SUPER|OR COURT

OF THE

STATE OF DELAWARE

RlCHARD F. STOKES
JunGE

June 26, 2018

Richard L. Abbott, Esquire
724 Yorklyn Road, Suite 240
Hockessin, DE 19707

Ralph K. Durstein, III, Esquire
Department of Justice

820 N. French Street
Wilmington, DE 19801

Valerie S. Edge, Esquire
Department of Justice

201 West Water Street, 3'd Floor
Dover, DE 19904-6750

SUSSEX COUNTY COURTHOUSE
1 THE ClRCLE, SUlTE 2
GEORGETOWN, DELAWARE 19947
TE|_EPHONE (302) 856-5264

RE: Stevenson, et al. v. Delaware Dept. of Nat. Resources & Environmen;"al Comrol, et al.,

C.A. No. Sl3C-12-025 RFS

Dear Counsel:

Enclosed please find a copy of my decision after trial issued ill the above-captioned

matt€r.

cc: Prothonotary’s Office

ig Y§_`;';:“

ard F. .‘-ituk :S`

Very truly yours,

‘.'

(~ j \\~\_
l

IN THE SUPERIOR COURT OF THE STATE OF E'»ELA\'VARE

DAVID T. STEVENSON, : C.A. No. Sl3C-12--025 RFS
R. CHRISTIAN HUDSON, AND
JOHN A. MOORE,

Plaintiffs,
v.

DELAWARE DEPARTMENT C)F
NATURAL RESOURCES AND
ENVIRONMENTAL CONTROL,

AN AGENCY OF THE STATE AND
SHAWN M. GARVIN, IN HIS
CAPACITY AS SECRETARY OF THE
DEPARTMENT OF NATURAL
RESOURCES AND
ENVIRONMENTAL CONTROL,

Defendants.
DECISION AFTER TRIAL

DATE SUBMITTED: March 14, 2018

DATE DECIDED: June 26, 2018

Richard L. Abbott, Esquire, 724 Yorklyn Road, Suite 240, Hockessin, DE 19707, Attorney for
Plaintiffs.

Ralph K. Durstein, III, Esquire, Department of Justice, 820 N. French Stree‘»;, Wilnl:".ngton, DE

19801, and Valerie S. Edge, Esquire, Department of Justice, 201 Wes;t Wat‘:::r Stre2014 WL
4937023 (Del. Super. Scpt. 22, 2014); Stevenson v. Delaware Dept. afNatzi'ra/ Resources and
Environmental Control, 2016 WL 1613281 (Del. Super. Apr. 5, 2016), real"g. den., 2016 WL
2620501 (Del. Super. Apr. 21, 2016); Stevenson v. Delaware Dept. ofNala/=”al Res¢:»urces and
Envl`ronmental Control, 2016 WL 4473145 (Del. Super. Aug. 19, 201 6), vaca/ed, 2016 WL
6768903 (Del. Super. Nov. 7, 2016).

2For the readers’ convenience, l repeat a significant amount ol`the background
information included in a previous decision, Stevenson v. Delaware Depl. afNalu)'al Resources
and Environmental Control, 2016 WL 1613281 (Del. Super. Apr. 5, 1101 6), rearg. zien., 2016
WL 2620501 (Del. Super. Apr. 21, 2016)

Gas Initiative (“RGGI”). Before December, 2005, environmental representatives ol" some states
in the Mid-Atlantic (including Delaware) and in the Northeastern regions met to discuss the
effective regulation of greenhouse gas emissions from coal and other fossil fuel power plants.
The RGGI Program was developed A brief summary of the RGGI Program appears in the
DNREC’s Secretary’s Order No.: 2013-A-0054:

The RGGI Program is the nation’s first mandatory, market-based program to
reduce emissions of carbon dioxide (COz), the principal huma n-caused
greenhouse gas. The States participating in RGGI have established a regional
cap on CO2 emissions from the power sector, and are requiring power plants to
possess a tradable CO2 allowance for each ton of CO2 they err;it.

This competitive carbon dioxide emissions trading program reduces CO2
emissions from large coal and other fossil fuel fired electric generating units (units
producing more than 25 Megawatts of electricity) in Delaware and the eight other
States by establishing a regional cap on the amount of CO2 that power plants
can emit through the issuance of a limited number of tradable C()2 allowances
These large polluting power plants are required by each Participating State"s
regulations to have and surrender one RGGI allowance for every ton of carbon
dioxide they emit into the atmosphere The Participating States make allowances
available to generators through a[n] auction process. The ploceeds from those
auctions are returned to ratepayers in each state through energy efficiency
investments and other clean energy programs.3

RGGI’s goal to reduce greenhouse emissions caused by fossil fuels is accomplished
several ways. The allowances’ added costs to the more intensive carb )n--fuel generators cause the
less carbon-intensive energy generators and the non-carbon energy generators to be competitive
and thus, to be awarded the clearing prices on the wholesale market. ';` he goal also is
accomplished by an investment of the proceeds from the purchased allowances into energy-

efficiency programs, thereby reducing the demand for electricity.

