RPS Report Card - Chesapeake Climate Action Network

RPS Report Card:

How Virginia’s Renewable Portfolio Standard Rewards Utilities for a ailing Performance

And How to Fix it

December 2012

F

F

F

Written By:

Beth Kemler

Virginia State Director, Chesapeake Climate Action Network

[email protected]

804-335-0915

http://www.chesapeakeclimate.org

1

Approximate 2011-12 RPS

bonuses for meeting 2010 goal:

Dominion-$77 million

APCo-$15 million

EXECUTIVE SUMMARY

Should we give a bonus to a utility for continuing to operate a hydro-dam that’s been churning out power since 1904?

Under a 2007 law to encourage the development of new renewable energy sources in Virginia, the state is forcing

consumers to do just that.

While almost thirty states have enacted laws that require utilities to generate a certain

percentage of their energy from renewable sources1, Virginia offers our utilities

financial bonuses for meeting voluntary goals, which are weaker than many of the

mandatory standards set by other states. Under the Renewable Energy Portfolio

Standard (RPS) law (§ 56-585.2) passed in 2007, the companies that meet Virginia’s

renewable energy goals are eligible to receive big bonuses, awarded through higher

rates charged to customers.

The RPS was intended to spur the growth of renewable energy in Virginia in order to lower our emissions of greenhouse

gases and other pollution while sparking a homegrown clean energy industry.

UTILITIES REWARDED FOR A FAILING PERFORMANCE

In this report, we analyze the data from the companies’ annual RPS reports,2 submitted to the State Corporation

Commission in November of 2012, to see if the utilities’ performance is living up to the intended purpose of the RPS law.

Below is a summary of what we found: a failing performance. Although the companies met the RPS goals in 2011 working

within the framework of the law and are therefore eligible for financial rewards, the results do not come anywhere close to

meeting the intention of the law.

Dominion Power Appalachian Power

RPS Transparency

A D Did the utilities disclose substantive information about their 2011 RPS performance in their 2012 reports?

Energy from New Facilities

F 0% F 0.2% Did the energy that utilities stand to be rewarded for come from facilities built after the rewards were offered?

Wind and Solar Energy

F 0% F 0.2% Did the energy that utilities stand to be rewarded for come from the most modern, pollution-free technologies?

Virginia-Made Energy

F 19% F 19% Did the energy that utilities stand to be rewarded for by Virginians come from facilities in Virginia?

1 Renewable Portfolio Standard Policies. Database of State Incentives for Renewables & Efficiency:

http://www.dsireusa.org/documents/summarymaps/RPS_map.pdf 2 Virginia utility annual RPS reports can be found on the Virginia State Corporation Commission’s website at

http://www.scc.virginia.gov/pue/renew.aspx.

2

By far, the biggest failing is the lack of energy from new facilities (ones that went online after the RPS was created). Virginia offered the utilities financial rewards as an incentive to spur the growth of a renewable energy industry in Virginia. Unfortunately, without specific requirements for modern technology, the utilities are able to qualify for the rewards with a portfolio of energy that mostly consists of hydropower dams built before World War II.

BREAKING DOWN THE FACTS: Figures of Interest

The only power that was credited to the RPS in 2011 that came from new facilities (ones that went online after the

law was created in 2007) came from Appalachian Power. Wind farms in Indiana and Illinois provided 1,508 MWh,

enough to power about 100 homes. This comprised 0.04% of all of the energy counted toward the RPS in 2011 and

also accounted for the only wind power used toward the RPS by either utility.

The average facility providing power for the RPS in 2011 went online in 1945—the year World War II ended. If it

were a person, it would be eligible for Social Security.

If Dominion Power had developed enough wind and solar power to generate 1.7 million MWh (its yearly RPS goal

for 2010-2015) instead of developing more fossil fuel generation, the resulting reduction in greenhouse gas

emissions would be like taking 125,000 cars off the road.

The majority of Virginia’s 2011 RPS energy—54%—was purchased as Renewable Energy Certificates (RECs) from our

neighbors in Maryland.

While the RPS end goal is portrayed as “15% in 2025,” Dominion Power’s 2025 goal equates to only 6% of its 2025

load forecast and Appalachian Power’s 2025 goal equates to only 10% of its 2025 forecast.

LESSONS LEARNED: How the RPS Ends Up Rewarding a Failing Performance

Without tight standards for what meets the RPS goals, we end up rewarding energy that would have been

generated even if no reward were offered. It seems unlikely that the members of the General Assembly were

envisioning utilities getting credit for a hydropower dam that has been generating power since before World War II

when they created renewable energy rewards.

