Reynolds Wins Customer Aggregation Petition

SCC headquarters

The State Corporation Commission has issued a decision expanding the right of large customers to bypass the monopoly franchises of Virginia’s electric utilities and purchase electricity from competitive suppliers.

While the General Assembly was embroiled in debate over grid modernization and the rollback of the electric rate freeze, the SCC approved the first ever “customer aggregation” petition. Reynolds Group Holdings Inc. now has permission to aggregate the demand of three of its subsidiaries at six locations in Virginia served by Dominion Electric Virginia for the purpose of purchasing electricity from someone other than Dominion.

Reynolds, based in Auckland, New Zealand, owns several packaging enterprises associated with the old Reynolds Metals, formerly headquartered in Richmond. According to the SCC ruling, the aggregated peak electric demand of Reynolds’ Virginia operations was 10.12 megawatts, representing approximately 0.06% of Dominion’s system peak of 17,000 megawatts. The impact on Dominion, which projects peak demand growth of 1.3% over the next 15 years, was de minimis.

It was not clear from the ruling whom Reynolds intends to buy its electricity from. However, Calpine Energy Solutions and Collegiate Clean Energy filed comments in support of the petition. California-based Calpine supplies natural gas, power and associated energy and risk management services to customers throughout the United States. Wilmington, Del.-based Collegiate supplies 100% clean energy solutions to universities and businesses.

Will Reisinger with the GreeneHurlocker law firm explains the significance of the ruling in a blog post:

[The] law allows large customers with annual demands over 5 MW to purchase generation from competitive suppliers. Importantly, the law also allows a group of customers to “aggregate” their demands in order to reach the 5 MW threshold. The statute treats large customers with multiple meter locations as different customers but allows them to aggregate to meet the 5 MW threshold. Once aggregated, the group will be treated as a “single, individual customer” under the law. Before allowing an aggregation, however, the Commission must find that the requested aggregation would be “consistent with the public interest.”

SCC Case No. PUR-2017-00109 was the first test of this statutory provision – that is, the first time a group of customers sought to combine their demands in order to reach the 5 MW threshold. In this case, Reynolds Group Holdings, Inc. (“Reynolds”), a metals and packaging manufacturer, petitioned the SCC for approval to aggregate six of its retail accounts in Dominion’s service territory.

Dominion and Appalachian Power Company (“APCo”) intervened in the case and opposed the petition. Dominion argued that allowing customers to aggregate their demand “would unreasonably expand the scope of retail access [and would] have the potential effect of eroding a significant portion of the utility’s jurisdictional customer base.” Dominion also suggested that the General Assembly – despite authorizing customer shopping and aggregation – intended to allow retail choice “only in limited circumstances.”

But the SCC, relying on the plain language of Va. Code § 56-577 A 4, rejected Dominion’s and APCo’s arguments and approved the petition. Dominion and APCo have until March 23, 2018, to appeal the decision to the Virginia Supreme Court.

No word yet from Reynolds, Calpine or Collegiate about what exactly they have planned.

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10 responses to “Reynolds Wins Customer Aggregation Petition

  1. This is why we need to develop a modern energy system. The more Dominion tries to protect its franchise using 20th century methods, the more it will be exposed to private investments in energy efficiency and other means of energy supply. It is good for customers to have choices for reducing their energy costs, but we must do it in a way that protects the utilities so that they can invest in creating a truly modern grid.

    Other states have done this by decoupling new generation from the rate base. Legacy units are still paid for on a cost-of-service basis to be fair to the utilities and provide a way to pay off prior investments. The utility can still build new generation, but it must pay for itself in the wholesale market. New York allows utilities to build new solar only through their unregulated subsidiaries on the same level playing field as third-parties. This avoids the price penalty to ratepayers by putting solar in the rate base.

    Utilities are paid primarily to provide a modern grid that allows for a wide variety of customer choices in self-generation, energy efficiency, or third-party services. The utilities are still responsible for retail sales and can earn more by charging for transactional billing services for third-party providers.

    Under scenarios like this, utilities have no reason to oppose energy efficiency programs. They can provide such services themselves as an unregulated provider on equal terms with others outside of the rate base.

    This gives utility holding companies many revenue opportunities and customers a variety of choices, plus lower energy costs. It avoids making the ratepayers shoulder excess costs by putting investments in the rate base that will guarantee returns regardless of the value of the service.

    Dominion has opposed this because they do not want to compete on equal footing with innovative new businesses. They have benefited by shifting the risks and costs to ratepayers with guaranteed and now barely reviewed returns.

    The wires are the only natural monopoly. That aspect would continue to be a utility franchise and fairly regulated. The supply or savings of energy should be open to whatever organization can do the best job providing it. New energy technologies do not require billions in investment as the old power plants did. The capital raising capabilities of the utilities can still be applied to grid improvements. But they should truly be grid improvements, not profit-gaining boondoggles.

