Lawmakers’ split stance on energy competition reveals shifts in utility power

By: - February 13, 2020 7:22 am

Power transmission lines. (Ned Oliver/Virginia Mercury)

Two measures to strengthen and expand Virginia’s renewable energy market passed by the House Tuesday signaled the emergence of cracks in the control long exerted by Dominion Energy over the state legislature, although the failure of both bills to reach the Senate floor indicates the monopoly utility remains influential. 

Both of the bills had been strongly opposed at the committee level in the House by Dominion and Appalachian Power Company, the state’s two regulated electric utilities. 

In prior years, that likely would have been enough to tank a measure. But this session, with the first Democratic legislative majorities in a generation and increasing public concern over the perceived cozy relationship between Dominion and the General Assembly, that didn’t happen. 

Instead, lawmakers advanced the proposals out of committee and then swiftly signed off on them in the House in an effort that was largely driven by Democrats but gained support from a smattering of Republicans — Dels. Kathy Byron of Bedford and Tony Wilt of Rockingam in committee, and Del. Glenn Davis of Virginia Beach on the House floor.

“I can’t for the life of me think of a time when Dominion specifically opposed a bill and it passed over their objection. And with bipartisan support,” wrote Greg Habeeb, a former Republican delegate representing Southwest Virginia who is now a lobbyist for the Renewable Energy Buyers Association, in a text about the committee votes. (A bill that would have established for new restrictions for cost recovery for natural gas capacity, which was opposed by Dominion, did pass the House last year with bipartisan support but was killed in a Senate committee.)

‘The demand is there’

Habeeb’s client, REBA, is one of the growing group of businesses and environmental organizations supporting the retail competition bills, a package of reforms that would make it easier for customers of Dominion and Appalachian Power, Virginia’s largest electric utilities, to purchase energy from other suppliers. 

Since Virginia reregulated its electric markets in 2007 after a brief flirtation with deregulation, it has given electric utility monopolies control over territories in exchange for State Corporation Commission oversight.

In three circumstances, however, the General Assembly allows retail competition: when a non-utility is selling “100 percent renewable energy” but the incumbent utility is not, when a customer uses more than five megawatts of power annually, and when a customer’s total power load across multiple sites is five or more megawatts and the SCC finds that letting them “aggregate” those loads won’t harm other customers or go against the public interest.

State Corporation Commission Judge Judith Jagdmann (Photo by Ned Oliver/Virginia Mercury)

For a number of years those provisions sat on the state’s books without much activity. But the rise of increasingly sophisticated — and cheap — renewable technology, coupled with rising anxiety about climate change and, in Virginia, rising electric bills, dramatically changed the playing field. Suddenly customers, driven by both price concerns and the desire to reduce their carbon footprint, began clamoring for more options. 

Big companies like Walmart, Costco and Kroger have largely led the charge. Since 2017, such businesses have been trying to get permission from the SCC to aggregate the power loads of their facilities in order to buy electricity outside the regulated market, citing the desire for both lower costs than those offered by the utilities and renewable sources that could help meet corporate sustainability targets.

Others took notice, and in 2019 two renewable suppliers, Direct Energy and Calpine, entered the state’s market under the “100 percent renewable energy” loophole. 

“We only are interested in Virginia because the demand is there,” said Jesse Dickerman, director of corporate affairs for Direct Energy. Since September, he said the company has signed up 300 megawatts worth of customer accounts, enough to power about 225,000 homes.

The ‘potential for recourse’

Despite customer enthusiasm, these fledgling efforts have run into statutory barriers — and stiff utility resistance. 

Virginia’s law letting non-utility suppliers sell renewable energy opens the door to competition, but only so far: once the reigning utility starts offering its own “green tariff,” the law halts third-party energy sales and closes the market. 

Appalachian Power established a green tariff in January of 2019; in May Dominion filed an application to follow suit, and despite an outcry from businesses over the portfolio’s inclusion of resources like a Southwest Virginia power plant that burns 93 percent coal, the proposal is still under review. If approved, it would cast the future of Direct Energy and Calpine in Virginia into question.

Aggregation efforts have been even less successful. Dominion and Appalachian have forcefully pushed back against the big corporations’ attempts, arguing that letting customers exit the regulated market would result in “cost shifting,” or the imposition of higher costs on remaining customers to make up for the lost contributions of the departing customers. 

