Direct Energy wins right to sell renewable energy in Virginia, but there’s a catch

Direct Energy may have just won a Pyrrhic victory in its bid to sell renewable energy to Virginia residents. The State Corporation Commission ruled last week that the company can market 100% renewable electricity to Virginia customers of Dominion Virginia Power and Appalachian Power, but only as long as the utilities aren’t offering it themselves. Once they do, Direct Energy can continue to serve existing customers but won’t be able to sign up new ones.

The ruling makes it harder for Direct Energy to enter the residential market in Virginia. On the other hand, Direct Energy appears to have won a round on a second issue involving sales to large (over 5 megawatts in demand) commercial and industrial customers. The SCC ruled that these customers don’t have to give five years’ notice before they can switch back to their utility from a renewable energy provider like Direct Energy, as they would have to do if they were not buying renewable energy.

This is a significant win for Direct Energy’s ability to offer renewable energy to large customers, since Dominion’s position on the five-year notice requirement could scare off customers worried about being left without a supplier if Direct Energy were to leave the market. However, that part of the SCC’s order is under review in response to a motion for reconsideration filed by Dominion on Tuesday, so I won’t address that further here.

Direct Energy is a Delaware-based company currently licensed to sell natural gas in Virginia as a competitive service provider. Last August the company filed a petition for declaratory judgment (PUE-2016-00094) asking the SCC to clarify its rights under Virginia law to sell renewable energy to customers of Dominion Virginia Power. The SCC brought in Dominion and Appalachian Power, and Southern Environmental Law Center (SELC) intervened on behalf of environmental groups Appalachian Voices and Chesapeake Climate Action Network.

Section 56-577 (A)(5) of the Virginia Code explicitly allows sellers of 100% renewable energy into the territories of the state’s monopoly utilities if those utilities themselves aren’t offering renewable energy to their customers. Currently, neither Dominion nor Appalachian Power offer a tariff for renewable energy. That means the door is wide open for anyone else to do so.

But that open door is merely a tease, as the Commission’s order just confirmed. All Dominion or APCo has to do is jump in with its own product, and the door shuts in the face of the interloper. Once the SCC approves a utility’s program, Direct Energy can continue selling to any customers it has already signed up, but it won’t be able to sign up any new customers.

It can take months or years of marketing for a third-party supplier to build up enough of a customer base to make the whole effort worthwhile, so the SCC’s ruling makes the Virginia residential market much less attractive.

Direct Energy and the environmental groups had argued that once a competitive service provider got approval to sell 100% renewable electricity in Virginia, it ought to be able to continue signing up new customers, even once the SCC had approved a competing product from the incumbent utility. As the company explained in its Petition:

It would be illogical for the Virginia General Assembly to prohibit Direct Energy or any competitive service provider from continuing to market and serve additional customers once Dominion Virginia Power begins to offer a 100% renewable energy tariff. No retail business can survive if it cannot do business with new customers. This is certainly true in the retail energy market, in which customers move on and off a system with regularity, reacting to price signals and relocating in and out of utility service territories. Consequently, it is most reasonable to interpret Virginia Code § 56-577 (A) (5) (b) to allow Direct Energy to continue to serve additional customers to the class of customers to which it is marketing at the time that the Commission approves a Dominion Virginia Power 100% renewable energy tariff.

Unfortunately for Direct Energy, the Code was written to protect Virginia utilities from competition to the greatest extent possible consistent with also making them look good. What is logical and reasonable to anyone running a business doesn’t enter into it; nor, for that matter, does the best interest of the buying public.

The SCC’s order is a win for Dominion and APCo, but a loss for customers who have waited ten years for their utilities to offer them renewable energy. Both Dominion and APCo offer what they call “green power” but are simply sales of renewable energy certificates as an add-on to regular “brown” power.* Even if the utilities now gin up a their own renewable energy product, consumers would be better off having choices.

After all, the Virginia Code doesn’t say a utility program has to be better or cheaper than the one offered by a competitive service provider like Direct Energy. Indeed, some consumers have already expressed concern Dominion might close the door on Direct Energy with a product that meets the Virginia Code’s broad definition of renewable energy but is distinctly inferior.

“My worry is that Dominion will offer a “100% renewable” program that is biomass, hydro and other things that aren’t really zero carbon, but still slide by,” says Ruth Amundsen, a solar advocate in Norfolk. “And then Direct Energy would be out.”


*Legislation passed this year will allow customers to buy electricity generated from solar facilities from their utilities. The program is styled “community solar,” but it looks like it would satisfy the statutory definition of a sale of electricity generated from 100% renewable energy. However, a provision of the bill, added at the behest of SELC, states that it will not be considered such a product.

Why, you might ask, would Dominion agree to a provision that says their solar option isn’t a tariff for 100% renewable energy, especially with the Direct Energy petition outstanding? I have an answer, but first a word of caution: you are now getting deep in the weeds. Carry tick repellant.