    We are entering a new era. Let’s carve out a segment in which utilities can prosper and open the rest for innovation and job creation that can best be provided by new businesses.

  2. “de minibus”?

    Have you been visiting New Jersey as well as Belize?

    “De mini bus tried to take yer frickin’ parkin’ space! Fugggetaboutit!”

  3. I agree with TomH but come at this from a little different perspective.

    Back in 1999, Virginia embarked on developing an open-access approach to the grid, with “retail access” by customers to competing electricity suppliers, and with distribution providers like Dominion obliged to deliver the electricity from their own generators or from competitors as a “common carrier.”

    Virginia largely repealed that new regime in 2008, but the framework remains on the books, and one important vestige of “retail access” was this opportunity for large customers (individually or in the aggregate) to go directly to the bulk power grid to find a competing supplier. In most other mid-Atlantic and Northeastern states this option exists for smaller customers as well.

    Let’s not forget that Dominion has every opportunity to compete as an unregulated power generator anywhere in the Country, including Virginia; it is entire Dominion’s choice to seek to “rate-base” its generation and accept a limited (but ‘guaranteed’) return on that investment. And, as a result of that 1999 legislation in Virginia, Dominion still breaks out its transmission and distribution “wires” costs in separate components of its retail rates, so that if a customer could find another source for its power, Dominion’s “wires” charges for the customer to connect to the grid are already separately calculated.

    Virginia utility regulator and utilities are ready for this sort of electricity competition. The SCC is right to bring it on.

  4. Is the implication that Reynolds can get cheaper elec than Dominion, who we know wants to max out their profit margin?

    • Electricity that is cheaper. Or greener. Or meets other performance requirements. Yes, that would be the implication.

    • Exactly so. And this keeps a competitive lid on Dominion’s industrial/large-business electric rates too, to the extent that Reynolds or any other large electric customer can find cheaper bulk power out there, such as in the midwestern Rust Belt. Dominion’s retail rates are competitive now, which is why I don’t expect to see a lot of customers taking advantage of this to shop elsewhere, but their option to do so has to factor into Dominion’s thinking about their exposure to competition if they try to build exotic generation for rate basing at prices that push their average generation costs above market.

      There’s lots of uncertainty long-term about what the generation mix on the Grid will be — how much distributed generation will customers build, how much solar and wind will come on line overall, how much cycling gas generation will be needed to back it up, how much battery storage will become part of the mix within the planning horizon — and the possibility of losing large customers to other suppliers is simply one more complicating factor.

      But, short term, the likely attraction of retail access for Reynolds and others is the chance to cut a niche deal with an independent generator for the output of a new, efficient unit Reynolds helps to finance, anywhere in PJM, or with “green” output. There isn’t a huge amount of that going to happen.

  5. All things considered, it looks like the SCC is a direct threat to Dominions preferred business model and the more that the GA can cut the SCC out – the better!

    The only way a monopoly can really work is if would be competitors are denied access to that market.

    I was never convinced that de-regulation in Virginia was really a failure since many other states had success at it. What was different with Virginia and I suspect it was DOminion’s influence in how it was set up originally – set up so it would fail.

  6. This development does, however, open a risk for cream-skimming by Dominion’s competitors – serve the cheaper-to-serve, high-volume users. That could push more fixed costs on smaller users, both small business and residential users.

    A way to protect consumers and small businesses would be to allow for the formation of some type of purchasing coop or other aggregation entity. This entity could sign up enough customers to generate sufficient demand to warrant better wholesale prices. If done on a coop or nonprofit basis, such as occurs with Virginia’s many rural coops, consumers would save money and avoid the loading of more and more fixed costs by Dominion. Dominion would have an incentive to be more efficient and to lower its own retail prices. The customers could be located anywhere within a geographic footprint.

  7. We might be reaching the point where we remove monopoly status for Dominion and we allow full and open competition which may well benefit some ratepayers and penalize others because right now it seems that Dominion has basically co-opted the original intent of monopoly status meant to be a careful balance between their interests and ratepayer/citizen interests.

    When we get to the point where a regulated monopoly is giving cash money to legislators who are submitting legislation – legislation that was written by Dominion – and we are arguing that because a “rate freeze” that was designed to protect consumers – instead generated huge excess profits – and those profits “belong” to Dominion to decide how to spend…

    …. somewhere this whole thing has come off the trolley…

    it’s Alice in Wonderland – that because things have become so screwed up by Dominions inveterate legislative meddling – that Dominion is who needs to fix it.

    It drives me nuts to read Jim B’s “reasoned” logic to this effect!!

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