Virginia Energy Regulatory Update (March 2020)

Please see our summary below of notable energy regulatory activity at the Virginia State Corporation Commission (“SCC” or “Commission”) during March, 2020. During the last month, among other activity, the SCC entered several orders related to the COVID-19 health emergency, including a temporary suspension of public utility disconnections for nonpayment; Appalachian Power Company (“APCo”) requested a $65 million base rate increase for its Virginia customers; Dominion Energy Virginia (“Dominion”) received approval to undertake several grid transformation projects; and the Commission established a new proceeding to review the impacts of electric vehicle (“EV”) deployment in the Commonwealth.

Please contact one of our energy regulatory attorneys, Will Reisinger or Matt Gooch, should you have any questions about these cases or Virginia’s energy market.

Keep up to date with the progress of regulatory activity and energy market developments in Virginia at ReisingerGooch.com.

COVID-19 emergency directives and logistical orders:

• SCC declares utility and telecommunications staff to be critical infrastructure workers – Case No. PUR-2020-00052

On March 23, the SCC issued an order stating that in order to “support the continued delivery of essential services in Virginia … service providers and their workers who are necessary to continue delivering electricity, gas, propane, water, and sewer services to customers, both residential and business, retail and wholesale, shall be certified as critical infrastructure industry workers.” Referencing state and federal declarations related to the COVID-19 health emergency, the order states that “the purpose of this certification is to enable critical infrastructure service providers to receive priority status to obtain resources necessary to continue uninterrupted delivery of vital services to their Virginia customers.” On March 24, the Commission expanded this order to include telecommunications workers. The order is in effect indefinitely pending further action by the SCC.

• SCC issues emergency order suspending disconnections during state of emergency – Case Nos. PUR-2020-00048 and PUR-2020-00049

On March 16, the SCC issued an order prohibiting utility disconnections for nonpayment for a 60-day period. The SCC’s order followed an emergency petition filed by the Attorney General on March 13. The Attorney General’s petition sought a suspension of utility disconnections and a waiver of all late fees. 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. The order does not, however, apply to municipal utilities, which are not subject to the SCC’s jurisdiction.

On March 27, several utilities filed responses to the Attorney General’s emergency petition. Dominion filed a response stating that it would suspend disconnections and late payment fees during Virginia’s State of Emergency. APCo noted that it had voluntarily suspended disconnections and “stands ready to implement any additional Commission directives in order to reasonably minimize hardships on its customers.” Columbia Gas of Virginia noted that it has suspended late payment charges through May 1. The Virginia Poverty Law Center (“VPLC”) also filed comments urging the Commission to consider further robust actions in light of the COVID-19 emergency, including extended repayment periods. VPLC noted that, even under a best-case scenario, “it may take months after the end of the public health risk for consumers to regain employment and the ability to pay down accumulated debt.”

• SCC requires electronic service during COVID-19 emergency – Case No. CLK-2020-00007

On April 1, the SCC entered an order requiring electronic service of all case documents, including pleadings and discovery requests, during the COVID-19 emergency. The order is in effect indefinitely, subject to future orders of the Commission.

Rate cases, oversight, and resource planning:

• SCC establishes procedural schedule regarding Dominion’s request to decrease its fuel recovery rider – PUR-2020-00031

Under Virginia law, Dominion’s fuel recovery rider – called the “fuel factor” – recovers the costs of traditional fuels such as coal and gas as well as the costs of power purchased from third-party generators. Fuel costs are pass-through expenses and recovered on a dollar-for-dollar basis, with no rate of return applied. Dominion proposes to reduce the current fuel factor by 0.589 cents/kWh. The current fuel factor is 2.325 cents/kWh and the proposed reduced fuel factor would be 1.7357 cents per kWh. This reduction would result in an annual fuel decrease of $392 million.

Dominion states that the reason for the reduction is forecasted declines in coal, gas, and purchased power costs. Another factor is that Dominion, for the first time, is forecasting that Virginia will join the Regional Greenhouse Gas Initiative (“RGGI”). Dominion states that “[the RGGI] carbon allowance is not directly recovered by the fuel rate, but is a factor in how the Company meets load demand and the ultimate costs incurred.” While RGGI costs are not built into the fuel rate, Dominion states that the carbon price will affect how fossil plants are dispatched and therefore how much coal and gas is required. The Commission will hold an evidentiary hearing on May 27. Interested parties may file notices of participation on or before May 20.

• SCC approves decrease to APCo’s fuel recovery rider – Case No. PUR-2019-00157

In September, 2019, APCo formally requested to decrease its fuel recovery rider from 2.547 cents per kWh to 2.300 cents per kWh. This decrease will result in a 2.6% ($2.81) decrease to the total bill of a residential customer using 1,000 kWh per month. This reduction “reflects an expected reduction in the average fuel cost for coal-fired generation, gas-fired generation, and market purchases compared to the current period.” APCo forecasts that during the coming year, 82% of its energy supply will be provided by fossil fuels, including coal (67%) and natural gas (15%). The SCC held an evidentiary hearing on February 13. No party objected to APCo’s proposal at the hearing. On March 5, the SCC approved the decrease requested by APCo. The new rate will be effective through October 31, 2020.

