Please see our summary below of key energy regulatory activity at the Virginia State Corporation Commission (“SCC” or “Commission”) during November, 2019. During the last month, the SCC approved Dominion Energy Virginia’s (“Dominion”) request to enter into a new solar power purchase agreement; heard argument regarding Appalachian Power’s 2019 integrated resource plan; and denied Dominion’s request to increase its rate of return on common equity. The SCC also held an evidentiary hearing regarding a controversial 100% renewable energy tariff proposed by Dominion, while interested parties weighed in on Dominion’s first utility-scale battery storage investments.
Keep up to date with the progress of regulatory activity and energy market developments in Virginia at ReisingerGooch.com.
(1) Rate cases, oversight, and resource planning:
- Hearing held regarding Appalachian Power’s 2019 Integrated Resource Plan – Case No. PUR-2019-00058
On May 1, 2019, Appalachian Power Company (“APCo”) filed its first Integrated Resource Plan (“IRP”) since the enactment of 2018 Senate Bill 966, the Grid Transformation and Security Act. An IRP is not a commitment to pursue any particular resource or course of action, but represents a utility’s general plan for meeting customer demand over the next 15 years. The State Corporation Commission must review the utility’s IRP and determine whether the plan is “reasonable and in the public interest.” The IRP includes a Preferred Plan, which forecasts utility scale solar additions of 450 MW by 2023 and 1,500 MW by 2033. APCo’s IRP, however, includes only 10 MW of battery storage over the entire planning period. A Virginia solar company filed testimony urging APCo to model solar plus storage technology in all future resource plans. APCo agreed to this recommendation.
The evidentiary hearing was held on November 5. All parties agreed to waive cross examination of all witnesses, and no party argued that the plan should be rejected. There is no deadline for the SCC to enter a final order.
- SCC denies Dominion’s request to increase its rate of return – Case No. PUR-2019-00050
On September 10 and 11, the SCC held an evidentiary hearing regarding Dominion’s request to increase its rate of return on common equity (“ROE”). Dominion requested an increase to its current ROE (i.e., the allowed shareholder profit level) by 17%, from the current 9.2% to 10.75%. The SCC Staff argued that Dominion’s proposed ROE was excessive. Instead, the Staff found that current market conditions would support a return of 8.6%. The SCC Staff calculated that the 155 basis points increase requested by Dominion would result in a $147 million increase to Dominion’s total revenue requirement (including both base rates and riders). The Attorney General’s expert witness testified that Dominion’s required return should be between 7.6% and 8.8%.
On November 21, the SCC entered a final order authorizing a 9.2% rate of return. The SCC’s order found that a range of 8.3%-9.3% would be reasonable based on current economic conditions, but decided to award a return at the top end of that range.
At the evidentiary hearing, Dominion asserted that the lowest “legally permissible” return that the SCC could authorize would be 9.38%. Dominion, by law, may appeal the SCC’s final order to the Virginia Supreme Court within 30 days of the final order.
- SCC affirms its decision denying recovery of expenditures at Dominion coal plants – Case No. PUR-2018-00195
In late 2018, Dominion applied for SCC approval for a RAC to recover the costs for new coal ash ponds and treatment facilities at three coal facilities. On August 5, the SCC entered a Final Order approving most of the request, but disallowing $18.4 million of investments made at Chesterfield Units 3 and 4. These coal units are now retired and are not being used to serve customers. The Commission noted that Dominion decided to make the disputed investments in June of 2015, recently after the Clean Power Plan carbon regulation was announced. Therefore, the Commission found, it was not reasonable to make continued investments in units that Dominion should have known would soon be retired.
In its decision, the SCC relied in part on Va. Code § 56-585.1 D. This statute provides that the SCC has the authority to determine the “reasonableness and prudence” of any cost sought to be recovered pursuant to a proceeding brought under Va. Code § 56-585.1, including environmental RAC proceedings. On August 23, Dominion filed a Petition for Reconsideration of this disallowance. Dominion claims that the SCC’s decision “is inconsistent with the historic application of any prudence standard and otherwise contrary to the principle of reasonable discretion being afforded to utility decision-making.”
On November 14, the SCC entered a final order denying Dominion’s petition for reconsideration. The Commission reaffirmed its decision that it was unreasonable for Dominion to make investments at Chesterfield Units 3 and 4. The also SCC pointed out that, although the AG and Sierra Club questioned the reasonableness of $246 million, the SCC only disallowed $18.4 million. By law, Dominion is permitted to appeal the SCC’s decision to the Virginia Supreme Court by filing a notice of appeal within 30 days of the final order on reconsideration.
(2) Renewable and advanced energy:
- SCC approves Dominion solar power purchase agreement – Case No. PUR-2019-00133
On November 5, the SCC approved Dominion’s request to enter into a PPA with a third-party generator to purchase the output from a 20 MW solar facility in Westmoreland County, Virginia. Dominion’s application notes that the General Assembly, pursuant to the 2018 Grid Transformation and Security Act, found that it is “in the public interest” for utilities to construct or purchase up to 5,000 MW of new solar and wind generation by 2028. Dominion states that it will recover the costs of the PPA through its base rates and fuel clause. The Commission has previously expressed its preference for Dominion to enter into PPAs for renewable energy as opposed to building and owning generation. (See, e.g., Case No. PUR-2018-00135).
