This week the State Corporation Commission approved a request from Appalachian Power Company to offer its more than 500,000 Virginia customers the option of buying electricity entirely from renewable sources. The sources will be primarily wind and hydro, with some solar to be added as it gets built.
Participants who opt in will pay a premium of less than 4 percent over ordinary “brown” power, resulting in bill increases of $4.25 per month for a customer who uses 1,000 kilowatt hours per month.
However, the approval gives Appalachian more than a new way to meet customers’ desire for renewable energy. It also triggers a provision in Virginia law that blocks competitive service providers from selling renewable energy to all but the largest of a utility’s customers once the utility itself has an approved offering, called a “green tariff.”
Both Appalachian and Dominion Energy Virginia have long sought to close off competition via an approved green tariff, but this marks the first time either has succeeded.
The SCC order goes against the recommendation of hearing examiner D. Matthias Roussy, Jr., who had advised against approval of Appalachian’s tariff.
The SCC had previously rejected a similar program Appalachian proposed in 2016, primarily due to its high cost. That program, too, would have repackaged the utility’s existing wind and hydro projects that all ratepayers currently pay for, and passed on the cost of those contracts to participants in the renewable energy program.
The result was a price premium for the program of about 18 percent, which the SCC deemed unreasonable.
But Appalachian didn’t go back to the drawing board and redesign its program; it just changed the pricing. The cost to participants will now be based on the market value of renewable energy certificates (RECs) generated by facilities like the ones Appalachian owns.
REC prices are set by supply and demand, and an oversupply of wind RECs in the market has pushed prices way down over the past few years. Using REC prices allowed the utility to slash the cost of its renewable energy program by more than 75 percent.
On the one hand, this is a false calculation, since the value of RECs has little to do with the actual cost of developing and operating a project. On the other hand, the SCC liked the result: a lower cost to participants.
Some customers agreed. A number of Appalachian’s customers offered support for the program at the SCC.
For them, this marks the first opportunity they will have to buy energy from specific wind and solar projects (okay, and a lot of decades-old hydro, too). Currently their only option is buying RECs to offset the dirty power they use, so they are willing to accept a price premium based on REC values.
Other customers were less impressed. Walmart opposed the program because the company prefers to save money by buying renewable energy, not spend more on it. As summarized by the hearing examiner, Walmart felt the Appalachian tariff would be okay as a REC offering, but a real renewable energy tariff ought to “permit the customer to realize the benefits and risks of taking service from renewable energy sources”— i.e., offer at least the potential of saving money for the customer.
Walmart has a point. Given the plunging costs of building and operating new renewable energy projects in recent years, a utility could, in theory, offer a renewable energy tariff at below the cost of brown power. Wind and solar increasingly outcompete even existing coal plants, and Appalachian is still heavily reliant on coal.
But Appalachian isn’t going to do any such thing. If its customers can buy renewable energy at a discount, who would want to buy power from fossil fuels?
So the utility had to make sure its program costs more. Tying it to REC prices means it always will, because RECs are always an additional cost.
Just as importantly, Appalachian has to make sure no other seller of electricity can be allowed to compete with a better or cheaper product. That’s where section § 56-577 A 5 of the Virginia Code comes to the aid of our monopoly utilities. Now that Appalachian has an approved tariff for a 100 percent renewable energy tariff, no competitive supplier can come on to its turf with a product that’s more affordable or simply different. (The code contains an exception for very large customers.)
Concern about this squelching of competition drove most of the opposition to Appalachian’s tariff at the SCC, from both competitive suppliers like Collegiate Clean Energy and environmental advocates like the Southern Environmental Law Center, as well as a number of customers. For them, the SCC order approving Appalachian’s program represents a loss for consumer choice that will inevitably lead to less renewable energy development.
Separately, Dominion Energy Virginia has filed for approval of its own renewable energy tariff, following the commission’s rejection of the company’s initial proposal last year (correctly in my view). Last month a hearing examiner recommended Dominion’s new tariff be approved, though with changes that would make it significantly cheaper than what Dominion wants. Dominion’s proposal as filed would have cost the average customer an extra $20 per month.
But on Wednesday, two days after the SCC approved Appalachian’s tariff, Dominion filed a request to withdraw its application. The request states that the company intends to file a new application “consistent with the principles outlined” in the Appalachian order.
Although Dominion’s request doesn’t specify which principles it has in mind, they likely include the SCC’s determination that a renewable energy tariff need only match demand on a monthly basis, not the hourly basis Dominion used. According to the hearing examiner’s report, Dominion’s insistence on hourly matching was a significant factor in the program’s high cost.
Dominion’s withdrawal of its renewable energy tariff grants a temporary reprieve to competitive service providers like Direct Energy, which wants to offer renewable energy to Dominion customers. But if Dominion re-files with a program that meets SCC approval, the window of opportunity for competition in the electric sector in Virginia will close permanently in both major utility territories, absent a change in the law.
Anticipating this, Direct Energy sought legislation in the 2018 session that would have ensured the ability of competitors to offer renewable energy even after the SCC approved a utility’s own tariff. Neither the House bill (from Del. Michael Mullin, D-Newport News) nor the Senate bill (from Sen. David Suetterlein, R-Roanoke) made it out of the commerce and labor committees. Delegate Mullin is trying again this year; his bill is HB 2117.
Cliona Robb, a lawyer with the Richmond law firm Christian & Barton who represents Direct Energy, says her client hopes for a better outcome in the General Assembly this year.
With the SCC’s order approving Appalachian’s program, harm to competition is no longer hypothetical. If legislators are serious about renewable energy development in Virginia, keeping the door open to competition has to be a key priority.