 

3Secretary’s Order No.: 2013-A-0054, which is located at Tab 4 of Ii’laintifl’s" Trial
Exhibit l.

The states participating in the RGGI Program entered into a hleinor.sindum of
Understanding (“MOU”) in December, 2005. The overall goal of the RG~G§§ Program is set forth

in the MOU as follows:
The Signatory States commit to propose for legislative and/1 )r regulatory
approval a CO2 Budget Trading Program (the “Program”) aim ed at stabilizing and
then reducing CO2 emissions within the Signatory States, and implementing a
regional CO2 emissions budget and allowance trading program that will regulate

CO2 emissions from fossil fuel-fired electricity generating units having a rated
capacity equal to or greater than 25 megawatts.4

The MOU established the regional base annual CO2 emissions budget at 121,253,550
short tons.5 lt further established Delaware’s initial base annual CO2 emissions budget at
7,559,787 short tons.6 The MOU also states that “[f]or the years 2009 through 201¢1, each state’s
base annual CO2 emissions budget shall remain unchanged.”7 The M()U fui ther provides:

Seheduled Redw:tions. Beginning with the annual allocations for the year 2015,

each state’s base annual CO2 emissions budget will decline by 2.5% per year so

that each state’s base annual emissions budget for 2018 will be 100/c below its

initial base annual CO2 emissions budget.8

The States agreed, through the MOU, to develop a Model Rule which would provide a

framework for writing legislation to implement the RGGI Program.9 'l`he l\/l OU stipulated that a

comprehensive review of the Program would occur in 2012 and determined that various aspects

 

4MOU at 2, which is located at Tab 5 of Plaintiffs’ Trial Exhibit l.
5Id.

6Id. at 2-3.

7Id. at 3.

8Id.

9Id. at 6-7.

of the Program could be changed.'0 Finally, the MOU stated: “This MOU may be amended in

asll

writing upon the collective agreement of the authorized representatives of the Signatory States.
In 2008, the Delaware Legislature enacted Delaware’s RGGI Act. Both the Senate and the
House of Representatives voted overwhelmingly in favor of the Act. The synopsis of the bill

states as follows:

This bill grants legal authority for Delaware to participate in the Regional
Greenhouse Gas lnitiative (RGGI) CO2 cap and trade program The bill grants
DNREC the authority to implement the program including promulg.';iting
regulations and implementing or participating in an allowance auction as
necessary to fulfill the goals of the program.12 This bill further requires that all
proceeds from the sale of RGGI CO2 allowances be used for public benefit
purposes and directs revenues to the Delaware Sustainable Energy Utility (SEU)
for the promotion of energy efficiency and renewable energy technologies, to
programs designed to help low income ratepayers, to a Greenhouse Gas Reduction
Program and to DNREC for administration of the program.13

A review of Delaware’s RGGI Act shows the following:

The Memorandum of Understanding (“MOU”) signed by the Governors of
participating RGGI states requires each participating state to promulgate
regulations to establish a cap-and-trade program for CO2 with the goal of
stabilizing CO2 emissions at current levels through 2015 and reducing by 10
percent such emissions by 2019. '4

Delaware’s RGGI Act further explains that the MOU sets an initial emissions cap of

7,559,787 short tons of CO2 for Delaware. lt is specifically provided that this cap “‘may be

 

wld. at lO.
llId. at 11.

l2Again, the goals were to reduce CO2 emissions and to set up a method for achieving
those reductions.

'3144th General Assembly, S.B. #263.

l47 Del. C. § 6043(3)(8).

adjusted in the future.”‘5 Delaware’s RGGI Act authorizes the Secretary “to promulgate
regulations to implement the RGGI cap and trade program consistent with the RGGI
Memorandum of Understanding, as amended.”16 This Act also directs the Secretarj',' to participate
with the other states in the RGGI Program and any national program which might be

implemented17

Regulations No. 1147 were promulgated and implemented in Novernber, 2008.18 The

following explanation was contained therein:

Beginning in 2009 through 2015, the emissions of CO2 from any EGU [Electric
Generating Unit] with a maximum rated heat input capacity of equal to or greater
than 25 megawatts that is located in a RGGI state would be capped at current
levels (emissions from Delaware affected facilities account for approximately 7.5
million tons). After 2015, the cap would be reduced incremental ly to achieve a 10
percent reduction by 2019. Under the cap-and-trade program, one allowance is
equivalent to one ton of CO2 emissions allowed by the cap. Each subject EGU
will be required to have enough allowances to cover its reported emissions during
the three year compliance periods. The EGUs may buy or sell allowances, but
individual EGU emissions shall not exceed the amount of allowances it possesses.
The total amount of the allowances will be equal to the emissions cap for the
RGGI states.‘9

The only facilities in Delaware required to have a CO2 permit under Regulations No.

1147 are the City of Dover, NRG Dover, NRG McKee Run (a DEMEC facility), \"ansant, Indian

 

‘57 Del. C. § 6043(3)(9).
167 Del. C. § 6044( c).
"7 Del. C. §§ 6044( c) and 6047.

