Electric utility rate reform efforts quashed by Senate committee

The Senate Commerce and Labor Committee on Monday swiftly killed the last of more than half a dozen bills this session that aimed to reform Virginia’s system of electric utility rate review, which is seen by Wall Street investors as favorable to the utilities and by critics as an example of legislative capture by companies with an outsize influence over the General Assembly. 

The move angered the growing number of groups and lawmakers of both parties in Virginia that over the past few years have been lobbying to roll back regulations seen as enabling excessive profits for the state’s two largest electric monopolies, Dominion Energy and Appalachian Power. 

“It’s a shame that the committee decided that it should not be the policy of the commonwealth that monopoly utility rates should be just and reasonable,” said Will Cleveland, an attorney with the Southern Environmental Law Center who frequently argues against the utilities before the State Corporation Commission. “It was clear that the Senate committee had no intention of debating the merits or the policy of the bills today.”

Del. Lee Ware, R-Powhatan, who with Del. Jay Jones, D-Norfolk, has put forward and seen struck down several proposals over the past two years that would institute ratepayer protections, called the committee’s decision “a deep disappointment, and in my belief a dereliction of the General Assembly’s role in looking out for ordinary Virginians.

“The legislature some years ago interposed itself between Dominion and the SCC, with the result that one of the principal public utilities in the commonwealth is free to operate without the appropriate oversight for which the SCC was created,” he wrote in an email. “Ratepayers can be, and have been, adversely affected by such an arrangement.”

All five of the reform bills that came before Commerce and Labor Monday, several of them combining multiple proposals put forward earlier in the session, had received solid bipartisan support in the House of Delegates. All except one received a recommendation that they be struck down from the committee’s energy panel Friday, and all were duly killed by the full committee. (The Senate’s sole reform proposal, from Sen. Jennifer McClellan, D-Richmond, was struck down by the same committee earlier in the session.) 

Nevertheless the votes pushed several senators to call for a reconvening of the state’s Commission on Electric Utility Regulation, a group of six delegates and four senators created in 2008 to monitor the state’s system of electric utility regulation. The Commerce and Labor Committee ultimately voted to send a letter to the commission asking it to review four of the bills killed Monday.

The commission has not met since 2017. Previously led by Senate Minority Leader Tommy Norment, R-James City, it now has no chair, since no reorganization meeting has occurred since Democrats took control of both legislative chambers in 2020. Majority Leader Dick Saslaw, D-Fairfax, is currently the highest-ranking member on the commission and as chair of Senate Commerce and Labor has been one of the staunchest foes of rate reform over the past two years. During Monday’s hearing, he responded to one motion to send a letter on a proposal to the commission by saying, “I don’t see where that would do any good at all.” 

Virginia Senate Democratic caucus spokesperson Jacqueline Hixson on Monday evening said Saslaw was unavailable for comment.

Other senators, however, seized on the idea of reviving the long-dormant body.

“We are embroiled in incredibly complex matters here,”  Sen. Monty Mason, D-Williamsburg, told the committee. “And I think we’ve got to figure out a mechanism in the off season where we can delve into some of these things.” 

Jones, who was appointed this May to serve on the Commission on Electric Utility Regulation, told the Mercury it was “high time” there was “a conversation about the long-term structure of our energy system in Virginia.” 

“It seems like we’re not getting as robust a conversation as people in the legislature would like during the session, and clearly this is a big enough issue where we need to spend some serious time outside of session talking about what the vision should be long term,” he said.

Sen. Scott Surovell, D-Fairfax, also expressed support for the reconvening of the commission.

“There’s clearly a divergence between where the House wants to go on utility regulation and where the Senate wants to go,” he said. “We’re not going to resolve that by shooting bills back and forth and shooting them down.” 

Old tensions, changing attitudes

The coalition of lawmakers bent on reforming electric utility regulation came into the 2021 session hopeful of making headway in rejiggering a system that they say allows the state’s investor-owned electric utilities — which are regulated according to a different set of laws than Virginia’s other utilities — to take in excess profits. 

Dominion in particular has become a lightning rod for controversy. The powerful utility has been one of the state’s largest corporate donors for years, giving generously to both Democrats and Republicans. Saslaw has been a major recipient of those funds, as have three of the five members of the influential energy subcommittee. Seven lawmakers, including Norment, own thousands of dollars in company stock. 

