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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