Virginia Law Requires Scrutiny of Utility Requests to Recover Natural Gas Capacity Costs

Democratic Governor Ralph Northam on April 6 signed legislation that requires utilities seeking to recover the cost of a natural gas capacity contract to prove that they need the fuel capacity to maintain reliable service and that it is the lowest-cost available option.

The law requires utilities to first demonstrate that they cannot maintain reliable service without additional fuel supplies, and then reasonably identify the amount of the new fuel resource it needs. Utilities must objectively study all available options, including alternatives to gas pipeline capacity contracts to meet the determined need. Finally, they must prove that gas capacity contract or contracts represent the lowest-cost option, taking into account fixed and variable costs and a reasonable projection for utilization of the capacity.

The legislation safeguards Virginia ratepayers from charges that utilities may impose for projects that could become stranded assets following Clean Economy Act passed last month, which requires utilities to source 100 of their electricity supply from renewable or carbon-free sources by 2050.

Dominion Energy Inc., Virginia’s major utility, leads a consortium of companies building the troubled Atlantic Coast Pipeline.  In a January ruling, the U.S. Court of Appeals for the Fourth Circuit vacated a permit for a compressor station to support natural gas transmission through the 600-mile pipeline, citing failure to examine the issues of environmental justice and disproportionate impacts on the local community. Last February, Dominion Energy revised the estimated cost of the project to $7 billion to $7.5 billion, up from $6 billion, and announced that the project is expected to be delayed until early 2021 due to permitting issues.