Tag Archives: Stephen D. Haner

Most States Use Provider Tax for Medicaid

The pending proposed amendments to the stalled state budget bill, which almost broke the log jam earlier this week, did indeed include not one but two new provider assessments/fees/taxes (you pick the term) on Virginia private hospitals. When both chambers return next week with their “this time we’ll really do something” promises on the line, the fate of both should be determined.

The payments are interchangeably referred to as taxes, fees or assessments around the country. Virginia already imposes one on intermediate care facilities and only one state, Alaska, has avoided any use of this revenue method for Medicaid.

Based on my short research the federal government allows the states to use these “tax the provider to pay the provider” schemes on the whole range of providers, and most states do also tax nursing homes. Others tap pharmacies and managed care providers. There are good summaries here from the National Conference of State Legislatures and from Kaiser Family Foundation. The federal rules do limit just how much the state can tax and still pledge to recycle the money back, but these proposals stay under that limit.

The existing Virginia provider tax on intermediate care facilities raises about $13 million per year. The two new ones proposed for Virginia private hospitals would raise about $383 million in Fiscal Year 2020, the first full year of implementation.

Right between the two provider taxes in the list of proposed amendments there is another new provision calling on a joint legislative group to take another look at Virginia’s tobacco taxes, to see how to handle the new vape products and to see if changes should be made to the restrictions on local tobacco taxes. There is no reference to a health care funding angle as motivation for that. Perhaps there should be.

The provider tax approach to funding Medicaid has a long history. It was proposed and shot down under Governors Gerald Baliles and Douglas Wilder.  During this year’s debate I gave somebody my 26-year-old “No Sick Tax!” lapel pin.

The idea’s attraction is obvious. The hospital or other provider pays the state $1 dollar toward Medicaid expansion and the state uses that to draw down more than $9 from federal matching funds. The second $1 now proposed is collected for payment reimbursement rate increases, but that only draws down $1 additional from Washington’s coffers because that is under the cost share match formula for existing Medicaid programs.

Will those taxes, which appear to exceed 2 percent of gross patient revenue at the 70 hospitals involved, end up coming from individual patients or from their insurance carriers? Hospitals point out correctly that with the federal matching dollars they come out ahead, implying that there would be no need to pass on the cost. Hard guarantees are lacking. Clearly costs are being shifted around, but it seems unlikely they will shrink.

There is an interesting parallel with the proposal related to the Regional Greenhouse Gas Initiative, where people are being told to disregard the carbon tax which the power companies will pay and then get back. Won’t cost us a dime! One difference is the RGGI taxes don’t attract any match. Both ideas have me turning over walnut shells looking for the pea.

In 1992, when Wilder was pushing his own $68 million proposal, the Virginia hospitals led the opposition. “The health care groups say the Medicaid tax inevitably would get passed on to consumers through increased fees and insurance premiums,” was how John Harris of the Washington Post summarized their position. Wilder pushed back citing hospital profits and executive compensation.

The 1992 story also notes that Medicaid had grown from 5 percent to 13 percent of the General Fund budget in just five years. Where it is now and where it is going can be seen in this recent Senate Finance Committee staff slide. Another ten years and it is bumping up against 30 percent.

Call them an assessment or a tax these dollars will not be General Fund dollars and will not change that projection. That is another reason some legislators like the idea. The same Senate Finance Committee staff presentation stated as advantages of this approach:  “Eliminates need for GF support” and “Frees up all Medicaid expansion savings for investment in other budget areas.”

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Will Ghosts Haunt The Senate Today?

Hunter B. Andrews

If you listen very, very carefully you can hear it:  A double whirring sound.  It is the sound of the late state Senators Ed Willey and Hunter Andrews spinning in their graves.

Four decades ago as Finance Committee chairs they were responsible for establishing the independent authority of the Senate in the state budget process, which before their day was led by the House of Delegates with the House offering the only actual bills.  The Senate ended its subsidiary role by introducing its own bills to bring to the inevitable annual conference committee.

News broke late yesterday that the 2018 budget impasse may break later today, with the Senate expected to vote to discharge the Finance Committee and bring the House budget bill directly to the Senate floor for consideration.  There will still be Senate amendments offered and adopted, but in reality what will be offered is the final version – the result of an unofficial conference led by Senate Finance Co-chair Emmett Hanger and House Appropriations Committee Chair S. Chris Jones.

