By Christen Smith

A newly minted energy policy group in Virginia has set its sights on busting up the commonwealth’s dominant utility companies — Dominion Energy and Appalachian Power — in favor of a deregulated electricity market.

The Virginia Energy Reform Coalition (VERC) features policy experts from across the ideological spectrum united against what it considers wasteful infrastructure spending funded by ever-increasing electricity rates.

“Moving from Virginia’s 100-year-old government-regulated electricity market to a 21st-century free market will finally put families and businesses in control of their electricity-buying decisions so they can lower their own prices simply by shopping around,” said former Virginia Attorney General Ken Cuccinelli, director of the Regulatory Action Center of the libertarian FreedomWorks Foundation, one of VERC’s nine member organizations. “Shrinking the control of the government-imposed electricity monopoly means more citizens’ control, more choices, more innovation and lower prices.”

RTO Insider contacted each of Virginia’s legislative caucuses to gauge lawmakers’ appetite for electricity deregulation but received no response. Staffers for the respective Commerce and Labor committees declined to comment.

“For too long we have allowed the energy industry and those masquerading as electric utilities to chart our energy future,” said Dan Holmes, director of state policy for the Piedmont Environmental Council, during VERC’s May 7 press conference. “They have crafted the legislation and relied on their campaign contributions and lobbying prowess to ensure it is signed into law. The net result is a system that works for them alone, holding the commonwealth captive, all at the expense of the ratepayer.”

Dominion contributed more than $452,000 to state candidates and committees last year, according to the Virginia Public Access Project, making it the commonwealth’s largest campaign donor within the energy sector.

“Yes, the utilities are quite influential,” said Jim Presswood, executive director of the Earth Stewardship Alliance, another VERC member. “But our coalition represents consumers and groups across the ideological spectrum who plan to let their elected officials know that the time for reforms is now.”

IDSO

VERC argues it’s time for lawmakers to decouple utility companies from power generation — allowing for smaller, cheaper and cleaner resources to enter into the marketplace. The coalition looks to ERCOT’s structure as inspiration, noting Texas’ decision to “quarantine” utilities to owning transmission and distribution lines. Such a policy in Virginia could pave the way for more distributed energy resources, including solar and storage, to come online, the group says.

But the group does not want Virginia to create its own ISO. Instead, it supports the establishment of streamlined interconnection standards implemented by an independent distribution grid operator (IDSO).

“An IDSO would be similar to an RTO, but at the distribution level,” Presswood said. “The IDSO would operate and plan the distribution grid. The utilities would own and maintain the grid. There is not a conflict with PJM because the IDSO would not run any markets.”

An IDSO would also ensure an “all-cost-effective” energy efficiency standard by issuing private sector bid solicitations to remedy “significant” discrepancies that may require system upgrades.

“Competitive markets may not deploy energy efficiency resources even though they may be a cheaper way to meet system needs than other methods such as building new power plants or transmission and distribution infrastructure,” Presswood said. “If a competitive market were already deploying most or all cost-effective energy efficiency resources, there would be no need for IDSO intervention.”

The coalition also says the proliferation of DERs means there is no need for a capacity market, calling it an outdated structure that causes overinvestment, excess costs and unequal treatment of energy resources. It says it wants to “phase out” the capacity market and move to an ERCOT-like resource adequacy model, though it does not say how exactly it would accomplish that.

Costly Move?

Both Dominion and Appalachian Power doubt the proposed reforms make sense for Virginia, citing higher electricity prices in neighboring deregulated states. The legislature established a competitive model in 1999, but a failure to gain traction with customers and suppliers led to its undoing just eight years later.

“By owning and operating a diverse, clean generation fleet within PJM, our customers are protected from price volatility and market changes,” said Julie Mills Taylor, spokesperson for Dominion. “Being a member of PJM does provide a level of integrated transmission and generation planning that provides reliability assurances across a regional footprint.”

John Shepelwich, spokesperson for Appalachian Power, said Edison Electric Institute data published in April showed industrial customers paid rates 78% higher during the last winter in deregulated states. Residential rates were likewise 37% more expensive, according to EEI.

“We would expect that if Virginia were to deregulate generation services, it would probably result in the need to collect many millions of dollars in our plant investments made to meet longstanding obligations to serve our customers here,” he said. “That would be in addition to paying market-based generation service costs under a new regime.”

VERC also wants to change the way electricity rates are structured, said Travis Kavulla, director of energy policy for the R Street Institute. Instead of collecting revenues based on cost inputs and a desired return — the cost-of-service model — the coalition prefers basing rates on utility performance.

“The coalition’s agenda strikes a fair-minded balance between customer empowerment and customer protection,” he said. “Both of which are things Virginia energy policy has needed more of for years.”

Presswood said he expects legislation fleshing out VERC’s platform will be introduced next year.