Virginia Energy Regulatory Update (September 2019)

September saw significant energy regulatory activity at Virginia’s public utility commission, the State Corporation Commission. During the last month, the SCC issued key decisions affecting customer choice and Virginia’s competitive market for clean energy; approved a time-of-use tariff for electric vehicle owners; and opened a rulemaking docket to modify the regulations governing net energy metering. Additionally, the Commission held an evidentiary hearing regarding Dominion Energy’s request for a 17% increase to its ROE, while environmental advocates challenged a gas distribution company’s attempts to recover costs associated with the proposed Mountain Valley Pipeline project.

Please see our summary below of the notable energy regulatory activity at the Virginia Commission during September, 2019. 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** 

Rate cases, oversight, and resource planning:

  • SCC holds hearing regarding Dominion’s request for 17% ROE increase – 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 wants to increase 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, finding that current market conditions support a return of 8.6%. The SCC Staff estimated 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%. 36 members of the Virginia General Assembly filed a letter supporting the testimony filed by the Attorney General’s expert witness.

Dominion argued that the proposal would have a minimal effect on customer bills, and asserted that the increased ROE would have “no impact” on customers’ base rates. During the hearing, the SCC Staff called this assertion “fundamentally untrue” and noted that the ROE set in this case would determine whether consumers are entitled to refunds or rate cuts following Dominion’s 2021 triennial review. 

The parties will file post-hearing briefs on October 18. The SCC must enter a final order on or before November 30, 2019.

  • Appalachian Power files request to decrease its fuel rateCase No. PUR-2019-00157

On September 27, Appalachian Power (“APCo”) filed a request to decrease its fuel rate from 2.547 to 2.300 cents per kWh. The proposed fuel rate – called the fuel factor – is designed to recover APCo’s costs to procure fuel between November 1, 2019, and October 31, 2020. The reduction would reduce the typical bill of a residential customer using 1,000 kWh per month by 2.6%, or roughly $2.80. The SCC has not yet established a procedural schedule for this case.

  • SCC finds Dominion’s IRP update filing to be “legally sufficient” – Case No. PUR-2019-00141

On August 30, Dominion filed its 2019 IRP update. The purpose of IRP “update” filings is to notify the Commission of any major changes in the utility’s planning that occur between the years when full IRPs are filed. Dominion stated that its objective in its 2019 IRP update “is to provide a discussion of significant events requiring a major revision to the [2018 IRP].” Dominion also notes that it recently “committed to an 80% reduction in greenhouse gas emissions by 2050.” The Company also put forth a five-year plan that includes development of offshore wind, a new pumped hydroelectric storage facility, additional solar photovoltaic resources, and distribution system modernization.” Nonetheless, the IRP update still includes 2,400 MW of new gas-fired combustion turbine generating facilities between 2019 and 2044. Nor does the IRP update address Dominion Energy’s continued investment in the Atlantic Coast Pipeline, which will supply existing and new natural gas generation facilities.

On September 20, in a two-page order, the SCC found the filing to be “legally sufficient.” The SCC, however, noted that its finding “does not express approval of the magnitude or specifics of Dominion’s future spending plans, the costs of which will significantly impact millions of residential and business customers in the monthly bills they must pay for power.”

  • Dominion files petition for reconsideration of SCC’s disallowance of expenditures at retired 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. 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 these 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 September 17, Sierra Club and the Attorney General’s Division of Consumer Counsel filed responses in opposition to Dominion’s Petition. Both Sierra Club and the Attorney General provided support for the legality and prudence of the SCC’s decision. On September 24, Dominion filed a response to the Attorney General and Sierra Club arguing that the SCC did not have the authority under to disallow the disputed costs under § 56-585.1 D. Dominion also noted that, in every case where the SCC has relied on § 56-585.1 D to rule against Dominion’s expenditures, “the General Assembly has promptly amended relevant statutes to limit the scope of Subsection D.” If the SCC affirms its final order, Dominion may appeal the decision to the Virginia Supreme Court.

  • Sierra Club and Roanoke Gas dispute pipeline investments in rate case hearing – Case No. PUR-2018-00013

Roanoke Gas, a gas distribution company with 61,000 customers in western Virginia, is seeking a $10.5 million rate increase. One issue in dispute concerns the utility’s proposal to recover a portion of new pipeline-related costs from its general ratepayers. An affiliate of Roanoke Gas owns a 1% stake in the Mountain Valley Pipeline project. Roanoke Gas has already entered into a 20-year purchase agreement with MVP. The SCC Staff has questioned the need for the capacity provided by the MVP, and Sierra Club has argued that investments in new MVP-related infrastructure are imprudent.

Roanoke Gas is also requesting to recover additional attorneys’ fees and rate case expenses from customers due to this issue, “given [the] additional expense that the Company anticipates incurring related to litigating the Staff’s unprecedented and unsupported recommendation to disallow the Company’s expenses related to the MVP.” The transcript from the August 14 evidentiary hearing is now posted online.

Renewable and advanced energy:

  • Dominion requests approval of 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 shall be recovered through Dominion’s rates. This means that customers will not see a separate rate adjustment clause rider on their electric bills. The SCC will hold an evidentiary hearing on January 14, 2020. Interested parties may intervene on or before October 15.

