Don't Believe the Hype: Dominion's IRP Doesn't Add Up to Reality in Virginia

We at NRDC are confident that Governor McAuliffe is serious about crafting an approach to the Clean Power Plan that brings additional jobs and lower energy bills. As his administration evaluates how to chart a path forward for Virginia, it's important for decision makers and all Virginians to have a clear and accurate depiction of the various policy considerations in play.

One data point that fails to meet that criteria is Dominion's recently released Integrated Resource Plan (IRP)--as such, the Governor should avoid letting its content impede the pursuit of his "New Virginia Economy" goals.

I'll get into some of the specific miscalculations and omissions in Dominion's IRP in a moment.

But first, here's the real skinny on Governor McAuliffe's economic opportunity under the Clean Power Plan in Virginia:

The Clean Power Plan is McAuliffe's best shot at leaving Virginia's stodgy 20th century energy regime behind. Currently, Virginia's outdated form of centralized energy delivery from just a few fuel sources, with virtually no renewables or energy efficiency, has resulted in colossal economic waste and missed opportunity: Virginia's electricity bills are among the top ten highest in the nation.

The Clean Power Plan, on the other hand, will finally get Virginia off the sideline of a clean energy sector that is one of the highest job-growth areas in the country. The Plan will also fulfill the majority of Virginians' desire for an energy economy based on zero-fuel cost clean energy, distributed generation, and lower energy bills.

Not surprisingly, Governor McAuliffe's own Energy Plan and designs for a New Virginia Economy are founded upon growth in clean energy. Only through such growth would the Commonwealth finally compete with its neighbors in the kinds of energy and fuels that will move and grow our economy, while also averting the climate change that is swallowing Tangier Island and Norfolk.

The Clean Power Plan isn't just a one-of-a-kind opportunity for Governor McAuliffe to single-handedly break through Virginia's clean energy impasse. It's also a pollution reduction goal that Virginia is poised to meet and beat. As reflected in regional electricity grid operator PJM's analysis, Virginia is in a strong position to overcomply with its proposed carbon reduction goals: due to an already-planned cleanup of its energy supply, Virginia is already on track to meet almost 80% of its target. The state can meet and beat the rest simply through Governor McAuliffe's own Energy Plan and reaching the General Assembly's renewable energy goal for the state:

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Figure 1: Virginia will achieve 77% of its Clean Power Plan goal under business as usual cleanup of its electricity supply.

If Governor McAuliffe puts Virginia in that position of meeting and beating the Clean Power Plan (as indicated above), he could deliver an additional revenue stream from other states that cannot comply quite so readily as Virginia: the cheapest option for other states' compliance would be to purchase the extra pollution "allowances" Virginia will have after its own clean energy sector expands under Governor McAuliffe's Energy Plan.

That's right: contrary to the erroneous cost-estimates in Dominion's IRP, Virginia can in fact drive net macroeconomic benefits from the Clean Power Plan: not only will it help lower Virginia's currently higher-than-the-national-average electricity bills, the Clean Power Plan will be a net creator of jobs, while also delivering allowance revenue from other, higher-polluting states.

Dominion's IRP gets the Clean Power Plan wrong

Dominion's IRP does not reflect that reality of a proposed Clean Power Plan target that Virginia can not only meet and beat, but which would actually grow a state economy that could admittedly use a push. Indeed, an updated study released by the Analysis Group just last week demonstrated how states in the Northeast and Mid-Atlantic have slashed carbon from the power sector while spurring economic development and job creation through the wise investment of auction revenues under a mass-based, multi-state approach.

Instead, Dominion's IRP projects erroneously high costs of meeting the Clean Power Plan's readily-achievable pollution reduction goals. Those high costs derive from a series of omissions and errors.

Specifically, Dominion's IRP gets its cost estimates wrong by:

1). misstating what is actually required of Virginia and overlooking the simplicity of a pollution goal that Virginia can meet and beat simply by fulfilling two already-existing state policies;

2). underestimating energy efficiency gains as the surest and cheapest route to reducing pollution and reducing Virginians' higher-than-average electric bills;

3). overestimating the cost of the Dominion IRP's fuel of choice, natural gas; and

4). overestimating the costs of the proven clean energy technologies that could be deployed to reduce pollution and create jobs, while also locking in zero fuel costs for the long-term.

These flaws - misestimating and inflating cost assumptions and taking energy efficiency gains off the table -- obscure the very tangible benefits McAuliffe could secure through a smart approach to the Clean Power Plan. The flaws also result in cost estimates that are dramatically higher than the reality of a policy that will result in lower energy costs, according to all robust analyses of the issue.

Here's a more specific look at the errors in Dominion's IRP:

1). Virginia can meet and beat its proposed pollution reduction target more readily than most states in the country:

Virginia has the fifth easiest proposed target in the United States, in terms of the number of actual tons of emitted pollution it must reduce from all of the state's power plant smokestacks over the next 15 years. (Virginia's proposed target may be adjusted when the EPA releases the final rule this summer.)

Yet Dominion's IRP casts the Clean Power Plan as a crushing burden, calling Virginia's 38% reduction target "challenging" and the final pollution rate Virginia must reach "aggressive." Nothing could be further from the truth.

