|Repeal CO 2 Budget Trading Program as required by Executive Order 9 (Revision A22)
|Ended on 3/31/2023
RE: Repeal CO 2 Budget Trading Program as required by Executive Order 9 (Revision A22)
LS Power appreciates the opportunity to provide these comments on the repeal of the Virginia CO2 budget trading program, the Regional Greenhouse Gas Initiative (“RGGI”). LS Power has a history of supporting carbon pricing as the most cost-effective means of reducing greenhouse gas emissions from the energy sector and wider economy.
LS Power is an active participant in state and regional carbon programs throughout the U.S. LS Power generally supported Virginia joining RGGI throughout the multi-year timeframe during which the program underwent significant design changes that culminated, regrettably, in a program that does not meet the standards of what a fair and effective carbon trading program should look like.
Founded in 1990, LS Power is a development, investment and operating company focused on the power and energy infrastructure sector. Since its inception, LS Power has developed, constructed, managed and acquired more than 46,000 MWs of competitive power generation and 680 miles of transmission infrastructure, for which it has raised more than $50 billion in debt and equity financing to invest in North American infrastructure. For decades, LS Power has been leading the industry's evolution, often introducing or commercializing new technologies and developing new markets. LS Power is accelerating the decarbonization of the power grid and greater economy through its growing family of energy transition platforms, which consist of the following:
Through its national fleet of utility scale solar, wind, hydro and natural gas-fired generation, its battery and pumped storage hydro projects, its customer-facing distributed energy resources and energy efficiency platforms, and by building the transmission that connects it all, LS Power is at the forefront of decarbonizing the electric grid.
LS Power Investments in and for Virginia
LS Power has a significant investment in the energy infrastructure of Virginia, consisting of a diversified fleet of 2,100 MW of efficient, flexible gas-fueled generation, pumped storage hydro, a renewable gas peaking facility, demand response and electric vehicle charging.
Virginia and RGGI
Virginia’s energy sector has unique and complex attributes that create certain considerations for adopting a RGGI program. Unlike other RGGI states with competitive electric markets, electricity in Virginia is primarily provided by regulated utilities, cooperatives and municipal utilities that directly pass through the cost of RGGI to their customers. These entities are thus insulated from the economic signals created by a price on carbon. Without exposure to the economic signal, reducing the operation of high carbon emitting generating units is lost.
In addition, the ability of regulated utilities to pass through RGGI costs to customers, while competitive generators do not have this option, creates the classic unlevel playing field.
Furthermore, Virginia is interconnected to states with a large amount of generation not subject to RGGI compliance; namely, Pennsylvania, West Virginia and Ohio). Higher emitting out-of-state generators can sell electricity into Virginia without paying a RGGI cost, displacing and disadvantaging in-state generators, even those that emit less carbon. In contrast, all qualified generators in the New England and New York wholesale power grids are subject to RGGI, creating more efficient carbon price carbon signals and avoiding unequal outcomes between generators in different states but within the same power markets.
It is worth noting that the landmark Virginia Clean Economy Act of 2020 provides broad and tangible incentives for Virginia to increase the adoption of renewables and energy storage, which will lead to reduced carbon emissions.
Virginia’s RGGI Program Design is Flawed
RGGI is intended to cause a redispatch of generation supply by putting a price on carbon emissions such that the higher carbon emitting resources would be impacted the most. However, in Virginia, those economic signals are muted and differentiated because of the mix of utility owned generation and non-utility owned generation. Utility owned generation passes through the cost of carbon onto its customers while non-utility owned generation cannot, creating a significant difference in the economic signal each of the parties experience and effectively removes economic impacts to utility owned generation. This is a significant problem in Virginia’s RGGI program what would have to be addressed if RGGI is going to work in the Commonwealth.
Another problematic feature of Virginia’s RGGI program is one LS Power highlighted and sought to rectify with a proposal that was simple, temporary and used by other states. In its support for legislation enabling Virginia to join RGGI, LS Power recommended the Commonwealth adopt provisions, as other states did when they entered RGGI, to make limited, temporary adjustments to the program for pre-existing agreements that did not contemplate RGGI costs. LS Power received significant support for its proposal, as its logic and fairness are easily understood, but in the end the proposal was not adopted.
This created unnecessary and inequitable treatment of Virginia-based companies with RGGI compliance obligations and make the Commonwealth’s program an outlier among state RGGI programs.
This oversight, together with a lack of uniform cost impacts upon Virginia market participants (i.e., some collect RGGI costs directly from ratepayers while others rely on energy markets to recoup RGGI allowance costs), Virginia’s RGGI program failed to achieve the basic elements of fair and equitable treatment that represent the foundation of any properly designed market. Instead, the lack of uniformity and basic fairness in the adopted RGGI rule created winners and losers among market participants for no apparent policy rational.
Such a market design does not reduce carbon emissions efficiently as a well-structured market with uniform economic application should do. Ideally, the highest carbon emitters would be impacted the most, but due to Virginia’s RGGI design that economic signal was lost. Instead, lower emitting units are facing disproportionately greater impacts, a serious design flaw that does not produce the sought after results from a carbon trading market.
Policy makers had the opportunity to develop a fair and efficient carbon trading market, but the existing program is neither and created unequal and disparate impacts. Since the Commonwealth has not pursued efforts to correct these market design flaws, LS Power supports Virginia’s discontinuation of its current arrangement to participate in RGGI in favor of the development of a more rational, fair and equitable approach to reducing carbon emissions in Virginia.