Regulators refuse to reconsider denial of Dominion’s smart meter plan

In a sharply worded opinion issued last week, state regulators dealt a third blow to Dominion Energy’s plan to roll out smart meters throughout the utility’s territory, declaring that in its most recent rejection of the proposal, they had “exercised legislative discretion explicitly delegated” by the General Assembly.

“The commission weighed the various (and at times conflicting) evidence and arguments and, in exercising its discretion, found that the potential benefits were too speculative and uncertain for the commission to choose to approve such a large expenditure at this time, the large costs of which impact Dominion’s customers,” the April 27 order by the State Corporation Commission said.

“Contrary to Dominion’s claims,” the commissioners added, “this is not error; it is the commission reaching a different conclusion than the company on a matter that the General Assembly delegated to the commission.”

The decision marked the latest roadblock to the efforts of Dominion Energy, Virginia’s largest electric utility, to outfit all of its customer with smart meters. The most recent plan would have seen the installation of 2.1 million such meters throughout the commonwealth over the next six years at a cost of more than $300 million. 

The utility has twice proposed such a program, arguing it is a “foundational” element of grid modernization, a goal embraced by the General Assembly in its 2018 passage of the Grid Transformation and Security Act. 

But regulators and consumer advocates, while acknowledging the importance of smart meters to the transformation of the electric grid from its traditional form to a more dynamic one that increasingly incorporates renewables, have contended Dominion has failed to justify the large costs such a plan would impose on captive ratepayers.

“Grid modernization,” said Hannah Coman, a Southern Environmental Law Center attorney who represented Appalachian Voices during February hearings, “is a noble pursuit and a worthy endeavor … but we want to make sure that the grid modernization is done in a smart and cost-effective way.”

A ‘foundational’ part of grid transformation

Smart meters, the more common term for advanced metering infrastructure, are a kind of technology that allows utilities to monitor customers’ energy use electronically, rather than through manual checks. 

But unlike their predecessors — AMR, or automated meter reading, devices — smart meters can send information not only from the customer to the utility, but from the utility to the customer. That “two-way” characteristic can let customers monitor and adjust their own energy use, opening up the possibility of electric rate structures that can incentivize less use or even vary the rate a customer pays depending on the time of day or year. 

At the same time, advanced metering infrastructure has the capacity to collect far more information than AMRs, letting utilities better monitor and adjust the flow of electricity and decreasing the number of trucks and employees that have to be sent out to fix problems that arise. 

It is these qualities that have driven utilities across the nation to embrace the new technology. According to the Edison Foundation’s Institute for Electric Innovation, almost 100 million smart meters had been deployed throughout the U.S. by the end of 2019, with Virginia numbers reaching more than 1 million by the end of 2018. 

Dominion has been rolling out the technology since 2008. Today, the utility has installed about 435,000, mostly in its Alexandria, Herndon and Charlottesville territories, representing roughly 17 percent of its customers. 

But its plans to extend that reach have met resistance from the State Corporation Commission.

The company has twice included a full smart meter deployment in grid transformation plans filed with the SCC, portraying the technology as a “foundational” part of its efforts.

“Simply put, without the full and timely deployment of AMI technology across the service territory, the company cannot transform the distribution grid,” Dominion argued in its most recent application in September.

Nathan Frost, the utility’s director of new technology and energy conservation, in prefiled testimony contended that an immediate, full rollout of smart meters would be both cheaper and more effective than a slower strategy.

“Given the aging state of our non-AMI meters and systems today and the amount of investment that would be needed to maintain their viability, as well as the lack of support the legacy meters and systems provide for many grid transformation initiatives, the company felt that this was no longer a viable deployment approach,” he wrote.

‘Not reasonable and prudent’

Nevertheless, regulators have remained skeptical that the benefits of Dominion’s proposed rollout outweigh its considerable cost.

In its first rejection of the smart meter plan, in January 2019, the SCC drew on the testimony of an Appalachian Voices and Sierra Club witness, Caroline Golin, who argued that advanced metering infrastructure is only beneficial and cost-effective “to the extent the company utilizes them to maximize the potential gains” of other strategies that aim to reduce energy usage or costs like energy efficiency, time-varying rates or distributed generation.

“Without a well-reasoned plan, this expensive equipment could be under-utilized and provide little to no benefit to customers and the utility,” Golin testified. 

In its second attempt, outlined by Dominion as part of a proposed “Phase IB” of its grid transformation plan filed this fall, the utility sought to assuage regulators’ concerns by providing “a sound plan to maximize the potential” of smart meters, more detailed cost estimates and a cost-benefit analysis showing that customers would, overall, benefit more from the technology than they would pay for it.

But concerns remained. The Office of the Attorney General’s Division of Consumer Counsel and SCC staff criticized the cost-benefit analysis as being “overoptimistic” and “flawed,” and pointed out the decision to replace non-smart meters before the end of their life would create stranded costs for ratepayers.

“It’s kind of like having a car, you know, if you can drive it a few more years, it’s always better to do that — or usually better to do that,” said Scott Norwood, a consultant who testified for the Attorney General’s Office in February hearings. 

Most critical, though, was Dominion’s decision to propose a separate pilot program for time-of-use rates rather than working such a program into its overall grid transformation plan, an omission noted by regulators. 

What are time-of-use rates?

Time-of-use or time-varying rates are a kind of billing plan under which customers pay different electric rates depending on the time of day or year. TOU plans are intended to better reflect real-time rises and falls in energy demand that make electricity more or less expensive in the markets where utilities buy and sell power. As demand increases, so too may prices, encouraging customers to reduce their energy use at peak times and potentially even driving down their own costs. 

“While Dominion wants approval to collect from its customers the substantial costs of full deployment of AMI technology, it has failed to submit a comprehensive proposal to roll out TOU rate design across its entire territory and make such rates available to all its customers,” the SCC wrote in its March 26 decision.

Consequently, officials concluded, “the substantial cost to customers of AMI is not reasonable and prudent.”

Dominion disagreed, asking the commission to reconsider its decision on the grounds that it had provided “ample evidence” such investment was prudent and that a denial of the smart meter plan was “contrary to the legislative goals and mandates” of both the 2018 Grid Transformation and Security Act and the Virginia Clean Economy Act passed this winter.

The commission, however, refused to budge. Its decision, the commissioners wrote, was neither contrary to legislative goals and mandates nor the result of any “mistake of law.”

“In this proceeding, the commission exercised legislative discretion explicitly delegated to it by the General Assembly,” they concluded. “The commission possesses the authority — and the obligation — to apply its judgment in this case.”

Dominion now has the option to appeal the decision to the Virginia Supreme Court or file yet another proposal to quickly roll out smart meters throughout its territory. Rayhan Daudani, a spokesperson for the utility, said the company is continuing to review the order and evaluate its options.

“We remain committed to transforming the energy grid to give our customers across the commonwealth more reliable service, more access to renewable energy, and more ways to save money,” he said in an email. 

This story has been corrected to reflect that the Southern Environmental Law Center only represented Appalachian Voices, and not the Sierra Club, in proceedings.