Digging into Your Electric Bill

Apco = Appalachian Power Co. DEV = Dominion Energy Virginia. Source: State Corporation Commission.

Monthly electric bills for a typical Virginia household (using 1,000 kilowatt hours) increased by $48.64 for Appalachian Power Co. customers over the past 10 years, and $26.61 for Dominion Energy Virginia customers. Those numbers come from a presentation by Kimberly B. Pate, director of the division of utility accounting at the State Corporation Commission, at a hearing last week of the Commission for Electric Utility Regulation.

The cost to Apco of cleaning emissions from its coal-fired power plants, which accounted for three-quarters of its generation in 2007, pushed up electric rates much faster than it did for Dominion, which relied on coal for only 36% of its output. Apco’s rates, which were lower than Dominion’s for decades, are now almost at parity.

For policy geeks, it is helpful to plumb beneath the surface of those numbers to see what forces drove the cost increases. Pate looked at the three categories of rates, which, when combined, create the overall rate: base rates, which encompass mainly operating costs; the fuel rate; and RACs, or rate adjustment clauses that pay for capital projects like new transmission lines or power plants.

Over the past decade Apco experienced a 75% increase in its fuel rate, as seen above. However, because fuel is a modest portion of the overall cost, that increase added only $9.89 to the typical household’s monthly fuel bill. For Dominion, which benefited from declining natural gas prices over the decade, the rise in fuel prices was modest indeed, only 7%, and it added only $1.51 to customers’ monthly bill.

Base rates, the rates that were frozen by 2015 legislation, are the biggest component of overall electric rates. A 50% increase in Apco base rates added $25.75 to the monthly bill, making it the driver of its higher electric rates. By contrast, a mere 10% increase in Dominion base rates added $7.03.

RACs have been a major contributor to higher costs for both utilities. By adding four additional rate “riders” since 2007, Apco pumped up its average household bill by $13.00. Dominion added 11 rate riders, accounting for $18.07 in new expense passed on to rate payers.

Understanding how electricity rates are constructed illuminates corporate strategy.

For example, Dominion is facing potential multibillion-dollar liabilities to safely dispose of the coal ash at four of its power stations. Some of the costs are rolled into the base rate and some can be passed along to rate payers in the form of a rider. If the rate base stays frozen, those costs cannot be passed along to ratepayers, and shareholders will take a hit. Last month Dominion released a study showing a range of alternatives for burying the coal ash; one option, creating a central landfill to accommodate the material from the three largest coal-ash sources, could cost more than $4 billion. It’s not clear from an accounting perspective how much of that liability would be assigned to the base rate and how much could be passed through to rate payers. But, if Dominion were compelled to bury its coal ash in lined landfills, the utility potentially could take a body blow to the bottom line. Could coal ash liabilities have factored into Dominion’s suggestion last week that it was time to end the freeze? It’s a question worth asking.

Another example: Both Dominion and Apco are bringing more renewable sources, mainly solar and wind, into their electric generating portfolios. Renewables have high up-front capital costs (which would be recouped through a Rate Adjustment Clause), modest operating costs (recouped through base rates), and zero fuel costs (addressed by the Fuel Adjustment Clauses). Integrating renewables into the fuel mix would push electric rates higher initially but be almost immune to prices increases in the future.

Bacon’s bottom line: Different categories of cost have differential impacts on Apco and Dominion and their customers, depending upon their fuel mixes and upon how those costs are treated from an accounting point of view. Apco and Dominion make it their business to understand how those costs flow through to their bottom lines, and they adjust their corporate strategies accordingly. To defend the public interest, state officials need to understand the factors that drive their actions as well.

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20 responses to “Digging into Your Electric Bill

  1. What state officials should understand is what you demonstrate – this is complicated stuff (to quote the Prez.) State officials as a class have insufficient time or expertise and a century ago created the State Corporation Commission and passed the problems to them. Then in 2015 the General Assembly was persuaded it was smarter than the SCC. Now the SCC has told consumers, that cost you hundreds of millions of dollars…..

    Time to repeal that bill from 2015 and put all this back into the proper setting where long comment periods, actual evidence, sworn testimony, and recognized accounting principles inform the final decisions.

  2. Actually what Jim presented seemed to be fairly clear. Clear enough that I wonder why APCO did not enjoy the same access to low cost gas to not have their fuel costs go up. Must be something more going on.

    The GOP-controlled General Assembly has taken a cue from the Trumpsters and has “reined in” those unelected faceless bureaucrat regulators who probably are infested with Dem-appointed liberals.. and not to be trusted.

