When and Why Can the SCC Say No?

When the General Assembly and Governor pass a law that states a source of electricity – or even a specific power project – is in “the public interest,” what is the State Corporation Commission left to do?  Does that mean the SCC must approve the project even if it turns out to be unreasonable, imprudent or not needed?

Since 2007 the Assembly has designated several aspects of generation and transmission “in the public interest,” this year adding to the list up to 5,000 megawatts of renewable generation and a small and expensive demonstration project for off-shore wind for Dominion Energy Virginia.  Before going further on that wind project, Dominion filed a petition seeking a declaratory judgement on the question of prudence.  Just because one parent said yes, best to check with the other one.

The two SCC commissioners then turned the tables and asked all participants in the matter to give their legal opinion on seven specific questions.  Lawyers for the two major electricity providers, for environmental groups and for the Office of the Attorney General all took a crack at questions such as this one:

“6. Do the statutorily-mandated public interest findings under either Subsections A or E override a factual finding that the project’s: (a) capacity or energy are not needed for the utility to serve its customers; and/or (b) costs to customers are unreasonable or excessive in relation to capacity or energy available from other sources, including but not limited to sources of a type similar to the proposed project?”

Before Dominion dictated a new regulatory approach in 2007,and before Virginia legislators developed a taste for micromanaging the state’s energy economy, such questions never came up.  The SCC had unlimited authority to decide what was needed, prudent or reasonable, subject to appeal.

The briefs are all buried in this pile of documents and they were supplemented with oral arguments on Thursday, drawing a packed house.  There was agreement that a finding of public interest is distinct and does not override questions of prudence or reasonable cost, and the SCC can reject a project for those reasons.  But picking up a phrase used before, Joseph Reid III of McGuireWoods said Dominion views the legislative blessing as “a thumb on the scale” and that phrase in the law “strongly encourages a result.”

The petition dealing with the wind project is filed under a new process for testing prudency. “It would be illogical for the General Assembly to first declare solar or wind generation facilities to be in the public interest and provide for a prudency determination if the General Assembly meant for the terms to be treated synonymously. There would be no need for a prudency determination if such was the case,” wrote Assistant Attorney General Mitch Burton of the Consumer Counsel’s staff.

Burton also pointed to the part of the new bill dealing with putting residential power lines underground.  The General Assembly years ago deemed that underground program in the public interest, and directed the SCC to interpret the law liberally, yet the SCC scaled back the project based on cost.  This year the Assembly added a hard mandate that those costs had to be deemed reasonable,  but that implies SCC discretion remains in other areas.

At times the argument focused on the general issues, but at other times it focused on the project at hand – the 12 megawatt, two-turbine wind project planned for 27 miles off Virginia Beach and projected to cost $300 million.  Supporters of the project argued that the SCC should not reject it just because the tiny energy output is not needed.  Given this has been billed all along as a small demonstration project, not a major source of electricity, the question of need may not apply in its case.

But need will be a question in other cases, and projected demand growth is a major dispute in the pending Dominion integrated resource plan.  The rapid move to renewable sources may be accompanied by the early (and costly) retirement of existing fossil fuel generation. This part of the discussion produced the strongest disagreement among the parties.  They had different answers to part (a) of the question set out above.

Dominion and the environmentalists argued that “need” means more than just the need for energy, but also the need for more renewable sources, the need to retire carbon-intense power plants and other beneficial outcomes.

Noelle Coates of Appalachian Power wrote in her brief: “…if the Commission found a project to be imprudent mainly on the basis that the utility does not need the project’s capacity and energy, the Commission would be thwarting the legislative goal, as clearly expressed by the General Assembly, that more utility scale solar and wind resources be built in the Commonwealth.”

Building generation you do not need adds unreasonable cost to customers, and preventing unreasonable costs remains within the Commission’s authority, argued Consumer Counsel Burton. “Charging to customers the costs associated with unneeded capacity and unneeded energy may represent an unreasonable increase in rates paid by customers.”

