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.

There are currently 1 comments highlighted: 107980.

50 responses to “Heads I Win, Tails You Lose

  1. I appreciate you posting the link to Keam’s column. I had a piece pending with the Post, too, but quickly asked them to spike it because his opinion matters more.

    The reason I do not accept your interpretation of the history is you do not go back far enough and you ignore a clear pattern. Starting just a few years after the passage of the 2007 regulatory scheme it became clear Dominion was not going to play by the rules it had just agreed to. Its goal for a decade has been: Protect excessive base rates from any SCC decision to reduce them, and minimize refunds of excess profits. Find a way to move that money from ratepayers to stockholders.

    In 2010 Dominion short-circuited the first SCC review of its rates, which was intended to test whether base rates were too high, by offering a whopping $726 million in cash rebates to buy a settlement that delayed addressing that question until 2013.

    Then it short-circuited the 2013 SCC review by asking the 2013 General Assembly to change the accounting rules, to allow it to claim in full the entire cost of various plant closings and the repair of the Derecho wind damage. Normal accounting rules would have led the SCC to amortize those costs over say five years, and with that adjustment the SCC might have found the utility had excessive base rates and lowered them. But with all those costs lumped into a single period the SCC did not find excess earnings.

    Next comes 2015, and in order to cook the books on that one a new tactic was chosen. In 2014 the utility asked for another variation from traditional accounting, seeking more than $300 million from ratepayers to pay for a new nuclear plant. Company officials promised (but not under oath) that they would be building plant so ratepayers would be buy value. They lied. Lied. That is the correct word.

    Having watched the process closely to that point, knowing these were not honest people, I was convinced that the drive to suspend SCC oversight in 2015 was a sham. Why didn’t the bill simply prevent a rate hike, if that was the fear? Why not leave intact SCC authority to order refunds or rate hikes if the feared costs did not materialize? If preventing higher prices was really the goal, why not also suspend creation of new rate adjustment clauses? No, the goal of the 2015 legislation was to stop cold any chance that excessive base rates might be corrected. Remember, the introduced bill also suspended the 2015 rate case – covering costs incurred long in advance of the possible CPP adjustments.

    But the best proof, to me, is the following: In this 2018 bill they are doing all the things they said they feared to do in 2015. They are planning the same kind of renewable investments as the CPP might have required (and many have been in their plan all along). Only now instead of saying how bad it will be for consumers, they say it will be an energy nirvana. The boogie men of 2015 (those enviro whackos!) are the best buds of 2018 – and their disdain for the consumer is just as high.

    The only consistent thread has been – reduce SCC authority, short-circuit any decision to cut rates, prevent refunds. Convert possible refunds into stockholder value. The new law is an abomination, a travesty. Yes, Dominion is now regulated again, but it is regulated by a General Assembly it controls like a tame dog on a leash. The fault lies entirely with the legislature. Hooray for the 44 in both houses who opposed it.

    • Steve, you make a valid point that Dominion has a track record of going to the General Assembly to override the SCC on several important matters affecting its profits. We can argue the pros and cons of the General Assembly actions, but it’s hard to avoid the conclusion that the purpose was to get something that Dominion wouldn’t get from the SCC.

      But you go astray regarding the 2015 freeze:

      Why didn’t the bill simply prevent a rate hike, if that was the fear? Why not leave intact SCC authority to order refunds or rate hikes if the feared costs did not materialize?

      Simple: If a bill simply prevented a rate hike, it would have left Dominion exposed to nothing but downside risk! No upside (higher rates), all downside (exposure to write-offs of coal plants). No reasonable person would expect Dominion to go for that.

      You’re not addressing the point that Dominion in 2015 was taking away the rate payers’ exposure to higher costs and/or write-offs, for which Dominion could have been compensated, if environmentalists succeeded in pushing through the most draconian of the CO2 reduction options.

      • Jim, there are several points in your post and in this response to Steve that are incorrect. The $5.5 to 6.0B compliance price tag estimated by the Commission Staff was an examination of the costs to comply with the proposed regulations. There were any number of crazy assumptions in the original plan, the most egregious of which, as pointed out by the Staff, was that the carbon regulations imposed stricter standards on existing plants than another set of regulations passed at the same time by the EPA imposed on brand new construction.

        This discrepancy was eliminated in the final version of the regulations that were adopted, almost immediately stayed by the Supreme Court and never implemented. Compliance costs with these revised regulations would have been far less than compliance with the original proposal. Virginia had, with the revised regs, a rather “easy lift” to attain compliance.

        But, whatever the cost of compliance would have been, the “rate freeze” would not have served to insulate Virginia customers from ANY of it. All costs incurred by DVP or Apco to comply with environment regulations are recoverable, pursuant to Va. Code Section 56-585.1 A 5 e, in a rate adjustment clause and NOT in base rates. That provision states that
        “The Commission shall approve such a petition if it finds that such costs are necessary to comply with such environmental laws or regulations.”
        The General Assembly certainly knew that this provision was in the law and that the “rate freeze” was not needed to protect consumers from costs that flowed through rate adjustment clauses, because it chose NOT to freeze the environmental adjustment clause. The Clean Power Plan was an excuse to further insulate DVP’s excessive base rates from comprehensive examination by the SCC.

