Tinkering with the Electricity Regulation Bill

Lightning show

In yesterday’s fast-moving action in the General Assembly, bills to end the electricity rate freeze underwent several important changes. I have done no original reporting here. I’m just extracting key details from Robert Zullo’s article in today’s Richmond Times-Dispatch.

A substitute bill submitted by Del. Terry Kilgore, R-Scott:

  • Increases one-time rebates to Dominion Virginia Energy customers from $133 million to $175 million.
  • Allows the State Corporation Commission (SCC) to order refunds and lower base rates after a single triennial review instead of after two consecutive three-year reviews.
  • Allows the SCC to review 2017 earnings as part of the first review.
  • Incorporates elements from other bills that would authorize the burial of transmission lines, streamline the approval of efficiency programs, and declare solar development to be in the public interest.

The Kilgore bill still converts two-year reviews of base electric rates to three-year reviews, and it preserves Dominion’s proposal for a “reinvestment” regulatory model for modernizing the electric grid to make it more resilient from storms, more secure from cyber-attack, and better suited to renewable power, energy efficiency and microgrids.

I’m still unclear on how the reinvestment model works. David Ress with the Daily Press describes the concept this way:

Any excess profits Dominion earns would go to pay for those investments, instead of going in part to customers or justifying cuts in its base rates. … By using any excess earnings to improve the grid and install an eightfold increase in solar facilities, the company can finance those projects out of existing rates without imposing the “riders” — special surcharges — it has been using to build its newest power plants.

OK… Why does this make more sense than the pre-freeze regulatory model? What’s wrong with rebating excess earnings on “base” rates to customers, and what’s wrong with financing grid modernization through riders? There may be perfectly legitimate reasons for the changes, but the logic is not self-evident.

The reinvestment model is central to the revamping of the electricity regulatory system. Everyone would benefit from more clarity on how it would work and the thinking behind it.

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11 responses to “Tinkering with the Electricity Regulation Bill

  1. Back in the late 1980s and early 1990s, the FCC switched from Rate of Return regulation for AT&T and the largest local telephone companies (the RBOCs and GTE). Price cap regulation set caps on rates that were adjusted annually upward by inflation and downward by a productivity factor that recognized the telecommunications industry had much higher productivity than the US economy as a whole.

    But before Price Caps began, the FCC required all covered companies to adjust their rates to earn no more than the authorized RoR on interstate investments.

    Any reboot of Virginia electric regulation needs to force Dominion to true up its rates, including fuel adjustments and other adders to the bill, to earn no more than the authorized RoR.

  2. Gee, I’d like to comment on this, but WordPress ate my comments, says “you’ve already said that” when I try again, but won’t post anything new. Maybe this will get through.

  3. Posted on behalf of Mark Webb, senior vice president of corporate affairs and chief legal officer for Dominion Energy Virginia:

    A subcommittee of the House Commerce and Labor Committee yesterday approved a significantly revised version of House Bill 1558, the Grid Transformation & Security Act of 2018. The vote in favor of the amended legislation by the energy subcommittee was 8-2. We believe the subcommittee’s action represents a major step forward to ensure Virginia has a stronger, more resilient energy grid in the future and has new tools to harness the power of renewable energy such as the sun and wind. The revised bill also addresses concerns raised about the original version of HB 1558 and answers questions from the State Corporation Commission’s recent letter to legislators.

    Speaking in favor of the legislation yesterday included: Virginia Manufacturers Association, Virginia Chamber of Commerce, Conservatives for Clean Energy, Virginia Oil & Natural Gas Association, Hampton Roads Chamber of Commerce and Washington Gas.

    Here are a few points about the substitute bill that we consider very important.

    • The revised bill provides more than $1 billion in ongoing energy bill savings for Virginia families and businesses through credits, rate reductions and elimination of surcharges. The benefits are substantially more than those required by the original version of HB 1558. Effective July 1, the bill directs Dominion Energy to provide one-time bill credits totaling $175 million to our customers. On the same date Dominion Energy is required to reduce customer rates by $100 million to pass on the benefits of the recent change in federal tax law. The SCC will conduct a follow-up proceeding to determine if any further reductions due to the tax changes are warranted, effective April 2019. The bill mandates we return to our customers 100 percent of all tax benefits we have received since the new federal tax rates went into effect January 1. The bill also eliminates a Dominion Energy surcharge supporting biomass projects and further requires us to absorb about $425 million in costs we have incurred complying with federal coal ash disposal regulations. These compliance costs can never be passed along to customers through higher energy prices.

    • The amended bill also clarifies and expands the power of the SCC to order refunds and reduce base rates. The measure ends the current base rate freeze and resumes periodic Commission reviews of utility earnings, costs and rates. In Dominion Energy’s case, the initial review will occur in 2021, and cover the entire period of 2017-2020. After the initial case, comprehensive reviews will occur on a three-year cycle. The revised bill makes clear that the Commission has the authority to order excess utility earnings returned to customers after all reviews, including its 2021 assessment of our company. It also states that the Commission may order reductions in utility base rates after all subsequent reviews. This expands the SCC’s refund authority now found in Virginia’s electric regulation law.