At the same time, the utility has racked up what state regulators say is billions in excess profits, with an estimated $500 million in overearnings between 2017 and 2019. Dominion has disputed those numbers, but the question remains unsettled since the State Corporation Commission has not conducted a formal review of its rates or earnings since 2015 due to a series of utility-supported laws suspending reviews and then overhauling the regulatory system. 

Dominion has repeatedly emphasized in hearings and statements that its Virginia customers pay rates more than 10 percent below the national average, a statistic cited by spokesperson Rayhan Daudani in response to a request for comment about the failure of the reform bills. 

“Our focus is on continuing to restore power to customers whose service was interrupted by this weekend’s substantial ice storm, and on being ready for any additional winter weather that may come our way,” he wrote.

But utility customers’ bills include not only base rates but extra charges known as riders that are used to pay for specific projects. According to the State Corporation Commission, most of the 29 percent growth in Dominion’s residential customer bills between 2007 and 2020 was due to riders. The U.S. Energy Information Agency in 2019 found that Virginians pay the sixth-highest electric bills in the nation. 

To attempt to reset the system, lawmakers this session proposed a range of changes. Some sought to roll back provisions added in 2018 under the Grid Transformation and Security Act that capped any rate reductions at $50 million. Others sought to return 100 percent of all excess profits the utilities earn above a designated “earnings band” to ratepayers, rather than the 70 percent currently specified in law. Still others sought to rewrite statute to allow the State Corporation Commission to make determinations now driven by legislative prescriptions, such as the number of years over which costs can be recovered. 

The latter set of bills, which included House Bill 1984 from Del. Sally Hudson, D-Charlottesville, and House Bill 2200 from Dels. Jones and Ware, highlighted a key question increasingly dividing the two legislative chambers: When it comes to setting and reviewing a utility’s rates and acceptable earnings, should the legislature or the State Corporation Commission hold the reins? 

For the House of Delegates, the answer seems to be the latter: “I think the House has clearly laid out a policy preference to overhaul our regulation of electric utilities,” said Jones. 

Senators, however, have balked. In discussing Hudson’s proposal on Feb. 12, Sen. Stephen Newman, R-Bedford, expressed “deep concerns” that the bill would give the commission the ability to “use any methodology it finds consistent with the public interest” in evaluating utility earnings and rates. 

“We will not have control over that,” he warned. 

Other senators who spoke with the Mercury after Monday’s vote traced the reluctance to yield authority back to the SCC to its  unwillingness to embrace renewable energy in prior years. 

“Over the last 10 to 20 years, the SCC has not shown itself to be particularly effective at passing judgment on some of the policies we’ve been trying to accomplish,” said Surovell. This “myopic view of costs” has tended to ignore less easily quantifiable costs like the effects of carbon emissions, he argued, “and that’s a convenient way to shoot down costs you don’t like.” 

Mason, who has been a supporter of offshore wind in particular, voiced similar sentiments: Without provisions in the 2018 Grid Transformation and Security Act that declare certain activities in the public interest, effectively forcing regulators to sign off on certain costs, “we would not have gotten anywhere with renewable energy,” he said. 

To certain reform-minded groups, though, Monday’s Senate committee votes were less about a legislative-regulatory power struggle and more about the ongoing power the utilities, and particularly Dominion, continue to wield in the General Assembly. 

“What we witnessed in today’s committee is a blatant corruption of the democratic process,” said Brennan Gilmore, executive director of Clean Virginia, a political action committee and advocacy group founded by Charlottesville millionaire Michael Bills in 2018 to counter Dominion’s influence in Richmond. “Until voters change the makeup of this committee, powerful utility monopolies will continue not only to write favorable legislation, but to rig the entire legislative process thanks to senators compromised by their clear financial and personal interests.” 

Whether the Commission on Electric Utility Regulation will be able to bridge the divides between lawmakers remains to be seen. House members will need to agree to meet, and because it lacks decision-making power, the commission will only be able to offer recommendations to the General Assembly in future sessions. 

Cleveland of the Southern Environmental Law Center was skeptical about the commission’s prospects. 

“The State Corporation Commission has submitted reports to the General Assembly and the Commission on Electric Utility Regulation every single year outlining in painstaking detail the ways in which Dominion and Appalachian Power’s regulatory structure disadvantages customers,” he said. “The State Corporation Commission has observed in Dominion’s last two rate cases that Dominion’s rates generate hundreds of millions of dollars in surplus revenue each year. This is not a topic that needs further study.”