Category Archives: Regulation

Beats a Poke in the Eye with a Sharp Stick

Critics are furious that Dominion Energy Virginia and Appalachian Power Co. won’t be returning all of their excess profits to rate payers, but this year Virginians will enjoy modest rate reductions nonetheless.

First, the two power companies will return savings made possible by the federal 2017 Tax Cuts and Jobs Act tax reductions — $125 million from Dominion and $50 million from Apco, the State Corporation Commission (SCC) announced yesterday. The rate cut will be effective July 1.

Second, Dominion will issue a one-time $133 million refund to customers, also effective July 1, in accordance with the state’s Grid Transformation and Security Act of 2018. Dominion will issue a one-time, $67 million refund next year.

Although no authoritative accounting has been done, the refunds are likely to fall considerably short of what Dominion earned in excess of normally allowable earnings during the three years of the 2015 rate freeze. Instead, under the new law, Dominion will reinvest its over-earnings in renewable energy projects and upgrades to the electric grid.

Bacon’s bottom line: The Grid Transformation Act was highly controversial and hotly contested. I hope it’s somebody’s job to track the costs and benefits of the legislation. Here at a minimum is what the public needs to know: (1) What are the over-earnings each year, and how will Dominion invest them? (2) What is the expected payback of those projects, either in lower costs, greener energy, or improved reliability? and (3) what is the actual payback of those investments?

Nukes and Renewal

Surry Nuclear Power Station

Should Dominion Energy re-license its four Virginia nuclear power units? The answer depends on your appraisal of solar power, energy efficiency and other alternatives.

Is there a future for nuclear power in Virginia’s long-term energy outlook?

Dominion Energy Virginia believes there is. Nuclear power currently contributes about 30% of the company’s electricity sales, and the company plans to continue generating power from its Surry and North Anna nuclear power stations for decades to come. Nuclear power, the company says, is reliable, provides fuel diversity, and does not emit carbon dioxide — a major plus as Virginia aims to reduce greenhouse gas emissions.

The utility’s 2018 Integrated Resource Plan, which peers 15 years into the future, assumes that the company will renew the licenses to operate the two nuclear-generating units at Surry and the two at North Anna. At the time of the license renewals, the units would be 60 years old. The nukes would continue to operate until they were 80 years old.

But many people think that renewing the licenses is a bad idea. While Dominion expects that refurbishing the four generating units would cost $3 billion to $4 billion, environmentalists and other skeptics suggest that the actual cost could run significantly higher. It doesn’t make sense to spend billions on nuclear power, they say, when solar energy costs less and is getting cheaper every year. While it is true that solar power is intermittent — it generates electricity only when the sun shines — the advent of low-cost batteries and the spread of electric vehicles, they claim, will make it possible to economically store surplus solar power for when it is needed.

Expect the debate to heat up when the Nuclear Regulatory Commission (NRC) begins processing Dominion’s re-licensing request for the Surry 1 plant. Dominion has filed notice of its intent to submit an application for a license renewal by the first quarter of 2019 — less than a year away. The review could take up to three years, and construction several years more.

License renewal for existing nuclear units is distinct from a proposal, also explored in the 2018 Integrated Resource Plan (IRP), to build a new nuclear unit at North Anna known as North Anna 3. Dominion has spent hundreds of millions of dollars in planning and engineering costs to keep that option alive. Estimates of the cost for building the third unit have ranged as high as $19 billion, and the IRP suggests that it would not make economic sense except in the strictest CO2-reduction regulatory scenario that would compel the shutdown of coal-generating capacity. The cost of building a third nuclear unit would be so high and fraught with so much uncertainty that opposition would be formidable no matter what the circumstances.

The re-licensing proposals are a different story. The up-front capital cost, though considerable, would be in the same ballpark as building new gas- or solar-powered generating capacity. Moreover, fuel costs would be more stable and lower over the long run than for the gas-fired facilities. Although there are no hard figures on what the impact on rate payers would be, no one disputes the fact that re-licensing Surry and North Anna would cost a fraction of building a new generating unit.