Extra credit for certain technologies is a poor substitute for a tiered system. Most states put priority on the

cleanest technologies by creating a tiered system. They say that a certain portion of the energy for the RPS has to

come from “tier 1” sources, like wind and solar power, and the rest can come from “tier 2” sources. In Virginia, the

RPS instead offers 200-300% credit for certain technologies. This extra credit clearly isn’t doing its job, since only a

tiny fraction of the energy that was credited to the RPS in 2011 came from wind. If we want the companies to

invest in the cleanest, most modern technologies, we need to make that a requirement to meet the goals and

qualify for the bonus.

A voluntary RPS that offers rewards should be in-state only. While allowing utilities to count energy from a large

geographic region might make sense for a mandatory RPS, it doesn’t for renewable energy goals that offer big,

customer-funded rewards. If Virginians are paying the bonus, we should reap the rewards—cleaner air and jobs.

We’ve set a very low bar for high rewards. Because of the way the goals are calculated, Dominion’s 2025 “15

percent” goal amounts to only 6% of the amount of energy the company is forecasting it will sell in 2025. APCo’s

“15 percent” goal amounts to 10% of its 2025 load forecast.

3

The law allows other activities to count as generating energy, which only further weakens the goals. Allowing

utilities to count research and development of renewable energy for up to 20% of any given year’s goal and to

count an unlimited amount of “thermal energy” means that they can meet the goals and get rewarded with even

less actual renewable energy.

The RPS law, as written, unintentionally allows a single MWh of renewable energy to be counted by two

different companies. A 2011 ruling by the State Corporation Commission found that, while likely not the intent of

the General Assembly, the RPS law includes a loophole that allows double-counting of a single MWh of energy.

TOP LESSON LEARNED: How to Create a Winning Performance

In order to ensure that our RPS creates a winning performance—spurring new investment in a renewable energy industry in

Virginia—Chesapeake Climate Action Network’s top policy recommendation is that the General Assembly:

Replace the 200-300% credit that solar and wind power currently receive toward the goals with a minimum

amount of energy that must come from wind and solar power to meet the goals.

Only allow energy from facilities in Virginia to count toward the RPS.

Since Virginia has no utility-scale wind or solar power facilities, these two provisions, in concert with each other, will ensure

that new renewable energy goes onto the grid locally to meet the RPS goals.

4

BACKGROUND

WHAT IS A RENEWABLE PORTFOLIO STANDARD (RPS)?

A state Renewable Portfolio Standard (RPS)

requires utilities to use or procure renewable

energy or renewable energy certificates (RECs)3

to account for a certain portion of their retail

electricity sales.

RPS laws have been enacted by 29 states—from

North Carolina to Texas to Montana—and the

District of Columbia. 4 These laws have resulted

in cleaner air, economic development and

lowered greenhouse gas pollution.

WHAT MAKES VIRGINIA’S RPS DIFFERENT? It’s a Goal, Not a Standard

Though Virginia’s law to encourage the

development of renewable energy (§ 56-585.2)

is commonly referred to as a Renewable

Portfolio Standard, it is technically a goal, not a

standard, because it is voluntary for utilities to

participate. Seven other states have adopted

voluntary goals for renewable energy.

Virginia’s goals apply only to our two Investor-

Owned Utilities—Dominion Power and

Appalachian Power Company (APCo)—not to

electric cooperatives or municipal utilities. Both

Dominion and APCo are currently participating in

the goals and “meeting” them.

3 See “What is a Renewable Energy Certificate?” later in the report.

4 Renewable Portfolio Standard Policies. Database of State Incentives for Renewables & Efficiency:

http://www.dsireusa.org/documents/summarymaps/RPS_map.pdf

5

Approximate 2011-12 RPS

bonuses for meeting 2010 goal:

Dominion-$77 million

APCo-$15 million

WHAT MAKES VIRGINIA’S RPS DIFFERENT? Utilities Get Financial Rewards

Virginia is one of only two states that offer

utilities financial rewards for meeting renewable

energy goals.

The rates that Dominion and APCo customers

pay are determined through a complex state

regulatory process that is based on laws passed

by the General Assembly.

As a reward for meeting RPS goals, a Virginia

utility can get a reward of 50 extra “basis

points,” equivalent to .5% of its “rate base,” as

part of the rates that are approved by the State

Corporation Commission.

Dominion and APCo both received approval to

include RPS bonuses in their 2011-2012 rates (based on meeting the 2010 RPS goal).

For Dominion Virginia Power, this will mean earning approximately $77 million extra

from customers over two years and for Appalachian Power, it will mean earning

approximately $15 million extra. For more detail about how the bonuses are paid,

please see Report of the Office of the Attorney General on Return-on-Equity

Enhancement Adders of the 2007 Virginia Electric Utility Regulation Act, released in

November 2012.

