Virginia Energy Regulatory Update (March 2021)

Below is our firm’s summary of notable energy regulatory activity at the Virginia State Corporation Commission (“SCC” or “Commission”) during March, 2021. During the last month, among other activity, Dominion Energy Virginia (“Dominion”) filed an application for a 2021 triennial review of rates and earnings; Appalachian Power Company (“APCo”) filed a petition for an increase to its transmission rates; and the SCC Staff and interested parties analyzed Dominion’s proposal to recover costs associated with the Regional Greenhouse Gas Initiative. The SCC also promulgated new net metering regulations to account for 2020 legislative amendments.

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:

  • Dominion files application for 2021 triennial review of rates and earnings – Case No. PUR-2021-00058

On March 31, Dominion filed its 2021 triennial review of base rates and earnings. This triennial review consists of an evaluation of Dominion’s earnings during 2017, 2018, 2019, and 2020. (Beginning in 2024, Dominion’s triennial review will be conducted every three years.) The SCC will evaluate Dominion’s reported earnings during these years to determine whether the utility earned above or below its authorized rate of return of 9.2%. If the SCC finds that Dominion earned a certain amount above this level, the SCC could require Dominion to issue refunds to customers.

Dominion claims that it earned only a small amount – approximately $37 million – above its authorized return during the review period. Dominion proposes to offset a portion of this overearnings amount – $26 million – by using the “Customer Credit Reinvestment Offset” mechanism in the Code. The offset mechanism allows Dominion to pay for certain renewable energy or grid transformation expenses by using overearnings amounts that otherwise would be refunded to customers. Dominion proposes to use the offset mechanism to pay for a portion of its offshore wind demonstration project. In its application, Dominion also requests a going-forward increase to its authorized rate of return. Dominion requests a rate of return on common equity (“ROE”) of 10.8%. This higher ROE, if granted, would be applied to Dominion’s rate adjustment clauses. The higher ROE would also be used to measure Dominion’s earnings in the 2024 triennial review. In November, the SCC authorized a 9.2% ROE for Appalachian Power Company.

During the case, the SCC Staff and interested parties will closely scrutinize Dominion’s filing, including the company’s proposed accounting for expenses during the review period. The SCC has not yet established a hearing schedule for this case. Based on the statutory timeline, the SCC must issue a final order no later than November 30, 2021.

  • SCC Staff files direct testimony regarding Virginia Natural Gas request for $49 million rate increase – Case No. PUR-2020-00095

On June 1, Virginia Natural Gas (“VNG”) filed a request for a base rate increase. VNG is requesting an increase to its total revenues of approximately $49 million. VNG asserts that the proposed rate increase is necessary due to increased operational expenses and investments in safety and efficiency. The increased revenue requirement also reflects a higher rate of return on common equity (“ROE”). VNG is requesting that the SCC authorize an ROE of 10.35% due to the current “highly volatile capital markets.” VNG has retained the same ROE expert witness and economic consulting firm used by Dominion Energy in recent rate proceedings. VNG’s requested rate increase, if approved, would increase the monthly bill of a typical residential customer using 597 CCF per month by $11.20.

On March 31, the SCC filed its direct testimony. After making several adjustments to VNG’s projected costs of service, Staff recommends a base rate increase of approximately $28 million. Staff also opposes VNG’s recommended capital structure and ROE request. Staff recommends that the Commission authorize an going-forward ROE of 8.8%. The Commission will hold an evidentiary hearing on May 11.

  • Dominion files updated fuel mix and emissions data for calendar year 2020 – Case No. PUE-2008-00061

On March 29, Dominion filed its annual report with the SCC regarding the utility’s fuel mix and emissions for 2020. All electric suppliers in Virginia, including incumbent utilities, must disclose their fuel mix and emissions information annually. During 2020, Dominion reported that its fuel mix consisted of 48.1% natural gas, 31.7% nuclear, 8.6% coal, and 1.3% renewable generation. The utility also reported 7% market purchases and approximately 3.1% of its energy coming from the Bath County pumped storage facility. As compared to its 2019 report, Dominion’s 2020 report indicates an increase in natural gas generation and a decrease in market purchases of energy.

  • SCC approves adjustment to Appalachian Power’s fuel cost recovery rider – Case No. PUR-2020-00163

On March 3, the SCC approved Appalachian Power’s request to revise its fuel recovery rider, called the “fuel factor.” Virginia law allows APCo to recover its actual fuel costs (including purchased power expenses) on a dollar-for-dollar basis, with no rate of return applied. The Company proposes to reduce the current factor of 2.300 cents per kWh to 1.999 cents per kWh. The SCC’s order allows the new rate to become effective (subject to true up) for service provided between November 1, 2020, through October 31, 2021.