Flagships of the fleet

The two Surry units became operational in 1972 and 1973, capable of generating a total of 1,600 megawatts of electric power. In the early years the power station had some major operational issues. In 1972, two workers were fatally scalded by steam after a routine valve adjustment. And in 1986, a steam explosion due to internal erosion and over-pressurization injured eight workers, four fatally. But performance has been steady since then. Other than an incident in which a tornado touched down in the switching station, disabling power to the plant’s cooling pumps, Surry has operated largely without incident.

The two North Anna units went online in 1978 and 1980 with a combined capacity of almost 1,800 megawatts of power. The station has operated without major incident, except in 2011 when an earthquake centered nearby caused light damage and triggered an automatic shut-down of the nuclear operations.

The four nuclear units have formed the backbone of Dominion’s electric-generation portfolio. In recent years, North Anna has operated with top measures of efficiency and safety, garnering the highest ratings in inspections by the Nuclear Regulatory Commission every year but two. Surry and North Anna are consistently ranked as among “the lowest-cost producers of nuclear-generated electricity in the nation,” as reported periodically by Platts Nucleonics Week, a nuclear industry newsletter and database, says Richard Zuercher, manager-nuclear fleet communications.

While the nuclear units account for only 16% of Dominion’s nameplate capacity, they generate more than 30% of its total electricity output. That’s because they operate non-stop, twenty-four hours per day, seven days a week, almost 52 weeks a year, going offline only for planned refueling outages every 18 months or the the rare tornado, earthquake or other mishap. The 2018 IRP, as shown in the table above, assumes a capacity factor for the nukes of 96%, which compares favorably to 70% for combined-cycle gas plants, 42% for off-shore wind (assuming the company manages to build a wind farm off Virginia Beach), and 25% for solar. Thus a nuclear facility with a nameplate capacity of 1,000 megawatts generates 8.4 million megawatt hours annually compared to 6.1 million for natural gas, and 2.2 million megawatts for photovoltaic solar. Continue reading

Ruling Opens Electric Competition for Big Virginia Customers

Direct Energy Services Inc., a Houston-based retailer of electricity and energy-related services, is allowed to sell 100% renewable energy to large customers in Virginia without a restriction that would forbid customers from returning to their incumbent utility without a five-years’ advance written notice, under a Virginia Supreme Court ruling issued this morning.

The Supreme Court decision upheld a previous ruling issued by the State Corporation Commission against Dominion Energy Virginia.

“This appeal is about the intersection of these two subsections: What happens when a mega-consumer wants to buy from a green-energy company? Does that switch trigger the five-years-notice requirement, or not?” writes  Steve Emmert in his blog, “Virginia Appellate News & Analysis.” 

The bottom line: No, it doesn’t trigger the requirement.

The decision follows an SCC ruling two weeks ago that allowed Reynolds Group Holdings to aggregate demand from multiple properties to meet the 5-megawatt threshold required to purchase electricity from non-utility suppliers. Together, the SCC and Supreme Court rulings expand the options for large electric customers at a time when cloud providers and other major corporations are making big commitments to solar power.

The 5-year restriction, writes Emmert, “was likely designed to prevent bargain shopping on an annual basis, something that can play havoc with VEPCO’s planning.” The proviso also acted as a deterrent for companies thinking about purchasing renewable power from a non-utility. If a company wanted to preserve the safeguard of being able to switch back to Dominion, Appalachian Power, or an electric co-op, the inability to do so for five years added an element of risk.

Says Emmert: “This is clearly a win for those who seek greater competition in this field.”

Reynolds Wins Customer Aggregation Petition

SCC headquarters

The State Corporation Commission has issued a decision expanding the right of large customers to bypass the monopoly franchises of Virginia’s electric utilities and purchase electricity from competitive suppliers.

While the General Assembly was embroiled in debate over grid modernization and the rollback of the electric rate freeze, the SCC approved the first ever “customer aggregation” petition. Reynolds Group Holdings Inc. now has permission to aggregate the demand of three of its subsidiaries at six locations in Virginia served by Dominion Electric Virginia for the purpose of purchasing electricity from someone other than Dominion.

