An agreement reached between the Virginia Attorney General’s office, Dominion Virginia Power, and Appalachian Power proposes to reduce financial incentives associated with the utilities’ generation of renewables and construction of new fossil fuel–fired power plants.

The agreement announced on Tuesday does not cancel a voluntary target to obtain 15% of the state’s generation from renewables by 2025. However, it essentially seeks to void the firms’ eligibility to receive bonuses for producing power using renewable sources or building new oil, gas, and coal power plants. Financial incentives for generation of nuclear and offshore wind power may be preserved but reduced.

The agreement stems from a report released on Nov. 29 by Virginia Attorney General Ken Cuccinelli that reviewed the costs and benefits of statutory Return-on-Equity (ROE) bonuses, or "adders," that were available to the state’s two largest utilities if they undertook certain projects. The bonuses began after Virginia passed its Electric Utility Regulation Act in 2007, and they allow utilities a higher return on equity for meeting goals related to renewable energy or for the construction of new generation facilities.

Among that report’s major findings were that the so-called Renewable Portfolio Standard (RPS) adder had not served to advance environmental concerns because utilities had not built any new renewable energy facilities to comply with RPS goals. Utilities had instead relied on buying Renewable Energy Certificates from existing renewable facilities, including hydroelectric plants that have been in service for more than 80 years. "Any benefits of the RPS adder are outstripped by its cost because the adder applies not just to investments in renewables, but rather, applies to a utility’s entire rate base. Thus, the bonus is awarded on most of a utility’s assets, including those that have nothing to do with renewables," the attorney general’s office said.

The report also found that "generation adders" for building new fossil fuel power plants substantially increased the revenue requirements for the two utilities—specifically by a combined amount of $284 million over the term of the adders. The nuclear generation adder had not been used, but it would have cost customers an additional $1.8 billion over actual construction costs and a state-approved rate of return.

Cuccinelli had in November stressed that the report was not a criticism of the utilities. "Their conduct and decisions as reflected in this report are consistent with what reasonable companies would have done given the statutory framework that was put in place in 2007. They should not be criticized for making beneficial business decisions based on choices provided or incentives offered by the law. The question going forward is, should Virginia leave them with all of those same incentives funded by ratepayers?"

Sources: POWERnews, Virginia AG Office

—Sonal Patel, Senior Writer (@POWERmagazine)