Finally Admitting RGGI Raises Power Prices, Democrats Are Now Proposing Customer Rebates

Virginia’s return to the Regional Greenhouse Gas Initiative (RGGI) will produce such an explosion of new tax revenue and will cause such major increases in consumer electricity costs that a political feeding frenzy is beginning to erupt over the money.

A legislative study panel heavily controlled by Democrats who voted for Virginia’s return to RGGI decided earlier this week to consider finding a way to rebate the money back to energy consumers.   This came after Dominion Energy Virginia, the company most vulnerable to RGGI, asked to raise electricity prices by more than 7 percent to recover RGGI expenses.

The same Democrats and their leader, Governor Abigail Spanberger, assured voters that returning to RGGI would not increase electricity costs and would instead lower them.  The only way to meet that false promise now is to give all the money back.

To really make a dent in the rising electricity costs, the legislature must rebate to homeowners more money than the RGGI taxes will add to residential bills.  People only come out even or ahead if the state also takes the RGGI revenues from commercial and industrial users and transfers those dollars to residential users, too.

That is because the money the utilities pay for carbon allowances, the carbon tax, is only one way that being in RGGI raises Virginia electric bills.  Being in RGGI also drives down the operating tempo of Virginia generation using coal or natural gas, causing the state to import power more heavily from the other states in the PJM Interconnection market which are not in RGGI.

Foremost of those is West Virginia, where Dominion owns a RGGI-free coal plant, and Appalachian Power owns several.  With the RGGI tax imposed on Virginia’s efficient and cleaner natural gas plants, the older, dirtier coal plants in West Virginia or Pennsylvania can suddenly produce at a lower price.

You can see the dip in Virginia’s plants’ output during the RGGI years (2021-23) in this table, which also provides a list of the power plants that must pay the carbon tax to operate.  It shows how when RGGI went away in 2024, their operating tempos increased.

Advocates for RGGI think that chart makes their case. It doesn’t. You would think the environmentalists would understand that RGGI only moves the carbon emissions out of Virginia and over to other PJM states.  But RGGI has never been about reducing carbon emissions.  It has always been about raising more money for the government to spend by driving up the cost of hydrocarbon electricity across the board.

The $35 per ton carbon price produced in last week’s RGGI auction was inevitable.  The $13 per 1,000-kilowatt-hour RGGI cost recovery Dominion is calling for was inevitable.  When Virginia joined RGGI for the first time five years ago, auction prices were hovering under $6.  The $35 per ton demanded now for an allowance will not be the peak price.  Futures prices on the secondary market had been and still are higher.

Virginia’s rising demand for imports through PJM is also a major component of Dominion’s recent request to raise its fuel recovery by almost $22 per 1,000 kilowatt hours, a request pending at the State Corporation Commission alongside the request to recover RGGI taxes.  The cost of purchased power is rolled in with the costs for coal, natural gas, and uranium.  RGGI means Virginia will need more purchased power.

But the most pernicious impact of imposing RGGI on Virginia, when so many of the other states in PJM are exempt from it, is the way it drives the market price within that multistate market.  All the gas plants in the RGGI states (Virginia, Maryland, New Jersey) include the tax in their PJM bid price, and sometimes their price becomes the marginal price for all power within PJM or one of its subregions.

Even solar and wind power within PJM will be paid for their kilowatts at the fixed marginal price being increased artificially by RGGI.  This is how PJM markets work; every producer is earning the top marginal price.  Are you beginning to understand why the solar and wind industry and their army of advocates are so attached to this?

One estimate is that the tax Virginia utilities will pay and pass on is only half the real cost of being in RGGI.  That is why rebating just the tax doesn’t end the impact.

The current (June 1) residential cost of 1,000 kilowatt hours of electricity in Dominion is $178.50.  If the SCC approves the added fuel charge and the RGGI recovery, those will push the total above $210 next year.  Before Virginia started down this misguided path with the 2020 Virginia Clean Economy Act, that same 1,000 kWh cost about $116.

It was the Commission on Electric Utility Regulation, soon to become the Energy Commission of Virginia, that brought up the idea of using RGGI revenue to give electricity rebates.  A few other RGGI states do something to lower the impact on some or most customers.  The staff also invited two speakers, both long-time advocates for RGGI, to join in the discussion and continue to praise the compact.  No skeptic was invited.

It has been nearly a week since the RGGI auction results were released, and Dominion sent its RGGI recovery application to the SCC.  Only a few media outlets have reported it, and none has apparently sought any reaction from Spanberger, who bears full responsibility for this.  Other issues will push this out of people’s minds quickly.

Current law dictates that half of the RGGI proceeds be spent on energy efficiency and weatherization contractors who work with low-income residents.  They were the ones who got standing to sue successfully when Republican Governor Glenn Youngkin canceled RGGI. Another 45 percent goes to flood control or mitigation efforts, again usually spent by contractors.

The idea that these politically connected groups that have been spending RGGI dollars on themselves will easily surrender them for customer rebates is hard to accept.  With the tax revenue in the next 12 months likely to be between $800 million and $1 billion, they are going to go to the Assembly and Spanberger and argue to keep the current split.

We’ve been here before.  When former Governor Terry McAuliffe (D) first proposed having Virginia join RGGI, his idea was that all the tax proceeds would be returned to the ratepayers, who would be held harmless.  The idea never really took off under that approach, but then it was proposed to spend the money on tangible things legislators could brag about, and that proved more popular.

It has always been mainly about the money.

Steve Haner
Jefferson Forum

Steve Haner is the Senior Fellow for Energy and the Environment at the Jefferson Forum and may be reached at Steve@thomasjeffersoninst.org. Jefferson Forum works to advance freedom-focused policy ideas in Virginia, supporting limited government, individual rights, free markets, and pro-growth solutions. Its mission is to help make Virginia the best state in the nation for building a business, raising a family, and pursuing opportunity.