Here are the facts on how close Virginia is to meeting and beating its proposed target:

Achieving Virginia's proposed 38% reduction in pollution is already mostly in the bag (see figure 1 above for details). Again, Virginia will already achieve almost 80% of its Clean Power Plan goal through the business-as-usual cleanup of our energy mix. Virginia can meet - and beat -- the rest of the goal through already-existing state policies.

The Dominion IRP's repeated description of the Clean Power Plan's 38% pollution reduction goal for Virginia as "challenging" and aggressive is simply incorrect.

2). Energy efficiency--hands down the cheapest energy resource--is the most available and economic route for McAuliffe to beat the Clean Power Plan's proposed target and secure a revenue stream into the New Virginia Economy

Dominion's IRP overstates its cost estimates because the IRP take off the table the single most direct way to reduce both pollution and electric bills: energy efficiency.

Dominion's IRP assumes that over the next 15 years, Dominion can only achieve a mere 600 MW of energy efficiency. That is less than half of the amount of efficiency next-door Maryland achieved this year: Maryland reached 1,500 megawatts of energy efficiency savings in 2015 (and moreover just committed to achieving a 2% energy efficiency savings each year moving forward).

The Dominion IRP's built-in assumption that "Virginia just can't do it" when it comes to energy efficiency not only dramatically increases the Clean Power Plan cost estimates of Dominion's IRP. That assumption also ignores Governor McAuliffe's Energy Plan, which if achieved, would secure most of Virginia's remaining pollution reduction goal under the Clean Power Plan.

To its credit, Dominion's IRP does include some solid plans for low-hanging energy efficiency improvements, for which Virginia will certainly receive due credit under the Clean Power Plan. However, it bears noting that Dominion can go much, much further: an industry watchdog recently ranked Dominion dead last in energy efficiency achievement among investor-owned utilities. Dominion should take that ranking as a challenge to improve, and not simply roll over and conclude that "Virginia just can't do it" when it comes to catching up with the rest of the nation in energy efficiency gains.

Absent pursuing improvements in energy efficiency, Virginians' residential energy bills will continue to be among the top-10 highest electricity bills in the nation. And in the meantime, states who have recognized the proven economic, consumer and environmental benefits that efficiency programs deliver--states as geographically and politically diverse as Arizona, Michigan, and Ohio--will continue realize those benefits while Virginia misses out on lower electricity bills that would result from energy efficiency investments.

3). Dominion inflates the cost of their Clean Power Plan compliance proposals by vastly overestimating future fuel costs

In each of Dominion's IRP scenarios, Dominion predominantly relies on building large, brand new natural gas plants. Dominion's IRP not only removes the energy efficiency gains that could otherwise eliminate the need for those expensive new power plants. Dominion's IRP also erroneously inflates the cost of Clean Power Plan compliance by overestimating the future cost of their preferred fuel supply, natural gas.

This is akin to building dramatically high future gasoline costs into the present-day sale price of a car: Dominion's IRP presents an inaccurate and unrealistic sticker shock.

Specifically, projected Henry Hub gas prices in Dominion's ICF CPP commodity cases are exceedingly high in 2030, approaching $8/MMBtu in 2030. However, in most realistic projections, such as the Energy Information Administration's AEO 2015, gas prices don't exceed $6/MMBtu.

To avoid such eye-popping cost estimates as are floated in the Dominion IRP, future cost estimates of the Clean Power Plan should instead use realistic commodity price estimates.

4). Dominion's IRP overestimates the cost of clean energy

All of the Dominion IRP's cost assumptions for clean energy technologies are grossly inflated. For example, the IRP's onshore wind cost assumptions are nearly triple what is found in practice. Additionally, Dominion doesn't seem to assume that wind capacity factors could ever exceed 40%, despite widely-expected technological improvements in both capacity factors (and cost) over time.

Dominion's IRP also takes great pains to describe at length, why it finds solar energy deployment "risky" and "significantly challenging." Dominion's IRP ignores the fact that next door neighbor North Carolina has already added a gigawatt (1,000 MWs) of solar energy (of which Virginia has a number of just 5% that amount, at just 20 MW).

The IRP also appears to overlook electric grid operator PJM's finding that almost a full third of the grid that includes Virginia could readily be powered by resources like wind and solar without adverse impacts.

Dominion's IRP should account for the steadily decreasing costs of clean energy in the rest of the country, as well as their proven ability to integrate into our modern, well-managed grid.

Dominion's IRP is NOT the roadmap to a 21st century energy economy

As McAuliffe writes his State Plan to create a clean energy economy and reduce carbon pollution under the Clean Power Plan, he will certainly roll up his sleeves with a more can-do attitude than the "can't do" posture of Dominion's IRP.

Contrary to Dominion's IRP's incomplete calculations, McAuliffe can reduce Virginia's higher-than-the national-average electricity bills by tapping more energy efficiency, McAuliffe can catch up with North Carolina by also integrating a gigawatt of job-creating solar energy into its energy mix, and McAuliffe can write a State Plan that blows through Virginia's Clean Power Plan target and generates a new revenue stream of clean energy dollars for the New Virginia Economy.

With successes like that on the horizon, here's hoping that Dominion's next IRP is a more accurate component of Governor McAuliffe's State Plan.

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