Also late yesterday it became obvious that the actual Senate amendments and some summaries were floating around, but initially I couldn’t find them.  They were not posted on the Senate Finance Committee web page.  I emailed a member of the Senate Finance staff and was politely directed to find them on (ahem) the House Appropriations Committee web page.   The Senate hasn’t even met yet but the full amendments are posted by the House.  That to me said it all.

Here is the summary if you’d like to go through it on your own.  I may follow up on the content after adoption but wanted to note this amazing turn of events.  If you are  watching the Senate this afternoon and  the voting board gets glitchy or paintings start falling to the floor, the names of the poltergeists responsible will be easy to guess.

Behavior Has Changed But Within Limits

Gifts per legislator. Source: Virginia Public Access Project

There are plenty of complaints these days that the legislative process is unduly influenced by money, but when the spotlight shines or a major scandal erupts, behavior can change. For example, Virginia legislators simply do not want to report that they have received gifts or attended lobbyist dinners, on public records which are available to their voters, the media and potential opponents.

How few actually do show up on 2018 reports is well-illustrated in the graphic above recently posted on the Virginia Public Access Project (click here for interactive features). Readers of Bacon’s Rebellion are probably already following VPAP as well, but if not this is worth a look.

Except for one very popular event, the annual Agribusiness Council Dinner, 91 of Virginia’s 140 legislators would have reported no gifts or meals at all. In many rural districts the political cost of skipping the Ag Dinner and not being seen by constituents attending would also be high. Yet 64 legislators missed that one, too, and avoided having to explain that $69.48 repast.

Several legislative offices have signs out front expressing a policy against accepting any gifts, even innocuous gifts such as a ball point pen or a box of candy or a calendar. That is growing but is not universal. It is the aversion to reporting gifts or entertainment that is becoming more widespread.

That report makes one think the place has really changed since the Bob McDonnell case, right? Not so fast. First note the data covers the period of the regular General Assembly session, from January 1 to Sine Die in March, not the whole year. As you can see with the full 2017 data here the totals tend to grow through the year, especially with paid trips to summer conferences. But there is no dispute that the number and value of reported gifts and meals is shrinking. For example look at the same report for 2012.

Second, remember that gifts or entertainment expenses of $50 or less do not trigger a reporting requirement. Lobbyists or organizations are keeping a closer eye on the cost of items, but $50 can still pay for some very nice gifts or meals.

Does it at least mean the days of the big restaurant dinners are over? Oh my no – and here is how they do it. It can be tracked on VPAP as well but it takes research. The $50 reporting trigger is interpreted to mean $50 per person per lobbying principal (client) paying the bill. If two clients for the same firm split the tab the trigger is $100 per person, and if three – well, you get the drift.

To confirm this is still the practice I easily found an example, but will not provide the details because I did not reach out to the major lobbying firm involved. I noted that one client reported a dinner on January 25, 2017 with 12 persons and a bill of $149 – well below the cost that would require naming the legislators. But by clicking down its full client list I found four more clients reporting a dinner for 12 at $149 on the same date.

Assuming the firm didn’t host five different dinners that night, the real bill was $745 for 12 people, or $62 per person.  That’s hardly lavish, but the intent to disclose the names of attendees has apparently been thwarted. They could stay on the list of those with no reportable gifts for 2017.

As VPAP helpfully explains: “Disclosure forms do not require clients to state clearly the average cost per person. Calculating the average cost per person may not be as simple as dividing the total cost by the number of people attending. Because the forms and instructions are unclear, the amount listed can represent either the total cost of the event, the amount spent on only the officials who attended or the average cost per person.”

It is silly and arbitrary to assume that somebody who accepts a $51 dinner has been compromised while somebody who skips dessert or drinks and spends $40 has not. Frankly neither has been compromised in my book. The real purpose of these dinners is to get the undivided attention of the legislators for a while – admittedly an advantage for that lobbyist and an edge on the competition. That is reason enough they should be fully reported.

