by Steve Haner
Dominion Energy Virginia has launched a major advertising campaign advocating legislation to increase its allowed profit margin, with ads focused on a deceptive message that the bill will actually lower costs for consumers. It will not.
The print version of the campaign, which can be seen in a full page ad in the Richmond Times-Dispatch in print and online, refers to and reproduces part of a February 1 letter from the State Corporation Commission that answered one question about the bill, looking at one item in isolation from the whole. It ignores an earlier, longer, January 27 letter from the SCC that outlines the cumulative rate impacts from the bill.
With all its many deceptions, nothing tops the headline which implies the SCC has claimed this bill will save customers money. There is no other word for that than “lie.”
The one sentence from the second SCC letter which is highlighted points to a proposal from Dominion that it will take several of its current stand-alone rate adjustment clauses (RACs), currently collecting $350 million a year, and roll them into its overall base rates. That same single element of the 25-page legislation is also mentioned in an online argument posted by Virginia’s largest utility.
“At a time of high prices for food, clothing and gas, real rate relief will help. Let’s get it done,” the ad copy concludes. Apparently, there are also broadcast advertisements running, including in the Northern Virginia market. They started appearing after the House of Delegates rejected the introduced bill a week ago.
Should those RACs disappear from bills, and nothing else changes, the bottom line would go down $6 0r $7 per month for a residential consumer using 1,000 kilowatt hours. Those savings would be temporary, at best. And it isn’t the case that nothing else changes. That short term benefit is swamped by the higher customer costs produced by other elements of the bill, some mentioned by the SCC in its first letter (ignored by Dominion) and some not.
The SCC was not asked, for example, about the total rate impact of Dominion’s very expensive proposal to stretch $1.6 billion in uncollected fuel costs over multiple years with compound interest. That is still in the version of the Senate bill Dominion is promoting. It was removed when the House of Delegates basically gutted its version of the bill.
The SCC in its longer letter estimated a $2 billion cumulative increase in bills to Dominion’s Virginia customers over the next 15 years or so if the profit margin rises as the bill demands. Against that, Dominion is bragging it will “save” customers $350 million by retiring the (yet to be named) standing RACs.
Why is that misleading? Dominion will be paid in full for every dime of costs associated with those RACs. It doesn’t really matter to consumers whether it is paid through base rates or in a stand-alone RAC added to those base rates; the customer will still pay. No stockholder will lose a dollar because those RACs were folded into base rates. And if those RACs are being used to finance capital assets, those capital assets will start earning a higher return on equity if this bill passes.
Funny, that never comes up in the ad campaign.
In its January 27 letter, for example, the SCC pointed out that the long term customer cost of the proposed Coastal Virginia Offshore Wind facility will increase by $689 million with the higher profit margin. The customer cost of approved upgrades to Dominion’s four nuclear reactors will increase by $211 million to pay the stockholders a larger return. That is $900 million of the $2 billion right there.
Even in the short term, the disappearance of a few RACs into base rates won’t compensate for the other RACs which will be increasing and adding to total customer costs in the same time period. The growing cost of the wind project is well-recognized, and another RAC increase for it is already in the works. Also previously reported here is the plan to put a carbon tax back on monthly bills. That alone wipes out most of the “savings” Dominion claims.
Your bills will keep going up.
Increasing the utility’s allowed profit margin is the sole purpose of the pending bill. A struggling company is looking to its legislature to guarantee it the level of results it thinks it deserves, but seems unable to deliver through its own management skills. The last quarter results are illustrative. Is failing leadership seeking a bailout from the General Assembly at your expense?
It is even dishonest for Dominion to complain that its current allowed profit margin of 9.35 percent is inadequate, lower than its peers. Dominion’s real profit margin is fattened by self-serving legislation that allows it to keep 100 percent of any excess earnings until it hits 10.05 percent of profit, not 9.35. That extra 70 basis points is the “earnings collar” that has existed since 2007.
No such permission to earn excess profits is enshrined in the state laws that govern the “peer utilities” Dominion insists should be used dictate its profit margin. Since 2007, with the inception of this unique “match our peers” system for setting profit, the SCC’s authority over rates has been handcuffed to an apples and oranges comparison.
If this bill passes and produces an authorized return on equity of 10.07 percent, which the SCC used in its projections, the future Dominion profit margin would really be 10.77 percent. And on top of that 10.77 percent, Dominion would also keep another 15 basis points (15 percent) of every dollar which is earned beyond that point. Yeah, this is stunningly great news for its 2.6 million customers. Be sure to thank every Senator who went along.
This is just the latest accounting game Dominion has played to trick the unwary, starting with legislators who have no clue what they are voting on or its long- term implications. Dominion’s constant goal is to preserve its base rate from any reductions, and it reaches that goal by finding new costs it can charge against base rates to hide the fact that it is earning excess profits. Rolling those RAC charges into its base rates is a new way to achieve an old goal of protecting the base rates.
Absent the move, the next time the SCC looked at the rates (this coming summer under this bill), the result might be an actual reduction in base rates. The $350 million it wants to apply toward those RACs might have been customer refunds instead. Once again, the utility is not being honest with legislators or its customers. Perhaps its overall financial struggles may have a similar cause.
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