Reynolds, based in Auckland, New Zealand, owns several packaging enterprises associated with the old Reynolds Metals, formerly headquartered in Richmond. According to the SCC ruling, the aggregated peak electric demand of Reynolds’ Virginia operations was 10.12 megawatts, representing approximately 0.06% of Dominion’s system peak of 17,000 megawatts. The impact on Dominion, which projects peak demand growth of 1.3% over the next 15 years, was de minimis.

It was not clear from the ruling whom Reynolds intends to buy its electricity from. However, Calpine Energy Solutions and Collegiate Clean Energy filed comments in support of the petition. California-based Calpine supplies natural gas, power and associated energy and risk management services to customers throughout the United States. Wilmington, Del.-based Collegiate supplies 100% clean energy solutions to universities and businesses.

Will Reisinger with the GreeneHurlocker law firm explains the significance of the ruling in a blog post:

[The] law allows large customers with annual demands over 5 MW to purchase generation from competitive suppliers. Importantly, the law also allows a group of customers to “aggregate” their demands in order to reach the 5 MW threshold. The statute treats large customers with multiple meter locations as different customers but allows them to aggregate to meet the 5 MW threshold. Once aggregated, the group will be treated as a “single, individual customer” under the law. Before allowing an aggregation, however, the Commission must find that the requested aggregation would be “consistent with the public interest.”

SCC Case No. PUR-2017-00109 was the first test of this statutory provision – that is, the first time a group of customers sought to combine their demands in order to reach the 5 MW threshold. In this case, Reynolds Group Holdings, Inc. (“Reynolds”), a metals and packaging manufacturer, petitioned the SCC for approval to aggregate six of its retail accounts in Dominion’s service territory.

Dominion and Appalachian Power Company (“APCo”) intervened in the case and opposed the petition. Dominion argued that allowing customers to aggregate their demand “would unreasonably expand the scope of retail access [and would] have the potential effect of eroding a significant portion of the utility’s jurisdictional customer base.” Dominion also suggested that the General Assembly – despite authorizing customer shopping and aggregation – intended to allow retail choice “only in limited circumstances.”

But the SCC, relying on the plain language of Va. Code § 56-577 A 4, rejected Dominion’s and APCo’s arguments and approved the petition. Dominion and APCo have until March 23, 2018, to appeal the decision to the Virginia Supreme Court.

No word yet from Reynolds, Calpine or Collegiate about what exactly they have planned.

Heads I Win, Tails You Lose

This will be one of those blog posts where many readers will ignore the substance of my arguments and go straight for the jugular — Dominion Energy Virginia sponsors this blog, I’m a shill for Dominion, and, therefore, anything and everything I say can be discounted without further thought. If you’re one of those people, I know I won’t persuade you. But please, if you object to my conclusion, don’t settle for the cheap ad hominem shot. Explain to me why I’m wrong.

This post was triggered by a Washington Post op-ed by Del. Mark Keam, D-Fairfax, titled, “Why I’m Breaking Up with Dominion.” Keam wrote:

In 2017, President Trump made it clear there would be no Clean Power Plan, which put Dominion in a bind. Dominion couldn’t justify continuing the rate freeze when the reason it cited no longer existed and it held nearly a billion dollars of potential customer refunds.

On the other hand, as Virginia’s most powerful political donor, Dominion couldn’t admit its mistake and simply return to pre-2015 status. So, Dominion launched an all-out lobbying campaign to push for a different result.

First some background: In June 2014, the Obama administration began implementing its Clean Power Plan. The State Corporation Commission (SCC) staff estimated that the plan would cost Dominion between $5.5 billion and $6 billion for Dominion to shut down coal plants and replace them with power from other fuel sources. Environmental groups suggested that the cost would be much less. But nobody knew for sure, and nobody possibly could know until the Commonwealth adopted a definitive methodology for calculating CO2 goals to be attained. When the General Assembly convened in January 2015, uncertainty reigned.

A deal was struck to freeze base electric rates through 2022 (while continuing to allow the SCC to adjust rates for fluctuations in the cost of fuel and pay for major capital projects). The purpose was to guarantee rate stability for electricity customers. Whatever the outcome for Dominion and Appalachian Power, customers wouldn’t be subjected to higher base rates. Dominion and Apco absorbed the risk. They might make higher profits if the costs were lower than feared, but they might make lower profits if worst-case cost scenarios panned out.

