RPSReportCard:

How Virginias Renewable Portfolio Standard Rewards Utilities for a F ailing Performance

F And How to Fix it F

December2012

 WrittenBy:
BethKemler VirginiaStateDirector,ChesapeakeClimateActionNetwork beth@chesapeakeclimate.org 8043350915 http://www.chesapeakeclimate.org

EXECUTIVESUMMARY

Shouldwegiveabonustoautilityforcontinuingtooperateahydrodamthatsbeenchurningoutpowersince1904? Undera2007lawtoencouragethedevelopmentofnewrenewableenergysourcesinVirginia,thestateisforcing consumerstodojustthat. Whilealmostthirtystateshaveenactedlawsthatrequireutilitiestogenerateacertain percentageoftheirenergyfromrenewablesources1,Virginiaoffersourutilities financialbonusesformeetingvoluntarygoals,whichareweakerthanmanyofthe mandatorystandardssetbyotherstates.UndertheRenewableEnergyPortfolio Standard(RPS)law(56585.2)passedin2007,thecompaniesthatmeetVirginias renewableenergygoalsareeligibletoreceivebigbonuses,awardedthroughhigher rateschargedtocustomers.

Approximate 2011-12 RPS bonuses for meeting 2010 goal: Dominion-$77 million APCo-$15 million

TheRPSwasintendedtospurthegrowthofrenewableenergyinVirginiainordertolowerouremissionsofgreenhouse gasesandotherpollutionwhilesparkingahomegrowncleanenergyindustry.

UTILITIESREWARDEDFORAFAILINGPERFORMANCE
Inthisreport,weanalyzethedatafromthecompaniesannualRPSreports,2submittedtotheStateCorporation CommissioninNovemberof2012,toseeiftheutilitiesperformanceislivinguptotheintendedpurposeoftheRPSlaw. Belowisasummaryofwhatwefound:afailingperformance.AlthoughthecompaniesmettheRPSgoalsin2011working withintheframeworkofthelawandarethereforeeligibleforfinancialrewards,theresultsdonotcomeanywherecloseto meetingtheintentionofthelaw.

Dominion Power

Appalachian Power

RPS Transparency
Didtheutilitiesdisclosesubstantiveinformationabout their2011RPSperformanceintheir2012reports?

A F F F
0%

D F F F
0.2%

Energy from New Facilities

Didtheenergythatutilitiesstandtoberewardedforcome fromfacilitiesbuiltaftertherewardswereoffered?

Wind and Solar Energy

Didtheenergythatutilitiesstandtoberewardedforcome fromthemostmodern,pollutionfreetechnologies?

0%

0.2%

VirginiaMade Energy
Didtheenergythatutilitiesstandtoberewardedforby VirginianscomefromfacilitiesinVirginia?
1

19%

19%

RenewablePortfolioStandardPolicies.DatabaseofStateIncentivesforRenewables&Efficiency: http://www.dsireusa.org/documents/summarymaps/RPS_map.pdf 2 VirginiautilityannualRPSreportscanbefoundontheVirginiaStateCorporationCommissionswebsiteat http://www.scc.virginia.gov/pue/renew.aspx.

 Byfar,thebiggestfailingisthelackofenergyfromnewfacilities(onesthatwentonlineaftertheRPSwascreated).Virginia offeredtheutilitiesfinancialrewardsasanincentivetospurthegrowthofarenewableenergyindustryinVirginia. Unfortunately,withoutspecificrequirementsformoderntechnology,theutilitiesareabletoqualifyfortherewardswitha portfolioofenergythatmostlyconsistsofhydropowerdamsbuiltbeforeWorldWarII.

BREAKINGDOWNTHEFACTS:FiguresofInterest
TheonlypowerthatwascreditedtotheRPSin2011thatcamefromnewfacilities(onesthatwentonlineafterthe lawwascreatedin2007)camefromAppalachianPower.WindfarmsinIndianaandIllinoisprovided1,508MWh, enoughtopowerabout100homes.Thiscomprised0.04%ofalloftheenergycountedtowardtheRPSin2011and alsoaccountedfortheonlywindpowerusedtowardtheRPSbyeitherutility. TheaveragefacilityprovidingpowerfortheRPSin2011wentonlinein1945theyearWorldWarIIended.Ifit wereaperson,itwouldbeeligibleforSocialSecurity. IfDominionPowerhaddevelopedenoughwindandsolarpowertogenerate1.7millionMWh(itsyearlyRPSgoal for20102015)insteadofdevelopingmorefossilfuelgeneration,theresultingreductioningreenhousegas emissionswouldbeliketaking125,000carsofftheroad. ThemajorityofVirginias2011RPSenergy54%waspurchasedasRenewableEnergyCertificates(RECs)fromour neighborsinMaryland. WhiletheRPSendgoalisportrayedas15%in2025,DominionPowers2025goalequatestoonly6%ofits2025 loadforecastandAppalachianPowers2025goalequatestoonly10%ofits2025forecast.

