Please see our summary below of notable energy regulatory activity at the Virginia State Corporation Commission (“SCC” or “Commission”) during April, 2020. During the last month, among other activity, the SCC entered several orders related to the COVID-19 health emergency, including an extension of its order suspending public utility disconnections for nonpayment; the SCC established a procedural schedule for Appalachian Power Company’s (“APCo”) base rate case; Dominion Energy Virginia (“Dominion”) received approval to undertake several grid transformation projects; and the Commission held its first virtual evidentiary hearing using Skype.
Keep up to date with the progress of regulatory activity and energy market developments in Virginia at ReisingerGooch.com.
COVID-19 emergency directives and logistical orders:
- SCC extends and supplements its emergency order regarding disconnections during state of emergency – Case Nos. PUR-2020-00048 and PUR-2020-00049
On March 16, the SCC issued an order prohibiting utility disconnections for nonpayment for a 60-day period in light of the COVID-19 emergency. The SCC’s order followed an emergency petition filed by the Attorney General on March 13. The SCC’s order prohibits all regulated utilities –including over 60 electric, gas, water, and sewer companies – from terminating utility service for nonpayment. The order applies to all investor-owned and cooperative utilities. The order does not apply to municipal utilities, which are not subject to the SCC’s jurisdiction.
On April 9, the SCC extended this order for an additional 30 days, through June 14. The SCC’s April 9 order also waived late payment fees for any late payments that are due to the COVID-19 emergency. Finally, the SCC “urged” (but did not require) utilities to establish flexible payment plans, waive reconnection fees, and otherwise work with customers who had been disconnected before the COVID-19 state of emergency.
- SCC requires electronic service during COVID-19 emergency – Case No. CLK-2020-00007
On April 1, the SCC entered an order requiring electronic service of all case documents, including pleadings and discovery requests, during the COVID-19 emergency. The order is in effect indefinitely, subject to future orders of the Commission.
Rate cases, oversight, and resource planning:
- SCC establishes procedural schedule for review of Appalachian Power rate increase request – Case No. PUR-2020-00015
On March 31, APCo filed its initial application for a review of its base rates and earnings for calendar years 2017, 2018, and 2019. This is the first earnings review for APCo since 2014, and the first triennial review conducted under the 2018 Grid Transformation and Security Act. APCo argues that it underearned – or earned less than its authorized rate of return on common equity (“ROE”) – for the combined three-year test period. APCo claims that it earned ROEs of 11.36% in 2017, 9.84% in 2018, and 3.78% in 2019, for a total combined ROE of 8.24%. APCo’s authorized ROE is 9.4%. The lower ROE during 2019 is largely attributable to APCo’s decision to record, for accounting purposes, about $90 million of costs of associated with the retirement of several coal units. APCo’s decision to book these expenses in December of 2019 significantly reduced its reported earnings.
In order to increase its revenues, APCo proposes a $65 million base rate increase, which would increase residential customer rates by approximately 6.5%. APCo’s filing also proposes several new rate schedules, including a time-of-use (“TOU”) option for customers with installed smart meters. Under this TOU rate, participating customers would pay reduced rates for energy usage during high-demand hours.
The SCC entered a procedural order setting an evidentiary hearing will be held on September 14. Interested parties may intervene on or before June 23. The SCC’s procedural order also Per the statutory timeline, the SCC must hold and evidentiary hearing and enter a final order on or before November 30, 2020.
- Dominion files 2020 Integrated Resource Plan – Case No. PUR-2020-00035
On May 1, Dominion filed its 2020 Integrated Resource Plan (“IRP”). In Virginia, an IRP is not a commitment to build any particular resource, but represents a utility’s general plan for meeting customer demand over the next 15-year period. The IRP represents Dominion’s first attempt to comply with the Virginia Clean Economy Act (“VCEA”), which will go into effect on July 1. Per Virginia law, the SCC must review the plan and determine whether it is “reasonable” and “in the public interest.”
