Notice is hereby given in accordance with § 2.2-4007.01 of the Code of Virginia that the State Air Pollution Control Board intends to consider amending 9VAC5-140, Regulation for Emissions Trading. The purpose of the proposed action is to begin the process of developing a regulation to repeal the regulation implementing the Regional Greenhouse Gas Initiative (RGGI) participation pursuant to Executive Order 9 (2022) (EO-9) "Protecting Ratepayers from the Rising Cost of Living Due to the Regional Greenhouse Gas Initiative." EO-9 requires the Department of Environmental Quality (DEQ) reevaluate Virginia's participation in the RGGI and begin a regulatory processes to end it. Specifically, the order requires that DEQ develop a rulemaking action to repeal the regulation implementing participation in RGGI (i.e., Part VII of 9VAC5-140) and take all necessary steps so that any proposed regulation to the State Air Pollution Control Board can be immediately presented for consideration for approval for public comment in accordance with board authority pursuant to § 10.1-1308 of the Code of Virginia.

The mandate and necessity for this regulatory change are described in EO-9 as follows:

Virginia's participation in the Regional Greenhouse Gas Initiative (RGGI) risks contributing to the increased cost of electricity for our citizens. Virginia's utilities have sold over $227 million in allowances in 2021 during the RGGI auctions, doubling the initial estimates. Those utilities are allowed to pass on the costs of purchasing allowances to their ratepayers. Under the initial bill "RGGI rider" created for Dominion Energy customers, typical residential customer bills were increased by $2.39 a month and the typical industrial customer bill by was raised by $1,554 per month. In a filing before the State Corporation Commission, Dominion Energy stated that RGGI will cost ratepayers between $1 billion and $1.2 billion over the next four years.

Simply stated, the benefits of RGGI have not materialized, while the costs have skyrocketed. Re-evaluation of the Initiative represents a meaningful step toward alleviating this financial burden on the Commonwealth's businesses and households. Regulations must be evaluated in view of the costs and benefits to all Virginians.

According to the U.S. Department of Energy (DOE), Virginians pay on average $2,323 per year in nontransportation energy costs, which is higher than the national average of $1,850. The index for electricity rose by more than 13% over the last 12 months, the largest single-year increase since 2006, while the natural gas index rose by 38.4%, the biggest 12-month jump since October 2005. In July 2022, electricity prices rose 1.7%, and natural gas prices rose 8.2%. Considering that Virginia obtains most of its electricity from natural gas, rising natural gas prices have forced electricity prices even higher. Dominion Energy has filed for 16 rate adjustments over a 12-month period ending July 1, 2022. In May 2022, Dominion filed for a rate increase with the State Corporation Commission (SCC) that could result in monthly rate increases of 12% to 20% due to rising fuel costs. The cumulative impact of those adjustments results in an increase of $0.022423/kilowatt hour or 18% in Dominion's rates that it charges for delivered electricity. This assumes final SCC approval of the fuel rate adjustment and its agreement to Dominion's request to amortize the fuel adjustment over three years.

According to the most recent data supplied by the Federal Energy Information Administration (2020), the average annual household consumption of electricity in Virginia is 13,140 kilowatt hours. Historically, the average energy consumption in Virginia has increased by 1.38% per year. The cumulative impact of these described adjustments would increase the average household's bill by approximately $294 per year, but this amount will increase as consumption continues to increase. The current energy framework in Virginia allows energy providers to also charge ratepayers for the transition and expansion of clean energy infrastructure, resulting in no incentive for utilities to reduce emissions or compliance costs. For example, the SCC recently approved an application by Dominion for cost recovery associated with its proposed Coastal Virginia Offshore Wind Project. The project consists of 176 wind turbines, each designed to generate 14.7 megawatts, to be located about 27 miles off the coast of Virginia Beach. The project is expected to have a capital cost of $9.8 billion and will likely be the largest capital investment and single largest project in Dominion's history. The SCC approved a revenue requirement of $78.702 million for the rate year of September 1, 2022, to August 31, 2023, to be recovered through a new rate adjustment clause. Over the projected 35-year lifetime of the project for a residential customer using 1,000 kilowatt-hours of electricity per month, the rate adjustment is projected to result in an average monthly bill increase of $4.72 and a peak monthly bill increase of $14.22 in 2027. This is another instance of upward pressure on utility costs with a direct impact on consumers. This is something that is making Virginia less competitive with other states in ability to reduce energy costs, make the energy economy competitive, and bring new investment into the state.

These energy cost increases are coming at a time that Virginians can least afford them. As of June 2022, inflation has risen 9.1% on an annual basis, the highest increase in over 40 years. According to the Bureau of Labor Statistics, consumer energy prices are up 41.6% in the last year. The rate of inflation for energy is more than four times the inflation rate of all food items and the Consumer Price Index. Real wage growth has not kept pace with this rapid inflation, and real wages decreased by 1.0% in June 2022; over the last year wages have decreased 3.6%. This hurts Virginia families, and those families and individuals who can least afford increases in energy costs. According to the American Council for an Energy Efficient Economy, "Black households spend 43% more of their income on energy costs, Hispanic households spend 20% more, and Native American households spend 45% more. Low-income households (those with incomes 200% of the federal poverty level) spend three times more of their income on energy costs than non-low income households."

EO-9 directs DEQ to provide the Governor with a full report reevaluating the costs and benefits of participation in RGGI in view of all available data. As detailed, it is clear that participation in RGGI operates as a direct tax on households and businesses. Since the consumers are utility-captive ratepayers who do not have the opportunity to switch electric providers, they are unable to avoid the pass-through of RGGI costs whether through a direct rate adjustment clause or incorporation into the base rate of an electricity bill. Emission allowance prices have increased over 146% since Virginia joined RGGI in 2020, and these substantial increases are expected to continue, which in turn will result in increased rates to ratepayers.

The original analysis and consignment auction approach for RGGI was designed on the basis that proceeds would be returned to the consumers to offset the cost of compliance and have little impact on electricity prices. However, since this is not how the program was implemented in Virginia, the costs of compliance with RGGI have materialized in higher electricity rates for Virginians. The impact of RGGI and the other factors discussed on the current state of electricity costs shows a substantial burden placed on Virginians that must be addressed.

The agency intends to hold a public hearing on the proposed action after publication in the Virginia Register.

Statutory Authority: §§ 10.1-1308 and 10.1-1322.3 of the Code of Virginia; Clean Air Act (42 USC § 7401 et seq.); 40 CFR Part 51.

Public Comment Deadline: October 26, 2022.

Agency Contact: Karen G. Sabasteanski, Department of Environmental Quality, 1111 East Main Street, Suite 1400, P.O. Box 1105, Richmond, VA 23218, telephone (804) 659-1973, FAX (804) 698-4510, or email karen.sabasteanski@deq.virginia.gov.