    • The substitute approved Tuesday further clarifies that SCC approval of a utility’s grid transformation plan is required prior to implementation. This ensures that all efforts to strengthen and modernize our energy system will be subject to close regulatory scrutiny. As did the original version of HB 1558, the substitute envisions that much of the cost of these important projects will be covered by existing utility rates. And the legislation also provides a mechanism for supporting through existing rates many of the costs that must be incurred to expand the Commonwealth’s use of renewable energy. This will help Virginia continue its long record of affordable, stable energy prices as it moves forward with building an energy system that meets 21st century challenges.

    • Another important feature of the substitute bill is the extension of Energy Share through 2028. Expansion of the company-funded program was first authorized by legislation passed by the General Assembly in 2015 and by an executive order from Governor McAuliffe. Since Dominion Energy launched the expansion on Sept. 1, 2015, EnergyShare has provided more than $12 million in energy bill payment assistance to more than 38,000 Virginia families facing financial challenges, including almost 2,300 veterans and 2,500 persons living with disabilities. With the expansion, the program began offering weatherization services, helping make nearly 21,000 homes more energy efficient from September 2015 through December 2017. The substitute also requires our company to increase its annual financial support through shareholder funds for the expanded EnergyShare program, calling for at least $100 million over the next 10 years. https://youtu.be/p28Cx-oykZI

    The Grid Transformation and Security Act is still evolving. It may well undergo additional changes. But we believe the substitute approved Tuesday provides valuable additional energy cost savings for Virginia electric customers. The substitute also reaffirms and even broadens the Commission’s power to oversee utility rates, earnings and capital expenditures. And we continue to believe that HB 1558 is urgently needed to ensure a sound energy future for the Commonwealth.

    To learn more click here: http://www.dominionenergy.com/next

    • Typical Dominion ofuscation. There needs to be an independent audit of this whole rate freeze rip off and the results need to be made public in a clear and understandable way. These bills with various “extras” are bullshit. One bill answering two questions – how much did the Clown Show / Dominion alliance rip us off and how much will we get back?

      Will Northam order such an audit? I hope so. Governor, your first test as to whether you are a man of the people or a man of special interests confronts you.

  4. On the other hand , it’s not a good thing that Dominion gets to decide how to spend overcharges… and I’d be worried that Dominion could manipulate charges and costs…to then generate money for their preferred upgrades.. largely without oversight.

  5. The substitute yesterday changed little, and dds are an entirely new version is already in the works. Something has to be presented in Senate Commerce and Labor Monday afternoon.

    It was very clear at the end of the hearing that the “investment offset” language – which Jim noted is unclear – just means the utility gets to keep 100 percent of its excess profits. The projects which qualify for the offset, many of them things they would be doing anyway, will always be sufficiently expensive to cancel out any customer refunds. And if they are too expensive to cancel them out, the balance will be collected through a rate adjustment clause added to the bill. But as the SCC noted the customer refunds which are offset, and retained by the company, do not actually get spent on the projects – meaning they flow to the company and its stockholders. It really is kind of brilliant, and had me fooled for a week!

    So you could hold a rate case every year but it would be fruitless, because as Dominion makes grid investments, builds some solar, builds that demonstration project for off shore wind – all of which will be paid for in the traditional way – those costs cancel out the customer refunds.

    Total retention of excess profits plus all the new investments earning the lovely return on equity, many of them actually producing lower operating cost — which never save the customers one dime! Because the base rates never go down.

    Brilliant. The forever freeze. All endorsed by the hapless company stooges at the various associations they control – in fact I’m sure a vote against this customer rip off will be tagged “anti-business” by the VA Chamber.

    • Steve – the thing to do is start attacking the Virginia Chamber of Commerce as being “anti-small business” and having sold out virtually every business in the state for two big companies. That would be easy to do. Sooner or later, someone in the media will pick up the story. It would be a hard question for the Chamber lobbyists to answer: Why is the Chamber pushing for higher energy bills for Virginia’s employers?

  6. there are so many moving parts to this that it’s hard to really understand the downstream effects – and the fact that it’s Dominion writing the bill and “explaining” it does not generate confidence.

    on the face of it – it appears that if Dominion implements productivity improvements.. they get he profit and the decision as to what to do with that profit.

    so there is some “logic” to it and to be honest – I’m not sure how much expertise the SCC actually has in house to determine what grid upgrades are worth doing and what are not… On the other hand – Dominion has the opportunity to game the situation to their own/investors benefit.

  7. Ugh…sounds like the Gov is in an awkward position. Hope he stands his ground.

  8. Another unnoticed bit in all of this obfuscation is that Dominion wants to pass all of the coal ash costs on to ratepayers. There should be an objective review of the options and the responsibility of Dominion shareholders for at least a portion of this cost. To what extent did Dominion use its political influence to water down the requirements for coal ash disposal for decades? As I have mentioned before, the best practices in other regions since the 1980s included lining the bottom of the coal ash ponds, treatment of effluents from the ponds, and capping once a section of a disposal pond was complete. If this had been followed by Dominion from the beginning the expenses now would be almost zero. Why should ratepayers pay for a management decision to save money and take short cuts?

    I’m sure the hundreds of millions of unrecovered North Anna 3 expenses will be picked from ratepayers pockets as well.

    It appears that D is concerned about the legitimacy of these expenses or they would not be working so hard to avoid any sort of objective regulatory review.

    We can still create a way for Dominion to make money developing a modern energy system without giving them a wholesale gift of money they have not appropriately earned.

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