The SCC has established a rulemaking docket to consider changes to Virginia’s net metering regulations for customers of cooperative utilities. The SCC noted that in 2019, the General Assembly amended the net metering statute for customers of Virginia’s electric cooperatives. These amendments added new Code sections to “(1) introduce new caps on participation in net metering by customers of electric cooperatives; (2) authorize electric cooperatives to vote to increase these caps up to a cumulative total of seven percent of their system peak; (3) permit third-party partial requirements power purchase agreements for those retail customers and nonjurisdictional customers of an electric cooperative that are exempt from federal income taxation; and (4) establish registration requirements for third-party partial requirements power purchase agreements, including a self-certification system whereby such providers would be added to a registry maintained by the Commission’s Division of Public Utility Regulation.”

The SCC is permitted by law promulgate regulations when necessary to implement utility statutes passed by the General Assembly. The Commission’s order establishing the proceeding included draft rules; interested parties may comment on the draft rules or request a hearing on or before October 11.

  • SCC Staff does not support approval of Dominion’s proposal to market low-quality RECs – Case No. PUR-2019-00081

Dominion is requesting SCC approval 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 regional chapter of the Solar Energy Industries Association filed a letter arguing that Rider REC would not support the development of any new renewable energy resources and cautioned that customers might mistakenly believe that, by paying the Rider REC premium, they would be doing something good for the environment.

On September 24, 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.” Staff recommended, if the SCC is inclined to approved Rider REC, that Dominion should be required to include “[a] disclaimer clearly stating the RECs purchased under the tariff may come from sources anywhere within the continental U.S. with a vintage that could potentially date back to the year 1900. In addition, this disclaimer should provide a list of the expected generation sources of the RECs customers would be purchasing such as biomass, land-fill gas, etc.” (emphasis original). There is no deadline for the SCC to enter a final order.

  • SCC sets procedural schedule regarding Appalachian Power’s 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 will be held on January 24, 2020. Interested parties may participate in this case by filing a notice of participation on or before November 20.

  • SCC Staff files testimony regarding Dominion’s request for approval of 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 of 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).

On September 24, the SCC Staff filed 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 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. A hearing on the application will be held on October 8.  

  • SCC approves APCo’s voluntary rate schedule for EV owners – Case No. PUR-2019-00067

On September 12, the SCC approved APCo’s proposed voluntary rate schedule for residential customers who own electric vehicles. Residential customers will charge their EVs under this new rate schedule, which provides lower prices during off-peak hours. Customers would need to have smart meters and charging stations that are designed to use power during off-peak hours. APCo estimates that a typical EV owner could save $86.51 per year under this rate schedule, as opposed to charging his or her EV under normal residential rates. APCo argues that this rate schedule is in the public interest because it would support EV use and may defer the need for new generation, such as peaking resources. The SCC approved the rate schedule for four years on an experimental basis.

Competition and markets: 

  • SCC dismisses Dominion’s request to impose additional conditions on renewable energy sales – Case Nos. PUR-2019-00117 and PUR-2019-00118

On September 18, the SCC entered a final order denying Dominion’s attempts to impose new requirements on competitive renewable energy suppliers. Dominion filed requests for declaratory judgment alleging that Direct Energy and Calpine Energy Solutions, two competitive service providers (“CSPs”), were not providing full renewable energy service to their customers. Dominion’s argument was based on a claim that these CSPs do not have “control” of sufficient renewable energy resources in order to provide “24/7” or “around the clock” service. Direct Energy and Calpine are serving customers pursuant to Va. Code § 56-577 A 5, which allows CSPs to provide 100% renewable energy service to customers if the incumbent utility does not offer an approved 100% renewable energy tariff. (Dominion requested approval of what it characterizes as a 100% renewable tariff, which is currently pending before the SCC. This tariff includes energy generated at several facilities that are currently in Dominion’s portfolio, including solar, hydroelectric, and biomass facilities as well as the Virginia City coal plant.) 

The SCC rejected Dominion’s arguments, stating that it “continues to find” that it is reasonable for a CSP to match customer load with renewable energy on a monthly basis. The SCC also stated that Dominion’s proposed standard, if accepted, “would represent the most stringent matching requirement of any renewable energy market in the country.” Finally, the Commission noted that Dominion was not able to settle on any single definition of “100% renewable energy”; instead, its attorneys and witnesses advanced more than 10 different proposed standards throughout the course of the proceeding.

  • Costco withdraws appeal of aggregation decision – Case No. PUR-2018-00088

On September 5, Costco withdrew its notice of appeal of the Commission’s rejection of its aggregation petition. Costco requested SCC approval to aggregate the demand from several stores in Dominion’s service territory in order to reach the 5MW threshold required to shop for generation from a competitive supplier. The Commission has previously rejected several other aggregation requests, citing the potential for fixed costs to be shifted to other customer classes. Appeals of SCC decisions are “of right,” meaning parties have an automatic right to appeal all SCC decisions to the Virginia Supreme Court.

  • SCC hearing examiner recommends approval of Dominion’s proposed market-based rate schedule – PUR-2018-00192

On September 25, a 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. Parties may file comments on or before October 16.

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