The Regular Session of the 2017 Virginia General Assembly wrapped up on Saturday, February 25. While the approval of an amendment to Virginia’s biennial budget received the most attention, the session also resulted in some notable bills affecting the energy industry. In particular, the General Assembly sent several bills to Governor McAuliffe’s desk that could accelerate the development of renewable generation in Virginia. Each of these bills is currently awaiting the Governor’s signature. Below is a our summary of a few of the noteworthy energy bills passed this session:
SB 1395 – Expansion of Virginia’s Permit By Rule (“PBR”) option for renewable developers
Currently, developers proposing to construct renewable energy facilities of 100 MW or less may use the Virginia Department of Environmental Quality’s (“DEQ”) PBR process. The PBR can often reduce the time and expense necessary to receive the state approvals required to begin construction and operation of a solar or wind facility.SB 1395 (Wagner) expands the facility size threshold to allow renewable facilities up to 150 MW to utilize the PBR process. The bill also provides that a small renewable facility owned or operated by a public utility may obtain a PBR, and will be exempted from State Corporation Commission review, so long as the project costs are not recovered from the utility’s ratepayers.
HB 2390 – Limited expansion of Dominion’s renewable energy purchase pilot program in Appalachian Power’s (“APCo”) service territory
Virginia law currently allows customers in Dominion’s service territory to purchase generation from renewable energy facilities that are located on their property, but that are owned and operated by a third party.HB 2390 (Kilgore) would expand this pilot program to allow non-profit institutions of higher education in APCo’s service territory to participate in the same pilot program. The bill, for example, would allow private colleges to purchase 100% renewable energy from facilities owned and operated by third parties. This bill is intended to address an economic challenge faced by colleges who wish to use renewable energy. Colleges, because they have no federal tax liability, are often unable to benefit from federal tax credits for capital investments in renewable energy. Third-party sellers, however, are able to pass the tax savings on to non-profithigher education customers, which reduces customers’ power purchase expenses. The program is capped at 7 MW for non-profit customers in APCo’s service territory.
SB 1393 – Community solar pilot program
SB 1393 (Wagner) requires both APCo and Dominion to conduct a pilot program that would allow all retail customers to purchase 100% solar energy from new solar facilities located in Virginia and owned by the utilities. Customers would be permitted to voluntarily “subscribe” to a solar energy rate schedule. Currently, neither utility offers customers an option to purchase 100% solar energy. APCo and Dominion would be required to conduct a competitive request for proposals (“RFP”) prior to dedicating any particular solar resource to the pilot program.
SB 1394 – Renewable energy program for agricultural customers
SB 1394 (Wagner) authorizes a new program for agricultural customers operating renewable energy facilities on their property. The bill establishes a buy-all, sell-all program whereby agricultural generators may sell 100% of the renewable energy generated to their incumbent electric utility, while continuing to purchase 100% of their electricity requirements from their utility. The utilities are required to purchase the renewable energy generated at a rate not less than the utility’s avoided cost rate. (The utility’s “avoided cost” is a rate approved by the State Corporation Commission which represents the theoretical cost the utility would incur to obtain replacement power.) The buy-all, sell-all program would only be available for agricultural customers with renewable energy facilities 1.5 MW or smaller.
HB 2291 – Cost recovery for Dominion’s nuclear expenditures
HB 2291 (Kilgore) would allow Dominion to seek cost recovery for future upgrades to its nuclear facilities. The bill would allow Dominion to recover such costs through a rider, called a rate adjustment clause (“RAC”), as opposed to through base rates. Before receiving approval of a nuclear upgrade RAC, Dominion would have to prove that it “considered and weighed” the option of obtaining new generation through third-party market purchases. Without the bill, such costs would recovered through a utility’s base rates, which are currently frozen due to due 2015 legislation supported by APCo and Dominion. Recovering costs through RACs provides several benefits to utilities, including guaranteed recovery of all expenses, plus a guaranteed rate of return. (Recovering costs through base rates, meanwhile, does not guarantee full cost recovery. If a utility sells fewer kilowatt hours than forecasted, for example, the utility might not fully recover its costs plus a rate of return.)