    And yes.. as suspected .. Dominion has changed course and now needs to figure out how to get that coal ash stuff paid for by ratepayers. (and not totally clear why ApCo does not have similar costs hanging).

    I’d like to know more about how the top end clean-it-all up cost gets allocated out to to ratepayers over how many years. 2 billion sounds like a lot but after you allocate it out is it 20 cents a month or $2 per month or $20 per month or what? We need some real numbers before we go off deciding we can’t afford the clean-it-all-up option and no I do not think we’ll get the unvarnished truth from Dom… just a massaged PR number.

    Investors also need to share those costs in my view. Maybe not by half … some reasonable and fair calculation should be made.

    How are other states paying for the coal ash cleanup?

    Finally – would we really expect the SCC to get these numbers out to the public or would they continue business as usual with most of their discussion to be deep-in-the-weeds lingo between them and the utilities as I perceive their behavior to be in the past?

    • The SCC is expressly prohibited from ex parte communications with any of the parties to its decisions, including the utilities. There is nothing the other parties do not have access to, or at least their lawyers. I can assure you ex parte communications run the General Assembly’s process…

      I can only assume you are being obtuse for some other goal, Larry. As an advocate for consumers, first industrial and now residential, I get far more information from the SCC process than from the legislative process. The SCC website is not that user friendly, but the info is all there, and no decision is made until all the evidence is in. For ten years I have seen the Assembly approve bill after bill after bill with zero estimate of the cost impact on ratepayers, zero understanding how pulling this thread unravels something else. No witness has to cross her heart and spit, let alone face penalty of perjury. Ex Parte? Hell, there you need to worry about The Fix.

      Not one question was asked and answered in committee last year about the cost or even prudence of that pumped storage proposal. Yet it now on the books as “in the public interest” with a free pass that gets it SCC approval.

      You say you think the investors should pay some of the coal ash costs. Well, the Assembly will never order that. You only chance of seeing that happen is if the SCC is allowed to make the cost allocation decisions. I don’t always agree with the SCC, but I know none of their decisions was bought.

      I’ll send you a hearing schedule and you can come watch the SCC judges in action. I’ll even introduce you to the judges if you like. You are the one who is nameless and faceless (where were you last Saturday?)

      • Steve – why do you also suspect me of nefarious motives!

        Here’s my take on the SCC. They are NOT user friendly and do NOT speak to consumers in a way that consumers can understand what they are doing and what the issues are that do affect consumers.

        They come across as an obscure and insular agency to most folks.

        My “unelected faceless, nameless” is my way of pointing out the irony of their less-then-public persona and how that actually plays into the current Trumpian view of govt regulators.

        And I assert that because of that “face” that people talk to their General Assembly reps instead…

        The SCC is the polar opposite of Dom when it comes to issues that affect consumers. Dom is a veritable 24/7 Propaganda machine and the SCC is the quiet little guy hiding behind the Oz-like curtains.

        The SCC need to have a public face for average folks. They do try – I actually see one of their tables at the State Fair every year, credit for that but the rest of the time… they’re pretty much just another obscure agency whose “work” is largely not known or understood by average folks who have no clue how things like the current rate freeze actually affects them.

        I get more information from folks like Tom ..and sometimes you about issues in front of the SCC.

        The long and short of it is that most average folks don’t know them and don’t know what they do and most important – do not really know how to participate effectively in issues that directly affect them.

        that’s a recipe for folks to go to others like their elected ….. and the elected basically perform the role that SCC is supposed to – except they are much more easily influenced by lobby folks because as you pointed out – they lack the expertise and knowledge to be able to fairly deal with issues between the utilities and consumers… just take a look at VPAP.

    • APCO had access to the same cost gas as everyone else did during the past 10 years, Larry. It just had nothing to burn it in until a couple of years ago when they acquired a gas plant in Ohio. Most all their generation during the review period was coal-fired. Nothing more nefarious than that.

      Also, for your information, the General Assembly ELECTS the Commissioners and the current party in power has installed all three of the sitting Commissioners, two of whom formerly worked for Republican administrations. Hardly a bastion of Bolshevism at 1300 East Main Street. I’ve been there and I’ve never seen anyone without a face, either.

  3. So a little math, if I am looking at it correctly:
    11.7 cents/kWhr average Va. consumer cost 2017 (Dominion)
    2.3 cents/kWhr cost of fuel to make the electricity

    So when we say solar and wind are free of charge, that saves us 2.3 cents per kWhr. But the real price issue is the total cost to consumer, not so much just the fuel cost.

  4. The comparison to Dominion to APCo is accurate but misleading. As Steve Haner suggests, the important point is what were Dominion rates versus what they could have been without the interference of the General Assembly.

