Dominion Open to Ending Rate Freeze

Mark O. Webb

Take surplus revenue and invest it in modernizing the electric grid, the Richmond utility proposes.

Dominion Virginia Energy has proposed ending a controversial freeze in base electric rates and plow surplus revenues owed to rate payers into modernizing the electric grid.

“We believe it is time to transition away from the rate freeze as the outlines of state carbon regulation have become more clear and the need and the opportunity to reinvest in grid transformation becomes more pressing,” said Mark Webb, senior vice president for corporate affairs, in remarks made during a hearing of the Commission on Electric Utility Regulation.

None of the commission members seemed surprised by Dominion’s dramatic shift, which it aired publicly for the first time, nor did they have any questions. Dominion’s presentations were orchestrated with comments made by Technology Secretary Karen Jackson, who emphasized the need to bolster the grid against cyber-security attacks, and a representative of the Edison Electric Institute, who discussed how grid modernization sped the restoration of electric surface this year after Hurricanes Harvey and Irma.

In a separate presentation, Kimberly B. Pate, director of the division of utility accounting at the State Corporation Commission, noted that a reduction in the corporate tax rate from 35% to 20% embedded in Congressional tax legislation would reduce the tax liability of Dominion by $165 million and Appalachian Power Co. by $80 million. If the freeze in electric rates were still in effect, she said, the tax savings would flow straight to shareholders rather than rate payers.

Dominion pushed for the rate freeze in 2015 after the Obama administration had proposed its Clean Power Plan designed to electric utilities’ reduce carbon-dioxide emissions as part of the U.S. commitment to combat global warming. No one at the time knew what impact the regulations would have, but the SCC warned that the regulations potentially could cost Virginia rate payers billions of dollars. Since the Trump administration declared its intention to scrap the Clean Power Plan, critics have charged that the freeze would allow Dominion to keep potentially hundreds of millions of dollars of excess earnings instead of rebating them to rate holders, as it would without the freeze. Dominion officials have conceded that the company has generated excess revenue but contended that it faced other potential liabilities, such as storm damages and coal-ash disposal costs, and that the excess revenue could easily turn to a shortfall.

In endorsing an end to the freeze, Dominion positioned the rollback as a way to finance modernization of the electric grid.

“As you have heard today, there are new challenges to our ability to keep the lights on in the form of cyber threats, physical security threats, and super storms,” Webb said. “We need to modernize and transform the grid to know immediately when your power is out or even about to go out, and where to deploy our crews to restore power. We can, with the right investments, come ever closer to our goal of power that is always on.”

He continued:

Under any regulatory construct there will be years with excess earnings due to favorable weather, the absence of severe storms, economic growth, and business efficiencies. In this respect, forecasts of utility earnings are similar to forecasts of the state budget. Some years, forecasts may prove too optimistic, in others too pessimistic. The General Assembly may wish to consider a reinvestment model, where in years when there are such excess earnings, they are reinvested in modernizing and transforming the electricity grid, similar to how the Commonwealth sets guidelines for use of a budget surplus.

While the excess revenues would not be returned directly to rate payers under the proposal, Webb told Bacon’s Rebellion, rate payers would benefit indirectly: Dominion would not need to recoup the investment through a Rate Adjustment Clause, the usual mechanism for passing on the cost of capital investments to rate payers.

In addition to better managing power outages, Webb said that a modernized grid would facilitate the two-way flow of electricity in the distribution system that would make it easier to integrate increased production from solar energy.

Chris Eisenbrey, senior director of business continuity for the Edison Electric Institute, described the benefits of grid modernization for Florida Power & Light and CenterPoint Energy in Houston. Since 20016 FP&L has invested $3 billion in a stronger, smarter more resilient grid, he said. The utility estimates that the ability to identify problems, turn devices on and off remotely, and efficiently allocate its linemen and other resources saved its customers 40 million outage minutes.

Jackson, Virginia’s secretary of technology, said that the threat of cyber sabotage has evolved from teenager hackers in their basements to state actors with vast resources. She quoted an estimate that China had 100,000 people employed in its cyber-espionage division. Russia, Iran, and North Korea have thousands more. If a foreign power wants to launch a cyber-attack on the United States, the electric grid is a primary target. “Electric power companies are in an unenviable position,” she said.

“Our goal is to come ever closer to always keeping the lights on, and to dramatically reduce the time required to restore power outages,” Webb said. “Through investments in new technology, careful planning, and grid modernization we can keep the lights on to a degree unimaginable even a decade ago.”

No one responded to the Dominion proposal at the hearing. “It’s hard to react to something that is just a shadow of a hint with zero details,” said Stephen Haner, a lobbyist representing the Virginia Poverty Law Center (and a contributor to this blog). “Are they talking $1 billion or $5 billion? Paid for over three years or ten years or twenty years? What [Return on Investment] are they looking for?  What will be the long term impact on operating costs? Details matter a lot.”

Speaking generally, he favors the idea of modernizing the electric grid that saves money and manpower, Haner said. “I think the ratepayers and the SCC will be very supportive of moving in that direction.”