SB 990 – Tracking Virginia’s achievement of energy efficiency goals
Finally, SB 990 (Dance) would direct the Virginia Department of Mines, Minerals and Energy (“DMME”) to provide an annual report regarding the Commonwealth’s progress towards its energy efficiency goals. In 2007, the General Assembly adopted a goal for the Commonwealth to reduce its energy consumption by 10% by 2022. In 2015, Governor McAuliffe created an Executive Committee on Energy Efficiency to help accelerate the achievement of the 10% energy reduction goal.
On Wednesday, February 1, the Virginia State Corporation Commission approved an application filed by Dominion Virginia Power to construct and operate a 20 MW solar generating facility near the town of Remington, in Fauquier County. Virginia. Dominion will sell the output of the facility to the Commonwealth of Virginia under a 25-year power purchase agreement. Dominion estimates that the total cost of the project will be $46 million. The terms of the agreement, however, including the price that the state agreed to pay for the energy, are confidential and were not disclosed to the Commission.
The SCC rejected Dominion’s first application to build and operate the Remington facility in 2015. In the 2015 case, Dominion sought to increase customer rates in order to pay for the Remington project, which would have provided power to all of the company’s retail customers. But the Commission rejected Dominion’s application after finding that the company had not complied with a Virginia statute requiring it to consider third-party alternatives. Specifically, Virginia law requires utilities, when proposing to build new generation facilities, to demonstrate that they considered whether the same energy could have been obtained for a lower price from non-utility companies.
The Commission’s final order on Wednesday, however, found that this law should not apply to Dominion’s new application because the Commonwealth of Virginia is the sole purchaser of the energy. The Commission noted that the Commonwealth is a “non-jurisdictional retail electric customer” and thus “the rates and charges it pays generally fall outside of the Commission’s regulatory authority.” The Commission also explained that Dominion will “recover its costs exclusively through contracts negotiated with the Commonwealth” and not “through any Virginia jurisdictional retail electric rates established by the Commission.”
The Commission admitted that it had “not reviewed or evaluated the terms of the Commonwealth’s contract with Dominion, including the financial terms of [the] arrangement.” Therefore, it is unclear at what price the Commonwealth agreed to purchase the Remington energy, or whether solar energy could have been obtained from another seller at a lower cost to taxpayers.
Dominion has announced plans to build at least 400 MW of solar energy in Virginia by 2020. And, as we have discussed previously, several bills currently under consideration by the General Assembly could further accelerate the development of solar energy in Virginia. The Virginia Department of Environmental Quality reports that there are seven other solar facilities at least 20 MW in size that have been permitted by the state and in various stages of construction.
On July 1, 2016, a 2-1 majority of the SCC rejected a legal challenge to SB 1349, the so-called “electric rate freeze law,” which prevents the Commission from reducing the base rates of Dominion Virginia Power (“Dominion”) and Appalachian Power Company (“APCo”) until 2023 and 2021, respectively. A group of large industrial customers of APCo brought the challenge, alleging that the law violates the Virginia Constitution because it prevents the Commission from regulating the rates of Virginia’s largest investor-owned electric utilities for several years. Dominion and APCo are both monopolies, meaning that businesses and individuals in their service territories have no choice but to purchase power from the two utilities. As we have previously written, this issue is worth approximately $280 million per year for Dominion’s customers alone.
The legal challenge was based on Article IX of the Constitution of Virginia, which establishes the powers and duties of the SCC. Article IX, Section 2 provides that “Subject to such criteria and other requirements as may be prescribed by law, the Commission shall have the power and be charged with the duty of regulating the rates, charges, and services … of electric companies.” According to the industrial group, therefore, the Commission’s authority to regulate electric rates is subject only to “criteria” and “other requirements” that may established by the General Assembly. By taking the authority to regulate electric rates away from the SCC altogether, the group argued, the rate freeze law violates Article IX. The challengers also noted that SB 1349 freezes rates at an excessively high level, which will likely result in excess profits of hundreds of millions – or billions – of dollars for utility shareholders at the expense of Virginia citizens and businesses.
