RD38 - Commission on Electric Utility Regulation Executive Summary of Interim Activity and Work - January 2014

    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 2013 may be found on the Commission's website at http://dls.virginia.gov/commissions/eur.htm?x=mtg.

    The Commission met on September 9, 2013. The meeting featured presentations on the Integrated Resource Plans recently filed by Dominion Virginia Power (Dominion) and Appalachian Power (AP). The utilities also reported on recent rate case activity, and the SCC briefed members on its annual report on the status of implementation of the Virginia Electric Utility Regulation Act (the Re-regulation Act). The meeting concluded with a discussion of Senate Joint Resolution 338 (2013).

    The Re-regulation Act was amended in the 2013 legislative session by the enactment of House Bill 2261. The bill, patroned by Delegate Terry Kilgore, represents a compromise brokered by the Office of the Attorney General and the Commonwealth's major investor-owned electric utilities. Major elements of the legislation include (i) establishing a staggered schedule for Dominion's and AP's biennial review proceedings, (ii) eliminating or reducing the enhanced rate of return that had been available for certain types of new generation facilities, (iii) eliminating the Performance Incentive that had been granted to utilities that met the goals of the voluntary renewable portfolio standard program, and (iv) expanding, from 50 basis points to 70 basis points, the "collar" by which a utility's earnings could exceed or fall short of the rate of return on common equity set by the Commission without putting the utility in an overearning or underearning position.

    Robert M. Blue, Senior Vice President for Law, Public Policy, and Environment at Dominion, opened his remarks by asserting that the Re-regulation Act has performed extremely well in meeting its objectives of maintaining stable and competitive rates, promoting needed infrastructure development, and strengthening Virginia's economy and energy security. Mr. Blue reported that Dominion's typical residential bill is 12 percent below the national average, and that the utility, with a total annual economic impact of $8.4 billion, accounted for two percent of the gross state product in 2012.

    In March 2013, Dominion filed its 2011-2012 biennial review with the SCC. Dominion has reported excellent customer service and operational results during the period under review. The utility has proposed that its base rates, which make up 60 percent of a typical residential bill, remain unchanged at least until November 2015. A hearing at the SCC on the utility's rate of return on equity is scheduled to commence on September 17, 2013. Mr. Blue stated that Dominion's plan of adding new generation capacity while re-powering some existing facilities and retiring some coal-fueled facilities will provide customers with long-term savings of $3.1 billion.

    Dominion's 2013 biennial Integrated Resource Plan (IRP), filed with the SCC on August 30, 2013, provides a 15-year forecast of its load obligations and a plan to meet those obligations. This year's IRP presents two paths for resource development. Elements common to both plans include a combined cycle plant, three additional combustion turbine sites, additional renewable facilities, and upgrades to the Yorktown and Possum Point oil units. The Base Plan reflects an assumption that natural gas prices will remain low for the next 60 years. A comparison of total system levelized cost reveals that natural gas-fueled advanced combined cycle generation currently has a distinct advantage over other types of generation. The Fuel Diversity Plan outlines an alternative approach that features the development of a portfolio that replaces some natural gas-fueled generation capacity with continued development activities for nuclear-powered generation at North Anna 3, development of both onshore and offshore wind-powered generation, and additional solar development.

    Dominion, with a bid of $1.6 million, was the successful bidder on leases for sites for the potential development of offshore wind power. The sites are located 27 miles off Virginia's shore. The federal Bureau of Ocean Energy Management has estimated that if the sites are fully developed, a wind farm could generate 2,000 megawatts. Additional steps in the development of the offshore wind facility include submitting a site assessment plan, preparing a construction and operations plan, and obtaining SCC approval. If the state and federal approvals are obtained, the first turbine may be expected to be installed in about 10 years. Mr. Blue closed with a report on Dominion's evaluation of a targeted program of burying strategically selected tap lines in its distribution system. While placing all distribution lines underground would be prohibitively expensive, undergrounding 20 percent of the worst performing overhead tap lines could reduce the number of tap line repair locations caused by major storms by 63 percent. Such a program could provide cost-effective improvements to system reliability.