LESSONSLEARNED:HowtheRPSEndsUpRewardingaFailingPerformance
WithouttightstandardsforwhatmeetstheRPSgoals,weenduprewardingenergythatwouldhavebeen generatedevenifnorewardwereoffered.ItseemsunlikelythatthemembersoftheGeneralAssemblywere envisioningutilitiesgettingcreditforahydropowerdamthathasbeengeneratingpowersincebeforeWorldWarII whentheycreatedrenewableenergyrewards. Extracreditforcertaintechnologiesisapoorsubstituteforatieredsystem.Moststatesputpriorityonthe cleanesttechnologiesbycreatingatieredsystem.TheysaythatacertainportionoftheenergyfortheRPShasto comefromtier1sources,likewindandsolarpower,andtherestcancomefromtier2sources.InVirginia,the RPSinsteadoffers200300%creditforcertaintechnologies.Thisextracreditclearlyisntdoingitsjob,sinceonlya tinyfractionoftheenergythatwascreditedtotheRPSin2011camefromwind.Ifwewantthecompaniesto investinthecleanest,mostmoderntechnologies,weneedtomakethatarequirementtomeetthegoalsand qualifyforthebonus. AvoluntaryRPSthatoffersrewardsshouldbeinstateonly.Whileallowingutilitiestocountenergyfromalarge geographicregionmightmakesenseforamandatoryRPS,itdoesntforrenewableenergygoalsthatofferbig, customerfundedrewards.IfVirginiansarepayingthebonus,weshouldreaptherewardscleanerairandjobs. Wevesetaverylowbarforhighrewards.Becauseofthewaythegoalsarecalculated,Dominions202515 percentgoalamountstoonly6%oftheamountofenergythecompanyisforecastingitwillsellin2025.APCos 15percentgoalamountsto10%ofits2025loadforecast. 2

Thelawallowsotheractivitiestocountasgeneratingenergy,whichonlyfurtherweakensthegoals.Allowing utilitiestocountresearchanddevelopmentofrenewableenergyforupto20%ofanygivenyearsgoalandto countanunlimitedamountofthermalenergymeansthattheycanmeetthegoalsandgetrewardedwitheven lessactualrenewableenergy. TheRPSlaw,aswritten,unintentionallyallowsasingleMWhofrenewableenergytobecountedbytwo differentcompanies.A2011rulingbytheStateCorporationCommissionfoundthat,whilelikelynottheintentof theGeneralAssembly,theRPSlawincludesaloopholethatallowsdoublecountingofasingleMWhofenergy.

TOPLESSONLEARNED:HowtoCreateaWinningPerformance
InordertoensurethatourRPScreatesawinningperformancespurringnewinvestmentinarenewableenergyindustryin VirginiaChesapeakeClimateActionNetworkstoppolicyrecommendationisthattheGeneralAssembly: Replacethe200300%creditthatsolarandwindpowercurrentlyreceivewithatier1. OnlyallowenergyfromfacilitiesinVirginiatocounttowardtheRPS.

SinceVirginiahasnoutilityscalewindorsolarpowerfacilities,thesetwoprovisions,inconcertwitheachother,willensure thatnewrenewableenergygoesontothegridlocallytomeettheRPSgoals.

BACKGROUND
WHATISARENEWABLEPORTFOLIOSTANDARD(RPS)?
AstateRenewablePortfolioStandard(RPS) requiresutilitiestouseorprocurerenewable energyorrenewableenergycertificates(RECs)3 toaccountforacertainportionoftheirretail electricitysales. RPSlawshavebeenenactedby29statesfrom NorthCarolinatoTexastoMontanaandthe DistrictofColumbia.4Theselawshaveresulted incleanerair,economicdevelopmentand loweredgreenhousegaspollution.

WHATMAKESVIRGINIASRPSDIFFERENT?ItsaGoal,NotaStandard
ThoughVirginiaslawtoencouragethe developmentofrenewableenergy(56585.2) iscommonlyreferredtoasaRenewable PortfolioStandard,itistechnicallyagoal,nota standard,becauseitisvoluntaryforutilitiesto participate.Sevenotherstateshaveadopted voluntarygoalsforrenewableenergy. VirginiasgoalsapplyonlytoourtwoInvestor OwnedUtilitiesDominionPowerand AppalachianPowerCompany(APCo)notto electriccooperativesormunicipalutilities.Both DominionandAPCoarecurrentlyparticipatingin thegoalsandmeetingthem.

3 4

SeeWhatisaRenewableEnergyCertificate?laterinthereport. RenewablePortfolioStandardPolicies.DatabaseofStateIncentivesforRenewables&Efficiency: http://www.dsireusa.org/documents/summarymaps/RPS_map.pdf

WHATMAKESVIRGINIASRPSDIFFERENT?UtilitiesGetFinancialRewards
Virginiaisoneofonlytwostatesthatoffer utilitiesfinancialrewardsformeetingrenewable energygoals. TheratesthatDominionandAPCocustomers payaredeterminedthroughacomplexstate regulatoryprocessthatisbasedonlawspassed bytheGeneralAssembly. AsarewardformeetingRPSgoals,aVirginia utilitycangetarewardof50extrabasis points,equivalentto.5%ofitsratebase,as partoftheratesthatareapprovedbytheState CorporationCommission. DominionandAPCobothreceivedapprovalto includeRPSbonusesintheir20112012rates(basedonmeetingthe2010RPSgoal). ForDominionVirginiaPower,thiswillmeanearningapproximately$77millionextra fromcustomersovertwoyearsandforAppalachianPower,itwillmeanearning approximately$15millionextra.Formoredetailabouthowthebonusesarepaid, pleaseseeReportoftheOfficeoftheAttorneyGeneralonReturnonEquity EnhancementAddersofthe2007VirginiaElectricUtilityRegulationAct,releasedin November2012.