In November 2016 something happened that no one anticipated — Donald Trump won the presidential election, and he effectively spiked the Clean Power Plan.

But what if Hillary Clinton had won, as virtually all informed political opinion expected? It’s no stretch to think that the Environmental Protection Agency and the McAuliffe administration would have continued implementing the Clean Power Plan. We cannot know which of the regulatory options the administration would have chosen — setting CO2 emission targets based on mass-based limits (or total tons emitted) or rate-based limits (CO2 emitted per unit of electricity) — but we can safely assume that the new regulatory framework would have been more costly than doing nothing at all.

Continuing our counter-factual scenario, let’s say the Clean Power Plan framework adopted by Virginia would cost the $5.5 billion to $6 billion postulated by the SCC, and that Dominion had to eat a billion dollars or two in write-offs when it shut down its coal-fired power plants. Now let’s say Dominion came to the General Assembly, saying, sniff, sniff, poor us, these regulations are ruinous, could you please bail us out? What answer would Keam and others of like mind have given? They would have said, “Not a snowball’s chance in hell! You took yer chances and you lost. Now beat it!” And rightfully so.

Of course, that’s not the way things turned out. Dominion lucked out. Trump won the election and he canceled the Clean Power Plan. By January of 2018, Dominion was accumulating earnings way above its normally allowed rate of return (although a major weather event or a regulatory order to pay of billions of dollars to clean up coal ash ponds could have negated those profits).

Inevitably, a hew and cry was raised that Dominion was making out like a bandit by pocketing huge excess profits. Dominion was on track to make a lot of money, all right, but not like a bandit. More like a poker player. Dominion didn’t steal anything — but it did win the bet.

A lot of politicians and consumer advocates couldn’t see the difference. And, politicians being politicians, they ignored the risk that Dominion absorbed back in 2015 and clamored for a rollback of the freeze. The game they were playing can be described forthrightly as, “Heads I win, tails you lose.”

When it became clear in the November 2017 elections that voters largely agreed with the anti-Dominion politicians, nearly obliterating the Republicans’ hefty majority in the House of Delegates, Dominion saw the writing on the wall. The utility seized the initiative with its proposal to end the freeze on its own terms — by reinvesting over-earnings into a massive grid-modernization plan. Politically, the ploy was brilliant. Dominion cut a deal with the new Northam administration, environmental groups, independent solar producers, and other constituencies, leaving Keam and his buddies to eat dust. I understand why the delegate is so sore.

The resulting Grid Transformation and Security Act may or may not be a good piece of legislation. I haven’t delved deeply enough into the details to conclude whether it will be harmful or beneficial to rate payers. We can be reasonably assured that it will be beneficial to Dominion, or the company would not have gone along with it. But if I were a senior Dominion executive, I’d be very wary of cutting a deal like the 2015 rate freeze ever again. Getting sucked into a heads-you-win, tails-I-lose political proposition is no way to run a business.

No Real Pipeline Story Here, But Read on If You Must

The public relations battle over the Atlantic Coast Pipeline continues unabated even as managing partner Dominion Energy edges closer to beginning construction of the 600-mile project. The latest flap surfaced in the Richmond Times-Dispatch this morning after the State Corporation Commission agreed, over Dominion’s objections, to accept expert testimony by natural gas industry analyst Gregory Lander in a hearing on Dominion’s Integrated Resource Plan.

Lander, who was retained by environmental groups opposed to the ACP, concluded that the pipeline will cost Dominion ratepayers between $1.6 billion and $2.3 billion. That conflicts with Dominion’s estimate, based upon an earlier study by its own consultants, that the pipeline will save rate payers $377 million annually. Dominion’s estimate will be harder to maintain now that the Duke Energy, an ACP partner, has acknowledged that the cost of project has escalated from $5 billion to between $6 and $6.5 billion as the company adjusted its route and incorporated environmental protections to accommodate the demands of landowners and environmentalists. But that cost increase doesn’t come close to accounting for the discrepancy between the two estimates.

