Virginia Energy Regulatory Update (November 2020)

Below is our firm’s summary of notable energy regulatory activity at the Virginia State Corporation Commission (“SCC” or “Commission”) during November, 2020. During the last month, among other activity, the SCC denied Appalachian Power’s (“APCo”) request for an increase to its base rates. The Commission also continued its rulemaking activity and other efforts to implement the renewable energy and energy storage provisions of the Virginia Clean Economy Act (“VCEA”). Additionally, Dominion Energy Virginia (“Dominion”) and APCo filed their initial plans for compliance with the VCEA’s mandatory renewable portfolio standard. The VCEA, which became effective on July 1, includes new mandates and incentives for electric utilities to construct solar, wind, and storage facilities and to implement new efficiency measures.

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.

Administrative matters:

• Commissioner Mark Christie appointed to Federal Energy Regulatory Commission

On November 30, Commissioner Mark Christie was confirmed by the U.S. Senate for a five-year term as a commissioner on the Federal Energy Regulatory Commission. Virginia’s constitution allows members of the Virginia General Assembly to elect SCC commissioners.

• SCC publishes new regulations for utility rate filings, including new rate adjustment clause applications – Case No. PUR-2020-00022

On November 23, the Commission adopted new regulations governing rate filings by investor-owned utilities. The regulations prescribe all the supporting documents and calculations that a utility must file anytime it wishes to adjust customer rates. The Commission noted that its rate case regulations were last modified in 2008. Since then, the Commission stated, “legislative amendments have, among other things, modified the Regulation Act to require triennial reviews rather than biennial reviews of base rate earnings; expanded the number and types of rate adjustment clauses that may be sought by utilities; and permitted the filing of limited prudency reviews” for renewable energy projects.

The Commission’s final regulations continue to require utilities to provide long-term cost information and estimated revenue requirements. The regulations also require utilities to provide “materials used by senior management to make major cost decisions.” In joint comments, Dominion and APCo had objected to providing such management information, citing concerns about confidentiality.

Rate cases, oversight, and resource planning:

• SCC denies Appalachian Power’s rate increase request; utility files notice of appeal – Case No. PUR-2020-00015

On March 31, Appalachian Power filed its initial application for a review of its base rates and earnings for calendar years 2017, 2018, and 2019. 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 also asserted that it required a rate increase of $65 million to recover its costs of service going forward. The SCC held an evidentiary hearing between September 14 and September 18. At the hearing, both the Commission Staff and the Attorney General’s Office sponsored witness testimony showing that Appalachian actually earned in excess of its authorized rate of return of 9.42% during the review period.

The SCC entered its final order on November 24. After ruling on various disputed accounting adjustments, the SCC found that APCo earned a rate of return of 9.48% during the three-year review period – slightly above the utility’s authorized return. Virginia law prohibits rate increases if the utility is found to have earned in excess of its authorized return during the prior three-year period. The Attorney General’s Office argued that APCo had in fact earned above the Code’s authorized earnings band during the review period, meaning customers are entitled to refunds for those overcharges and a rate cut going forward. The Commission did not explain its rationale for rejecting the Attorney General’s legal arguments and accounting recommendations. In addition to denying the utility’s requested rate increase, the Commission rejected APCo’s proposal to increase its basic service charge and its proposal to implement a winter declining block rate. Finally, the Commission reduced APCo’s authorized rate of return to 9.2%, citing declining market costs of capital for the utility. APCo had requested a rate of return of 9.9%.

On November 25, APCo filed a notice of appeal to the Virginia Supreme Court. Appeals from SCC decisions are “of right,” meaning that the Court must hear the appeal. Any other party to the case may file a notice of appeal within 30 days of the final order.

• Hearing Examiner files report and recommendation regarding Dominion and Appalachian Power Percentage of Income Payment Plan proposals – Case Nos. PUR-2020-00109 and PUR-2020-00117

On June 11 the SCC directed Dominion and Appalachian Power to file proposals to implement a new Percentage of Income Payment Program (“PIPP”) for low-income customers. The PIPP, mandated by the 2020 Virginia Clean Economy Act, is intended to limit the electric utility payments “of persons or households participating in certain, specified public assistance programs, based upon a percentage of their income.” The legislation required the SCC to develop regulations to implement the program, including a “non-bypassable” universal service charge, paid by all utility customers not participating in the program. The universal charge is intended to fund the PIPP.