WHAT DO UTILITIES HAVE TO DO TO GET REWARDED?

Utilities have to meet specific numeric goals for specific time periods, which can be fulfilled with a combination of

megawatt-hours (MWh) of renewable energy and/or Renewable Energy Certificates (RECs).

Dominion and APCo RPS Goals (MWhs/RECs)

Time Period 2010 2011-2015 2016 2017-2021 2022 2023-2024 2025

Dominion Goal 1,732,746

1,732,746

3,032,305

3,032,305

5,198,238

5,198,238

6,497,797

APCo Goal 578,120

578,120

1,011,710

1,011,710

1,734,360

1,734,360

2,167,950

For more details about what each company’s goals are based on, see the “The Devil’s In the Details” section of the report.

6

WHY WAS THE RPS CREATED? To Spur New Renewable Energy in Virginia

Virginia’s RPS was created in 2007 as part of the reregulation of our investor-owned electric utilities. The RPS was intended

to spur the development of new renewable energy facilities in Virginia, contributing to:

Healthy Families: The more clean renewable energy that goes online, the less mercury, soot and other toxins that

are released by dirty old power plants.

A Healthy Climate: Putting more renewable energy online also avoids emissions of greenhouse gases, which

contribute to climate change, leading to sea level rise and other problems.

A Healthy Economy: Growing a renewable energy industry in the commonwealth would create new, home-grown

jobs.

Unfortunately, the following pages will show that the results of the RPS are not matching the General Assembly’s

intentions. The companies are meeting the goals almost entirely with power generated at facilities that were already built

before the RPS was created. Some of the facilities are more than 100 years old, most of them are outside of Virginia and

virtually none produce the cleanest forms of energy—wind and solar power.

7

THE GRADES: Utilities Rewarded for a Failing Performance

GRADING PERFORMANCE: Annual RPS Reports Provide Insight

The original RPS law passed in 2007 included no requirement for utilities to report on their efforts to meet the RPS goals

outside of documents filed with the State Corporation Commission in biennial rate review cases. In 2008, the General

Assembly approved a bill proposed by Senator Linda Toddy Puller that included this reporting requirement:

H. Each investor-owned incumbent electric utility shall report to the Commission annually by November 1 on (i) its

efforts, if any, to meet the RPS Goals, (ii) its overall generation of renewable energy, and (iii) advances in renewable

generation technology that affect activities described in clauses (i) and (ii).

While the requirement to file a report annually was an improvement, the new provision lacked specifics and so did the

resulting reports filed by utilities. In 2012, the General Assembly passed a bill introduced by Senator Donald McEachin and

Delegate Jennifer McClellan that added specifics on which utilities must now report.

H. Each investor-owned incumbent electric utility shall report to the Commission annually by November 1

identifying:

1. The utility's efforts, if any, to meet the RPS Goals, specifically identifying:

a. A list of all states where the purchased or owned renewable energy was generated, specifying the number

of megawatt hours or renewable energy certificates originating from each state;

b. A list of the decades in which the purchased or owned renewable energy generating units were placed in

service, specifying the number of megawatt hours or renewable energy certificates originating from those

units; and

c. A list of fuel types used to generate the purchased or owned renewable energy, specifying the number of

megawatt hours or renewable energy certificates originating from each fuel type;

Using the reports that Dominion and APCo submitted to the State Corporation Commission in November of 2012, which

provide data for 2011, we have analyzed the utilities’ RPS performance.

“PURCHASED OR OWNED RENEWABLE ENERGY”: A Note on “Banking”

As you can see above, the utilities are required to report each year on “purchased or owned renewable energy.” What

exactly does that mean?

Energy counted toward the RPS goal for any given year doesn’t have to be generated in that year. In a given year, a

company can generate or purchase more renewable energy toward the RPS than it needs for the current goal and save the

extra amount for future goals. It’s sort of like each company has a bank account where it deposits all of its RPS energy and

each year it withdraws just the amount needed for that year. So when the utilities are required to report on their

“purchased or owned renewable energy,” that includes all of the energy that the company put in its account that year,

including what it banked for the future.

8

TRANSPARENCY: Public Disclosure of What’s Being Rewarded

DID THE UTILITIES DISCLOSE SUBSTANTIVE INFORMATION ABOUT THEIR RPS PERFORMANCE IN THEIR 2012 REPORTS?

Dominion APCo

RPS Transparency A D

Dominion’s 2012 RPS report earned an A for transparency. The company filed its report on time and provided all of the

information required by law.

