Virginia bill will put more pressure on Dominion Energy to justify cost recovery
April 6, 2020
By Elizabeth McGowan
House Bill 528, now awaiting the governor’s signature, offers state regulators more authority over monopoly utilities.
A scantly noticed bill curated by a freshman legislator from northern Virginia elicited giant cheers from Dominion Energy watchdogs when it passed both the Senate and the House of Delegates just seven days before the General Assembly adjourned on March 12.
Though overshadowed by the Virginia Clean Economy Act, supporters view the success of House Bill 528 as a momentous first effort to shift power from utility monopolies and toward regulators and ratepayers.
On its face, the measure deftly shepherded by Del. Suhas Subramanyam is simple. It restores the State Corporation Commission’s oversight of Dominion’s cost recovery timeline for early retirements of all types of power plants.
“This is part of a larger effort to even the playing field and make sure a monopoly plays by the same rules as any other company,” the Loudoun County Democrat said in an interview. “No one else can determine how to depreciate their own assets and I don’t think people understood the implications of that.”
Subramanyam’s measure reverses current law, passed in 2018 as part of the massive Grid Transformation and Security Act. That allowed Dominion to recover — as a one-time expense — the remaining balance on a retired power plant instead of refunding the extra earnings to customers.
“I was trying to reverse an accounting trick that would prevent ratepayers from getting refunds,” he said. “When I first started with this, I thought it was a long shot. Once people understood what it did, they saw it as a common-sense bill.”
Part of what spurred him to push his bill was the imminent passage of the overarching Virginia Clean Economy Act, which is designed to shift energy priorities and speed up the retirement of coal- and natural gas-fired plants. To decarbonize Virginia’s electricity grid by 2045, the act establishes aggressive energy efficiency standards, broadly expands incentives for rooftop solar, and kickstarts a massive offshore wind industry.
Brennan Gilmore, executive director of Clean Virginia, praised what he called a newly emergent bipartisan coalition of lawmakers for challenging Dominion with HB 528 and on several other fronts.
For instance, legislators blocked Senate Bill 1096, a Dominion-backed bill to expand an exclusive electric school bus contract. They also advanced pilot competition bills for energy services, signaling interest in overhauling the state’s vertically integrated monopoly structure.
And they came remarkably close to passing the bipartisan Fair Energy Bills Act, which would have empowered state regulators to examine Dominion’s earnings, decide how much is fair, then direct the utility to refund the surplus to customers.
Dominion has overcharged customers by more than $1.3 billion since 2015, according to State Corporation Commission figures.
Combined, those initiatives sent “a strong message that Dominion Energy will no longer be able to use the General Assembly as a rubber stamp for its profit-padding legislation,” Gilmore said. “New lawmakers have joined seasoned members of both chambers to build a firewall of support for consumer protection, good governance and distributed clean energy.”
Dominion Energy did not respond to a request for comment for this article.
HB 528 is a start
Will Cleveland, a senior attorney with the Southern Environmental Law Center, said he was disappointed legislators who professed to care about ratepayers bucked the Fair Energy Bills Act.
It was a necessary complement to the Clean Economy Act because “as long as rates are where they are, we’re not doing a transition to zero carbon emissions in the power sector in the least-cost manner,” he said.
Subramanyam’s bill isn’t comprehensive enough to solve that problem.
“HB 528 is a good starting point, but it fixes only one of the many things wrong with Virginia’s regulatory structure,” Cleveland said. “The Fair Energy Bills Act would have removed all of the obstacles.”
That latter oversight measure would have applied to Dominion’s 2021 rate case, when utility regulators will be examining four years of records — from 2017 to 2020 — and setting Dominion’s next base rate and allowed profit level.
Five years ago — when the Obama administration’s U.S. Environmental Protection Agency was rolling out the Clean Power Plan — Virginia legislators voted to let Dominion keep excess profits in exchange for freezing base rates for seven years.
“The State Corporation Commission is not failing to do its job,” Cleveland said about the overcharging. “It’s not legally allowed to do so.”
He noted that passage of the Clean Economy Act is “the first time a major piece of energy legislation has passed that Dominion didn’t write,” adding that the bill educated lawmakers about shortcomings in their state. “I’m excited about the number of people committed to helping to fix this in the future.”