A major rule for interpreting statutes in Virginia courts is to assume the General Assembly knew what it was doing and chose words because it understood their meaning. William Cleveland of the Southern Environmental Law Center argued for a new assumption that the legislators also factored in cost and understood $300 million for such a small amount of electricity would not normally pass muster.

“Doesn’t that make this (proceeding) just a charade?” asked Judge Mark Christie.  Cleveland said the standard should be “the lowest reasonable costs you would pay for this type of generation.” (Emphasis added.)  Like should be compared to like.

Even that approach might not let this small project clear the hurdle, since it is also expensive compared to other wind projects.  But this is another question that really matters more for larger projects to come.  Having helped write the law to discriminate in favor of renewable projects, Cleveland’s clients do not want cost drawing the SCC’s focus back to conventional power plants.

That was the point of this exercise and will be in the background of whatever the SCC rules – the tsunami of projects to come.  If the SCC decides that its authority has been curtailed, the full force hits.

After the hearing yet another letter appeared on the SCC’s document page, this one signed by ten Republican state delegates.  They know prudency when they see it.  To repeat, the only thing being demonstrated by this turbine project is how badly the General Assembly has tilted electricity regulation against the interests of consumers and how it views ratepayer dollars as no different than taxpayer dollars.

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10 responses to “When and Why Can the SCC Say No?

  1. So… for a moment – suppose the SCC was in charge of say Microsoft, or Uber or some other rapidly evolving business model… what should be the limits of its power be and where should it not have any power or very limited power to regulate an entity’s rapidly evolving business model?

    I would submit that if the SCC had regulated virtually any business in the 21st century that it would be a bit of a risky thing to know what to restrict or deny and what to let evolve organically …

    I don’t for praise nor condemnation for Dominion; they are a company and companies do what they do; they’re basically critters of the people who organize and run them and they will exercise every free market imperative they can that govt does not block them from.

    But again – I do wonder if the regulation model that the SCC is following is, itself, evolving in concert with how the electricity industry is changing?

    I suspect Dominion is making an argument like this to the GA but the GA itself is not exactly competent on these matters either.. though they lean and favor more free-market and less regulation.

    Tom H has posited that we want an economically healthy Dominion to go forward with innovation and changes… yet at this point – we seem to be having the worst of all worlds with respect to the SCC regulation and the GA’s cherry-picked initiatives…

    what say Steve and others on the idea that the SCC is regulating “wrong”?

    • Great summary of the situation, Steve. This is a fundamental issue: What does it mean when the General Assembly declares something to be in the public interest? How does that change the SCC’s decision-making calculus? I expect that resolving the issue will cause a lot of turmoil.

      • “The first thing we do, let’s kill all the lawyers”. W. Shakespeare

        Steve, you missed your calling, you should have been a lawyer. Only a natural born lawyer can fully appreciate and marvel at the fine art performed daily by the highly paid prostitute.

  2. The way New Jersey did it, back around 1990, NJ adopted a state policy with public input, saying we urgently needed more utility-owned, coal-fired power plants to balance the state’s energy mix. The utilities were mad about businesses using natural gas to self-generate cheaper power, so they wanted to say: (1) utlites have the job to make the electricity, and (2) it will be coal-fired henceforth.

    So I see the current Virginia path along similar lines, only with some changes to mandate zero-carbon sources. I see it partially as continued rejection of natural gas as a power soiurce, even if it is cheaper. The utilities have no interest in “cheaper” which implies less profit margin for them.

  3. One issue that seems to be missing in all of this discussion: If something is considered to be in the public interest, such as more solar, offshore wind, or energy efficiency, why do we have to assume that the utilities must do it?

    If the utilities can provide the most cost-effective way to accomplish these projects, then the SCC should be able to identify that and allow them to proceed. It is not the SCC’s job to approve projects that fluff up utility holding companies’ share price. Utilities have been granted a monopoly in exchange for a fair return and fair rates to customers. We have forgotten that concept in Virginia.