Recall that the fight over third party power-purchase agreements (PPAs) involves two provisions of the Virginia code, including § 56-577 (A) (5)—the one we’re talking about here. Companies that want to help customers install on-site solar facilities by using PPAs have argued that this section clearly permits customers to buy solar electricity from third party suppliers when their utility doesn’t offer a renewable energy tariff. No green tariff, no bar to a PPA.

But the utilities argue that this kind of electricity sale doesn’t meet the statutory requirement, because although a solar facility is 100% renewable, it does not serve 100% of the customer’s load. A strange reading, yes; and wrong, too, according to an SCC hearing examiner who looked at the question back when APCo put together its own renewable energy product. APCo decided to withdraw its product rather than risk the SCC confirming the hearing examiner’s reading. That action meant the utilities could keep their reading of the statute as a live threat against any company that wants to offer a PPA under terms that don’t meet the terms of the pilot program Dominion negotiated a few years ago.

Apparently, preserving that argument mattered more to Dominion than chasing off would-be competitors like Direct Energy. The gamble will have paid off if Direct Energy drops its Virginia effort in light of the SCC’s ruling last week.

 

Update, April 7. Ron Cerniglia, Director of Corporate & Regulatory Affairs for Direct Energy, provided the company’s view of the SCC’s ruling for us. His note reads:

In its ruling on Direct Energy’s Petition for Declaratory Judgment, the State Corporation Commission (SCC) agreed with Direct Energy on two of the three major points on which Direct Energy sought clarification.  The SCC did not agree that a retailer could continue to provide 100% renewable service to residential and small (<5 MW) individual customers, including new customers, after the utility (e.g., APCo or Virginia Electric and Power Company) receives approval of their own 100% renewable tariff.  However, residential customers and individualized non-residential customers who sign-up with a retailer do not immediately return to utility service when and if a utility receives approval of their 100% renewable tariff.  Instead, the customer remains with the retailer for the term of the customer agreement.  
The SCC agreed with Direct Energy that a retailer may continue to offer 100% renewable service to large customers (>5 MW) or to customers aggregating to >5 MW even if such sales are no longer permitted because the utility  is offering its own 100% renewable tariff.  The SCC also agreed with Direct Energy that if a retailer is providing 100% renewable service to a large customer that several  conditions and limitation  do not apply.  That includes the requirement of  that 5 year advance notice must be given before a retailer’s customer can return to the utility for service.  It is on this last point that Dominion has filed a Petition for Reconsideration.  This week, the SCC granted Dominion’s petition without ruling up or down on its substance. 
We do not believe that Dominion has raised any issue that the SCC has not already considered. We are very appreciative of the SSC’s actions to date and are hopeful that it will make short work of the petition, and quickly enter another Order denying Dominion the relief it is requesting.  Direct Energy is excited to open up the Virginia market to competition with a 100% renewable product. Once the uncertainty has been addressed, we believe that Virginians will have the choice to choose a renewable power supply solution.

Dominion’s Own Model Shows that 15,000 MW of Solar Would Save Virginia Customers $1.5 Billion

powerhouse_six_1_megawatt_solar_array_ettp_oak_ridge_2016_courtesy-doeDominion Virginia Power has begun making good on its commitment to install 400 megawatts of solar in Virginia, a goal we have been cheering. Dominion argues its projects make economic sense. That leads us to wonder: if 400 MW makes economic sense, would more be even better? As guest blogger Will Driscoll reveals, we don’t need to speculate; Dominion ran the numbers. They just didn’t like the answer. 

By Will Driscoll 

Dominion Virginia Power modeled a resource plan with 15,000 megawatts of solar power, which it calculated would save Virginia customers $1.5 billion compared to a plan that includes a $19 billion nuclear reactor.  Yet when the company submitted its menu of resource options to regulators at the State Corporation Commission as part of its 2016 Integrated Resource Plan (IRP), it included the North Anna 3 nuclear plant while omitting the high-solar option.

The high-solar option only became public when attorneys Will Cleveland and Peter Stein of the Southern Environmental Law Center (SELC), representing an environmental coalition, asked the right questions during the discovery phase of the IRP proceedings.

Utilities in 33 states must periodically file an IRP.  The IRP is intended to define the least-cost set of resources that can meet forecasted electricity demand plus a reserve margin, while also meeting the state’s policy goals on renewables and efficiency.  Utilities use computer models to develop an IRP.

Dominion’s utility planning model generated the 15,000-megawatt solar option when the utility set no constraint on the amount of solar that could be added.

