Dive Brief:

• Virginia regulators on Thursday refused to let Walmart leave its incumbent utility service in the state to shop for electricity on the open market, writing it would raise costs too much for residential ratepayers who cannot choose their power supplier.

• Walmart's exit from the services of Dominion Energy and Appalachian Power would cost residential ratepayers nearly $70 million over 10 years, the State Corporation Commission (SCC) said. That "cost shifting" is not "consistent with the public interest," they wrote.

• Regulators said a recent energy law — S.B. 966 — also encouraged cost shifting from business to residential customers. The SCC has pending exit applications from Target, Costco, Harris Teeter, Kroger, Cox Communications and mining company Contura Energy, The Virginian Pilot reported Monday. 

Dive Insight:

The SCC's decision in the Walmart case illustrates the regulatory difficulty of balancing the needs of different customer classes.

In Virginia, customers must buy electricity from their incumbent utility unless they have a demand greater than 5 MW or are purchasing 100% renewable energy not offered by their utility.

Commercial customers may also aggregate the demand of their facilities to more than 5 MW and apply with regulators to shop for power from third parties. In this case, the company sought to combine the demand of more than 160 Walmart and Sam's Club stores in the state.

In cases of load aggregation, the SCC must determine if the rest of a utility's ratepayers would be harmed by the commercial customer's exit from utility service. In this case, regulators estimated Dominion customers would pay an additional $65 million over 10 years to make up for the lost demand, and Appalachian Power customers would pay an additional $4 million.

"[G]ranting the Petitions is estimated to increase residential customers' monthly bills by $0.05 and $0.13 for Appalachian and Dominion, respectively," regulators wrote.

The loss of Walmart's load would raise rates by causing a "net increase in rate adjustment clause … rates and caus[ing] base rates to be higher than otherwise necessary," SCC staff testified in the case. They also said Walmart's exit could lower utility revenues, "which would also be detrimental to non-shopping customers by decreasing the funds available for customer refunds or credits."

Regulators cited that evidence in denying the request, writing "the harm to customers who do not (or cannot) switch to a [third party power supplier] is contrary to the public interest."

In their decision, regulators said the Walmart request came in the context of dramatically higher residential rates in the last decade. Since the state eliminated retail choice for most customers in 2007, "residential customers of Appalachian and Dominion had seen monthly bill increases of approximately $48 (a 73% increase) and $26 (a 29% increase), respectively," they wrote.

Senate Bill 966, a broad clean energy law, is also set to put upward pressure on residential rates, regulators wrote.

Passed last year, the bill directs utilities to spend more on renewable energy, efficiency upgrades and grid modernization. It also includes a 2% rate cut for commercial and industrial customers that utilities can recover from their residential ratepayers.

"Since its enactment less than a year ago, SB 966 is already leading to the first round of new utility expenditures that will be recovered from captive retail customers," regulators wrote, citing an offshore wind contract whose costs they criticized in November. "Senate Bill 966 is also expected to increase the upward pressure on Dominion's rates for residential and small business customers as a result of the cost shifting mandated therein."

The SCC previously approved a retail shopping request from metal company Reynolds Group Holdings, but said that case had no bearing on future decisions.

"In that case, the Commission emphasized 'that the result of this initial review is strictly limited to the instant case and does not establish specific rules for, or the eventual scope of, [aggregated retail choice],'" they wrote.