by Steve Haner
With adjournment less than a week away, the 2023 General Assembly is a mixed bag for electricity consumers, with the Assembly seeming to release control to regulators in some areas but continuing to assert its tight control in others.
Dominion Energy Virginia’s legislation to sweeten its authorized profit margin, which will not lower customer bills despite claims in its advertising blitz, passed the Senate but remains in trouble in the Virginia House of Delegates. A key House committee voted late last week to stick with a version of the bill that leaves the return on equity formula unchanged.
Dominion had lowered its ambitions in the version that passed the Senate, now seeking to enhance its rate of return on equity only through December of 2027. Even five years of a higher profit margin, however, wipes out any financial benefit from the company’s proposal to move $350 million dollars of rate adjustment changes (RACs) into its base rates.
A recent SCC staff estimate was that five years of enhanced profit would cost ratepayers an additional $1.2 billion. It also confirmed that the accounting change with the RACs, simply moving the charges from one part of the monthly bill to another, may not save the ratepayers anything. Its real effect could be to prevent $350 million in customer refunds.
The House version removes all the provisions dealing with the return on equity and eliminates language allowing a long, drawn out repayment for past fuel cost increases, also potentially expensive to consumers. Democrats continue to oppose that version because it contains language giving the SCC more power to keep fossil fuel plants operating. Their commitment to SCC independence has its limits.
It is possible that no compromise is reached and neither bill passes by Saturday’s adjournment. That would not be a bad outcome for consumers.
Other legislation that is favorable to consumers is poised for passage, although not all the final votes are taken. The most important are matching House and Senate bills that restore State Corporation Commission authority to set rates in future cases without some of the handcuffs imposed by previous General Assembly actions.
House Bill 1604 might have passed the Senate last week, having cleared a Senate Committee with bipartisan support. But it was delayed for consideration until this week, perhaps because the Senate version of the same bill is not quite as far along. Senate Bill 1321 has seen similar bipartisan support in committee and will be on the House floor this week, as well.
In previous years, the SCC was prohibited from lowering the utility’s base rates unless it could prove the company had earned excess profits for at least two consecutive cycles. The SCC was also told it could not lower rates more than $50 million per year, far less than was justified by the company’s excess profits. Those restrictions are gone for the future if these bills pass.
Another effort to strengthen the SCC’s independence was offered only on the House side. House Bill 2267 remains pending for the final meeting of Senate Commerce and Labor Committee Monday afternoon. It passed the House 99-0, but that may not be enough to carry it past that Senate committee, friendlier to Dominion. The change it proposes involves those stand-alone rate adjustment clauses (RACs) and lets the SCC decide when to use them for new projects rather than base rates.
Dominion has proposed two bills dealing with its offshore wind project which are advancing without any headwinds. Senate Bill 1477 is now pending on the House floor after a unanimous endorsement by the House Commerce and Energy Committee. It lays the groundwork for Dominion to recruit a capital partner on the $10 billion (or more) project or perhaps on a second wave of turbines in the same place.
The second, Senate Bill 1441, is another strong indication that the second wave is still under consideration. Returning to the old ways of the Assembly dictating outcomes to the SCC, it seeks to direct commission acceptance of an offshore wind project if it is tied to development of a wind turbine manufacturing facility in Virginia. Representatives of Siemens Gamesa have testified to their interest in such a plant in Portsmouth, which would create far more jobs than the facility it already plans to assemble turbines built overseas.
Also advancing without significant opposition is a change in the ratemaking rules for the state’s second largest utility, Appalachian Power Company, serving Western Virginia. Should it pass, there will be major differences in how its rates are reviewed and its customers are charged, with the vast majority of its existing, stand-alone rate adjustment charges folded into base rates.
It passes, and Dominion and Appalachian will be operating under different regulatory structures. Once again, Virginia may be doing something for its monopoly utilities no other state has done.
The companion versions of the Appalachian bill, Senate Bill 1075 and House Bill 1777, have been amended over the weeks but have remained identical or nearly so. There is no House versus Senate conflict, perhaps because Appalachian quickly distanced itself from Dominion’s push to change the return on equity formula. Appalachian will remain under the peer group calculation of its allowed profit margin as it has been in place for 15 years.
The big difference for Appalachian is the SCC is now directed to set rates that give the utility that profit and adjust its forward rates to compensate if the utility fails to make that profit. Under traditional ratemaking the rates are set to create the opportunity to earn a profit, but nothing is promised.
This remains another example of the Assembly making the rules rather than trusting Virginia’s independent regulators. So far it has been a session of steps forward and steps backward on the issue of SCC independence. The final tally probably can’t be known until Governor Glenn Youngkin (R) gets his opportunity to veto or amend whatever bills reach his desk.
First published this afternoon by the Thomas Jefferson Institute for Public Policy.
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