Dominion earned $278 million more than permitted in 2018, regulators find

Dominion Energy's downtown Richmond building. (Ned Oliver/Virginia Mercury)
Dominion Energy, Virginia's largest electric utility and a major U.S. energy company, is headquartered in Richmond. (Ned Oliver/Virginia Mercury)

Virginia’s two largest electric utilities earned $285 million more than they were allowed to last year, with the bulk of that — almost $278 million — taken in by Dominion Energy, the State Corporation Commission reported Thursday morning.

The remaining $7 million was collected by Appalachian Power Company.

In prior years, the commission had the ability to compel the utility to return a large proportion of those overearnings — about 70 percent — to customers. But among other provisions, Virginia’s sweeping 2018 Grid Transformation and Security Act deferred the calculation of customer refunds to a triennial review that for Dominion won’t be conducted until 2021.

In the meantime, the SCC is limited to reporting earnings numbers on an annual basis.

Dominion’s rates and revenues are closely tracked by regulators because of the utility’s monopoly over much of the state’s electric territory as part of an arrangement known as the regulatory compact. In exchange for granting Dominion its monopoly, regulators reserve the right to intervene in business decisions to protect captive ratepayers.

As part of that relationship, the SCC sets a ceiling on the amount of revenue the utility can earn, which is supposed to equal the company’s expenses plus an allowable rate of return to investors. Currently, regulators have set that rate for Dominion at 9.2 percent — but, as Thursday’s report found, the utility’s earnings in 2018 represent a rate of return of 13.47 percent, far above the threshold.

Last year, the commission calculated that Dominion had overearned about $356 million.

As the utility’s revenues have exceeded regulatory limits, customer bills have climbed. The SCC calculated that the monthly bill of an average residential customer consuming 1,000 kilowatt-hours of electricity was $113.76 on July 1 of this year. Because of declining fuel costs, that’s slightly lower than the average monthly bill at the same time last year, which was $115, but more than 25 percent higher than the average bill in July 2007.

Most of those increases, the commission points out, are due to riders, or fees that utilities are allowed to tack onto their bills in order to pay for a specific project, such as coal ash cleanup or the construction of particular power plants.

The SCC calculated that customer bills will further climb by almost $30 per month by the end of 2023 to pay for approximately $16 billion in capital investments that Dominion told investors in March it planned to roll out over the next four years.

The utility has said that it expects those increases to be partially offset by factors such as decreases in fuel costs, but the SCC said in its report that it considers some of those factors to be merely “speculative.”

A Dominion spokesman declined to comment.

Charlotte Gomer, press secretary for the Office of Attorney General Mark Herring, said that “these numbers confirm AG Herring was correct when he warned that rates have been locked in at levels that are too high and that significant portions of power companies’ operations have been removed from adequate oversight.”

Herring previously opposed 2015 legislation that froze Dominion’s electric rates and limited the SCC’s ability to refund overearnings to customers, and his office expressed formal concerns in 2018 about the Grid Transformation and Security Act’s effect on ratepayers.

This story was updated to add comments from the Attorney General’s Office.