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Between a Dominion Power Electric School Bus (ESB) project and Governor Northam ESB demonstration programs, Virginia is on the cusp of becoming the national leader of ESB adoption and, through a major acquisition program, could change the game nationally when it comes ESBs and, potentially, government investment in electrifying large vehicle fleets. There are, at this time, at least two ESB bills in the Virginia legislature. One, from Delegate Kaye Kory, essentially legislates the Dominion program. The other (HB1140), from Delegate Mark Keam, would expand ESBs across the Commonwealth, foster prioritizing community (rather than solely utility) value streams in ESB investments, and mandate 100% ESBs by 2030. Considering that transitioning 15,000 or so diesel school buses to electricity will provide, perhaps, $10s of billions in return and value for Virginia, involve $2-$5B in investment along with $Bs in additional government expenditures, and literally have impacts on Virginia and Virginians for decades to come, it is understandable that people have questions and uncertainties about ESBs, these pieces of legislation, and how to move forward.

As someone with a long history interested in and promoting electrification of school buses (until a few years ago, Plug-In Hybrid Electric School Buses (PHESBs) and now, with a strong technological and business case, ESBs), I have received in questions from some trying to better understand and influence Virginia legislature ESB options and actions. Below is based on one such interaction.

About ESBs: Some things to remember/consider

A critical thing to keep in mind is that ESBs have / will have a huge range of benefit streams. And, calculating and understanding the systems-of-systems benefits and value streams of multi-solving paths is a complicated challenge and, I would assert, poorly understood as Virginia moves forward toward a market-leading, decade+-long, multi-billion dollar (set of) ESB program(s).

Trying to place a true “value” on an ESB program is hard because, when it comes to value and cost streams, some are

• Relatively straightforward to monetize/calculate in spreadsheets
  • Savings/cash value streams:
    • significantly reduced fuel costs,
    • reduced maintenance costs,
    • arbitrage
      • using the batteries to shift time of electrons to enable using move cheap electrons to peak demand periods,
    • grid stabilization,
    • demand management
      • reducing peak energy demands by drawing down batteries rather than buying high-cost electricity
  • Costs
    • Additional capital cost for buying buses (key: battery) and V2G (vehicle-to-grid) equipment and costs to retrain maintenance staff.
      • Note: additional costs are almost all upfront and, while more than offset by O&M (operations and maintenance) saving, the CtB (Cost-to-Buy) often has more weight in procurement decision making than the CtO (Cost-to-Own)
• Possible but more complex to monetize
  • Resilience/emergency power value to provide power amid grid disruptions;
  • Reduced diesel pollution
    • w/commensurate reductions in health impacts to children and larger community
    • environmental benefits
      • reduced impact on flora/fauna
      • reduced climate change pollution
        • Note: this is relatively straightforward to include in a cost-benefit equation but requires a choice to include a social cost of carbon (SCC) in decision-making and to agree on that SCC value.
• Potentially major (potentially much higher than above) value streams that are difficult to calculate with confidence and even harder to get ‘green-eye shades’ to include in calculations 
  • Such as better performing students
    • not just due to reduced asthma but also quieter, more comfortable rides on better performing buses 
    • Improving student performance has an economic value in near, mid, and long terms

And, there are even more.

For example, a straight-forward to calculate and powerful in decision-making element doesn’t even seem to be on the table: economic development.

An Economic Development Opportunity

With establishment of a market-creating over 10,000 ESB program, Virginia would be in a strong position to require a significant portion of the manufacturing (and development) be located in Virginia. Consider, back-of-the-envelope, that this leads to 2,000 ESBs per year by 2025 (half for Virginia, the other half for other states/markets). That would be in the range of $300 million per year just in bus procurement that would mean, using basic manufacturing economic multiplier figures, about $700 million in total economic activity. Considering how many 1,000s of well-paying, quality jobs that would mean for Virginians if the legislature would require ESB manufacturing (in whole or large part) be located in Virginia.