        Accordingly, your contention that Steve’s fictitious bill that would only have prevented a rate hike “would have left Dominion exposed to nothing but downside risk! No upside (higher rates), all downside (exposure to write-offs of coal plants)[]” is simply wrong. The bill that was enacted exposed Dominion to nothing because Dominion had no downside risk. The bill permitted the possibility of higher rates through the unfrozen rate adjustment clauses and preserved the already excessive base rates–the Company had no risk whatsoever.

        You say Dominion has not stolen anything. The rate freeze stole away the ability of its Constitutionally appointed regulator to meaningfully regulate the company’s rates.

        Oh yes, Larry’s comment below reminds me of another point. There would not have been any compliance costs incurred whatsoever during the period of the “freeze.” Compliance costs would have begun, under the enacted Clean Power Plan regulations, after the end of the “freeze” in 2022 or thereafter. Full compliance was not required until, if I recall correctly, 2028.

        • Rowinguy1, thanks for chiming in. You say that the inaccurate assumptions in the SCC’s $5.5-$6 billion estimate were corrected. Did the SCC issue a revised estimate? If so, I never saw it. If such an estimate were made, it certainly would be relevant to this discussion, and I would want to update my original post. Second question: WHEN did the SCC revise its estimate? In time to inform the 2015 General Assembly session? Surely the revised number would have been circulated. Again, I don’t remember seeing it. Could you point me to an online source providing a revised estimate? Thanks.

      • I should clarify to say I don’t recall if the SCC Staff issued any further paper. There were several such analyses floating around back then, all of which showed compliance costs trending down from what would have been required in the proposed regulations.

        • Ok, here’s what I’ve come up with. The infamous “rate freeze” statute required the SCC to report to the Governor and General Assembly on possible compliance costs. In turn, the SCC required Dominion and Apco to estimate those costs in their annual IRP plans.

          The SCC’s 2016 report states:

          “Based on DVP’s analyses and assumptions, the expected CPP cost of the [sic] compliance would range from $5.1 to $12.8 billion on a net present value basis depending on the compliance pathway alternative.
          …..
          “In discussing DVP’s analysis, the Commission Staff noted that DVP had

          modelled its system as a compliance “island” where all CPP
          compliance was effectively achieved through in-system actions.
          This could overstate CPP related compliance cost since it is possible,
          and perhaps likely, that final CPP implementation would provide
          for some form of trading where the Company could avail itself of
          lower cost compliance alternatives that may be available through
          regional or cross-state measures.”

          I would only add, as a side note, that the $12.8 billion “compliance pathway” involved the Company’s construction of the North Anna 3 nuclear unit, I believe.

          • That’s pretty much in line with what I understood. The North Anna 3/$12.8 billion compliance pathway was the “worst case” cost scenario that would be incurred if the McAuliffe administration had adopted the most stringent, mass-based CO2 emission goals — as many environmental groups were lobbying for. The costs would be significantly lower for rate-based goals.

            I remember attending one meeting of an ad hoc group meeting in the DEQ office in which representatives from the utilities, independent power producers, customer groups, renewable energy people, and environmental groups participated, hashed out which of the regulatory scenarios to adopt. I don’t recall that they ever came to a final resolution, but environmentalists were pushing hard for the lowest possible CO2 standards — a mass-based approach with provisions to restrict “leakage” of generation to new generating facilities not covered by the original restrictions. I think the environmental groups were divided on the issue of nuclear power, but the Sierra Club wanted the lowest possible CO2 standards while opposing not only North Anna 3 but the license extension of Surry 1 and 2 and North Anna 1 and 2. Obviously, Dominion and Apco were pushing for the least onerous CO2 standards.

            My point is that there was no way of knowing in January-March 2015 which regulatory standard the McAuliffe administration was going to adopt, and, accordingly, how much it would cost.

            Now, you’ve made the point that under the worst-case scenario (“worst case” from a rate payer point of view, not necessarily a sustainability point of view), the cost of building new solar and wind power plants would be passed on to rate payers via rate riders. Therefore, Dominion was taking no risk for such an outcome.

            But… and here’s where I confess my limited knowledge, so I am happy to stand corrected… The worst-case scenario would have necessitated the closure of Dominion’s three remaining coal plants. I don’t know what the remaining book value of those plants was, but it would have been considerable — especially for the hybrid facility in Wise County. We’re talking hundreds of millions of dollars, maybe $1 billion or more. If those plants were closed and a freeze were in effect, Dominion would have taken a massive hit to the bottom line — and it couldn’t go crying to the General Assembly for relief because that was the whole point of the freeze, to make Dominion shoulder the risk of precisely such an outcome.

            If I fault the General Assembly for anything, it would be agreeing to the freeze without properly elucidating these issues. What was the potential exposure to rate payers? What was the potential exposure to Dominion? How much risk was Dominion taking on, and how much in the way of over-earnings did it stand to gain? However, these issues seem much clearer in 2018 hindsight than they were in 2015.

  2. Steve has pretty much nailed it. The “history” is a selective one that ignores other facts. It’s a classic “revision” .

    But even beyond this – it was never clear to me that Dominion was going to suffer any additional costs from the CPP anyhow. They were actually not going to have to close any plants at all or if they did it would be a decade or more into the future. Even then – the SCC would have held Dominion harmless and allowed them to pass on costs incurred.

    So it never made a lick of sense to “freeze” the rates… No one was going to let Dominion go broke over something it could not control.

    So it was clear the rate freeze was to allow Dominion to keep excess profits if costs went down rather than have to return them.

