Ruling Opens Electric Competition for Big Virginia Customers

Direct Energy Services Inc., a Houston-based retailer of electricity and energy-related services, is allowed to sell 100% renewable energy to large customers in Virginia without a restriction that would forbid customers from returning to their incumbent utility without a five-years’ advance written notice, under a Virginia Supreme Court ruling issued this morning.

The Supreme Court decision upheld a previous ruling issued by the State Corporation Commission against Dominion Energy Virginia.

“This appeal is about the intersection of these two subsections: What happens when a mega-consumer wants to buy from a green-energy company? Does that switch trigger the five-years-notice requirement, or not?” writes  Steve Emmert in his blog, “Virginia Appellate News & Analysis.” 

The bottom line: No, it doesn’t trigger the requirement.

The decision follows an SCC ruling two weeks ago that allowed Reynolds Group Holdings to aggregate demand from multiple properties to meet the 5-megawatt threshold required to purchase electricity from non-utility suppliers. Together, the SCC and Supreme Court rulings expand the options for large electric customers at a time when cloud providers and other major corporations are making big commitments to solar power.

The 5-year restriction, writes Emmert, “was likely designed to prevent bargain shopping on an annual basis, something that can play havoc with VEPCO’s planning.” The proviso also acted as a deterrent for companies thinking about purchasing renewable power from a non-utility. If a company wanted to preserve the safeguard of being able to switch back to Dominion, Appalachian Power, or an electric co-op, the inability to do so for five years added an element of risk.

Says Emmert: “This is clearly a win for those who seek greater competition in this field.”

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15 responses to “Ruling Opens Electric Competition for Big Virginia Customers

  1. The decision actually upholds the SCC’s construction of a provision of the Code that allow all customers, irrespective of size, to purchase renewable power from suppliers other than the incumbent, so long as the incumbent is not offering such an opportunity. Va. Code 56-577 A (5). The Court said:

    “The plain language of Sections (A)(3) and (A)(5) is clear and unambiguous. Section (A)(5) provides that “individual retail customers” can purchase electricity produced with 100% renewable energy from CSPs. Unlike Section (A)(3), Section (A)(5) does not contain a limitation based on the size of a customer’s demand for electricity.”

  2. The alternate supply opportunity recognized by this decision, of course, goes away once the utility offers its own approved 100% renewable rates. The window may not be open long.

    The other SCC decision, allowing Reynolds to aggregate various locations in order to reach the 5 MW demand requirement for seeking an alternate supplier, may have more lasting impact. I read today that both major VA utilities are in the process of appealing that now.

    Odd. I kept reading advertising and hearing parroted talking points claiming Dominion had the lowest industrial electric rates since Caesar was in knee pants – why would anybody want to seek another supplier? Hmmmm? Why do they run to court or the GA to prevent competition?

  3. I don’t want to address the Court’s decision because the GA could change the law, and probably will, soon enough. But, there are a few policy considerations to bear in mind when talking about “retail access.”

    (1) We all like competition. But long ago, it was found wasteful to have “wires” competition, where multiple electric companies have wires down every street. We used to solve that by granting one company an exclusive service territory. With retail access, it’s exclusive as to the distribution wires, and non-exclusive as to the generation supplier. In effect, we make the distribution company serve as a “common carrier” to deliver anyone’s power. This requires that the electric bill contain separate “unbundled” charges, and all the accounting and billing mechanisms that back those charges up, for distribution and for generation. And we break out transmission separately too, because that has a different regulator. All that “unbundling” was complicated and expensive to do — but the electric utilities in Virginia did that pursuant to the Virginia retail access legislation in the 1990s; and you will still see separate charges on your retail power bill for generation, transmission, distribution and customer (billing) costs. That represents a sunk investment in making retail access feasible; it’s a shame not to use it.

    (2) The big problems with retail access are, (a) who has the fall-back or “default” supplier responsibility (e.g., if the customer’s chosen supplier goes out of business, or the customer’s contract with the supplier expires or is terminated for non-payment)? And, (b) how much notice do customers have to give when they choose to switch suppliers (to prevent “gaming” the system)?

    (a) Most State commissions have solved the “default supplier” problem by making the wires provider serve as the default electricity provider also. There’s been talk in some States about alternative suppliers having to post bonds or otherwise assure that they don’t just disappear, and about the risk their suddenly disappearing might pose to the default supplier to have to pick up all that extra load on short notice. But, the practical fact is, if the alternative supplier has bought its supply on the same grid, then that generation would still be there the day after the alternative supplier went out of business. So there probably will be generation output available on the grid for the default supplier to buy at wholesale (though perhaps not at a low price).

    (b) The notice problem is straightforward. Most suppliers require one year minimum notice to switch because suppliers offer different rate structures (for example, if supplier A has higher summer than winter rates but supplier B offers a flat rate year round, there are customers (particularly larger commercial/institutional customers) who would buy from supplier A in winter and supplier B in summer, if that option were available. Requiring a one year contract avoids that kind of switching and is reasonable. A longer notice period, however, exposes the customer to risk of being locked-in to a price increase unless the supplier’s price is regulated. And that’s exactly what “retail access” competition is supposed to avoid. A notice period of 5 years is unjustified overkill; that’s simply a provision intended to discourage retail access.