The high-solar plan would actually save Virginians much more than $1.5 billion, according to an expert witness in the IRP hearing, former Texas Public Utility Commissioner Karl Rabago.  The projected $1.5 billion in savings would be after Dominion’s projected $5.8 billion of solar integration costs (i.e., any costs needed to adapt the grid for a high level of solar).  Yet the $5.8 billion value “is at least 54 to 84 percent higher than the PJM high and low [integration cost] numbers that [Dominion] cites,” Rabago said.  Thus, “the overall savings … [with] a more reasonable approach to the integration costs would be much higher than $1.5 billion.” (PJM is a regional transmission organization that coordinates the movement of electricity through Virginia, Maryland, Delaware, New Jersey, Pennsylvania, Ohio, the District of Columbia, and parts of seven other states.)

To those who have followed the low and still-falling costs of utility-scale solar, it may not be surprising that solar, including any integration costs, would cost less than the proposed North Anna 3 nuclear reactor.  But to learn that Dominion’s own utility planning model presented that result to Dominion is a revelation.

To justify discarding the high-solar option, Dominion executive Robert Thomas said that “15,000 megawatts of solar… was a lot of land.” Yet data from the National Renewable Energy Laboratory show that this amount of solar would need only 0.4 percent of Virginia’s land area (i.e., 15000 MW times 7.9 acres per MW, divided by 27.376 million acres of land).  Mr. Thomas also said that the high-solar option “could create reliability issues,” yet high-renewables utilities in Iowa, South Dakota, California and Europe are highly reliable, thanks to accurate day-ahead weather forecasting and sophisticated utility “unit commitment” models that are also available to Dominion.

The State Corporation Commission, in its final order regarding Dominion’s IRP, did not mention the high-solar option.  The SCC approved the IRP as submitted, noting that “approval of an IRP does not in any way create the slightest presumption that resource options contained in the approved IRP will be approved in a future certificate of public convenience and necessity (“CPCN”), rate adjustment clause (“RAC”), fuel factor, or other type of proceeding governed by different statutes.”

SELC attorney Will Cleveland called on Dominion and the SCC to do better next time: “Citing ‘feasibility concerns,’ Dominion rejected and buried the high solar resource plan without any legitimate analysis of whether the plan was in fact feasible. Virginia ratepayers deserve the lowest-cost, cleanest energy available, and it is increasingly clear that means more solar, not more fossil fuels or nuclear. In the future, Dominion should not be allowed to dismiss the cheaper, cleaner resource plan without a full analysis.”

The environmental coalition represented by SELC consisted of Appalachian Voices, Chesapeake Climate Action Network, and the Natural Resources Defense Council.

Will Driscoll is a writer and analyst.  Previously he conducted environmental analyses for EPA, as a project manager for ICF Consulting.  His publications include the book Nonproliferation Primer (MIT Press).

Even Appalachian Power doesn’t like its third-party solar option

Colleges in APCo territory want to use PPAs to install solar facilities like the one recently installed at the University of Richmond, in Dominion territory.

Colleges in APCo territory want to use PPAs to install solar facilities like the one recently installed at the University of Richmond, in Dominion territory.

Facing a withering report from a Virginia hearing examiner recommending denial of its request for a renewable energy “Rider RGP,” Appalachian Power Company (APCo) has responded with a simple message to the State Corporation Commission: um, never mind.

APCo proposed Rider RGP as an alternative to third-party power purchase agreements (PPAs) for customers wanting to install rooftop solar. The proposal would have put APCo in the middle of the deal and created a buy-all, sell-all scheme. But the proposal was roundly criticized at last year’s hearing and in witness statements as convoluted and expensive.

On September 19 APCo asked to withdraw its application, citing changed circumstances. In reality, of course, nothing has changed since the Hearing Examiner’s August 31 report, other than APCo learning it was about to lose.

The company probably doesn’t mind being rejected for a program that witnesses said no one would sign up for. The much bigger issue for the company is that if the SCC adopts the hearing examiner’s view, APCo could lose its battle to block PPAs in its service territory.

For those of you just coming to the story, here’s the Cliff Notes version (this earlier post has the unabridged telling): APCo’s customers want the ability to install solar on their property through PPAs, a financing arrangement in which a solar developer installs and owns the panels, selling the electricity that’s generated to the customer. Often this means the customer can reduce its electricity bills without incurring an up-front cost. For tax-exempt institutions like colleges that can’t take advantage of the federal 30% tax credit for solar, the PPA model means the developer can take the tax credit and pass along the savings.

Virginia utilities say this arrangement violates their monopoly on the sale of electricity. Customers point to two statutory provisions that make PPAs legal. One provision allows customers to buy renewable energy from third parties if their utility doesn’t offer it. (No utility in Virginia does.) The other provision defines a net metering customer to include one who contracts with someone else to install and operate a solar facility on the customer’s property—an apt description of a PPA arrangement. Customers would seem to have the better of the argument, surely, but no bank will finance a PPA when a deep-pocketed utility is threatening to sue.

Dominion temporarily settled the issue in its territory with a pilot program that allows some PPAs, but APCo declined to participate. Under pressure from educational institutions that want solar, APCo proposed Rider RGP as an alternative for its territory. Customers and solar advocates seized the opportunity to seek a clear ruling from the SCC on the legality of PPAs. They argued, and the Hearing Examiner agreed, that Rider RGP wasn’t just badly designed, but unnecessary, given the provisions of the statute that already allow PPAs.

