Senate panel rejects proposal to return more utility overearnings to customers

A five-person Senate subcommittee devoted to energy issues on Wednesday rejected the chamber’s single proposal for major utility regulation reform, with Minority Leader Tommy Norment, R-James City, saying it was time to pause the “legislative assault” on the state’s monopoly electric utilities. 

“Particularly in this year, it’s very popular to attack our regulated utilities,” said Norment. “Why do we want to try to mess with this right now when we’ve got a pending rate case?” 

The subcommittee voted down Senate Bill 1292 from Sen. Jennifer McClellan, D-Richmond, which states that if Virginia’s two largest electric utilities, Dominion Energy and Appalachian Power Company, earn more than 0.7 percent above their allowed profit margin, they are required to credit customers with 100 percent of those excess earnings. Under current law, the utilities only have to return 70 percent of excess earnings and are allowed to keep the remainder.

“If Dominion underearns, 100 percent of that underearning goes into increased rates,” McClellan told the Senate Energy Subcommittee Wednesday. “So the customer bears all of the risk of underearning, but they don’t get 100 percent of the benefit of that overearning, and I just don’t think that’s fair.” 

The measure failed on a 4-0 vote, with Sen. Louise Lucas, D-Portsmouth, not voting. The legislation is not considered dead, however, as under Senate rules subcommittees do not take final votes but only provide recommendations to committees.

State law, as well as long-established caselaw based on the U.S. Supreme Court’s Bluefield and Hope decisions, guarantees that regulated utilities must be able to recoup their expenses and earn a fair rate of return that will allow the utility to attract necessary investment. 

Where states vary is in their treatment of excess earnings. Virginia has established an unusually complicated system that sets an allowable range of earnings for utilities by statute and then mandates different outcomes depending on regulators’ final accounting of those earnings. 

In the past few years, Dominion, historically the state’s most powerful utility, has come under the microscope over what regulators say is billions of dollars in overearnings since 1994 and more than half a billion in overearnings over the past three years. 

The utility’s earnings have not been reviewed by the State Corporation Commission since 2015, and a series of laws passed by the General Assembly over the years have prevented the SCC from changing its rates since 2007, when the state re-regulated its electric utilities, even as customers have faced an increasing number of extra charges called riders, or rate adjustment clauses. 

The legislature passed a rate freeze in 2015 that suspended base rate reviews, and in 2018 it replaced the prior system of biennial reviews with triennial ones, with the next one scheduled to begin in March. 

Sen. David Marsden, D-Fairfax, on Wednesday balked at changing the formula for returning excess earnings to customers, saying, “This is just a very challenging period of time, and I would like to take this up, I think, next year during the rate review to make these necessary adjustments and just see where the world is at that time.” (The General Assembly is not slated to convene in 2022 until after the conclusion of Dominion’s review.) 

Marsden said next year he would be “willing to look” at a new 80-20 percent or 85-15 percent split in allocating overearnings. 

Norment, who, according to the Virginia Public Access Project, owned between $50,001 and $250,000 of Dominion Energy stock as of the end of 2019, offered an “editorial comment” to express concern about a recent series of legislative proposals and legal challenges, including reform bills that were put before the General Assembly in 2020 and the cancelation of the Atlantic Coast Pipeline in July, that he said are “impacting the desirability in Wall Street’s perspective on Dominion.” 

“You may be aware that there was a reduction in their dividend. … I just think that there’s a disconnect, and if you were to go to Wall Street, any major investment journal, you would see where Dominion falls in the priority of regulated utilities from an investment standpoint,” he said. “And it just seems to me, Mr. Chairman, that at some point we’ve got to pause this assault and let things stabilize a little bit.” 

Both Dominion and Appalachian Power testified Wednesday in opposition to McClellan’s bill. 

Dominion Senior Vice President of Corporate Affairs and Communications Bill Murray said that while in 2013, regulatory laws were changed in the same year that a review of the company’s earnings and rates occurred, that legislation “was the result of a year of stakeholder work.” 

Furthermore, he added, in other states, “refunds are pretty unusual” and “are not typically part of the ratemaking model.” 

Bob Shippee of the Sierra Club’s Virginia chapter, however, argued that the current system incentivizes the electric utilities to overearn because it allows them to keep 30 percent of all excess earnings.

“I think that’s the wrong incentive no matter what regulatory model Virginia uses,” he said. 

Later in the hearing, the Sierra Club was one of two groups to come under fire from Sen. Stephen Newman, R-Bedford, who said that to hear those members “talk about ratepayers just boils my blood.”

“They’ve come in here every single time and supported bills that mandate rates go up,” he said, citing legislation that would allow Dominion to purchase electric school buses and that has mandated the decarbonization of the state’s power grid. “And then the same people come in here and say that they want this 70 percent to go away and go to this 100 percent.” 

“At some point, we’ve got to agree, we’ve got to slow down on the other end. It can’t be on both ends for the consumer,” he added. “I hope we can have a moderation of these mandates and ratepayers can actually win.”