Approximate 2011-12 RPS bonuses for meeting 2010 goal: Dominion-$77 million APCo-$15 million

WHATDOUTILITIESHAVETODOTOGETREWARDED?
Utilitieshavetomeetspecificnumericgoalsforspecifictimeperiods,whichcanbefulfilledwithacombinationof megawatthours(MWh)ofrenewableenergyand/orRenewableEnergyCertificates(RECs). DominionandAPCoRPSGoals(MWhs/RECs) 20112015 2016 20172021 2022 1,732,746 3,032,305 3,032,305 5,198,238 578,120 1,011,710 1,011,710 1,734,360

TimePeriod DominionGoal APCoGoal

2010 1,732,746 578,120

20232024 5,198,238 1,734,360

2025 6,497,797 2,167,950

Formoredetailsaboutwhateachcompanysgoalsarebasedon,seetheTheDevilsIntheDetailssectionofthereport.

WHYWASTHERPSCREATED?ToSpurNewRenewableEnergyinVirginia
VirginiasRPSwascreatedin2007aspartofthereregulationofourinvestorownedelectricutilities.TheRPSwasintended tospurthedevelopmentofnewrenewableenergyfacilitiesinVirginia,contributingto: HealthyFamilies:Themorecleanrenewableenergythatgoesonline,thelessmercury,sootandothertoxinsthat arereleasedbydirtyoldpowerplants. AHealthyClimate:Puttingmorerenewableenergyonlinealsoavoidsemissionsofgreenhousegases,which contributetoclimatechange,leadingtosealevelriseandotherproblems. AHealthyEconomy:Growingarenewableenergyindustryinthecommonwealthwouldcreatenew,homegrown jobs.

Unfortunately,thefollowingpageswillshowthattheresultsoftheRPSarenotmatchingtheGeneralAssemblys intentions.Thecompaniesaremeetingthegoalsalmostentirelywithpowergeneratedatfacilitiesthatwerealreadybuilt beforetheRPSwascreated.Someofthefacilitiesaremorethan100yearsold,mostofthemareoutsideofVirginiaand virtuallynoneproducethecleanestformsofenergywindandsolarpower.

THEGRADES:UtilitiesRewardedforaFailingPerformance
GRADINGPERFORMANCE:AnnualRPSReportsProvideInsight
TheoriginalRPSlawpassedin2007includednorequirementforutilitiestoreportontheireffortstomeettheRPSgoals outsideofdocumentsfiledwiththeStateCorporationCommissioninbiennialratereviewcases.In2008,theGeneral AssemblyapprovedabillproposedbySenatorLindaToddyPullerthatincludedthisreportingrequirement: H.EachinvestorownedincumbentelectricutilityshallreporttotheCommissionannuallybyNovember1on(i)its efforts,ifany,tomeettheRPSGoals,(ii)itsoverallgenerationofrenewableenergy,and(iii)advancesinrenewable generationtechnologythataffectactivitiesdescribedinclauses(i)and(ii). Whiletherequirementtofileareportannuallywasanimprovement,thenewprovisionlackedspecificsandsodidthe resultingreportsfiledbyutilities.In2012,theGeneralAssemblypassedabillintroducedbySenatorDonaldMcEachinand DelegateJenniferMcClellanthataddedspecificsonwhichutilitiesmustnowreport. H.EachinvestorownedincumbentelectricutilityshallreporttotheCommissionannuallybyNovember1 identifying: 1.Theutility'sefforts,ifany,tomeettheRPSGoals,specificallyidentifying: a.Alistofallstateswherethepurchasedorownedrenewableenergywasgenerated,specifyingthenumber ofmegawatthoursorrenewableenergycertificatesoriginatingfromeachstate; b.Alistofthedecadesinwhichthepurchasedorownedrenewableenergygeneratingunitswereplacedin service,specifyingthenumberofmegawatthoursorrenewableenergycertificatesoriginatingfromthose units;and c.Alistoffueltypesusedtogeneratethepurchasedorownedrenewableenergy,specifyingthenumberof megawatthoursorrenewableenergycertificatesoriginatingfromeachfueltype; UsingthereportsthatDominionandAPCosubmittedtotheStateCorporationCommissioninNovemberof2012,which providedatafor2011,wehaveanalyzedtheutilitiesRPSperformance.

PURCHASEDOROWNEDRENEWABLEENERGY:ANoteonBanking
Asyoucanseeabove,theutilitiesarerequiredtoreporteachyearonpurchasedorownedrenewableenergy.What exactlydoesthatmean? EnergycountedtowardtheRPSgoalforanygivenyeardoesnthavetobegeneratedinthatyear.Inagivenyear,a companycangenerateorpurchasemorerenewableenergytowardtheRPSthanitneedsforthecurrentgoalandsavethe extraamountforfuturegoals.ItssortoflikeeachcompanyhasabankaccountwhereitdepositsallofitsRPSenergyand eachyearitwithdrawsjusttheamountneededforthatyear.Sowhentheutilitiesarerequiredtoreportontheir purchasedorownedrenewableenergy,thatincludesalloftheenergythatthecompanyputinitsaccountthatyear, includingwhatitbankedforthefuture.