Dominion’s IRP includes four alternative plans – plans A, B, C, and D. Plan A represents a “least-cost” plan is for comparison purposes only. According to Dominion, Plans B and C represent the most viable pathways to comply with the requirements of the VCEA and the 2018 Grid Transformation and Security Act. Dominion’s preferred approach is Plan B. Each of the alternative plans (except for Plan A) include major investments in new renewable resources, including over 5,000 MW of offshore wind and between 32,000 and 40,000 MW of new solar resources during the extended 2020-2045 planning period. Dominion, however, cautions that the significant solar buildout could be challenging considering the amount of land required for utility scale facilities. Each alternative plan includes 970 MW of natural-gas facilities, which would be used as peaking resources. Dominion does not model combined renewable energy and battery storage facilities as an alternative to gas-fired generation. Plans B through D forecast net carbon reductions from the company’s generating fleet beginning sometime after 2025.
The IRP forecasts significant rate increases over the next decade under each alternative scenario. Dominion estimates that a typical residential customer will see a monthly rate increase of $46 – or 34% – between now and 2030. The IRP estimates that 40% of this increase is attributable to projects that are “incentivized or mandated” by legislation enacted in 2020. Dominion also forecasts continued economic growth in its service territory over the next decade, including annual increases in gross state product and per capita income of almost 2% and annual increases in peak energy usage of 1%. Dominion’s planning projections do not account for declining energy usage due to the COVID-19 recession, although Dominion notes that PJM is already forecasting lower future demand. Dominion also states that it is currently evaluating its future capacity procurement process in light of recent decisions by the Federal Energy Regulatory Commission. The SCC will hold an evidentiary hearing on October 27. Interested parties can intervene on or before August 4.
- SCC Staff files testimony regarding Dominion’s proposed experimental TOU rate proposal – Case No. PUR-2019-00214
On December 12, Dominion filed an application for approval of a time-of-use (“TOU”) rate schedule under which participating customers would be charged higher rates during on-peak hours, and lower rates during “off peak” and “super off peak” hours. Dominion states that time-varying rates “can provide more accurate price signals to customers that are better aligned with cost causation than standard rates and that, through improved price signals, such rate structure can incentivize behavioral changes in customers taking service under time-varying rates.” Under Dominion’s proposal, residential TOU customers would be charged the same basic customer charge as non-TOU customers and would pay all applicable transmission, distribution, and rider charges based on their usage. Dominion states that the TOU rate schedule would only be available to customers who have smart meters installed. Dominion proposes to limit the TOU rate schedule to 10,000 customers.
Under Dominion’s TOU proposal, customers would be charged higher rates during summer on-peak hours (weekdays from 3pm-5pm) and significantly lower rates during off-peak and “super off-peak” hours. During non-summer on-peak hours (weekdays from 6am-9am and 5pm-8pm) customers would be charged a rate of 9.6 cents per kWh. During non-summer non-peak hours (weekdays from 5am-6am, 9am-5pm, 8pm-12am, and weekends/holidays from 5am-12am), customers would pay a rate of 2.6 cents per kWh. During non-summer “super off-peak” hours (all days between 12am and 5am), customers would pay a rate of 2.28 cents per kWh.
On March 31, an environmental organization, Appalachian Voices, filed direct testimony criticizing several aspects of the proposal and requesting that Dominion be directed to re-file the application. In particular, the group argued that Dominion does not have adequate plans for evaluating the successes of the program, including whether customers reduced demand during peak periods and customers. Appalachian Voices argued that customers should be able to see, in real time, how their energy usage decisions affect electric bills. On April 7, the SCC Staff filed direct testimony. The Staff does not oppose approve of the TOU tariff, but expresses concerns that Dominion does not have a well-developed plan for measuring and verifying the energy savings and peak demand reduction from the tariff. The Commission will hold an evidentiary hearing on May 5.