If the costs of a dinner can be shared among multiple clients then the costs of other forms of entertainment or gifts could also be divided, seeking to keep the cost below $50 per client per recipient and keeping the recipient(s) off reports. I have not scoured the records to see if that happens, but nobody should have to.  The General Assembly needs to end this particular game.

Medicaid Can Cost Taxpayers Less than ACA Plans

Source: United Healthcare Group

One of the interesting tidbits gleaned from a presentation last week on the Medicaid expansion debate was that with expansion perhaps 60,000 Virginians now enrolled in Affordable Care Act Public Exchange plans will qualify for and switch over to Medicaid.

People who have low-enough incomes to qualify for Medicaid are also eligible for subsidies for an ACA exchange plan, so both programs are costing the taxpayers. A recent report indicated Medicaid is actually costing taxpayers less than ACA plans for that population.

UnitedHealthcare Group’s report noted – not a surprise – that Public Exchange coverage has proven to be more costly and less sustainable than envisioned (or promised). Since 2014 – the first year of Public Exchange coverage – the average annual unsubsidized premium for a benchmark silver plan has increased 88 percent for a 27-year-old and 76 percent for a 40-year-old.

The original projection was that it would reach 25 million persons by now, and in 2017 it was more like 10 million.  Recent actions at the federal level will keep that from rising much beyond 12 million.

Compare that to Medicaid, which has enrolled more than 16 million additional people nationally since 2013.  These figures are national, and Virginia would vary somewhat, but the estimated average cost for the newly eligible Medicaid enrollee has been $5,400 and the average total cost for Public Exchange coverage has been $9,400.   In the case of the Exchanges, of course, much of that is coming from the consumer’s pocket.

But the low-income Exchange adult enrollees – the persons who could switch with Medicaid expansion – pay only $2,400 out of pocket and their federal share is about $7,000. That is still higher than the cost of Medicaid, which is fully government funded (state and federal combined).

This may not matter much to the Virginia voters and legislators opposed to expansion.  The state taxpayer makes zero financial contribution to the ACA health plan subsidies, and is going to be paying a share of the cost for new Medicaid enrollees.  We should find out early this week if the state Senate has a consensus on the expansion issue.

UnitedHealthcare Group (UHG) is hardly a disinterested observer in this discussion. It provides managed care for Medicaid in various states, now including Virginia, and based on its website it participates in some ACA marketplaces.  If the company has an economic incentive to prefer one approach over the other, it is unlikely to admit that in these presentations.

But it does argue the billions planned for ACA subsidies would be better spent on Medicaid.  It is unsaid but true that the future of the ACA Public Exchanges is cloudy at best, while Medicaid isn’t going anywhere, with or without expansion.

Absent from this is any discussion of quality outcomes when comparing the ACA Public Exchange plans with Medicaid, although UHG does advocate for managed care in general as providing higher quality for lower cost.  And the cost of Medicaid is hardly expected to remain stagnant.  Also absent is any discussion of which is preferred by the providers getting paid under the two approaches.

A footnote in the UHG report takes you to the most recent (2016) actuarial report on Medicaid. It was projecting federal costs would grow almost 6 percent per year, but also reported that the costs for newly-eligible adults were dipping slightly and might dip below those already eligible.  As always the most expensive Medicaid populations were the aged ($14,323 per enrollee in 2015) and disabled ($19,478).

The audit noted most states that had opted for expansion were using managed care contracts to lower the costs.  That will be the case in Virginia, and the 2017 Annual Report on Medallion 3.0, Virginia’s managed care approach, gives you a good idea of the services available.  If this is a choice open to them the lower-income ACA covered population will probably make the change.  It seems a very easy economic choice for them.

(Hat tip: Doug Gray)

Grant Process Tightens at VEDP

Not His Best Day

Tomorrow Governor Ralph Northam travels to the coalfields for what is billed as a major economic development announcement, and steps have been taken so that four years from now he won’t cringe when shown the old photos.

For the past year the Virginia Economic Development Partnership (VEDP) has been doing additional due diligence on companies receiving discretionary incentives, and if there is a high enough level of perceived risk the incentives are paid only after performance.

The tighter policy was described by President and CEO Stephen Moret in a response to my earlier post about detailed performance measures on Virginia’s various incentive programs.  “With this new approach in place, Virginia may not win some projects that we previously would have won, but neither will we place taxpayer dollars at undue risk,” Moret wrote.

