This week’s Democratic sweep in Virginia's General Assembly has far-reaching implications for the state’s energy policies.
After two years of seeing clean energy efforts blocked by Republicans, Democratic Gov. Ralph Northam now has a willing partner for a long list of energy efficiency mandates, renewable portfolio standards and carbon reduction commitments similar to those undertaken by other states that have tilted blue in recent elections.
There’s been extensive coverage of the Democrats’ immediate goals for Virginia. First, it’s highly likely that legislators will seek to turn into law Northam’s September executive order setting Virginia on a path toward a 30 percent renewable portfolio standard (RPS) for 2030 and 100 percent carbon-free energy by 2050. That’s the same pattern followed by long-time Democratic controlled states like Hawaii, California and New York, as well as those that have flipped more recently, such as Colorado, New Mexico and Washington.
Northam’s attempt to enroll Virginia in the Regional Greenhouse Gas Initiative, launched by former Gov. Terry McAuliffe in 2017 and blocked by Republican state lawmakers last year via a budget amendment, will likewise now be free to move forward. That will allow the state to set up trading in the regional carbon-trading scheme starting in 2021, granting lawmakers the ability to direct resulting revenue toward efficiency or other related goals.
Virginia’s restrictive regulations on distributed solar development are also set for a Democratic challenge in the form of a “Solar Freedom” bill that failed to advance in the Republican-controlled legislature last year. The bill would address interconnection bottlenecks, remove the current 1 percent cap on net-metered solar, and confirm the legality of third-party solar-power purchase agreements now limited in scope by state law.
“A big backlog of energy-related goals” contributed to the Democrats’ sweep in Virginia, according to Rob Rains, analyst for Washington Analysis. “A lot of it is moving Virginia toward most other Northeastern states” in terms of funding energy efficiency initiatives, joining the Regional Greenhouse Gas Initiative and setting hard RPS targets, he said.
Virginia is following an established pattern. As analysts at Wood Mackenzie Power & Renewables have noted, states that have flipped control from Republicans to Democrats in recent elections could help boost nationwide wind and solar growth, both by removing barriers to clean energy development and by aligning state utility regulations to match broader decarbonization goals.
In Virginia, that means taking on Dominion Energy, the state’s top investor-owned utility and a longtime heavyweight in energy politics and policy. Dominion has donated lavishly to Virginia politicians of both parties, and it has been rewarded, its critics say, with legislation that has allowed it to overcharge customers for years. It then reinvested the overcharges in energy efficiency, renewable energy, vehicle electrification and other otherwise laudable projects.
But in recent years, an increasing number of Democratic candidates, and now the state Democratic Party itself, have been rejecting donations from Dominion, driven by a combination of clean energy activism and broad concerns among customers about the utility’s rising rates and slow plans to change. And that, in turn, has driven Dominion to make new commitments to clean energy, energy efficiency and grid modernization — commitments that a Democratic-controlled legislature might press further.
Dominion’s role in Virginia energy policy
In 2015, Virginia lawmakers passed a law that froze rates for Dominion, a move that actually held rates higher than they would otherwise have been if the State Corporation Commission (SCC) had been allowed to review them and order refunds under the traditional ratemaking process.
The controversy led to a broad legislative effort to rewrite Virginia’s energy regulations, culminating in last year’s Grid Transformation and Security Act. Northam described the legislation as a win for ending the rate freeze and adding commitments from Dominion to spend $870 million on energy efficiency, plus hundreds of millions more on smart meters, grid sensors and other modernization efforts.
But as part of that commitment, the 2018 legislation declared large swaths of Dominion’s renewable energy, energy storage and transmission and distribution grid investment to be “in the public interest,” weakening the SCC’s authority over making judgments on whether the spending plans in question were cost-effective.
In light of last year’s political reality, these kinds of concessions could be seen as the best deal available to a Democratic governor fighting a Republican-controlled legislature. That’s why Northam’s RPS goals came in the form of an executive order, rather than as legislative mandate.
It’s also why Dominion’s first major wind and solar deal, announced last month, take shape as a 420-megawatt contract to supply state government agencies and institutions, which have set their own goal of 30 percent renewables by 2022.
