The ratepayers for Virginia utility Dominion Energy will soon be on the hook for a controversial offshore wind project that the public utilities commission was unable to oppose. The commission was able to insert a performance guarantee requirement, but due to requirements of both the state’s commitment to 100 percent renewable energy by 2050 and the state’s membership in the Regional Greenhouse Gas Initiative (RGGI), which were both codified by the Clean Economy Act passed in March of 2020, the commission lacks the ability to protect the state’s energy consumers from the costly project.
The renewables target commits the state to building renewable energy infrastructure, while RGGI membership makes carbon-emitting energy in the state more expensive, raising costs for consumers in the state.
The commission had little choice but to approve the project despite cost concerns, but a cost guarantee requirement was put in place to insulate ratepayers from cost overruns followed by cost recovery measures on the part of Dominion. Ratepayers will also be protected from any drops in production below the stated 42 percent capacity factor for the project.
Dominion Chairman Robert Blue said that the cost guarantee was “untenable”, but being beholden to the cost claims that are made at the beginning of a project that’s already projected to come with a 9.8 billion price tag seems like a reasonable requirement for the utility.
It is good that the commission has taken these steps to protect customers, but too much government meddling in energy markets has created an environment in which suboptimal decision-making is subsidized, obfuscating which projects are prudent, and which are not.
The Regional Greenhouse Gas Initiative is a multi-state cap and trade program wherein participating states are responsible for holding auctions wherein electricity producers must purchase credits in order to continue their operations. The money spent on credits is then used for programs for things like retrofitting old buildings, greenhouse gas emissions abatement, renewable energy investments, and bill assistance for low-income households.
There are currently 12 member states in the program, after Pennsylvania joined earlier this year, most of which are in the northeast. There is still contention over the policy in Pennsylvania, with enforcement of the regulation paused until a trial this fall.
But Pennsylvania isn’t the only state second guessing its role in RGGI. Following his inauguration in January, Governor Youngkin signed an executive order to begin the process of removing the state from RGGI by requiring a review by the Department of Environmental Quality to reevaluate the costs of the program for Virginia ratepayers and take the initial steps necessary to remove the state from the program. The order also stated the Governor’s intent to withdraw Virginia from RGGI either through legislative or executive action.
The review was put out in March, and its findings reveal the impact of RGGI in Virginia have largely been felt in the form of ratepayer costs rather than in emissions reductions.
One of the key findings was that, “because of the captive nature of their ratepayers, the ability for power-generators to fully pass on costs to consumers, and the fact that the Code of Virginia dedicates RGGI proceeds to grants programs, participation in RGGI is in effect a direct carbon tax on all households and businesses”. The idea that this is a cost paid by energy producers alone is a fantasy, this sort of fee is almost always ultimately passed down to the end-user or customer. RGGI is at its core essentially a carbon tax by another name.
The review also highlights that Virginia saw a more than a 50 percent decrease in greenhouse gas emissions during the 10 years prior to the state’s entrance into RGGI.
Amid the findings of this review, as well as in light of already high energy prices, an exit from RGGI would be a prudent move on the part of the Virginia government.