Virginia Attorney General Reports on Utility ROE Enhancement Adders

In November 2012, Virginia’s Attorney General, Kenneth Cuccinelli, issued a report on his office’s review of the statutory adders that were a part of Virginia’s unique ratemaking system.  The goal of the study was to review the adders and determine if they were advancing the goals of the 2007 Regulation Act:   (a) protecting customers from price volatility and unnecessary rate increases, (b) reliability, (c) fuel diversity, (d) environmental benefits and (e) economic development.

Notably, the report concluded that:

  • The adder associated with achievement of the Renewable Portfolio Standard has cost customers of Virginia’s two investor-owned utilities, Appalachian Power and Dominion Virginia Power, about $740 million, yet the adder not served to advance the environmental concerns that led to its inclusion in the 2007 Act.  The utilities have not built any new renewable energy facilities, but have relied on purchases of Renewable Energy Credits (or RECs) from previously constructed facilities.
  • The generation adders for new generation projects that have been approved will increase the two utility companies’ combined revenue requirements by an estimated $284 million over the term of the adders, and have not advanced the key goals of the 2007 Act in light of the substantial costs they impose.

The Attorney General concluded the report with a call for more discussions on the adders, their costs, and whether they are achieving their intended results.  The Attorney General’s press for “serious policy discussions” on these issues, combined with candidacy for Governor and next year’s election, could make for an interesting upcoming General Assembly session.  In a press conference, Mr. Cuccinelli stated that the 2007 statute has been a “very favorable deal for the two utilities,” a claim that the utilities dispute.

Another interesting subplot will be the Attorney General’s advocacy in Dominion’s recent filing before the State Corporation Commission for approval to construct a 1,380 MW natural gas facility (Docket Number PUE-2012-00128).  Dominion would benefit from the generation adder which would apply to this proposed new facility.  In additional to all the other issues that will arise during that case, the attorney general’s report and advocacy during the case will be worth following.

The General Assembly has recently directed the Attorney General and the Commonwealth’s two utilities to engage in discussions as to potential legislative changes to the ROE Adders that were the subject of the Attorney General’s report.

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David Greene
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