    Even now the “logic” makes no sense.. It never added up and it does not add up now because the biggest savings in electricity – as pointed out by most experts is demand side technology upgrades that Dominion could be part of if they wished or 3rd party if they would be allowed.

    I don’t mind having Jim tell Dominon’s side of the story – but some of the stuff is so contrived and loose with the facts and timelines as to border on propaganda… It’s not really a disagreement of policy directions.. it’s a disagreement about what the facts and history actually is – and that’s not really conducive to any rational discussion.

    • It was never clear to me that Dominion was going to suffer any additional costs from the CPP anyhow. They were actually not going to have to close any plants at all or if they did it would be a decade or more into the future. Even then – the SCC would have held Dominion harmless and allowed them to pass on costs incurred.

      You have absolutely no factual basis for any of this. None. It’s pure speculation on your part.

      • While Larry has no factual basis to assume what the SCC may or may not have done, the law that I cite above absolutely required the Commission to approve a rate adjustment clause petition filed by Dominion to recover costs necessary to comply with environmental laws or regulations. The Commission has no discretion to reject such a petition.

      • “no factual basis” is an interesting term in the context of this discussion…

        😉

  3. Well done, Jim — and frankly, the old trope of “anyone who says something nice about Dominion must be paid!” is wearing very thin indeed.

    The kicker here isn’t that Mark Keam drank deeply from the Dominion punchbowl here (though that happened — a great deal). The kicker here is that the Paris Climate Agreement fell through. That’s it. Now there’s a pile of cash and a ton of improvements that are needed and no one wants to hold the hot potato at the end of the music.

    Three things:

    (1) The Port of Virginia is an international port of call that needs more reliable cheap energy. That’s it — when they peg out to 96-98% capacity and have to fire up the old Yorktown coal plant to meet it? That’s a problem, folks… for any investor, that’s a massive problem.

    (2) Infrastructure improvements and especially undergrounding and the hardening of the infrastructure — again, absolutely critical.

    (3) Russian interference. It’s about time that folks start asking the money question back as to why every energy project in America seems to get the same treatment from the same handful of folks. Higher energy prices help Russia; lower ones hurt Russia. Given that House SST in June 2017 documented this pipeline through the Seychelles from Russian oligarchs directly to groups like the Sierra Club and League of Conservation Voters, why is this story being completely and consistently ignored?

    For one, I still do not understand the hostility towards Dominion. Seems like an old-school high school spat among well-connected Richmonders… and a short sighted one at that from any policy perspective.

    Regards,

    • Adding to your point, it’s been documented that the Russkies also used social media to further the cause of shutting down U.S. gas pipeline projects (although not, as far as I know, the Atlantic Coast Pipeline… which is why I haven’t blogged about it.)

    • re: ” The kicker here is that the Paris Climate Agreement fell through. That’s it. Now there’s a pile of cash ”

      where did the pile of cash come from that had anything to do with the Paris Accord?

    • Sean:

      You do realize that Jim is, in fact, paid by Dominion, right? To his credit, Jim posted the Ts and Cs of his arrangement with Dominion on this very blog some time ago.

      I get paid by my employer too. So, I refrain from making public any criticisms I have about my employer (however, I fell no such restraint during internal discussions). When possible, I try to present my employer in a positive light. Fundamentally, I follow my Mother’s advice to say something nice or not say anything at all when it comes to my employer. I assume Jim is roughly in the same boat.

      So, how about you? Any chance you harbor a desire to run for office someday and know that staying a friend of Dominion could be very helpful? I know several Virginia State Senators who will defend Virginia’s unique one consecutive term governor restriction to the death. One of them finally admitted to me that he aspires to run for governor one day and having a new governor every four years dramatically increases his opportunities to run.

      You arguments seem to be a stretch. This Port of Virginia needs more power. Fine. How does that justify emasculating the SCC and handing over billions of overcharges that should be refunded to ratepayers? Why couldn’t Dominion (and their captive General Assembly) refund the money and then go through normal regulatory channels for adding needed new capacity? Infrastructure improvements – same question. The Russian connection – you’ve been watching too much MSNBC.

    • Shaun–

      I don’t claim to understand allof your points, but I can assure you that the Port of Virginia receives electricity from Dominion which is a member of the PJM interconnection. It is not about to run out of electricity to transmit to the Port. The Yorktown power station will never need to be fired up again.

  4. Yep! I don’t know how I forgot this (write in haste, correct at leisure) but here is the best proof that that 2015 bill was a total sham from the beginning. The cost of CPP compliance, had it turned out to be that high, would have come from new renewable or nuclear generation! It would have been paid for by adding to or creating new rate adjustment clauses! (RACs). This year they added the cockamamie idea of using my refund to pay for the renewable, but no such promise was made in 2015. In 2015 it was pure bait and switch – there was ZERO chance base rates would go up because of the CPP, and the bill fully allowed the CPP to cause RAC payments to go up. Any claim that the bill protected consumers was an L…I…E. There was zero downside risk. Zero.

    SCC staff testified to that but was ignored.

    And since my post I’ve refreshed my recollection that the $6 billion “SCC” estimate actually was provided by Dominion, which of course knew when it provided it how it intended to use it later….I never said they were not clever. Just not honest.