TRANSPARENCY:PublicDisclosureofWhatsBeingRewarded
DIDTHEUTILITIESDISCLOSESUBSTANTIVEINFORMATIONABOUTTHEIRRPSPERFORMANCEINTHEIR2012REPORTS? Dominion RPS Transparency APCo

Dominions2012RPSreportearnedanAfortransparency.Thecompanyfileditsreportontimeandprovidedallofthe informationrequiredbylaw. DominionsreportincludedallofitsfiguresbrokendownbytheultimatefateofeachMWhorREC.Thefigureswere brokenintothreecategories: Applied:ThisistheenergyDominionisapplyingtothe2011RPSgoal. Banked:ThisistheenergythatwasdepositedinDominionsmetaphoricalRPSaccountin2011butthatthe companydoesnotneedtousetowardtheyearsgoal.Dominionhasbankedtheenergyforusetowardfuture yearsgoals. Optimized:ThisistherenewableenergythatDominiongeneratedin2011butthatthecompanydidnotdepositin itsRPSaccount.Instead,thecompanysoldtheRECsfortheoptimizedenergytoothercompanies.

APCos2012RPSreportearnedaDfortransparency.Foritsreport,thecompanyoriginallysubmittedaletterstatingthat ithadmetthe2011RPSgoalwithoutprovidinganyofthespecificsrequiredbylaw.AftertheStateCorporation Commissionpointedoutthatthecompanyhadnotmetthereportingrequirements,APCosentinanexpandedreport. APCosfinalreportomittedinformationabouttheinservicedecadesofthefacilitiesthatprovided62%ofits2011RPS energy.Thisiscompletelyinsufficient.GiventheRPSwascreatedtoincentivizethedevelopmentofnewrenewable energy,theageofthefacilitiesprovidingpowerisacrucialpieceofinformationforanalyzingperformance. Inaddition,APCosfinalreportonlyincludedtotalfiguresforenergythatitdepositedinitsRPSaccountin2011.The companydidnotprovideanyspecificsforenergyappliedvs.banked.Whilethelawdoesntspecifythatthisinformation mustbeincluded,APCoshouldtakeacuefromDominionandincludeitforthesakeoftransparency.Sincespecific financialrewardsarelinkedtomeetingtheRPSgoalsinspecificyears(e.g.utilitiesarebeingrewardedin20112012for meetingthe2010goal),itisonlylogicalthatconsumersshouldbeableaccessprecisefiguresforwhattheyrerewarding.

RPSENERGYDEPOSITEDIN2011:ANoteontheFollowingNumbers
BecauseAPCoonlyprovidedfiguresforalloftheenergyitdepositedinitsRPSaccountin2011,withoutproviding figuresforenergyspecificallyappliedtothe2011goal(withdrawn),thedepositednumbersserveasthebasisforallof thefollowingperformancecomparisons.

FAILINGPERFORMANCE:RewardsforEnergyfromFacilitiesthatHave BeenOnlineforDecades
WHYSHOULDTHERPSENERGYCOMEFROMFACILITIESBUILT AFTER2007? TheRPSwascreatedin2007anditsessentialpurposeistospur thegrowthofnewrenewableenergy.Powergeneratedat facilitiesthatwentonlinebefore2007doesnotsatisfytheintent oftheRPS. DIDTHEENERGYTHATUTILITIESSTANDTOBEREWARDEDFOR COMEFROMFACILITIESBUILTAFTERTHEREWARDSWERE OFFERED? Bothutilitiesfailedtoutilizenewenergyfacilitiesforasubstantial portionoftheirRPSenergyin2011. Dominions2011RPSenergydidntincludeanypowerfromfacilitiesthatwentonlineaftertheRPSrewardswereoffered. APCos2011RPSenergyincludedatinyfractionfromnewfacilities.Thesefacilities,CampGrovewindfarminIllinois (whichbeganoperationsinNovemberof2007)andFowlerRidgewindfarminIndiana(whichbeganoperationsin2008) providedenoughenergytowardtheRPSin2011topowerabout100homes.5

The only power from new facilities that was credited toward the RPS in 2011 was APCos- 1,508 MWh from wind farms in Indiana & Illinois. Thats enough to power approximately 100 homes.

New Facilities (2007+) 20002006 1990s 1980s 1970s 1960s 1950s 1940s 1930s 1920s 1910s 1900s Undisclosed

Dominion F 0% 0% 18% 6% 0% 6% 4% 0.2% 1% 58% 7% 0% 0%

APCo F 0.2% 12% 0% 0% 0% 8% 0% 0% 15% 0% 2% 1% 62%

Basedonaverageconsumptionof14.2MWhbyanAPCoresidentialcustomerinVirginiain2011.

LESSONLEARNED:WITHNOTIERSORRESTRICTIONSONAGEOFFACILITIES,WEENDUPREWARDINGENERGYTHAT WOULDHAVEBEENGENERATEDEVENIFNOREWARDWEREOFFERED ThefactthatutilitiescangainRPSrewardsforenergyfromfacilitiesthathave beengeneratingpowerforupto100yearsormoreisaglaringexampleofhow thedetailsoftheRPSlawhavenotliveduptoitsintent.Creatingarequirement thatacertainportionoftheenergycomefrommoderntechnology(ortier1), inpartnershipwithrequiringthattheenergycomefromVirginia,wouldmean thatnewrenewableenergywouldhavetobebuiltinVirginiainorderforthe RPSgoalstobemet.

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.

10

FAILINGPERFORMANCE:RPSNotGrowingWind&SolarPowerIndustries
WHYSHOULDRPSENERGYINCLUDEWINDANDSOLAR POWER? Whenwehearthatutilitiesarebeingofferedrewardsfor meetingrenewableenergygoals,mostofusenvision thecompaniesbuildingwindfarmsandsolararrays acrossthestate.Infact,whenCCANpolledVirginians abouthowtheywouldliketoseecompaniesfulfillthe renewableenergygoals,windpowerandsolarpower werethetwotopanswers.6

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.

