Virginia Energy Regulatory Update (July 2020)

Please see our summary below of notable energy regulatory activity at the Virginia State Corporation Commission (“SCC” or “Commission”) during July, 2020. During the last month, among other activity, renewable energy advocates and utilities filed comments in several proceedings related to the implementation 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. The Commission also approved eleven new energy efficiency programs proposed by Dominion Energy Virginia (“Dominion”), and the Virginia Attorney General’s Office filed expert testimony opposing Appalachian Power Company’s (“APCo”) request to increase its base rates. Finally, Commissioner Jehmal Hudson took the oath of office and began his term as the 36th SCC commissioner.

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:

  • Jehmal T. Hudson formally begins tenure as 36th SCC commissioner – Case No. CLK-2020-00002

On July 6, Jehmal T. Hudson began serving as the 36th commissioner of the State Corporation Commission. Commissioner Hudson was appointed to the position by Governor Northam. He previously held several positions at the Federal Energy Regulatory Commission. He was sworn into office by Justice Cleo Powell of the Virginia Supreme Court.

Rate cases, oversight, and resource planning:

  • Attorney General’s Office files testimony opposing 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. 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. APCo’s decision to book these expenses in December of 2019 significantly reduced its reported earnings. Accordingly, APCo claims that it underearned for the 2017-2019 review period and needs an increase in revenues. In order to increase its revenues, APCo proposes a $65 million base rate increase, which would increase residential customer rates by approximately 6.5%.

On July 30, several respondents filed expert witness testimony regarding APCo’s rate increase request. The Attorney General’s office filed testimony from an accounting expert who found that APCo earned an ROE of 11.12% during the three-year review period, well above the utility’s authorized return of 9.42%. The witness also rejected “APCo’s last minute earnings test adjustment [to expense the coal retirement costs in December 2019],” arguing that this adjustment “is not appropriate from an accounting perspective nor is it in the interest of APCo’s ratepayers.” The witness called the accounting gambit “unconscionable” and noted that “but for this extraordinary impairment write-off … [APCo] would be unable to justify its request to increase the rates paid by its customers.” Also on July 30, the Attorney General’s office filed a legal memorandum arguing that a new consumer protection law, HB 528, applies to this case. This law requires the SCC to amortize any retirement expenses incurred during the review period “in a manner that best serves ratepayers.” On July 27, the Virginia Poverty Law Center also filed a motion requesting the SCC to rule that the mandates contained in HB 528 apply to this case. APCo will file its rebuttal testimony on August 28. An evidentiary hearing will be held on September 14. Per the statutory timeline, the SCC must hold and evidentiary hearing and enter a final order on or before November 30, 2020.

  • Dominion and Appalachian Power propose universal service fee for Percentage of Income Payment Plan – Case Nos. PUR-2020-00109 and PUR-2020-00117

On June 11 the SCC directed Dominion and Appalachian Power (“APCo”) to file proposals to implement a new Percentage of Income Payment Plan (“PIPP”) program for low-income customers. The PIPP program, mandated by the 2020 Virginia Clean Economy Act, is intended to limit the electric utility payments “of persons or households participating in certain, specified public assistance programs, based upon a percentage of their income.” The legislation required the SCC to develop regulations to implement the program, including a “non-bypassable” universal service charge, paid by all utility customers not participating in the program. The universal charge is intended to fund the PIPP program.

On July 21, Dominion and APCo filed their initial PIPP plan proposals, including the estimated fees required to support the program. Dominion estimated that the PIPP program would require annual revenues of between $22 million and $93 million, depending on customer participation levels. This equates to a potential bill increase of between $0.27 and $1.13 per month for a typical residential customer not participating in the PIPP program and using 1,000 kWh per month. APCo estimated that its PIPP program would require annual revenues of $23 million, which equates to a $1.12 monthly charge for a typical residential customer using 1,000 kWh per month. Intervening parties may file direct testimony regarding the proposals on or before September 3. The SCC will hold an evidentiary hearing on October 14.

  • SCC approves increase in Dominion transmission rates – Case No. PUR-2020-00084

On July 17, the SCC authorized an increase to Dominion’s transmission rates. The SCC authorized a transmission revenue requirement of approximately $1 billion, which will be recovered in roughly equal parts through Dominion’s base rates and a rate adjustment clause. The new transmission rates will result in a $0.57 increase to the bills of residential customers using 1,000 kWh per month. The SCC emphasized that Virginia law requires the Commission to approve all Dominion’s transmission costs. Section 56-585.1 A 4 of the Code of Virginia generally authorizes Dominion to recover all transmission costs that it incurs as a member of PJM. For example, the Code provides that costs incurred to construct and operate transmission facilities that are under PJM’s control “shall be deemed reasonable and prudent.” Dominion is also permitted to recover all other fees assessed by PJM for transmission services. The final order noted that the SCC is “sensitive to the effects of rate increases, especially in times such as these [but] must follow the laws applicable to any rate case.” The SCC stated that “with the enactment of Subsection A 4, all of these costs are deemed just and reasonable, including the Company’s return on investment, which is set by FERC; the Commission is without discretion to add to or detract from these findings.”

As the SCC noted, Dominion’s transmission costs are based on a FERC-approved revenue requirement for the transmission facilities in the Dominion PJM zone. The FERC-approved revenue requirement incorporates a rate of return of 11.4%, which includes a 50 basis points (0.5%) adder for membership in PJM. By contrast, Dominion’s non-transmission assets receive Dominion’s general rate of return of 9.2% that is established by the SCC.