  5. No ad hominem for you, but I have to put up with red baiting? Yeah, those talking points came right from the Kremlin! Listen bub, for the first ten years of this argument my motivation was lower costs for building carriers and submarines and operating Norfolk Navy Base – I would think the Russkies would like to see those costs go up! If anything, the Reds are the natural allies of a monopoly utility that feeds the political establishment with cash, just like it enriches the Party in their world.

  6. I thought I posted this earlier. Here it is again.

    Jim, I think you have the heads I win, tails you lose going in the wrong direction. Dominion had nothing to lose with the 2015 rate freeze. The only thing frozen was the base rates. There was no reason for this legislation. It offered the ratepayers no advantage. Anything that might have been required under the CPP could have been appropriately handled by existing SCC procedures and regulations.

    Dominion testified during the IRP hearings at the SCC that any new power plants or other adjustments required by the CPP would be handled with RACs. All of Dominion’s costs would be covered, assuming the SCC concluded that they were prudent and necessary. But the ratepayers would still be burdened by higher than appropriate charges resulting from the uncorrected base rates.

    Dominion and APCo did not have any risk to absorb. There was no bet to win. And there was no reason to stockpile money well in advance of regulations that were still years away from being implemented, other than to benefit shareholders.

    There would have been no need to go to the GA for a remedy since the existing regulatory process was sufficient to deal with any modifications required by the CPP. Steve Haner hit it on the nose – the rate freeze was to avoid any tinkering with base rates. Any objective evaluation would have revealed that the base rates used assumptions that were long outdated and allowed substantial overcharges to customers.

    I do not believe that it was an election year epiphany that spawned the Grid Modernization bill. I think it was the realization that the rate freeze bill would require Dominion to swallow all of the coal ash disposal costs. Suddenly, the rate freeze didn’t look so good to Dominion. If Dominion sought to deal with this using a RAC, it would have been reviewed by the SCC. I am not as familiar with the details as Steve is, but I believe that Dominion’s new bill allows those costs to be covered by the money owed to customers without SCC review. As I have written before, if the SCC fully investigated this issue, they might have discovered that best practices in other areas of the country, since the early 1980s, required coal ash disposal ponds to be lined at the bottom and the effluent treated to meet water quality standards. If this had been done, Dominion would not have polluted our rivers or incurred the huge expenses that are being discussed today. It is possible that they made a management decision or used political influence to reduce the requirements to save them money at the time. This could have set the stage for an SCC decision that would have required shareholders to shoulder a portion of the cost. Now the ratepayers will pay for it all – no questions asked!

    With another magic show at the GA and with the media, Dominion kept the benefits of the rate freeze, but avoided the coal ash costs.

    They also convinced a majority of the GA that by using ratepayers’ money, they could accomplish things that could be done in no other way. If we are using the public’s money (which is what is happening with this bill), it would be cheaper for third-parties to build the solar and sell it, through PJM, to Dominion. By owning and controlling most of the state’s solar development, Dominion will make a 12.7% profit on solar (10% base rate + 2% bonus for 10+ years + the 0.7% overflow). By using a billion of the ratepayers’ money, Dominion will make many billions in profit over the 35-40 year life of these projects.

    The same thing applies to the energy efficiency. Dominion is dead last in energy efficiency of 32 or 50 of the largest utilities, depending on the study. They have little incentive to do a bang-up job saving energy. They will still lose revenues. But if they do a marginally good job, they will make billions in profits and the ratepayers will pay extra for it. There are much better ways to spend less and save more energy, but they wouldn’t yield a profit to the utility.

    There is little grid modernization in the bill. Burying distribution lines is not grid modernization. It increases reliability, at least for the section that is underground. But there is a point of diminishing returns. Dominion made a gold-plated proposal to the SCC, but Phase II of the pilot project was considered to be not cost-effective by the SCC and the AG. Now the project has been approved by the GA with no oversight by the SCC. Customers will see little benefit, but greater expense.

    Undergrounding the transmission line does not even improve reliability. Underground transmission is less reliable than aboveground lines and must be replaced 40 years sooner. One customer will be the primary beneficiary, but everyone will pay for it.

    Other states compare utility profits with authorized levels every year and return 100% of the overcharges to the customers. In Virginia, we now make that review every three years. We allow the utilities to keep .7% more than the authorized amount and then ask them to return only 70% of the amount greater than that. In the meantime, the utilities can borrow ratepayers’ money for years at no charge, spend it as they wish with little oversight, and if somehow, despite the artful accounting, there is still an overcharge, the ratepayers will get only $50 million of it back.

    The private holding company, Dominion Energy, has been very adept at managing the legislative process to favor its shareholders. That is what private companies do. But I believe over 85% of Dominion Energy’s revenues now come from regulated businesses. This is maybe twice as high as it was 15-20 years ago. Dominion has made a strategic decision to off-load risks and costs on to ratepayers and invest millions in political donations to yield billions in extra profits. Their financial results show that this has been a successful strategy. However, it is contrary to the “regulatory compact” that provides freedom from competition in exchange for fair rates and a fair return set by active regulators.

    This latest bill further diminishes rateholder representation by state regulators. The Virginia economy suffers from higher rates and our political process is tainted by interference from special interests.

    • Tom, I agree with virtually everything you have written here except this:

      “Other states compare utility profits with authorized levels every year and return 100% of the overcharges to the customers. In Virginia, we now make that review every three years.”