Dominion’s report included all of its figures broken down by the ultimate fate of each MWh or REC. The figures were

broken into three categories:

Applied: This is the energy Dominion is applying to the 2011 RPS goal.

Banked: This is the energy that was deposited in Dominion’s metaphorical RPS “account” in 2011 but that the

company does not need to use toward the year’s goal. Dominion has “banked” the energy for use toward future

years’ goals.

Optimized: This is the renewable energy that Dominion generated in 2011 but that the company did not deposit in

its RPS account. Instead, the company sold the RECs for the optimized energy to other companies.

APCo’s 2012 RPS report earned a D for transparency. For its report, the company originally submitted a letter stating that

it had met the 2011 RPS goal without providing any of the specifics required by law. After the State Corporation

Commission pointed out that the company had not met the reporting requirements, APCo sent in an expanded report.

APCo’s final report omitted information about the in-service decades of the facilities that provided 62% of its 2011 RPS

energy. This is completely insufficient. Given the RPS was created to incentivize the development of new renewable

energy, the age of the facilities providing power is a crucial piece of information for analyzing performance.

In addition, APCo’s final report only included total figures for energy that it deposited in its RPS account in 2011. The

company did not provide any specifics for energy applied vs. banked. While the law doesn’t specify that this information

must be included, APCo should take a cue from Dominion and include it for the sake of transparency. Since specific

financial rewards are linked to meeting the RPS goals in specific years (e.g. utilities are being rewarded in 2011-2012 for

meeting the 2010 goal), it is only logical that consumers should be able access precise figures for what they’re rewarding.

RPS ENERGY “DEPOSITED” IN 2011: A Note on the Following Numbers

Because APCo only provided figures for all of the energy it “deposited” in its RPS “account” in 2011, without providing

figures for energy specifically applied to the 2011 goal(“withdrawn”), the “deposited” numbers serve as the basis for all of

the following performance comparisons.

9

FAILING PERFORMANCE: Rewards for Energy from Facilities that Have

Been Online for Decades

WHY SHOULD THE RPS ENERGY COME FROM FACILITIES BUILT

AFTER 2007?

The RPS was created in 2007 and its essential purpose is to spur

the growth of new renewable energy. Power generated at

facilities that went online before 2007 does not satisfy the intent

of the RPS.

DID THE ENERGY THAT UTILITIES STAND TO BE REWARDED FOR

COME FROM FACILITIES BUILT AFTER THE REWARDS WERE

OFFERED?

Both utilities failed to utilize new energy facilities for a substantial

portion of their RPS energy in 2011.

Dominion’s 2011 RPS energy didn’t include any power from facilities that went online after the RPS rewards were offered.

APCo’s 2011 RPS energy included a tiny fraction from new facilities. These facilities, Camp Grove wind farm in Illinois

(which began operations in November of 2007) and Fowler Ridge wind farm in Indiana (which began operations in 2008)

provided enough energy toward the RPS in 2011 to power about 100 homes.5

5 Based on average consumption of 14.2 MWh by an APCo residential customer in Virginia in 2011.

Dominion APCo

New Facilities (2007+)

F F

0% 0.2%

2000-2006 0% 12%

1990s 18% 0%

1980s 6% 0%

1970s 0% 0%

1960s 6% 8%

1950s 4% 0%

1940s 0.2% 0%

1930s 1% 15%

1920s 58% 0%

1910s 7% 2%

1900s 0% 1%

Undisclosed 0% 62%

The only power from new

facilities that was credited toward the

RPS in 2011 was APCo’s- 1,508 MWh

from wind farms in Indiana & Illinois. That’s

enough to power approximately

100 homes.

10

LESSON LEARNED: WITH NO TIERS OR RESTRICTIONS ON AGE OF FACILITIES, WE END UP REWARDING ENERGY THAT

WOULD HAVE BEEN GENERATED EVEN IF NO REWARD WERE OFFERED

The fact that utilities can gain RPS rewards for energy from facilities that have

been generating power for up to 100 years or more is a glaring example of how

the details of the RPS law have not lived up to its intent. Creating a requirement

that a certain portion of the energy come from modern technology (or “tier 1”),

in partnership with requiring that the energy come from Virginia, would mean

that new renewable energy would have to be built in Virginia in order for the

RPS goals to be met.

The average facility

providing power for the RPS in

2011 went online in 1945- the

year WWII ended. If it were a

person, it would be eligible for

Social Security.

11

If Dominion had developed wind &

solar power to meet the beginning RPS goals,

instead of bringing more fossil fuels online, it would

have been the greenhouse gas equivalent of

taking 125,000 cars off the road.

