Virginia to Gina: Your Power Plant Rule Is “Arbitrary, Capricious, and Unlawful”

“As currently drafted, the carbon emission rates that EPA proposes for Virginia are arbitrary, capricious, and unlawful.”

“Virginia’s compliance with the Proposed Regulation, as currently drafted, will be expensive and will be paid for by Virginia residents and businesses. Contrary to the claim that ‘rates will go up, but bills will go down’, experience and costs in Virginia make it extremely unlikely that either electric rates or bills in Virginia will go down as a result of the Proposed Regulation.”

“Additional near-term generator retirements caused by the Proposed Regulation will compound existing, unresolved reliability concerns in the Commonwealth.”

– Staff of the Virginia State Corporation Commission, Comments to U.S. EPA, October 14, 2014.

The anti-intellectual, postmodernist arguments for free-lunch/lunch-you-are-paid-to-eat CO2-emission reductions regulation, or in the U.S. EPA’s words, “‘rates will go up, but bills will go down,” sooner or later must hit the shoals of reality. In the case of Staff of the Virginia State Corporation Commission, sooner it is.

Staff’s strenuous rebuke to Gina McCarthy last week is a clarion call of “CONSUMERS MATTER TOO.” Premature retirement of able, economic power plants, and capacity replacement by dilute, intermittent electricity sources, is a very bad deal for Virginia ratepayers.

Obama vs. Virginia should be a major issue in the last weeks of the election in the state.

MasterResource proudly brings VSCC Staff’s analysis regarding EPA’s proposed Clean Power Plant Plan to a wider audience.

COMMENTS OF THE STAFF OF THE VIRGINIA STATE CORPORATION COMMISSION ON THE PROPOSED CLEAN POWER PLAN, U.S. Environmental Protection Agency. Docket ID No. EPA-HQ-OAR-2013-0602, October 14, 2014

The Staff of the State Corporation Commission of Virginia (“Virginia SCC”) hereby submits these comments on the proposed Clean Power Plan (“Proposed Regulation”) issued by the United States Environmental Protection Agency (“EPA”).

Because EPA’s Proposed Regulation, if approved, is likely to increase substantially the bills and rates Virginians pay for their electricity, and could impact significantly the reliability of the electrical service they receive, the Staff of the Virginia SCC (“Virginia SCC Staff”) respectfully submits these comments and requests changes to the Proposed Regulation.

I. EXECUTIVE SUMMARY

The Virginia SCC Staff takes no position on the broad policy questions involving carbon emission reductions on a national level, the best methods or deadlines for achieving such reductions on a national level, or whether the United States should have a national “Clean Power Plan” such as the Proposed Regulation. Those are important policy issues for policymakers in the federal legislative and executive branches to decide.

The Virginia SCC Staff focuses its comments on how the specific draft of EPA’s Proposed Regulation would impact the rates and costs for electric service paid by Virginians, including residential consumers and businesses, and the impact of the Proposed Regulation on the reliability of electric service in Virginia. Oversight of electric costs and reliability has been one of the Virginia SCC’s core responsibilities for more than a century.

To achieve the carbon emission reductions required by the Proposed Regulation, customers in Virginia will likely pay significantly more for their electricity. This is so for several reasons, the most obvious being that the Proposed Regulation will require a substantial portion of today’s electricity production to be replaced in part with new and higher cost production and in part with higher cost programs intended to decrease consumption. Those higher costs will be reflected in the electric bills paid by customers in Virginia.

Based on the substantial acceleration of emission reductions called for in the current draft of the Proposed Regulation, EPA’s own model predicts that Virginia will experience significant retirements of power plants. These retirements are of grave concern because the power plants involved are used today to ensure reliable service to Virginia customers, have years of useful life remaining, and cannot be replaced overnight or without regard for impacts on the electric system.

To meet the demands of the Proposed Regulation will require the rapid development of significant, costly new infrastructure that will need to be appropriately sized and located to ensure that customers continue to receive the same level of reliable service they currently enjoy, and which federal reliability laws require. It will be a challenge to meet federal reliability requirements during such a transition.

