Virginia Energy Regulatory Update (June 2021)

Below is our firm’s summary of notable energy regulatory activity at the Virginia State Corporation Commission (“SCC” or “Commission”) during June, 2021. During the last month, among other activity, Dominion Energy Virginia (“Dominion”) filed a new Grid Transformation Plan with emphasis on accommodating more distributed resources and electric vehicles, and the SCC approved Dominion’s request to increase its fuel recovery rider, called the “fuel factor.” Meanwhile, Dominion filed a request to increase a separate rate rider in order to continue to operate its coal facility in Wise County, Virginia.    

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 approves rate increase for Dominion fuel costs – Case No. PUR-2021-00097

On March 13, Dominion filed an application to update its fuel cost recovery rider, called the “fuel factor.” Pursuant to Virginia law (Code Section 56-249.6), Dominion is permitted to recover its prudently incurred fuel costs through the fuel factor. Dominion is entitled to dollar-for-dollar recovery of its fuel costs, with no rate of return applied. Purchased power costs are considered “fuel” under the fuel factor statute.

Dominion is requesting a 0.34270/kWh increase from the fuel factor currently in effect. This increase results in an annual fuel increase of approximately $244.1 million. The bill increase for a residential customer using 1,000 kWh per month would be $3.43, or 2.9%. Dominion states that the fuel cost increase is attributable to several factors, including higher natural gas and purchased power costs. The SCC Staff filed direct testimony on June 15. Staff found Dominion’s projected fuel expenses and its analysis of the energy market to be reasonable. No party to the case opposed Dominion’s application. The SCC approved Dominion’s requested increase on June 29. The increase will be effective for electricity usage after July 1.

  • Dominion files application to update rate adjustment clause for Virginia City coal facility – 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 utility’s newest coal plant, the Virginia City facility, would result in a negative ratepayer value of $472 million over the next 10 years.

On June 28, the SCC established a procedural schedule for reviewing Dominion’s application. An evidentiary hearing will be held on December 15. Interested parties may intervene in this case by filing a notice of participation on or before September 14.

Renewable energy, efficiency, and new energy infrastructure:

  • Dominion files 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 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.

  • Parties file post-hearing briefs regarding Appalachian Power request for approval of new energy efficiency programs – Case No. PUR-2020-00251

On November 30, Appalachian Power Company (“APCo”) filed a petition for authority to continue recovering the costs of several previously-approved energy efficiency programs and for authority to implement several new programs. The new programs include a Residential Home Energy Report program, which is intended to give customers greater awareness of their energy usage; a Residential Efficiency Products Program, providing incentives for the installation of efficiency appliances; a Residential Efficiency Kit program, which will provide customers with energy-saving products that they can self-install; a Residential Home Audit Program, encouraging home energy audits; and a Business Energy Solutions program to encourage lighting and non-lighting efficiency measures.

APCo proposes to recover the costs of the current and proposed programs through its existing energy efficiency rate adjustment clause, Rider EE. The company proposes to recover a total revenue requirement of $16.5 million during the 2021 rate year. If approved, the company’s application would result in a monthly bill increase of $0.39 for a residential customer using 1,000 kilowatt-hours per month. APCo asserts that each of the proposed programs are “in the public interest,” as defined by Virginia law. A 2018 law requires APCo to propose at least $140 million of energy efficiency programs by 2028.

The SCC held a hearing on APCo’s application on May 19. The parties filed post-hearing briefs on June 14. The SCC Staff and the Attorney General questioned APCo’s decision to include an incentive program for replacement pool pumps. The Attorney General noted that “while lighting and the other kinds of appliances included in the proposed program are common across the entire residential customer base, private pools are an amenity held by relatively fewer customers.” Both the Attorney General and Staff also questioned APCo’s voltage management proposal. In particular, Staff requested the utility to provide more information to help the Commission determine whether voltage management programs are properly categorized as “energy efficiency” or “grid transformation” investments.

  • Dominion files application to expand its distribution undergrounding program and to update the cost recovery rider – SCC Case No. PUR-2021-00110

On June 8, Dominion filed an application to continue its distribution undergrounding program and to update the rate adjustment clause for recovering such costs. The application adjusts the revenue requirement for the RAC going forward. Dominion also requests that the SCC authorize the undergrounding of an additional 295 miles of lines, which the utility calls “outage prone.” These lines provide direct service to approximately 14,000 customers. The total capital costs of the new programs would be approximately $173 million. Dominion requests that its general rate of return of 9.2% be applied to the proposed investments. Dominion’s proposal would result in a $0.39 per month bill increase for a typical residential customer using 1,000 kWh in a month. 

The Code of Virginia contains language that deems undergrounding investments to be “reasonable and prudent,” provided they fall within certain cost parameters identified in the statute. An evidentiary hearing is scheduled for January 19, 2022.

  • Hearing Examiner recommends approval of RGGI cost recovery rider; recommends that Dominion be allowed to recover a rate of return on RGGI 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.

On June 3, the Hearing Examiner assigned to the case filed his report and recommendation. The examiner recommended that the SCC approve a total revenue requirement of approximately $168 million. The examiner also agreed that Dominion is entitled to recover a rate of return on the allowance costs, which equate to approximately $5 million during the first year of the rider. The examiner noted that Dominion must finance the cost of the allowances and found that Code Section 56-585.1 A 5 e does not limit cost recovery only to the “sticker price” of RGGI allowances. The Hearing Examiner’s report is not binding on the Commission. The SCC can approve or reject the Hearing Examiner’s findings and recommendations.  

  • Interested parties evaluate proposed measurement and verification procedures for Dominion’s energy efficiency programs – Case No. PUR-2020-00156

On August 28, the SCC opened a new docket to establish a standard set of procedures to measure energy savings from new energy efficiency and demand-side management (“DSM”) programs. The order states that “the true test of any DSM program is whether it is the proximate cause of a verifiable reduction in energy usage.” The Commission also noted that the measurement and verification of energy savings “presented in the Company’s annual DSM filings routinely has been a disputed issue among the case participants.” In Dominion’s most recent energy efficiency portfolio proceeding, several parties urged the SCC to open this docket. The SCC’s final order in that docket, Case No. PUR-2019-00201, agreed, finding that “more rigorous evaluation, measurement, and verification is necessary to ensure that the programs are, in actual practice, the proximate cause of a verifiable reduction in energy usage.”

The SCC directed Dominion to make an initial filing including its proposed measurement and verification procedures. Dominion was also directed to propose a sample “dashboard” for reporting annual and lifetime savings for particular programs. Dominion filed its proposal on November 6. The proposal includes a report from its EM&V vendor that provides calculations and describes Dominion’s approach to calculating energy savings from particular programs.

On April 13, the SCC Staff filed direct testimony, including recommendations for Dominion’s future EM&V and reporting procedures. Staff stressed the importance of rigorous EM&V, noting that the VCEA allows Dominion to earn a margin on program costs, provided the utility exceeds the savings targets in the Code. Dominion filed its rebuttal testimony on May 4. In its testimony, Dominion attempts to respond to the recommendations from the SCC Staff and intervening parties. Dominion’s testimony includes a proposed DSM dashboard. Dominion also comments on the metrics that it does not believe should be included in an annual EM&V report. An evidentiary hearing was held on May 25, and the parties filed post-hearing briefs on June 22.