APCo doesn’t want the SCC commissioners to confirm this conclusion. It hopes that by withdrawing Rider RGP, the SCC will dismiss the case and not reach the merits of the argument on PPA legality. It is urging the SCC not to consider the point at all, or if it does so, not to take it up until it considers APCo’s plan, announced in April, to offer a green tariff to customers.

That green tariff is the “changed circumstances” APCo says makes Rider RGP unnecessary. If the SCC approves the green tariff, APCo will offer to sell real renewable energy to customers who want it. APCo clearly believes that having that tariff available to customers closes off the statutory provision that allows customers to go to third-party sellers if their own utility doesn’t offer renewable energy.

The green tariff would not, however, affect the legality of PPAs under the other statutory provision, the one that defines net metering customers to include those who have renewable energy facilities located on their property but owned and operated by someone else. Nor does the offer of a green tariff seem likely to satisfy customer demand for PPAs; buying electricity from a utility through a green tariff is a very different animal from having solar panels on your own roof.

The SCC is considering APCo’s request to withdraw its proposal for Rider RGP. It issued an order asking the parties to the case to comment by September 26. Advocates are expected to oppose APCo’s request and to ask the SCC to rule definitively on the legality of PPAs. By doing so, the Commission would finally bring legal clarity to an issue that has been holding back solar development in Virginia.


Update: September 26, Dominion Virginia Power filed a motion to intervene out of time, with a brief begging the SCC not to even look at the legality of PPAs, or if it did, to reject the hearing examiner’s reading of the statute on the grounds that her opinion disagrees with Dominion’s.  Dominion’s brief notes that it wrote its own opinion into a tariff, which the SCC approved, and therefore that ought to be more important than whatever the General Assembly actually said.

On October 7, the SCC allowed APCo to withdraw its proposal, ducking the issue of PPA legality and ensuring that more time and money will be wasted on future proceedings.

Virginia hearing examiner says renewable energy PPAs are legal, but will the ruling stick?

A third-party PPA made it possible to build this solar facility at the University of Richmond. Appalachian Power Company contends that a project like this would be illegal in its territory.

A third-party PPA made it possible to build this solar facility at the University of Richmond. Appalachian Power Company contends that a project like this would be illegal in its territory.

A hearing examiner for the Virginia State Corporation Commission recommended on August 31 that the SCC reject Appalachian Power Company’s proposed alternative to third-party power purchase agreements (PPAs) for renewable energy, concluding the program is not in the public interest. The parties will have three weeks to comment before the recommendation goes to the Commissioners for a final decision. The case is PUE-2015-00040.

The ruling against APCo’s proposed Rider RGP is less important to customers than the reasoning behind it. In addition to finding a myriad of faults with the proposal, the Hearing Examiner concluded it isn’t needed because PPAs are already legal under the Virginia Code. This is an outcome long sought by the solar industry and environmental groups, and one supported by the Attorney General’s Office of Consumer Counsel.

However, the Hearing Examiner’s report is merely a recommendation. Nothing is final until the Commissioners rule, and they could make a decision about Rider RGP without addressing the current legality of PPAs. Moreover, earlier this year, APCo proposed another program that it clearly hopes will nip in the bud any surge of PPA activity that might result from a decision in the present case. (I’ll get to that in a moment.)

The rejection of Rider RGP won’t disappoint any would-be customers. A long line of witnesses testified at the hearing on September 29, 2015 that APCo’s expensive and convoluted program would find no takers. As the Solar Research Institute summarized it, the proposed Rider RGP “would require a customer interested in a solar PPA to first pay for 100% of their service under the standard tariff, pay for 100% of the solar energy generated, pay a $30 program fee, and receive excess payments back through a Renewable Output Credit.” Oh, and they still wouldn’t be using renewable energy. (Note that although solar energy was the focus of the discussion for participants, the decision applies to other forms of renewable energy as well.)

The SCC staff made some suggestions to improve the program, but the hearing examiner, Deborah Ellenberg, concluded it was really beyond saving. Not only that, but the plain language of the Virginia Code makes third-party PPAs legal in the state already. Thus, there is no need for a utility-sponsored alternative.

Ellenberg pointed to two statutory provisions that support the legality of third-party PPAs. First, Virginia Code §56-577 A 5 provides that customers may purchase renewable energy from third-party sellers if their own utility does not offer a tariff for renewable energy. Specifically, customers may:

[P]urchase electric energy provided 100 percent from renewable energy from any supplier of electric energy licensed to sell retail electric energy within the Commonwealth . . . if the incumbent electric utility serving the exclusive service territory does not offer an approved tariff for electric energy provided 100 percent from renewable energy. . . .

