Carbon Rule Punishes States That Acted Early

A successful U.S. Environmental Protection Agency’s (EPA) “Clean Power Plan” will require flexibility and fairness – mitigating electric generators’ impact on the environment while protecting reliability and limiting the cost burden on consumers.

The EPA’s draft plan marks a good start, and the agency is engaging all stakeholders before settling on a final version. But some essential changes to that draft should be made to ensure fewer greenhouse gas emissions, grid reliability and affordable electricity prices.

The current draft imposes stringent carbon dioxide emission reductions on states like Virginia and North Carolina, where Dominion serves 2.5 million customer accounts. Dominion believes – and similar comments have been filed by the Virginia State Corporation Commission and the Virginia Department of Environmental Quality – that the Clean Power Plan seems to punish states that have taken early action to build cleaner, more modern generation.

Indeed, we are very proud of our long and successful record of environmental stewardship. In 2003, we took early action on the issue of new source review and began implementing a long-term plan that has lowered our emissions of sulfur dioxide, mercury, and nitrogen oxides by 80 percent or more. In earnest, that effort began in 1998, and we have spent nearly $2 billion at Virginia Power to install environmental control equipment at 37 coal, natural gas, oil and biomass units.

More recently, Dominion was one of the first generators to begin moving aggressively to convert older coal plants to use other fuels or to retire them and to replace them with cleaner generation. We will have converted or closed seven coal plants in our utility generation fleet. Four coal-fired plants have been converted to generate electricity from renewable biomass or natural gas. Three more have been slated for closure. The combination of these actions and our investments in modern generation has allowed Dominion’s utility fleet to reduce its carbon intensity by approximately 20 percent since 2000.

Yet the EPA’s mandatory state carbon intensity – pounds of carbon emissions per megawatt-hour of electricity generated – goals for 2030 seemingly neglect those prior investments. Virginia’s goal for 2030 is 810 lbs/MWh, stricter than any of its neighboring states. North Carolina’s – at 992 lbs/MWh – is the second strictest goal in the region. By contrast, the four other states in the region have goals above 1,100 – with two above 1,600.

Virginia and North Carolina start with modern, clean generating fleets but are still expected to make stringent reductions – 38 percent and 40 percent, respectively, from 2012 – that eclipse those of neighboring states. For example, in 2013, West Virginia was the ninth-largest natural gas-producing state in the U.S. However, in August of this year, the U.S. Energy Information Administration notes that 67 gigawatt-hours, or about 1 percent of the state’s total net electric output, was generated by natural gas. The EPA’s mandated goal for West Virginia? Twenty percent from the 2012 baseline.

This is counterintuitive policy.

Similarly, the treatment of existing nuclear power is one of the key concerns Dominion has with the EPA’s draft plan. We operate four nuclear units in Virginia that in 2013 generated 41 percent of our utility’s electric output while emitting no carbon, mercury, sulfur dioxide, nitrogen oxides or particulate matter.

According to the draft plan, power producers would get just a 6 percent credit for existing nuclear reactors. For Virginia Power and its customers, that is 6 percent for the tens of millions of megawatt-hours of carbon-free electricity our four units produce each year. If the overarching goal is to encourage carbon-free generation, then should a baseload, large-scale, carbon-free source not receive more credit?

It is also important for the EPA to consider which energy policy options make the most sense in states with low electricity rates – and low monthly bills.

The agency seems to assume that every state can make the same energy efficiency gains as those viewed as leaders in energy efficiency. Most of these states have much higher electricity prices and higher monthly bills than in, e.g., Virginia and North Carolina. Which, of course, means that customers in high-cost states have that much more incentive to conserve electricity. Although utilities absolutely must play a major role in energy efficiency, the consumer, not the utility, ultimately makes most energy efficiency programs succeed.

Dominion believes the EPA’s draft plan can be improved with flexibility and right reason. A workable plan would:

 — Recognize high-performing nuclear units’ contribution to complying with state goals;

 — Dispense with the interim compliance period to allow sufficient time for the most cost-effective investments to be made to achieve the 2030 goal; and

 — Establish state-specific goals for energy efficiency and renewable energy, allowing state commissions and environmental agencies to determine which policies best suit their citizens.

The EPA and its administrator, Gina McCarthy, are traveling around the country and listening to state commissions, consumer and public health advocates, utilities, environmentalists and others. We are optimistic that they will consider the various points of view, ameliorate some of the critical issues and craft a final rule that protects the environment in a way that also protects our customers by maintaining reliable, affordable service. In the end, we expect common sense and fairness to prevail.

Tom Farrell is chairman, president and chief executive officer of Richmond, Va.-based Dominion.

Morning Consult