Virginia Energy Regulatory Update (August 2021)

Below is our firm’s summary of notable energy regulatory activity at the Virginia State Corporation Commission (“SCC” or “Commission”) during August, 2021. During the last month, among other activity, Dominion Energy Virginia (“Dominion”) filed a request for a new rate adjustment clause to recover grid transformation costs; the SCC established a procedural schedule to review new electric vehicle charging tariffs; and the Commission denied cost recovery for certain proposed environmental projects at two Appalachian Power (“APCo”) coal plants.

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:

• Dominion files petition for new rate adjustment clause for grid transformation costs – Case No. PUR-2021-00083

On August 13, Dominion filed a petition requesting approval to recover the costs of its grid transformation investments through a new rate adjustment clause (“RAC”). The RAC would recover the costs of previously approved projects through a new rider. The Commission approved prior grid transformation proposals in 2018 and 2020. The SCC has not previously authorized RAC recovery for these project costs, however. Dominion notes that 8 of the 10 previously approved projects are “progressing in line with the overall budgetary plan within the Commission-approved cost caps.” Two approved projects – physical security and microgrid projects – are projected to exceed the SCC-approved budgets by about $6 million. Dominion asserts that these investments are still prudent and that the additional costs should be recoverable from customers. Dominion is currently seeking approval of new grid transformation projects in Case No. PUR-2021-00127.

The total revenue requirement for the first rate year of the proposed RAC is approximately $55.5 million. The new RAC, if approved, would increase the monthly bill of a residential customer using 1,000 kWh by $1.17. The SCC has not yet established a procedural schedule for this case.

• SCC approves updated transmission cost recovery rider for Dominion – Case No. PUR-2021-00102

On August 16, the SCC approved an updated transmission rate adjustment clause for Dominion, designated Rider T1. Virginia Code Section 56-585.1 A 4 authorizes Dominion and Appalachian Power to recover some of its transmission costs through RACs as opposed to through base rates. Dominion’s transmission costs include charges billed by PJM Interconnection for transmission services. The SCC authorized Dominion to recover approximately $381 million of its total transmission costs through Rider T1 between September 1, 2021, and August 31, 2022. The SCC found that the revised RAC rate “would decrease the average weighted monthly bill of a residential customer using 1,000 kilowatt-hours per month by $3.69.”

In its final order, the Commission noted that, “[p]ursuant to the language of Subsection A 4, the costs that are the subject of this Application are ‘deemed reasonable and prudent,’ including the Company’s return on investment, which is set by FERC; the Commission is without discretion to add to or subtract from these costs.”

• SCC establishes new proceeding to consider RPS cost allocation issues for Dominion – Case No. PUR-2021-00156

On August 11, the SCC opened a new docket to consider several cost recovery issues associated with Dominion’s Virginia Clean Economy Act (“VCEA”) compliance costs. The VCEA provides that Dominion may recover certain costs necessary to comply with the VCEA’s renewable portfolio standard (“RPS”) through a rate adjustment clause. RPS costs can be recovered from all jurisdictional customers, except those customers that qualify for one of the exemptions set forth in the law. For example, customers participating in the percentage of income payment plan program and customers certified as “accelerated renewable energy buyers” may be exempt from some VCEA costs.

The Commission’s order states that because it did not resolve all cost recovery issues in prior VCEA proceedings, “a separate docket should be established for the consideration of certain VCEA-related cost allocation issues as they relate to Dominion.” The order also states that these issues “will not be considered as part of Case No. PUR-2021-00146, [Dominion’s] forthcoming 2021 RPS Plan proceeding.” The order directs Dominion to file a cost allocation proposal that is responsive to several questions on or before November 1, 2021.