The agency and its practices were the subject of a scathing review by the Joint Legislative Audit and Review Commission after the embarrassing failure to launch of a major Chinese-owned project near Appomattox, announced with great fanfare by Governor Terrence McAuliffe.  The firm in that case had received $1.4 million from the state in advance, and two years later a newspaper reporter found obvious signs that should have warned the state it was possible fraud.   Apparently the same pitch was rejected by North Carolina.

Then Moret came in from Louisiana and the General Assembly weighed in with 2017 legislation.  Now Moret reports all applications are vetted by a Project Review and Credit Committee (PRACC).  Prior to the revelations there was no VEDP person assigned full time to administering incentive programs and now there are four – with the potential for more and the inclusion of somebody with commercial credit experience.  Somebody is held to account for each project’s compliance.  

 

“During my first year at VEDP (2017), I asked PRACC to begin producing both company risk ratings and incentive risk ratings for every project, as well as to shift substantially all incentive payments associated with moderate- or high-risk companies to occur after the Commonwealth has received at least as much new state tax revenue as the amount of a given incentive,” he wrote in providing details.  He stressed he is fully on board with the new system.

The early tax money from these projects often comes to the locality, which imposes property taxes on any new building, equipment or business personal property as soon as they enter service.

The state tax revenue tracked is basically two sources slower to kick in, the same two sources that Secretary Aubrey Layne recently complained are too dominant in the state budget – personal income taxes and sales tax.  So for the state to have received an amount equal to the grant, the company has to be well underway in meeting its hiring goals.  The state does add in a multiplier on the assumption that the new employees are spending money generating indirect taxes.  And the state does recognize the substantial sales and use taxes paid on construction materials and other assets.

“Sometimes this means an incentive will be provided only after a project is fully completed; other times it means that incentives are provided in tranches as milestones are achieved. Notably, for low-risk companies (e.g., a large, well-capitalized Fortune 500 firm), we typically propose to provide incentive funds early in the development of a project, as otherwise the impact of the proposed incentive on the company’s decision process would be substantially diluted by the company’s net present value discount rate that often is in the range of 8-10%.”

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Wait, A Second Hospital Tax?

For years a Virginia business policy group, the Thomas Jefferson Institute, has been pushing a Virginia tax reform proposal that would impose the sales and use tax on services.  The sales and use tax covers tangible goods, not (with a few exceptions) services.   Looking at the group’s 2015 report on the idea, imposing the sales tax on the broad medical and nursing home industries could generate close to $2 billion per year.

My memory went back to this idea while reading in the Richmond Times-Dispatch this morning that the hospital industry is indeed pushing again for a second “provider assessment” (read:  hospital tax) as part of the ongoing budget debate over Medicaid expansion.   The House of Delegates has included one new tax on hospital revenue to provide the state share of the cost of expanding Medicaid, and the hospitals want to tack on a second tax to increase their reimbursement rate for services.

The idea resurfaced in the Senate staff presentation Monday and then Senate Finance Committee discussions Tuesday.  The committee’s work on the overdue budget has now gone sub rosa for a while so there is no indication this “has legs”, as they say at the Capitol.

The two taxes combined would approach $400 million in 2020. That would be one of the largest tax streams flowing into state coffers, almost half the annual take of the corporate income tax and comparable to the insurance premium and recordation taxes.  The House version of the first provider tax is in effect a sum sufficient provision, meaning the tax will adjust up automatically if required to cover the state’s share of expansion (and the federal share will be shrinking.)

The infusion of major new federal revenue from Medicaid expansion to the hospitals now providing uncompensated care to that population may make it possible for them to absorb any new tax.  In theory the rest of us will be covering for less of that uncompensated care.  And the Thomas Jefferson Institute also helpfully tracks Virginia hospital profits, which grew last year, giving reason to hope customer costs or insurance premiums won’t rise because of the new tax.  The hospitals can eat it, right?  Have any such assurances been made?