FAILING PERFORMANCE: RPS Not Growing Wind & Solar Power Industries

WHY SHOULD RPS ENERGY INCLUDE WIND AND SOLAR

POWER?

When we hear that utilities are being offered rewards for

meeting “renewable energy goals,” most of us envision

the companies building wind farms and solar arrays

across the state. In fact, when CCAN polled Virginians

about how they would like to see companies fulfill the

renewable energy goals, wind power and solar power

were the two top answers.6

Pollution-Free: One of the top reasons the RPS was

created is to lower greenhouse gas emissions for a

healthy climate and lower other air pollution from power plants for healthy families. Therefore, utilities should be utilizing

the cleanest technologies to help meet their goals.

Modern: Wind and solar power are the modern technologies of today and they have much more potential to create local

jobs than old technologies like hydropower. Virginia is home to a number of businesses that install solar panels but,

unfortunately, many of them do a lot of their business in other states that have a better regulatory climate for solar.

Because wind turbines are so large and it’s costly to transport them for long distances, wind power has the potential to

create not only direct installation jobs but also local manufacturing jobs.

DID THE ENERGY THAT UTILITIES STAND TO BE REWARDED FOR COME FROM THE MOST MODERN, POLLUTION-FREE

TECHNOLOGIES?

Both utilities failed to utilize wind or solar power for a substantial portion of their 2011 RPS energy. Neither took advantage

of our solar resource and only APCo brought in a tiny portion of wind power. This small amount of power was generated at

wind farms in Indiana and Illinois.

Dominion APCo

Wind & Solar Power F F

0% 0.2%

Wind 0% 0.2%

Solar 0% 0%

Hydro 78% 99.8%

Municipal Solid Waste

22% 0%

Landfill Gas 0.2% 0%

6 See We Ask America Poll Results at http://www.chesapeakeclimate.org/file-uploads/kelly-

trout/VA_Renewable_Energy_Poll_Results_2012.pdf.

12

LESSON LEARNED: EXTRA CREDIT FOR CERTAIN TECHNOLOGIES IS A POOR SUBSTITUTE FOR TIERS

Most states put priority on the cleanest technologies by creating

a tiered system. They say that a certain portion of the energy for

the RPS has to come from “tier 1” sources, like wind and solar

power, and the rest can come from “tier 2” sources. In Virginia,

the RPS instead offers 200% credit for solar power and onshore

wind and 300% credit for offshore wind power—meaning that a

utility could knock out 200,000 MWh of its goal with only

100,000 MWh of actual solar power.

This extra credit clearly isn’t doing its job, since only a tiny

fraction of the energy that was credited to the RPS in 2011 came

from one of these technologies.

If we want the companies to invest in the cleanest, most modern

technologies, we need to make that a requirement to meet the

goals and qualify for the bonus.

How should Virginia’s RPS tiers be divided? TIER 1 TIER 2

Modern, pollution-free technologies that involve no combustion

Wind Power: Wind turbines release no pollution. Wind power also has the potential to spur local manufacturing jobs, since large turbine parts can’t be economically transported over long distances. Solar Power: Solar panels release no pollution. Plus solar arrays tend to be erected by local installers, adding to the potential to keep the associated jobs in-state. Geothermal, Tidal & Wave Energy: Though these technologies are not currently viable for utility-scale use, they are all pollution-free.

Technologies that pollute by burning a fuel

Biomass (Waste Wood): Though conventional wisdom in the past has been that burning waste wood was “carbon neutral,” scientists are now taking a second look. The common conception used to be that if waste wood were left in the forest, it would eventually decompose, releasing its carbon, so burning it would be carbon neutral in the long run. But it would normally decompose over the course of decades, not burn up in minutes. So the short-term carbon impact of burning wood for electricity can actually be higher than fossil fuels like coal. Since climate change is happening rapidly before our eyes, experts are starting to think that we may want to pull back the reigns on the construction of biomass facilities. Municipal Solid Waste: As one would expect, burning trash for energy creates quite a bit of pollution, including greenhouse gases. Animal Waste: Burning animal waste for energy is a matter of trying to solve a water pollution problem (run-off from farms) by trading it for an air pollution problem. Landfill Gas: A landfill gas facility creates energy by trapping methane as trash decomposes and burning it. This, too, creates pollution.

Technologies that are out of date

Hydropower: Though hydropower is certainly clean, it is not exactly a modern technology. Including it in our top tier would not help to spur the development of new renewable energy sources in Virginia.

13

FAILING PERFORMANCE: Virginians Rewarding Power from Other States

WHY SHOULD RPS ENERGY COME FROM VIRGINIA?

If Virginians are providing the utilities with financial rewards for meeting the RPS, then

Virginians should retain the benefits—cleaner air for healthy families and jobs for a

healthy economy.