The SCC majority, however, wrote that “the question presented in this case is not whether SB 1349 represents good policy; it is whether SB 1349 violates the constitution.” The majority reasoned that the law does not run afoul of Article IX because SB 1349, by delaying rate reviews, merely establishes “requirements” or “criteria” regarding rate setting. Commissioner Dimitri dissented, writing that “rather than prescribing criteria and other requirements that the Commission must apply in setting base rates, [SB 1349] removes the Commission’s constitutional power and duty to regulate those rates.” IN support of his dissent, Commissioner Dimitri cited Professor A.E. Dick Howard, a chief drafter of the 1971 revisions to the Virginia Constitution, who has written that the General Assembly “may not itself fix the rates of a particular [utility] company.” Dimitri also wrote that “the majority embraces plenary power of the General Assembly in all rate regulation matters, by stretching ‘criteria’ to mean complete regulation of rates, including prohibition of Commission regulation of rates.”
Commissioner Dimitri noted that the Commission Staff had estimated that Dominion’s rates are currently designed to produce excess revenues of approximately $300 million per year and that “Dominion’s [excess profits] have the potential to reach well over a billion dollars, at customer expense,” during the rate freeze period.
Attorney General Mark Herring, who is charged by statute with representing the interests of ratepayers before the SCC, instead sided with Dominion and APCo. The Attorney General, while conceding that the General Assembly could not set electric rates, sought to parse the difference between “setting rates” and “freezing rates.” The Attorney General argued that SB 1349 is lawful because it “does not set the rate,” but merely “freezes” rates previously set by the Commission.
Commissioner Dimitri pointed out that the Attorney General had, in recent cases before the Commission, argued that Dominion’s and APCo’s rates are currently too high, and producing excess profits for utility shareholders. Dimitri also noted that the Attorney General’s decision to side with Dominion and APCo is contrary to a 2015 Attorney General legal opinion, in which Herring wrote that the General Assembly may not pass laws that “contravene the [Commission’s] fundamental power and duty to regulate the ‘rates, charges, and services … of railroad, telephone, gas, and electric companies.”
The challengers have until August 1, 2016, to decide whether to appeal the decision to the Virginia Supreme Court. If the Supreme Court strikes SB 1349, the decision could allow the SCC to reduce Dominion’s and APCo’s rates by hundreds of millions of dollars per year.
A group of industrial customers of Dominion Virginia Power (“Dominion”) recently asked the Supreme Court of Virginia to strike a controversial portion of the Virginia Electric Utility Regulation Act (“Regulation Act”). The group, the Virginia Committee for Fair Utility Rates (“Committee”), is challenging a 2015 amendment to the Regulation Act, Senate Bill 1349, which limits the state’s ability to regulate the electric rates of monopoly public utilities. The so-called “rate freeze law” prevents the State Corporation Commission (“SCC” or “Commission”) from reviewing or reducing the base rates of Dominion and Appalachian Power Company through at least 2022. If the Supreme Court strikes the law, it could mean a significant rate reduction for Dominion’s customers – to the tune of approximately $280 million per year. See our previous information about this topic here.
The rate freeze law is controversial because it prevents the Commission from reducing Dominion’s rates, even though the SCC has previously found that the monopoly utility’s rates are too high and are producing excess profits for Dominion’s shareholders. In its 2013 review of Dominion’s rates, the Commission found that Dominion’s current base rates are set at a level that will produce excess profits of approximately $280 million each year. The Committee’s appeal seeks to overturn the rate freeze law, which would presumably allow the SCC to lower Dominion’s rates substantially. The Committee has argued that if Dominion’s rates remain unchanged through 2022, Dominion’s shareholders will reap excess profits of “well over a billion dollars.”
