A report released by a new California nonprofit that advises on modernizing electric systems takes a generally dim view of Dominion Energy’s plans to upgrade Virginia’s grid under the expansive and expensive regulatory overhaul the utility pushed through the General Assembly this year: the Grid Transformation and Security Act.
“Grid modernization offers many potential benefits if designed and executed well, but also the potential to waste customer money if designed poorly. In short, there is wide variability in grid modernization results from utility to utility and a dearth of objective outcomes research,” says the report by GridLab, a project of the Energy Foundation that seeks “a flexible, dynamic, and reliable low carbon” energy system. “In Virginia, the potential for missteps are even greater than in most states, due in part to the unique use of a stockpile of excess earnings as an optional funding mechanism.”
Among the major failings of the act, which allows Dominion to offset excess profits from its too-high base rates with spending on a grab-bag of eligible projects, per the report: “highly questionable” cost-benefit analyses; a lack of performance metrics, targets or benefit assurances; no framework for ongoing grid planning in an industry that is undergoing rapid change; and the fact that the biggest piece of spending, $1.5 billion for “grid-hardening,” isn’t actually grid modernization but rather “traditional utility infrastructure, offering little to no quantifiable increase in grid resilience, reliability, or distributed generation capacity.”
Asked for comment Friday, a Dominion spokesman said he would review the report over the weekend.
The report compared spending to upgrade the electric grid in order to better incorporate more renewable energy, new technology like battery storage and smart meters, among other initiatives, to a person buying a smartphone.
“A consumer can spend $900 on a smartphone if he or she chooses,” the report says. “But if the consumer doesn’t identify in advance the capabilities he or she values the most, or doesn’t evaluate how well various models deliver on those capabilities, or fails to dismiss models with features he or she may not need for several years (if ever), he or she will likely spend much more on a smartphone than necessary.”
In particular, the report singles out of one Dominion’s big priorities in the bill: a strong-arm attempt to push the State Corporation Commission to approve immensely expensive plans to put electric lines underground.
“Some grid investments proposed as reliability and resilience improvements (undergrounding, hardening) offer very low (if any) benefits per dollar, resulting in higher electric rates with little or no improvement,” the report says.
There’s little data available on grid transformation, GridLab says, but the evaluations that have been performed show “deployment costs are generally higher than anticipated, that customer benefits are generally lower than projected” and that benefits vary widely from utility to utility.
And, the report, which recommends Virginia adopt a “no-regrets” plan that ensures customer benefits exceed customer costs, says there’s a simple reason why.
“Utilities maximize profits by maximizing investment (called capital bias),” the report says. “No U.S. utilities are compensated based on the value grid investments deliver. As a consequence, utilities are very concerned about maximizing investment, and much less concerned about value creation.”
The cost of Dominion’s grid overhaul — which also commits the utility to 3,000 megawatts of new solar and wind under development or in operation by the beginning of 2022 — over the next decade has been pegged at $5.6 billion by the State Corporation Commission, though Dominion has criticized that analysis.
The existing business model isn’t utilities’ fault, said Ric O’Connell, GridLab’s executive director.
“That’s the way they’re motivated and that’s the way they’re incentivized,” he said. “The utility model came about when we were rapidly electrifying the country 100 years ago and capital was scarce. We’re in a totally different world now.”
And indeed, the report notes that major reform may be necessary in the long-run as it becomes tougher for utilities to generate revenue in selling electricity and justifying new power plants as customers increasingly generate their own electricity (from roof-top solar, for instance) and efficiency gains mean that economic growth is coming uncoupled from electric demand.
“Grid modernization governance requirements are driven largely by the need to manage the conflicts between shareholder and customer interests,” the report says. “As industry conditions change, monopoly compensation models likely need to change too.”