• Appalachian Power requests 6.5% rate increase, approval of new tariff options, in first triennial review filing – 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 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 of associated with the retirement of several coal units. APCo’s decision to book these expenses in December of 2019 significantly reduced its reported earnings.  

In order to increase its revenues, APCo proposes a $65 million base rate increase, which would increase residential customer rates by approximately 6.5%. APCo’s filing also proposes several new rate schedules, including a time-of-use (“TOU”) option for customers with installed smart meters. Under this TOU rate, participating customers would pay reduced rates for energy usage during high-demand hours.

The SCC has not yet established a procedural schedule for this case. Per the statutory timeline, the SCC must hold and evidentiary hearing and enter a final order on or before November 30, 2020.

• SCC grants Dominion request for waiver of Integrated Resource Planning (“IRP”) requirements due to new legislation – Case No. PUR-2020-00035

On March 24, Dominion filed a motion for a waiver of certain IRP modeling requirements. In particular, Dominion asked for permission to avoid modeling new nuclear, coal, and natural gas resources as well as costs of the federal Clean Power Plan. Dominion noted that it is no longer pursuing a new nuclear reactor and that new coal and gas generation is not viable. Dominion argued that “significant build-out of natural gas generation facilities is not currently viable” in light of the new legislation. Dominion’s last IRP, filed in 2018, included 8-10 new combustion turbine and combined cycle facilities under various planning scenarios. Dominion also requested leave to use both sides of the paper for all filings in this docket. The Commission approved Dominion’s motion on March 26.

Earlier in March, the SCC had directed Dominion to include several specific calculations and estimates in its forthcoming IRP filing. Among other requirements, the SCC directed Dominion to include an estimate of all rate increases associated with the Clean Economy Act legislation recently passed by the General Assembly. The SCC also directed Dominion to include a “least cost plan,” which would assume that Dominion was not required to comply with the new requirements of the legislation. Dominion’s 2020 IRP must be filed on or before May 1. In Virginia, an IRP represents a utility’s plan for meeting its load obligations over the next 15 years. An IRP, however, is not a commitment to pursue any particular course of action. Per the IRP statute, the SCC must evaluate the plan and determine whether it is reasonable and in the public interest. Dominion must file its 2020 IRP on or before May 1.

Renewable energy, efficiency, and new energy infrastructure:

• SCC establishes new proceeding to review matters related to electric vehicle deployment – 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. Interested parties may file comments on or before June 23. A public hearing is scheduled for July 8. The Commission approved an EV pilot program proposed by Dominion, which included incentives to support fast charging infrastructure, in Case No. PUR-2019-00154.

• SCC approves parts and rejects parts of 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.

In its final order, the SCC approved several pilot programs, including incentives for electric vehicle charging. The Commission also approved portions of Dominion’s proposed “grid hardening” investments, including replacing mainfeeder lines. The SCC, however, rejected Dominion’s “self-healing grid” proposal, which was opposed by the Attorney General and SCC Staff. The SCC also rejected spending on advanced metering infrastructure (“AMI”), including smart meter deployment, citing prior testimony from the Sierra Club. The Commission stated that AMI deployment is cost effective only if the utility has a concrete plan to utilize the new technology, such as by implementing time-of-use (“TOU”) rate structures. In December, Dominion filed an application to implement a TOU rate for up to 10,000 customers on an experimental basis. In a footnote, the SCC questioned whether Dominion would be permitted as a matter of law to implement TOU rate structures without first having a true base rate proceeding.

• SCC approves Appalachian Power’s request for broadband pilot program – Case No. PUR-2019-00145

On September 6, Appalachian Power (“APCo”) filed a petition requesting permission to provide broadband service in Grayson County, Virginia. 2019 legislation, codified in Va. Code § 56-585.1:9, authorizes APCo to offer broadband services in areas without a broadband provider. APCo provides two different scenarios, with annual costs between $1.5 and $2.5 million. APCo states that the program will benefit its customers because it will use the fiber infrastructure to improve the quality and reliability of electric service in Grayson County and provide a communications platform for grid improvements, including installation of advanced metering infrastructure. The broadband service costs could be recovered through APCo’s base rates or a rate adjustment clause for “grid transformation” investments; however, the statute prevents APCo from recovering broadband service costs before July 1, 2020.

An evidentiary hearing was held on January 24, and on January 31 the Hearing Examiner recommend approval of the pilot program, subject to certain reporting requirements. On March 5, the SCC approved APCo’s application for a three-year term. While the SCC did not approve cost recovery as part of this application, APCo will be permitted to defer costs with the expectation that it may request cost recovery after July 1, 2020.

• Dominion files annual report regarding fuel source for 2019 – Case No. PUE-2008-00061

On March 24, Dominion filed its annual fuel source mix describing the generation mix from its power plants. The fuel source mix for 2019 was: natural gas (42.2%), nuclear (30.5%), coal (7.9%), renewable (1.2%), oil (0.1%); Other Hydro/Pumped Storage (0.9%); and power purchases from various sources (17.2%). The 2019 data indicates a greater reliance on natural gas as compared to coal and a marginal increase in renewable generation. For comparison, Dominion’s fuel source mix in 2015 included nuclear (30%); coal (26%); natural gas (24%); power purchases (17%); oil (1%); and Hydro/Biomass/Other (2%).