• SCC approves extension of special rate contract between Dominion and Amazon Data Centers – Case No. PUR-2020-00271

On November 20, 2020, Dominion filed an application for approval to continue offering a special contract rate to one of its data center customers, Amazon Data Centers Inc. (“Amazon”). Dominion and Amazon propose to amend and extend a special rate contract that is scheduled to expire at the end of 2020. While public utilities are required to offer uniform rates to all customer classes, Virginia law (Va. Code § 56-235.2) permits the SCC to approve special rates and contracts in certain circumstances. The SCC may approve special rates to the extent it finds that the special rate is “in the public interest” and “will not unreasonably prejudice or disadvantage any customer or class of customers.”

Dominion’s application proposes to continue offering service to Amazon based on a market-based rate structure, which includes higher variable and lower fixed charges, and reflects PJM market prices. Dominion asserted that this structure will “assist [Amazon] and its corporate affiliates in financially integrating renewable energy into its energy portfolio.” An evidentiary hearing was held on June 30, 2021. No party opposed the extension. The SCC approved Dominion’s application on August 6.

• SCC approves updated environmental cost rider for Appalachian Power; denies cost recovery for certain proposed investments at two 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 West Virginia coal plants. APCo requested cost recovery for retrofitting coal ash ponds at the Company’s Amos and Mountaineer Plants as well as operations and maintenance costs related to compliance with other federal Clean Water Act requirements. In particular, APCo requests cost recovery for investments needed to comply with the EPA’s coal combustion residuals (“CCR”) and effluent limitations guidelines (“ELG”) regulations. The CCR and ELG rules involve the handling of coal waste material and wastewater discharges from coal plants. The utility proposed to invest approximately $250 million in order for both facilities to comply with the CCR and ELG regulations. 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 APCo’s proposal with regard to the proposed ELG compliance investments. The Attorney General’s expert testimony asserts that APCo’s cost-benefit analysis is flawed and 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. Likewise, Sierra Club’s testimony urged the SCC to approve only the CCR investments, which would allow the facilities to operate until 2028. Sierra Club argued that ratepayers would benefit if both facilities were retired in 2028, instead of 2040 as proposed by the utility.

An evidentiary hearing was held on June 23, and the Commission entered a final order on August 23. The Commission rejected APCo’s proposal to recover ELG costs at the two plants, holding that “[APCo] has not met its burden of proving the reasonableness and prudence of the proposed ELG investment costs, including those previously incurred.” The SCC authorized a rate year revenue requirement of $27.4 million. APCo’s application, including the proposed ELG investments, requested a total revenue requirement of $31.6 million.

• SCC approves cost recovery rider for RGGI compliance costs; allows recovery of rate of return on allowance 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.

The Commission held an evidentiary hearing on April 28 and parties filed post-hearing briefs on May 19. Appalachian Voices argued that Dominion’s RGGI allowance procurement strategy is fundamentally flawed, and could result in Dominion significantly over-procuring RGGI allowances. Appalachian Voices argued that Dominion should have performed an analysis of alternative scenarios, such as retiring underperforming coal plants. Both Appalachian Voices and the Attorney General’s Office criticized Dominion’s proposal 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.

The Commission approved Dominion’s application on August 4. The Commission’s order permits Dominion to recover financing costs associated with RGGI allowances, rejecting arguments made by consumer advocates. Commissioner Jagdmann filed a concurring opinion raising certain policy concerns associated with the RGGI statute. The opinion noted that Virginia law requires utilities to comply with RGGI and with a mandatory renewable portfolio standard. Commissioner Jagdmann’s opinion questioned “[the] need for two separate and distinct modes for achieving carbon reduction.”

Renewable energy, efficiency, and new energy infrastructure:

• Interested parties file comments regarding hearing examiner’s report and recommendation in Dominion efficiency docket – Case No. PUR-2020-00274

On December 2, 2020, Dominion Energy Virginia filed a petition for approval to continue recovering the costs of several previously-approved energy efficiency programs and for authority to implement eleven new programs. The eleven proposed programs include residential, low-income, agricultural, and business efficiency measures. Dominion also includes a proposal intended to provide access to low-cost solar energy for low-income customers. Dominion proposes to recover the costs of the current and proposed programs through four energy efficiency rate adjustment clauses. Dominion asserts that ten of the eleven the proposed programs are “in the public interest,” as defined by Virginia law. Dominion asserts that the final proposal, a low-income solar measure, is specifically encouraged by 2019 legislation.