On July 21, Dominion and APCo filed their initial PIPP proposals, including the estimated fees required to support the program. Dominion estimated that the PIPP program would require annual revenues of between $22 million and $93 million, depending on customer participation levels. This equates to a potential bill increase of between $0.27 and $1.13 per month for a typical residential customer not participating in the PIPP program and using 1,000 kWh per month. APCo estimated that its PIPP program would require annual revenues of $23 million, which equates to a $1.12 monthly charge for a typical residential customer using 1,000 kWh per month.

On November 16, the Hearing Examiner assigned to the case filed his Report and Recommendation. In both dockets, the Hearing Examiner agreed with the parties that the PIPP fee should be adjusted on a regular basis based on actual customer enrollments and that the docket should remain open to receive recommendations from the Department of Social Services and the Department of Housing and Community Development. The VCEA required these agencies to convene a stakeholder group and propose recommendations for structuring the PIPP. The Hearing Examiner noted that a primary objective of the PIPP statute is to encourage energy efficiency; however, the Examiner did not make a finding on whether the statute requires PIPP participants to participate in efficiency or weatherization programs. The SCC must establish the initial universal service fee by December 31.

Renewable energy, efficiency, and new energy infrastructure:

• Dominion and Appalachian file plans for new generation and RPS compliance – Case Nos. PUR-2020-00134 and PUR-2020-00135

On July 10, the SCC entered an order establishing two new dockets to evaluate plans by Dominion and Appalachian Power to comply with Virginia’s mandatory renewable portfolio standard (“RPS”) program. The Virginia Clean Economy Act, which became effective on July 1, established a mandatory RPS that applies to both utilities. The RPS requires Dominion and APCo to meet an increasing percentage of their electricity sales from renewable resources. By 2045, 100% of Dominion’s energy sales must come from renewable resources, while APCo must reach 100% by 2050. The VCEA also states that the utilities must procure a certain percentage of their energy requirements from facilities located in Virginia. Section 56-585.5 D 4 of the VCEA requires Dominion and APCo to make annual filings that describe each utility’s plan to meet the RPS goals.

Dominion filed its RPS plan on October 30, while APCo filed its plan on November 2. Each filing includes proposals to add large amounts of new solar generation over the next decade. Dominion’s plan requests approval to add almost 500 MW of new solar, including utility-owned and third-party-owned facilities. Dominion proposes larger additions of solar and offshore wind over the next 25 years. APCo plans to add approximately 210 MW of solar generation over the next 3 years. APCo’s plan also proposes to add 2,200 MW of onshore wind and 400 MW of storage resources by 2050. 

The SCC must review the RPS plans and determine whether they are “reasonable,” in light of several criteria, including whether each utility’s plan will result in carbon emissions reductions and fuel savings.

• Interested parties file comments and direct testimony regarding Dominion and Appalachian Power VCEA non-bypassable charge rider proposals – Case Nos. PUR-2020-00164 and PUR-2020-00165

On October 5, Dominion and Appalachian Power filed proposed riders to recover costs associated with the Virginia Clean Economy Act’s (“VCEA”) renewable energy provisions. The VCEA states that the utilities may recover the costs of compliance with the VCEA’s renewable portfolio standard (“RPS”), and the law’s other renewable generation requirements, through a “non-bypassable” cost recovery rider. A “non-bypassable” charge rider is one that is paid by customers that take generation service from competitive suppliers, not the utility. The riders would apply to all customers who take service from competitive suppliers, except for certain customers that meet exemption criteria in the Code. Both utilities proposed cost allocations that are designed to ensure that all its VCEA costs are fully recovered.

Two competitive service providers filed requests for an evidentiary hearing in the Dominion docket. The SCC granted these requests and will hold an evidentiary hearing on March 26, 2020. Interested parties may intervene in this docket by filing a notice of participation on or before February 12.

• Dominion files proposed measurement and verification procedures for 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. Interested parties may intervene on or before December 7. An evidentiary hearing will be held on May 25, 2021.

