Virginia Energy Regulatory Update (August 2020)

Below is our summary of notable energy regulatory activity at the Virginia State Corporation Commission (“SCC” or “Commission”) during August, 2020. During the last month, among other activity, the SCC continued its efforts to implement the renewable energy and energy storage provisions of the Virginia Clean Economy Act (“VCEA”). The VCEA, which became effective on July 1, includes new mandates and incentives for electric utilities to construct solar, wind, and storage facilities. Interested parties filed proposed regulations to implement the VCEA’s storage provisions, and the SCC opened a new docket for the purpose of establishing procedures to measure and verify energy savings from new utility energy efficiency programs. The Commission Staff, the Attorney General, and other interested parties also continue to debate Appalachian Power Company’s (“APCo”) request to increase its base rates, a key issue being whether a new consumer protection law applies to this case. Finally, the Commission extended its moratorium on public utility disconnections in light of the COVID-19 pandemic, but indicated that it would not extend the moratorium beyond September 16.

Please contact regulatory attorneys Will Reisinger or Matt Gooch should you have any questions about these cases or Virginia’s energy market. ReisingerGooch PLC is a Richmond law firm providing regulatory and transactional counsel to clean energy companies and public interest organizations.

Administrative matters:

  • SCC extends moratorium on utility disconnections through September 16 – Case No. PUR-2020-00048

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 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. This order was later extended to be effective through August 31.

On August 24, the SCC extended the moratorium order again, to remain effective through September 16. The SCC stated that the extended time period will allow the General Assembly to enact legislation to help customers impacted by the pandemic. The SCC, however, indicated that it would not extend the moratorium beyond this date, noting that “[t]his Commission will, of course, follow any legislation the General Assembly enacts but cannot continue the moratorium indefinitely unless legislatively required to do so.”

Rate cases, oversight, and resource planning:

  • Appalachian Power files rebuttal testimony supporting $65 million rate increase request; Attorney General files pleading arguing that a new consumer protection law applies to the case – 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. 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 9.42%. The lower ROE during 2019 is largely attributable to APCo’s decision to record, for accounting purposes, about $90 million in early retirement costs for several coal units that were retired in 2015 and 2016. Accordingly, APCo claims that it underearned for the 2017-2019 review period and is entitled to an increase in revenues. APCo proposes a $65 million base rate increase, which would increase residential customer rates by approximately 6.5%. Several parties, including the SCC Staff and the Attorney General, filed testimony urging the Commission to deny APCo’s rate increase request.

On August 28, APCo filed rebuttal testimony objecting to the findings of the SCC Staff and the Attorney General’s Office. Staff recommended that the SCC deny APCo’s requested rate increase, while the Attorney General argued that APCo’s excessive earnings over the last three years actually require a rate decrease. APCo, in its rebuttal testimony, claims that the “rate reduction supported by the OAG [and] the lack of rate increase suggested by Staff … are, plain and simple, punitive.” APCo also suggests that if it does not receive a rate increase this year, the SCC will be “kicking the can down the road to an inevitable and likely larger rate increase” in 2023.

The parties continue to debate whether a new consumer protection law, HB 528, applies to this case. This law requires the SCC to amortize any coal plant retirement expenses incurred during the review period in a manner “that best serves ratepayers. On August 28, the Attorney General filed a legal pleading arguing that HB 528 applies to this case. The Attorney General’s pleading pointed out that APCo, in a case earlier this year, took an opposite legal position when the utility wanted a new law to apply to a pending case. For that reason, the Attorney General alleges that APCo is “estopped” from arguing that HB 528 does not apply in this case. An evidentiary hearing will be held on September 15. Per the statutory timeline, the SCC must hold and evidentiary hearing and enter a final order on or before November 30, 2020.

  • SCC holds oral argument regarding disputed confidential information in integrated resource plan case – Case No. PUR-2020-00035

On May 1, Dominion filed its 2020 Integrated Resource Plan (“IRP”). The IRP represents Dominion’s first attempt to comply with the Virginia Clean Economy Act (“VCEA”), which went 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.”