On July 20, the hearing examiner assigned to this case filed a report recommending approval of the eleven proposed programs. The examiner also recommended that Dominion, in its next DSM update filing, should file a long-term efficiency plan that includes anticipated savings levels and program budgets for a five-year period. Interested parties filed comments regarding the hearing examiner’s report on August 10. While no party opposed approval of the proposed programs, Dominion and several interested parties filed comments and proposed clarifications. The SCC Staff reiterated its concerns with Dominion’s proposed EM&V methodology.

• SCC publishes draft regulations regarding certification of accelerated renewable energy buyers – Case No. PUR-2021-00089

On August 25, the SCC published draft regulations regarding the certification of accelerated renewable buyers (“ARBs”). Under the Virginia Clean Economy Act (“VCEA”), customers certified as ARBs are exempt from some or all of the utility’s VCEA compliance costs. Customers eligible for ARB certification include Dominion and Appalachian Power customers with over 25 megawatts of load during the prior calendar year that enter into eligible agreements to purchase renewable energy certificates (“RECs”). The law exempts ARBs from some of the utility’s VCEA compliance costs in recognition of the fact that these customers have already made voluntary renewable energy investments. The RECs purchased by ARBs also reduce the utility’s annual renewable energy procurement obligations. Virginia Code Section 56-585.5 G is the VCEA’s ARB provision, which provides the general elibility requirements for ARB certification.

The draft regulations proposed by the SCC Staff include procedures for customers to obtain certification as ARBs. The SCC’s order allows interested parties to file comments on the draft regulations, and/or request a hearing, by November 5.

• SCC publishes procedural schedule for review of five new electric vehicle charging tariffs – Case No. PUR-2021-000151

On July 23, Dominion filed an application for approval of five new electric vehicle (“EV”) charging tariffs. Three of the tariffs are intended to be used by residential and commercial customers who charge EVs at their home or business. The other two tariffs would establish rates charged by Dominion at utility-owned public charging facilities. Dominion states that it “does not currently own or operate any charging stations available to the public, but the Company intends to provide this service in the future to fill any identified gaps in charging availability, such as on secondary highways or in disadvantaged communities.” Dominion’s application states that “as of December 31, 2020, there were approximately 25,500 EVs registered in Virginia, approximately 76% of which were registered in the Company’s service territory.” Dominion’s application also notes that the General Assembly has declared that investments in EV infrastructure are “in the public interest.”

The application is filed under Virginia Code Section 56-234. This Code section permits the SCC to approve voluntary or experimental rate options that are found to be in the public interest. The Commission published an order for notice and comment on August 17. November 4 is the deadline for interested parties to file notices of participation, comments, and/or request an evidentiary hearing.

• SCC establishes new docket for receipt of Dominion offshore wind filing – Case No. PUR-2021-00142

On July 26, the SCC opened a new docket in order to receive a future application by Dominion to construct and operate a wind facility off the coast of the Commonwealth. The SCC’s order cites a Dominion press release in which the company announced its intent to seek regulatory approval for a 2.6 gigawatt offshore wind facility in 2021. The SCC’s order includes an attachment with a number of questions that Dominion should address in its future filing. Among other questions, the SCC asked Dominion to provide the total estimated cost of the facility and associated transmission investments, including the projected total lifetime revenue requirements. The order also directed Dominion to explain the ownership structure of the offshore wind project and whether Dominion would own 100% of the equity in the facility.

There is no timeline associated with this case. Dominion has not yet made any offshore wind filing with the SCC.