PollutionFree:OneofthetopreasonstheRPSwas createdistolowergreenhousegasemissionsfora healthyclimateandlowerotherairpollutionfrompowerplantsforhealthyfamilies.Therefore,utilitiesshouldbeutilizing thecleanesttechnologiestohelpmeettheirgoals. Modern:Windandsolarpowerarethemoderntechnologiesoftodayandtheyhavemuchmorepotentialtocreatelocal jobsthanoldtechnologieslikehydropower.Virginiaishometoanumberofbusinessesthatinstallsolarpanelsbut, unfortunately,manyofthemdoalotoftheirbusinessinotherstatesthathaveabetterregulatoryclimateforsolar. Becausewindturbinesaresolargeanditscostlytotransportthemforlongdistances,windpowerhasthepotentialto createnotonlydirectinstallationjobsbutalsolocalmanufacturingjobs. DIDTHEENERGYTHATUTILITIESSTANDTOBEREWARDEDFORCOMEFROMTHEMOSTMODERN,POLLUTIONFREE TECHNOLOGIES? Bothutilitiesfailedtoutilizewindorsolarpowerforasubstantialportionoftheir2011RPSenergy.Neithertookadvantage ofoursolarresourceandonlyAPCobroughtinatinyportionofwindpower.Thissmallamountofpowerwasgeneratedat windfarmsinIndianaandIllinois.

Wind & Solar Power Wind Solar Hydro Municipal Solid Waste Landfill Gas

Dominion F 0% 0% 0% 78% 22% 0.2%

APCo F 0.2% 0.2% 0% 99.8% 0% 0%

SeeWeAskAmericaPollResultsathttp://www.chesapeakeclimate.org/fileuploads/kelly trout/VA_Renewable_Energy_Poll_Results_2012.pdf.

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LESSONLEARNED:EXTRACREDITFORCERTAINTECHNOLOGIESISAPOORSUBSTITUTEFORTIERS Moststatesputpriorityonthecleanesttechnologiesbycreating atieredsystem.Theysaythatacertainportionoftheenergyfor theRPShastocomefromtier1sources,likewindandsolar power,andtherestcancomefromtier2sources.InVirginia, theRPSinsteadoffers200%creditforsolarpowerandonshore windand300%creditforoffshorewindpowermeaningthata utilitycouldknockout200,000MWhofitsgoalwithonly 100,000MWhofactualsolarpower. Thisextracreditclearlyisntdoingitsjob,sinceonlyatiny fractionoftheenergythatwascreditedtotheRPSin2011came fromoneofthesetechnologies. Ifwewantthecompaniestoinvestinthecleanest,mostmodern technologies,weneedtomakethatarequirementtomeetthe goalsandqualifyforthebonus.

HowshouldVirginiasRPStiersbedivided?
TIER1 Modern,pollutionfreetechnologiesthatinvolveno combustion WindPower:Windturbinesreleasenopollution. Windpoweralsohasthepotentialtospurlocal manufacturingjobs,sincelargeturbinepartscant beeconomicallytransportedoverlongdistances. SolarPower:Solarpanelsreleasenopollution.Plus solararraystendtobeerectedbylocalinstallers, addingtothepotentialtokeeptheassociatedjobs instate. Geothermal,Tidal&WaveEnergy:Thoughthese technologiesarenotcurrentlyviableforutilityscale use,theyareallpollutionfree. TIER2 Technologiesthatpollutebyburningafuel Biomass(WasteWood):Thoughconventionalwisdominthepast hasbeenthatburningwastewoodwascarbonneutral,scientists arenowtakingasecondlook.Thecommonconceptionusedtobe thatifwastewoodwereleftintheforest,itwouldeventually decompose,releasingitscarbon,soburningitwouldbecarbon neutralinthelongrun.Butitwouldnormallydecomposeoverthe courseofdecades,notburnupinminutes.Sotheshortterm carbonimpactofburningwoodforelectricitycanactuallybehigher thanfossilfuelslikecoal.Sinceclimatechangeishappeningrapidly beforeoureyes,expertsarestartingtothinkthatwemaywantto pullbackthereignsontheconstructionofbiomassfacilities. MunicipalSolidWaste:Asonewouldexpect,burningtrashfor energycreatesquiteabitofpollution,includinggreenhousegases. AnimalWaste:Burninganimalwasteforenergyisamatteroftrying tosolveawaterpollutionproblem(runofffromfarms)bytradingit foranairpollutionproblem. LandfillGas:Alandfillgasfacilitycreatesenergybytrapping methaneastrashdecomposesandburningit.This,too,creates pollution. Technologiesthatareoutofdate Hydropower:Thoughhydropoweriscertainlyclean,itisnotexactly amoderntechnology.Includingitinourtoptierwouldnothelpto spurthedevelopmentofnewrenewableenergysourcesinVirginia. 12

FAILINGPERFORMANCE:VirginiansRewardingPowerfromOtherStates
WHYSHOULDRPSENERGYCOMEFROMVIRGINIA? IfVirginiansareprovidingtheutilitieswithfinancialrewardsformeetingtheRPS,then Virginiansshouldretainthebenefitscleanerairforhealthyfamiliesandjobsfora healthyeconomy. DIDTHEENERGYTHATUTILITIESSTANDTOBEREWARDEDFORBYVIRGINIANSCOME FROMVIRGINIA?