The Southern Environmental Law Center trumpeted the SCC decision to accept the Lander study as a big victory. “This is proof positive that Dominion’s pipeline will not cut costs to customers but instead increase our bills,” said SELC attorney Will Cleveland. “It’s further evidence that Dominion’s original promise – that the pipeline would save customers money and spur job growth in the Commonwealth – has disappeared.”

The Times-Dispatch made the Lander testimony the lead of its story. But I’m thinking that reporter Robert Zullo is reading too much into the SCC decision. Sure, Dominion tried to prevent the SCC from considering the Lander study, but SCC proceedings are full of filings and counter filings. It’s what utility lawyers and environmental lawyers are paid to do.

Moreover, it is silly to read into the SCC’s decision to accept expert testimony into the public record an implication that the SCC is prepared to accept that testimony’s main conclusions. As Zullo quoted SCC spokesman Ken Schrad as saying, “the order merely allows the testimony to be part of the record in proceedings on the plan, which the commission determined is ‘reasonable and in the public interest.”

“That’s not saying it’s right, wrong or indifferent,” Schrad said of Landers’ testimony.

As Zullo further reported: “Last year, pipeline opponents urged the SCC to issue an order requiring the Dominion entities to file an application for the approval of the [natural gas contract with the ACP]. The commission dismissed the petition, stating that if the deal creates unreasonable costs, the remedy is to deny the utility the ability to recover them from customers in a fuel proceeding.”

At some point, the ACP will be built and will start supplying gas to Dominion Energy Virginia. Dominion will petition the SCC for a fuel rate adjustment. That rate hearing will be where the rubber meets the road. Dominion will submit its evidence, environmentalist and consumer groups will submit their evidence, all sides will get an opportunity to critique one another, and the SCC judges will weigh the testimony and decide whether a rate adjustment is justified and, if so, how much.

Zullo knows this — indeed he alluded to it in his article. But he’s a reporter like any other, and he hyped the clash between the SELC and Dominion. Otherwise, it looks like, there wouldn’t have been much from the IRP hearing to report.

Grid Transformation Controversy Shifts to SCC Nominees

The legislative logjam over a controversial electric grid modernization program appears to have broken. The much-modified legislation, backed by Governor Ralph Northam and Virginia investor-owned electric utilities, has passed the House of Delegates and state Senate, and in the estimation of Richmond Times-Dispatch reporter Robert Zullo, “could be headed to … Northam’s desk by the end of the week.”

The legislation will enshrine the “investment model” advocated by Dominion Energy Virginia of using rate over-earnings to help pay for building the electric grid of the future, including more solar and wind power, energy efficiency, power-line burial, a pumped-storage facility, a “smart” grid, and hardening against cyber-sabotage and terrorist threats. Opponents say the law could lock in excess utility earnings for years.

Assuming the bills in both houses can be reconciled and enacted into law, the battle between Dominion, Appalachian Power Co. and their detractors won’t be over. The action just moves to the State Corporation Commission. The SCC staff and three judges will hold a series of evidentiary hearings on a long list of proposed investments, and they will balance the broad objectives of affordability, reliability and sustainability when deciding whether to approve the requests. Presumably, they will take into account the declaration of the General Assembly that grid-transformation projects are in the “public interest.”

The SCC judges will have latitude — exactly how much is not clear — to draw their own conclusions. So it very much matters who serves on the commission. And it very much matters who will fill the position to be vacated by Judge James C. Dmitri, who, among the three judges, arguably has been the most critical of the electric utilities.

Yesterday the Senate Commerce and Labor Committee interviewed three candidates to replace Dmitri:

  • C. Meade Browder, Jr., assistant attorney general,
  • David W. Clarke, a Richmond lobbyist representing gas and insurance companies, and
  • Maureen Matsen, legal counsel for Christopher Newport University and a former deputy secretary of natural resources under former Governor Bob McDonnell.