18Secretary’s Order No.: 2008-A-0055, which is located at Tal) 8 of Plainti:|"fs’ Trial
Exhibit 1.

19Ia'. at 2.

River (a NRG facility), Calpine Edgemoor, Calpine Hay Road, and Delaware City Refinery.20
There are approximately thirty (30) units at these facilities impacted by Delaware’s RGGI.2l The
entities holding the pemiits are Calpine, Edgemoor, Hay Road, NRG, DEMEC and the City of
Dover.22 These entities, which were required to obtain, and comply with, a permit and were
directly subject to the regulations, had standing to appeal the regulations23 No entity required to

have a permit appealed the enactment of Regulations No. 1147.

ln general, allowances may be purchased at auction, purchased on the secondary market,
gifted by direct allocation, or created through offset projects24 Pursuant to statute, the regulated
facilities initially were given allowances over a five (5) year period, i.e., they did not have to
purchase them.25 Once given, an allowance lasts forever until used.26 The regulated facilities had
a large number of allowances in their accounts27 No information exists as to when any of the
generators had to start purchasing allowances The fact that allowances did not have to be

purchased was not considered by plaintiffs’ witnesses.

 

20Transcript of December 6, 2017, Trial Proceedings at C-47 (hereinafter, "'C-_”).
21C-46; C-49.
22C-48.

237 Del. C. § 6001, et seq.; Baker v. Delaware Dept. of Natural Resoarces and
Environrnental Control, 2015 WL 5971784, * 10 (Del. Super. Oct. 7, 2015), a/Y’d, 137 A.2d 122
(Del. April 15, 2016).

24C-43-44.
25C-43-45; C-99; 7 Del. C. § 6045(d).
26C-45.

27C-l 11.

ln 2012, as provided for in the RGGl MOU, a review took place oif the RGG[ Program
and, in particular, the CO2 Budget Trading Program. There was an oversupply of allocations28
because of an unanticipated increase in the use of natural gas, which is a lower carbon-intensive
fuel.29 lt was determined that changes in the market and changes in the program required a
modification of the RGGl Program. As defendants explained, the review sh owed:

[T]he initial emissions allocations were too generous with respect to actual

emissions To achieve emissions reductions, it was necessary to reduce all of the
states’ allocations However, since it was always a concern that allowance prices
could be driven too high, other changes were made to the Model Rule to prevent

such occurrence30

lt was determined:

* The Regional Emissions Cap in 2014 will be equal to 91 million tons The
Regional Emissions Cap and each Participating State’s individual emissions
budget will decline 2.5% each year 2015 through 2020.

* The Participating States will address the bank of allowances held by market
participants with two interim adjustments for banked allowances The itirst
adjustment will be made over a 7-year period (2014-2020) for the first control
period private bank of allowances and a second adjustment will be made over a 6--
year period (2015-2020) for the 2012-2013 period private bank of allowanees.3'

This agreement was not implemented by any amendment to tt e l\/l~OU. lnsl;ead, changes

were made by way of an Updated Model Rule.32 The Participating States agreed to revise their

 

28“Allocations” are also referred to as “allowances” in this dec ision.

29C-34.

30Defendants’ Answering Brief in Opposition to Plaintiffs’ Motion for Summary
Judgment at 26.

31RGGI 2012 Program Review: Summary of Recommendations to Accompany Model
Rule Amendments at 2.

32This Updated Model Rule may be found at M\z.l';__»gli.t)t'g».
7

regulations or statutes based on the Updated Model Rule and to do so by lanuary 1 , 12014.33

ln accordance with this agreement, Delaware amended 7 DE Admin. Code 1147, stating:

The amendments to the Model Rule will be incorporated into the l)7 Del. C. §
6043(a)(9) specifically states that the emissions “‘cap and Delaware’s allocation may be adjusted

in the future”’, and concluded: “[T]he Department believes that the statute grants the DNREC

Secretary the authority to further reduce the emissions cap to comply with tire emissions

reduction goal.”?’5

These amended regulations went into effect on December 11, 2013.'6 T he reduction of
CO2 permits has tended to cause the prices of CO2 allowances at auction to rise.37

No regulated entity which must purchase the allowances complained or filed an appeal
from the amended regulations As noted above, these regulated entities had standing to appeal

because they were subject to the amended regulations38 This law renders meritless plaintiffs’

 

33RGGI 2012 Program Review: Summary of Recommendations to Accompa:ny Model
Rule Amendments at 3.

34Secretary’s Order No.: 2013-A-0054 at 3, which is located at Tab 4 oif Plaintiffs’ Trial
Exhibit 1.

35Id.

36Id. at 1.

