Please see our summary below of key energy regulatory activity at the Virginia State Corporation Commission (“SCC” or “Commission”) during October, 2019. During the last month, the SCC approved a new renewable energy certificate tariff for Dominion Energy; established a procedural schedule for Appalachian Power’s newest energy efficiency portfolio filing; and authorized a rate increase for a controversial Dominion distribution line undergrounding initiative. Meanwhile, renewable energy buyers and environmental organizations unanimously opposed a renewable energy tariff proposed by Dominion. The Commission also held a public hearing in Norton, Virginia, regarding a Kentucky Utilities request for a 21% rate increase.
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:
- SCC says Dominion’s $51 million rate increase for undergrounding is unreasonable; approves rate increase nonetheless citing mandate from the General Assembly – Case No. PUR-2019-00046
On October 31, the SCC approved Dominion’s request to undertake additional distribution undergrounding projects. Dominion requested cost recovery for an additional 246 miles of undergrounding at an estimated cost of $500,000 per mile. The revenue requirement for the next phase of Dominion’s Strategic Undergrounding Program (“SUP”) is $51 million and will result in a $1.33 monthly charge for a residential customer using 1,000 kWh per month. The SCC originally rejected Dominion’s SUP in 2015, finding that the proposed spending was not justified and would not provide reliability or economic benefits to customers. Subsequently, the General Assembly passed legislation essentially requiring the Commission to approve all future proposed undergrounding proposals, provided the undergrounding meets certain cost parameters. Therefore, the Commission must authorize rate increases for undergrounding regardless of whether the SCC finds that the programs are cost effective or will provide benefits to customers.
In its final order, the Commission reiterated its conclusion that Dominion’s spending is not reasonable or cost effective, noting that “[t]he Commission continues to find that the costs of the proposed SUP would not be considered reasonable and prudent under a standard analysis, or cost-beneficial for residential customers in particular.” The SCC also noted that the statute exempts large energy users from the costs of the program, shifting the rate increase to residential customers. However, the SCC said, “[l]egally, the General Assembly has removed the Commission’s discretion to make such findings based on the actual evidence admitted into the record.”
- Parties file post-hearing briefs regarding Dominion’s request for increase in 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 has 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 called Dominion’s proposed ROE excessive and found that current market conditions 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 October 18, the parties filed post-hearing briefs. The SCC Staff’s brief recommended that the SCC authorize an ROE of 8.75% in recognition of Dominion’s declining cost of capital and low business risk. Dominion argued that, were the SCC Staff’s recommendations accepted, it would be viewed by Wall Street as “a signal of a deteriorating regulatory climate in Virginia.” The Virginia Poverty Law Center (“VPLC”) filed a brief arguing that the SCC should not consider the opinions of these investor ratings agencies, in part because Dominion did not present any evidence that the views of such ratings agencies would affect Dominion’s ability to attract capital or fulfill its public service obligations. VPLC argued instead that the SCC should consider the impact its decision could have on consumer confidence, not investor confidence. VPLC argued that “any decision other than a reduction to Dominion’s going forward ROE could be viewed by consumers ‘as a signal of a deteriorating regulatory climate in Virginia.’” The SCC must enter a final order on or before November 30.
- Public hearing held regarding Kentucky Utilities request for 21.4% rate increase – Case No. PUR-2019-00060
Kentucky Utilities, doing business as Old Dominion Power, (“KU/ODP”) is requesting a $12.7 million increase in revenues, which would increase a typical residential customer’s bill by 21.4%. KU/ODP is an investor-owned utility serving about 30,000 customers in Scott, Lee, and Wise Counties in southwest Virginia. KU/ODP says it needs a base rate increase due to increased environmental regulatory costs. The utility also says that lower electricity sales means it is not recovering its authorized rate of return. KU/ODP, unlike Dominion and Appalachian Power Company, is regulated under Chapter 10 of Title 56 of the Code of Virginia. Because KU/ODP is not subject to the ratemaking laws found in Chapter 23 of Title 56, the SCC will be permitted to set the utility’s rates and its rate of return at levels the Commission finds to be just and reasonable.
A public hearing was held on October 2 in Norton to receive comments from affected citizens. The transcript from the public hearing is now posted online. The SCC will hold an evidentiary hearing on January 22, 2020.
(2) Renewable and advanced energy:
- SCC approves Dominion low-quality REC tariff – Case No. PUR-2019-00081
On October 31, the SCC approved Dominion’s application to offer a new, lower-cost renewable energy credit (“REC”) purchase option to its customers. Under the proposed rate schedule, designated Rider REC, customers could purchase lower-quality RECs to match up to 100% of their energy usage by paying a premium of 0.10 cents/kWh. The RECs may be associated with any “renewable energy” resource, as that term is defined in Va. Code § 56-576. The new REC rate schedule would allow Dominion to sell RECs “without the requirement of meeting certain Green-e certification requirements, such as criteria related to the age or length of time a renewable generation source has been in service.”
