RD16 - Commission on Electric Utility Regulation Executive Summary of Interim Activity and Work - January 2013

    Executive Summary:
    The Commission on Electric Utility Regulation (the Commission) is established pursuant to Chapter 31 (§ 30-201 et seq.) of Title 30 of the Code of Virginia. The Commission is charged with:

    • Monitoring the work of the State Corporation Commission (SCC) in implementing Chapter 23 (§ 56-576 et seq.) of Title 56;

    • Examining generation, transmission, and distribution systems reliability concerns;

    • Establishing one or more subcommittees for any purpose within the scope of the duties prescribed to the Commission; and

    • Reporting annually with such recommendations as may be appropriate for legislative and administrative consideration in order to maintain reliable service in the Commonwealth while preserving the Commonwealth's position as a low-cost electricity market.

    Senator Thomas K. Norment, Jr., chairs the Commission. The Commission's other members are Senators John C. Watkins, Richard L. Saslaw, and L. Louise Lucas and Delegates Terry G. Kilgore, Robert Tata, Timothy D. Hugo, Donald W. Merricks, Kenneth R. Plum, and James M. Scott.

    This executive summary of the interim activity and work of the Commission is submitted pursuant to § 30-207 of the Code of Virginia and is provided in lieu of an annual report. Materials provided by speakers at the Commission's meeting in 2012 may be found on the Commission's website at http://dls.virginia.gov/commissions/eur.htm?x=mtg.

    The Commission met on December 17, 2012. The purpose of the meeting was to receive a briefing on the report of the Office of the Attorney General on return-on-equity enhancement adders in the 2007 Virginia Electric Utility Regulation Act. The meeting also included presentations by the two electric utilities to which the Act applies.

    The Office of the Attorney General issued its report on November 29, 2012. The report reviewed the costs and benefits of statutory return-on-equity adders that are available to Dominion and Appalachian Power if they meet goals related to renewable energy or construct new electric generation facilities. The report's findings include:

    • The renewable portfolio standard (RPS) adder has not served to advance the environmental concerns that led to its inclusion in the legislation because, by and large, the utilities have not built any new renewable energy facilities to comply with the RPS goals, but instead, have primarily relied on buying renewable energy certificates (RECs) from existing renewable facilities.

    • The RPS adder has contributed to increases in customer bills and will likely have a significant future impact by allowing utilities to keep profits that exceed their SCC-approved fair return on equity and reducing the chance that customers will be entitled to future rate decreases.

    • Any benefits of the RPS adder are outstripped by its cost because the adder applies not just to investments in renewables, but rather, applies to a utility's entire rate base. Thus, the bonus is awarded on most of a utility's assets, including those that have nothing to do with renewables.

    • The generation adders for constructing new power generation facilities have increased the revenue requirements for Dominion and APCO by an estimated $284 million over the term of the adders.

    • The nuclear generation adder, under conservative assumptions, would likely cost customers an additional $1.8 billion over and above actual construction costs and the SCC-approved rate of return.

    • While the generation adders have done more to advance some of the 2007 legislation's goals than the RPS adder, the generation adders have not significantly advanced the key goals of the legislation in light of the substantial costs that they impose.

    • Five years of data and experience strongly suggest that the RPS and generation adders be eliminated or significantly changed, as they are not meaningfully advancing the goals of protecting customers from price volatility and unnecessary rate increases, promoting reliable electricity, promoting fuel diversity, providing environmental benefits, and stimulating economic development.

    Deputy Attorney General Wesley G. Russell, Jr., provided the Commission with an overview of the report. He noted that the report was not intended as a criticism of the 2007 re-regulation legislation, which he called the right thing to do given the failure of a competitive market to develop under the 1999 deregulation law.

    Robert M. Blue, Senior Vice President at Dominion, responded that the adders have helped the utility achieve the three goals of the 2007 re-regulation law: (i) providing stable and competitive rates, (ii) ensuring reliable and secure electric service for the Commonwealth, and (iii) strengthening Virginia's economy. Mr. Blue identified four areas where the 2007 Act could be improved, including amending the RPS program to give it more of a Virginia focus; giving the SCC guidance regarding the treatment of certain costs incurred by a utility; eliminating certain incentives in the Act, such as limiting the adders for new generation facilities to nuclear and offshore wind projects; and expanding the range for determining when a utility is over- or under-earning.

    Ronald J. Jefferson, Manager-External Affairs at APCO, reported that the RPS program is consistent with the Virginia Energy Plan. He noted that even with the adders, APCO has not earned its authorized return on equity. He itemized several steps the utility has made in meeting the Act's goals of a reliable supply, fuel diversity, environmental benefits, and economic development, while maintaining reasonable rates.

    The Chairman invited the representatives of the Office of the Attorney General, Dominion, and APCO to discuss the matters of disagreement. He advised that the Commission would meet on January 16, 2013, and cautioned that if they had not resolved their disagreements by that time the Commission would seek to resolve the matters.