37Transcript of December 4, 2017, Trial Proceedings at A-92 (hereirtafter, "'A-_”).
38Baker v. Delaware Dept. of Natural Resources and Environmental Contrr)l, supra

8

arguments that these regulated entities lack standing to sue because they wiil not stiffer financial
harm and thus, the amended regulations never could be reviewed absent plaintiffs’ suit.3°

Only plaintiffs appealed the amended regulations Plaintiffs are not subject to the
amended regulations However, they allege they have/will suffer harm in fact in that the
increased costs of the allowances will be passed on to them in their electric bills As the litigation
moved forward, plaintiffs’ electric bills actually decreased over the pertinent time period.
Consequently, plaintiffs’ argument morphed to the argument that had the amended regulations
not come into effect, they would have had to pay even less on their electric bil|s, and thus, they

are financially harmed.40

Dr. Tierney and her Testimony

ln order to render this decision, the Court relies upon the testimony of Susan F. Tierney,
Ph.D. Dr. Tierney is defendants’ expert. Plaintiffs seek to keep out all or portions of her
testimony in several ways First, they moved, during trial, to exclude :ertain testimony and
evidence because plaintiffs contend it was “new” and defendants “sandbagg;ed" them with it.

Second, plaintiffs moved, before trial, to exclude her testimony.41

 

39lt is surprising that plaintiff R. Christian Hudson would make this argument, which is
diametrically opposed to the one he made, and won, in Baker v. Delaware Dept. o_,t`Natural
Resoarces and Environmental Control, supra

40A-9-10.
4lThis motion in limine was filed on December 1, 2017.

9

Objection to “New Analysis”

Plaintiffs pursue, in their post-trial briefing, their arguments initially made at trial that the
Court cannot consider what they label “New Analysis” by Dr. Tiemey. The only new information
was the analysis of Stevenson’s electric bill. There is a good deal of iinger--pointing over this
issue which this Court refuses to address Obj ection to this is much to do about nothing because
Stevenson himself admitted it is difficult to prove a direct link between PJM wholesale market
prices and consumer utility bills42 The Court will exclude the analysis on Stevenson’s electric
bill only because it is too insignificant of an issue on which to spend time. The other information
contained within the “New Analysis” reflects Dr. Tiemey’s previously-provided information
That information merely was turned into a demonstrative format. That is not “new"’ and the Court

continues to rule, as it did at trial, that this demonstrative evidence may remain in evidence

Motion in limine

Dr. Tiemey’s resume' is forty (40) pages long.43 She is an expert on energy economics,
regulation and policy, particularly in the electric and gas industries She currently is a Senior
Advisor at Analysis Group lnc., where she provides policy, economic and strategy consulting in
the energy industry. The company for which she works is an economic, financial, and business
strategy consulting firm. She is the lead consultant on many of their projects She has had a thirty

(30) year career “as a regulator, policymaker, university professor, co nsul tant, and expert

 

42Transcript of December 5, 2017, Proceedings at B-183 (hereinaii:er, “B-___"’).

43Her resume' appears at Exhibit SFT-l to the June 15, 2015, Afiida vit o Susan F.
Tiemey, Ph.D., which is Defendants’ Trial Exhibit 5.

10

witness.”44 She speaks frequently at industry conferences She serves on Boards and Advisory
Committees for numerous energy institutes and foundations She has published an extremely

large number of reports and articles in her field of expertise

As she explains, she has been directly involved in issues relevant to this matter as
follows:

economic analysis of issues affecting electric utilities, wholesale power markets
and consumers’ utility rates; utility regulation; price formation in electric power
systems, including impacts of changes in fuel prices, technology changes,
environmental requirements and other facts; the structure of the electric industry
and implications for the reliable and economically efficient provision of
electricity; the design of environmental polices to control emissions of air
pollutants from the power sector and the implications of different policy designs
for costs to power producers and to consumers; and the macrcecono mic costs
associated with wholesale and retail rate and price analysis.45

She has co-authored two reports which focused on the economic impacts of RGGI. The
first, dated November 15, 2011, is titled, “The Economic lmpacts of the Regional Greenhouse
Gas lnitiative on Ten Northeast and Mid-Atlantic States: Review of the Use of`RCiGrl Auction
Proceeds from the First Three-Year Compliance Period”.46 The second teport, dated July 14,
2015 , is titled, “The Economic lmpacts of the Regional Greenhouse Gas initiative on Nine

Northeast and Mid-Atlantic States: Review of RGGl’s Second Three-`Year Compliance Period

 

44June 15, 2015, Affidavit of Susan F. Tiemey, Ph.D., which is Defendants’ Trial Exhibit
5, at p. 2, 112.

45June 15, 2015, Affidavit of Susan F. Tierney, Ph.D., which is 1:)efendants’ Trial Exhibit
5, at p. 2, 112.

46Attachment SFT-2 to June 15, 2015, Affidavit of Susan F. Tierney, Ph.D., which is
Defendants’ Trial Exhibit 5.