One public commenter characterized Rider REC as “the dregs of the renewable energy category, the stuff that isn’t good enough for [Dominion’s existing REC tariff].” The SCC Staff filed a report stating that that it “does not recommend that the Commission approve Dominion’s proposed Rider REC as it is currently designed.” The Staff noted that, based on the proposal, customers could unknowingly purchase “RECs from sources that are decades old, and potentially more than a century old [and that] customers could end up paying what would constitute an excessive price.” The SCC approved the tariff notwithstanding the concerns expressed by its staff.
- SCC enters procedural schedule for review of Dominion’s updated grid transformation plan – Case No. PUR-2019-00094
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. Interested parties may participate in this case by filing a notice of participation on or before November 12, 2019. A public hearing will be held on January 28, 2020.
- Evidentiary hearing held regarding new solar power purchase agreement – Case No. PUR-2019-00133
Dominion is requesting SCC approval to enter into a PPA with a third-party generator to purchase the output from a 20 MW solar facility in Westmoreland County. 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 Case No. PUR-2018-00135).
The SCC Staff filed rebuttal testimony stating that the evidence submitted by Dominion would support a finding of prudence. The Staff found, among other things, 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. An evidentiary hearing on the application was held on October 8.
- SCC Staff does not recommend approval of 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:
- SCC Staff files testimony regarding costs of biomass and co-fired coal energy in Dominion’s proposed green tariff – Case No. PUR-2019-00094
On October 31, the SCC Staff filed testimony regarding Dominion’s proposed 100% renewable energy tariff, Rider TRG. Rider TRG would reallocate the energy generated from several renewable energy facilities that are either in Dominion’s rate base or from which Dominion currently purchases power. Rider TRG customers would pay a premium of 0.421 cents per megawatt-hour to purchase this 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.
Staff does not take a position as to whether the tariff should be approved. Staff does suggest, however, that “the Commission or the Company may wish to consider an alternative portfolio design that excludes the biomass or co-fired biomass generating units.” In particular, Staff noted that the TRG tariff is significantly more cost effective if the coal plant and Dominion’s existing biomass facilities are excluded. Staff estimated that, if the Virginia City plant and Dominion’s biomass units are excluded, Dominion could offer Rider TRG at less than half the cost — $1.78/MWh as opposed to $4.21/MWh. This suggests the economic value of non-fuel, non-emitting resources such as solar, wind, and hydroelectric resources. The Virginia City facility, which includes a 1.0% bonus rate of return, is the most costly generation charge on a typical customer’s monthly bill.
On October 17, the respondents – including competitive service providers, renewable energy advocates, environmental groups, and Walmart – unanimously recommended that the SCC reject the application. These parties are opposed the application because it would eliminate customer choice for renewable energy; because it would not support the development of any resources not already in Dominion’s portfolio; and because it would force customers to subsidize Dominion’s Virginia City coal plant
Dominion will file rebuttal testimony on November 12. Members of the public can provide written comments on or before November 14 using the SCC’s online comment portal. Citizens can also provide oral comments at the beginning of the evidentiary hearing on November 21.
- Parties file comments and objections regarding hearing examiner’s recommendation that the SCC approve Dominion’s proposed market-based rate schedule – Case No PUR-2018-00192
On September 25, an SCC hearing examiner recommended approval of Dominion’s request for approval of a revised market-based rate (“MBR”) tariff. The MBR tariff is designed to allow customers the option to buy energy based on PJM wholesale market prices. Dominion says the revised tariff would be an attractive alternative to purchasing energy from a competitive service provider (“CSP”). Dominion states that the revised MBR tariff contains several improvements over the existing MBR tariff, approved in 2016, that will allow more customers to participate. The new tariff also contains features that could encourage customers to reduce energy usage during peak hours.
Dominion and the Commission Staff entered into a partial settlement regarding disputed issues in the case. Microsoft and Direct Energy, however, did not sign onto this stipulation. Microsoft and Direct Energy challenged several aspects of the proposed tariff, including the minimum charge. Direct Energy argued that the MBR is not actually a “tariff,” since the rate option does not provide any set rates. The hearing examiner’s report and recommendation includes findings on several of the disputed issues and recommends approval of the tariff. Regarding the minimum charge, the hearing examiner recommended that the minimum charges imposed by Dominion should only recover the costs of distribution facilities constructed to serve new customers. In comments filed on October 16, Microsoft supported the hearing examiner’s recommendations and urged the Commission to approve the tariff as modified by the hearing examiner. Direct Energy, however, continued to oppose the application. There is no deadline for the Commission to rule on the application.
- SCC establishes schedule for review of Appalachian Power request for approval of new energy efficiency programs – Case No. PUR-2019-00122
On September 30, the SCC established a procedural schedule for reviewing Appalachian Power’s (“APCo”) request to implement new energy efficiency programs. APCo also requests approve to recover the costs of the program through its existing energy efficiency rate adjustment clause. APCo is proposing an incentive program for new housing construction to meeting Energy Star efficiency standards as well as low-income efficiency programs for both single- and multi-family housing units. APCo estimates that approval of the new programs would increase the monthly bill of a residential customer using 1,000 kWh per month by $0.30. APCo is not seeking to recovery any costs for revenues that may be “lost” due to energy efficiency programs. An evidentiary hearing will be held on March 3, 2020. Interested parties may intervene in this case by filing a notice of participation on or before December 17.