Virginia Energy Regulatory Update (June 2020)

Please see our summary below of notable energy regulatory activity at the Virginia State Corporation Commission (“SCC” or “Commission”) during June, 2020. During the last month, among other activity, the SCC entered several orders regarding 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 SCC also extended the current moratorium on utility disconnections; solicited comments from interested parties regarding electric vehicle infrastructure programs; and ruled that pumped hydroelectric storage qualifies as “renewable energy” as that term is defined by Virginia law. Finally, a Commission hearing examiner recommended approval of several new energy efficiency programs proposed by Dominion Energy Virginia (“Dominion”).

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.

COVID-19 emergency directives and logistical orders:

• SCC extends moratorium on utility disconnections through August 31 – 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 June 14.

On May 26, the SCC requested comments regarding whether the moratorium should be extended. The Commission stated that the moratorium “is not sustainable” and could result in costs being “unfairly shifted to other customers.” The Commission’s order asked for comment regarding whether the current moratorium should be continued, and if so, for how long. The SCC received numerous comments, including comments from several hundred customers, most of Virginia’s electric utilities, the Attorney General, and 58 members of the General Assembly.

On June 12, the SCC entered an order extending the moratorium through August 31, which was consistent with the request of the legislators. The legislators and several commenters also noted that Virginia’s utility companies are not similarly situated and may not be similarly impacted by the COVID-19 pandemic. For example, some companies (such as Dominion Energy) are large investor-owned utilities that can raise capital from investors and typically retain earnings in excess of their fair rate of return. Some utilities are smaller, including member-owned cooperatives, and have limited access to external financing. For this reason, the legislators requested more information regarding the number of customers in arrears and the financial impacts to individual utilities.

Rate cases, oversight, and resource planning:

• Appalachian Power files motion to remove Sierra Club from base rate proceeding – 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, and the first triennial review conducted under the 2018 Grid Transformation and Security Act. 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 9.4%. The lower ROE during 2019 is largely attributable to APCo’s decision to record, for accounting purposes, about $90 million of costs associated with the retirement of several coal units. 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 June 4, APCo filed a motion objecting to the intervention filed by Sierra Club. APCo asserts that Sierra Club does not have a financial interest in the outcome of the case, but merely seeks to “acquire information it might use to advocate for the retirement of the Amos and Mitchell coal units.” APCo asserts that “Sierra Club’s opposition to coal plants is not exactly something the club keeps secret.” The Sierra Club filed a response on June 25. The Sierra Club noted that its members include APCo ratepayers and that the organization has long advocated for economic fairness in utility rates. Sierra Club also argued that the economics of APCo’s coal units – and the reasonableness of APCo’s decision to continue running them – is clearly relevant to the base rate proceeding.

• Dominion requests rate increase for additional distribution line undergrounding projects – PUR-2020-00096

On June 1, Dominion filed its annual rate adjustment clause (“RAC”) update filing for its distribution undergrounding program. The update filing requests approval to implement new undergrounding projects, designated “Phase Five.” The proposed Phase Five of the program is designed to convert 317 miles of overhead distribution tap lines to underground facilities at a capital investment of approximately $172 million. Dominion’s rider update also proposes to continue recovery for previously approved projects. Dominion estimates that the total monthly bill increase for a residential customer will be $0.74. An evidentiary hearing will be held on January 14, 2020.

The Commission rejected Dominion’s original undergrounding proposal in 2015, finding it to be unnecessary and not cost effective. Subsequently, the General Assembly passed legislation that requires the Commission to approve Dominion’s undergrounding spending requests, provided the projects fall within certain cost parameters prescribed by the legislation.

Renewable energy, efficiency, and new energy infrastructure:

• SCC establishes 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.”

The Commission’s order requests comments from interested parties, including utilities and storage developers, regarding how to implement the VCEA’s storage requirements. The SCC asked commenters to address several questions, including what interim targets should be established; whether the SCC should update its competitive procurement regulations; and whether the regulations should mandate or limit any particular type of storage facility or technology. The SCC also asked if the regulations should address non-utility-owned facilities. Comments must be filed on or before July 29.

• 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.

• SCC authorizes PPA registrations in KU/ODP service territory; declines to address legal arguments raised by utility – Case No. PUR-2020-00081

On May 26, Sigora Solar, a Virginia solar developer, filed a pleading requesting that the SCC enter an order authorizing pre-registrations for the renewable “pilot program” in the Kentucky Utilities service territory. Kentucky Utilities, doing business as Old Dominion Power (“KU/ODP”), serves about 30,000 customers in far southwest Virginia. Since 2013, Virginia law has authorized a renewable pilot program under which customers in Dominion’s service territory can purchase renewable energy via power purchase agreements (“PPAs”) from non-utility companies, provided the energy facilities are located on the customers’ property. Per the VCEA, the pilot program will be expanded in both APCo’s and KU/ODP’s service territory.

On June 4, KU/ODP filed a legal pleading that did not oppose Sigora’s motion, but made several legal arguments regarding the meaning of the VCEA legislation. In particular, KU/ODP argued that non-jurisdictional customers may not participate in the pilot program. Non-jurisdictional customers include state and local government entities, such as public schools, which don’t pay SCC-regulated rates. Instead, non-jurisdictional customers negotiate rate contracts directly with utilities.

