The State Corporation Commission regulates Virginia electric utilities. (Ned Oliver/ Virginia Mercury)
A bill to restore State Corporation Commission authority in reviewing Dominion Energy’s base rates that passed the House of Delegates with strong bipartisan support may face headwinds in the Senate, one of its patrons fears.
Del. Jay Jones, D-Norfolk, who along with Republican Del. Lee Ware of Powhatan is a chief sponsor of the Fair Energy Bills Act, said he is concerned the legislation won’t be docketed for consideration in the more utility-friendly Senate after clearing the House on a 77-23 vote.
“I would hate to see the Senate abdicate its duties to the citizens of Virginia by bottling this up,” said Jones.
The legislation has been assigned to the Commerce and Labor Committee, chaired by Sen. Dick Saslaw, D-Fairfax, but does not appear on the committee’s Monday docket alongside other energy bills that have passed the House. With the end of the session approaching and Commerce and Labor convening only once a week, the absence of the bill may indicate that Democrats have chosen to kill it.
In response to a question Friday morning about whether it would be docketed, Saslaw said he hadn’t seen the bill yet.
Along with the Democrat omnibus Clean Economy Act, the Fair Energy Bills Act is one of the most significant pieces of energy legislation taken up by the General Assembly this session, one that could have major impacts on the electric bills Dominion Energy customers pay.
Unlike the Clean Economy Act, however, it is opposed by Dominion, the state’s largest electric monopoly and one of its most influential political players. Saslaw is one of the biggest recipients of the utility’s campaign contributions and has carried major legislation for Dominion in the past. Senate Clerk Susan Clarke Schaar confirmed that committee chairs have the power to decide whether or not to take up bills passed by the other chamber for consideration.
Under the Fair Energy Bills Act, state regulators charged with reviewing Dominion’s rates and earnings in 2021 would conduct that review subject to guidelines laid out in Chapter 10 of Title 56 of the state code, instead of Chapter 23, and allow any overearnings from 2017-2020 to be refunded to customers.
The language may sound dry, but at stake is millions of dollars — about $356 million in 2017 and $277 million in 2018, according to overearnings calculations from the State Corporation Commission — that Dominion could potentially have to return to customers.
Since 2007, Virginia has governed its electric utilities’ rates through a complicated regulatory system laid out in Chapter 23 of the code while continuing to oversee gas and water utilities under the traditional Chapter 10 framework.
In 2015, thought, the General Assembly ordered a rate freeze and temporarily suspended rate reviews by the SCC. Then, while the 2018 Grid Transformation and Security Act directed a resumption of the reviews in 2020 for Appalachian Power and 2021 for Dominion, it also cramped the SCC’s power to order refunds by capping returns at $50 million and allowing utilities to recoup the costs of grid investments from customers in one fell swoop rather than paying them off over several years — a provision that would let the companies effectively write off their overearnings instead of repaying them to customers.
It’s those last two mechanisms that the Fair Energy Bills Act seeks to roll back before the 2021 rate review.
The timing, Ware and Jones say, is critical, because the 2021 review will establish the going-forward base rate to which Dominion customers will be subject. Base rates are the core of electric bills, linked directly to a customer’s usage, although the 2007 legislation that reworked the regulatory system also allowed utilities to add rate adjustment clauses, or riders, to customer bills to pay for specific projects. Most of the 25 percent increase in Dominion bills since 2007 has been due to riders.
In House committee, Dominion lobbyist John Rust vigorously opposed the proposal, arguing that the utility had embarked on grid modernization projects under the GTSA with the expectation it would recoup those costs at a certain time and that the bill would create “an artificial rate reduction” that would force ratepayers to pay for six years of costs in 2024.
“There has been substantial money paid for things like the grid transformation, for things like the solar and wind that’s going forward,” Rust said. “And suddenly we can’t consider it under this bill. Suddenly we’re not going to have anything that happens in 2021 to reflect the cost we’ve incurred just since 2018.
“This is something that undoes the basic structure of our energy policy we’ve been working on for the last 12 years,” he added. “It undoes everything that this assembly has tried to do.”
Advocates of the bill, however, contended that these arguments had little basis in fact, and that the company could still recover individual project costs through rate adjustment clauses.
“This bill does not change the question of whether the utility will recover the cost of those projects,” said Will Cleveland of the Southern Environmental Law Center. “What this bill is about is the fact that Dominion is a monopoly, and as a monopoly they are entitled to recover their costs, and they are entitled to earn a fair profit on those costs. But in the absence of competition, they are not entitled to earn excess profits.
“The rates we pay now are generating an unfair profit,” he said. “What this bill does is allow the State Corporation Commission to set the rates so we pay what [we] should pay.”
The Office of the Attorney General, which is supporting the bill, also contended it would not “in any way” prevent Dominion from recovering the costs of its GTSA investments.
“With this bill they could not pay for it at once with surplus earnings in 2021,” said Senior Assistant Attorney General Meade Browder. “They could in future triennial reviews, but in 2021, if they had made such investments it would have to go into the rate base and be recovered from customers in rates in more of a piecemeal fashion, like paying a mortgage.”
SCC Director of Utility Accounting and Finance Kimberly Pate told the House panel that she was “confused” by Rust’s statements about the legislation’s effect on Dominion’s cost recovery.
“He said that costs would be deferred in the 2021 triennial review under this FEBA bill and would be pushed off for recovery in 2024. I don’t understand that statement,” she said. “Basically all the costs that the company spends … all those costs are paid by customers. It just happens through a variety of rate mechanisms. None of that is absorbed by shareholders.”
A Feb. 11 letter from Pate estimated that if the $365.6 million that Dominion overearned in 2017 were to be refunded to customers, the average customer using 1,250 kilowatts per month would see a $9 reduction in their bill, while a refund of the $277.3 million the utility overearned in 2018 would reduce the average monthly bill by $7.
Much of the opposition voiced by Republicans and a faction of Democrats to the Clean Economy Act has been on the basis of its potential impact to customer bills.
Concerns about rising bills due to the GTSA and Clean Economy Act were also voiced by the Virginia Manufacturers Association in a statement released Friday afternoon in support of Jones’ and Ware’s Fair Energy Bills Act.
“The VMA has to consider the competitiveness of the entire manufacturing sector and electricity costs are a primary cost driver,” said Brett Vassey, president and CEO of the manufacturers association.
“Ultimately, the General Assembly’s actions over the past five years have provided few opportunities for reductions in electricity costs and no opportunities for base rate reductions. Resetting base rates will be imperative as businesses have to comply with the new mandates from this legislative session.”
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