    Having the utilities develop solar appears to cost us considerably more. The same with energy efficiency. Dominion will charge 78 cents/kWh for their offshore wind project, with no guarantee of the final price. The bid for a larger, much more useful offshore wind project in Massachusetts is 7.4 cents/kWh. The project developer is responsible for testing the viability of the project because it is contractually obligating itself to provide electricity at a fixed price. This is not the case in Virginia.

    We are caught in a tug of war here between two options 1) let the utilities do it as they are currently regulated, or 2) Don’t do it.

    The only way utilities will be financially sound in the future is if we reshape their business model. It no longer makes sense to pay them more to build more, because we don’t need them to build more.

    The path to lower-cost energy is to use less of it and have new sources provided by independent providers at fixed prices. Putting most new projects in the rate base will make them much more expensive. With this shift, we need to create new ways for our utilities to make money by providing a variety of services that actually benefit customers.

    Keeping our options limited by the constraints of the current regulatory scheme is causing us to make poor choices. Other states are designing modern energy systems, so should Virginia.

  4. Where is the Attorney General? Nebraska, a state where I lived and am a member of the state bar, has a provision in the state constitution that establishes the Public Service Commission and, as a result, places limits on the Unicameral’s ability to restrict the PSC’s authority. There are cases where the Nebraska Attorney General has sued to overturn legislation that restricts the PSC’s authority. This has occurred in other states as well. Some suits have been successful; others have not.

    I found two cases quickly. State ex rel. Spire v. Northwestern Bell Telephone Co., 445 N.W.2d 284 (Neb. 1989); State ex rel. Spire v. Beermann, 455 N.W.2d 749 (Neb. 1990).

  5. The Supreme Court of Virginia last summer decided a case that basically upheld legislative primacy, ruling that the so-called “rate freeze” bill in 2015 did not cross the line. The way our constitution reads, the SCC’s authority is “subject to” (I think that’s the qualifier) Assembly dictates in general law.

  6. re: ” The only way utilities will be financially sound in the future is if we reshape their business model. It no longer makes sense to pay them more to build more, because we don’t need them to build more.”

    I worry that folks who are not themselves in the business of making and selling stuff – like electricity – actually know more than folks who actually do it – and then tell those folks how to do it.

    There’s a certain amount of that feeling with both the SCC and the GA on energy.

    The last people in the world you’d want to be involved in the price of gasoline would be the SCC or GA but we definitely DO want govt involved in the octane level and making sure a gallon is a gallon, etc.

    That IS a legitimate “public interest”, no?

  7. Another unspoken issue … The wind leases have timelines for actions. The 2013 lease had a set of timelines requiring actions to be taken in order to hold onto those leases. Most of those required actions have to be done before any wind mills can be put in place; things like an
    Archaeological Survey conducted by a Qualified Marine Archaeologist. An
    HRGSurvey, a marine remote‐sensing survey using electromechanical survey equipment, was to be submitted no later than the third anniversary of this lease’s Effective Date, or 2016.

    Many of us thought the pilot project could be a way to meet lease requirements, but Dominion said it was too expensive to build. DOE rescinded the $40 million it had designated to VA for the 2 windmill project, and gave the money to Cleveland. Cleveland is building a 6 windmill 20MW farm on the Lake Erie to the winter ice issue on the lake. Exactly what and where the rest of the timeline requirements are, I don’t know, but ownership of the leases that Dominion purchased, and has paid rent for, can be rescinded too.

    Virginia would be better served by having Dominion purchase wind output from farms constructed on Virginia’s lease area instead of being the developer and owner of our offshore wind. The states to our North are doing just that. Utilities, who know nothing about offshore wind, are using Power Purchase Agreements to buy the wind farms output, getting a long term secure price for their customers. The PPA’s also serve to back the investment by a wind farm builder/owner. Ma, NY, NJ and RI are all developing wind farms on our shared Bight.

  8. Pingback: Update: SCC Hearing on Off-Shore Wind - Bacon's Rebellion

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