• Interested parties file comments on rules allowing large commercial and industrial customers to opt out of energy efficiency charges – Case No. PUR-2020-00172.

On September 30, the SCC established a rulemaking proceeding to determine the rules by which certain large industrial customers are permitted to “opt out” of energy efficiency charges imposed by the VCEA. The VCEA allows certain large general service customers to be exempted from such charges “if the Commission finds that the [customer] has, at the customer’s own expense, implemented energy efficiency programs that have or will produce measured and verified results.” Under the law, a “large general service customer” is defined as a customer that has a “verifiable history” of having used more than one megawatt of demand from a single site.

On November 18, several interested parties provided recommendations to ensure that any customer receiving the exemption has implemented a sufficient level of energy savings measures. The Virginia Department of Mines, Minerals, and Energy recommended that the Commission establish specific savings targets as a condition to granting exemptions.

Per the statutory timeline, the new rules must be finalized by June 30, 2021.

• Dominion files petition for RPS rate adjustment clause – Case No. PUR-2020-00170

On November 9, Dominion Energy Virginia (“Dominion”) filed a petition to establish a new rate adjustment clause (“RAC”) to recover costs necessary to comply with Virginia’s renewable portfolio standard program. The 2020 Virginia Clean Economy Act established a mandatory RPS for both Dominion and Appalachian Power. The utilities must obtain an increasing percentage of their electricity sales from renewable energy sources beginning in 2021.

The VCEA provides that each utility may request to recover RPS costs through a new RAC, which may be updated annually. Dominion’s petition states that it will comply with its RPS obligations by retiring renewable energy certificates (“RECs”) generated at RPS-eligible resources, including company-owned and third-party-owned renewable generating facilities. Dominion’s first RAC filing includes an estimate of the costs necessary to comply with its 2021 obligations. Dominion proposes to recover approximately $13 million from its customers in 2021 through the RPS RAC. This would result in a monthly bill increase of $0.18 for a residential customer using 1,000 kilowatt-hours per month. The SCC has not yet established a procedural schedule for reviewing Dominion’s petition.

• Dominion files petition for RGGI rate adjustment clause – 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.

The VCEA 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. The RGGI RAC would increase the monthly bill for a residential customer using 1,000 kilowatt-hours by $2.39. The Commission has not yet established a procedural schedule for reviewing Dominion’s filing.

• SCC Staff files report and recommendations regarding draft regulations for new shared solar programs – Case Nos. PUR-2020-00124 and 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. The subscribers receive a proportional credit based on the output of their share of the solar facility. The General Assembly also passed legislation requiring the SCC to promulgate regulations for a solar program specifically designed for customers living in multi-family housing facilities. Customers of Dominion and Kentucky Utilities, d/b/a Old Dominion Power, are eligible to purchase solar energy under the multi-family program.

The Commission published initial draft regulations on September 21. Thereafter, several interested parties, including renewable energy advocates and members of the General Assembly, filed comments and objections to the draft rules. On November 23, the SCC Staff filed a report along with revised draft regulations in each docket. The Staff report included revisions to the draft regulations based on the comments filed by interested parties. The SCC must promulgate final regulations by January 1, 2021.  

• SCC Staff files Report regarding energy storage regulations; recommends updates to draft rules – Case No. PUR-2020-00120

On June 29, 2020, the 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 and Appalachian Power, 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.”

After considering proposed regulations filed by utilities and other interested parties, the Commission published draft regulations on September 11. On November 2, several parties filed comments and objections to the SCC’s draft regulations. Comments were filed by, among others, utilities, energy storage developers, legislators, data centers, and environmental organizations. Several parties, including the Department of Mines, Minerals, and Energy, requested that the SCC reconsider the proposed regulatory requirements for non-utility storage facilities. DMME asserted that the SCC’s draft regulations would impose unnecessarily onerous permitting requirements on small facilities that have little environmental impacts and no impact on ratepayers.

On November 16, the SCC Staff filed its Report, which included comments on the various proposals by the interested parties. The Staff Report, among other recommended changes, recommends reduced permitting requirements for non-utility-owned projects of 1 megawatt or smaller. The SCC can accept or reject the recommendations in the Staff Report. The SCC must promulgate final regulations by January 1, 2020.