Until now, APCo has offered only a green power program that sells RECs, which the SCC says doesn’t count.

The language of §56-577 sounds clear enough, but APCo and Dominion Power have maintained that this section only allows customers to go elsewhere if the other supplier can provide 100% of their electricity from renewable energy, something that can’t be done with a solar facility or a wind turbine.

This flimsy reading of the statute was the basis on which Dominion challenged a PPA at Washington and Lee University back in 2011. The issue was temporarily resolved two years later when Dominion and the solar industry agreed to a pilot program that now allows a limited number of PPAs in Dominion territory, under tight parameters that exclude residential customers. The program never applied in APCo territory, however—a sore point to customers there. APCo has clung to its reading of §56-577, regardless of the growing clamor for renewable energy in southwestern Virginia.

Ellenberg’s report flatly rejects the utility interpretation. If the SCC adopts her reading, any customer in APCo territory would be free to buy renewable energy from third-party suppliers, until APCo offers a qualifying program.

Ellenberg also cited Virginia’s net metering statute. Virginia Code §56-594 authorizes “customer generators” to enter into behind-the-meter PPAs with third parties that own and operate a renewable facility for the customer. Code §56-594 B defines an eligible customer generator for net metering purposes as “a customer that owns and operates, or contracts with other persons to own or operate, or both, an electrical generating facility that . . . uses as its total source of fuel renewable energy . . .” (emphasis added).

Interpreting this provision takes no special legal talent, surely. It would seem to cover residential and commercial facilities installed and owned by third-party developers, including the familiar no-money-down contract offered to residential customers by Solar City. But again, APCo and Dominion Virginia Power claim the Code doesn’t mean what it says. For more than five years they’ve backed up their position with threats of lawsuits, creating the kind of uncertainty that is toxic to development deals.

If the SCC’s final order endorses the hearing examiner’s finding that PPAs are currently legal, the result could be to open up the Virginia solar (and wind) market to large amounts of private investment statewide.

However, Ellenberg’s finding that PPAs are currently legal appears in her discussion but not in her recommendations to the commissioners; her recommendations are limited to the actions she proposes (rejecting or modifying the tariff). The SCC does not have to rule on the question of PPA legality in order to decide this case. Surely, though, it would be strange if it were to duck the opportunity now that the issue has been fully briefed. With solar a hot commodity across the state, the current legal limbo has become a significant economic drag that the SCC ought not to ignore.

As I mentioned, though, APCo still has one card up its sleeve. This spring it proposed a new tariff to offer its customers 100% renewable energy derived from existing wind, solar and hydro projects. The product appears to meet the condition of §56-577. If approved, it would slam shut the door that the Hearing Examiner just opened (or rather, that she said was open all along, if you had dared to go through it into the toxic miasma where gray-suited lawyers lay in wait). APCo’s request for approval of the tariff (PUE-2016-00051) is scheduled to be heard by the SCC on November 15, with comments due by November 8.

Solar advocates take a dim view of APCo’s move. The new tariff won’t build any new facilities; it simply shifts the burden of paying for existing renewable energy projects onto volunteers, at a significant premium. In today’s market, third-party developers can offer electricity generated by new solar projects at competitive prices. So APCo’s tariff looks less like an accommodation to its eco-conscious customers, and more like a maneuver to prevent anyone from building solar on its turf.

It’s high time the SCC put a stop to this anti-competitive behavior and let Virginians build solar projects with their own money. The Commissioners can follow the Hearing Examiner’s advice, or they can take a pragmatic approach and recognize that PPAs are really just a way to finance projects. They don’t turn solar developers into utilities, and APCo should stop wasting everyone’s time and money blocking private investment in a part of the Commonwealth that desperately needs it.

Why does Dominion Power support EPA’s Clean Power Plan?

DominionLogoWhen utility giant Dominion Resources Inc. filed a brief in support of the federal Clean Power Plan last week, a lot of people were caught off guard. Hadn’t Dominion CEO Tom Farrell said as recently as January that it would cost consumers billions of dollars? Why, then, is the utility perfectly okay with it now?

Well, first, because the mere threat of the plan has already cost Virginia consumers a cool billion, but it’s all going straight into Dominion’s pockets. What’s not to like? Otherwise, as applied to the Commonwealth, the Clean Power Plan itself is a creampuff that could even save money for ratepayers. Farrell’s claim that it will cost billions, made at a Virginia Chamber of Commerce-sponsored conference, seems to have been a case either of pandering to his conservative audience, or of wishful thinking. (Looking at you, North Anna 3!)

And second, Dominion’s amicus brief indicates its satisfaction with the way it thinks Virginia will implement the Clean Power Plan. Dominion has been lobbying the Department of Environmental Quality to adopt a state implementation plan allowing for unlimited construction of new natural gas plants (and perhaps that new nuclear plant), which happens to be Dominion’s business plan.

If you can get everything you want and still look like a green, progressive company, why wouldn’t you support the Clean Power Plan?

