Compromise Bill Ending the Rate Freeze Advances In Senate

Lightning show

How good is the electric-regulation compromise worked out between the governor’s office, electric utilities, consumers, and other interest groups? It’s so good, Sen. Frank Wagner, R-Virginia Beach, said today that the average homeowner will see electric rates locked in at 2009 levels “for a long time,” even as Virginia invests heavily in solar power, wind energy, energy-efficiency, and grid modernization.

While some legislators in the Senate Commerce and Labor Committee worried that the compromise legislation to end the 2015 rate freeze would allow Dominion Energy Virginia and Appalachian Power Co. to “double dip” on earnings invested in grid modernization, Wagner and Senate Minority Leader Richard L. Saslaw, D-Springfield, insisted that they would not.

“There is not an avenue for double charging,” said Wagner. The “reinvestment” model, first advanced by Dominion and subsequently backed by Apco, would plow back over-earnings into grid-modernization projects, enabling the utilities to spend “in the neighborhood of” $200 million a year without increasing rates. Customers will receive more than $1 billion in give-backs and other benefits.

Governor Ralph Northam endorsed the controversial package after a Senate subcommittee made extensive changes to the legislation earlier today. Then Commerce and Labor voted 10 to 4 in favor of the package, advancing the legislation to the full Senate. Opponents of the compromise — strange bedfellows ranging from leftist environmental and activist organizations to a large industrial user group — registered their opposition.

“The goal of that legislation should be simple,” said Northam in a press release: “Give Virginians as much of their money back as possible, restore oversight to ensure that utility companies do not overcharge ratepayers for power, and make Virginia a leader in clean energy and electrical grid modernization.”

The compromise would repeal the 2015 rate freeze, provide immediate relief to rate payers, and restore State Corporation Commission oversight of electric utilities. Dominion would issue $200 million in rate credits to consumers who were over-charged during the rate freeze, and Apco $10 million. Dominion would pass along savings from recently enacted federal tax cuts to rate payers in the form of $125 million a year in lower rates, while Apco would give back $50 million. The SCC would review electric rates every three years, which Saslaw characterized as giving the Commission, utilities and other parties a respite from biennial reviews.

The legislative package would require utilities to invest in $1 billion energy-efficiency projects over the next 10 years, while declaring it to be in the public interest for Dominion to install 5,000 megawatts of solar and wind power, and for Apco to install 200 megawatts of solar. Other favored projects include a battery-storage pilot project, a pumped-storage facility in Southwest Virginia, and extensive upgrades to the electric grid to make it more accommodating to intermittent renewable energy sources, safer from cyber attack, and more resilient in the face of severe weather.

The greatest source of concern was the mechanism by which Dominion and Apco would reinvest excess earnings — no surprise, considering how complex and difficult to understand it is. Under current law, the utilities are allowed to earn 9% return on investment on their assets, with provisions for keeping an extra 30% over over-earnings as an incentive to invest in productivity and efficiency. The SCC reviews the books every two years, and requires utilities to return excess revenues to rate payers. Under the new law, instead of returning 70% over-earnings to rate payers, the utilities would have to reinvest 100% (including the 30% they would normally be allowed to keep) into renewables and grid modernization. None of those reinvestments could be used to trigger a rate increase during the life of the legislation.

“The technology is here,” said Wagner. “The question is, is Virginia going to embrace it?”

For some legislators, claims that the legislation would encourage billions of dollars in new investment while guaranteeing that that rates would not increase seemed too good to be true.

“This is a lot to digest real quickly,” said Sen. Mark Obenshain, R-Harrisonburg. If solar is so economical, why does the General Assembly need to declare it to be in the public interest — why not just let utilities make their own best decisions? “If we’re making a social judgment, let’s not dress it up” as a great deal for rate payers, he said.

“When I look at this bill, it appears that any costs that you have with any of these new facilities with solar or wind, or grid transformation, could still be charged back a second time,” said Sen. Bill Stanley, R-Moneta. “There will be an ability to double charge for these projects.”

One charge would be incurred when rate payers are denied a rebate for over-earnings. Utilities would reinvest the over-earnings in grid modernization projects, adding the capital to the rate base upon which the utilities are entitled to earn a profit. Earning a rate of return on that investment constitutes a second charge to rate payers. But the utilities counter that were they not allowed to invest the over-earnings, they would recoup the investment through a “rider,” or rate adjustment clause. In the end, they say, it all equals out.

While the bill advances goals for which environmentalists and activists have been fighting for years — more solar; more wind; more energy-efficiency; a smart, distributed grid; more rooftop solar — several groups opposed the legislation. The Virginia Chapter of the Sierra Club, Appalachian Voices, and the Chesapeake Climate Action Network cited concern about the double-dipping issue as reason for their opposition. Ironically, the Virginia Poverty Law Center, representing poor energy consumers, declared itself neutral on the bill.

