Supreme Court of Virginia upholds decision on Dominion carbon market charge

The Supreme Court of Virginia. (Robert Zullo/ Virginia Mercury)

Utility regulators met state legal requirements in approving a charge added to Dominion Energy Virginia bills to pay for participation in a regional carbon market, the Supreme Court of Virginia ruled Thursday.

The charge, which equaled roughly $2.39 extra on the monthly bill of the average residential customer, stopped being added to bills in July 2022.

Dominion, Virginia’s largest electric utility, had asked the State Corporation Commission to suspend the charge in anticipation of Republican Gov. Glenn Youngkin’s plans to withdraw the state from participating in the Regional Greenhouse Gas Initiative. The commission approved the proposal in June.

RGGI, a multistate cap-and-trade system, requires power producers to purchase carbon allowances at auction for each ton of carbon they emit. The proceeds of auctions are then returned to participating states. The number of allowances available to producers declines annually.

The system is designed to incentivize power generators to switch from forms of energy that produce greenhouse gases that are driving climate change to non-carbon-emitting sources.

A 2020 law authorizing Virginia’s participation in RGGI allowed Dominion to recover the “necessary” costs of buying allowances at auction from ratepayers.

In November 2020, shortly before Virginia power producers joined in their first auction, Dominion asked the SCC to approve its plans to recover roughly $168 million to buy allowances through July 31, 2022. The utility had calculated that this amount would cover the allowances necessary to comply with RGGI and backup allowances to provide flexibility if auction prices became volatile. Regulators approved the request the following year.

Environmental nonprofit Appalachian Voices appealed the decision, arguing that regulators hadn’t properly vetted Dominion’s proposal because their review hadn’t shown all the costs were necessary.

Appalachian Voices contended that only the lowest possible allowance costs could be considered necessary under the statute and that because the SCC hadn’t asked Dominion to develop a least-cost plan for complying with the law, it hadn’t met the “necessity” standard.

“While the argument has a persuasive tenor, there is no statutory or regulatory text supporting it,” wrote Justice D. Arthur Kelsey in the opinion for the court. He determined that it was “the necessity to comply with applicable laws or regulations that matters” and said regulations crafted as a result of the law required Dominion to purchase allowances.

Dominion “did just that,” Kelsey wrote. “The costs are recoverable because they were necessary to comply with (Dominion’s) statutory duty to purchase allowances for every short ton of CO2 emitted from its power plants.”

The court also noted the State Corporation Commission separately ordered Dominion to develop a least-cost plan for meeting carbon reduction goals as part of its review of the utility’s compliance with the Virginia Clean Economy Act, a landmark 2020 law that sets a pathway for Dominion and Appalachian Power Company to decarbonize by midcentury.

Will Cleveland, an attorney with the Southern Environmental Law Center who represented Appalachian Voices before the Virginia Supreme Court, said the group was “disappointed in the result, but it is ultimately the Supreme Court who decides what the statutes mean.”

“We continue to believe that the most effective implementation of RGGI is one that imposes a least-cost standard, and we will continue to advocate for that in whatever way we can,” he said.

Jeremy Slayton, a spokesman for Dominion, said the company was “pleased with the decision, which speaks for itself.”