      In my experience, state regulators do NOT regularly order refunds. The proper regulatory response is to adjust rates to preclude future over-earnings. That ability has been stripped away almost entirely from our SCC.
      Refunds may occur if a utility implements interim rates specifically subject to refund and the finally approved rates are less than those collected on an interim basis.

      • I agree with you, Rowinguy1, no State (or federal) Commission I’m familiar with tries for a tight bandwidth to the rate-of-return accuracy of utility rates. The whole point is to allow the slop-over to cover the unexpected, to provide an actual ROR sometimes higher, sometimes lower, than authorized, to avoid the need for full-blown rate cases every year or two — but then, when they do occur, to investigate the total package of utility revenues and expenses, both “base rates” and all the add-ons and adjustment clauses. This is part of the regulatory bargain: the degree to which and timing with which the “slopover” is eliminated or allowed is a large part of how the regulatory commission keeps the utility compliant without micromanaging things, while the utility upholds its side of the bargain by keeping the Commission out of trouble by providing low cost, reliable service.

        I’ve said here before, I think the SCC lost that perspective back in the 80s, long before the Capps/Rhodes contretemps. The SCC somehow got it into its head that they were the utility’s super-board, that utility regulation could be automated, reduced to a bunch of formulae and forms filed on a regular schedule, with no “excess profits” whatever. By exercising absolute, tight control over the sources and adequacy of jurisdictional revenue they impaired their own ability to use regulatory discretion for leverage. Then, they had the balls to demand that Dominion keep all its new generation construction under their jurisdiction even when the FERC and the GA had laid the groundwork for generation deregulation and grid competition. No wonder Dominion went to the GA to override this impossibly one-sided “bargain.”

        But there, Dominion learned how easy it was to get their way. The regulatory bargain has now swung way too far off kilter in the other direction. Virginia Power remains a very well run electric utility; but its holding company’s manipulation of the regulatory regime in Virginia in order to make VaPwr into DE’s own captive “cash cow” is appalling, and shameful.

        As others have said, the CPP was no mortal threat to Dominion; the Yorktown retirements had to occur anyway; the RACs insulated Dominion already from the cost of new generation, and the fuel clause from higher purchased power costs — what was this huge uncertainty that Dominion required a shield from? The biggest, I suppose, was the GA’s own refusal to decide which CPP regulatory alternative to pursue, and the open question whether NA3 would be part of the solution. It should have been obvious to all that after the GA made up its mind on what CPP regime to pursue, there would have to be a big proceeding at the SCC to sort out NA3 and the retirements and/or additional emissions controls at the fossil plants all at once, future rates included. But the CPP stoked the myth of “uncertain future” that Dominion played so well in overturning retail access and retreating to vague talk of “Virginia energy sufficiency,” and formulaic rates rigged now the other way, in its favor. So Dominion built on that myth, which still persists even with no CPP bogeyman to blame.

        Tom Farrell has been quoted as thanking the SCC for turning down Dominion’s original attempt to spin off its generation to an unregulated subsidiary, presumably because, now, he has realized so much profit for Dominion Energy in the intervening years from the regulatory obtuseness and arrogance, then weakness, of the SCC.

      • You are correct Rowinguy. I should have been more precise. The refunds of overcharges are more typically achieved by adjusting rates to balance things out in subsequent years similar to how the Fuel Factor is handled in Virginia.

  7. re: why are people on Dominion’s case?

    let me counts the ways.

    They have essentially , in my view, corrupted the entire process by which they operate as a monopoly. Like virtually no other state – a regulated monopoly gives money to the same elected who consider legislation and who the GA essentially supplanted the SCC with legislation – written by Dominion.

    Shawn – you defend this? Good Lord guy.

    This is not about “hostility” to a “company”. We’re talking about a company – a regulated monopoly who is giving money to the General Assembly, who in turn, gut the regulatory agency that is supposed to regulate Dominion and “somehow” Dominion ends up with a bunch of extra cash -and Dominion wants to decide how to spend it. That money does not belong to Dominion. It belongs to the ratepayers and it’s the ratepayers who should decide what happens to it -not Dominion.

    At the same time this is going on Dominion has fought the coal ash cleanup… so we have this pot of money and we need the coal ash cleanup done – and Dominion has other plans for that money.

    I’m sorry guy… this is a wrong thing… and no it has zero to do with the Paris Accord, the CPP or politics.. it’s corrupt crony capitalism.

  8. I will save my ad hominem attacks for another day but I do have a few points that are jumbled and in no particular order.

    First, the entire idea that Dominion deserved to get a special, anti regulation deal because the Clean Power Plan during the Obama Administration is downright wrong or at least highly stretched. Take Yorktown. In 2011, Dominion announced it was retiring one its coal-fired plants because it was too old and and inefficient and could not meet new mercury emissions standards at a price that it liked. This was FOUR YEARS before the Clean Power Plan ever came up but Yorktown gets lumped into the debate about regulation. And, might I ask, why do the commenters here want to keep old coal-fired plants dating back to the 1950s open? It’s like saying you want to keep driving your 1955 Olds mobile that pollutes like hell because it is somehow the American thing to do. Actually, you should junk the clunker and go with a cleaner or efficient vehicle.Uncle Sam would like that.