But if this is just like every other tax and eventually somebody, somehow has to pay it, why not spread the burden across the entire health care sector by ending the medical sales tax exemption?  The same 1.4 percent tax rate now being proposed might do the trick.  New Medicaid patients will be visiting doctors, out-patient clinics, nursing homes and pharmacies and sending tests to labs.  Many will be in managed care systems – and we want then taking that approach.  If reimbursement rates are to go up, will they go up only for hospitals?  Why should only private hospital revenues be taxed?

Or what if we just ended the non-profit status of so many medical facilities and practices and just taxed their property and profits like any other business?  What if we doubled Virginia’s famously low tobacco products taxes, raising another $170 million for dealing with the health-care consequences of that poisonous habit?

The “third rail” status of the whole idea among most Republicans – including most Republican legislators – has forced this discussion off a rational plane and into a perpetual posturing zone.   A serious tax policy discussion of how to pay for this and what the impact would be on customer costs might or might not end up with these “provider assessments” as the right choice, but there has been no debate.

Wonk Corner:  Briefing on Medicaid Expansion

You have to read the footnotes:  The state estimates that should Virginia approve an expansion of Medicaid to an additional 300,000 low income persons, about 60,000 people now covered by individual ACA plans will revert to Medicaid.

That snippet is buried in a presentation made yesterday to the Senate Finance Committee by its staff, which is a great introduction for the non-experts among us.   Whether and how to expand Medicaid is, of course, the main sticking point which has prevented adoption of a state budget.

And by agreeing to a new hospital tax to provide the state’s share of the cost of expansion, the House of Delegates was able to authorize more spending than the Senate in several other key areas of the budget – all politically popular with somebody, creating a minefield of sticking points.

The hospital tax actually will reduce by 40 percent the financial benefit of Medicaid expansion to many of the hospitals serving that population, and the staff report notes that some hospital leaders are pushing a higher tax in order to increase their fees for Medicaid services to 88 percent of their costs.

The staff’s short list of advantages and disadvantages to the hospital tax fails to even raise the possibility that one way or another ultimate costs to consumers will rise further.  This is a new tax, a tax on a service.  It will be imposed on private hospital revenue from all sources – private pay, Medicare, ACA plans, major insurance carriers or the myriad other choices consumers use.  The tax is not imposed on other providers who will treat these newly-covered patients.

The staff also went through a list of conditions and variations to the traditional Medicaid coverage that Virginia might consider to control costs.   The House of Delegates has opted for a work or job training requirement.  One other option is creating health savings accounts. Right, somebody working in a fast food restaurant has the cash flow to fund an HSA.  Please.

As you will note on slide 15, the Senate has voted to expand Medicaid as well, but with a very limited new caseload.  Majorities in both chambers are on record supporting benefits to people at 138 percent of the federal poverty level, up from 100 percent.

The expectation is that the Senate Finance committee will hash all this out this week and have something to present to the full Senate by May 22.  It is possible unofficial discussions on the final compromise are already going on between some of the leaders in both chambers, but no official conference committee can be named until the Senate actually acts on a full budget.

Revenue Surge May Be Fake News

May 1 is the deadline for Virginia personal income tax returns, but more than 700 very high income Virginia taxpayers skipped the deadline.  As long as they have paid enough tax to cover their liability, they can wait as late as November 1 to file an actual return.

That is one the facts stressed by Virginia Finance Secretary Aubrey Layne today as he reported on Virginia’s potential $400+ million revenue surplus for the fiscal year which ends next month, with an audience full of legislators eager to find revenue to solve their problems.

Problems such as the hundreds of millions of dollars separating the House and Senate versions of the unresolved state budget, also due by the end of next month.   The decisions over Medicaid expansion account for most – but not all – of the differences.  And problems such as the state’s dangerously low revenue reserve, discussed further below.

Layne knows that the state is seeing a sudden surge in revenue, but most of it is coming from taxpayers who make quarterly payments – not the working folks who have dollars withheld from paychecks.  A few hundred high income individuals or couples could account for much of the surge but their payments may be only temporary.  Given the uncertainty over federal tax reform, many of them probably simply paid much larger amounts – and much of that money could be refunded in a few months once the rules are better understood.