• Environmental group files testimony criticizing Dominion’s proposed experimental TOU rate proposal – Case No. PUR-2019-00214

On December 12, Dominion filed an application for approval of a time-of-use (“TOU”) rate schedule under which participating customers would be charged higher rates during on-peak hours, and lower rates during “off peak” and “super off peak” hours. Dominion states that time-varying rates “can provide more accurate price signals to customers that are better aligned with cost causation than standard rates and that, through improved price signals, such rate structure can incentivize behavioral changes in customers taking service under time-varying rates.” Under Dominion’s proposal, residential TOU customers would be charged the same basic customer charge as non-TOU customers and would pay all applicable transmission, distribution, and rider charges based on their usage. Dominion states that the TOU rate schedule would only be available to customers who have smart meters installed. Dominion proposes to limit the TOU rate schedule to 10,000 customers.

Under Dominion’s TOU proposal, customers would be charged higher rates during summer on-peak hours (weekdays from 3pm-5pm) and significantly lower rates during off-peak and “super off-peak” hours. During non-summer on-peak hours (weekdays from 6am-9am and 5pm-8pm) customers would be charged a rate of 9.6 cents per kWh. During non-summer non-peak hours (weekdays from 5am-6am, 9am-5pm, 8pm-12am, and weekends/holidays from 5am-12am), customers would pay a rate of 2.6 cents per kWh. During non-summer “super off-peak” hours (all days between 12am and 5am), customers would pay a rate of 2.28 cents per kWh.

On March 31, an environmental organization, Appalachian Voices, filed direct testimony criticizing several aspects of the proposal and requesting that Dominion be directed to re-file the application. In particular, the group argued that Dominion does not have adequate plans for evaluating the successes of the program, including whether customers reduced demand during peak periods and customers. Appalachian Voices argued that customers should be able to see, in real time, how their energy usage decisions affect electric bills. The Commission will hold an evidentiary hearing on May 5.

• Rappahannock Electric Cooperative requests suspension of procedural schedule for proposed 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.

On March 17, REC filed a request to suspend the procedural schedule for this case. REC states that, “[a]fter discussions with the Staff of the Commission, REC has determined that it should further investigate the technology protocols of electric vehicle chargers to ascertain which protocols will be compatible with the Cooperative’s Customer Information System, Advanced Metering Infrastructure, and Meter-Data Management systems.” REC proposes to file additional testimony after investigating the issues raised by the Commission Staff.

• SCC Staff files testimony regarding Dominion energy efficiency application – 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 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.

On March 20, several parties filed direct testimony, including the Virginia Energy Efficiency Council (“VAEEC”), Appalachian Voices, and Walmart. VAEEC’s witness recommended approval of all proposed programs, noting that the new are “particularly beneficial as they expand the number of opportunities for energy savings for different end users and customer classes.” Appalachian Voices recommended that Dominion should be directed to expand its multi-family efficiency programs and also develop a “strategic plan” for achieving the General Assembly’s efficiency objectives between 2021 and 2028. Walmart’s witness expressed concerns about the terms and conditions of the proposed programs, including the potential disclosure of commercially sensitive energy usage information.

On March 27, the SCC Staff filed direct testimony. Staff does not oppose approval of the new programs, but notes several concerns with the savings estimates used by Dominion. Staff notes that all of the proposed programs appear to be cost effective (as defined by the statute), with the exception of one low-income program proposed pursuant to 2019 HB 2789. Dominion will file rebuttal testimony on April 10. The evidentiary hearing is scheduled for April 29.

Competition and markets:

• Direct Energy seeks ruling to ensure that Dominion processes new shopping customer enrollments – Case No. PUR-2020-00044

Direct Energy, a competitive service provider (“CSP”) filed a petition for a declaratory judgment affirming the rights of customers to enroll with CSPs. In particular, Direct Energy requests that the SCC rule that if a customer has begun the enrollment process, that customer will still be able to take service under the retail access statute even if Dominion receives approval to offer a 100% renewable energy tariff. Dominion’s application for a 100% renewable energy tariff is currently pending before the Commission. This tariff, if approved, would eliminate the right to shop under the renewable provision of the retail access statute, Va. Code § 56-577 A 5. On March 13, the SCC docketed the petition and assigned a hearing examiner to handle the case. A procedural schedule has not yet been set.

Natural gas rates and infrastructure:

• SCC Staff files direct testimony 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.  On March 31, the SCC Staff filed its direct testimony. Staff recommended that the SCC condition approval on the requirement that VNG hold its customers harmless from any financial loss due to a default by C4GT or if the C4GT project is not built. Staff also recommended that the SCC cap the costs that could be allocated to captive ratepayers.

A public hearing will be held on May 12, 2020. Members of the public may file public comments on or before April 28.