    During the period when the rates were frozen for Dominion, the utility industry experienced historically low wholesale power costs (2015-2016). I do not know what the wholesale rate was that was baked into the base rates, but I am sure it was higher than it turned out to be. If the SCC had been allowed to be on the job to review total profits with what were allowed by the authorized rate of return, millions would have been refunded to ratepayers. I think I recall seeing something like $175 million should have been returned to ratepayers in 2016.

    The rate freeze also allowed about $300 million of expenses for North Anna 3 to be recovered by Dominion without any review by the SCC. It is very unlikely that ratepayers will receive any value from North Anna 3. A typical regulatory review would have asked shareholders to share in at least portion of that speculative expenditure. There are still hundreds of millions yet to be recovered.

    Dominion is effective at cost control and the Dominion Energy executives are talented at creating projects that are good for their shareholders (the Atlantic Coast Pipeline). But increasingly, Dominion is coloring outside the lines of the standard utility compact. Shareholder interests are disproportionately favored compared to ratepayers interests. The rate freeze is a perfect example of that. During a period of decreasing costs for utilities, Dominion Energy Virginia rates were frozen and the millions in refunds that should have been distributed to ratepayers went instead to the shareholders.

    Now that utility costs are on the rise and especially because a boatload of money might have to be spent on coal ash disposal, Dominion wants to let go of the rate freeze and have the ratepayers pick up the tab. This issue would be much less expensive if it had been dealt with properly when it first occurred. Other utilities made the right choice decades ago and their ratepayers are not faced with a huge expense. This was a management choice and should be at least partially absorbed by the shareholders.

    A bill to discontinue the rate freeze should allow a retrospective look to get the ratepayers back to a fair base rate. At least the excess profits recovered during the freeze should be considered when determining how much of the coal ash costs get passed on to ratepayers.

    I fully support prosperity for utilities, but only when they create something of value for their customers. I am in favor of performance-based regulations that allow Dominion to earn more by using their talent and innovation in ways that also serve their customers.

    When they use their financial savvy to extract billions of dollars from ratepayers to enrich their shareholders, without providing any corresponding benefit (the Atlantic Coast Pipeline) it just ticks me off. I believe they can do much better than that.

    The article perpetuates a myth that utilities prefer. You say that renewables are comprised of mostly capital costs (true). But you go on to say that this “would push electric rates higher initially but be almost immune to prices increases in the future” (not true). It is correct that renewables have a stable energy cost for 35+ years, because there is no fuel cost. But they are also cheaper initially than conventional types of generation. The cost of energy produced by various types of generation is as follows (from Dominion’s 2017 IRP):

    Solar $ 51.13 /MWh
    Combined Cycle $ 70.43 /MWh
    Nuclear $149.45 /MWh

    • Tom- we need to consider utilization factor in those above numbers, but even so I don’t see where Dominion gets those numbers. If we say solar is only available say 33% (nights/clouds) then it is equal to nukes, which seems too cheap for nukes.

      • TBill,

        Utilization doesn’t apply here. The statement in the article was about the cost of energy. Renewables generate electricity cheaper than other options except good energy efficiency projects. Dominion’s numbers are for total energy costs, which include capital, operating and maintenance expenses, and fuel costs. Five years from now new gas-fired combined cycle units will have higher capital costs, higher O&M, and higher fuel costs. The cost of a new solar unit in five years will be half as much as today.

        As a ratepayer, would you rather have the utility expand in ways that you know your costs will increase or in ways that will lower your bills?

        What we are faced with is what new generation should we build, if any? Renewables are the cheapest way to generate more energy. We have a long way to go before there are any issues about reliability or needing more dispatchable power. Those are important issues, but we have time to sort them out. Utilities in regulated states such as Virginia are rushing to build more conventional units because they increase rates as soon as they are built and generate a 35-40 year stream of income. Distributed renewables can be owned by others and could reduce utility revenues unless we pay them differently.

        Nuclear units are “must-run” 24-hour-a-day units. That is why the best way to substitute for them is with 24/365 energy efficiency. Otherwise, some type of storage or major load shifting would be required to handle the nighttime load with renewables.

  5. I always feel like I understand more after reading Toms comments.

    Much appreciate your perspectives!

      • and that’s what the SCC needs to be doing if they want me to pay more attention to what they are doing… I realize it’s a fine line if they start sending out info to consumers about the issues.. it could invite the GA to neuter them further.. but the current situation leads me to gravitate to Tom and the Power to the People Blog (that Tom is affiliated with) for info …

        • I’m not really affiliated with that blog. I was asked to write an article about pipeline economics. Ivy Main does a good job sharing information about energy issues, especially relating to renewables.