The majority of the 2011 RPS energy-54%-came from our neighbors in Maryland.

BothutilitiesfailedtogenerateorpurchaseasubstantialportionoftheirRPSenergyfromVirginiafacilitiesin2011. LESSONLEARNED:AVOLUNTARYRPSWITHREWARDSSHOULDBEINSTATEONLY TheRPSlawallowsutilitiestocountrenewableenergyfromanywherewithinthePJMinterconnectionregion,which reachesasfarasIllinois,andtoalsocountenergyfromfacilitiesthattheutilityownsinneighboringstates.Whilethis geographymightmakesenseforamandatoryRPS,forvoluntarygoalswithbigrewards,itonlymakessensetokeepthe benefitsinstate.

Energy Generated in:

Virginia Maryland Pennsylvania North Carolina New Jersey West Virginia Indiana Illinois

Dominion F 19% 57% 14% 9% 1%

APCo F 19% 42% 21%

18% 0.09% 0.09%

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TOPLESSONLEARNED:HowtoEnsureaWinningPerformance
InordertoensurethatourRPScreatesawinningperformancespurringnewinvestmentinarenewableenergyindustryin VirginiaChesapeakeClimateActionNetworkstoppolicyrecommendationisthattheGeneralAssembly: Replacethe200300%creditthatsolarandwindpowercurrentlyreceivewithatier1. OnlyallowenergyfromfacilitiesinVirginiatocounttowardtheRPS.

SinceVirginiahasnoutilityscalewindorsolarpowerfacilities,thesetwoprovisions,inconcertwitheachother,willensure thatnewrenewableenergygoesontothegridlocallytomeettheRPSgoals. Itshouldbenotedthatneitheroftheseprovisionswillhaveasmuchofanimpactonitsownastheywillhavetogether. Ifyoujustcreateatieredsystem,theresnoguaranteethatwewontendupwithallourtier1powercomingfromstates thatarefurtheralongindevelopingtheirrenewableenergyindustries,likePennsylvaniaandIllinois.Ontheotherhand,if youjustaddaprovisionthatthepowerhastocomefromVirginiawithoutcreatingatieredsystem,youstillwontbe sparkingmuchnewdevelopment. Forinstance,iftheGeneralAssemblyaddedaprovisiontothelawstatingthatalloftheenergytomeetthegoalsmust comefromVirginiastartingin2016(thefirstyearthatthegoalamountincreases)withoutalsoaddingawindandsolar tier,Dominioncouldmeetthegoalsthrough2020withoutinvestinginanynewenergybeyondwhatsalreadyonlineor planned.Thisisthecase,inpart,becauseDominionalreadyhasasubstantialamountofVAgeneratedenergyfromold facilitiesbankedandcouldsaveupevenmorebefore2016.Plus,ifthecompanytookadvantageofitsoptiontouse researchanddevelopmentfor20%ofeachyearsgoals,thenitcouldmeetthegoalswithoutanynewenergyforan additionaltwoyearsthrough2022justthreeyearsbeforetheendofthe15yearRPSprogram.

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THEDEVILSINTHEDETAILS:FurtherLessonsLearned
BACKGROUNDINFO:Whatisarenewableenergycertificate(REC)?
Inordertounderstandtheinsandoutsofhow renewableenergylawsoperate,itisimportantto understandhowrenewableattributesare accountedforandtraded. ARenewableEnergyCertificate(REC)isatradable commoditythatrepresentstheenvironmental attributesof1megawatthour(MWh)ofrenewable energy.WhenacompanygeneratesaMWhof electricityfromarenewableenergyresource,itcan sellthepowerontothegridandalsosellaRECfor thatpower,eithertothesamebuyeroradifferent one. WhiletheoriginalconceptofaRECwastoaccount foraMWhofrenewableenergybeingputonthe grid,theconcepthasbeenexpandedtoinclude certificatesforotheractivitiesinsomestates.For instance,inVirginia,thelawnowincludesacalculationtoconvertBTUsofthermalenergyintoanumberofRECs.

RPSSETSALOWBARFORHIGHREWARDS
EachutilityhasspecificnumericalgoalsforeachyearoftheRPS,whichrampuptolargeramountsovertime.Forinstance, Dominions2025RPSgoalis6,497,797MWhs(orRECs).Thenumberssignifyacombinationofmegawatthours(MWh)of renewableenergygoingontothegridand/orRenewableEnergyCertificates(RECs).ARECoriginallysignifiedthat1MWh ofrenewableenergywentontothegridbutthedefinitionhassincebeenexpandedtoincludecertificatesforother activities,suchasspendingmoneyonResearchandDevelopment.YouwillfindmoreonwhatqualifiesforVirginiasRPSin thenextsection. ManystateshavesetuptheirRPScalculationsinasimplemanner.Forinstance,MarylandsRPSrequiresthatin2022, utilitiesshowrenewableenergyorRECsamountingto20%ofthatyearssales.NorthCarolinasRPSrequiresthatin2021, utilitiesshowrenewableenergyorRECsamountingto12.5%of2020sales. VirginiasRPSgoals,ontheotherhand,arebasedonacomplexcalculationthatlowersthebarforutilitiesandalsomakes thegoalssoundbiggerthantheytrulyare.Thecalculationofeachutilitysgoalsstartswithdeterminingtotalelectric energysoldinthebaseyear,commonlyreferredtoasbaseyearsales. "Totalelectricenergysoldinthebaseyear"meanstotalelectricenergysoldtoVirginiajurisdictionalretail customersbyaparticipatingutilityincalendaryear2007,excludinganamountequivalenttotheaverageofthe