Committee Chair Sen. Frank Wagner, R-Virginia Beach, a long-time friend of the electric utilities, made it clear that he wants to see the SCC get with the program. Wagner accused the commission, reports Zullo, of an inability to “see the big picture” because of a narrow focus on electric rates and consumer costs.

Wagner compared the commission to a short-sighted business owner who can hoard money by failing to invest in his company but “will end up going out of business for failing to keep up.

“They take that myopic approach despite many statements, getting more and more bold, from the General Assembly as to what the policy is for the future of Virginia and ensuring that those investor-owned utilities make the necessary investments for the long-term good of all Virginians,” Wagner said.

The SCC judge candidates, who are appointed by the General Assembly, expressed support for the new direction of electricity regulation.

Said Brouder: “I’m aware of your particular interest in that area. … I think any commissioners would work within the regulatory framework that y’all have laid out.”

Said Clarke: “It’s clear to me that the sense of the General Assembly is that we need to have more investment. Those things don’t come without a price tag on them, no question.”

Said Matsen: The commission “needs to be a broader, wider vision” on how it handles “a tremendously dynamic and exciting time for the energy industry.”

Economic Development Requires Grid Transformation

by Todd P. Haymore

Building a more diversified economy and regaining Virginia’s status as best for business were the overarching goals during my time as Secretary of Commerce & Trade under Gov. Terry McAuliffe’s administration.

Working in partnership with hundreds of companies, the General Assembly, regional entities, and colleagues in federal, state, and local governments, we were successful in our efforts to build a new Virginia economy, one less reliant on federal spending and more focused on private sector investment.

I have great confidence the momentum of the last four years will continue under Gov. Ralph Northam.

One way to help keep the positive results going is for state lawmakers to take steps needed to invest in the infrastructure of tomorrow. The Grid Transformation & Security Act of 2018 is an opportunity to address one of the state’s key economic building blocks and ensure we are best positioned for future investment, job creation, and prosperity.

Supported by state legislators on both sides of the aisle, this comprehensive energy policy package ensures a continued supply of clean, reliable, and affordable electricity from Dominion Energy and Appalachian Power for powering modern businesses.

Stakeholder input, which began last year, has continued during the current legislative session to ensure the proposal balances these needs with consumer protections and regulatory oversight. This work has led to greater immediate savings for customers, more opportunities for refunds and rate cuts, and an increase in State Corporation Commission reviews. The recent changes have been incorporated into both the House and Senate versions of the bill.

During my time in Gov. McAuliffe’s cabinet, we worked hard to keep Virginia at the forefront. We traveled the globe to open new markets to Virginia’s products and attract foreign direct investment. We promoted tourism, lured new employers, and supported existing businesses, which generated approximately 70 percent of the more than 200,000 jobs created from 2014-2018. The results included a record $20 billion in new capital investment, a drop in the unemployment rate from 5.4 to 3.7 percent, and significant increases in exports and tourism spending. Forbes, CNBC, and Site Selection magazine recognized the Commonwealth with top ten rankings for business climate.

Make no mistake about it, the affordability and reliability of energy is a key component of the site selection process.

Unfortunately, Virginia’s electric infrastructure is no longer keeping up with the pace of modern business innovation. Originally designed to take electricity one-way, from the power plant to your home, it wasn’t built to accommodate private solar generation from rooftop panels or spikes in demand from electric vehicle chargers.

As new technology emerges, so have the accompanying threats, which have been foisted upon our aging electric infrastructure. Cyber and physical threats are growing more complex, and frequent. Using secure communications networks and devices along with hardening for circuits and substations gives energy companies the ability to know with greater accuracy what is impacting their system.

With the influx of renewable energy sources in Virginia, come challenges we have never faced, or even imagined. A modern, or smart, grid would make it easier to continue the exponential growth of renewable energy needed to meet the clean energy demands of high-tech firms and continue to shrink the carbon footprint of residential customers.

The regulatory framework also needs to evolve. Policy experts, lawmakers, and stakeholders are working to redefine the current structure to ensure utilities can undertake a project of this scope without hiking rates on customers.

The Grid Transformation & Security Act allows investments to modernize the grid and expand the Commonwealth’s use of renewable energy primarily through existing rates. And it provides customers with bill credits, rate reductions due, and elimination of existing surcharges.