The only risk here is that it makes Virginia Republicans look like idiots. Their number one priority this legislative session was stopping the Clean Power Plan, largely on the grounds of cost. They ignored the hard numbers showing the plan essentially gives Virginia a pass, and instead relied on propaganda from fossil fuel-backed organizations like Americans for Prosperity and, crucially, the word of Dominion Power lobbyists.

Sure, it wasn’t just Republicans; a lot of Virginia Democrats swallowed Dominion’s argument during the 2015 legislative session that the Clean Power Plan would be so expensive for consumers that the General Assembly had to pass a bill—the notorious SB 1349—freezing electricity rates through the end of the decade so they would not skyrocket.

SB 1349 suspended the ability of regulators at the State Corporation Commission to review Dominion’s earnings. One outraged commissioner, Judge Dimitri, calculated that the effect of this “rate freeze” would be to allow Dominion to pocket as much as a billion dollars in excess earnings, money that ratepayers would otherwise have received in refunds or credits.

Nor has SB 1349 even prevented rates from going up, since the State Corporation Commission’s approval of Dominion’s latest mammoth gas plant[1] will tack on 75 cents to the average customer’s monthly bill.

Environmental groups had opposed the gas plant, arguing approval is premature since we don’t know what Virginia’s Clean Power Plan will look like, and that Dominion hadn’t properly considered other options.

It gets worse. Building more of its own gas plants allows Dominion to terminate contracts to buy power from other generators. In theory, this should represent an offsetting savings for consumers. But as Judge Dimitri explained in a concurrence, SB 1349 means Dominion doesn’t have to subtract this savings from the bill it hands those ratepayers.[2]

As Sierra Club Virginia Chapter Director Glen Besa noted, “The State Corporation Commission decision today proves that there really is no electricity rate freeze. The SCC just allowed Dominion to raise our electricity rates and increase carbon pollution for a power plant we don’t need.”

Now, let’s have a look at what is actually in Dominion’s Clean Power Plan brief. In part, it is a defense of EPA’s holistic approach to regulating generation and a rejection of the conservative claim that the agency should not be allowed to regulate “outside the fence line” of individual plants. Adopting the conservative view, argues Dominion, could lead to widespread, expensive coal plant closures.

But mostly, Dominion likes the Clean Power Plan because the company feels well positioned to take advantage of it. The brief makes this argument with classic corporate understatement:

Dominion believes that, if key compliance flexibilities are maintained in the Rule, states adopt reasonable implementation plans, and government permitting and regulatory authorities efficiently process permit applications and perform regulatory oversight required to facilitate the timely development of needed gas pipeline and electric transmission infrastructure, then compliance is feasible for power plants subject to the Rule.

What Dominion means by “reasonable implementation plans” requires no guesswork. Virginia clean energy advocates want a mass-based state implementation plan that includes new sources, so power plant CO2 emissions from Virginia don’t actually increase under the Clean Power Plan. You or I might think that reasonable, given the climate crisis and EPA’s carbon-cutting goals. But that’s not what Dominion means by “reasonable.”

Dominion’s business plan, calling for over 9,000 megawatts of new natural gas generation, would increase CO2 emissions by 60%. To Dominion, a 60% increase in CO2 must therefore be reasonable. Anything that hinders Dominion’s plans is not reasonable. QED.

“Needed gas pipeline . . . infrastructure” is no puzzle either. Dominion wants approval of its massive Atlantic Coast Pipeline. That pipeline, and more, will be needed to feed the gaping maws of all those gas plants. Conversely, Dominion, having gone big into the natural gas transmission business, needs to build gas generating plants to ensure demand for its pipelines.

Dominion is not the only electric utility betting big on natural gas. Southern Company and Duke Energy have also recently spent billions to acquire natural gas transmission and distribution companies. Moody’s is criticizing these moves because of the debt incurred. From a climate perspective, though, the bigger problem is that this commitment to natural gas comes right at the time when scientists and regulators are sounding the alarm about methane leakage.

There is surely some irony that Dominion, while defending the EPA’s plan to address climate change, is doing its level best to increase the greenhouse gas emissions that drive it.

Indeed, anyone reading Dominion’s brief and looking for an indication that Dominion supports the Clean Power Plan because it believes the utility sector needs to respond to the climate crisis would be sadly disappointed.

On the other hand, the brief positively sings the praises of “market-based measures” for producing the lowest possible costs. This is a little hard to take, coming from a monopoly that uses its political and economic clout to keep out competition and reap excessive profits through legislation like SB 1349, and which intends to use its captive ratepayers to hedge the risks of its big move into natural gas transmission.


[1] SCC case PUE-2015-00075 Final Order, March 29, 2016.

[2] Commissioner Dimitri, in a concurring opinion:

“I would find that SB 1349 cannot impact the Commission’s authority in this matter because it violates the plain language of Article IX, Section 2, of the Constitution of Virginia, for the reasons set forth in my separate opinion in Case No. PUE-2015-00027.