To be clear, these comments take no position on the broad policy issues regarding how reliability risks and compliance costs caused by the Proposed Regulation compare to the environmental benefits asserted by the EPA. However, any Clean Power Plan should only be undertaken after full consideration of the impacts to the people and businesses that will bear its compliance costs and reliability risks. The Proposed Regulation, as currently drafted, presents many cost, reliability, and legal concerns, some of which are summarized below:

The Proposed Regulation, if approved, is likely to raise substantially both the electric rates and bills Virginians pay in several different ways.

• Virginia SCC Staff analyses of utility planning data indicate that, using conservative assumptions, the incremental cost of compliance for one utility alone (Dominion Virginia Power) would likely be between $5.5 billion and $6.0 billion on a net present value basis. Compliance costs will increase the cost of providing electric service, which must be paid for by residents and businesses in Virginia.
• In addition to new investment, Virginia residents and businesses will also be responsible for paying remaining costs for useful existing facilities forced to retire prematurely by the Proposed Regulation. The Proposed Regulation places at risk several billions of dollars of recent investments in existing coal-fired facilities in Virginia and West Virginia that Virginia ratepayers have only begun to pay off.
• Much of this investment has been constructed to comply with EPA consent decrees on which the ink is hardly dry. The federal government has, in essence, required Virginia residents and businesses to build a house, take out an expensive mortgage  on it, and then directed that house be torn down. The expensive mortgage must still be paid off.
• Another rate impact to Virginia customers will be the wholesale prices for energy purchased by Virginia utilities and passed through to the Virginia retail customers that use it. Higher wholesale prices resulting from the Proposed Regulation will be compounded by federally approved locational marginal pricing employed by the regional transmission organization that operates the wholesale power system in Virginia.
• In sum, Virginia’s compliance with the Proposed Regulation, as currently drafted, will be expensive and will be paid for by Virginia residents and businesses. Contrary to the claim that “rates will go up, but bills will go down”, experience and costs in Virginia make it extremely unlikely that either electric rates or bills in Virginia will go down as a result of the Proposed Regulation.

The Proposed Regulation, if approved, raises significant reliability concerns.

• The carbon emission rate that EPA proposes for Virginia will require the retirement of a significant amount of fossil-fuel generation in a timeframe that compromises reliability.
• EPA’s modeling shows 2,851 megawatts of dispatchable fossil-fuel generation in Virginia being retired and replaced, before 2020, with 351 megawatts of non-dispatchable onshore wind. This raises alarming regional reliability concerns.
• Additional near-term generator retirements caused by the Proposed Regulation will compound existing, unresolved reliability concerns in the Commonwealth.

As currently drafted, the carbon emission rates that EPA proposes for Virginia are arbitrary, capricious, and unlawful.

• The Proposed Regulation applies an unprecedented and unsupportable legal interpretation that the “best system of emissions reduction” for existing sources can include, among other things, homeowners and retail customers that do not generate any power or produce any emissions.
• The Proposed Regulation imposes substantially more stringent emission requirements for affected, existing generating units in Virginia than the standard for new units, yet to be built.
• The Proposed Regulation fails to recognize substantial, recent investments that have significantly reduced carbon dioxide and other emissions in Virginia.
• The Proposed Regulation fails to recognize Virginia’s significant
  investment in and utilization of nuclear generation and, in fact, effectively penalizes Virginia for this zero-carbon generation.
• The Proposed Regulation incorporates generic and unsupported
  expectations of levels of renewable generation and energy efficiency that, when applied to Virginia, are extremely ambitious, almost certainly unachievable, and uneconomic under traditional standards.

The Proposed Regulation fails to address many important interstate implications.

• As confirmed by the federal regulators responsible for wholesale electric markets and transmission reliability, it is unclear how EPA’s requirements can be integrated into existing market and reliability structures.
• Virginia would have little, if any, input regarding the compliance
  obligations for a substantial amount of out-of-state generation currently used to maintain reliable electric service at just and reasonable rates for Virginia customers.

As summarized above, and detailed below, Virginia SCC Staff’s has numerous, serious concerns with the Proposed Regulation, as currently drafted.

A more rationally established compliance horizon and carbon emission rate for Virginia – recognizing, for example, the particular circumstances of Virginia and the limitations on the EPA’s authority – would provide flexibility for the Commonwealth to meet the EPA’s goals of reducing carbon output while imposing more reasonable costs on customers.