DID THE ENERGY THAT UTILITIES STAND TO BE REWARDED FOR BY VIRGINIANS COME

FROM VIRGINIA?

Both utilities failed to generate or purchase a substantial portion of their RPS energy from Virginia facilities in 2011.

LESSON LEARNED: A VOLUNTARY RPS WITH REWARDS SHOULD BE IN-STATE ONLY

The RPS law allows utilities to count renewable energy from anywhere within the PJM interconnection region, which

reaches as far as Illinois, and to also count energy from facilities that the utility owns in neighboring states. While this

geography might make sense for a mandatory RPS, for voluntary goals with big rewards, it only makes sense to keep the

benefits in-state.

Energy Generated in: Dominion APCo

Virginia F F

19% 19%

Maryland 57% 42%

Pennsylvania 14% 21%

North Carolina 9%

New Jersey 1%

West Virginia 18%

Indiana 0.09%

Illinois 0.09%

The majority of the 2011

RPS energy-54%-came

from our neighbors in

Maryland.

14

TOP LESSON LEARNED: How to Ensure a Winning Performance

In order to ensure that our RPS creates a winning performance—spurring new investment in a renewable energy industry in

Virginia—Chesapeake Climate Action Network’s top policy recommendation is that the General Assembly:

Replace the 200-300% credit that solar and wind power currently receive toward the goals with a minimum

amount of energy that must come from wind and solar power to meet the goals.

Only allow energy from facilities in Virginia to count toward the RPS.

Since Virginia has no utility-scale wind or solar power facilities, these two provisions, in concert with each other, will ensure

that new renewable energy goes onto the grid locally to meet the RPS goals.

It should be noted that neither of these provisions will have as much of an impact on its own as they will have together.

If you just create a tiered system, there’s no guarantee that we won’t end up with all our tier 1 power coming from states

that are further along in developing their renewable energy industries, like Pennsylvania and Illinois. On the other hand, if

you just add a provision that the power has to come from Virginia without creating a tiered system, you still won’t be

sparking much new development.

For instance, if the General Assembly added a provision to the law stating that all of the energy to meet the goals must

come from Virginia starting in 2016 (the first year that the goal amount increases) without also adding a wind and solar

tier, Dominion could meet the goals through 2020 without investing in any new energy beyond what’s already online or

planned. This is the case, in part, because Dominion already has a substantial amount of VA-generated energy from old

facilities banked and could save up even more before 2016. Plus, if the company took advantage of its option to use

research and development for 20% of each year’s goals, then it could meet the goals without any new energy for an

additional two years—through 2022—just three years before the end of the 15-year RPS program.

15

THE DEVIL’S IN THE DETAILS: Further Lessons Learned

BACKGROUND INFO: What is a renewable energy certificate (REC)?

In order to understand the ins and outs of how

renewable energy laws operate, it is important to

understand how renewable attributes are

accounted for and traded.

A Renewable Energy Certificate (REC) is a tradable

commodity that represents the environmental

attributes of 1 megawatt-hour (MWh) of renewable

energy. When a company generates a MWh of

electricity from a renewable energy resource, it can

sell the power onto the grid and also sell a REC for

that power, either to the same buyer or a different

one.

While the original concept of a REC was to account

for a MWh of renewable energy being put on the

grid, the concept has been expanded to include

certificates for other activities in some states. For

instance, in Virginia, the law now includes a calculation to convert BTUs of thermal energy into a number of RECs.

RPS SETS A LOW BAR FOR HIGH REWARDS Each utility has specific numerical goals for each year of the RPS, which ramp up to larger amounts over time. For instance,

Dominion’s 2025 RPS goal is 6,497,797 MWhs (or RECs). The numbers signify a combination of megawatt-hours (MWh) of

renewable energy going onto the grid and/or Renewable Energy Certificates (RECs). A REC originally signified that 1 MWh

of renewable energy went onto the grid but the definition has since been expanded to include certificates for other

activities, such as spending money on Research and Development. You will find more on what qualifies for Virginia’s RPS in

the next section.

Many states have set up their RPS calculations in a simple manner. For instance, Maryland’s RPS requires that in 2022,

utilities show renewable energy or RECs amounting to 20% of that year’s sales. North Carolina’s RPS requires that in 2021,

utilities show renewable energy or RECs amounting to 12.5% of 2020 sales.

Virginia’s RPS goals, on the other hand, are based on a complex calculation that lowers the bar for utilities and also makes

the goals sound bigger than they truly are. The calculation of each utility’s goals starts with determining “total electric

energy sold in the base year,” commonly referred to as “base year sales.”

