Dominion earned $75 million less than it was authorized to in 2019 but still collected an estimated half a billion dollars more than allowed between 2017 and 2019, the State Corporation Commission reported Tuesday.
The numbers appeared in a report the body, which oversees electric utilities, is required to submit to lawmakers every year. In the wake of a rate freeze imposed by the General Assembly in 2015 and a rejiggering of the rate review system passed in 2018, the SCC annual report represents the clearest snapshot regulators provide of Dominion and Appalachian Power’s earnings.
Still, regulators cautioned, the findings are preliminary and may differ from the conclusions reached at the end of a formal rate review.
Dominion spokesman Rayhan Daudani said the company will review the report.
“We are looking forward to next year’s comprehensive review by the SCC of customer rates and our performance, a so-called ‘triennial review’ that will cover the 2017 to 2020 period. That proceeding will present an opportunity for a review of the investments we have made on behalf of our customers,” he said. “We’re proud of our record and of the changes underway at the company. We have kept rates well below the national and East Coast averages and maintained a strong record of reliability, while building the nation’s leading clean-energy portfolio.”
With Appalachian Power midway through its first such review since 2014, much of this year’s report is devoted to the earnings of Dominion, which, with 2.5 million Virginia customers, is the commonwealth’s largest electric utility.
Dominion’s rates won’t be reviewed until 2021, when regulators will evaluate its earnings from 2017 to 2020. (Despite the four-year time horizon, this review is still legally classified as a “triennial review.”) Under normal ratemaking principles, the utility is entitled to recover its costs as well as earn a return on equity to attract necessary investment to fund capital projects. The company’s current approved return on equity is 9.2 percent.
In 2017 and 2018, the SCC found that Dominion had overearned by $301 million and $278 million, amounting to returns on equity of 13.84 percent and 13.47 percent, respectively.
In contrast, the utility has reported under-earnings of $75 million in 2019, with a return on equity of only 8.03 percent.
Regulators noted, however, that those calculations may be altered by HB 528, a new law passed during the 2020 General Assembly that restored the SCC’s authority to set the period of time over which a utility can recover the remaining costs of electric plants that are retired early.
Dominion’s 2019 earnings were heavily impacted by its decision to expense in that year $264 million related to the early retirement of 11 fossil fuel plants, pushing down the company’s 2019 return on equity by more than 4 percentage points
Even with the lower 2019 return, regulators reported earnings were above the approved threshold for the 2017-2019 period, when Dominion earned $502.7 million in excess revenues for a total return on equity of 11.79 percent. The State Corporation Commission calculated that customers could be due roughly $257 million in refunds, although $200 million of that will likely be offset through “customer credit reinvestments” permitted under the 2018 Grid Transformation and Security Act.
Customer bills have grown along with revenues. The SCC’s annual report noted that between 2007 and 2020, typical residential bills have increased roughly 29 percent for Dominion customers and 64 percent for Appalachian Power customers. Dominion increases are largely due to the addition of riders — extra fees utilities can tack on to base rates in order to pay for specific projects — while Appalachian increases are due to both riders and base rate bumps.
Future increases in bills are expected as Virginia transitions away from fossil fuels toward more renewable energy sources in line with the goals outlined by Gov. Ralph Northam in an executive order last September committing the state to making its electric grid 100 percent renewable by 2050.
The Northam administration and clean energy advocates, however, say the VCEA’s bill impacts will be far less or nonexistent as a result of fuel savings and energy efficiency measures.
Meanwhile, after an unsuccessful bipartisan push during the regular legislative session to return overearnings to utility customers, some lawmakers are trying again during the special session that began Tuesday.
“The General Assembly must act immediately to protect Virginians, who especially during this economic crisis, simply cannot afford unfairly high electricity bills,” said Brennan Gilmore, executive director of Clean Virginia, an advocacy group that has targeted the company’s influence on Virginia politics. “Dominion has shown once again that it will employ every accounting trick possible to make the money it owes Virginians disappear. In the face of an unprecedented economic and public health crisis, Virginians need a fair process determining the cost of their electricity bills more than ever.”