15

annualpercentagesoftheelectricenergythatwassuppliedtosuchcustomersfromnucleargeneratingplantsfor thecalendaryears2004through2006. BaseYearSalesCalculation Dominion APCo 2007Sales 64,621,534 15,586,000 NuclearGeneration(20042006Avg) 21,302,885 1,133,000 = "BaseYearSales" 43,318,649 14,453,000 Oncethebaseyearsalesaredetermined,theRPSgoalsaredeterminedaspercentages,startingat4%in2010andstepping upeveryfewyearstoeventuallyreach15%in2025. DominionandAPCoRPSGoals 20112015 2016 20172021 4%Average 1,732,746 578,120 7% 3,032,305 1,011,710 7%Average 3,032,305 1,011,710

TimePeriod Percent DominionGoal

2010 4% 1,732,746 578,120

2022 12% 5,198,238 1,734,360

APCoGoal Betweenbasingthefuturegoalsonsalesfiguresfromthepastandsubtracting nucleargenerationfromthebaseyearsales,theutilitiesgoalsendupmuchlower thantheportrayedpercentages.Ifwecompareeachutilitysend2025goaltothe amountofenergyithasforecasteditwillneedin2025,weseejusthowmuch lowerthebarreallyis. Comparisonof2025Goalsto2025LoadForecasts Dominion APCo 6,497,797 2,167,950 2025Goal15%ofBaseYearSales 7 2025LoadForecast 109,131,000 20,802,000 = 2025"15%"Goalas%of2025LoadForecast 6% 10%

20232024 12% Average 5,198,238 1,734,360

2025 15% 6,497,797 2,167,950

While the RPS end goal is portrayed as 15% in 2025, Dominions 2025 goal equates to only 6% of its 2025 load forecast.

Source:DominionandAPCos2011VirginiaIntegratedResourcePlans,submittedtotheStateCorporationCommission

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COUNTINGR&DANDTHERMALENERGYFURTHERWEAKENSGOALS
AlthoughtheRPSwascreatedtopromotethegrowthofrenewableelectricityinVirginia,thestatutehasbeenexpandedto includeothersourcesthatcompaniescanusetoqualifyforthebonus.Allowingotheractivitiestobecountedasthougha companywasputtingrenewableenergyontothegriddoesnothelpusgetsteelintheground.

WhatCanUtilitiesCountTowardtheRPS? Type RenewableEnergy (onlytype includedin originalRPS) Renewable ThermalEnergy (RECamounts determined througha calculationbased onnumberof BTUs) Definition
energyderivedfromsunlight,wind, fallingwater,biomass,energyfrom waste,landfillgas,municipalsolid waste,wavemotion,tides,and geothermalpower thermalenergyoutputfroma renewablefueledcombinedheatand powergenerationfacilitythatis (i)constructed,orrenovatedand improved,afterJanuary1,2012,(ii) locatedintheCommonwealth,and(iii) utilizedinindustrialprocessesother thanthecombinedheatandpower generationfacility

Notes
Thisincludes: companygeneratedelectricenergy electricenergypurchasedfromanother company RECspurchasedfromanothercompany Acombinedheatandpowerfacilityisbasicallyan industrialfacilitythatusesitssteamenergymore efficiently.Thermalenergyisnotelectricity.During the2012GeneralAssemblysession,environmentalists andconsumersobjectedstronglytothebillcreatinga systemtoissueRECsforthermalenergyandcount themtowardtheRPS,arguingthatcombinedheatand powershouldbeincentivizedbutnotthroughtheRPS. Unfortunately,legislatorspassedthebillanyway, manyofthembelievingtherhetoricthatitwouldhelp advancerenewableenergyinVirginia.Theyheard thatargumentfromlobbyistsforMeadWestVaco, whichalreadyhadplansunderwaytobuilda combinedheatandpowerfacilityinVirginia. Duringthe2012GeneralAssemblysession, environmentalistsandconsumersalsoobjectedtothe billcreatingasystemtoissueRECsforresearchand developmentofrenewableenergyandcountthem towardtheRPS.Again,R&Dofrenewableenergyis somethingwemaywanttoincentivizebuttheRPSis nottheappropriatevenue.TheG.A.alsopassedthis bill,hearingstrongsupportfromlobbyistsfor Virginiasuniversities,whichwouldstandtobenefit fromit.

Research& Development Investment (RECamounts determined througha calculationbased ondollarsspent)

anexpenseincurredbyautilityin conductingresearchanddevelopment activitiesrelatedtorenewableor alternativeenergysources;canbeused forupto20%ofanyyearsgoal

