to repeal of the underlying regulation.  Nevertheless, a stronger showing of comments from individuals or groups skeptical that RGGI is doing anybody any good at all would be useful.  Polls indicate that when RGGI is understood to be just a carbon tax, voters don’t like it, including plenty of Democrats.

 Tactically, that case is easier to make when the RGGI tax shows up as an individual line item on the monthly bills for Dominion, the state’s dominant electric utility with 2.6 million customer accounts.  It was on their bills from September 2021 until September 2022, when Dominion got regulator permission to remove it and promised to cover the cost within its base rates instead.

 That didn’t mean customers would not pay it, as was explained here.  But they wouldn’t be able to find it on their bills. Late in 2022, Dominion quietly reversed course and filed with the State Corporation Commission seeking to reinstate the direct, separate charge.  Suddenly the utility wants to make the cost visible again.  The petition is actually just a continuation of the case it filed to remove the charge, a step the SCC just approved in June.

 The RGGI tax removed from bills in September was $2.39 for every 1,000 kilowatt hours of usage, a fixed amount for all classes of customers.  The petition now pending would increase that to $4.64 on every 1,000 kilowatt hours, much of the money to cover the period when no tax was collected.  Dominion reports that by the end of 2023 it will have spent about $640 million on RGGI allowances.  The earlier tax collected only $84 million.

 Dominion is not the only Virginia energy producer that needs to buy RGGI allowances to operate, and at current rates Virginia may have collected closer to $800 million in tax by the end of this year.  The way the RGGI auction works, producers in other states could be buying Virginia credits and vice versa.

The RGGI tax is likely to remain on Dominion customer bills for a period of time after Virginia leaves the compact, until the utility recovers its costs in full, including carrying charges.  It is, however, hardly a done deal that repeal will happen.  Advocates for RGGI are expected to sue if and when the Air Board decides to leave RGGI, arguing only the General Assembly can do that.

It will be a fascinating legal dispute. There has been something of a dance underway for years as both Democrats and Republicans have taken both sides of the argument as to whether it was a legislative or regulatory prerogative.

Virginia’s relationship with RGGI actually started under Governor Terry McAuliffe (D), who initiated a regulatory process to join the compact.  He first promised that the tax revenue from allowance sales would be returned to ratepayers.  That promise had disappeared by the time a final regulation was adopted under Governor Ralph Northam (D) in 2019.

But implementation of the regulation was blocked by legislative Republicans, then with sufficient votes to impose their will in budget language.  Democrats at the time complained of legislative overreach by the Republicans.  Democrats routinely voted no on GOP bills that would have required legislative approval to join RGGI, bills which passed and were then vetoed by McAuliffe and Northam.

 The 2019 election gave Democrats full control of both legislative houses, and they promptly passed legislation of their own on the issue.  The bill clearly dictated several changes to the regulation, which already existed, and directed how the revenue would be spent.  But – perhaps cognizant of their earlier position that the Republicans were overreaching – Democrats merely “authorized” the Northam Administration to proceed and join.

 Adding to the argument there was no mandate was a separate section of the law which opened with:

 If the Governor seeks to include the Commonwealth as a full participant in RGGI or another carbon trading program with an open auction of allowances, or if the Department implements the final carbon trading regulation as approved by the Board on April 19, 2019… (emphasis added.)

In Virginia, when the legislature is making its directions to the executive branch clear, the operative word is “shall,” never “if.”  The door was left open for a future Air Board to amend or repeal the action of the previous board, as is the normal course of business.

Stephen D. Haner

About Stephen D. Haner

Stephen D. Haner is Senior Fellow for State and Local Tax Policy at the Thomas Jefferson Institute for Public Policy. He may be reached at [email protected].
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