        • I don’t disagree that the SCC is very shy about the spotlight, but you don’t know much about the internal workings of the state or US supreme courts, either, except when the news media decides to focus on them. The SCC is a court and runs its business like a court. It does include public comment opportunities in its process, unlike most other courts. The tension between the SCC and the General Assembly was a major focus of that long Times Dispatch piece and the SCC has retreated too far, IMHO. For it to publish the numbers it did in that September report, about the refunds it might have given, was about as aggressive a move as I’ve seen from it lately. More. Give us more.

          But if you think they are working ex parte with the utility, that is a mistake I needed to correct.

          • I’m not thinking they are working ex parte but I AM thinking that regardless of the process they use to make determinations – that their core role is as a regulator acting in the public interest – and the public does not know what they do or how they do it .

            You say they have a public process but that process is so esoteric and bureaucratic that the public prefers to go to their General Assembly rep for issues …

            Even DEQ and the Army Corp and VDOT have public outreach and meaningful ways for citizens to know the issues.. to know the facts and to participate.

            I KNOW the position you are in – in your defense of them – but you gotta step away a bit and look back.. and admit that their process is not one that ordinary citizens can easily understand or participate in .. and many of them see the irony of an agency supposedly working in their best interests – but does so without the average public persons knowledge and involvement.

            That motivates people to go talk to someone who will interact with them – that’s the GA… and that’s why and how the GA is emboldened to go around the SCC.

            It will get worse before it gets better because at the General Assembly – there is no “public” urging the GA to let the SCC do their mission.. and without the public telling the GA that -the GA is just going to continue to ignore the SCC..

            Steve – surely you want the SCC to succeed and surely you realize that without the public advocating for them that they are indeed vulnerable to more than a few in the GA… no doubt with subtle urging from the utilities to go around them.

            The SCC has to better engage the public or risk being further marginalized in their role.

  6. Why did the General Assembly take control of utility regulation? To bestow favors on Dominion Energy.

    Why does the General Assembly regulate only one species of fish (the menhaden) while allowing all other species to be regulated by the Atlantic Marine Fisheries Commission? To bestow favors on Omega Protein.

    Why does the General Assembly manage all county roads down to the local neighborhood roads (except in Arlington and Henrico Counties)? To bestow favors on various road building concerns.

    Why does the General Assembly provide a never ending and never audited $12.5B per year in company-specific and industry-specific tax breaks? To bestow favors on companies that provide contributions and other support.

    C’mon boys, this isn’t hard – our state legislature is a bunch of crooks. If they were a private entity they’d probably be facing a RICO probe.

  7. Good one DJ. And, unfortunately, also true at the federal level.

  8. let’s do a little voice of moderation here…

    Regulators and Regulation are how laws are actually implemented. The legislators typically delegate the specifics to the regulators – with the proviso that any/all of it can be clawed back and words change from “may according to the discretion of the regulator” to ” shall and shall not .. no discretion – or a law with no regulation… just the words in the law.

    The point is ..regulation.. is at the discretion of the legislators.. who , in turn, may or may not be “influenced” … legally or illegally .. ethically or corruptly.

    In Virginia.. apparently the SCC is a Constitutionally-created independent body that is “staffed” by both the General Assembly and Executive but the power and authority of the SCC is governed by what is in the law and the GA has absolutely no compunction at usurping regulation with legislation.

    Steve says the SCC is a court with judges… I don’t discount that all all but those Judges do not make law.. they are governed by and restricted by the law the GA passses and if the pass a law removing the SCC purview from some issue.. I presume they do have that authority… until and/or the Supreme Court says otherwise.

    Clearly the SCC is intended to be independent but just like other Judges.. they can’t make law – they are restricted to determining what it means .

    I had always thought the SCC was supposed to be an objective protector of the public interest but I must be wrong listening to comments here from Steve and others because it sounds like they also interpret the meaning of the written law as well as promulgated regulations.

  9. The SCC itself makes decisions based on the law and precedents. Any judge has to interpret a law and apply the law to a certain set of facts. And of course there can be conflicting laws, as when the SCC is directed to keep cost to consumers as a high priority but then is also directed to consider other factors in other code sections. Then the judges have to balance things.

    What the General Assembly has done in suspending SCC oversight and preventing ratepayer refunds has been blessed as constitutional by the VA Supreme Court, but nothing in that ruling indicates is was the right thing to do, or that once done it cannot be immediately undone.

    There is another key player in this, silent so far, and that is the Attorney General – who is directed by statute to be the advocate for consumers.

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