In my past role as chairman of the Federal Energy Regulatory Commission, it was my job to understand how states were charting their energy futures. Now, in my private-sector work, I keep up with how states respond to policy trends, such as the federal Clean Power Plan. This plan sets standards for cutting carbon pollution from the oldest and dirtiest power plants.
Many people are watching what happens in bellwether Virginia. As in other states, status quo interests, such as utilities and coal companies, have pushed the idea that cutting pollution will cost ratepayers money. Their views were echoed by comments from the staff of the State Corporation Commission and the Department of Environmental Quality. Both of these agencies said that cutting pollution under the CPP imposes significant costs on Virginia’s businesses and consumers.
The basic economics of the energy market say the opposite. Based on current energy trends, Virginians’ utility bills will go up if the state chooses not to cut pollution through renewable energy and energy efficiency. This was just confirmed by PJM, the operator of the largest electricity market in the world, including Virginia, and the entity tasked with keeping Virginia’s lights on at the lowest cost. PJM announced this week that Virginia’s energy costs would be lower under the CPP than without it.
And why would Virginia’s energy costs go down under the CPP?
Recent market developments provide the answer. Domestic natural gas is cheap — for now. U.S. gas producers are selling locally produced gas at $3 per million British thermal units. But gas is sold for three times that much in Asia and Europe, and gas producers want to get that higher price. That’s why the United States is in an impressive build-out of 14 natural-gas export terminals that are set to come online over the next decade. For Virginia ratepayers, that means a cheap, local commodity will become an expensive, global commodity. The United States will export a commodity and import price volatility.
The question is not whether rates are going up; they are. The question is whether steps will be taken to cut the size of people’s utility bills. Virginia can do this, but the only path lies in building the capacity to use free fuel — sunlight and wind — and to make the electricity system far more efficient so less energy is wasted. Those are the steps the CPP standards encourage us to take.
According to one analysis, the good news is that Virginia is 70 percent to 80 percent of the way to meeting its plan goals with coal plant retirements and fuel conversions that were planned before the CPP.
Now Virginia should look at energy efficiency. The United States loses more than 40 percent of the electricity it produces because of inefficient grid infrastructure, and Virginia ranks a surprising 35th in terms of state energy efficiency. That poor showing can easily change under the CPP if Virginia puts people to work installing new LED lightbulbs, upgrading air conditioning systems and using technology to reduce usage during times of peak electricity demand.
There are basic steps Virginia can take to build out the solar and wind energy infrastructure that will allow the commonwealth to use free fuel for the next several decades, including allowing the innovative solar leasing programs popular in states such as Maryland and Delaware. The good news is that not only are renewable energy sources free, but also the cost to install their generating capacity is dropping quickly. From 2008 to 2012, the price of solar panel rooftop systems fell 80 percent, and average costs continue to fall 12 percent to 15 percent each year. Since 2008, the cost of wind power has dropped 50 percent. In many U.S. energy markets, wind is the cheapest electricity source for consumers. And rooftop solar provides the added benefit of local reliability if properly configured.
Combined with energy efficiency steps, those free fuel sources mean lower utility bills — but only if Virginia makes the investment now.
The Clean Power Plan is a business-minded policy that reflects the understanding of falling clean-energy costs, free fuel sources and the big gains Virginia can make in cutting energy waste. It is a once-in-a-generation opportunity to make the economy more efficient, create jobs and cut people’s energy bills. It will have its critics, but those critics are arguing against the realities of the energy markets and the opportunity in front of Virginia.
The writer is immediate past chairman of the Federal Energy Regulatory Commission and a partner at Stoel Rives, where he also co-chairs the law firm’s energy team.