- Appalachian Voices files expert testimony regarding Dominion’s fuel costs; argues that new pipeline capacity is not needed – PUR-2020-00031
Under Virginia law, Dominion’s fuel recovery rider – called the “fuel factor” – recovers the costs of traditional fuels such as coal and gas as well as the costs of power purchased from third-party generators. Fuel costs are pass-through expenses and recovered on a dollar-for-dollar basis, with no rate of return applied. Dominion proposes to reduce the current fuel factor by 0.589 cents/kWh. The current fuel factor is 2.325 cents/kWh and the proposed reduced fuel factor would be 1.7357 cents per kWh. This reduction would result in an annual fuel decrease of $392 million.
Dominion states that the reason for the reduction is forecasted declines in coal, gas, and purchased power costs. Another factor is that Dominion, for the first time, is forecasting that Virginia will join the Regional Greenhouse Gas Initiative (“RGGI”). Dominion states that “[the RGGI] carbon allowance is not directly recovered by the fuel rate, but is a factor in how the Company meets load demand and the ultimate costs incurred.” While RGGI costs are not built into the fuel rate, Dominion states that the carbon price will affect how fossil plants are dispatched and therefore how much coal and gas is required.
On April 30, Appalachian Voices filed expert witness testimony analyzing Dominion’s natural gas supply contracts. Appalachian Voices argues that, based on Dominion’s historic and forecasted gas supply needs, the company does not need the new pipeline capacity that would be provided by the Atlantic Coast Pipeline. Appalachian Voices, noting that Dominion’s pending Integrated Resource Plan contains no new baseload gas facilities, argues that the Atlantic Coast Pipeline would be unnecessarily costly and duplicative of existing supply contracts.
- SCC denies Dominion’s request for reconsideration regarding parts of proposed grid transformation plan – Case No. PUR-2019-00154
On September 30, Dominion filed a request for approval of an updated grid transformation spending plan. The plan proposes additional investments in several areas, including advanced metering infrastructure (“AMI”), cyber security, “grid hardening,” and customer data exchange platforms designed to facilitate new rate structures such as time-varying rates. Dominion also states that its grid hardening and grid technology spending will improve reliability while allowing the utility to incorporate more customer-owned solar generation and electric vehicle load. Dominion proposes to invest $600 million over the next three years, including $517 million in capital costs and $83 million in operations and maintenance expenses.
In its final order, the SCC approved several pilot programs, including incentives for electric vehicle charging. The Commission also approved portions of Dominion’s proposed “grid hardening” investments, including replacing mainfeeder lines. The SCC, however, rejected Dominion’s “self-healing grid” proposal, which was opposed by the Attorney General and SCC Staff. The SCC also rejected spending on advanced metering infrastructure (“AMI”). The Commission stated that AMI deployment is cost effective only if the utility has a concrete plan to utilize the new technology, such as by implementing time-of-use (“TOU”) rate structures. On April 14, Dominion filed a petition for reconsideration regarding the SCC’s rejection of proposed AMI and self-healing grid investments. Dominion claimed that the Commission’s to reject these to proposes is both “contrary to the evidence in the record” and contrary to the General Assembly’s policy goals. On April 26, the SCC entered an order denying Dominion’s request for reconsideration and reaffirming its final order.
- Roanoke Gas requests waiver of weather normalization charge in light of COVID-19 crisis – Case No. PUR-2020-00065
On April 13, Roanoke Gas Company (“Roanoke Gas”) requested SCC approval to delay charging customer for “weather normalization adjustments” (“WNA”). The WNA charge is designed to ensure that the utility recovers its full revenue requirement even during abnormal weather years. For Roanoke Gas, milder than usual winters have led to declining demand for natural gas heating in recent years, and thus less revenue for the utility. The WNA charge is typically applied between May and August. Roanoke Gas, however, requested permission to delay this charge until a later date in light of the COVID-19 crisis. The SCC granted Roanoke Gas’s request on April 14.