    The GA, prodded by Dominion, pulled back from “retail access” in 2007 because it didn’t seem to be working. No serious alternative suppliers opened up shop in Virginia. Well, duh, alternative suppliers aren’t all that attractive to customers who already have one of the lowest cost electric supplies on the East Coast. “Retail access” really comes into play when the local electric utility has high costs and can be undercut by the competition. Dominion is not threatened by “retail access.” Or at least it wasn’t, in the early 2000s. Maybe the sudden interest by Reynolds and others in alternative suppliers of electricity indicates that something has changed.

  4. Well I can certainly see now why Dominion prefers the GA “regulating” over the SCC!!!!

    I never really understood why, when the various components of were broken out in individual line items and the “distribution” would be whatever the costs incurred and passed on to customers while the power generation could, in theory, allow selecting different generators.

    Let me acknowledge and note – that the cable TV folks are not structured that way. whatever TV choices you have or not are controlled by the same folks to brought the wire to your house.

    but even that is being challenged by 3rd party “providers” who will “stream” over your internet connection provided by your cable company.

    But make no mistake – most companies will seek either de-facto or virtual monopoly status if they can..nothing is more profitable than being the sole provider of ….anything… !!!

    • “Net neutrality” is simply the name for “common carrier” status applied to an ISP such as a cable company. The concept goes back to railroad regulation in the 19th c. and was extended to telephones and the interstate gas pipelines in the 20th, The expansion to ISPs by the FCC under Obama’s FCC was upheld by the courts although the 1970s Telecomm Act leaves it optional (up to the Commission). It makes sense to apply the same concepts of non-discrimination to any utility engaged in “common carriage” — transportation or delivery of goods of some kind — for the public, precisely because the usual rules for open competition don’t apply.

  5. To amplify a little on AC’s comment above, yes you see different charges on your bill for distribution, supply and transmission, which appears to be unbundling and is, in a sense, but it is only functional unbundling, not the legal separation of ownership of generation that the “de-regulated” states mandated.

    Since Virginia law requires its electric utilities to be a part of a regional transmission organization, in our case PJM, this unbundling would have been necessary in any case, since federal rules prohibit interaction between joint owners of both generation and transmission facilities. Those companies, such as DVP and Apco and a number of other PJM companies, must maintain the Chinese wall of separation between those two functional units so that the transmission provider does not discriminate in favor of the affiliated generation that the company also owns.

    He is also right about the notice periods and that the one in Virginia law is overkill.

    • Thanks for the validation. FWIW I believe most of the states that ever mandated generation deregulation stopped with functional unbundling also. Most electric utilities long ago perfected the accounting needed to accomplish jurisdictional separation of costs within one corporation (e.g., Vepco), and functional separation is similar; indeed the separation of transmission from distribution is both functional and jurisdictional. My old company retained generation within the same corporate ownership even after FERC implemented its market-based-tariff rules for generation complete with Chinese wall etc. My company did eventually transfer most of its generation to a separate subsidiary — to facilitate a generation sale, not to meet any regulatory or PJM requirement to do so.

  6. re: ” Since Virginia law requires its electric utilities to be a part of a regional transmission organization, in our case PJM,”

    does this mean that the GA could conceivably change that law so utilities are not required to be part of PJM?

    I wonder when that law was written and what the motivation was – at the time it was voted – and whether Dominion and ApCo supported or opposed it?

    • Yes, they could change the law to eliminate the mandate; a separate question is whether they could enact a law requiring our utilities to LEAVE their current RTO. I think that is doubtful.

      As to when the law was written, it was part of the Utility Restructuring Act of 1999 that was supposed to usher in generation competition in Virginia, beginning in 2001.

      As to whether Apco and DVP supported the law, DVP wrote it….

      • Yep … DVP did support it and so did ApCo but doing so appears to be the way their fenced monopolies were protected from other generators to/from PJM… no?

        • No, in my view. The Virginia restructuring act did call for DVP to join PJM. But the background was a series of FERC orders establishing “open access transmission” (common carriage for generation and retail supply) on the Grid. FERC couldn’t require retail access (under the Federal Power Act that’s a matter for the States) but it could require functional unbundling and a common-carrier grid and independent grid system operators (ISOs) as a way to allow independent generators to locate anywhere and reach the entire grid for sales to other utilities than the local transmission owner. And FERC also required the establishment of wholesale electricity markets to facilitate these sales. FERC ordered every utility to join an ISO, but let them choose which one (at least initially).

          PJM was a pre-existing “power pool” which already had a rudimentary market in place. At the Virginia level, PJM was viewed as dominated by DVP and APCO rivals and they didn’t trust PJM; but after several attempts to organize an alternative ISO with midwest and NC utilities, it became obvious to DVP that PJM was the only practical choice within the FERC-dictated timeframe. The Virginia legislation, which did mandate retail access, also mandated joining PJM.

  7. interesting history:

    Legislative Transition Task Force of the Virginia Electric Utility Restructuring Act November 19, 2002, Richmond

  8. I would like to hear more about the issue cited by Steve … “The alternate supply opportunity recognized by this decision, of course, goes away once the utility offers its own approved 100% renewable rates. The window may not be open long.”

    This was a regulation I ran aground of hoping to sell solar to an Eastern Shore company whose parent company was very amenable to renewable energy and whose energy use was high. It was my conclusion that Dominion could create a ‘Green Tariff’ and close out the third party generator.

    • That sounds right to me. There are state REC markets within the PJM region that could supply Dominion with sufficient renewable energy credits tomorrow to make such a tariff possible. The renewable energy does not have to come from Dominion-owned solar units, so they could close that door anytime, on short notice.

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