A State Corporation Commission hearing examiner has rejected Dominion Energy Virginia’s arguments that it was correct to ignore a lower federal income tax rate in calculating transmission costs for 2018 and is recommending that the full commission give ratepayers the benefit of the lower tax rate immediately.
Chief Hearing Examiner Deborah V. Ellenberg’s ruling was issued July 9, following a June 29 hearing where Dominion employees said it had to use the 35 percent tax rate in calculating bills running into 2019, even though the federal corporate income tax rate had dropped to 21 percent effective January 1 of this year. This was the subject of an earlier Bacon’s Rebellion post.
At issue is the rate adjustment clause (RAC) known at Rider T1, which passes along to customers the utility’s cost for transmission services. It is one of several elements on monthly bills and the utility was seeking a substantial increase. Dominion had put the higher monthly cost for a residential customer using 1,000 kilowatt hours at more than $4, with higher amounts hitting larger customers.
At the hearing Dominion argued that the T1 rate is driven by a formula approved by the Federal Energy Regulatory Commission (FERC) that includes as a factor the base federal rate, and it had to plug in the higher previous tax rate because it hadn’t consulted with stakeholders since the tax rate had changed. Consumer advocates at the hearing said there was no prohibition on correcting the rates based on the new tax rate. The hearing officer agreed.
“I find it disappointing that the Company has taken the position that the revenue requirement should include a 35% federal income tax rate that is no longer in effect rather than incorporate the significantly lower tax rate made effective even before the Company made its informational filing with the FERC in January 2018, and well before it filed this Application in May 2018,” she wrote. “It could, and should have, like other utilities, revised its annual filing to include the known and certain tax rate change. I recommend the Commission direct the Company to file a corrected annual filing with FERC effective January 1, 2018.”
The RAC tariff in question is due to be adjusted September 1 and stay in place 12 months. Ellenberg suggested that the full commission adjust the new rate to reflect the lower taxes, saving consumers $71 million during the period. She also suggested an additional reduction of $46 million to reflect the lower tax liability during the first eight months of 2018. Dominion was arguing that consumers would have to wait until the true-up process in future cases to see rates adjusted to reflect the lower tax rates.
Ellenberg ruled against Dominion on a second point, involving a $13 million credit being paid to Dominion by the regional transmission organization PJM. Dominion argued that payment was for generation services at its Yorktown plant, which is staying open longer than planned. Ellenberg agreed with the SCC staff, the Attorney General and other consumer advocates that the payment was for transmission services and should reduce the revenue requirement for Rider T1. The cost of operating Yorktown is fully recovered in base rates and the fuel charge.
If the full commission adopts her recommendations, Dominion’s request for $755 million for Rider T1 over the next 12 months will be reduced to $625 million, which is about the same as was approved a year ago. That wipes out the 20 percent increase requested by the utility, with any increase in transmission costs being balanced by the lower taxes.
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