"Total electric energy sold in the base year" means total electric energy sold to Virginia jurisdictional retail

customers by a participating utility in calendar year 2007, excluding an amount equivalent to the average of the

16

While the RPS end goal is

portrayed as “15% in 2025,”

Dominion’s 2025 goal equates

to only 6% of its 2025 load

forecast.

annual percentages of the electric energy that was supplied to such customers from nuclear generating plants for

the calendar years 2004 through 2006.

Base Year Sales Calculation

Dominion APCo

2007 Sales 64,621,534 15,586,000

- Nuclear Generation (2004-2006 Avg) 21,302,885 1,133,000

= "Base Year Sales" 43,318,649 14,453,000

Once the base year sales are determined, the RPS goals are determined as percentages, starting at 4% in 2010 and stepping

up every few years to eventually reach 15% in 2025.

Dominion and APCo RPS Goals

Time Period 2010 2011-2015 2016 2017-2021 2022 2023-2024 2025

Percent 4% 4% Average 7% 7% Average 12% 12%

Average 15%

Dominion Goal 1,732,746

1,732,746

3,032,305

3,032,305

5,198,238

5,198,238

6,497,797

APCo Goal 578,120

578,120

1,011,710

1,011,710

1,734,360

1,734,360

2,167,950

Between basing the future goals on sales figures from the past and subtracting

nuclear generation from the base year sales, the utilities’ goals end up much lower

than the portrayed percentages. If we compare each utility’s end 2025 goal to the

amount of energy it has forecasted it will need in 2025, we see just how much

lower the bar really is.

Comparison of 2025 Goals to 2025 Load Forecasts

Dominion APCo

2025 Goal - 15% of Base Year Sales 6,497,797 2,167,950

÷ 2025 Load Forecast7 104,533,000 20,802,000

= 2025 "15%" Goal as % of 2025 Load Forecast 6% 10%

7 Source: Dominion and APCo’s 2011 Virginia Integrated Resource Plans, submitted to the State Corporation Commission

17

COUNTING R&D AND THERMAL ENERGY FURTHER WEAKENS GOALS

Although the RPS was created to promote the growth of renewable electricity in Virginia, the statute has been expanded to

include other sources that companies can use to qualify for the bonus. Allowing other activities to be counted as though a

company was putting renewable energy onto the grid does not help us get steel in the ground.

What Can Utilities Count Toward the RPS?

Type Definition Notes

Renewable Energy (only type included in original RPS)

energy derived from sunlight, wind, falling water, biomass, energy from waste, landfill gas, municipal solid waste, wave motion, tides, and geothermal power

This includes:

company-generated electric energy

electric energy purchased from another company

RECs purchased from another company

Renewable Thermal Energy (REC amounts determined through a calculation based on number of BTUs)

thermal energy output from a renewable-fueled combined heat and power generation facility that is (i) constructed, or renovated and improved, after January 1, 2012, (ii) located in the Commonwealth, and (iii) utilized in industrial processes other than the combined heat and power generation facility

A combined heat and power facility is basically an industrial facility that uses its steam energy more efficiently. “Thermal energy” is not electricity. During the 2012 General Assembly session, environmentalists and consumers objected strongly to the bill creating a system to issue RECs for thermal energy and count them toward the RPS, arguing that combined heat and power should be incentivized but not through the RPS. Unfortunately, legislators passed the bill anyway, many of them believing the rhetoric that it would help advance renewable energy in Virginia. They heard that argument from lobbyists for MeadWestVaco, which already had plans underway to build a combined heat and power facility in Virginia.

Research & Development Investment (REC amounts determined through a calculation based on dollars spent)

an expense incurred by a utility in conducting research and development activities related to renewable or alternative energy sources; can be used for up to 20% of any year’s goal

During the 2012 General Assembly session, environmentalists and consumers also objected to the bill creating a system to issue RECs for research and development of renewable energy and count them toward the RPS. Again, R & D of renewable energy is something we may want to incentivize but the RPS is not the appropriate venue. The G.A. also passed this bill, hearing strong support from lobbyists for Virginia’s universities, which would stand to benefit from it.

18

EXTRA CREDIT LOOPHOLE: 200-300% Credit Further Weakens Goals

Many states’ RPS laws show preference for certain types of renewable energy over others. Most of them accomplish this

by creating tiered systems and/or carve-outs. In a tiered system, a certain set of energy types must comprise a certain

portion of a company’s RPS energy. In a carve-out system, a certain portion of the energy must come from one specific

energy type. For example, in Maryland, 10% of the end goal of the RPS must come from solar power.