But the line-up of speakers in favor of the bill was considerably longer. Environmental groups supporting the compromise included the Natural Resources Defense Council and the Virginia League of Conservation Voters. Alternative energy groups such as Apex Energy, the Alliance for Industrial Efficiency, Virginians for Clean Energy, and the Virginia Offshore Development Authority registered their approval. Prominent business groups such as the Virginia Chamber of Commerce and the Virginia Manufacturers Association, signed on as well.

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8 responses to “Compromise Bill Ending the Rate Freeze Advances In Senate

  1. What a bunch of horsedump! A couple hundred million for the over $1 billion they owe us? We need to know who votes for this garbage. We had a LOT of not crap from Dominion people and we need to vote more out next election year.

  2. Wagner and Saslaw ought to practice truth in advertising by wearing ski masks when they show up at the General Assembly.

  3. I have to say.. anytime Dominion is in favor of something.. I tend to get uncomfortable.. like I did when they supported the rate “freeze”.

    There is no way Dominion should be getting any “extra” .. there is way too much room for skulduggery… I cannot imagine a worse idea. This is like putting the GA in charge of tobacco indemnity fund.

    Put that money in a coal ash cleanup fund or a fund to train rural unemployed for grid modernization jobs.. away from direct control
    of Dominion. All this will do is incentivize Dominion to treat the money as a slush fun.

    The only real good thing about this is that FINALLY some of the GA guys are starting to realize that taking money from and being buddies with Dominion is not necessarily a “good” thing come election time.

  4. It is a confidence game, a classic confidence game. They are taking hundreds of million of dollars away from ratepayers and providing nothing of value in return. It is the Long Con. Trying to explain the accounting is a waste of time, because it ignores the simple explanation – this is money for nothing!

    In exchange for making investments they would already make, the right customers have to receive refunds on excess utility profits just….disappears. There already are excess profits, of course, and more are being accrued daily. But under the guise of this “investment offset” gimmick, the investments wipe out the refunds dollar for dollar. A $300 million investment wipes out $300 million in refunds owed. Poof.

    At the same time, the bill clearly states that the utility will also be paid in full for those very same investments in the usual manner – through base rates, with its full profit margin, over the usual period of time.

    One way to look at it – they are being paid twice for the one investment.

    Or you could say they are being paid too much for the investment. If you invest $300 million now and the in the first rate case avoid $300 million in refunds, is that not a 100 percent return on your money? To be followed by 20 more years of steady profits?

    But the third way to look at is – this is stealing. Taking something away from somebody who rightfully owns it. Under traditional rate making and under the 2007 law, those excess profits do not belong to the utility. Under this law they do. Their profit becomes totally unregulated.

    Why does the long con work? Why do the rubes fall for it? They think they are getting an inside track. This 44 page bill is loaded with more earmarks and pork than 44 pages of the state budget. An underground line for Amazon, miles and miles of underground residential lines for happy suburban legislators to tout in their brochures, a two percent base rate reduction for large industrial and commercial customers, and of course everything wild dream of the environmentalists – wind, solar, energy efficiency. They are running TV ads at full campaign frequency bragging about $1 billion to customers that is 95 percent the Trump Tax Cut! Even Larry is being play for a rube, because he thinks his refund should go to coal ash remediation but it is actually going to Dominion stockholders. Ignore the trees and look at the forest, Larry!

    It is a LONG con because all of the accounting will not be clear until late 2021, after two more House elections, the next Senate election, and even the next Governor’s election (decided right before the next case decision is published.)

    Eight delegates and ten senators have already voted aye on this long con and the train is running full speed. The AG’s office sees the con, the SCC staff sees the con, honest environmental groups like the SELC and the Sierra Club understand the con. They are just too nice to call it that. Me, I know we’ve reached the stage where only a blunt warning will do.

    Think I’m wrong? When that $300 million refund disappears, and its kept by the utility, what value is received in exchange? None. Zip. Zilch. Zero.

    A dozen other reasons to hate this bill, but that is one of the biggest.

    • With Dominion’s wall-to-wall TV commercials asking residents to call their elected officials to demand passage of this act, you just have to realize we are being cheated out of money here – and we paid for the darn TV commercials with our excessive elec rates. I think the new Gov is supporting it now, so it is analogous to McAuliffe supporting the rate freeze we he took office.

      You can’t fight City Hall, is what it amounts to. We had a similar politics in New Jersey with the utilities, but during my time the prime objective there was approval of that states last coal-fired power plants. So I am less diametrically opposed but feel cheated (by our elected officials) and it does not look like our state will benefit too much from the low cost of natural gas, instead opting for higher profit margins to the utility .

  5. Oh, and a very simple amendment exposes and defeats the con and all going well we’ll get a roll call in both chambers on that.

  6. I do believe that is one of the longer comments made by Steve and at an hour that I sometimes find myself up as well! Passion can be an ugly thing at times!

    I did not need to be convinced much already as to the “goodness” of the “arrangement” and Steve has made clear the shenanigans going on.

    And you know what? Dominion and it’s GA supporters ALSO think most Virginians are rubes… including those supposed environmental and consumer interest groups… geeze did they take a stupid pill?

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