Virginia’s 2018 energy law requires the utility to spend $870 million on efficiency programs over the next decade.
Watchdogs fear the first phase of Dominion Energy’s kilowatt-saving measures indicate that Virginia’s largest utility will fall far short of the $870 million it’s required to spend on energy efficiency over the next decade.
State utility regulators this month green-lighted a package of 11 programs geared for residential and commercial customers that Dominion submitted to comply with the landmark Grid Transformation and Security Act of 2018.
This initial round of programs is scheduled to begin this summer and last for five years. Several are continuations of existing initiatives, but many are new.
Experts from groups such as the American Council for an Energy-Efficient Economy (ACEEE) say Dominion will have to beef up future offerings it presents to the State Corporation Commission to meet 2028 mandates.
“The key point is that we need Dominion to scale up what they are spending on energy efficiency,” said Mary Shoemaker, a senior research analyst with the nonprofit council. “They can do this by investing more in existing programs, expanding their programs or offering new types of programs that get to new customers.”
Dominion spokesman Rayhan Daudani said the utility is confident it will hit the target laid out by the General Assembly.
“Already, we’ve bitten off a substantial chunk and are on track to meet the $870 million goal,” he said, adding that Dominion will be seeking approval on a second phase of programs this fall. “We’re making a serious commitment to advance energy efficiency in Virginia at a scale that hasn’t been done in the past.”
Virginia playing catch-up
Efficiency advocates know their cause isn’t as much of a headline-grabber as flashier renewable energy such as wind and solar. But they continue to plow forward in Virginia and other southeastern states that lag behind.
Virginia has a voluntary legislative goal to reduce electricity use 10% between 2006 and 2022. The state is on track to achieve less than one-third of that marker, according to 2018 math by the Department of Mines, Minerals and Energy.
ACEEE’s State Energy Efficiency Scorecard shows Virginia tied for last — in all but one year over the last decade — when measuring spending on energy efficiency programs as a percentage of electric utility revenue.
Dominion ranked 50th out of 51 utilities in ACEEE’s 2017 Utility Energy Efficiency Scorecard.
“Utilities want to sell as much electricity as possible, so they don’t see the reward in delivering these programs,” Shoemaker said. “That’s where legislation and direction from regulators come in.”
Ensuring that programs are cost-effective falls to regulators.
“Often homeowners and businesses aren’t interested in making an upfront investment when they’d rather keep the cash in their pockets,” she said. “They’re not aware of the long-term savings.”
Incentives lower the amount of money enrollees spend, she said. Utilities are well-suited to offer such perks because of their existing customer relationships.
One residential program in the package, with a five-year price tag of $23 million, allows customers to invest in efficiency via a home energy assessment program.
Two of the commercial programs encourage customers to install high-efficiency heating and cooling systems and to upgrade light bulbs and other lighting technology.
Advocates are concerned about a portion of that new law that allows an exemption for commercial customers using 500 kW or more of electricity monthly during a portion of the year. Previously, the exemption threshold was 10 MW.
“This is an issue we want to see changed,” Shoemaker said. “Dominion is missing out on economies of scale when it can’t deliver energy efficiency to large industrial customers.”
“Lost revenues” disputed
During regulatory hearings, environmental organizations and ACEEE challenged Dominion’s proposal to include “lost revenues” as part of its total investment in energy efficiency.
Lost revenues refer to the money the utility had already invested in power plants and other assets — and were not part of the Grid Transformation and Security Act.
Rachel Gold, one of Shoemaker’s colleagues, testified before utility regulators as an expert witness on behalf of the Virginia Energy Efficiency Council. The latter includes Fortune 500 companies, utilities, nonprofits, local governments and state agencies among its 100-plus members.
Gold, the senior manager of ACEEE’s utilities program, emphasized that every penny of Dominion’s funding for energy efficiency should benefit customers directly.
Even Democratic Gov. Ralph Northam, who signed the grid transformation bill into law, weighed in with a letter telling Dominion to “fully act” on its $870 million commitment to energy efficiency.
Before it did so, Gold’s analysis projected that Dominion would spend $325 million on energy efficiency through late 2027, roughly 40 percent of the $870 million laid out in the law.
Dominion’s Daudani explained that the utility initially folded lost revenues into its commitment because “legally we had the right to ask for it” while navigating details of the new law.
He pointed out that while regulators have allowed for lost revenues to be included in other cases, Dominion has never received a penny in lost revenues in its energy efficiency history.
Daudani said the $118.4 million that Dominion is investing in its initial package puts the utility on track to meet its commitment.
“It shows we are going to put our money where our mouth is,” he said. “This is proof that we are taking these programs seriously.”
The ACEEE is taking a wait-and-see approach as Dominion unveils more energy efficiency programs this fall, and beyond.
“We can’t say assuredly that they can get from $118.4 million to $870 million,” Shoemaker said.
She noted that while lost revenues are off the table for now, state utility regulators will be revisiting the issue later during Dominion’s 2021 rate case.
Dominion reserves the right to ask for lost revenues in a few years, Daudani said.
Money vs. megawatts
While advocates praise the grid transformation act for advancing energy efficiency, they are also frustrated that it measures success by the amount of money a utility spends rather than kilowatts saved by customers.
In her testimony, Gold stated that Michigan, Hawaii, Massachusetts and many other states base utility incentive mechanisms on achieved energy savings rather than money spent to encourage specific desired outcomes.
Illinois, for instance, provides performance incentives and penalties for utilities that meet, exceed or fail to meet energy savings targets.
She also said that energy efficiency is a bargain for utilities. ACEEE research from 2015 indicated that the average cost for a utility nationwide is about 3 cents per kWh.
Daudani said he didn’t want to speak for policy makers and why they chose dollars spent as the measuring stick.
However, he said, the new law means state regulators are streamlining approval of Dominion’s programs. In the past, commissioners had rejected a series of the utility’s energy efficiency proposals.
Meanwhile, the 100 or so stakeholders from the private and public sector will continue to help shape the utility’s next rounds of energy efficiency proposals.
ACEEE wants Dominion to usher in more robust programs that address multifamily housing as well as new residential and commercial construction.
“But the fact that all programs in the first round were approved is a really positive development,” Shoemaker said. “We haven’t seen the (State Corporation Commission) be as supportive as they were in this latest proceeding.”