Dominion asks to halt ratepayer charge for carbon market

Critics say request to recoup remaining costs through base rates shows extra charge was never needed

By: - May 6, 2022 12:04 am

Dominion Energy offices in Richmond, Va. (Parker Michels-Boyce/ For The Virginia Mercury)

Dominion Energy is asking state regulators to stop charging customers on their monthly bill for the utility’s participation in a carbon market in anticipation of Gov. Glenn Youngkin’s plans to withdraw Virginia from the Regional Greenhouse Gas Initiative

Suspending the charge, known as Rider RGGI, “will provide an immediate, material reduction to customer bills,” the utility wrote in a filing with the State Corporation Commission Thursday.  

The move comes as Dominion is is looking for ways to offset soaring fuel costs that could increase customer bills by between 7 and 20 percent. 

But critics said the utility’s plan to get rid of the rider appeared to be more of a political move and that its decision to recover the remaining RGGI costs through base rates, which make up the largest portion of a customer’s bill, demonstrates that Dominion never needed to impose the extra charge for market participation at all. 

“They are conceding that they could have been complying with RGGI all along without raising rates but instead simply chose to rate rates just because they could,” said Will Cleveland, an attorney with the Southern Environmental Law Center. 

In Virginia, Dominion customers’ bills are made up of three components: base rates, fuel costs and rate adjustment clauses, generally referred to as riders. The riders are intended to cover the costs of specific projects like coal ash cleanup or various generation resources. 

Dominion has calculated that the RGGI rider adds $2.39 to the average residential customer’s monthly bill. If approved, suspension of the rider would eliminate that charge beginning July 1. 

Under state law, Dominion was allowed but not required to recover RGGI costs through a rider. 

The utility said in its Thursday filing that it has recouped approximately $82 million in RGGI compliance costs through the rider and that approximately $178 million will remain to be recovered through base rates. 

Dominion said recovering the remaining amount through base rates “will prevent future incremental rate increases.” 

“The company believes that these actions are particularly in the public interest given current geopolitical and market conditions beyond its control which are driving increases in the costs to be recovered from customers of fuel commodities,” the utility wrote. 

Base rates are reviewed by the State Corporation Commission every three years. If regulators find that the company has not earned enough to cover its expenses and an allowable profit, they can order that base rates be raised. If they find Dominion has overearned, they can order the utility to refund part of the excess earnings. 

Cleveland said that the remaining RGGI costs could potentially contribute to Dominion requesting a higher base rate at the next triennial review, which is slated to occur in 2024. 

“That will be one of the many line items balanced to determine whether Dominion’s revenues exceeded its costs,” he said. 

The Mercury asked Dominion how it is able to absorb the remaining RGGI costs into its existing base rates and whether it could have recouped them that way all along. Dominion General Manager of Regulatory Affairs Scott Gaskill said in an email that because of rising commodity prices, the utility has “been looking at ways to mitigate the near-term customer impact” and pointed out that Dominion this January asked regulators to cancel an expected increase to the RGGI rider.

“Since we expect RGGI costs to end soon, it made sense to eliminate this rider at this time and move to base rates as a one-time expense,” he wrote. 

Del. Tony Wilt, R-Rockingham, who unsuccessfully carried a bill during the last legislative session that among other provisions would have given regulators more leeway to decide if costs should be recovered through riders or base rates, said Dominion’s request “demonstrates the importance of ensuring our state regulators have the authority to review, assess and analyze rate-making policies in the best interests of customers.”

Dominion also stated in its filing that if Virginia does not withdraw from RGGI by the end of July, it reserves the right to ask regulators to resume charging customers for participation costs. 

Coal fired units at Dominion Energy’s Chesterfield Power Station are scheduled to close. (Ryan M. Kelly/ For the Virginia Mercury)

A simmering conflict 

While conflict over RGGI has been simmering since Youngkin announced last December that he intended to pull Virginia out of the market, the administration is expected to begin attempting to roll back regulations governing state participation this summer. 

In an executive order issued on his inauguration day, Youngkin ordered the Virginia Department of Environmental Quality to develop an emergency regulation to repeal existing rules for RGGI participation. That regulation will need to be approved by the Virginia State Air Pollution Control Board. 

In its Thursday filing, Dominion said it expects the emergency regulation to go into effect as early as July. That time frame is in line with a statement made by DEQ Director Mike Rolband to the air board in April that the regulatory process was expected to start in the third quarter of the year. 

An air board action isn’t likely to be the end of the fight. Several environmental groups, including the Southern Environmental Law Center, have contended that legislation is necessary to pull Virginia out of the carbon market. 

Republicans proposed such legislation during the 2022 session, but it failed in the Democrat-controlled Senate. 

“We’ve said before and we maintain that the 2020 law requires Virginia to participate, and whether acting through an executive order or acting through the air board, you can’t simply repeal a regulation and still be in compliance with that law,” said SELC attorney Nate Benforado. 

Dominion has been critical of Virginia’s participation in RGGI, largely on the grounds of customer expense, particularly given the utility’s investment in renewables required under the Virginia Clean Economy Act.

“We’re concerned that Virginia’s linkage to the RGGI program … would result in a financial burden on customers with no real mitigation of greenhouse gas emissions regionally,” said Dominion Chief Financial Officer Jim Chapman on an investor call Thursday. 

SCC Judge Judith Jagdmann has also questioned whether Dominion customers are paying duplicative costs to both participate in RGGI and comply with the Virginia Clean Economy Act.

Other energy analysts, however, have disputed the characterization of RGGI as ineffective at reducing carbon emissions, pointing to steep emissions declines in participating states compared to non-participating ones and changes in utilities’ decision-making about which power plants it decides to run to power the grid. They also point out that roughly a quarter of Virginia’s carbon emissions governed by RGGI come from non-regulated power producers that otherwise have no legal requirement to reduce emissions.

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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.