Rate freeze —
Are the electric power companies ripping off rate payers under the guise of a rate freeze? Some think so. The electric utility industry came under fire during the 2017 General Assembly session when Sen. Chap Petersen, D-Fairfax, submitted a bill to un-do the freeze in base electric rates enacted in the 2015 session. Although his bill never made it through the General Assembly, Petersen has appealed to Governor Terry McAuliffe to implement it as an amendment.
In an op-ed piece published in the Richmond Times-Dispatch this morning Mark Webb, Dominion’s senior vice president for corporate affairs, argued that the freeze is working as designed and is a good deal for rate payers.
Legislators wanted to protect customers from a potential price hike tied to environmental costs. Since then a Dominion residential customer has paid $1,100 less per year for electricity than those in the Mid-Atlantic.
Were the rates frozen after big increases? Not at all. Dominion residential rates are only about 4 percent higher than they were in 2008. Don’t you wish that was the case with your other household expenses?”
Meanwhile, the reliability of service has improved, Webb writes, and industrial rates have declined 16% over the same period. Virginia’s lower electric rates are significantly lower than Maryland’s and Washington, D.C.’s. Maryland residential customers pay 25% higher rates than Dominion customers, while industrial customers pay 49% more. D.C. residents and industrial customers pay an even bigger premium.
Dominion’s lower rates have been an economic boon for Northern Virginia, Webb says. “No wonder large electric users such as data centers overwhelmingly locate in Virginia instead of D.C. or Maryland.”
(Webb’s op-ed made no mention of the neighboring state of North Carolina, however, where the average electric rate is lower — 10.29 per kilowatt hour in December 2016 compared to 10.72 cents in Virginia.)
Webb then goes one step further, contending that the General Assembly’s re-regulation of electric power energy in 2008 has worked out well for Virginians, too. “Since Virginia’s landmark legislation reregulated utilities a decade ago,” he writes, “electric rates have been remarkably stable and well below the national and regional averages.”
Bacon’s bottom line: I was curious. What are the numbers? How have electricity rates fared compared to national averages (a) since reregulation and (b) since the rate freeze? I checked data compiled by the U.S. Energy Information Administration for “Average Retail Prices for Electricity” for answers.
Between 2008 and 2016, the average residential rate per kilowatt hour for retail customers nationally increased 11.7%, significantly higher than the 4% rate for Dominion customers that Webb cites. So, Dominion has out-performed the national average since reregulation. But rate-freeze critics have not disputed the fact.
A more pertinent question is what has happened to electricity rates since July 2015 when the freeze went into effect. As critics have noted, base rates cover only ongoing operating costs, not the cost of fuel, which is adjusted through fuel adjustment clauses, or the cost of new capital projects, which is incorporated into the rate structure through rate adjustment clauses. In theory, overall rates can climb higher while base rates stay locked in place.
But that has not happened. Between July 2015 and December 2016 (the most recent month available), the average price of electricity in Virginia decreased 8% to 10.72 cents per kilowatt hour. That compares to a 5.9% decline in electric rates nationally between July 2015 and November 2016, according to the Energy Information Administration.
Out-performing the national average since mid-2015 would seem to buttress Dominion’s case, but it still doesn’t end the argument. Former Attorney General Ken Cuccinelli has argued that the rate freeze locks into place hundreds of millions of dollars in excess profits, with the implication that if Virginia electricity rates would be even lower if they hadn’t been frozen. Webb side-stepped that issue in his op-ed piece, and the EIA numbers don’t address it.