Renewable energy, efficiency, and new energy infrastructure:

On July 10, the SCC entered an order establishing two new dockets to evaluate plans by Dominion Energy (“Dominion”) and Appalachian Power (“APCo”) to comply with Virginia’s mandatory renewable portfolio standard (“RPS”) program. The Virginia Clean Economy Act (“VCEA”), 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 renewable resources. By 2045, 100% of Dominion’s energy sales must come from renewable resources, while APCo must reach 100% by 2050. The VCEA also states that the utilities must procure a certain percentage of their energy requirements from facilities located in Virginia. Section 56-585.5 D 4 of the VCEA requires Dominion and APCo to make annual filings that describe each utility’s plan to meet the RPS goals. The SCC must review the RPS plans and determine whether they are “reasonable,” in light of several criteria, including whether each utility’s plan will result in carbon emissions reductions and fuel savings.

The SCC’s order directs each utility to file their first RPS compliance plan on or before November 2. Dominion and APCo must provide information regarding the types of resources they intend to utilize and the estimated bill impacts associated with RPS compliance. The SCC has not yet entered a procedural schedule or invited public participation in these dockets.

  • Interested parties file comments 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 Energy Virginia (“Dominion”) and Appalachian Power Company (“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. There is currently no additional activity scheduled for this docket.

  • SCC approves new Dominion energy efficiency programs – Case No. PUR-2019-00201

On December 3, 2019, 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.

An evidentiary hearing was held via Skype on April 29 in which attorneys made opening statements and conducted limited cross examination of witnesses. All respondents supported approval of the eleven new proposed programs. On June 16, the hearing examiner assigned to case recommended approval of all of Dominion’s proposed programs, and on June 30 the parties filed comments regarding the Hearing Examiner’s report. On July 30, the SCC entered a final order approving all of the proposed new programs. The SCC found that almost all of the programs passed at least three of the four cost effectiveness tests identified in the Code of Virginia; therefore, by law they were deemed to be “in the public interest.” The SCC’s also stated that it will initiate a new case for the purpose of determining standard measurement and verification procedures. The SCC agreement with the environmental respondents that standardized procedures are necessary to evaluate the true value and effectiveness of various programs.

On July 1, the SCC established two shared solar proceedings for the purpose of implementing the shared solar programs established by 2020 legislation. The General Assembly recently passed legislation requiring the SCC to promulgate regulations allowing customers of Dominion to participate in a solar subscription program. This program will allow the customers (“subscribers”) to purchase the output from a solar facility or facilities up to 5 MW in size owned by a third party. The subscribers receive a proportional credit based on the output of their share of the solar facility. The General Assembly also passed legislation requiring the SCC to promulgate regulations for a solar program specifically designed for customers living in multi-family housing facilities. Customers of Dominion and Kentucky Utilities, d/b/a Old Dominion Power, are eligible to purchase solar energy under the multi-family program.

The SCC’s order requested comments regarding the design and administration of both programs. Several interested parties filed comments in both dockets on July 24. The Southern Environmental Law Center, the Department of Mines, Minerals, and Energy and the regional chapter of the Solar Energy Industries Association filed comments in both dockets. Several parties recommended additional proceedings, including a stakeholder process and evidentiary hearings, to implement both programs. Dominion will file its comments in both dockets on August 14; Kentucky Utilities filed comments in the multi-family shared solar docket on July 24.

Competition and markets:

  • Competitive supplier files notice of appeal of SCC order approving Dominion “green tariff” proposal – Case No. PUR-2019-00094

On July 2, the SCC approved Dominion’s 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 tariff includes the output from several solar and biomass facilities that are already in Dominion’s generation portfolio. Dominion originally proposed to include the biomass energy output from the company’s Virginia City Hybrid Energy Center. The SCC’s final order, with Dominion’s support, excluded this facility.

Dominion filed the final version of its tariff shortly after the SCC entered its final order. By operation of the statute, the market is now closed for customers who wish to enter into new agreements to purchase renewable energy from competitive suppliers. (Virginia Code § 56-577 A 5 provides that Dominion customers have the option to purchase renewable generation from competitive suppliers only so long as the utility does not offer an approved 100% renewable energy tariff.)

On July 28, Direct Energy, a competitive service provider, filed a notice of appeal of the SCC’s final order. In Virginia, all final orders of the Commission may be appealed to the Virginia Supreme Court. Direct Energy must file its assignments of error (or grounds for the appeal) at the Supreme Court within four months of the final order, or by November 2, 2020.

  • Dominion files notice of appeal of SCC finding that pumped hydroelectric storage generation qualifies as “renewable energy” – Case No. PUR-2020-00072

Constellation NewEnergy Inc. (“Constellation”), a competitive service provider (“CSP”), requested a judgment from the SCC that pumped storage generation qualifies as “renewable energy” under Va. Code § 56-576 and may serve as the basis for renewable energy contracts signed pursuant to Va. Code § 56-577 A 5. Code Section 56-577 A 5 allows CSPs to sell 100% renewable energy to retail customers of Dominion. The Code’s definition of renewable energy includes energy that is “derived from … falling water.” Dominion argued that pumped storage does not qualify as renewable energy because other sources of energy (whether renewable or non-renewable) are always necessary to pump the water to a higher point.

The SCC agreed with Constellation that energy generated from a pumped storage hydroelectric facility is renewable under the Code’s definition, “because it is derived from water that falls from a higher point to a lower point.” The SCC recognized that the Virginia Clean Economy Act changed the definition of renewable energy to exclude pumped storage. Therefore, after the law goes into effect on July 1, CSPs may not enter into new contracts to serve customers with pumped storage energy under Va. Code § 56-577 A 5. On June 29, Dominion and Collegiate Clean Energy, a landfill gas energy provider, both filed notices that they would appeal the decision to the Virginia Supreme Court. Appeals of SCC decisions are
“of right,” meaning that the Supreme Court must hear the case.