But he has reservations. “At one point I think Mark Web said they have to end the freeze in order to undertake the grid modernization and that is just laughable,” Haner said. “They only have to end the freeze if they are going to try to charge us more … in base rates, or they want to eliminate the legal authority of the SCC to order refunds or reduce rates. I doubt I will like their first draft.”

When asked to explain the change in policy regarding the rate freeze, Katherine Bond, senior policy adviser for dominion, acknowledged that Dominion has been heavily criticized for the freeze. “We’re active listeners,” she said.

Update: Senate Majority Leader Thomas K. Norment, Jr., R-James City, said he was “a little perplexed” by Dominion’s proposal, reports the Richmond Times-Dispatch. “I don’t think we’re going to be moving in that direction at a rapid pace,” said Norment, who chairs the utility restructuring commission. The T-D article provides other useful background not found in my blog post.

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10 responses to “Dominion Open to Ending Rate Freeze”

  1. LarrytheG Avatar

    Like Steve – I’d need to see a lot more specifics especially what exactly needs to be done to the grid… how much it will cost … etc..

    Somehow – “grid modernization” sounds a like of “affordable tuition”.. has a good sound to it … but Dom needs to actually say how the current grid is deficient and what needs to be done.

    I also note that they just released their Coal Ash disposal study .. which has some big dollar numbers and I wonder if Virginia’s would want that money to go to clean up coal ash first?

  2. Steve Haner Avatar
    Steve Haner

    You left out my observation that they could just proceed with grid investments without needing legislative permission because they are “fat with cash.” 🙂

    Here is Haner’s bottom line: We all want these decisions hashed out in front of a panel of independent judges, advised by staff experts, dealing with sworn testimony, and not by elected officials who lack that staff and who look out and see voters, special interests and campaign contributors looking back. The SCC exists for a very good reason, and for years now the one common theme that has tied every Dominion effort together is: weaken or even eliminate the SCC’s authority and autonomy and move the decisions over to the political arena. Things they want are designated “in the public interest” in the bill text, or the SCC is directed to use certain favorable accounting methods that depart from normal regulatory accounting rules, and then come 2015 they just shoved the SCC out of the picture.

    Yes, coal ash needs to be dealt with and yes, grid modernization has potential benefits. But grid modernization should ultimately LOWER operating costs, its advocates tout a positive cost-benefit ratio, and those benefits should not flow only to Dominion’s stockholders. The company deserves to recover its reasonable and prudent costs plus a fair profit, not an excessive profit. Who sorts all that out and keeps consumers in mind? The SCC is our best hope. There may finally be more recognition of that in the legislature.

  3. LarrytheG Avatar

    There has been a distinct change of attitude with legislators with respect to the proper role of regulators both in Virginia and at the national level – motivated by Conservatives and like-minded organizations like ALEC.

    Do regulators, in addition to enforcing the law as written – develop interpretative policy that is supposed to be the nuts and bolt of what the approved law “intended” to be “implemented”?

    The SCC is just one of many regulators… such as the EPA, FCC, OSHA, FDA , etc that Conservatives see as having become too “independent” and essentially making more/different “law” than just carrying out what the law “intended”.

    I’m not agreeing with it.. I’m trying to understand why we’re seeing ..more and more… legislators unhappy with the regulators and “taking back” some of the authority that had been delegated because… Dems tend to actually empower regulators to interpret legislation more “liberally” than Conservatives agree with. This has actually been the motivation for a lot
    of lawsuits that challenge regulators.. and if they lose in court – they go back to the legislators to change the law and neuter the regulators.

    Conservatives will tell you that they’re pretty sure the Founding Fathers did not create regulators.. and certainly not allocate that authority to the Executive….

    Make any sense?

    1. Steve Haner Avatar
      Steve Haner

      The world and the economy have changed a bit since 1787, Larry. The SCC is a court, operates like a court, the three people who decide cases are basically state judges, and they are bound to the evidence and the law and the precedents, and can be appealed to the Supreme Court. The Virginia SCC is not known for making its own policy as it goes along, and in fact the more common complaint is they stick too close to the black letter of the Code. Yes, two of them have long legal careers working with utilities and one of them actually worked for Dominion. One worked for a previous House Speaker. But I honestly think they go onto the court because they want to be fair and are not looking out for the next job (unless it is to move to a higher court).

      Legislators want to be fair, too, but they do not have the expertise, they are not bound by the same ethics rules as judges, and even the best of them have a hard time voting against big campaign donors. The legislative process makes real deliberation hard. Perhaps only the state budget gets the kind of time and scrutiny that a big SCC case gets. In the period after the Civil War, as public service corporations like the railroads and pipelines deeply corrupted the legislative process, these independent public service commissions were the response. Having the General Assembly take over rate making decisions makes about as much sense as having it start conducting murder trials.