The SCC Staff supported approval of the application, finding that the PPA would support the Commonwealth’s goal of having utilities purchase or construct at least 5,000 MW of new wind and solar generation by 2028. The Staff also found that the solar purchase could result in fuel cost savings and may help the Commonwealth comply with the Regional Greenhouse Gas Initiative emissions limitations. The hearing examiner agreed with the recommendations of the Staff, recommending approval after finding that the PPA “is relatively low risk and will likely benefit ratepayers.” The Commission’s final order noted that, under a PPA arrangement, the project developer (and not ratepayers) would bear all performance risk. The Commission found that Dominion conducted an appropriate RFP process and that the PPA is competitive with market prices for renewable energy.
- Environmental advocates file testimony regarding Dominion’s proposed battery storage pilot program – Case No. PUR-2019-00124
Dominion has requested approval to implement three battery storage projects, including one storage project at an existing utility scale solar facility. Dominion proposes to deploy two 2 MW batteries at existing substations and a 10 MW system at the company’s Scott solar facility. The total cost of the facilities is approximately $33 million. The 2018 Grid Transformation and Security Act, Senate Bill 966, directed the SCC to conduct a battery storage pilot program, and for Dominion to file an application proposing new storage resources. The legislation also provided that the costs of the battery storage pilot program must be recovered through Dominion’s existing rates. This means that customers will not see a separate rate adjustment clause rider on their electric bills.
On November 15, Appalachian Voices filed expert testimony regarding Dominion’s proposal. Appalachian Voices’ witness, while supportive of battery storage technology, argued that “[Dominion] significantly underutilizes the assets and does not track the necessary metrics to sufficiently inform future battery storage projects.” Appalachian Voices includes several recommendations to increase the efficiency of the battery storage pilot program. The SCC will hold an evidentiary hearing on January 14, 2020.
- Intervening parties conduct discovery regarding 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. Dominion’s application is filed pursuant to Va. Code § 56-585.1 A 6, which allows the utility to recover grid transformation spending through a rate rider called a rate adjustment clause (“RAC”). Dominion’s application does not state whether the utility will seek to recover the grid transformation spending through a new rate increase or through existing base rates. Intervening parties are currently conducting discovery; parties may file direct testimony on or before December 13. A public hearing will be held on January 28, 2020.
- SCC holds evidentiary hearing regarding Dominion’s proposed 100 MW solar facility – Case No. PUR-2019-00105
On July 23, Dominion filed a request for approval of a new 100 MW solar facility in Greensville County (the US-4 application). The estimated costs to construct the US-4 facility and related transmission assets is $146 million. Dominion’s application notes that utility-scale solar facilities are more cost effective, and provide greater customer benefits, than combined cycle gas facilities. The facility would utilize single-axis tracking technology, which results in higher capacity factors (i.e., generation performance) of solar arrays. The costs to construct the solar facility would be recovered through a rate adjustment clause, which would increase the monthly bill for a residential customer using 1,000 kWh by $0.17.
On October 22, the SCC Staff filed testimony stating that it “does not recommend approval” of the application as filed. Staff expressed concern that Dominion’s proposal to own and operate the facility (as opposed to purchasing the power via a power purchase agreement) places significant risks on customers. Staff argued that Dominion’s proposal “is not cost competitive with third-party solar PPAs that were available to Dominion.” Staff also argued that the 100 MW solar addition “is not needed as a capacity resource.” Finally, Staff noted that the General Assembly has deemed solar projects such as this to be “in the public interest” and estimated that the project would provide significant economic benefits to Greensville County.
Public comments are due on November 12, and an evidentiary hearing will be held on November 19.
(3) Competition and markets:
- Evidentiary hearing held in Dominion green tariff case – Case No. PUR-2019-00094
On November 21 and 22, the SCC held an evidentiary hearing regarding Dominion’s pending 100% renewable energy tariff, Rider TRG. Rider TRG customers would pay a premium of 0.421 cents per megawatt-hour to purchase the tariff’s renewable energy, which would increase a 1,000 kWh monthly bill by $4.21. The generation for Rider TRG would be sourced from solar, hydroelectric, and biomass generation facilities as well as from Dominion’s Virginia City coal plant. (Dominion estimates that the coal mixture burned at this plant will consist of 90% coal and 10% biomass wood waste by 2023.) If the SCC approves Rider TRG – and finds that it constitutes a 100% renewable energy tariff pursuant to Va. Code § 56-577 A 5 – Dominion customers would no longer have the option to purchase renewable generation from competitive suppliers.
At the hearing Dominion offered to remove the Virginia City coal plant from Rider TRG, but resisted arguments to remove all carbon-emitting biomass energy sources. Dominion, however, did not dispute the SCC Staff’s estimate that if all biomass was removed from the TRG portfolio, the price of Rider TRG would fall to $1.78.
In comments filed on November 14, the Virginia Department of Mines, Minerals, and Energy (“DMME”), the City of Alexandria, the City of Arlington, and 13 companies representing some of the largest employers in Virginia filed letters opposing Rider TRG. DMME, among other things, stated that approval of Rider TRG would not support any new renewable energy development and would be “detrimental to state energy goals.” At the hearing, Dominion disagreed with DMME’s assessment of the impacts of approval of Rider TRG. Dominion agreed that DMME had never before found a utility renewable initiative to be “detrimental to state energy goals,” and conceded that for this reason we are “in charted territory in this case.”
The parties will file post-hearing briefs on December 20. There is no deadline for the SCC to enter a final order.