APCo cited several market factors affecting its fuel expenses, including the reduced dispatch of its coal generating units during the first half of 2020. The utility explained that, “due to the recent changes in market conditions, the Company’s coal-fired electricity generating units were not being selected in the PJM market or not being dispatched to maximum loads as frequently.” The fuel rider adjustment would decrease the monthly bill of a residential customer using 1,000 kWh of electricity by $3.01, or approximately 2.8%. Separately, the utility is seeking a $65 million increase to total revenues in Case No. PUR-2020-00015.

In its order approving the revised fuel rider, the Commission noted that “approval of [the] fuel factor herein does not represent ultimate approval of the Company’s actual fuel expenses.” The Commission noted that APCo’s actual fuel expenses are subject to audit by the SCC Staff each year and that “the Commission subsequently determines what are, in fact, reasonable, prudent and, therefore, allowable fuel expenses.”

Renewable energy, efficiency, and new energy infrastructure:

  • SCC directs Dominion to justify its proposed minimum bill proposal for new shared solar program – Case No. PUR-2020-00125

On July 1, the SCC established two shared solar proceedings 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. After reviewing comments from interested parties, the SCC published its final regulations in both dockets on December 23. The final rules included provisions regarding the maximum size of eligible facilities, rules governing the registration process for subscriber organizations, and procedures and deadlines for the full rollout of the program and customer enrollment.

On March 1, Dominion filed a proposal to establish the 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 March 18, the SCC entered an order directing Dominion to file more information to justify its proposed minimum bill. The SCC directed Dominion to justify its proposed administrative costs, delivery charges, and to provide the methodologies used to develop those costs.

  • SCC promulgates updated net metering regulations – Case No. PUR-2020-00195

On March 5, the SCC entered an order adopting several changes to the existing regulations for net metered generation facilities, including customer-owned solar facilities. The regulatory changes were necessary to conform the regulations to the net metering statute, as revised by 2020 HB 572 (the “Solar Freedom Bill.”) Among other changes, the revised regulations expand the maximum allowable size of net metering facilities and limit the applicability of standby by charges for residential solar systems.

  • Virginia Natural Gas withdraws application for new pipeline facilities – Case No. PUR-2020-00283

On December 14, 2020, Virginia Natural Gas (“VNG”), filed an application with the Commission requesting approval to construct new natural gas facilities under the Virginia Utility Facilities Act. VNG asserted that the new facilities are necessary to provide additional gas to its wholesale customers, including Columbia Gas of Virginia and Virginia Power Services Energy (a fuel purchasing subsidiary of Dominion Energy). The new facilities would have included 9.7 miles of new pipeline in Fauquier and Prince William Counties in order to connect with the existing Transcontinental Pipeline system. The application also requested approval to construct a new compressor station in Prince William County. VNG estimated that the capital costs of the project to be $205.6 million.

On March 18, VNG filed a motion to withdraw its application. The motion states that VNG “was recently notified of a change in the request for incremental capacity by one of the Project’s transportation customers, which results in the Project no longer being needed as proposed.” In its initial application, VNG asserted that the proposed facilities were necessary in order to maintain reliable service in eastern and northern Virginia.

  • SCC publishes procedural schedule for review of Appalachian Power transmission rate increase request – Case No. PUR-2020-00018

On March 5, Appalachian Power filed a petition to increase its transmission rate adjustment clause (“RAC”). The utility’s transmission RAC recovers the costs of FERC-approved charges and costs assessed by the PJM regional transmission organization. APCo requests a $122 million increase to its transmission RAC. The utility asserts that the increase is necessary due to increases in costs assessed by PJM and a decline in projected energy sales. APCo also states that it is no longer recovering a portion of its transmission costs through base rates.

APCo estimates that the increase would raise the monthly bill of a residential customer using 1,000 kWh by $11.52. The SCC will hold an evidentiary hearing on the application on April 26.

  • Parties file direct testimony regarding Dominion’s proposed rate adjustment clause for RGGI 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.

On March 2, two parties – Appalachian Voices and the Attorney General’s Office – filed expert witness testimony regarding the proposal. The expert witness for Appalachian Voices claims that Dominion’s RGGI allowance procurement strategy is flawed, which could result in Dominion significantly over-procuring RGGI allowances. Dominion proposes to apply its general rate of return of 9.2% to any 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. An evidentiary hearing on the application will be held on April 28, 2021.