It may depend on whether and how Virginia adjusts its tax code in response to the recent federal changes, as I discussed earlier.  Layne said today that if Virginia stands pat on the current rules with no changes, the windfall in revenue could be (still just an estimate) $300 to $500 million.  Nobody in the meeting – neither Layne nor any committee member – piped up with any promise to make things revenue neutral.   Layne did indicate the Northam Administration might not want to keep it all.

Layne’s presentation was first on the agenda as the Senate Finance Committee finally restarted the process of considering the House’s second version of the budget.  The co-chairs, Senators Thomas Norment and Emmett Hanger, stressed early and often that there is still time to get a budget done without doing harm to the operation or reputation of the state and its localities.  The full Senate is not set to return until May 22.

The Secretary’s less cheerful news included this:  Virginia remains one of 16 states which have not seen revenue (adjusted for inflation) return to their pre-recession peak.  Virginia was less than one percent off the peak as of the fourth quarter of 2017, and other states were worse, but that is still a sobering situation in the second longest financial recovery on record.   Layne lays much of the blame for the state’s excessive reliance on personal income taxes (70 percent) and the retail sales tax (18 percent) for the General Fund.   If you set aside the surge in non-withholding revenue, the other sources are slightly above the original estimates – but not to the point that it shows sustainable economic strength.

The state is closely following the Supreme Court’s South Dakota vs. Wayfair case over taxing internet sales, and Layne stated a decision in favor of South Dakota in late June could also produce $280 to $300 million for Virginia.  But the Supreme Court could also kick the issue back to Congress.

And once again he was sharing grim information about Virginia’s comparison with other AAA rated states.  See the chart below.  Virginia’s Constitution allows for a reserve of up to 15 percent of GF revenue but would like to muster 4 percent to calm the rating agencies.   Do not bet the rent money on that happening anytime soon.   Norment spent some of the meeting chastising the news media for feeding concerns about the health of the state’s bond rating, but the final few pages of Layne’s slide show (start on page 19) are all you need to see.

Hospital Tax (No, Assessment!) Central to Budget Dispute At Special Session

I doubt many not directly involved in the ongoing struggle over Medicaid expansion in Virginia have actually read the budget language that is the heart of the argument.  So I have set it out below in full.  This is language included in the House version but previously rejected by the Senate, creating more than $300 million of the revenue discrepancy between the two plans.  The Senate Finance Committee considers it again Monday.

There is the major policy debate over whether Virginia should do as Congress allowed and expand service to hundreds of thousands of additional people. (I think it should.)  Then there is the argument over whether to try to squeeze the state cost share out of existing state revenue, or to create a new revenue source – which the Governor and the House have done with this language.  Set those aside for a second.

The third debate is procedural, because traditionally a new tax would be created by its own bill and enshrined as a general law, and not buried inside the budget bill. Keeping revenue issues out of the budget is a practice which has been ignored in the past, especially for fees, but on previous occasions any tax changes were formatted within the budget as amendments to Title 58. The big showdown in 2004 ended with two separate bills – the budget and an omnibus tax bill.

Creating an entirely new $226 million per year revenue stream with a budget provision is unprecedented.   As you can read for yourself the level of spending going forward may increase the tax rate in future years, without any Assembly action. The final paragraph vests discretionary authority with a federal agency, something else you seldom see in Acts of the Assembly.

Here is the text as it stands right now:

§ 3-5.20 PROVIDER ASSESSMENT

A. Private acute care hospitals operating in Virginia shall pay an assessment beginning on October 1, 2018. The definition of private acute care hospitals shall exclude public hospitals, freestanding psychiatric and rehabilitation hospitals, children’s hospitals, long stay hospitals, long-term acute care hospitals and critical access hospitals. The assessment shall be used to cover the full costs of the non-federal share of enhanced Medicaid coverage for newly eligible individuals pursuant to 42 U.S.C. § 1396d(y)(1)[2010] of the federal Patient Protection and Affordable Care Act.

B.1. The Department of Medical Assistance Services (DMAS) shall calculate each hospital’s “assessment” annually by multiplying the “assessment percentage” times “net patient service revenue” as defined below.