11

(2012-2014).”47 These studies include a review of RGGl’s economic effects in Delaware.

ln deciding a motion for summary judgment, this Court previously ruled Dt, Tierney to be
an expert on the pertinent areas in question.48 Nothing at the hearing in this matter or in the post-
trial briefing has changed that opinion. She has been involved directly in issues relevant to the
matter at hand. She is uniquely qualified as an expert to speak to the issues relevant to this case,
those issues being “the impacts of the State of Delaware’s participation in the Regional
Greenhouse Gas lnitiative (“RGGI”) and the impacts of such participation on the rates of
electricity customers in Delaware and on the Delaware economy.”49

Plaintiffs recognize Dr. Tiemey is an expert. However, they seek to exclude her testimony
on a number of grounds

l first address plaintiffs’ argument based upon an incorrect premise Plaintiffs argue Dr.
Tiemey has not taken into account their contention that Delaware has not spent any of the
additional CO2 allowance auction revenues generated from the amended Delaware RGGI
regulations50 Thus, they argue, her opinion that any increases in wholesale prices are offset by

decreased use in electricity resulting from the allowance monies spent on energy-saving

programs is invalid. This argument is based upon the incorrect premise that Delaware has not

 

47Attachment to June 7, 2016, Affidavit of Susan F. Tiemey, l’h,.D., which is Defendants’
Trial Exhibit 4.

48Sl‘evenson v. Delaware Dept. of Natural Resources and Envz`ranrne:ntal C.onlrol, 2016
WL 1613281 (Del. Super. Apr. 5, 2016), rearg. den., 2016 WL 2620501 (Del. Super. Apr. 21,
2016)

49June 15, 2015, Affidavit of Susan F. Tierney, Ph.D., which is Defendants` Trial Exhibit
5, at p. 4, 11 7.

5°Plaintiffs’ February 22, 2018 Opening Post-Trial Brief.

12

spent any of the additional COz allowance auction revenues generated from the amended RGGI
regulations on energy-saving programs

Upon the enactment of Delaware’s RGGl, Delaware took 10% of the proceeds from the
auction and applied them to the administration of the program while it applied 90% of the
proceeds to consumer benefit programs51 Of that 90% being applied to programs which benefit
consumers, 65% went to the Delaware Sustainable Energy Utility (SFU) f`o_r the promotion of
energy efficiency and renewable energy technologies; 10% to the Weatheri;';ation Program; 5% to
the Low lncome Home Energy Assistance Program; and 10% to mitigation52 Since the
enactment of the amended regulations, Delaware has spent monies for weatherization, mitigation
and low income assistance From 2012-2014, the State spent monies on low income assistance,
on funding energy efficiency measures in the buildings of electricity consurners, on other
greenhouse-gas emission reduction programs and investment in renewable energy.53 This fact
undermines plaintiffs argument that no monies have been applied to benefit consumers since the
implementation of the amended regulations

Plaintiffs’ other argument is that because Dr. Tierney has stated she does not have an

opinion on the impact of the amended regulations on the individual p‘aintift`s’ electric bills, her

 

5lC-21. Pursuant to the MOU, Delaware’s commitment was to use only 25% of the
auction proceeds towards consumer benefits and the administration of the program.

52C-30.

53June 7, 2016, Affidavit of Susan F. Tierney, Ph.D., which is deficndants’ '1`r'ial Exhibit 4,
at p. 15, 1122 Although it is not in evidence, defendants represent in their briefing that monies
from the SEU have not been spent during this time period. That is oniy a portion of the proceeds,
not all of them.

13

opinion and all of the evidence presented by her should be excluded.54 They then turn around and
seek to include portions of her testimony, arguing that Dr. Tiemey’s subn.'lissions “establish that
the New RGGl Regulations will directly and proximately cause an increase in the electric bills of
consumers like the Plaintiffs who do not receive any subsidies or financial funding from the
RGGI Program.”55

Dr. Tiemey’s basic conclusions based upon knowledge, data, studies, and experience, are
as follows Electric-generating units will incur increased costs associated with the amended
regulations; however, other RGGI effects offset those increased costs and consumers’ electric
bills actually decrease rather than increase.56 This results because the money from the auctions
have been spent on energy-efficiency programs or products, which, in the end, have resulted in a
decrease in demand and that has caused a lowering of electricity prices l`o repeat, her studies
show, and her testimony is, that in the end, Delaware consumers will not pay greater prices
because of RGGI; instead, their electric bills are less than what they Woul d be because of RGGI
as originally imposed and as governed by the amended regulations

Dr. Tierney did agree that she was not testifying on the impact of the amended regulations
on each individual plaintiff’s electric bills Defendants had no obligation to study the individual

plaintiffs’ electric bills and provide an opinion on the effect of the arr ended regulations on them.

 

54Plaintiffs’ February 22, 2018 Opening Post-Trial Brief at 32 '3;5.

55Plaintiffs’ February 22, 2018 Opening Post-Trial Brief at 19 This incongruity is
repeated at page 26 of this brief, where they argue: “Tiemey’s statements have no bearing on the
issue of whether the Plaintiffs have standing in this action. lnstead, T erney actually supports the
fact that the Plaintiffs possess standing.”

56A-20.

14

That was plaintiffs’ burden.