    Second, twisting people’s questions about the need for gas pipelines into some kind of Kremlin-inspired scam is a hoot. The Russians and their former Soviet neighbors have been exporting oil and gas for years and years. The first real oil field, by the way, was not at Titusville in Pennsylvania but near Baku in Azerbaijan, now independent but always a vassal of Moscow. So, they’ve been at this longer than we have and to imply that they are trolling social media stirring up opposition to make new nuclear subs and aircraft carriers more expensive right now is absurd.

    Third, sure the Russians play the price game in global trade. During the USSR days, the foreign trade guys were very sharp and new how to play a market. I know about this because I was based in Moscow as a correspondent for six years and visited petroleum areas in northwestern Russia, Siberia, Uzbekistan and Azerbaijan.

    Fourth and last, everybody plays the price game. The very first exports from Dominion’s repurposed LNG facility at Cove Point Maryland terminal took to sea a few days ago. During the FERC process to refit the plant from importing LNG to exporting it, Dominion claimed that the gas had been contracted by utilities in India and Japan. This was important to establish a need for the plant. And guess what just happened. The very first export ship turned its bow to the United Kingdom to deliver the gas. Why? Spot prices in the Asian market went too low all of a sudden.. They are higher in Europe right now. (see link below).

    So, everybody plays the price game. Dominion says the Atlantic Coast Pipeline is not intended to export LNG, perhaps from Georgia. Who knows for sure? Is this all part of a CozyBear social media troll attack? Are American environmentalists and land owners in the U.S. who oppose this and other pipelines all stooges for the Kremlin? Give me a break!

    Oh, and by the way, if there is politics involved it is in a different form that what’s being tossed around here. Russian LNG are also supposed to take LNG from Russia’s new Yamal LNG terminal to the U.K. That’s under review by the Brits who are mighty pissed that a military grade nerve gas was used in the attempted assassination of an ex Russian spy and his daughter in a small English town. I’m not sure what this really means but it is a stretch to Red Bait public opinion in the U.S.

    https://www.oilandgas360.com/cove-points-first-lng-cargo-u-turns-sets-course-for-britain/

  9. “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. (If you haven’t read it or analyzed then how can you comment on it particularly as it is the nexus of this year’s issues) We can be reasonably assured that it will be beneficial to Dominion, or the company would not have gone along with it. (Uhh, of course it is beneficial to Dominion, they wrote the damn thing and have all manner or triggers and outs built in to protect their interests, it helps that their legislative waterboys didn’t take the time to read or understand 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. (This bill is 2015 all over again just in a different package) Getting sucked into a heads-you-win, tails-I-lose political proposition is no way to run a business. (That’s why they always engineer the heads-Dominion-win, tails-the ratepayer-loses legislation as in 2015 and again this year)”

    At what point will Dominion assume this blog as a wholly-owned subsidiary and rename it Dominion’s Rebellion, Bob Blue’s Rebellion or Chuck Penn’s Rebellion as you are trending from shill to co-conspirator.

  10. MOM –

    You have gone silent on your commute. Perhaps those tolls have cleared up the traffic congestion is Northern Virginia. Am I right? Or wrong? Or is traffic worse than ever? Or somewhere in between? What’s happening? All these questions are also hints to Bacon as well to wake up, vacation in Belize is over.

    • Temporarily gagged not willingly silent for reasons that will be explained at a later date with much vitriol and pointed ad hominem attacks.

      Tolls have not cleared traffic congestion and VDOT reports to the contrary, have , as predicted, made arterial traffic worse. The toll fiasco has also created a slightly worse and more dangerous bottleneck at 66/495 as a result of indecisive drivers waiting to see what the day’s toll is and left lane drivers bailing across multiple lanes if the toll is too high.

      The real test will be when the I-66 outside the beltway construction begins as it is likely to result in a MOAC (Mother of All Clusterfucks)

      • Actually dynamic tolling is spreading FAST across the country because it actually DOES “work” in terms of managing congestion – not without changes and critics.

        Roads are no different than airlines or gasoline. They all work off of supply/demand and if price is allowed to float – it does balance the demand just as people will shift when they want to fly – to a time when tickets are cheaper OR if it’s really important – they pay the premium price… ditto with gasoline … if fuel becomes expensive , people drive less and/or get more fuel efficient cars.

        Roads, when dynamically tolled – work the same.

    • I look forward to more on THIS subject!

  11. Mr. Kenney,

    You, like many others, have a desire to see a robust economy develop here in Virginia. I am puzzled when I speak with business and labor leaders why they don’t realize that Dominion’s energy proposals, such as the rate freeze, the Atlantic Coast Pipeline, and the 2018 energy bill will add billions to our energy costs in Virginia, without an equivalent benefit to families and businesses in the state.

    The GA created new rate adjustments for commercial and industrial customers, as a legislative act, not a regulatory one, which apparently bought their acceptance of the new bill. Virginia residents, the constituents of the legislators who passed this bill, will bear the brunt of the higher costs. Even though Virginia electric utility bills are currently higher than in 80% of the other states, perhaps they are still affordable enough not to generate much interest in energy issues.

    Dominion Energy’s attempts at building profits for shareholders generated a great deal of debate but did very little to move us towards a modern energy system in Virginia.

    Utilities nationwide are seeing a fundamental shift in their business model. Electricity use in the U.S. declined by 2.1% last year, a continuation of a decade long stable or declining trend in electricity demand. But our population and economic activity increased. This is far different from our experience in the 20th century when utility regulatory schemes were refined. It worked for over 100 years to incentivize utilities to build more to earn more. In the 21st century, it adds only to our energy costs and the growing surplus of generating capacity.