Dominion will be filing its next version of an Integrated Resource Plan on May 1. Regulators have asked the utility to include a model detailing the costs of executing the Clean Power Plan.
“It’s the first time that Dominion is having to put numbers to paper in front of a court rather than through a press release,” Cleveland said. “Nobody has done a good job of quantifying the costs and savings of the Clean Economy Act.”
A push for accountability
Some advocates intent on reining in Dominion emphasized that legislators found voting for the Clean Economy Act more palatable after Subramanyam’s bill passed, even though it wasn’t as comprehensive as the Fair Energy Bills Act.
An analysis by state regulators said the Clean Economy Act would lead to Dominion collecting $50.8 billion more from its ratepayers.
But J.R. Tolbert, the managing director for the Advanced Energy Economy, questioned the accuracy of the commission’s math. He said a Lakes Energy study commissioned by his organization was more spot-on. It predicted customers’ monthly bills would drop by about $4 a month between 2020 and 2030.
Tolbert attributed legislators’ attempts to constrain Dominion this session to years of frustration by lawmakers and clean energy advocates in the trenches. Strategic thinking and the first Democratic majority in both chambers in a generation allowed that pent-up anger to be released.
“We reached a full boil on how we handle and address Dominion’s rates and everything else,” said Tolbert, who has tracked the General Assembly since 2008, the year after Virginia electric utilities returned to a regulatory model. “This year there was an enormous push for more accountability.”
The coalition that crafted the Clean Economy Act chose to achieve 100% clean energy without breaking the bank, he said.
“We know there are flaws in the current regulatory regime,” he continued. “But we can’t fix and change that regulatory model and put Virginia on a path to clean energy in the same package.”
Some key breakthroughs Tolbert cited include:
- Removing barriers to rooftop solar by raising the cap on power purchase agreements in Dominion service territory from 50 megawatts to 1,000 MW and increasing the size of those individual projects from 1 MW to 3 MW.
- Expanding distributed solar by reducing the upfront capital required to invest in solar, establishing a 1% carveout for distributed solar in the renewable portfolio standard and increasing the net metering cap in investor-owned utility service territories from 1% to 6%.
- Declaring up to 5,200 MW of offshore wind to be in the public interest by 2035 as part of the renewable portfolio standard.
- Creating an accelerated buyer program for companies leading on clean energy and requiring those large energy users to procure up to 50 MW of offshore wind, thus lowering the overall cost for other ratepayers.
- Ensuring that utility-scale renewable energy is built on a lowest-cost basis by requiring competitive procurement for all projects and that 35% of all solar and onshore wind projects be third-party owned.
“We tried to fight for things that achieve the goals but take into account the impact on ratepayers, families and businesses,” Tolbert said. “Are there places where it could have been better or stronger? Yes.”
For instance, his coalition wanted third parties to have a higher ownership stake in renewable energy projects. But that didn’t fly.
Still, “the clean energy folks were able to get out in front,” he said. “As a result, we were able to make sure the conversation was based off our sheet of paper instead of the utility sheet of paper.
“Both Dominion and Appalachian Power came to the table to work on the bill.”
Gathering bipartisan support
Democratic Gov. Ralph Northam is expected to sign Subramanyam’s ratepayer protection bill into law early this month. The Senate greenlighted it on a 35-5 vote, while the House passed it 50-43.
“It’s a really big deal,” Subramanyam said. “This bill would have never passed in previous years because of the opposition from regulated utilities.”
During back-and-forth negotiations, he agreed to a few amendments to advance his measure. For instance, one allows Dominion to present specific amortization cases involving plant shutdowns to regulators — but commissioners have the power to make the ultimate decision.
Subramanyam, elected in 2019, credits his mentors for helping him to navigate the intricacies of legislating. However, he knows the value of listening and give-and-take.
He might be a rookie in Richmond, but his background is on Capitol Hill and in President Barack Obama’s White House.
“I think it was a surprise to the investor-owned utilities that there were both Democrats and Republicans who stood up in support,” he said. “Sometimes this is about relationships.”