To be clear, Dominion’s proposed project is large enough that it will be market creating and potentially shaping. As a major ‘ground-breaking’ project, potentially, that will introduce the first serious ‘economies of scale’ potential, the project will drive down prices (just as, for example, Germany did with solar) for others. This will be a multi-billion dollar purchase program where Virginia and Virginians will be paying more today to drive down the costs for others tomorrow. With that in mind, lease explain to me why Virginia shouldn’t require significant work content w/in the Commonwealth (such as in SW VA for manufacturing and investments in Virginia universities for R&D)? A back-of-the-envelope suggests that this well could lead to over 4000 good-paying manufacturing/engineering jobs that a well-structured program could secure over the next 3-5 years.

Thus, don’t let leaves (or even trees) make you lose sight of the forest

With the above in mind, something that I have been striving to get politicians (school board members, delegates, …) and activists to understand — the battery usage and value streams from electricity arbitrage are only one (and relatively small) portion of the overall value stream.  It is critical to understand and seek to assess all the varying value streams as part of an overall ‘deal’ as to how the compensation structures can/should occur.  

For example, many are hung up on whether Dominion ‘will profit’ by moving electrons to and from ESB batteries. While it appears that Dominion will own/control (with some constraints) the batteries and usage for the grid and secure the value from time arbitrage from time-shifting electrons, it is not as if (it should not be that) they will double-charge for electricity. They fill the battery, charging for the fill, draw it down, and then refill. If they gain the value from the draw down and, then, recharge for the refill: in essence double-charging for the electrons, this would seem to be a real problem (and near fraudulent).  I can’t imagine that that is within the structure of the program in part because this is the ‘shiny object’ issue that too many are focused on.

Now, concerning is — of course — that Dominion will be allowed to include this in the ratepayer base with a guaranteed 9-10% ROI on their capital investment. That percentage guaranteed return simply is not justified, at this time, by market conditions. Consider, for example, Dominion’s cost of money. It appears to be less than 3%.  Having an over 9% guarantee ROI when the price of money is less than 1/3rd that is not justifiable. Perhaps Dominion’s ESB investment would best be considered ‘an investment’ without such a guaranteed return or, well, perhaps generously (to Dominion) allowing Dominion to do a direct payback of its investment and investment costs. Think about the value streams/structures that Dominion is creating for itself via an ESB program:

• Increased electricity sales
• Time arbitrage using the battery
• Peak/Demand shaving using batteries
• Grid stability
• Frequency stabilization
• Capital investment (CAPEX) and program costs that will be added to ratepayer base (guaranteed >9% return on investment)

Considering the other profit/value streams, ‘explain to me’ why that addition to ratepayer base makes sense … or, well, at the full ROI.  However, without calculating/having a window on all those value streams, it is hard to do a full/honest assessment.

Trying to Black Box Dominion Planning

What Dominion could well be doing is driving an ESB program that will lead to additional excess (or, well, extremely high) profitability:

• Being inefficient in the procurement process to increase CAPEX
  • and thus having a higher CAPEX for a guaranteed return
• Inserting itself as part owner/otherwise within the procurement structure to boost profitability

What I fear (and certainly expect) Dominion is / will be doing

• Using the ‘pilot’ project as a wedge (with having lobbyist written legislation ) to create a reality that will be difficult/to impossible to change
  • Consider: The Fairfax County Public Schools (FCPS) has a huge bus fleet. If FCPS Facilities were signing a contract to replace all of their 1500 diesel school buses, there would (or, well, should) be significant attention to contract details with much ‘what if’ type thinking.  FCPS is getting eight ESBs from the Dominion ESB pilot program. With getting eight buses in a ‘pilot’ program, will FCPS lawyers, staff, and leadership pay as much attention to contract negotiation ‘what if’ issues as they would with a 1500 bus program? And, if/when there is a large program, will the pilot program have created a ‘reality’ that shapes/structures the contract terms for that larger program?
• Creating essentially unsurmountable barriers to competition (Dominion Power could ‘certify’, for example, a specific V2G (vehicle-to-grid) system and then make it extremely difficult for any entity to come in with an alternative / competing system that might, otherwise, be more economically attractive?).