The challenge was triggered by an SCC order late last year that applied the rate freeze law for the first time. In its Final Order in Dominion’s 2015 Biennial Review rate case, SCC Case No. PUE-2015-00027, a 2-1 majority of the Commission applied SB 1349 as written and declined to adjust Dominion’s base rates or set a new rate of return on equity for the company. Commissioner Dimitri, however, filed a dissenting opinion, stating that the rate freeze law violates Article IX of the Constitution of Virginia because it limits the SCC’s authority to regulate monopoly electric utilities such as Dominion.
The legal arguments advanced by the Committee are also based on Article IX of the Constitution of Virginia, which establishes the powers and duties of the SCC. Article IX, Section 2 provides that “Subject to such criteria and other requirements as may be prescribed by law, the Commission shall have the power and be charged with the duty of regulating the rates, charges, and services … of electric companies.” According to the Committee, therefore, the Commission’s authority to regulate electric rates is subject only to “criteria” and “other requirements” that may established by the General Assembly. By taking the authority to regulate electric rates away from the SCC, the Committee has argued, the rate freeze law runs afoul of Article IX.
Opening briefs in this case (Supreme Court Record No. 160453) are due June 3, and oral arguments are likely to be held during the Supreme Court’s fall term.
If you have any questions about any of the legal aspects of this case or its potential to affect the electric rates paid by Dominion’s customers, do not hesitate to contact one of GreeneHurlocker’s Virginia energy and regulatory attorneys.
May 2, 2016 commission, consumer protection, General Assembly, regulation, Retail Electric Competition, retail energy market, State Corporation Commission, The GreeneHurlocker Blog, Virginia 0 Read more >
We’ve examined in detail the Virginia Department of Environmental Quality (“DEQ”) changes to implement Virginia’s 2009 “Small Renewable Energy Projects” legislation (VA Code 10.1-1197.6). The statute moved authority from the State Corporation Commission (“SCC”) to DEQ over protection of natural resources (specifically wildlife and historic resources) with respect to renewable energy projects. Pursuant to the statute, DEQ has jurisdiction to approve PBR applications for solar projects with a rated capacity of 100 megawatts or less, while the SCC retains jurisdiction for projects with a rated capacity over 100 megawatts. DEQ’s regulations are set forth in 9 VAC 15-60 of the Virginia Administrative Code. The details are on our post here.
On February 9, 2016, the Maryland, DC, Virginia Solar Energy Industries Association (MDV-SEIA) and the Virginia Energy Efficiency Council will host Clean Energy Lobby Day (CELD) 2016. The event brings together the advanced energy businesses of Virginia with key legislators to advocate for clean technology bills and solar energy-friendly legislation. More than 100 business representatives from Virginia’s solar, wind and energy efficiency industries generally attend.
“GreeneHurlocker will be there and we hope you will join us in this incredible opportunity to make our voices heard,” said Eric Hurlocker, co-managing member of the firm and a Board member of MDV-SEIA. If you want to know more about MDV-SEIA or Clean Energy Day, contact Hurlocker or any of our Virginia energy lawyers.
On December 21, 2015, Governor Terry McAuliffe announced that, as a way to continue momentum in Virginia’s solar industry, state agencies will derive eight percent (8%) of their energy from solar sources within the next three (3) years. Governor McAuliffe’s plan will deploy the development of 110 megawatts of solar energy through agreements with Dominion Virginia Power (“Dominion”) and third party developers, with Dominion building up to seventy-five (75%) of the solar capacity, and third party developers developing twenty-five percent (25%) of the solar capacity. The Commonwealth of Virginia is expected to purchase the solar-generated electricity through a long-term power purchase agreement with Dominion. Dominion’s customers, however, are not expected to experience a rate change as a result of the long term agreement, as any costs associated with the solar initiative are to be paid by the Commonwealth.
