Please see our summary below of notable energy regulatory activity at the Virginia State Corporation Commission (“SCC” or “Commission”) during January, 2020. During the last month, among other activity, the SCC held hearings regarding a major rate increase request by a southwest Virginia electric utility; the Commission approved a 100 MW solar project for Dominion; Dominion filed a request to implement several new energy efficiency programs; and Appalachian Power (“APCo”) issued a request for proposals for 200 MW of new solar resources.
Keep up to date with the progress of regulatory activity and energy market developments in Virginia at ReisingerGooch.com.
Rate cases, oversight, and resource planning:
- SCC holds evidentiary hearing regarding Kentucky Utilities’ rate increase request – Case No. PUR-2019-00060
Kentucky Utilities, doing business as Old Dominion Power (“KU/ODP”), is requesting a $12.7 million increase in revenues, which would increase a typical residential customer’s bill by 21.4%. KU/ODP is an investor-owned utility serving about 30,000 customers in Scott, Lee, and Wise Counties in southwest Virginia. KU/ODP says it needs a base rate increase due to increased environmental regulatory costs. The utility also says that lower electricity sales means it is not recovering its authorized rate of return. KU/ODP, unlike Dominion and Appalachian Power Company, is regulated under Chapter 10 of Title 56 of the Code of Virginia. Because KU/ODP is not subject to the ratemaking laws found in Chapter 23 of Title 56, the SCC is permitted to set the utility’s rates and its rate of return at levels the Commission finds to be just and reasonable. (Chapter 23 contains unique provisions limiting the SCC’s rate setting authority in several respects.)
On December 6, the SCC Staff filed its direct testimony. The Staff recommended that the SCC approve a much smaller rate increase of approximately $6 million per year. The Staff’s recommendation was primarily based on a lower rate of return on common equity (“ROE”) of 8.7%, whereas the utility’s rate increase request was based on a 10.5% ROE. The Staff also noted that in recent years KU/ODP has consistently overestimated its generation capital spending needs.
On January 16, the SCC Staff and KU/ODP entered into a proposed settlement under which KU/ODP would be allowed to increase rates by $9,000,000 and would be required to issue a rate credit of approximately $1 million due to savings from the federal tax legislation. The Attorney General’s Office and Appalachian Voices did not sign the stipulation but stated that they did not oppose it. The SCC held an evidentiary hearing on January 22 review the stipulation and to address other issues not covered by the stipulation.
- SCC approves Appalachian Power’s 2019 Integrated Resource Plan – Case No. PUR-2019-00058
On May 1, 2019, Appalachian Power Company (“APCo”) filed its first Integrated Resource Plan (“IRP”) since the enactment of 2018 Senate Bill 966, the Grid Transformation and Security Act. An IRP is not a commitment to pursue any particular resource or course of action, but represents a utility’s general plan for meeting customer demand over the next 15 years. The State Corporation Commission must review the utility’s IRP and determine whether the plan is “reasonable and in the public interest.” The IRP includes a Preferred Plan, which forecasts utility scale solar additions of 450 MW by 2023 and 1,500 MW by 2033.
The evidentiary hearing was held on November 5. All parties agreed to waive cross examination of all witnesses, and no party argued that the plan should be rejected. On January 28, the SCC approved APCo’s IRP, finding that it met all statutory requirements for approval. The SCC directed APCo, in its next IRP, to including a planning scenario assuming that the utility would have to achieve a 100% renewable energy by 2050. The SCC also required APCo to model solar coupled with battery storage as a stand-alone resource in its next IRP filing.
- Dominion files updated fuel procurement strategy – Case No. PUR-2019-00070
On January 31, Dominion filed its updated fuel procurement strategy. The fuel procurement strategy document describes the utility’s current and forecasted contracts for coal, gas, oil and purchased power. The document also describes Dominion’s current commodity price hedging activities and the utility’s commodity price outlook.