“Indeed, the instant case further illustrates how SB 1349 fixes base rates as discussed in that separate opinion. The evidence in this case shows that Dominion plans to allow certain NUG contracts, currently providing power to customers, to expire while base rates are frozen by SB 1349. The capacity costs associated with these contracts, however, are currently included in those base rates. Thus, as explained by Consumer Counsel, this means that “the Company’s base rates will remain inflated” because Dominion (i) will no longer be paying these NUG capacity costs, but (ii) will continue to recover such costs from its customers since base rates are frozen under SB 1349. Based on Dominion’s cost estimates, between now and the end of 2019, it will have recovered over $243 million from its customers for NUG capacity costs that the Company no longer incurs. While other costs and revenues are likely to change up and down during this period and would not be reflected in base rate changes precluded by SB 1349, these NUG costs are known, major cost reductions that will not be passed along to customers.” [Footnotes omitted.]

 

 

2016 bills show Virginia might finally get serious (sort of) about energy efficiency

Clive Upton/Wikimedia Commons

Clive Upton/Wikimedia Commons

Energy efficiency: it’s the resource that everyone praises and few pursue. If Dominion Virginia Power approached efficiency programs with the enthusiasm it devotes to building natural gas plants, then—well, it wouldn’t need the new gas plants.

And that’s the crux of the problem. Virginia’s utilities earn more money by building stuff than by not building it, and the excuse to build new stuff comes when demand for electricity increases. If people use less electricity—say, by buying more efficient lighting and appliances—that’s good for consumers, but bad for utility profits.

The Virginia State Corporation Commission hasn’t helped matters; it takes a skeptical view of utility-sponsored energy efficiency programs, rarely approving the kind of programs that would be needed for Virginia to make progress towards its modest goal of lowering electricity use 10% by 2022. Changing the SCC’s attitude through legislation is hard; doing so without the support of the utilities is impossible.

This is where the Governor finds his opportunity for modest progress. Terry McAuliffe has been very, very good to Dominion. He’s supported its fracked-gas pipeline, its budget-busting nuclear ambitions, its new gas plants, and even the rate boondoggle it secured last year that allows it to pick the pockets of Virginia ratepayers to the tune of a billion dollars.

So the least Dominion can do is to support the Governor’s efforts to improve Virginia’s dismal record on energy efficiency, reflected in HB 1053 (referred to House Commerce and Labor) and SB 395 (Senate Commerce and Labor). In a sign the utility may have acquiesced, the bills patrons are Delegate Terry Kilgore, the powerful chairman of the House Commerce and Labor Committee, and Senator Kenny Alexander, a Democrat on Senate Commerce and Labor who has shown no previous interest in reforming energy policy—but who, like Kilgore, ranks utilities among his top donors.

The legislation replaces an ineffective lost-revenue provision in the Code with an incentive-based approach intended to reward investor-owned utilities for success. According to a fact sheet the Administration is sharing with legislators, the utilities will reap bonuses in proportion to the amount of energy saved through implementing cost-effective programs:

  • An additional 1% of the actual costs of the program, if the utility achieves a levelized cost of saved energy (LCSE) for the program at or below six cents per kilowatt-hour;
  • An additional 2% of the actual costs of the program, if the utility achieves a LCSE for the program at or below five cents per kilowatt-hour;
  • An additional 3% of the actual costs of the program, if the utility achieves a LCSE for the program at or below four cents per kilowatt-hour;
  • An additional 4% of the actual costs of the program, if the utility achieves a LCSE for the program at or below three cents per kilowatt-hour.

These two Administration bills have the most momentum behind them, but they are not the only legislation out there looking for ways to make serious energy efficiency gains. The best of the bills is HB 576 (Rip Sullivan, D-Arlington, in Commerce and Labor). It requires the SCC to approve cost-effective efficiency programs and, more significantly, establishes robust new energy efficiency goals that utilities would be required to meet.

Sullivan has clearly spent a lot of time this year thinking about the policy barriers to energy efficiency. He correctly pegs SCC procedure as one of the problems.

HB 575 (in Commerce and Labor) as well as HB 352 (Lee Ware, R-Powhatan, also in Commerce and Labor) take aim at the way the SCC evaluates energy efficiency programs. Sullivan’s bill would make it easier for a program to meet the SCC’s standards. As currently written, Ware’s would actually make it harder; however, we hear this may be a drafting error, so we will be watching for amendments that would make this a bill to support.

Two more good bills from Sullivan also deserve mention. HB 1174 (in Commerce and Labor) requires the SCC to report on Virginia’s progress towards our 10% energy reduction goal. HB 493 (referred to Appropriations) creates an Energy Efficiency Revolving Fund to provide no-interest loans to localities, school divisions, and public institutions of higher education.