If you have questions about this initiative or its effects, or on any issue in the solar energy industry, please contact one of our Virginia solar energy lawyers.
We watched a lot of bills arrive and die in the Virginia General Assembly session this past year (a session that still has yet to pass a budget for the state). Here is a brief look at a few initiatives impacting renewable energy development in Virginia that have been enacted or remain active for future sessions.
S.B 653 was intended to offset costs to install new renewable energy facilities by offering grants to cover a portion of these costs. This bill defines “renewable energy” as energy derived from sunlight, wind, falling water, biomass, waste, landfill gas, municipal solid waste, wave motion, tides or geothermal power, but does not include energy derived from coal, oil, natural gas, or nuclear power. The idea was to establish a grant system through which the $10 million fund would allow individuals who placed new renewable energy property into service during a fiscal year 2016 to apply for a grant equal to 40 percent of the costs paid or incurred by the individual, not to exceed $2.5 million for any particular project.
The bill was passed by both the House and the Senate, but amended so that only 35 percent, rather than 40 percent, of the costs may be recovered through a grant. In addition, costs related to existing facilities that generated electricity within the 12 months preceding the date of a grant application would not be eligible and any renewable energy property paid for by ratepayers would also be ineligible. The provisions of act will not become effective unless it is reenacted by the General Assembly in 2015.
These bills provide an exemption from local taxation for all certified solar energy equipment, facilities and devices. The exemption for solar photovoltaic systems would only apply to projects equaling 20 megawatts or less. It adds “solar energy equipment, facilities, or devices” to the definition of certified pollution control equipment and facilities, whether or not the property has been certified to the Virginia Department of Taxation by a state certifying authority if the property is owned or operated by a business and fits within the 20 megawatt cap. These bills also establish a separate tax classification for other solar energy equipment, facilities, or devices if they are certified by the Virginia Department of Environmental Quality. Unlike the business-owned solar property, which is exempted by these bills, whether or not the separately classified individual-owned solar property is partially or fully tax exempt is up to the governing body of the individual’s county, city or town.
These bills were signed into law by Governor McAuliffe, taking effect January 1, 2015.
Amending § 67-202 of the Code of Virginia, these bills postponed scheduled Virginia Energy Plan updates from July 1, 2014 to October 1, 2014. The plan then has to be updated every four years after the update this October. Updates to the plan must reassess goals for energy conservation based on progress toward the goals in the previous plan and lessons learned from attempts to meet those goals. These bills passed both houses and were signed into law by the Governor.
The 2010 Virginia Energy Plan aims to (1) expand both traditional and alternative energy generation, (2) increase the use of conservation and efficiency, and (3) educate the public about Virginia’s energy consumption and production, emphasizing how they affect our economy and teaching Virginians ways to energy more efficiently. Additionally, the plan strives to maximize the Commonwealth’s investments in clean energy research and development through the Universities Clean Energy Development and the Economic Stimulus Foundation. This law takes effect July 1, 2014.
These bills limit the ability of an electric utility participating in the renewable energy portfolio standard (“RPS”) program to bank excess renewable energy sales or renewable energy certificates (“RECs”) to achieve its annual RPS goals. A utility may use its excess renewable energy sales and RECs only in the five years following the renewable energy generation or the REC creation. This bill was approved by both houses and signed into law by the Governor.
The goal of these bills is to encourage utilities to continue to expand use of renewable generation to achieve current goals of the plan, but not to bank excess RECs in the short term when RPS goals are lower to use in later years when RPS goals increase, or may even become required. Companies are able to bank excess RECs for five years after their creation before they no longer count toward the utility’s RPS goal.
Virginia’s RPS goals are laid out in four stages, starting in 2010 and running through 2024. In each subsequent stage, the RPS goal increases by a specified percentage. This law takes effect July 1, 2014.
If you have questions about any of these laws and how they might impact your business, please contact the energy lawyers at GreeneHurlocker for more information.