Plaintiffs’ motion in limine is denied Dr. Tierney’s specialized knowledge and training
is based on sufficient facts and data and she has applied the appropriate principles and methods
reliably to the facts Dr. Tiemey’s testimony has educated the Court en electricity generation, the
wholesale and retail pricing of electricity, the connection (which is not direct) between the costs
generators incur and the retail prices consumers pay, and the effects of Delaware’s RGGI on
consumers’ electric bills Her testimony rebuts plaintiffs’ witnesses’ testimony by highlighting
the flaws in Dr. Stapleford and Stevenson’s knowledge, understanding and testimony on the
issues at hand and by establishing plaintiffs’ simplistic economic theory is inapplicable and

invalid

Pertinent Basics of Electricity and Pricing57

Plaintiffs ground their case on the basic economic theory that increased costs to the
electricity generator directly result in increased prices to the consumer. Dr. Tierne_v"`s testimony
and evidence establish that this theory does not apply in the context of electricity pricing58 She
could not know the cause-and-effect connection between CO2 permit costs and impacts on
individual customers’ bills because of “so many disconnections between the wholesale price

formation and electricity rate-making for individual customers.”59 “[T]he:re is not a one-to-one

 

57The information contained herein mostly is drawn from Dr. Tierney’s testimony, which
appears at A-12-136.

58A-93. She opined: “Typical economic supply and demand concepts don’t typically apply
to the electric industry.”

5g'A-114.

15

relationship between those circumstances in the wholesale market and the actual rates charged to
consumers in their retail electricity bills.”60 The one-to-one relationship does not exist because
of:

(a) the character of the way that electric power plants are dispatched; (b) the

manner in which price formation occurs in the wholesale electric industry in PJM;

and ( c) and how the costs and carbon intensity of different power plants affects

the ability of the generator to pass through CO2 allowance costs to consumers 6'

ln order to better understand her conclusions and the workings oif electricity production
and pricing, l set forth some of the basic concepts62

There are various types of generators of electricity, including, but not limited to, fossil
fuel (oil, coal, or natural gas (which is less carbon intensive)); nuclear; solar; wind; geothermal;
hydroelectric Delaware is part of the PJM region, which consists of an integrated grid of power
plants The PJl\/I63 grid currently encompasses thirteen (13) states, including Delawa;re. PJM
includes states that are non-RGGI participants and others that are RGGl participants While PJM
consists of thousands of generating units, only approximately thirty (30) of those units are
affected by Delaware’s RGGl.64

PJM (also referred to as the “grid operator”) dispatches plants to supply power according

 

60A-21 .

61August 25, 2016 Memorandum at 3, attached to September 8, 2()16, Affidavit of Susan
F. Tierney, Ph.D., which is Defendants’Trial Exhibit 3.

62Dr. Tierney explained these conclusions in more detail during her testimo ziy. A-28-31;
A-35-39; A-60-61.

63lnitially, Pennsylvania, New Jersey and Maryland made up tj;iis grid; hene::, the
abbreviation “PJM”.

64C-46; C-49.
16

to their offer price. The offer prices are based on the plants’ cost to produce electricity. The grid
operator decides how many of those offering plants to dispatch at any point in time in order to
meet instantaneous demand “[l]t is the offer price of the generator whose output (\vhen
combined with output from generators with lower offer prices) serves to satisfy demand sets the
clearing price.”65 The price of the last generator called upon to operate in a particular moment is
the clearing price Every generator selected to provide power at that moment is paid that clearing
price The group of plants dispatching power can include carbon-intensive and less carbon
intensive generators and/or non-carbon energy generators The clearing price varies across the
course of the year and across the time of day as demand for electricity goes up and down.

When demands are greater, more power plants are dispatched to meet the demand
lncluding CO2 prices in the offer prices can change the dispatch order of plants and make the less
carbon intensive and/or non-carbon generators more competitive66

Reductions in peak demand reduce the costs of electricity because the dispatch of power
from relatively costly plants is avoided67 Energy efficiency programs can cause those reductions

in peak demand.68 Even plaintiff Moore agreed that significant or drastic reductions in demand

 

65August 25, 2016 Memorandum at 5, attached to September 8, 12016, Affidavit of Susan
F. Tiemey, Ph.D., which is Defendants’ Trial Exhibit 3.

66PJl\/l has a market monitor who evaluates whether the markets are competitive. ln
fulfilling that job, the market monitor prepares a report where the monitor tries to identify the
drivers or components that constitute the cost of producing electricity. R_ecently, the biggest
driver is the use and cost of natural gas As noted earlier, the major trigger l`or reducing
allowances in the amended regulations was the oversupply of them because of an unanticipated
increase in the use of natural gas, which is a lower carbon-intensive fuel.

