No Simple Answers on the Electricity Rate Freeze

Muddy water -- still waiting for an impartial analysis of the rate freeze issue.

Murky waters — Virginia still waiting for an impartial analysis of the electricity rate freeze.

Former Attorney General Ken Cuccinelli joined state Sen. J. Chapman Petersen, D-Fairfax City, down at the General Assembly yesterday to put pressure on Governor Terry McAuliffe to resurrect Petersen’s bill that would roll back a rate freeze on Dominion Virginia Power and Appalachian Power.

Petersen summarized the argument in a nutshell: “In reality, it was a refund freeze.” The 2015 legislation, enacted in response to the Obama administration’s announcement of the Clean Power Plan, he artgued, locked in place excess profits that amounted in 2015 to $300 million for Dominion and $36 million for Apco. With the election of President Trump, it appears that the Clean Power Plan is a dead letter, and the justification for the rate freeze no longer exists.

According to Robert Zullo’s reporting in the Richmond Times-Dispatch, Dominion responded that the rate freeze has worked for consumers. Electricity rates are lower now than they were two years ago. Reversing the 2015 legislative deal also would un-do provisions that provided $57 million on weatherization programs for veterans and poor people, and a commitment to renewable energy that has produced nearly $1 billion in new solar energy projects.

Petersen’s bill was defeated in the Senate, but it could be revived if McAuliffe sends it back for reconsideration. The Governor has told him that he would do so if, in Petersen’s words, the senator came back to him with a plan to change the outcome from the previous bill. Describing himself as David fighting Goliath, Petersen said “I’ve done everything I could do.”

Bacon’s bottom line: It’s hard for the public to know who has the stronger case. Bits and pieces of information are floating around — each side citing the facts that supports its outcome — but no one has assembled them in a coherent format. Here are some of the key elements.

  • Refund of excess profits. Cuccinelli cites a State Corporation Commission staff finding that Dominion earned $300 million in excess profits before the freeze was enacted. In the absence of a freeze, the commission might have ruled that Dominion had to provide a refund. (Ditto for Apco which is said to have had $36 million in excess profits.) But Dominion and Apco undoubtedly would have disputed the numbers, and there is no way to know what the three commissioners would have decided.
  • Excess profits going forward. If Dominion and Apco had been charging too much before 2015, it is possible that they have been charging too much since then. Again, there is no way to know because under the terms of the legislative deal, the SCC suspended its biennial rate reviews until 2020.
  • Costs of coal ash clean-up. Dominion has said that it has eaten nearly $300 million in expenses relating to the clean-up of coal ash, an issue that was not widely known or discussed during the 2015 legislative session. There are more clean-up costs to come, and if environmentalists are successful in pressing demands to recycle and landfill the ash instead of disposing of it on site, the tab could run into the billions of dollars.
  • Clean Power Plan risk. In 2015 it was not clear how much it would cost Virginia utilities to live up to the CO2 reduction mandates in the Clean Power Plan. The SCC staff said the new rules could push electric rates 20% higher, although no one could say for sure because no one knew which of four main regulatory options Virginia would pursue. Environmentalists were pushing hard for the option that would have delivered the biggest CO2 cutbacks and also would have caused the most dramatic restructuring of power production and the electric grid. It’s not clear how big those costs would be, how much Dominion and Apco would have absorbed, or how much they could have deferred until after the rate freeze. Cuccinelli and Petersen assert that many of those costs could have been passed along to rate payers by means of Fuel Adjustment Clauses, which were not frozen, and, therefore, the utilities really weren’t taking  on any meaningful risk.

Both sides make plausible arguments. Indeed, one might say that both sides are right…. as far as they go. What we have yet to see, however, is an impartial analysis that clearly explains all the costs, benefits and risks.