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EXTRACREDITLOOPHOLE:200300%CreditFurtherWeakensGoals
ManystatesRPSlawsshowpreferenceforcertaintypesofrenewableenergyoverothers.Mostofthemaccomplishthis bycreatingtieredsystemsand/orcarveouts.Inatieredsystem,acertainsetofenergytypesmustcompriseacertain portionofacompanysRPSenergy.Inacarveoutsystem,acertainportionoftheenergymustcomefromonespecific energytype.Forexample,inMaryland,10%oftheendgoaloftheRPSmustcomefromsolarpower. SomeRPSlawsputathumbonthescaleforcertainenergytypesbygivingthemalittleextracreditoverothersources.For instance,MarylandsRPSoffered120%creditforwindpowerforits2005goaland110%in20062008.VirginiasRPSlaw, ratherthanputtingathumbonthescaleforcertainenergytypes,stepsonthescale.OurRPSoffers200300%extracredit forthesourcesshownbelow.Thismeansthatagoalthathasalreadybeenweakenedbycircuitouscalculationsbasedon 2007salescanbeloweredevenfurther.Theamountrequiredcanbecomehalforathirdofwhatitwas. Whiletheutilitieshavebarelybeentakingadvantageoftheseextracredits,theyhavethepotential,ifutilized,to substantiallylowerthebarforutilities. ExtraCreditLoopholeCanLowerTheBarEvenFurther AGoalof15% Renewable EnergyCould BeSatisfied WithOnly 7.5% 7.5% 7.5% 5%

Type Hydro Biomass EnergyfromWaste LandfillGas RegularCredit MunicipalSolidWaste WaveMotion Tides Geothermal Solar OnshoreWind ExtraCredit AnimalWasteinVirginia OffshoreWind

Credit Amount

100% 100% 100% 100% 100% 100% 100% 100% 200% 200% 200% 300%

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DOUBLECOUNTINGLOOPHOLE:OneMWhcanbecountedbytwocompanies
A2011rulingbytheStateCorporationCommission8foundthat,undertheRPSlawaswritten,asingleMWhofrenewable energycanbeclaimedbytwodifferentcompanies. Forinstance,DominionpurchasesenergyfromatrashincineratorinAlexandriathatisownedbyacompanycalledCovanta. DominionscontractwithCovantatobuythepowerdoesnotstatethatDominionispurchasingtherenewableenergy attributesofthepoweronlythepoweritself.Inmoststates,thefactthatDominionisnotspecificallypurchasingthe RECsassociatedwiththepowerwouldmeanthatitcouldntbecountedtowardtheRPS. AccordingtotheSCCsruling,thewordingofVirginiasRPSlawallowsDominiontocounteachMWhofthatpowertoward theRPSwhileCovantacanalsolegallysellaRECforeachMWhtoanothercompany.Thepurchasingcompanycanthen countthatRECtowardanRPSgoalinVirginiaorinanotherstate.

Thistypeofloopholefurther underminestheefficacyoftheRPSand wasclearlynotwhattheGeneral Assemblyintended.Theloophole causedbythiswordingproblemmust befixedinordertostrengthen VirginiasRPS.

CommonwealthofVirginiaStateCorporationCommission.(June17,2011).OrderonPetitionCaseNo.PUE201000132Petitionof DominionVirginiaPowerforadeclaratoryjudgment.

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POLICYRECOMMENDATIONS:HowtoFixVirginiasRPS forHealthyFamilies,aHealthyEconomy&aHealthyClimate

TOPLESSONLEARNED:HowtoEnsureaWinningPerformance
InordertoensurethatourRPScreatesawinningperformancespurringnewinvestmentinarenewableenergyindustryin VirginiaChesapeakeClimateActionNetworkstoppolicyrecommendationisthattheGeneralAssembly: Replacethe200300%creditthatsolarandwindpowercurrentlyreceivewithatier1. OnlyallowenergyfromfacilitiesinVirginiatocounttowardtheRPS.

SinceVirginiahasnoutilityscalewindorsolarpowerfacilities,thesetwoprovisions,inconcertwitheachother,willensure thatnewrenewableenergygoesontothegridlocallytomeettheRPSgoals.

ADDITIONALPOLICYRECOMMENDATIONS
ClosetheDoubleCountingLoophole:RequirethatrenewableenergycreditedtowardtheRPSbeonlycounted oncebyasinglecompany. MakeitMandatory:Ratherthanofferingutilitiesfinancialrewards,weshouldfollowtheleadofthemajorityof statesandmakeourRPSmandatory. EliminatetheNuclearExclusion:Eliminatetheprovisionthatexcludesnuclearpowerfromtheutilitiesbaseyear sales,whichonlyweakenstheRPSgoals. EliminateCreditforResearchandDevelopment:TheRPSwascreatedtogetsteelinthegroundforarenewable energyindustryinVirginia.Givingutilitiescreditforresearchingrenewableenergyasthoughtheyweregenerating powerissimplypreposterous.Ifyouofferedaneighborhoodkid$20formowingyourlawn,wouldyoustillpay himthefullamountifheleft20%ofthelawnuntouchedandinsteadspentthattimeresearchinglawnmowers, eventhoughyoursworkedperfectly? EliminateorLimitBanking:Limitthenumberofyearsthatacompanycanrolloveragivenmegawatthourof renewableenergybeforecountingittowardanRPSgoal.Weshouldnotallowacompanytocreditenergy generatedin2010toits2025goal.

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FORMOREINFORMATION
TofindoutmoreorgetinvolvedwithworktofixtheRPS,contacttheappropriateChesapeakeClimateActionNetworkstaff person. GeneralAssemblyMembers&OtherPolicymakers:DawoneRobinson,VirginiaPolicyCoordinator,8047678983, dawone@chesapeakeclimate.org ConcernedCitizens:KeithThirion,VirginiaFieldDirector,7035796645,keitht@chesapeakeclimate.org Media:BethKemler,VirginiaStateDirector,8043350915,beth@chesapeakeclimate.org

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