On June 9, Sigora and Appalachian Voices filed pleadings opposing KU/ODP’s legal position that non-jurisdictional customers are ineligible for participation in the PPA program in KU/ODP’s service territory. On June 17 the SCC entered an order granting Sigora’s motion. The Commission will authorize pre-registrations in KU/ODP service territory. The SCC declined to rule on the legal arguments raised by KU/ODP, but stated that the utility could raise them in a future proceeding.

• Hearing Examiner recommends approval of Dominion energy efficiency application – 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. The parties filed post-hearing briefs on May 22. 

All respondents supported approval of the eleven new proposed programs. The Virginia Energy Efficiency Council, Appalachian Voices, and the Virginia Poverty Center all recommended that the SCC direct Dominion to develop a strategic plan to ensure the company is on track to meeting the efficiency targets enacted by the 2020 Virginia Clean Economy Act. On June 16, the hearing examiner assigned to case recommended approval of all of Dominion’s proposed programs. There is no deadline for the Commission to enter a final order.

• Interested parties file comments regarding electric vehicle deployment in Virginia – Case No. PUR-2020-00051

On March 24, the SCC established a proceeding to evaluate the effects of electric vehicle deployment in Virginia. The SCC’s order stated that the Commission “recognizes that the increased deployment of [electric vehicles] presents several issues that potentially could affect the affordability and reliability of electricity service delivered to consumers by regulated utilities.” The Commission invited interested parties to comment on several questions, including the anticipated growth of charging demand, the potential costs for customers, and whether new rate designs are needed to support EV deployment in Virginia.

On June 23, the SCC received comments from numerous utilities, charging companies, environmental organizations, and citizens supporting regulatory efforts to encourage EV adoption. Many commenters supported utility investments in EV infrastructure, such as make-ready rebates to support new public charging facilities. Several parties also recommended that the SCC impose rate design changes, such as time-varying rates or the elimination of demand charges, in order to support EV adoption. One of the few parties to oppose rate design changes to support EVs was the Virginia Propane Gas Association. The propane association noted that propane is a “federally designated alternative transportation fuel that reduces emissions and improves air quality.” The association stated that all propane fueling facilities are funded with private capital and argued that utility ratepayers should not subsidize the EV industry. The SCC will hold a telephonic public hearing on July 8 to receive additional comments from the public.

Competition and markets:

• SCC opens aggregation “pilot program” authorizing certain customers to purchase energy from non-utility customers – PUR-2020-00114

On June 9, the SCC entered an order opening an aggregation pilot program whereby certain customers may purchase electricity from non-utility companies. In Virginia, customers are permitted to purchase energy from competitive service providers (“CSPs”) only in a handful of circumstances. First, large industrial customers with over 5 megawatts of demand can purchase energy from CSPs instead of from their utility. Second, any customer can purchase 100% renewable energy from a CSP, so long as their utility doesn’t offer an approved 100% renewable energy tariff. And third, customers may request permission from the SCC to aggregate the demand from multiple accounts in order to get over the 5 megawatt threshold, which allows them to purchase energy from CSPs. Thus far, the SCC has denied most of these aggregation requests.

The new pilot program is being conducted under House Bill 889, passed in 2020. This bill requires the SCC to authorize a pilot program that allows Dominion customers that had previously requested SCC permission to aggregate to do so, subject to a total cap of 200 megawatts. The SCC’s order allows parties to file notices of intent to participate in the pilot program, which will become effective when the law goes into effect on July 1. Walmart filed a notice of intent to participate in the pilot program on June 12.

Natural gas rates and infrastructure:

• SCC enters preliminary order regarding Virginia Natural Gas request for approval for $345 million gas infrastructure project – Case No. PUR-2019-00207

On December 6, Virginia Natural Gas (“VNG”) filed a request for SCC approval to undertake $345 million in new infrastructure projects. The capital projects include new compressor stations and approximately 25 miles of pipeline facilities. VNG states that the infrastructure projects are necessary to serve a planned 1,040 MW combined cycle gas facility in Charles City County being constructed by an independent power producer, C4GT, LLC. VNG states that 94% of the infrastructure costs will be borne by C4GT. The need for the new projects has been questioned by the SCC Staff and environmental advocates, in large part because of uncertainty regarding when (and if) the C4GT facility will be constructed. An evidentiary hearing was held on May 12.

Several environmental groups, including Appalachian Voices and Sierra Club, opposed approval. The SCC Staff also argued that “VNG has not met its burden” for approval of the project. Staff noted that “the C4GT, the customer driving the need for the Project, has wavered in its commitment to the Project.” Staff also noted that VNG has “wavered in its initial assertion that this risk will be borne by its shareholders and not its ratepayers.”

On June 26, the SCC entered a “Preliminary Ruling,” which did not approve or reject the application. The SCC found that the VNG project “is not needed without [the C4GT plant].” The SCC noted the uncertainty regarding the construction of the project. The Commission’s ruling directs VNG to make a filing on or before December 31, 2020, demonstrating that the C4GT project has received all necessary financing and is moving forward. The SCC stated that this demonstration is a “condition precedent” to VNG receiving approval to begin its pipeline infrastructure project.