Step One: Reassure the oysters all is well.
In late December of last year, after a long debate pushed forward by President Donald Trump and covered on an almost hourly basis by the nation’s media, the Congress of the United States adopted a new tax code. On December 22 it was signed into law, to be effective January 1, 2018. On the business side the centerpiece was reducing the federal corporate income tax rate from 35 to 21 percent.
Almost two weeks after the law went into effect, on January 12, Dominion Energy Virginia filed paperwork with a federal agency and stated that it’s federal income tax rate for 2018 remained at 35 percent. This (let’s use a nice word) incorrect statement would result in the company being able to knowingly overcharge customers for 12 months by an estimated $71 million, and to keep that money for an additional 12 months before making a rate adjustment to compensate in late 2020.
If you or I make a known-to-be-false statement to a federal agency to obtain money to which we are not otherwise entitled, and which we know we will have to give back, the word for that is not nice at all. The FBI might show up on our doorstep. We might get to see how Martha Stewart decorated her former cell.
That two-digit tax rate was a key point of discussion Friday in a hearing at the State Corporation Commission on Dominion’s request for the higher rate adjustment clause, Rider T1, for transmission costs. The new transmission charge is the largest of many increases coming in several elements of your bills, as outlined in a story last week.
Dominion employees and lawyers argued that it was correct for them to use the old tax rate when plugging factors into a formula used to determine what customers pay for transmission. Dominion pointed to a stakeholder process it uses to reach out to customers about changes to elements of that complicated formula. It holds those meetings in September and has a self-imposed deadline of December 18 to settle on all the elements before making the January filing.
“Any changes should have been agreed upon by December 18” said a Dominion witness. “There was not enough time.”
There was not enough time to strike out the number 35 and insert the number 21 and recalculate the formula, which was not used to make a rate application with the SCC until May? For a decision not due until July or August? Dominion’s legal position Friday was the formula did not ask for its actual tax rate, but for the tax rate which it had discussed with stakeholders four months earlier. Any change to it in the meantime could not be corrected for another entire year.
One lawyer for consumers asked: Did the witness think any of the customers would object to a formula change that would lower their future cost? “I would not want to speculate as to what position customers might or might not have taken.” That produced some laughter in the room.
In response to another set of questions the witness could not point to anything in the guiding documents preventing an amendment to the formula. The witness did stress that the protocol called for an “annual” adjustment, and if the calculation was adjusted more than once it would no longer be annual.
The witness and Dominion lawyers kept pointing to language in state law that allows it to fully recover from customers whatever is charged to it by the Federal Energy Regulatory Commission (FERC) or by the PJM regional transmission organization. In fact, the legislators explicitly stated that those charges are deemed to be reasonable and prudent and cannot be challenged by the SCC. But Dominion determined those rates itself by plugging in the false tax figure. FERC approves the formula, not the rate – Dominion calculates the rates using the formula – and the formula asks for the current tax rate.
Don’t worry, the Dominion folks assured the hearing officer. Yes, customers will be charged too much from this September until September 2019 (unless the Commission says no), but the excess dollars will be tracked and will become a credit on the account when the “true-up” process for that 12-month period becomes part of the discussion in the summer of 2020. FERC directs an interest payment of 3.5 percent or so on over payments.
(If somebody is struggling to pay their bill in the first place, and puts it on a credit card or takes a consumer loan, is 3.5 percent the rate they will pay? If a large customer didn’t give Dominion those dollars, might it do a little better with it than 3.5 percent? What will Dominion earn on in over two years?)
It also came out in this hearing that the figure in question is almost $120 million, not $71 million, since the current Rider T1 rate also reflects the old tax rate. The $46 million excess recovery for taxes for the first eight months of 2018 (January to August) will also be held by the company for another year, to become part of the calculation for next summer’s case. The $71 million covers the subsequent 12 months until August 2019.
The state’s other major utility, Appalachian Power, made no complaints about too little time and is adjusting its transmission rider to correspond to the lower taxes, with FERC’s blessing. Adjustments to account for the lower tax rate have been made in other 2018 Dominion rider cases and will be made to its base rates. One 2017 Dominion case that was closing down as Congress acted was re-opened by the SCC so an adjustment could be made. Yet in this instance DEV stands firm – using the defunct tax rate was mandatory.
Perhaps somebody just thought up this clever argument and decided to try it. Perhaps a favorable ruling on this opens a door for some other plan. Don’t be surprised if an adverse SCC ruling on this point has DEV back before the General Assembly in 2019 tweaking the statute. When Dominion and the General Assembly get together, a favorite Lewis Carroll poem comes to mind:
A loaf of bread,’ the Walrus said,
Is what we chiefly need
Pepper and vinegar besides
Are very good indeed —
Now if you’re ready, Oysters dear,
We can begin to feed.’