The SCC agreed, denying Walmart’s petition to aggregate its stores’ power loads last February on the grounds that over the next 10 years its departure would cause cost shifts of $4 million in Appalachian’s territory and $65 million in Dominion territory. Consequently, the commission said, customers “would not be held harmless”: Appalachian ratepayers would see an average monthly bill increase of five cents, while Dominion customers would see a 13-cent bump.

Numerous large retailers have sought to aggregate their power loads in order to buy energy from non-utilities. (State Corporation Commission)

But the commission also made it clear that its opinion was a matter of “carry[ing] out the statutes as they are written” rather than making a policy determination.

“If Walmart believes … that the public policy of Virginia should be to institute retail choice on a far more extensive scale than required under current law, its potential for recourse may be found through the legislative process,” the commission wrote.

A ‘shifting dynamic’?

This session, a handful of lawmakers embraced that charge. 

One proposal, carried by Del. Jeff Bourne, D-Richmond, in the House and Sens. John Bell, D-Chantilly, and David Suetterlein, R-Salem, in the Senate, would get rid of the market closure provision — a legal fence Bourne has described as “quite frankly outdated” and the product of “a time when renewable energy wasn’t mainstream or cost competitive.”

The other proposal is broader in scope. Carried by Del. Mike Mullin, D-Newport News, in the House and Sen. Jeremy McPike, D-Prince William, in the Senate, it would not only get rid of the market closure provision but would allow load aggregation. 

In both Senate and House committees, Dominion and Appalachian warned that passage of either piece of legislation could cause ratepayers’ bills to spike and, in the words of one lobbyist, set off a “vicious cycle” that could undermine the state’s system of utility regulation.

“This really is deregulation or restructuring by other means, but in a sense it’s a more pernicious way of going about it,” cautioned Tony Clark, a former Federal Energy Regulatory Commission member and Loudoun resident who said he was speaking “on behalf of Dominion” before the House Labor and Commerce Feb. 6. (While Clark’s law firm was retained to testify on the issue, state law does not require him to register with the state Division of Legislative Services as a lobbyist. Former state legislator John Watkins, who also spoke against the bills for Dominion, is registered as a lobbyist.)

In the Senate Energy Subcommittee chaired by Sen. Lionell Spruill, D-Chesapeake, that argument was enough to consign both proposals to the dustbin

Not so in the House, where committee members showed less deference to the utilities and more willingness to grant bill supporters time to argue their case.

Much of that case centered on the contention that cost-shifting claims were exaggerated, as departing customers would still pay for distribution and transmission charges and state law prohibits rates from rising without lengthy formal proceedings before the SCC. (In fact, legislation passed by the Republican-controlled General Assembly has kept base rates unchanged since 2015, leading to hundreds of millions of dollars in overearnings by Dominion, and to a lesser extent, Appalachian, over the past few years.)

“There are no stranded costs if you’re talking about Dominion, because Dominion is overearning,” said attorney Cliona Robb, who is representing Direct Energy and has previously argued on behalf of Costco before the SCC. “You cannot have a rate impact until you have a need for the utility to increase its rates to recover its costs. So until you’re in that situation, you don’t have a rate impact on other customers.”

Ron Cerniglia, director of corporate and regulatory affairs for Direct Energy, described the House’s embrace of Bourne’s and Mullin’s proposals “a significant development.” 

“Our company’s been at this for three years” in Virginia, he said. “For us the shifting dynamic of choice and heading toward clean energy has peaked.” 

Editor’s note: This post has been updated to add a reference to a bill that passed the House of Delegates last year over the opposition of Dominion Energy and to clarify that Tony Clark is exempt from having to register as a lobbyist under subdivision 6 of § 2.2-420.  

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Sarah Vogelsong
Sarah Vogelsong

Sarah is Editor-in-Chief of the Mercury and previously its environment and energy reporter. She has worked for multiple Virginia and regional publications, including Chesapeake Bay Journal, The Progress-Index and The Caroline Progress. Her reporting has won awards from groups such as the Society of Environmental Journalists and Virginia Press Association, and she is an alumna of the Columbia Energy Journalism Initiative and Metcalf Institute Science Immersion Workshop for Journalists. She is a graduate of the College of William and Mary. Contact her at [email protected]