    The 2018 bill did not address how we should pay our utilities fairly or what role they should have. It certainly did not outline what a modern grid should look like. We have decided to continue the status quo until 2028. Other states have been working on new energy visions for several years. We are already behind. We have just legislated a way for us to be farther behind and pay more for it.

    Designing a modern energy system should be a collaborative effort that results in financially healthy utilities, abundant opportunities for innovative new businesses, enhanced choices and lower costs for customers. The governor and the legislature should develop a long-term plan to establish the framework for this, and empower the SCC to upgrade their ability to achieve it.

    We should encourage Dominion and APCo to use their skills and financial savvy to thrive in this new environment, rather than use their political muscle to find more ways to use the public’s purse as their private piggy bank.

  12. Jim:

    You’ve been presented with a number of persuasive arguments (from various sources) that Dominion actually had no risk from the rate freeze. The base rate vs RAC observation seems particularly compelling to me. Are you ready to admit that your hypothesis that Dominion might have won or lost has been compromised?

    Don.

    • Fair question, Don.

      Localguvguy speaks from authority, he certainly knows more than I do, and he makes what seems to be a persuasive case. But I have several questions, which I posed to him. I hope he has time to answer. TomH also makes some salient points, but also some points which I think are disputable.

      If it turns out that Dominion had absolutely no financial risk and that the rate freeze provided absolutely no protection to rate payers, then I think we could all agree that it was a spectacularly one-sided piece of legislation. Here’s the thing, I don’t remember hearing a lot of the arguments then that are being made now. Admittedly, I was just beginning to cover this beat at that time, and I was a total newbie, so I may have missed a lot. But if people were making these arguments, surely Zullo and Martz with the Times-Dispatch, who are always eager to play up any controversy relating to Dominion, would have picked up on them.

      So, at this point, I would say that I am less confident in my hypothesis than when I wrote it. I will concede that my post did not explore all dimensions of the issue. And I do feel like I need to learn more.

      • Absolutely nothing has been said on this string that was not said in 2015, in private discussions with legislators and in committee testimony. What was said on BR at the time, I’d have to go back and look.

      • I really don’t see how anybody can talk about “absolutely no risk” one way or another. The whole point of the regulatory bargain is flexibility. But that includes the flexibility for either party to reward, or stick it to, the other party if the regulatory bargain is not sustained, The “rate freeze” was grossly one sided, as DJR summarizes, but what really made it so, and makes the current bill worse, is that it was built on a basket of assumptions that from the get-go were speculative at best, and a gamble for all concerned, and were dictated by one side and accepted by the other supinely.

        The elimination of the Commission’s authority over rates between the “scheduled” rate review events going forward simply extends that “take a gamble” mentality into the future in a rigid framework, albeit in shorter segments. This is no way to regulate a utility.

  13. Ditto for me.
    The Clean Power Plan argument for the rate freeze seemed contrived. When the rate freeze Bill got to Gov McAuliffe’s desk for signature, we were hoping for clarity on why the rate freeze was needed. The Gov simply said top brass at Dominion demanded the rate freeze, so he negotiated for a draft pick in return for signing (a little more solar).

  14. Del Keam’s promise to “break up with Dominion” might have removed him from the long list of General Assembly members who are out-and-out whores for Dominion. However, I think he’ll remain a submissive friend with benefits. Keam has decided to eschew direct contributions from Dominion. That provides a certain cosmetic appeal I suppose. However, he left the door open to indirect contributions. Here’s how that works:

    1. Dominion makes huge contributions to Virginia politicians for life who haven’t faced serious competition for office in decades.
    2. The politicians described in (1.) take their skim of Dominion’s money by spending it on themselves but pass on the majority to various politicians and state PACs.
    3. Politicians like Keam take money from the politicians described in (1.) or from state PACs funded by contributions from the politicians described in (1.) based on their receipt of money from Dominion.

    Keam and his ilk can claim that they have “broken up” with Dominion. However, that “break up” will not be compelling evidence of independence until folks like Del Keam swear off direct contributions from Dominion AND any contributions from sources funded (in whole or in part) by Dominion.

  15. And again, one of the untold stories in all this is the other 800 pound political gorilla in the room, the Virginia League for Conservation Voters and related entities, who as Bacon has (correctly) pointed out give just as much money to politicians as Dominion. It was the combined political power of the utilities and the renewable industry (and it is an industry also motivated by profit) that pushed this bill through. A few of the environmental groups stood firm for consumers, but most didn’t – and VLCV sold us out as fast as a ray of sun.

    Virginia needs real contribution limits for everyone.

  16. Here is a 2016 analysis of the Clean Power Plan as it could have applied in the South. Virginia was analyzed and it fit the general pattern of the South. Lower costs and collateral benefits could be found if the Plan was adopted.

    “What this study reveals is that cities, and the commercial buildings that comprise them, hold a key to both lower carbon pollution as well as lower bills for commercial electricity consumers if states embrace energy efficiency and clean energy investments associated with state implementation of the Clean Power Plan,” said Dr. Marilyn Brown, the project’s lead researcher and the Brook Byers Professor of Sustainable Systems in the School of Public Policy at Georgia Tech.

    “To minimize costs, the country needs to reduce its coal consumption more rapidly, continue to expand its gas-fired power plants, but temper this growth with aggressive policies to increase energy efficiency and renewable energy.”

