by Steve Haner

Dominion Energy Virginia’s customers still owe it $1.26 billion for fuel they have already used, as of the end of June.  The utility is going to give us either seven or ten years to pay off that debt, but at a total cost of over $1.54 billion if we take seven years or almost $1.7 billion if we take the full decade.

The difference, of course, is interest, a return on investment (profit) for the lender, almost $300 million on the seven year plan or $400 million on the ten year plan.  And that initial $1.26 billion already includes some interest.  It was clear from the beginning that extending this debt out like a credit card balance would produce a profit for the lender.

Now it turns out that the lender may actually be the utility itself, or its parent company, and the interest may accrue to its stockholders.  Once bonds are authorized, however, they could start to change hands like any other investment.  The utility collects what it is owed right away (no risk there.)

The State Corporation Commission will decide whether this debt should be converted into long-term bonds and decide between seven or ten years for the payback period.  The SCC could say no and order the costs paid off over a shorter time frame.

The politicians who approved this plan to kick the cost down the road, to be imposed only after the next election, are assuming voters will mainly just notice the short term reduction in their bills.  Without the deferral, the fuel cost portion of the monthly Dominion bill would have shot up effective this month.  The fact that is decreasing instead is already being touted in political messaging.

They are probably correct that the average customer will not know, and thus not care, that in 2033 they will still be paying (with accumulated interest) for natural gas or uranium purchased and used in 2021 and 2022.  It will not be the same set of customers.  People or companies not yet in Virginia will be paying, and those who leave Dominion service escape the debt.

With recent regulatory filings at the State Corporation Commission, the impact of the 2023 legislation that was advertised as so strongly pro-consumer is growing clearer.   The application to convert the fuel debt into a bond is one case filed July 3.  On the same day, Dominion filed its massive application for a review of its operations for 2021 and 2022, and a request to set its base rates for 2023 and 2024.   It is seeking no change in those base rates, up or down.

This is the application directed by the 2023 legislation and that law settled one of the key questions normally decided by the SCC.  The allowed profit margin for the period will be 9.7%, an increase from the period before.  The legislation also settled another issue usually in dispute before the commission, the capital structure of the company.  That will increase to 52% equity rather than the previous 50% equity.

It is equity funding that qualifies for that 9.7% profit margin.  Move the needle on equity versus debt for a project like the $10 billion offshore wind farm over 30 years and more money moves from the customers to the stockholders.

So the SCC cannot make those decisions on return on equity and the equity percentage.  But let the politicians continue to claim that the bill they passed increased the SCC’s autonomy and authority.

Dominion’s take on its own accounting for the 24 month period ending December 2022 is that it earned a profit margin of just over 9%, within the target range set by the SCC in the previous rate review.  The SCC and other interested parties will get their own chance to pick apart those books, and often they find different results.  They might end up claiming Dominion earned excess profits for the period.

So where are we on the issue of “bill relief”?

There were two parts of the 2023 legislation that allowed Dominion and the bill’s backers to claim it delivered immediate bill relief.  The first was the deferral of the unpaid debt on fuel costs, and that actually costs consumers more over time, not less.  The second “bill relief” element involved a decision by Dominion to suspend collection of three of its many standing rate adjustment clauses, or riders, which are in addition to the base rates under consideration in this case.

Beginning this month, the annual capital and operating costs of three power plants which had been recovered by riders are now included in base rates.  Those base rates are not changing, however.  The base rates are absorbing that additional $350 million in costs ($700 million over two years), the higher allowed profit margin of 9.7%, and the general economic inflation throughout the utility’s other operating costs.

Does that not raise a question as to whether those base rates for 2021-22, not needing to cover those costs, might have been excessive?  The coming accounting process should answer that question.  With all those new costs now rolled in, of course, there is no chance the SCC could decide a reduction in those base rates is now in order.

Preventing a reduction in base rates and minimizing any possible customer refunds has been the overriding theme of years of Dominion’s legislative maneuverings to control the outcomes at the SCC, to prevent a finding that its rates were excessive.  This time, it may actually have provided a benefit to its customers to get to that goal, by eliminating those three standalone bill charges.

But remember, in exchange for that the General Assembly and Governor Glenn Youngkin (R) gave the utility 1) the first-ever profit margin dictated by state law (an increased one to boot);  2) an increase in its allowed equity percentage; and 3) a chance to extract $30 to 40 million in interest income per year over ten years on the unpaid fuel debt.

So give this Zen applause, the sound of one hand clapping.