Virginia Energy Regulatory Update (April 2021)

Below is our firm’s summary of notable energy regulatory activity at the Virginia State Corporation Commission (“SCC” or “Commission”) during April, 2021. During the last month, among other activity, the SCC approved Dominion Energy’s (“Dominion”) and Appalachian Power Company’s (“APCo”) renewable portfolio standard (“RPS”) compliance filings. The RPS filings were made pursuant to the 2020 Virginia Clean Economy Act (“VCEA”). The SCC also approved Dominion’s proposals to acquire almost 500 megawatts (“MW”) of new solar generation located in Virginia. Additionally, the SCC published a procedural schedule to review Dominion’s 2021 triennial review application, which includes the utility’s request for an increased rate of return.

Finally, the Attorney General and other intervening parties filed direct testimony opposing APCo’s proposed rate increases for new environmental compliance costs, which would be necessary to keep two West Virginia coal plants running.

Please contact regulatory attorneys Will Reisinger or Matt Gooch should you have any questions about these cases or Virginia’s energy market. ReisingerGooch PLC provides regulatory and transactional counsel to clean energy businesses and public interest organizations.

Rate cases, oversight, and resource planning:

  • SCC sets hearing schedule for Dominion’s 2021 triennial review filing – Case No. PUR-2021-00058

On March 31, Dominion filed its 2021 triennial review of base rates and earnings. This triennial review consists of an evaluation of Dominion’s earnings during 2017, 2018, 2019, and 2020. Beginning in 2024, Dominion’s triennial review will be conducted every three years. The SCC will evaluate Dominion’s reported earnings during these years to determine whether the utility earned above or below its authorized rate of return of 9.2%. If the SCC finds that Dominion earned a certain amount above this level, the SCC could require Dominion to issue refunds to customers.

Dominion claims that it earned only a small amount above its authorized return during the review period. Dominion proposes to offset a portion of this overearnings amount – $26 million – by using the “Customer Credit Reinvestment Offset” mechanism in the Code. The offset mechanism allows Dominion to pay for certain renewable energy or grid transformation expenses by using overearnings amounts that otherwise would be refunded to customers. Dominion proposes to use the offset mechanism to pay for a portion of its offshore wind demonstration project. During the case, the SCC Staff and interested parties will closely scrutinize Dominion’s filing, including the company’s proposed accounting for expenses during the review period. Among other issues, the SCC and interested parties will examine Dominion’s proposal to treat almost $500 million of costs associated with coal facilities that retired early as a one-time expense during the review period.

Dominion also requests a going-forward increase to its authorized rate of return. Dominion requests a going forward rate of return on common equity (“ROE”) of 10.8%. This higher ROE, if granted, would be applied to Dominion’s rate adjustment clauses. The higher ROE would also be used to measure Dominion’s earnings in the 2024 triennial review.

The procedural order for this case states that the Commission will hear public witness testimony and opening statements on September 14, while the evidentiary portion of the hearing will begin on September 20. Interested parties may intervene by filing a notice of participation on or before June 23. Based on the statutory timeline, the SCC must issue a final order no later than November 30, 2021.

Renewable energy, efficiency, and new energy infrastructure:

On July 10, 2020, the SCC entered an order establishing two new dockets to evaluate plans by Dominion and APCo to comply with Virginia’s mandatory renewable portfolio standard (“RPS”) program. The Virginia Clean Economy Act, which became effective on July 1, established a mandatory RPS that applies to both utilities. The RPS requires Dominion and APCo to meet an increasing percentage of their electricity sales from clean energy resources. The VCEA also states that the utilities must procure a certain percentage of their energy requirements from facilities located in Virginia. Each filing includes proposals to add large amounts of new solar generation over the next decade. Dominion’s plan also requests approval to add almost 500 MW of new solar, including utility-owned and third-party-owned facilities.

The SCC held an evidentiary hearing to review APCo’s plan on February 3. A hearing on Dominion’s plan was held between February 17-23. Although no parties opposed Dominion’s request to add approximately 500MW of new solar to its portfolio, the SCC Staff and intervening parties litigated a number of issues. In both cases, several parties, including environmental advocates and the solar industry, argued that the utilities should be required to consider unbundled REC purchases as part of future RPS compliance. The solar industry also urged the Commission to require the utilities to consider larger deployments of Virginia distributed solar generation as part of its RPS compliance strategy.