    Here we go again with the monopoly rate base issue – sell more to make more. That I where change in VA must happen.

    “Complying with the Clean Power Plan would also produce substantial collateral benefits such as lower electricity bills, greater GDP growth, and significant reductions in SO2, NOx, and mercury emissions. ”

    Another recent report by energy research firm Synapse Energy Economics finds that average energy bills in 2030 could be $35 per month lower under a “Clean Energy Future” scenario than they would be if the Clean Power Plan is not put into operation.

    The rate freeze was a hoax.

    Here is the link if you want to see the report ….
    https://cepl.gatech.edu/projects/ppce/clean-power-plan-and-beyond
    and a write-up I copied from …
    https://cleantechnica.com/2015/07/31/clean-power-plan-lower-electricity-bills

  17. The CPP issue was clearly a highly partisan one which Conservatives largely opposed to it on ideological grounds even tying it to the Paris Accord but it had virtually no immediate effect and even longer term, Dominion already was on the longer term CPP path…

    For Conservatives, it was/is an article of faith to oppose any/all initiatives to reduce carbon pollution and Dominion used that political fervor to get something they wanted that without the CPP, there would have been significant public opposition and outcry that would have put Conservative lawmakers in a bad spot but the CPP was the perfect foil to scam the issue.

    Who, in their right mind would write a rate freeze that did not allow refunds if prices went the other way? Well, of course, the GA would and again – both Dominion and their supporters in Richmond were fully aware the CPP was no threat at all… but a convenient excuse that they could impose while a clueless public was largely ignorant of the nuts and bolts behind the public partisan foodfight.

    Finally – I’d like to see some numbers that show the LCV contributed as much money as Dominion – and beyond that what the LCV expected to “get” versus what Dominion expected to “get” from THEIR contributions.

    Obviously Dominion is much better at getting real things than the LCV!

  18. https://www.vpap.org/donors/232332-nextgen-climate-action/

    A recent TD editorial highlighted that donation report above, assuming foolishly that those donations were contrary to the position of the utility. And here is the LCV report on VPAP for 2017. I’m actually pleased that many of those recipients still voted no on the bill.

    https://www.vpap.org/donors/148192-va-league-of-conservation-voters/

    Compare Dominion E for 2017, although of course it gives steadily and over the past decade or so remains the biggest donor. But it has never matched the kind of money Northam got from environmental groups.

    https://www.vpap.org/donors/120206-dominion-energy/

    Oh, it clearly was the combination of these political machines that made this work and that is, as I said, the yet untold story. Whether LCV got what it wanted remains to be seen as the decision on generation modes going forward remains with the company. The bill creates incentives, but not mandates.

  19. what exactly were the environmental groups expecting in return for their donations – compared to Dominion?

    The environmental groups were/are supporting candidates for office and not targeting specific legislators and specific legislation – much less writing legislation for legislators.

    I do concede the money from environmental groups was on level with Dominion and the industry.

    I don’t mind people donating to environmental groups who, in turn, support candidates who have the environmental credentials they want.

    That’s fine and fair , no harm, no foul – it’s the American way.

    but I DO very much distinguish that with donations to specific legislators who are also being lobbied extensively and even being asked to sponsor Dominion-written legislation – that is seeking laws and regulation that will directly benefit it and it’s investors.

    Somehow – we are equating people donating money to support environmental goals for the public , for citizens with corporations using money to influence legislation that affects their own self interests – at the expense to the environment.

  20. The other point I’d make is that when Enviro groups donate – they donate in THEIR names whereas on the pro-drilling / GOP side the money is effectively laundered to hide the original donor…

    I’m ALL FOR a straight up honest system where the donors are all known and General Assembly elected are prohibited from receiving money from ANY group that has written or sponsored legislation.

    In a lot of other places – such money is called a bribe and is illegal. In Virginia – why it’s the “Virginia Way”.. We’ve essentially legalized corruption and bribery from industry then we point to the enviros as “equal” in their efforts to influence legislation.

    In a pigs eye.

  21. Posted on behalf of Henry E. Howell III:

    We have not met. My name is Henry Howell. I do not think that you are a shill for Dominion. In fact, given their funding, I am sure you work even harder to be balanced. Your perspective is thoughtful and informed. You work hard.

    With that said, Dominion has too much power throughout Virginia government. It has been bought for the benefit of stockholders while admittedly fulfilling a basic need expertly. VEPCO is a monopoly. Dominion owns VEPCO, VERY EXPENSIVE POWER COMPANY. A monopoly with the power to exclude competition and with its political power to fend off alternative competition such as net metering, needs regulation that involves no political contributions to any elected official and full authority of the SCC. The monopoly’s current dependence on fossil fuels is the product of years of loose regulation, abuse of political power, and a drive for profits.

    The Atlantic Coast Pipeline is an example of this flaw. Take ratepayers’ money that a monopoly of a basic necessity extracts and invest into transporting fracked-gas through a new pipeline that increases assets and produces greater profits than producing electricity. VEPCO naturally earned huge profits in the worst of times. A monopoly must be transparent. It only exists by virtue of the power of the people expressed through a democratically elected legislature.

    “All power is vested in the people, and therefore, derived from them.” Article I, Section 2, Virginia Constitution. Keep up the hard work needed to present facts. Hank

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