In short, I believe lawmakers want to ensure the costs of this transformation will not result in higher rates which would impact residential customers and hinder economic development. Indeed, transforming the grid is a necessary step to pave the way for the continued growth of a new Virginia economy.

If the General Assembly doesn’t act, others will overtake us and gain an upper-hand in retaining and recruiting businesses and the thousands of jobs that accompany them. Virginia can’t let this happen if we want to continue building a more diversified economy, and regain our title as the best state for business.

Todd P. Haymore served as Virginia’s secretary of commerce and trade under Governor Terry McAuliffe from 2016 – 2018. Prior to that, he served as Virginia’s secretary of agriculture and forestry under Gov. McDonnell and Gov. McAuliffe from 2010 – 2016.

Wall Street’s Perspective on Virginia Rate Re-regulation

Ken Cuccinelli

What follows is a letter from former Attorney General Ken Cuccinelli to members of the House of Delegates two days ago. His discussion of the Wall Street perspective on electric rate regulation adds a new element to the debate, so I publish the letter here with his permission. — JAB 

Dear Delegates,

One of the benefits of being Virginia’s Attorney General is the opportunity to pick various areas of the law into which one can “dig in.” After working on energy projects in the private sector prior to becoming Virginia’s A.G., I was enthusiastic about digging into electricity rates. I learned a lot, including learning about my own mistakes when I was in the General Assembly.

One other thing I learned was that while the issue of electricity regulation is the most complicated with which legislators must contend, “clarity” is often not encouraged but discouraged.  Why would that be so?  Because confusion and the speed of the General Assembly session are used to skew bills against ratepayers (read: taxpayers) while downplaying or denying the worst possible real-world applications of the proposed bill.

This was the case in 2015, and it appears to be the case again this year.

The SCC staff has done an admirable job in their bill summaries of clarifying a complex and confusing issue.  That provides one source of clarity.

Where else might we find clarity?  While you might not think about it, another source of clarity is Wall Street. Any perceived misdirection or incompleteness in Dominion or APCo statements to Wall Street subjects them to lawsuits – a consequence that does not exist within the General Assembly. For example, what was the consequence to Dominion of the fact that their main argument for the 2015 bill was not, shall we say, … accurate?

The main consequence is that Virginia’s taxpayers have electricity rates that amount to the equivalent to almost a $500 million tax increase (combining the cost of both Dominion and APCo).  The 2015 bill thus qualifies as one of the biggest tax increases in Virginia history, except that instead of those dollars being used for transportation, education, public safety, etc., they just go as a windfall to Dominion and APCo shareholders.

So, what does Wall Street think of HB1558/SB966 (hereafter “SB966” or “the bill”)?

On February 1st, investment bank UBS issued a report to their clients that gushed over how spectacularly Dominion handles the General Assembly and Governors of Virginia to boost Dominion’s value (at the expense of Virginia ratepayers). UBS called SB966 a “catalyst” that drives Dominion’s stock price higher, and Wall Street is so sure the General Assembly will pass the bill, and Gov. Northam will sign it, that it has already priced the benefits to Dominion of the bill into Dominion’s stock price!

UBS, in a model of understatement, opens its discussion of the bill by saying “Dominion has proven adept at navigating VA politics.” UBS continues by noting “…the state’s history of constructive utility legislation…” leads them to believe “that the bill has a good chance of passing.”

Of course to Wall Street, “constructive utility legislation” means legislation that makes it even easier for Dominion to make a lot of money, which would be a great thing, if it didn’t amount to legalizing seizure from Virginians and our businesses.  This grab is ‘legalized’ by the General Assembly and the Governor.

How easy does Wall Street think Virginia is on Dominion? UBS thinks Virginia’s regulatory environment is SO favorable to Dominion that they add a full 5% to the expected value of Dominion’s Virginia business just because of Virginia’s anti-consumer/pro-Dominion regulatory structure.  Now THAT is quite a return on Dominion’s “investments” in lobbying and donating to campaigns!