Some RPS laws put a thumb on the scale for certain energy types by giving them a little extra credit over other sources. For

instance, Maryland’s RPS offered 120% credit for wind power for its 2005 goal and 110% in 2006-2008. Virginia’s RPS law,

rather than putting a thumb on the scale for certain energy types, steps on the scale. Our RPS offers 200-300% extra credit

for the sources shown below. This means that a goal that has already been weakened by circuitous calculations based on

2007 sales can be lowered even further. The amount required can become half or a third of what it was.

While the utilities have barely been taking advantage of these extra credits, they have the potential, if utilized, to

substantially lower the bar for utilities.

Extra Credit Loophole Can Lower The Bar Even Further

Type Credit

Amount

A Goal of 15% Renewable

Energy Could Be Satisfied With Only…

Regular Credit

Hydro 100%

Biomass 100%

Energy from Waste 100%

Landfill Gas 100%

Municipal Solid Waste 100%

Wave Motion 100%

Tides 100%

Geothermal 100%

Extra Credit

Solar 200% 7.5%

Onshore Wind 200% 7.5%

Animal Waste in Virginia 200% 7.5%

Offshore Wind 300% 5%

19

DOUBLE-COUNTING LOOPHOLE: One MWh can be counted by two companies

A 2011 ruling by the State Corporation Commission8 found that, under the RPS law as written, a single MWh of renewable

energy can be claimed by two different companies.

For instance, Dominion purchases energy from a trash incinerator in Alexandria that is owned by a company called Covanta.

Dominion’s contract with Covanta to buy the power does not state that Dominion is purchasing the renewable energy

attributes of the power—only the power itself. In most states, the fact that Dominion is not specifically purchasing the

RECs associated with the power would mean that it couldn’t be counted toward the RPS.

According to the SCC’s ruling, the wording of Virginia’s RPS law allows Dominion to count each MWh of that power toward

the RPS while Covanta can also legally sell a REC for each MWh to another company. The purchasing company can then

count that REC toward an RPS goal—in Virginia or in another state.

This type of loophole further

undermines the efficacy of the RPS and

was clearly not what the General

Assembly intended. The loophole

caused by this wording problem must

be fixed in order to strengthen

Virginia’s RPS.

8 Commonwealth of Virginia State Corporation Commission. (June 17, 2011). Order on Petition – Case No. PUE-2010-00132 – Petition of

Dominion Virginia Power for a declaratory judgment.

20

POLICY RECOMMENDATIONS: How to Fix Virginia’s RPS for Healthy Families, a Healthy Economy & a Healthy Climate

TOP LESSON LEARNED: How to Ensure a Winning Performance

In order to ensure that our RPS creates a winning performance—spurring new investment in a renewable energy industry in

Virginia—Chesapeake Climate Action Network’s top policy recommendation is that the General Assembly:

Replace the 200-300% credit that solar and wind power currently receive toward the goals with a minimum

amount of energy that must come from wind and solar power to meet the goals.

Only allow energy from facilities in Virginia to count toward the RPS.

Since Virginia has no utility-scale wind or solar power facilities, these two provisions, in concert with each other, will ensure

that new renewable energy goes onto the grid locally to meet the RPS goals.

ADDITIONAL POLICY RECOMMENDATIONS

Close the Double-Counting Loophole: Require that renewable energy credited toward the RPS be only counted

once by a single company.

Make it Mandatory: Rather than offering utilities financial rewards, we should follow the lead of the majority of

states and make our RPS mandatory.

Eliminate the Nuclear Exclusion: Eliminate the provision that excludes nuclear power from the utilities’ base year

sales, which only weakens the RPS goals.

Eliminate Credit for Research and Development: The RPS was created to get steel in the ground for a renewable

energy industry in Virginia. Giving utilities credit for researching renewable energy as though they were generating

power is simply preposterous. If you offered a neighborhood kid $20 for mowing your lawn, would you still pay

him the full amount if he left 20% of the lawn untouched and instead spent that time researching lawn mowers,

even though yours worked perfectly?

Eliminate or Limit “Banking”: Limit the number of years that a company can “roll over” a given megawatt-hour of

renewable energy before counting it toward an RPS goal. We should not allow a company to credit energy

generated in 2010 to its 2025 goal.

21

FOR MORE INFORMATION

To find out more or get involved with work to fix the RPS, contact the appropriate Chesapeake Climate Action Network staff

person.

General Assembly Members & Other Policymakers: Dawone Robinson, Virginia Policy Coordinator, 804-767-8983,

[email protected]

Concerned Citizens: Keith Thirion, Virginia Field Director, 703-579-6645, [email protected]

Media: Beth Kemler, Virginia State Director, 804-335-0915, [email protected]