Some questions/responses

Now, with all that in mind, below are four questions/concerns that were sent to me and first-order thoughts on them:

1. The schools wouldn’t own the buses. That’s a big problem, because Dominion could then change the parameters of the program or otherwise prevent schools from controlling the buses as they see fit.

  
While there are plenty of private firms that provide busing, on contract, for public school systems, that is not the case with the Virginia school systems.  Why should Dominion own the buses unless they are doing the entire contract structure to take-over all of the transportation (or, well, all the maintenance/etc …). 

But, a more simple approach: you want to own the buses, Dominion, you pay 100% (not just the electric cost increase) of bus acquisition costs.
Re ‘change the parameters’/etc, that is the importance of writing good contracts and the problem of having the ‘pilot’ creating a reality that will be that much harder to modify contract conditions down the pike.  

2. The buses will act like batteries during off-use, and Dominion can draw down that power as needed, but the schools aren’t compensated for that energy. Seems pretty unfair to me when it could be used to save schools money. 

Again, this is just one of many value streams — and, well, far lower in value than improved student health/etc. The ESBs will be much lower operating costs (electricity and not diesel; more straightforward maintenance; etc ..).  I strongly recommend that you/we do not focus on this in isolation of understanding/considering all value streams.

Honestly, if I were at Dominion, I would welcome having this as a ‘battle space’ and then, perhaps, come to some deal that ‘splits’ the value stream from time arbitrage of electrons since it draws attention from so many other issue spaces.

3. Schools would be charged for the difference between the cost of a regular bus and an electric bus. You may want to push for ratepayers to pick up the whole tab, or else the costs will be passed onto school districts. 

First, see #1: if Dominion is going to own the buses, then Dominion should pay for them.

Second, the O&M savings (operations & maintenance) and other benefit streams are quite real. Dominion Power (or some financier or some Virginia government program) picking up this upfront cost difference makes it far easier for schools systems to go electric with new buses. Now, if we want to start retiring diesel buses early, having Dominion pay 100% of acquisition costs becomes very interesting.

4. Dominion would earn a profit on these buses. That’s up for debate whether that’s fair or not, but you could put those costs into the fuel factor cost so that Dominion isn’t making a profit on it. I recommend that to protect the other ratepayers who are picking up the tab for this program, but good people can disagree on that. 

As I’ve written, Dominion is a business. I have no problem with a business making money if they are delivering value to their clients. (As put elsewhere, having Dominion making profits from doing the right thing is, well, something to applaud — even with a standing ovation.) Dominion Power, however, is a regulated utility and, if this is being down within the utility and leveraging rate base, it should not have a path to earn excess/unreasonable profits from the program. Sadly, as has been well documented, the Virginia legislature and State Corporation Commission (SCC) have shown themselves relatively inept over the past 15 years at preventing Dominion unreasonable profiteering.  Legislators can — should — do better when it comes to ESBs.

Some thoughts as to what the legislators can/should do …

With all of the above in mind,

• Legislate with full value streams in mind
  • Avoid getting too caught up in narrow issues
  • Do not allow any specific benefit / stakeholder drive program structure and priorities
  • Create structure so that cost burden is (too) unevenly distributed compared to benefit streams
    • Ratepayers should not, imo, bear the full costs of an ESB program unless they are compensated from benefit streams
  • Create a path to foster better understanding and calculation of ESB program benefit streams
    • Best: legislate an analytical team/process that will enabled better informed decision-making into the future
• Prioritize flexible/robust legislation
  • Recognize that this is an evolving/tough space
  • Enact legislation that gives space/recognizes that it will require change/modification in years ahead
• Require “Made-in-Virginia” content