- Dominion requests approval of new environmental rate adjustment clause for coal ash pond remediation expenses – Case No. PUR-2020-00003
On January 8, Dominion applied for SCC approval of a rate adjustment clause (“RAC”) to recover new environmental compliance costs incurred at the Chesterfield and Bremo coal facilities. Under Code Section 56-585.1 A 5 e, Dominion and Appalachian Power are permitted to recover all “actual costs” incurred to comply with state and federal environmental mandates. Dominion says these investments were necessary to comply with the federal coal waste regulations and “in order to continue operating the coal-fired generating units at the Chesterfield and Bremo Power Stations. The expenditures generally relate to three coal ash pond construction projects, including closing two waste ponds. Dominion is requesting recovery of $104 million in capital expenditures, $88 million of which would be recovered during the rate year beginning in November 2020. The monthly bill impact of the new rider would be $0.26 for a residential customer using 1,000 kWh per month.
In 2019, Dominion was authorized to recover almost $300 million in environmental compliance costs associated with similar coal ash remediation projects at the Chesterfield, Mt. Storm and Clover coal facilities. The SCC disallowed $18.4 million of those costs, finding that they were not prudently incurred. The SCC has not yet established a procedural schedule for this case.
Renewable energy, efficiency, and advanced energy infrastructure:
- Dominion files request for approval of new energy efficiency projects – 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 total proposed spending for these programs is $185 million over approximately five years, or $235 million if Dominion seeks recovery for “lost revenues.” Under Virginia law, Dominion may request lost revenue recovery so that it will be compensated for the kilowatt-hours saved by the efficiency programs. To date, the SCC has not approved lost revenue recovery associated with any electric utility efficiency program. Dominion states that it is not seeking lost revenues in this proceeding, but is not waiving its request to recover lost revenues in future cases. The SCC’s final order in Dominion’s 2018 energy efficiency update case noted that “while we need not make a definitive ruling (on lost revenues) in this proceeding, there appears to be a good argument that any claim for lost revenues would be more appropriately considered in the context of a base-rate earnings review.”
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. The SCC will hold an evidentiary hearing on April 29.
- Rappahannock Electric Cooperative requests approval of EV Smart Charging Pilot Program – Case No. PUR-2020-00001
On January 2, Rappahannock Electric Cooperative (“REC”) filed a request for SCC approval of an experimental time-of-use (“TOU”) tariff designed to encourage off-peak electric vehicle (“EV”) charging. The pilot would be offered for two years, with a cap of 200 customers during the first year and 400 customers during the second year. REC’s filing notes that wholesale power expenses, including on-peak capacity costs, represent the largest component of its cost to serve customers. Capacity costs are significantly higher during on-peak hours.
Under REC’s proposal, participating customers would receive a bill credit of $0.04 for each kWh consumed from an installed EV charging device during off-peak hours. “Off-peak hours” would be 9pm-5am and 10am-2pm every day of the year. REC estimates that the program will have no adverse impacts on non-participating customers due to the fact that the utility will avoid expensive capacity purchases during on-peak hours.
Dominion has also requested approval of a TOU tariff in Case No. PUR-2019-00214. While not an EV tariff, Dominion’s rate schedule would offer lower per-kWh prices for customers that use energy during “of-peak” and “super off-peak” hours.
- SCC grants certificate for Dominion 100 MW solar facility despite finding that the facility is not needed to meet forecasted load growth – Case No. PUR-2019-00105
On July 23, Dominion filed a request for approval of a new 100 MW solar facility in Greensville County (the US-4 application). The estimated costs to construct the US-4 facility and related transmission assets is $146 million. Dominion’s application notes that utility-scale solar facilities are more cost effective, and provide greater customer benefits, than combined cycle gas facilities. The facility would utilize single-axis tracking technology, which results in higher capacity factors (i.e., generation performance) than fixed tilt solar arrays. The costs to construct the solar facility would be recovered through a rate adjustment clause, which would increase the monthly bill for a residential customer using 1,000 kWh by $0.17.
