In Virginia, where 35% of the world’s hyperscale data centers are located, demand is outpacing energy supply. Increases can also be attributed to the electrification of vehicles, heat pumps, and reducing our reliance on fossil fuels. 

Last week, Virginia leaders and policymakers met to discuss the challenges facing the state in meeting energy demand in an affordable and reliable way. 

The case for competition was made by a panel of experts, led by Glenn Wright, President of Shell Energy. 

“The energy system of the future is multifaceted and multi dimensional,” said Wright. 

There is no silver bullet to address these issues, but a variety of solutions that will facilitate an affordable energy future start with allowing more of Virginia’s customers the freedom to procure energy outside of the utility. 

Dominion recently announced its return to the PJM capacity market, where it will sell electricity generated into the wholesale regional market. Like a retail energy provider, Dominion will also purchase the electricity needed to serve its customers from the regional wholesale electricity market.  

The difference is in where the risk lies on those electricity purchases. If a utility makes a poor choice in purchasing or does not hedge or plan appropriately, it can pass those additional costs on to the ratepayer in the form of riders. 

“Unlike utilities in Virginia, retail energy providers do not have riders or the ability to come back and ask the customer for more money in the event we didn’t collect enough. It’s an inherent risk that we take as a supplier when we hedge,” said Travis Kavulla, Vice President of Regulatory Affairs at NRG Energy.

With the utility as the purchaser, the risk is on the ratepayer. With a retail energy provider, the risk is on the provider. 

“The lack of ability to control and manage wholesale prices at the hands of the utilities is why Virginia’s customers have seen such an increase in rates and riders,” said Kavulla.

In Virginia, only customers who consume >5MW of energy or have the ability to aggregate load from several sites to meet 5MW are allowed to use a retail energy provider to shop for the best price, services, or clean energy content (view customer breakout and shopping restrictions).

Even with the barriers to shopping, 1/10 of Virginia’s electricity is supplied by retail energy providers. 

“Virginia is generally regarded as a business friendly state but in my experience has the most red tape around energy procurement,” said Kavulla. 

Cox is one of those customers who selected Calpine as an energy provider, and it has been very beneficial on a number of fronts. 

“We’re able to hit our carbon goals, because through the retail energy provider, we can source renewable energy. We made [the] transition 5 years ago and our cost comparison shows we’ve come out with savings too,” said Jeff Merritt, Market Vice President at Cox Communications.

The reality of the utility profit function is they only profit by spending more money. 

“They are fundamentally indifferent to the efficiency of investments they make, whereas in the competitive retail market, we’re incredibly sensitive to it because we’re in competition with other companies and the customer is ultimately making choices based on preferences. It doesn’t serve customers for reliability or affordability with a single gatekeeper managing energy options for customers. It would be better to open it up to meet the challenges discussed today,” said Kavulla.

The session concluded with remarks from Wright, “Power is one of the easiest ways to decarbonize. Every industry is actively pursuing electrification in some way. To meet VCEA goals, Virginia must attract capital from private companies into the energy market. A number of different approaches are necessary to meet these objectives and the challenges ahead.” 

In summary, with the monopoly model, the risk is on the ratepayer. Virginia would benefit from diversifying its portfolio rather than putting all its eggs in one basket for these solutions. Removing some of that supply burden from the utility will also empower them to focus on the electric infrastructure, ensuring reliability. As laid out in Sen. McPike’s SB591 last session, removing some of the restrictions on shopping for Virginia’s large energy users will empower those to be part of the solution while benefiting from access to the variety of energy plans and use programs available on the competitive market.