Renewable energy, efficiency, and new energy infrastructure:
- SCC holds evidentiary hearing (via Skype) regarding Dominion energy efficiency application – Case No. PUR-2019-00201
On December 3, Dominion filed a request for approval of eleven new energy efficiency and demand response initiatives and to continue several other programs. The new programs include incentives and rebates for residential EV charging infrastructure, home energy retrofits, multi-family housing efficiency assistance, and residential and small business efficiency kits. Dominion also requests approval to extend its AC cycling program. The new program spending would be recovered through an updated cost recovery rider. The program spending is expected to increase the monthly bill for a residential customer using 1,000 kWh per month by $0.34.
On March 20, several parties filed direct testimony, including the Virginia Energy Efficiency Council (“VAEEC”), Appalachian Voices, and Walmart. VAEEC’s witness recommended approval of all proposed programs, noting that the new are “particularly beneficial as they expand the number of opportunities for energy savings for different end users and customer classes.” Appalachian Voices recommended that Dominion should be directed to expand its multi-family efficiency programs and also develop a “strategic plan” for achieving the General Assembly’s efficiency objectives between 2021 and 2028. On March 27, the SCC Staff filed direct testimony. Staff does not oppose approval of the new programs, but notes several concerns with the savings estimates used by Dominion.
An evidentiary hearing was held via Skype on April 29 in which attorneys made opening statements and conducted limited cross examination of witnesses. The SCC Staff continued to question Dominion’s proposal for measuring and verifying energy savings, while VAEEC argued that Dominion must expand its proposed eligibility requirements for low-income programs in order to conform to the intent of new legislation. The parties will file post-hearing briefs on May 22.
Competition and markets:
- Hearing Examiner recommends approval of Dominion’s proposed green tariff – Case No. PUR-2019-00094
On November 21 and 22, the SCC held an evidentiary hearing regarding Dominion’s pending 100% renewable energy tariff, Rider TRG. Rider TRG customers would pay a premium of 0.421 cents per megawatt-hour to purchase the tariff’s renewable energy, which would increase a 1,000 kWh monthly bill by $4.21. The generation for Rider TRG would be sourced from solar, hydroelectric, and biomass generation facilities as well as from Dominion’s Virginia City coal plant. (Dominion estimates that the coal mixture burned at this plant will consist of 90% coal and 10% biomass wood waste by 2023.) If the SCC approves Rider TRG – and finds that it constitutes a 100% renewable energy tariff pursuant to Va. Code § 56-577 A 5 – Dominion customers would no longer have the option to purchase renewable generation from competitive suppliers.
On April 20, the Hearing Examiner assigned to the case entered a report recommending approval of the application. The Hearing Examiner found that Rider TRG satisfied the statutory standard to qualify as a “renewable energy tariff.” The Hearing Examiner also recommended that the Commission should approve the application with a six month “sunset provision,” meaning that Dominion must sign up at least 15,000 residential customers within six months in order to continue offering the tariff. The parties may file objections to the Hearing Examiner’s report and recommendations on or before May 11.
Natural gas rates and infrastructure:
- SCC Staff files direct testimony regarding Virginia Natural Gas request for approval for $345 million gas infrastructure project – Case No. PUR-2019-00207
On December 6, Virginia Natural Gas (“VNG”) filed a request for SCC approval to undertake $345 million in new infrastructure projects. The capital projects include new compressor stations and approximately 25 miles of pipeline facilities. VNG states that the infrastructure projects are necessary to serve a planned 1,040 MW combined cycle gas facility in Charles City County being constructed by an independent power producer, C4GT, LLC. VNG states that 94% of the infrastructure costs will be borne by C4GT. On March 31, the SCC Staff filed its direct testimony. Staff recommended that the SCC condition approval on the requirement that VNG hold its customers harmless from any financial loss due to a default by C4GT or if the C4GT project is not built. Staff also recommended that the SCC cap the costs that could be allocated to captive ratepayers. A public hearing will be held on May 12, 2020.