Freshman Delegate John Bell (D-Chantilly) has introduced a modest bill of such remarkable common sense that it shouldn’t be needed (but is). HB 808 requires government agencies to use LED light bulbs instead of incandescent bulbs when installing, maintaining or replacing outdoor light fixtures. The bill has been referred to the Committee on General Laws.

It’s also worth noting that two bills I previously included in the roundup of climate-related legislation would also have a significant impact on energy efficiency investments. HB 351 (Ron Villanueva, R-Virginia Beach, referred to Commerce and Labor) and SB 571 (Donald McEachin, D-Richmond, referred to Agriculture) would direct the Governor to join the Regional Greenhouse Gas Initiative (RGGI), the cap-and-trade plan that the northeastern states have used successfully to reduce carbon emissions and raise funds to further the RGGI goals. In Virginia, these funds would include millions of dollars for energy efficiency.

Finally, there’s a bill expanding Virginia’s authorization for Property Assessed Clean Energy (PACE) programs, which allow localities to loan money to property owners for energy efficiency and renewable energy. HB 941 (David Toscano, D-Charlottesville) expands the authorization for PACE programs to include residential and condominium projects.

 

Dominion Virginia Power ordered to refund $19.7 million to customers, but gets to keep a billion in future overcharges

"Keep counting, Mr. Farrell. There's a billion more where this came from." Photo courtesy of Wikimedia Commons Valdemar-Melanko-1965 public domain.

“Keep counting, Mr. Farrell. There’s a billion more where this came from.” Photo courtesy of Wikimedia Commons Valdemar-Melanko-1965 public domain.

The State Corporation Commission has ordered Dominion Virginia Power to refund $19.7 million to customers, reflecting excess earnings during 2013 and 2014. But according to the November 23 order, the company will not have to lower its rates going forward, due to its success last winter in getting a bill passed that freezes base rates and eliminates rate reviews until 2022.*

That legislation, SB 1349, was widely criticized (including by me) as a handout to Dominion. How big a handout is now clear: “over a billion dollars,” according to the calculation of Judge James Dimitri, one of the three SCC commissioners.

Writing in a partial dissent, Judge Dimitri called SB 1349 unconstitutional, noting that Article IX, Section 2 of Virginia’s Constitution explicitly assigns rate-setting authority to the SCC. Thus, said Dimitri, the SCC should give no credence to SB 1349, and consequently should order a refund covering 2013 and 2014, and follow normal procedure to lower base rates going forward.

A rate decrease is appropriate, according to Dimitri, because “The record in this case and other biennial review proceedings demonstrate that, when conventional rate standards are applied, there have been, and are projected to continue to be, excessive base rates that are being paid by Dominion customers. “

And again: “The trend of current rates producing revenues over cost and a fair return has been continuing. For 2015, the Commission Staff projects revenues over a fair return of $301 million, and $299 million for 2016. . . The current rate levels, which the Commission has not been authorized to adjust, are designed to produce and have been producing annual excess revenues of hundreds of millions of dollars.”

As a result, concludes Judge Dimitri, “If base rates are fixed at current levels for at least the next seven years, earnings over and above the Company’s cost of service and a fair return have the potential to reach well over a billion dollars, at customer expense.”

The two other judges, Mark Christie and Judith Jagdmann, don’t address the constitutionality issue in their opinion for the majority. Indeed, it appears that none of the parties in the case raised the constitutional question in the proceedings, nor did any of the judges request briefing of the issue later, as sometimes happens.

Taking a cue from Judge Dimitri, however, on December 11 the Virginia Committee for Fair Utility Rates, one of the parties to the rate case, filed a Petition for Rehearing or Reconsideration, objecting to the commission’s order for failing to rule explicitly on the issue. The Committee asked for a hearing on the constitutional issue and asking for an order finding the provisions of SB 1349 unconstitutional.

Three days later, however, the SCC denied the petition in a second order, noting that the constitutional argument had not been raised during the rate case. Dmitri again dissented, saying he would grant reconsideration.

What happens now? Ordinarily any decision issued by the SCC can be appealed to the Virginia Supreme Court; but then, ordinarily you have to raise an issue during a proceeding before you can appeal it. It’s not clear whether the Court will agree to hear an appeal of these two orders if the Virginia Committee for Fair Utility Rates decides to pursue it.

With a billion dollars at stake, this is not an argument that should be ignored merely because it wasn’t raised in time. But there is also a reason the claim wasn’t raised earlier in the case: it’s a rate case looking backwards, not forwards, so the SCC didn’t actually have to address SB 1349.

Legal experts tell me that the Virginia Committee for Fair Utility Rates—or anyone else for that matter—can still challenge the constitutionality of SB 1349 by filing a new and separate case seeking a declaratory judgment from the SCC. A new case, with new arguments, yielding a decision on the merits, would most certainly be appealable to the Court.

__________________________

*The case is PUE-2015-00027. Links to documents on the SCC website work only some of the time. That counts as an improvement.