67A-25-29.
68A-25-29; A-160-6l; B-165.
17

and costs can be achieved fairly economically.69

To repeat, the generators which are a part of the clearing price at a particular moment can
include carbon-intensive generators, less-carbon intensive generators and/or non-carbon
generators The clearing prices, which include the price of CO2 allowances are based upon:

many variables that would have both an upward and downward effect on prices
For example, demands for electricity were flatter than you might have seen in
the recent past. That would tend to reduce the demand for carbon allowances
because you don’t have to generate as much electricity.
So economic conditions, if natural gas prices are cheaper than coal, then that
would reduce the demand for allowances So a lot of different things would go
into expectations about forward prices70

Dr. Tierney further explained:

But there is not a one-to-one relationship between the cost incurred by power
plant owners to keep their plants open and then to generate power from tha|, on
the one hand, and the prices that are paid to power plant owners or the electricity
and capacity that they produce to the system.

So, in fact, there are some power plant owners who do not enjoy the opportunity
to pass along all of their costs because of the way the prices are formed in the
markets that happen to coincide with the RGGI states Each o t`the RGGI states
operates in a power plant centralized wholesale market that does not allow for a
one-to-one pass-through of costs of power plant owners into wholesale prices paid
by consumers."

Because the hourly electricity prices established in the PJM are federally regulated, many

of the costs imposed by the individual states (such as RGGI allowances) cannot be passed on in

the wholesale market.72

 

69A-160.
70A-93-94.
71A-135-36.

72June 7, 2016, Affidavit of Susan F. Tiemey at pp. 8-9, 1113, which is l)efendants’ Trial
Exhibit 4.

18

The problems with tracking RGGI costs (if any) from the generator to the retail consumer
are compounded by the subsequent steps involved in obtaining electricity

Plaintiffs are retail customers either of Delmarva Power or Delaware Electric Cooperative
(“DEC” or “Delaware Electric Co-Op”). Dr. Tierney explained how the two companies acquire
their electricity and set prices for their customers

She first addressed Delmarva Power:

[A] utility like Delmarva Power is a utility that is a wires-only cle ctric
company. Those customers of Delmarva Power who are purchasing what is called
bundled electricity service and they are purchasing their total electricity supply
and wires - essentially paying for the cost of transmission and distribution
facilities, I’m calling that wires What I described in the wholesale market is
supply.

So Delmarva Power doesn’t own any power plants lt has to purchase from the
wholesale markets, from contractors73 to supply service for Dclma'r\ a Power
consumers And the Way that that works is those power suppliers of:t`er to
Delmarva Power to provide electricity, for example, to a residential electricity
customer at a certain price that is fixed in advance, and then that is held in place
for a three-year period of time.

So let’s say we’re standing in 2014. The way that it works for D'elmarva Power
is that one-third of the supply that’s available to meet a customer’.s demand in
2014 is provided by somebody who offered and won the contract three years
before that. They have a three-year contract for a third of the supply

Then two years in advance of 2014 there is another supplier who has Won a
contract. He or she is providing a third. And then in 2013 someone won that offer
and they are supplying one-third of supply to Delmarva Power:

The electricity customer, therefore, in 2014, is paying contract prices established
before 2014, and long before 2014 in some cases, but also long before the end of
2013 when those contracts were established

Okay. So over time those contracts, those supply contracts for De] marva Power
customers, are not only provided well in advance, but they reflect the expectation
of those suppliers about a myriad of things; most importantly, the cost of natural
gas and the expectation about how much demand is going to go up or down or so
forth.

The prices that were provided to Delmarva Power customers have gone down

 

73Plaintiffs refer to these contractors as “market Sellers”.

19

during this period of time, since 2014, 2015, 2016.74

So basically, with regard to Delmarva Power, the prices customers pay stem from contract
prices which are reached based on numerous factors Even Delmarva Powe:‘ cannot determine
what amount of increased costs for RGGI might be passed on to a retail custorner.75

Dr. Tierney then explained that Delaware Electric Co-Op differs from Delmarva Power.76
Delaware Electric Co-Op buys its power from Old Dominion Electric Co-Ciperative (“Old
Dominion”). Old Dominion does not operate in Delaware, but it has power plants :in Maryland
and Virginia that supply power to Delaware Electric Co-Op. In addition, ()ld Dominion buys
power from suppliers that participate in the PJM wholesale market. Thus, Delaware Co-Op’s
prices are supply prices that are affected by Maryland’s RGGI and the PJl,\/I.

Dr. Tierney’s testimony shows that because of the various fac _:ors wnich go into
electricity generation, wholesale pricing, and consumer pricing, plaintiffs’ Witnesses’ opinions
that an increase in the costs of CO2 allowances directly results in an increase in electricity costs to

the consumer are invalid.

 

74A-29-3 l.

75April 28, 2015, letter from Todd L. Goodman, Esquire, Associate General Counsel to
Delmarva Power. This letter, dated April 28, 2015, is to Jason R. Smith, Pu blic Utilities Analyst
to the Delaware Public Service Commission (“PSC”) in response to plaintiff David Stevenson’s
request, on behalf of the Caesar Rodney lnstitute (CRI), to open Phase ll workshops in regards to
a PSC Docket concerning bill transparency of Delmarva’s bills The purpose of Mr. Goodman’s
letter was to correct inaccuracies CRI made in its request. The inaccuracies address the issue at
hand. This letter is located at Exhibit D of the Appendix to Defendani.'s’ Pos:t-Trial
Memorandum, filed February 22, 2018.

