A new analysis by State Corporation Commission staff members estimates that ratepayers of Dominion Energy Virginia will pay nearly $5.6 billion over the next 15 years under new state mandates to expand renewable energy and modernize its electric grid.
The staff says its analysis could understate the expense to ratepayers because the estimate is based on serving a Dominion load forecast that appears to be inflated. If the actual load is lower, the gap would be greater between the lowest-cost plan and the expense of carrying out the law’s mandates, especially for renewable energy.
The SCC had directed Dominion to include detailed plans and costs to carry out the Grid Transformation and Security Act in its annual integrated resources plan for meeting electricity demand over the next 15 years. The company’s plan did not include the costs to ratepayers, so the commission’s staff produced its own estimate.
Dominion strongly disagrees with the staff analysis, primarily because the company says it doesn’t reflect savings from the new investments and undervalues the efficiency of new solar power generation in comparison with other options for producing electricity, such as natural gas.
“Our customers expect us to provide renewable energy,” said Rayhan Daudani, spokesman for the Richmond-based utility. “As the cost of solar energy continues to fall, we see it playing a greater role in our fuel mix.”
Under the law, which Dominion promoted aggressively in the last General Assembly session, some of the costs of modernizing the electric grid could be offset with excess utility profits that otherwise would be refunded to ratepayers.
In a report to Gov. Ralph Northam and key legislators on Wednesday, the SCC estimated that Dominion overearned by $302.6 million to $365.6 million last year, based on the return on equity approved by the commission.
Dominion ratepayers ultimately would be owed refunds of $173.3 million to $217.4 million for 2017, the first year of a three-year review of electric rates required under the new law. As part of an agreement negotiated with Northam and the General Assembly, the company issued a $133 million refund to ratepayers in July and will issue $67 million next year.
David Botkins, another company spokesman, said the law allows the utility to reinvest company credits for excess earnings in new initiatives to make the system more reliable and reduce power outages, and provide customers with greater opportunity to manage their energy use, and create new clean energy projects.
“By reinvesting these earnings, we can continue with stable rates while building an even smarter, stronger and greener electric grid,” Botkins said. “That is what our customers want, and we plan to give them.”
Dominion has filed two requests with the commission to carry out the law. In late July, it proposed to invest more than $800 million to improve the security and operation of its electric grid, including the deployment of smart meters for 1.4 million customers over the next three years.
Ultimately, the company expects to spend more than $3 billion on grid transformation over the next decade, although it did not include any of those costs in the resource plan it filed on May 1, about two months after the law’s passage. The staff analysis assumes a cost of $2.2 billion, based on net present value, not including financing costs and profit margins.
The company also declared a commitment to develop 3,000 megawatts of electricity from solar and wind technologies by 2022, including a 12-megawatt offshore wind pilot plant. The company asked the SCC earlier this month to approve the $300 million offshore wind pilot, which also is part of its resource plan. The company says it may develop up to 2,000 megawatts of offshore wind if it proves economic.
Ultimately, the law calls for 5,000 megawatts in new renewable energy generation in the next decade, which the SCC estimates would cost ratepayers an additional $1.85 billion, an assumption that Dominion strongly contests as skewed.
The staff analysis also includes $1.47 billion to pay for burying electric distribution lines — an initiative ordered by the new law — and $50 million in incremental costs for new energy conservation programs. The law would require Dominion to spend up to $870 million on such programs, although the company is waiting for more guidance before proposing conservation initiatives to the SCC.
Environmental groups were divided over the law, although they strongly support that it finds a public interest in developing more sources of renewable energy to reduce reliance on fossil fuels.
The Southern Environmental Law Center, based in Charlottesville, said the SCC staff was right to challenge the accuracy of Dominion’s load forecast and expect the company to account for the cost of the new law in the integrated resource plan it filed on May 1.
Will Cleveland, a staff attorney for the law center, said in an interview Thursday that the law’s requirements are essential to the long-term plan because they allow Dominion “to spend billions of dollars of its customers’ money on its grid for the next 10 years.”