Likewise, Dominion’s plan to build 2.6 gigawatts of offshore wind power off the state’s coast has been praised for its ambition as the country’s largest offshore wind farm. But the plan has been accompanied by a pilot project with Denmark’s Ørsted that will spend $300 million in existing base rates to build two 6-megawatt offshore wind turbines.
That’s a massively inflated price for a contract not subject to competitive bidding, and one that the SCC noted puts “essentially all” the risk of the project on the utility’s customers. But under the terms of the 2018 legislation, the SCC was barred from making its standard prudency review, forcing it to approve the pilot over these objections.
The SCC has turned this aspect of the 2018 law into something of an albatross around Dominion’s neck, while also making clear that it welcomes legislation that could alter this equation. On this front, the utility isn’t just facing frustrated regulators, Democratic lawmakers and clean energy advocates — it’s also facing pushback from its biggest customers.
Dominion’s many challengers
Virginia is a hot spot for data centers, and customers including Facebook, Apple and Google are demanding access to clean energy to meet their sustainability goals. Dominion has already drawn the ire of Apple, AWS and Microsoft, which in May wrote a joint open letter chiding the utility for neglecting solar power and energy storage in favor of new natural-gas capacity.
This competition for data center customers has collided with Dominion’s efforts to tilt the playing field in its favor versus third-party renewable energy developers. This spring, Direct Energy and Calpine, two competitive service providers working in Virginia, asked the SCC to intervene in what they alleged was an effort by Dominion to stall their efforts to sign up big customers to their 100 percent renewable electricity offerings.
The stall tactics come at the same time as Dominion is asking the SCC to approve its own revised 100 percent renewables offering, after seeing its first rejected last year.
At the same time, the SCC has rejected efforts from some big companies in Virginia to attempt what MGM Resorts and other big energy buyers have done in Nevada — depart their energy-purchasing relationship with the dominant investor-owned utility. While the SCC denied Walmart's and Costco’s requests, it also suggested that they and others seeking to leave Dominion, such as Target, Cox Communications and Kroger, should take their cause to state lawmakers.
Washington Analysis' Rains contends that the expected Solar Freedom bill could open up customer access to solar, in ways that could both ease and exacerbate the conflict between Dominion and its customers. For example, Dominion is a supporter of the current 50-megawatt cap on renewable power-purchase agreements in the state, but he said his firm "expect[s] the cap to be raised." That, in turn, "could go part and parcel with an RPS to create a mandatory renewable energy credit market to create a better value for the projects," he said.
The SCC has also aggressively asserted its mandate to demand Dominion address cost-effectiveness concerns in its broader grid modernization and integrated resource plans. Dominion’s first $6 billion grid modernization investment plan, filed in June 2018, including $1.3 billion for smart meters, $776 million for intelligent grid devices and automated control systems, and $3 billion in “grid hardening,” all spread over the next three years.
But in January the SCC rejected the entire plan (except $154 million for physical security and cybersecurity spending), on the grounds that Dominion failed to prove its investments would be cost-effective. Dominion filed its revised grid modernization plan in late September, requesting $594 million over three years.
The SCC also ordered Dominion to redo its integrated resource plan (IRP) in December, saying that the utility was seeking too much future natural-gas-fired generation capacity, based on its overestimation of future loads, as well as failing to take its growing renewable energy and efficiency investments into account. While the SCC accepted Dominion’s revised IRP this summer as meeting the “minimum filing requirements of Virginia law,” it also warned that the plan “may significantly understate the costs facing Dominion’s customers.”
All of these planning processes are likely to face more scrutiny from regulators, lawmakers and the public in the new political climate. Cassady Craighill, a spokesperson for advocacy group Clean Virginia, told The Intercept that climate activists and conservative ratepayer groups are both likely to agree on "not allowing Dominion to write the clean energy script to benefit its own profit motives."
In that light, Dominion's clout in Virginia, while not altogether eradicated, is likely to be much reduced in the coming legislative session, Rains said. "They will retain a seat at the table for policymaking. But their weight for setting the energy agenda for the state will be reduced."
