Dominion Energy Virginia does not want state regulators to require a formal cost-benefit analysis for a newly proposed plan to modernize the electric utility grid at a cost of $3 billion over the next decade, including $816.3 million in the next three years.
“I do not believe it would be appropriate to impose such a requirement for its approval,” Edward H. Baine, senior vice president of distribution for the parent company’s power delivery group, said in testimony filed with the State Corporation Commission this week.
The Richmond-based utility estimated that the grid modernization plan would save the company more than $2 billion over 20 years, but Baine contended that not all of the benefits could be quantified. He urged the commission to consider “the many qualitative or otherwise unquantifiable benefits” of the proposal in determining whether its costs are “reasonable and prudent.”
Baine’s statement crystallizes the challenge the SCC faces in carrying out a sweeping new law that may hamstring the constitutionally independent commission’s ability to protect monopoly ratepayers from utility investments that aren’t cost-effective but are deemed by lawmakers to be in the public interest.
“It is a prime admission that what they achieved in the General Assembly could not actually survive a cost-benefit analysis,” said former Attorney General Ken Cuccinelli, a Republican, who accused the legislature of sacrificing ratepayers to benefit Dominion and Appalachian Power Co., Virginia’s biggest investor-owned utilities.
Even one of Dominion’s strongest legislative allies has qualms about the company’s statement.
“I’m not sure I would agree with that,” Senate Minority Leader Dick Saslaw, D-Fairfax, said Friday. “I think the SCC has a job to do and they should do it.”
“It shouldn’t be everything,” Saslaw said of cost-benefit analysis, “but it definitely should be part of the equation.”
Dominion spokesman David Botkins said the proposed investments would have measurable benefits by reducing the length of unplanned outages and the cost of serving the utility’s 2.6 million customers in Virginia.
“Beyond these primary benefits, the plan will lead to other societal benefits such as reduced emissions, job creation and economic development,” Botkins said.
Under the Grid Transformation and Security Act, adopted by the General Assembly and signed by Gov. Ralph Northam on March 9, any savings wouldn’t necessarily go to ratepayers.
The company plans to pay for a wide array of investments under the new law with rate adjustment clauses or customer credits, representing excess earnings that the company otherwise would have refunded to ratepayers. The SCC would not review the company’s base rates until 2022 under the law.
Dominion said last week that it would use existing rates to pay for $450 million of the improvements to the power grid. Those improvements include installation of smart meters for 1.4 million customers in the next two years and creation of a new customer service system that will allow people greater control to monitor and manage their use of electricity.
Will Cleveland, staff attorney for the Southern Environmental Law Center, played a role in negotiations over the new law, even though his organization ultimately didn’t support it.
“It is absolutely vital that the commission conduct a cost-benefit analysis on all of these various proposals,” Cleveland said. “It may be a little bit of an art, as opposed to a hard science, but it definitely should be done.”
Environmentalists who supported the new law welcome its declaration that development of 5,000 megawatts of solar, wind and renewable energy sources in the next 10 years is in the public interest. Similarly, they like the requirement that Dominion invest $870 million in energy efficiency programs over the decade, using a less rigorous set of cost-benefit tests than the SCC traditionally has employed.
However, the grid modernization plan Dominion introduced last week didn’t impress Walton Shepherd, Virginia policy director for the Natural Resources Defense Council, who wrote in a blog post that the proposal “reads like a utility spending plan that further increases bills, rather than a customer service plan to lower them.”
In an interview, Shepherd said the SCC will have to adjust to the “brave new world” the law represents in assessing the cost of utility investments the legislature mandated.
“It’s almost as if they have to make a qualitative judgment of reasonable and prudent rather than a quantitative one,” he said. “That’s going to be the realm where the SCC finds itself.”
Shepherd said the commission still has an opportunity to exercise its discretion over the modernization plan in the six-month window allowed for regulatory review under the new statute.
“There is room for the commission to shape what grid modernization actually is,” he said.
There is little margin in the law for SCC discretion in approving Dominion plans for burying distribution tap lines for customers, even if the cost appears to exceed the benefit of reduced outages and repairs to overhead lines downed by storms and falling trees.
In a hearing before the SCC on Tuesday — the same day Dominion filed its first applications under the law for grid modernization and new solar power plants — the commission’s staff highlighted two cases in which the company has paid between $200,000 and $300,000 to bury tap lines that have experienced a combined total of six outages in 10 years.
With financing expenses and utility profit on the investment, the lifetime cost of the two lines would be $1.3 million, according to David Dalton, a fiscal analyst in the Division of Public Utility Regulation.
Dalton acknowledged that “these high-cost projects ... appear to meet the minimum statutory requirements for approval,” because Dominion included them with a number of other line-burial projects that bring down the average expense below cost caps in the law.
Dominion, in testimony filed earlier with the SCC, said Dalton’s initial critique of 14 high-cost tap lines buried by the company focused on less than 1 percent of the total and “ignores the operational value” of burying lines that have required significant work to restore after outages.
The company plans to spend $2 billion on the Strategic Undergrounding Project, which the SCC estimates will cost $6 billion over the life of the buried lines, including financing expense and utility profit.
The General Assembly, angry over SCC rejection of two previously proposed Dominion projects to bury distribution lines because of the cost, required in the new law that the commission find the utility’s undergrounding proposals from late 2016 through the next 10 years to be “reasonable and prudent” as long as they comply with average cost caps.
“The problem is I’ve got constituents who are tired of losing their power every time the wind blows,” Saslaw said.