The SCC published its final order in both dockets on April 30. The SCC found each RPS plan to be “reasonable and prudent,” but imposed several conditions on future RPS filings. In particular, the SCC will require the utilities to evaluate larger deployments of distributed generation and unbundled REC purchases as part of its future RPS compliance. The SCC will require Dominion and APCo to file annual compliance documents demonstrating how each utility complied with the previous year’s RPS targets. The SCC also approved Dominion’s requests to construct or acquire several new solar facilities. The SCC, however, rejected a “performance guarantee” proposal by the SCC Staff. The performance guarantee would have required Dominion to hold customers financially harmless in the event its new solar facilities did not achieve the forecasted capacity factors.

  • SCC Staff files direct testimony regarding Dominion’s proposed RPS rate adjustment clause – Case No. PUR-2020-00170

On November 9, Dominion Energy Virginia (“Dominion”) filed a petition to establish a new rate adjustment clause (“RAC”) to recover costs necessary to comply with Virginia’s renewable portfolio standard (“RPS”) program. The 2020 Virginia Clean Economy Act established a mandatory RPS for both Dominion and Appalachian Power. The utilities must obtain an increasing percentage of their electricity sales from clean energy sources beginning in 2021.

The VCEA provides that each utility may request to recover RPS costs through a new RAC, which may be updated annually.

Dominion’s petition states that it will comply with its RPS obligations by retiring renewable energy certificates (“RECs”) generated at RPS-eligible resources, including company-owned and third-party-owned renewable generating facilities. Dominion’s first RAC filing includes an estimate of the costs necessary to comply with its 2021 obligations. Dominion proposes to recover approximately $13 million from its customers in 2021 through the RPS RAC. This would result in a monthly bill increase of $0.18 for a residential customer using 1,000 kilowatt-hours per month.

The SCC Staff filed direct testimony on April 9. The Staff does not take issue with Dominion’s calculations or its proposed $13 million revenue requirement.

  • Attorney General and Sierra Club file expert testimony opposing Appalachian Power’s proposed capital investments for continued operation of coal plants – Case No. PUR-2020-00258

On December 23, Appalachian Power (“APCo”) filed a request for approval of a revised rate adjustment clause to recover proposed environmental compliance expenditures at two coal plants. APCo is requesting cost recovery for the installation and retrofitting of coal ash ponds at the Company’s Amos and Mountaineer Plants as well as operations and maintenance costs related to compliance with Clean Water Act requirements. The utility proposes to invest approximately $250 million in capital expenses at the two coal facilities. APCo claims that the plants would be required to close if the coal ash ponds are not retrofitted. Both facilities are located in West Virginia. The Amos facility began operation in 1971, while the Mountaineer facility began operation in 1980.

On April 9, the Attorney General and Sierra Club filed expert testimony opposing portions of APCo’s proposal. The Attorney General’s expert testimony opposes the proposed $250 million capital improvements based on flaws in APCo’s cost-benefit analysis. The Attorney General’s expert also noted that APCo failed “to consider impacts of the Virginia Clean Economy Act and the risk of potential compliance cost increases due to future environmental regulations,” which may require the facilities to retire early. Sierra Club’s testimony urges the SCC to approve only the capital investments that would allow the facilities to run until 2028. Sierra Club argued that ratepayers would benefit if both facilities were retired in 2028, instead of 2040 as proposed by the utility.

If approved, the proposed RAC would increase the monthly bill of a residential customer using 1,000 kilowatt-hours per month by $2.50, or 2.4%, when compared to rates effective November 1, 2020. An evidentiary hearing is scheduled for June 23.

  • SCC Staff files direct testimony regarding proposed measurement and verification procedures for Dominion’s energy efficiency programs – Case No. PUR-2020-00156

On August 28, the SCC opened a new docket to establish a standard set of procedures to measure energy savings from new energy efficiency and demand-side management (“DSM”) programs. The order states that “the true test of any DSM program is whether it is the proximate cause of a verifiable reduction in energy usage.” The Commission also noted that the measurement and verification of energy savings “presented in the Company’s annual DSM filings routinely has been a disputed issue among the case participants.” In Dominion’s most recent energy efficiency portfolio proceeding, several parties urged the SCC to open this docket. The SCC’s final order in that docket, Case No. PUR-2019-00201, agreed, finding that “more rigorous evaluation, measurement, and verification is necessary to ensure that the programs are, in actual practice, the proximate cause of a verifiable reduction in energy usage.”

The SCC directed Dominion to make an initial filing including its proposed measurement and verification procedures. Dominion was also directed to propose a sample “dashboard” for reporting annual and lifetime savings for particular programs. Dominion filed its proposal on November 6. The proposal includes a report from its EM&V vendor that provides calculations and describes Dominion’s approach to calculating energy savings from particular programs.

