Virginia Energy Regulatory Update (July 2021)

Below is our firm’s summary of notable energy regulatory activity at the Virginia State Corporation Commission (“SCC” or “Commission”) during July, 2021. During the last month, among other activity, Dominion Energy Virginia (“Dominion”) filed requests to offer five new electric vehicle charging tariffs; the SCC opened a new proceeding to review an offshore wind filing from Dominion; and an SCC hearing examiner recommended that the Commission deny cost recovery for certain capital 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:

• SCC establishes procedural schedule for proposed increase to Dominion’s Wise County coal plant rate adjustment clause – Case No. PUR-2021-00114

On June 8, Dominion filed an application to update the rate rider, or rate adjustment clause (“RAC”), for the Virginia City coal plant in Wise County. The RAC recovers both capital and operations costs for the coal plant. The filings represent an adjustment, or “true up,” and proposes to reset the RAC revenue requirement going forward. Under Dominion’s proposal the RAC rate will increase a residential customer’s monthly bill by $0.09, based on 1,000 kWh usage. Dominion is also requesting a bonus ROE of 10.2%, reflecting the utility’s general rate of return of 9.2% plus a 1.0% bonus ROE authorized by Code Section 56-585.1 A 6. The Code authorizes Dominion to receive a bonus ROE for the first 12 years of the plant’s service life. The facility began commercial operation in 2012. (In 2013, the General Assembly eliminated ROE bonuses for most types of generation facilities.)

The rate rider for the Wise County facility represents the largest single generation charge on a typical customer bill. During Dominion’s most recent integrated resource planning case, both the Attorney General’s Office and environmental respondents questioned Dominion’s proposal to continue operating the Wise County plant. These parties noted the declining utilization rate of the facility. The Attorney General’s witness testified that the continued operation of the Virginia City facility, would result in a negative ratepayer value of $472 million over the next 10 years.

An evidentiary hearing on the application will be held on December 15. Interested parties may intervene in this case by filing a notice of participation on or before September 14.

• SCC hearing examiner recommends rejection of proposed capital investments at two Appalachian Power 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 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 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 proposes to invest approximately $250 million in order for both facilities to comply with the CCR and ELG regulations. If approved, the proposed rate rider would increase the monthly bill of a residential customer using 1,000 kilowatt-hours per month by $2.50, or 2.4%. 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. Following the hearing, on July 7, the hearing examiner assigned to the case filed a report and recommendation. The hearing examiner’s report agreed with the Attorney General and Sierra Club that it would not be prudent for the utility to spend money to bring the Amos and Mountaineer plants into compliance with the ELG rules. The examiner recommended that the SCC authorize only the proposed investments to comply with EPA’s CCR rules, which would allow the facilities to operate until 2028. The hearing examiner’s report and recommendation is advisory, but is not binding on the Commission. Based on the statutory timeline, the SCC must enter a final order by August 23, 2021.

Renewable energy, efficiency, and new energy infrastructure:

• Dominion files application for approval 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 and 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 rates that are found to be in the public interest. The SCC has not yet established a procedural schedule for this case.

• SCC hearing examiner recommends approval of new Dominion efficiency proposal – Case No. PUR-2020-00274

On December 2, Dominion Energy Virginia (“Dominion”) 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 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.

No party opposed the proposed programs. 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. The hearing examiner’s recommendation is not binding on the Commission. Parties to the case may file comments on, or objections to, the hearing examiner’s report on or before August 10.

• SCC sets hearing regarding Dominion’s minimum bill proposal for new shared solar program – Case No. PUR-2020-00125

On July 1, the SCC opened a shared solar docket for the purpose of implementing the shared solar programs established by 2020 legislation. The legislation requires 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.

Per a directive the from the Commission, on March 1 Dominion filed a proposal to establish a minimum bill charge for the shared solar program. Per the statute, the minimum bill is “an amount… that subscribers are required to, at a minimum, pay on their utility bill each month after accounting for any bill credits.” The minimum bill is intended to ensure that subscribers still pay their fair share of costs to maintain the electric distribution system. In its proposal, Dominion noted that “while the Program is intended to provide generation credits to offset some of the participating customers’ generation supply, the Program will not satisfy all of subscribers’ electric needs” and that subscribers “will still rely on utility services that carry considerable costs that all utility customers are required to pay.” On July 23, the SCC entered an order scheduling an evidentiary hearing to review the minimum bill proposal. The evidentiary hearing will be held on November 3. Interested parties may participate in the hearing process by filing a notice of participation by September 15. Intervening parties may also submit direct testimony and exhibits on or before October 3.

• 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.

• SCC sets hearing schedule for Dominion’s 2021 grid transformation plan – SCC Case No. PUR-2021-00127

On June 21, Dominion filed its 2021 grid transformation plan, designated “Phase II” of its 10-year grid transformation program. Dominion states that the primary focus of its 2021 grid plan “leans more heavily into facilitating the integration of [distributed energy resources or “DERs”], while continuing to address the reality that reliability and security are vital to the success of DERs.” Dominion notes that “industry developments in the past year alone will accelerate the proliferation of DERs, from the development targets for DERs set forth in the Virginia Clean Economy Act of 2020 (“VCEA”), to the market opportunities for DERs enabled by FERC Order 2222, to the myriad of commitments and incentives to speed the transition to electric vehicles.” Dominion projects that its distribution system must be able to handle an expected 170,000 electric vehicles in its service territory by 2030.

The 2021 grid transformation plan includes $670 million in proposed capital spending projects, including deployment of advanced metering infrastructure, new cyber and physical security measures, and infrastructure updates necessary to accommodate additional DERs. Dominion’s petition does not include an estimate of the monthly bill impact of its plan for residential customers. Virginia Code Section 56-585.1 A 6 allows Dominion to propose a grid transformation plan on an annual basis. The law also allows Dominion to recover grid transformation investments through a rate adjustment clause. Section 56-576 broadly defines “electric distribution grid transformation project” to include numerous investments designed to increase the capability and efficiency of the distribution system.

The SCC has scheduled an evidentiary hearing to review the filing on October 12. Interested parties may intervene in this case by filing a notice of participation on or before August 13.

• 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.”