  4. As Steve says we need SCC to advise us. It’s just getting into La-La land, we were never told the real reasons why Dominion wanted the rate freeze (if I recall Steve had a good theory) and we are not being told the real reason why the want to get rid of it, although obviously the proposed tax law changes may indeed make the rate freeze appear way too unfair, and Dominion also needs to prepare for political changes as Virginia shifts from Purple to Violet or Eggplant Purple (darker shades of purple according to Wikipedia).

  5. LarrytheG Avatar

    serious question here… devil’s advocate type:

    why do you trust the SCC to do what is right?

    they’re just ordinary people .. like many others.. some are actually industry folks.. some might be lobbyists in their prior life.

    Isn’t the SCC the very embodiment of unelected faceless bureaucrats deciding what is best for you no matter what you think?

    At least you can throw out legislators that don’t fairly represent you, eh?

    In fact, according to some folks – it’s the regulators who have totally screwed up our economy… even our health care…

  6. CleanAir&Water Avatar

    They say ”the best defense is a good offense” …. And I would bet that is what Dominion is up to by making this move to protect the excess earning they have taken home over the past few years.

    ‘Grid modernization’ are the buzz words coming out of this hurricane season. Well and good, but as Steve says we need the details. Will Dominion’s proposed upgrades increase customer choice, expand renewables and distributed generation integration, and improve resilience?

    Trust them or not, those changes will require an operating SCC; one that chooses to do its job and employ the power to oversee our utilities that it was designed by law to do, or a legislature that comprehends the fact that our utilities are at an important crossroads and we need to create new rules that will promote change in the industry before Virginia falls further behind. We ARE falling behind.

    We were sold a bill of goods about how much the Clean Power Plan was going to cost in VA. Replacing 40-50 years old generators is not a cost in the sense it was portrayed. Replacing that old generation was due, but now so is acknowledging a future of flat or declining grid demand brought about by increased energy intensity through efficiency and by on-site as well as community centered generation.

    Take a look around Virginia … and write a future for everyone, not one based on Dominion’s idea of how to save their monopoly.

  7. LarrytheG Avatar

    yep – I’m with the camp that says Dominion has not found “religion” but is just doing what they always do – tracking in the direction that is best for them.

    I need to see a real plan from them. If they can pay big money to generate a document hundreds of pages thick for all the options to deal with coal ash – I’d like to see a similar effort tooth and nail of what grid modernization is, it’s costs, and timelines.

  8. TBill has it right, there must be more to this story.

    Dominion says, “We need to modernize and transform the grid to know immediately when your power is out or even about to go out, and where to deploy our crews to restore power. We can, with the right investments, come ever closer to our goal of power that is always on.” Wait, what about the Grid needs modernization? That first sentence talks about the distribution network, which is those low voltage wires down local streets and their associated substations. Yes , it would be nice to have sensors all over the distribution system giving remote feedback on conditions. Funny thing, that’s technology that’s been around for decades. The old way was to map the phone calls from customers reporting lights-out and you could tell from the pattern of calls what distribution facilities had to be affected. Most urban utilities have moved way beyond that; but maybe that’s how Dominion still does it given its large rural service area. Is this “modernization” something that’s unexpectedly arisen? In any event is this a huge investment? Not so clear.

    And then there’s the other reason cited: “In addition to better managing power outages, Webb said that a modernized grid would facilitate the two-way flow of electricity in the distribution system that would make it easier to integrate increased production from solar energy.” Now consider this a moment. Transformers work in both directions already; the principal thing that needs modernizing is the switchgear and breakers in those substations. It probably won’t be replaced but rearranged, unless the real goal is to upgrade their capability along the way, which isn’t really because of customer generation but serves the more straightforward goal of handling load growth. Speaking of which, just how much customer-owned solar, down on the low voltage distribution system, is VA Power handling these days? Again, is two way flow the real goal of this “modernization”, or simply a hefty rebuild to boost investment?

    And then there’s the transmission part of the grid. Transmission: those big steel structures marching across the countryside in cleared rights-of-way, now that’s a real Grid for you! But these days, transmission planning is coordinated throughout the PJM region by PJM. If the utility wants to build more transmission, the State has to approve the siting but the FERC regulates the rate and resolves any dispute over the planning justification for it. Transmission lines and substations can involve big bucks! But this has nothing whatsoever to do with VA Power’s retail rate freeze in Virginia. Transmission investment is federal-regulated and not included in the rates regulated by the SCC.

    So what does all this talk of “grid modernization” have to do with ending Virginia’s retail base-rate freeze (excluding, of course, all those rate riders for new generation investment, fuel price changes, etc.)? Darned little. So why did Dominion feel the need to make excuses for ending the rate freeze? Maybe it’s just the best face they could put on the inevitable.

  9. Steve Haner Avatar
    Steve Haner

    Acbar – it is all about finding yet another excuse to prevent the one outcome they will not abide – an actual reduction in their base rates. Since the very first discussion about this eleven years ago, in public and in private, it has been clear to me a base rate reduction would be anathema to them. In 2010 they forked out $726 million in rate credits to prevent it. So they will end the freeze as long as they remain in control, they get the GA’s permission to do whatever they want to do, and the SCC is unable to share the boodle with ratepayers….

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