On April 13, the SCC Staff filed direct testimony, including recommendations for Dominion’s future EM&V and reporting procedures. Staff stressed the importance of rigorous EM&V, noting that the VCEA allows Dominion to earn a margin on program costs, provided the utility exceeds the savings targets in the Code. Staff noted that this “additional margin of recovery further underscores the importance of accurate EM&V.” Staff also recommended that Dominion include more program information in its summary “dashboard.” An evidentiary hearing will be held on May 25, 2021.

  • Dominion responds to criticism from interested parties regarding proposed rate adjustment clause for RGGI costs – Case No. PUR-2020-00169

On November 9, Dominion filed a petition to establish a new rate adjustment clause to recover the costs associated with participation in the Regional Greenhouse Gas Initiative (“RGGI”). Pursuant to 2020 legislation, Virginia is now a full member of RGGI. RGGI imposes a cap on carbon emissions from generating facilities in Virginia. The initial cap of 27.1 million tons of carbon emissions declines to 19.6 million by 2030. RGGI requires power plant owners to purchase and hold “allowances” for each ton of carbon emitted. Virginia law allows Dominion and Appalachian Power to recover costs associated with participating in RGGI through new rate adjustment clauses. Dominion estimates that it will need to spend approximately $168 million to purchase allowances from the RGGI auction in 2021. Dominion’s proposed RGGI RAC would increase the monthly bill for a residential customer using 1,000 kilowatt-hours by $2.39.

On March 2, two parties – Appalachian Voices and the Attorney General’s Office – filed expert witness testimony regarding the proposal. The expert witness for Appalachian Voices claims that Dominion’s RGGI allowance procurement strategy is flawed, which could result in Dominion significantly over-procuring RGGI allowances. Dominion also proposes to apply its general rate of return of 9.2% to allowances that are banked, including excess allowances that are not needed for a particular year. The Attorney General’s witness opposed Dominion’s request to recover approximately $4.6 million in financing costs (or “carrying costs”) associated with the RGGI allowances. The Attorney General’s witness noted that Dominion should not recover any carrying costs because the rider mechanism is trued up on an annual basis, thereby ensuring that Dominion fully recovers its costs on a timely basis.

Dominion filed its rebuttal testimony on April 13. The company defended its cost recovery proposal, including its proposal to procure RGGI allowances on a quarterly basis and to bank any excess allowances for future years. An evidentiary hearing on the application was held on April 28.

  • Rappahannock Electric Cooperative proposes EV smart charging tariff – Case No. PUR-2020-00001

On April 27, the SCC published a procedural schedule for reviewing a voluntary electric vehicle (“EV”) charging tariff proposed by Rappahannock Electric Cooperative (“REC”). REC is Virginia’s largest electric cooperative, serving 170,000 customers in central and northern Virginia. REC is requesting approval of the EV charging tariff in order “to encourage off-peak electric vehicle charging.” REC states that the tariff would help the cooperative manage its related capacity costs, load factor, and the upward pressure on residential rates that could occur when charging is done during on-peak hours.

Customers participating in the tariff would receive a fixed monthly bill credit of $7.00 for the charging of electric vehicles during off-peak hours. REC states that it will use advanced metering infrastructure to ensure that EV’s are being charged primarily between the hours of 9pm and 5am. The utility, however, reserves the right to remove the customer from the program if the customer “habitually” charges his or her vehicle outside of these hours. Interested parties may file comments on the application, or request a hearing, on or before August 13.

  • Appalachian Power files annual report regarding participation in renewable energy tariff option – Case No. PUR-2017-00179

On April 30, Appalachian Power filed its annual report identifying the number of customers participating in its voluntary renewable energy tariff, Rider WWS (Rider “Wind, Water, and Sunlight”). At the end of 2020, 183 residential customers had subscribed to the program. APCo serves roughly 500,000 customers in western Virginia. The SCC approved Rider WWS in 2018 over the objections of environmental and renewable advocates who argued that the tariff was unjust and unreasonable. Under the tariff, customers pay a premium rate to purchase the renewable energy attributes from several renewable energy facilities that are already in the company’s generation portfolio. The SCC approved APCo’s filing in 2018, overruling the hearing examiner assigned to the case who found that the tariff was contrary to the public interest and should be rejected. Based on the terms of the retail access statute, by approving APCo’s tariff the SCC also blocked customers from purchasing 100% renewable energy products from other suppliers.