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Virginia session sets up clean energy investment, Dominion regulations fall flat

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Virginia session sets up clean energy investment, Dominion regulations fall flat

SNL Image

Dominion Energy Chairman, President and Thomas Farrell II speaks to reporters in late July 2018 at the Cove Point LNG liquefaction project in Lusby, Md.
Source: AP Photo

Virginia lawmakers passed bills during the 2020 legislative session that unlock billions of dollars in potential clean energy investments and continue shifting off of fossil fuels, although proposals to challenge the power of the state's largest electric utility gained little traction.

Bills that sought to open up the state to retail competition, curb contributions from Virginia's investor-owned utilities and put stricter regulations on utility earnings were either weakened or passed over.

Dominion Energy Inc. still has a "very strong tool in the toolkit" in Senate Majority Leader Dick Saslaw and the "powerful" Senate Commerce and Labor Committee, Brennan Gilmore, executive director of Clean Virginia, said in a March 13 phone interview.

"They still have an ability to use the legislature through that tool, but the wall that that tool provided in the past has been breached and we were able to get around it in a couple places," Gilmore said.

The Senate Commerce and Labor Committee on March 2 killed a bipartisan bill that would have given the Virginia State Corporation Commission the ability to lower Dominion Energy Virginia's base rates and order customer refunds for excess earnings.

The SCC showed in a late August 2019 report that Dominion subsidiary Dominion Energy Virginia and American Electric Power Co. Inc. utility Appalachian Power Co. earned millions in excess revenues for the second year in a row following a reinstatement of rate reviews in 2018. Dominion is now held to a "maximum $50 million rate reduction" following the first review of excessive earnings.

The state Senate committee voted 8-7 to indefinitely table the Fair Energy Bills Act.

"I think that was a loss, but at the same time it exposed just how badly a clean rate case is needed and I think it helped fuel the appetite for more structural reform in the system," Gilmore said.

Clean Virginia endorsed and contributed to the campaigns of dozens of candidates for the state legislature in the November 2019 general election, all of whom refused to accept money from Dominion.

Democrats then took full control of the Virginia General Assembly for the first time in more than 25 years in a legislative shift seen as paving the way for the state to embrace stricter clean energy mandates and join the Regional Greenhouse Gas Initiative, or RGGI.

Customer and clean energy advocates said they are seeing signs of change even if direct challenges to power largely fell flat.

"For the past decade, [Dominion has] essentially had their way with the legislature and there wasn't any point where ... they were held to the fire in negotiations around a big energy bill over things like cost containment or competition," Gilmore said. "They were able to get into the code a lot of incredibly utility-friendly ratemaking provisions. I think the dynamic that we saw during this session was that is just not the case anymore."

Although Dominion Energy has previously expressed concerns about Virginia's effort to join RGGI and efforts to deregulate the electricity market, the utility said it will work to slash emissions in line with the state's new policies.

"We are committed to net-zero carbon and methane emissions company-wide by 2050, including meeting any emissions requirements signed by the Virginia governor as a result of the General Assembly session," Dominion spokesman Rayhan Daudani said in a March 20 email.

Virginia Clean Economy Act

One significant piece of legislation passed by the Virginia General Assembly is Senate Bill 851, known as the Virginia Clean Economy Act.

The legislation essentially phases out coal-fired generation by the end of 2030 and requires Dominion Energy Virginia and Appalachian Power to "retire all other electric generating units located in the Commonwealth that emit carbon as a by-product of combusting fuel to generate electricity" by Dec. 31, 2045.

The legislation replaces the state's voluntary renewable portfolio standard with mandatory annual benchmarks that would eventually require electricity suppliers to produce 100% of their electricity from renewable sources.

Appalachian Power must procure 100% of its electricity from renewable resources by 2050, while Dominion Energy Virginia must hit that benchmark by 2045.

It also requires Dominion Energy Virginia, known legally as Virginia Electric and Power Co., and Appalachian Power to "retire all generating units principally fueled by oil with a rated capacity in excess of 500 [MW] and all coal-fired electric generating units operating in the Commonwealth" by Dec. 31, 2024. The bill provides an exception for coal plants co-owned with a cooperative utility and for Dominion Energy Virginia's 624-MW Virginia City Hybrid Energy Center, which must be shut down by the end of 2030.

The measure adopts a target for energy storage deployment of 3,100 MW by the end of 2035. A new energy efficiency standard also would apply to both utilities with a 5% energy savings target for Dominion and a 2% target for Appalachian Power by 2025, both from 2019 levels.

"From a Clean Virginia perspective, it was a bit of a mixed bag," Gilmore said. "From a climate perspective, it's a great bill."

Under the legislation, "the construction or purchase" of offshore wind facilities up to 5,200 MW off the Virginia shoreline by Dec. 31, 2024, is in the public interest.

Dominion Energy Virginia in September 2019 announced plans to build the "largest offshore wind project" in the U.S. off the coast of Virginia Beach in three phases of 880 MW each. If approved, the first phase of the $8 billion project would be completed in 2024, with the final phases expected to come online in 2025 and 2026.

"I think there is a pretty big delta between a gold-plated, profit-padding offshore wind deployment and one that is deployed with particular attention to cost and cost overruns," Gilmore said. "There is some good language in the [Virginia Clean Economy Act] about the SCC's ability to monitor this process to ensure that there is competitive procurement in a way to keep costs down. We would've liked to see more of that language but I think it's going to bear careful attention in the years to come."

Virginia set to join RGGI

In February, the General Assembly passed legislation that would lay the groundwork for the state to join RGGI.

The legislation authorizes the director of the Virginia Department of Environmental Quality to "establish, implement, and manage an auction program to sell allowances into a market-based trading program consistent with the RGGI program."

The vote comes after the Virginia Air Pollution Control Board in April 2019 adopted a rule to move forward with linking the state to RGGI and effectively curb total power plant carbon emissions 30% by 2030.

States involved in RGGI use a market-based cap-and-trade program to reduce greenhouse gas emissions from regional power plants, selling nearly all emissions allowances through auctions and investing proceeds in energy efficiency projects.

Dominion Energy Virginia has previously claimed that linking to RGGI could lead to emissions increases outside the state, a phenomenon known as leakage.

The utility has also claimed that such a move "would raise rates considerably in Virginia" and threaten the company's competitive retail electric rates.

Gov. Ralph Northam is expected to enact the legislation.