Dominion spends mere millions on TV commercials, on lobbying and on political contributions to candidates and legislators and in return Dominion gets to write its own legislation that returns billions of dollars in cash and value. That means that Wall Street thinks Virginia is among the easiest regulators of utilities in the entire country – i.e., Virginia’s General Assembly and Governors are pushovers for Dominion.

To use a dating analogy, if Virginia were dating utilities, her name and phone number would be on the boardroom wall of every utility in the Commonwealth under phrases like “for a good time call….”  And that “good time” doesn’t even cost Dominion very much.

Continue reading

How Is the New Double Dip any Different from the Old Double Dip?

The House of Delegates passed its own version of electric-utility regulatory reform yesterday. The big news is that the House amended the legislative compromise struck between Governor Ralph Northam, the electric utilities, and other key stakeholders to ensure that it prevents the dreaded “double dip.”

Reports the Richmond Times-Dispatch:

The Virginia Attorney General’s Office and the commission have warned that the bill still restricts the ability of the commission to order refunds and lower base rates and also allows utilities to double charge for the grid and renewable investments: Once by canceling out refunds and again by including the projects in the rate base upon which they earn a profit.

“The governor’s office doesn’t believe that there is a double dip in the bill,” Toscano said Monday. “The entire Democratic caucus was taking the position that if there was no double dip in the bill like everyone has asserted, we will make sure the language is absolutely, positively clear.”

I don’t understand how this arrangement would differ substantively from the way rate regulation always worked. Permit me to express my perplexity with a hypothetical example:

Let’s say Dominion Energy Virginia wants to spend $100 million on burying distribution lines prone to disruption in severe weather events. That may or may not be a sound use of the money, but that’s not the question. The question is how Dominion would be compensated for that investment under the proposed new rules.

First, let’s assume that the utility is raking in excess revenue. Rather than rebate the excess to rate payers, Dominion gets to “reinvest” that money in a panoply of grid modernization projects of which distribution line undergrounding is one. Rate payers don’t get the money rebated to them. That’s the first dip. Then Dominion gets to build that $100 million investment into its rate base, and it gets to generate a return on investment — let’s say 10% for purposes of simplicity — until it is fully depreciated. Instead of rate payers getting to generate income on that $100 million, Dominion gets to pocket the income. That extra $10 million constitutes the double dip.

But that’s not the whole story! Under the pre-rate freeze regulatory regime that governed rate setting until 2015, Dominion would have filed for a rider, or Rate Adjustment Clause, to cover the $100 million capital investment of burying the power lines. As I understand it, Dominion also would have been entitled to recover not just the up-front capital but the cost of capital — about 10%.

Under the Northam-Dominion compromise, Dominion would not get to file a rider. Call that a reverse double dip. Rate payers would benefit the once because Dominion doesn’t get its $100 million back through a rider. And they would benefit twice because Dominion wouldn’t get to recover its cost of capital. In other words, it’s a wash. The only difference is that the expense is embedded in the “base” rates instead of in a rate adjustment clause.

Now, there are many other issues one might raise about the re-regulation legislation. Does it undermine the State Corporation Commission’s role overseeing electric utilities? Should the General Assembly declare massive “grid modernization” investments in solar power, wind power, pumped storage, energy-efficiency, smart grid investments, and underground burying of transmission and distribution lines to be in the “public interest,” thus lowering the bar for SCC approval? Great questions, let’s debate!

But double dipping? Dominion won’t get any more licks of ice cream than it did before — unless I am missing something. If I am, I beg you, please explain how the proposed new double dipping differs from the old double dipping. If your explanation makes sense, I will publish it on the blog.

Update: As you can read in the comments, Tom Hadwin and I went back and forth on this issue. Here is how I now understand it:

(1) Rate payers lose the $100 million rebate.
(2) Then the $100 million goes into the rate base, where it must be repaid to Dominion. (That’s the point I wasn’t comprehending before.)
(3) Plus ratepayers pay Dominion a 10% rate of return on the $100 million.
(4) Dominion does not file a Rate Adjustment Clause (RAC), saving rate payers $100 million.
(5) With no RAC, Dominion doesn’t earn 10%, and rate payers don’t have to pay it.