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Law creates barriers for Virginia utilities seeking to recoup gas capacity costs

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Law creates barriers for Virginia utilities seeking to recoup gas capacity costs

Highlights

Utilities must prove reliability need for project

Dominion sees ACP contract costs meeting test

Washington — A new Virginia law will require state regulators to scrutinize utility requests to pass on the cost of securing additional natural gas pipeline capacity to electricity ratepayers, potentially creating a barrier to infrastructure projects.

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Governor Ralph Northam signed Virginia House Bill 167 into law on April 6 after it passed in both chambers of the state legislature with bipartisan support. The law empowers the State Corporation Commission to reject an electric power utility's request to recover the cost of entering into a contract for new pipeline capacity. It requires utilities to prove they need additional fuel capacity to maintain reliable service and that reserving gas pipeline capacity is the lowest-cost option.

The legislation comes amid a push to reassert the SCC's authority over electric utilities, including Dominion Energy. The bill's chief sponsor, Republican Delegate Lee Ware, has also co-sponsored the Fair Energy Bills Act, which would unwind a 2015 freeze on base rates and allow the SCC to order ratepayer refunds when utilities generate excess profits.

IMPLICATIONS FOR PIPELINES

Environmentalists and pipeline opponents said the law would prevent companies from charging Virginia ratepayers for pipelines that may become stranded assets in light of the Clean Economy Act. That bill, which is awaiting Northam's signature, would require Dominion, Virginia Electric and Power Co., and competitive electric power providers to obtain 100% of the power they supply from renewable or carbon-free sources by 2045.

"We have long held that Virginia families and businesses should not be on the hook for new natural gas projects like the Atlantic Coast Pipeline that are wholly unnecessary to meet electricity needs," Peter Anderson, Virginia program manager at Appalachian Voices said in a statement.

ACP stakeholders Dominion and Duke Energy have said that the project to deliver West Virginia gas to Virginia and North Carolina is necessary because regional pipelines are at capacity.

Dominion believes the contract costs linked to ACP will meet the regulatory standard for approval under the law, spokesman Rayhan Daudani said.

"Natural gas and the Atlantic Coast Pipeline will continue to play an essential role in Dominion Energy's plan to maintain reliability while achieving net zero emissions by 2050," he said in an email. "It will support the rapid expansion of renewables by keeping the lights on when wind and solar are not producing electricity."

The law would not prevent pipeline construction, Appalachian Voices said, but it would shift the risk of pipeline investment from ratepayers to developers. Historically, the SCC has allowed utilities to recover the costs of reserving capacity on gas pipelines, even when they do not utilize that capacity.

REQUIREMENT TO SHOW NEED

Under the new law, when electric utilities ask to recoup those costs, they must first show that they cannot maintain reliable service without securing additional fuel supplies. They must then identify how much new fuel capacity they require and when they will need it. Next, they will have to study all available options, including alternatives to gas capacity contracts. Finally, they must demonstrate that gas capacity contracts are the lowest-cost option, taking into account both fixed and variable costs and projections for future utilization of the capacity.

The SCC's Division of Public Utility Regulation does not employ staff capable of conducting the reviews, and, therefore, the commission will have to hire consultants to review company filings. The consultant will make a recommendation to the SCC on whether the utility has satisfied each requirement "by a preponderance of the evidence."

The law applies to proceedings for recovery of fuel costs where the utility is seeking to recoup the expense of entering into a natural gas capacity contract with a term of 10 years or more for supplies of at least 250,000 Dt/d.