76A-31-32.
20

The Plaintiffs
There are three plaintiffs: R. Christian Hudson, John A. Moore, and David T.
Stevenson.77
The first plaintiff is R. Christian Hudson (“Hudson”). He is a resident of Sussex
County. The basis for his lawsuit is as follows:
Well, you know, in general, l think the DNREC, I’ve been a party to a number
of suits where we felt, and in some cases the Court ruled, that the DNREC

overstepped their bounds And l feel that this is yet another one where 1 feel that
they should have to follow their own law.78

He is a customer of Delmarva Power and has been since at least early 2013.79 He cannot
point out on his electric bills a dollar amount attributable to the Delaware RGGI Program or to
the changes to that program.80 He is relying on plaintiff David T. Stevenson and John E.
Stapleford, Ph.D., an economist, to establish the 2013 amended Delaware FI_GGI regulations
negatively impacted his power bills81

The second plaintiff is John A. Moore (“Moore”).82 He is a Delawa re resident and is a

customer of Delmarva Power. He acknowledged he did not pay a lot of attention tc his electric

 

77At one point, Jack Peterman was a plaintiff. He Was dismissed as a plaintiff earlier in
the litigation but an order was not entered at that time directing the amendment of the caption to
reflect that action. That oversight is corrected at this time; Jack Peterman is removed from the
caption as a party and the caption hereinafter reads as set forth on the front page of this opinion.

78A-139-40.
79A- l 4()-41.
80A-l43.
81A-l42.
82His testimony appears at A-154-64.
21

bills83 He, too, is relying upon experts like David T. Stevenson to show the impact of the
amended regulations on his electric bills.84 However, he thinks “it also just stands to reason that
when one state has a tax that our neighborhood [sic] states don’t have, that we"re paying more for
electricity because of that tax.”85 This is a complaint against Delaware’s RGGI in general and
not to the amended regulations in particular. He joined the lawsuit because he feels that
Delaware’s RGGI itself “was an unnecessary burden on Delaware business and on Delaware

consumers.”86

The third plaintiff is David T. Stevenson (“Stevenson”).87 Stevenson also is a resident of
Delaware. He is a customer of Delaware Electric Co-Op. As explained eai'lier, Delaware Electric
Co-Op buys its power from Old Dominion, which does not operate in Dela ware. Old Dominion
acquires its electricity from Maryland, Virginia, and PJM. Out of the thousands of units of PJM
upon which Old Dominion might call, only thirty (30) are impacted by l[)elaware’s RGGI.88 Thus,
there is the remote possibility that at times, the sources of the supply of electricity to Stevenson
“may be produced in part by Electric Generation facilities located in Delaware that must have

CO2 Permits [Emphasis added]”89

 

83A- l 64.

84A-15 8.

851£1.

86A-l 55.

87His testimony appears at pages B-59-186.

88C-46; C-49.

89Plaintiff’s Opening Post-Trial Brief, dated February 22, 2018, at 7

22

Standing

The Court will not consider the merits of plaintiffs’ arguments unless they have standing

As the Supreme Court has explained:

The concept of"‘standing,” in its procedural sense, refers to the right of a party
to invoke the jurisdiction of a court to enforce a claim or redress a grievancen lt is
concerned only With the question of who is entitled to mount a legal challenge and
not with the merits of the subject matter of the controversy. In order to achieve
standing, the plaintiff’ s interest in the controversy must be distinguishable from
the interest shared by other members of a class or the public in general Un|ike the
federal courts, where standing may be subject to stated constitutional limits, state
courts apply the concept of standing as a matter of self-restraint to avoid the
rendering of advisory opinions at the behest of parties who are “mere
intermeddlers.” [Citations omitted. Emphasis in original.]90

The Supreme Court further explained what a party must show in order to establish

standing:

To establish standing, a plaintiff or petitioner must demonstrate first, that he or
she sustained an “injury-in-fact”; and second, that the interests he or she seeks to
be protected are within the zone of interests to be protected.°'

The injury in fact element is detailed as follows:

(1) the plaintiff must have suffered an injury in fact- an invasion of a legally
protected interest which is (a) concrete and particularized and (b) actual or
imminent, not conjectural or hypothetical; (2) there must be a causal connection
between the injury and the conduct complained of- the injury has to be fairly
traceable to the challenged action of the defendant and not the result of the
independent action of some third party not before the court; and (3) it must be
likely, as opposed to merely speculative, that the injury will bc redressed b}, a
favorable decision.92

 

2003)

9°Stuart Kingston, Inc. v. Robinson, 596 A.2d 1378, 1382 (Del. 1991).

9‘D0ver Historl`cal Soc. v. City of Dover 'Planm'ng Com ’n, 835 A.2d 1103, f 1 10 (Del.

9210’., quoting Socz'ely Hill Towers Owners’Ass 'n v. Rendell, 210 l§