On October 22, the SCC Staff filed testimony stating that it “does not recommend approval” of the application as filed. Staff expressed concern that Dominion’s proposal to own and operate the facility (as opposed to purchasing the power via a power purchase agreement) places significant risks on customers. Staff argued that Dominion’s proposal “is not cost competitive with third-party solar PPAs that were available to Dominion.” Staff also argued that the 100 MW solar addition “is not needed as a capacity resource.”
On January 22, the Commission approved the facility. The SCC found that the facility was not needed to meet Dominion’s forecasted load growth. The Commission, however, approved the facility after finding that “while the US-4 Project is not needed to serve load growth in the short-term, the Project will assist the Company’s compliance with future carbon regulations.” The Commission also found that approval would support fuel diversity and advance the Commonwealth’s clean energy goals.
- SCC holds evidentiary hearing on Dominion’s updated 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.
The SCC held an evidentiary hearing on January 28-30. Several parties, including the SCC Staff, opposed various aspects of Dominion’s plan. In particular, the SCC Staff does not support approval of Dominion’s grid hardening, grid infrastructure, or telecommunications infrastructure spending proposals. Staff argued that it cannot verify the estimated reliability or other benefits associated with this spending. These programs account for roughly $210 million of the proposed capital investments. The Attorney General’s expert witness challenged many of the same proposed programs. The SCC Staff and the Attorney General took no position regarding Dominion’s proposal to install smart meters at all customer locations. Sierra Club and two electric vehicle charging companies participated in the case to support Dominion’s proposed smart charging infrastructure program. The parties will file post-hearing briefs on February 28. The SCC, per the statute, must enter a final order on or before March 30.
Competition and markets:
- SCC approves Dominion’s proposed market-based rate schedule on experimental basis – Case No PUR-2018-00192
On January 14, the SCC approved Dominion’s request for approval of a revised market-based rate (“MBR”) tariff. In its order granting approval, the Commission specified that the tariff would be approved on a three-year “experimental” basis. The MBR tariff is designed to allow customers the option to buy energy based on PJM wholesale market prices. Dominion says the revised tariff would be an attractive alternative to purchasing energy from competitive service providers (“CSPs”). Dominion states that the revised MBR tariff contains several improvements over the existing MBR tariff, approved in 2016, that will allow more customers to participate. The new tariff also contains features that could encourage customers to reduce energy usage during peak hours. The tariff is available to customers with peak demands at or above 5 MW who otherwise would be eligible to purchase energy from a CSP pursuant to Va. Code § 56-577 A 3.
Natural gas rates and infrastructure:
- SCC enters final order regarding Roanoke Gas rate increase request; allows utility to recover MVP-related costs – Case No. PUR-2018-00013
Roanoke Gas, a gas distribution company with 61,000 customers in western Virginia, is seeking a $10.5 million rate increase. One issue in dispute concerns the utility’s proposal to recover a portion of MVP-related costs from its general ratepayers. An affiliate of Roanoke Gas owns a 1% stake in the Mountain Valley Pipeline project. Roanoke Gas has already entered into a 20-year purchase agreement with MVP. During the case, the SCC Staff questioned the need for the capacity provided by the MVP, and Sierra Club argued that investments in new MVP-related infrastructure are imprudent. On January 24, the SCC entered a final approving a $7.5 million rate increase. The Commission rejected the arguments and concerns raised by the SCC Staff and Sierra Club.
- Appalachian Power issues RFP for up to 200 MW of solar capacity, including combined solar-storage facilities (RFP document available here)
On January 22, Appalachian Power Company (“APCo”) issued a request for proposals (“RFP”) for up to 200 MW of solar energy resources. APCo is seeking to acquire solar resources located in Virginia that may be interconnected to either APCo’s transmission or distribution system. APCo is accepting proposals for facilities as small as 10 MW in capacity. Proposals may include combined battery storage facilities, but APCo is not seeking stand-alone storage resources. The facilities must be capable of beginning commercial operation by December 15, 2022. The Grid Transformation and Security Act (2018 Senate Bill 966) requires APCo to construct or acquire at least 200 MW of solar energy resources by 2024.