On July 24, the Attorney General’s Division of Consumer Counsel filed a motion seeking to declassify the net present value (“NPV”) estimates for various generation resources included in Dominion’s IRP. Dominion has objected to public disclosure of this information. Consumer Counsel’s motion explained that “a negative NPV [for a generation facility] means that the Company projects that its customers will incur a negative financial impact over the study period, or that its customers will pay more to receive future electrical power.” Consumer Counsel, therefore, argued that it is appropriate for this information to be public. Consumer Counsel also noted that, pursuant to Virginia law and SCC regulations, there is a strong “presumption” in favor of public disclosure of all information. Dominion, however, argued that disclosing the generation cost assumptions could harm it as it negotiates power contracts with third parties; Dominion claimed that such information could “show the Company’s hand.”

On August 20, the Hearing Examiner held a confidential oral argument regarding the motion. The parties will file direct testimony on September 15. An evidentiary hearing is scheduled for October 27.

Renewable energy, efficiency, and new energy infrastructure:

  • SCC opens proceeding regarding 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 “dashboard” for reporting savings and investments. Dominion is directed to make its initial filing on or before November 6. Interested parties will have the opportunity to file comments on Dominion’s proposal, and an evidentiary hearing will be held on May 25, 2021.

  • Interested parties file draft regulations in energy storage rulemaking proceeding – Case No. PUR-2020-00120

On June 29, 2020, the Virginia State Corporation Commission (“SCC” or “Commission”) established a new energy storage rulemaking proceeding for the purpose of implementing the requirements of the Virginia Clean Economy Act (“VCEA”). The VCEA, 2020 House Bill 1526, requires Virginia’s two largest utilities, Dominion and APCo, to construct or acquire a total of 3,100 MW of new storage resources between 2020 and 2035. The law requires Dominion to construct or acquire 2,700 MW of new storage resources, while APCo must construct or acquire 400 MW.

Section 56-585.5 E of the VCEA directs the Commission to “adopt regulations [necessary] to achieve the deployment of energy storage for the Commonwealth required in [the VCEA], including regulations that set interim targets and update existing utility planning and procurement rules.” The VCEA also directs the SCC to evaluate “programs and mechanisms to deploy energy storage, including competitive solicitations, behind-the-meter incentives, non-wires alternatives programs, and peak demand reduction programs.”

On July 29, numerous interested parties, including utilities, storage providers, and environmental organizations filed comments regarding how to implement the VCEA’s storage requirements. On August 14, several interested parties, including Dominion, solar advocates, and the Energy Storage Association, also filed draft regulations for the SCC’s consideration. There is currently no additional activity scheduled for this docket.

Competition and markets:

  • Competitive supplier files declaratory judgment action regarding retail access rights – Case No. PUR-2020-00162

On August 24, Direct Energy, a licensed competitive service provider (“CSP”), filed a petition for declaratory judgment regarding customer rights to access the competitive energy market. Direct requests the Commission to rule that “a customer under the same taxpayer identification number with an aggregate demand at or over 5 MW due to individual accounts at different sites with loads less than 5 MW, will be eligible to continue to purchase renewable supply from CSPs pursuant to Va. Code § 56-577 A 5.”

Virginia law allows customers to purchase energy from the competitive market in only a few situations. First, Code Section 56-577 A 5 allows all customers to purchase 100% renewable energy from competitive suppliers, but only if their utility does not offer an approved renewable energy tariff. Earlier this year, the Commission approved a 100% renewable energy tariff proposed by Dominion. This tariff, Rider TRG, is available to customers with total demand less than 5 MW. The law also allows larger customers, with demands greater than 5 MW, to purchase energy from CSPs. Direct Energy’s petition requests confirmation that customers with a combined demands over 5 MW are ineligible for Rider TRG and thus eligible to purchase from the competitive market.