2. The “assessment percentage” shall be calculated as (i) 1.08 times the non-federal share of the “full cost of expanded Medicaid coverage” for newly eligible individuals under the Patient Protection and Affordable Care Act (42 U.S.C. § 1396d(y)(1)[2010]) divided by (ii) the total “net patient service revenue” for hospitals subject to the assessment. By June 1, 2018, DMAS shall report the estimated assessment payments by hospital and all assessment percentage calculations for the upcoming fiscal year to the Director, Department of Planning and Budget and Chairmen of the House Appropriations and Senate Finance Committees.

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Only A Brief Romance After All

The key to Dominion Energy’s successful efforts in the 2018 General Assembly was an alliance with the major environmental advocacy groups who saw several of their key goals achieved by the massive bill:  promises of more wind and solar generation and massive spending of ratepayer funds on energy efficiency programs, coupled with weaker cost-benefit requirements for those programs.

It was the environmental groups that brought substantial Democratic votes and the support of the Governor’s Office to the Dominion team.   The environmental advocates dominated the list of supporters highlighted in the final committee meetings (see above.)  As has been noted on Bacon’s Rebellion before, the major environmental groups give far more financial support to some Virginia politicians than do the utilities.

But the partnership didn’t hold as Dominion sought State Corporation Commission approval of a 100 percent renewable energy tariff, rejected by the SCC earlier this week.  Customers who want 100 percent renewable power (or want to claim that is what they are using, given who knows where each electron flows from) are currently free to seek a competitive supplier.  Many do.  The only way Dominion can drive the competition out of its territory is to create its own approved green tariff.

Years ago the General Assembly authorized an exception to the utility monopoly for any customer seeking 100 percent renewable power, unless or until the utilities came up with their own way to provide it.  It has proven to be a challenge.

The SCC rejected Dominion’s latest proposal after a hearing examiner found it really wasn’t a tariff but merely a formula for calculating a price based on several variables that would fluctuate.  It was not a fixed price, nor was it a predictable price, so how could the SCC rule it was a fair price?  (The term of art is just and reasonable.)  Should the SCC approve a formula that produced an unreasonable price, nobody would actually seek 100 percent renewable service – clearly not the General Assembly’s goal.

The other major problem:  Lacking its own green power, much of the renewable power would be bought from third-party providers or through PJM, and Dominion sought to layer on its own profit margin – the same margin in fact as is allowed for investments of its own capital.

The flaws in the proposal were gleefully highlighted by many of the same environmental activists and competitive energy companies who showed up on the supporter list for House Bill 1558.

“At its core this case is about retaining competition to provide a specific type of renewable energy in Virginia,” wrote attorney Will Cleveland of the Southern Environmental Law Center, on behalf of a coalition of environmental advocacy groups.  “If the Commission approves tariffs in this case, the competition for 100 percent renewable energy disappears, and participating customers with over one megawatt peak demand can no longer shop.”

Elsewhere in the same document:  “(T)he CRG Rate Schedules do not contain a rate, but instead they contain a formula for a rate with many key unknowns. The Company plans to base the inputs for several of these unknowns on internally-developed forecasts, which will not be subject to Commission oversight or review.  As a result, the ultimate rate produced by the CRG Rate Schedules may be higher than market prices depending upon the accuracy of the Company’s forecasts.”

Opposition also came from the existing third-party providers who are now able to compete with – and beat – Dominion.  These of course also make a profit on their business, but surely material gain could not be their motive!   In its final comments Direct Energy focused on the hearing examiner’s finding that the proposed profit margin was “inconsistent with traditional ratemaking principles because a utility makes no up-front investment in a (power purchase agreement) justifying a return to compensate investors for the cost of their capital.”

The SCC agreed with them and they stay in business in Dominion’s territory.  Dominion is free to compete with them, and has already done special contracts with companies like Amazon and Microsoft for Virginia-based facilities – but the operative word is “compete.”

Virginia’s other major investor-owned utility is advancing its own proposal at the SCC, and the case is in its earlier stages.  I’m still feeling my way in this minefield, but its proposed Rider WWS (Wind, Water and Sunlight) seems very different than Dominion’s, and seems to produce a more predictable price based on the market value of renewable energy credits (RECs) from its own assets.  Wal-Mart Stores and one other entity have already provided opposing comments, but the environmental groups have not weighed in yet.  Getting that camel’s nose of competition back out of the tent?  Not so easy.