    Ronald J. Jefferson, Manager for External Affairs at AP, updated the Commission on the utility's recent rate case activity and its IRP. As a result of the staggered schedule for biennial reviews established by House Bill 2261, AP did not file for a biennial review in 2013. Mr. Jefferson noted that in 2013 AP's rates were stable and remain below the 2013 national average of 12.78 cents per kWh. With the phasing out of a charge for certain environmental and reliability charges, the utility's average rate for residential customers will decline from 11.27 cents per kWh in January 2013 to 11 cents per kWh in January 2014.

    AP filed its latest IRP on August 30, 2013. The utility expects flat load growth and an increased reliance on natural gas. The IRP reflects a declining reliance on coal, with plans to close or convert to natural gas two plants that currently are fueled by coal. AP has several rate cases pending with the SCC. These include (i) rate adjustment clauses for environmental costs, for costs of a natural gas-fired generating plant at Dresden, and for renewable power costs, and (ii) a fuel factor proceeding. Mr. Jefferson predicted that despite increased expenses related to environmental regulation and generation costs, AP's rates will remain stable through 2013.

    Arlen Bolstad and David Eichenlaub of the SCC provided the Commission with an overview of the agency's status report on the implementation of the Re-regulation Act. The SCC has prepared such annual reports since 2008 pursuant to § 56-596 of the Re-regulation Act. The SCC staff highlighted major activities during the 12 months since September 2012, including (i) continued development of the Virginia Energy Sense program; (ii) consideration of requests to construct, transfer, or convert generation facilities; and (iii) approval of extensions of two demand-side management programs for Dominion. Other matters addressed in the report include Dominion's solar power programs, proposed rules for third-party power purchase agreements, and applications for base rate increases by two electric cooperatives. The report includes information on rates of Virginia's regulated utilities and those of utilities of other states in the southeast region. The report includes the SCC's observation that Dominion's and AP's electricity rates appear to be competitive for their peer utilities, although pending rate requests could lessen the competitiveness of electricity rates in the future.

    Senate Joint Resolution 338 was introduced in the 2013 Session by Senator Steve Martin. The resolution was referred to the Senate Committee on Rules, which passed it by indefinitely with a recommendation that a letter be sent to this Commission requesting further study of its subject matter. The chairman of the Commission subsequently received a letter from the Clerk of the Senate informing him of the matter's referral.

    The resolution provides that the General Assembly recognizes the need for regulatory agencies in Virginia to use administrative discretion to reduce the burden placed upon the coal and electricity-generation industries by the regulations recently adopted by the U.S. Environmental Protection Agency (EPA). Staff observed that the resolution raised several problematic issues, including the Commission's authority and capacity to conduct an inquiry into the degree of "administrative discretion" the Department of Environmental Quality and Department of Mines, Minerals and Energy may be authorized to exercise in the exercise of their permitting functions. It was noted that one of the EPA regulations cited in the resolution as requiring coal mines to obtain air pollution permits to control emissions of methane had not taken effect, and in April 2013, a petition to impose such a requirement was rejected by the EPA.

    With regard to quantifying the burden of new EPA regulations on the electric utility industry, members of the Commission were provided with a report, released in November 2012 by a consultant retained by the American Coalition for Clean Coal Energy (ACCCE), calculating the economic implications of seven recent and anticipated EPA regulations affecting the electricity sector. The report notes that the potential costs of the seven policies are estimated to lead to 42 gigawatts (GW) of additional prematurely retired coal-fired generating capacity, on top of the 27 GW of retirements expected without these seven regulations. This total of 69 GW represents about 20 percent of the 2012 U.S. coal-fired electricity generating capacity. These changes are reported to translate into a 2.8 percent increase in average retail electricity price, nationwide, over the 20-year period 2013 through 2034. They are also expected to produce a 9.3 percent increase nationally in natural gas-fired electricity generation over that period.

    The Commission determined that no further study of the subject matter of Senate Joint Resolution 338 would be appropriate. Staff was directed to provide the resolution's patron with a copy of the ACCCE's report.

    The Commission expresses its appreciation to three members - Delegates Bob Tata, Jim Scott, and Don Merricks - who announced that they will not seek reelection to the House of Delegates. The Commission commends them for their valuable service.