Beats a Poke in the Eye with a Sharp Stick

Critics are furious that Dominion Energy Virginia and Appalachian Power Co. won’t be returning all of their excess profits to rate payers, but this year Virginians will enjoy modest rate reductions nonetheless.

First, the two power companies will return savings made possible by the federal 2017 Tax Cuts and Jobs Act tax reductions — $125 million from Dominion and $50 million from Apco, the State Corporation Commission (SCC) announced yesterday. The rate cut will be effective July 1.

Second, Dominion will issue a one-time $133 million refund to customers, also effective July 1, in accordance with the state’s Grid Transformation and Security Act of 2018. Dominion will issue a one-time, $67 million refund next year.

Although no authoritative accounting has been done, the refunds are likely to fall considerably short of what Dominion earned in excess of normally allowable earnings during the three years of the 2015 rate freeze. Instead, under the new law, Dominion will reinvest its over-earnings in renewable energy projects and upgrades to the electric grid.

Bacon’s bottom line: The Grid Transformation Act was highly controversial and hotly contested. I hope it’s somebody’s job to track the costs and benefits of the legislation. Here at a minimum is what the public needs to know: (1) What are the over-earnings each year, and how will Dominion invest them? (2) What is the expected payback of those projects, either in lower costs, greener energy, or improved reliability? and (3) what is the actual payback of those investments?

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17 responses to “Beats a Poke in the Eye with a Sharp Stick

  1. 1) Absent a full SCC review you will never know the full financial results of the utility operations in Virginia, and we are years away from the next one. There are some years that won’t be covered. How much of a utility profit represents “over earnings” depends on what the specific target is set for return on equity, which the utility always disputes. One way to read the bill just passed is that there will not be any over earnings at all, by definition, because just about any investments made by the utilities going forward become an effective subtraction against net income.

    2) The expected “payback” of every project is basically laid out in the SCC process for approval, and in an unbiased process the SCC only approves those where the benefits are clear and worth the cost. Some complain that the SCC doesn’t recognize environmental benefits or energy efficiency in its process, but I expect the utility will be highlighting them in their filings anyway. Give some credence to what they file with the SCC under oath, but less credence to PR blather.

    3) Once built, the utility continues to report on the operating results of its various assets. For those that are paid for directly by rate adjustment clauses there are follow-up reviews to be sure the RAC amount is correct and it can be adjusted up or down by the SCC. I hope the SCC will also demand verifiable data on grid performance, outages, etc – all these wonderful benefits promised by the advocates for the 2018 Dominion bill.

    Beyond this, as to re-arguing the bill, I pass for the time being. In a few years we’ll know what the Assembly did for/to us. We can compare our rates to other states. It’s the GA’s process now. They broke it, and they own it. Will the voters care?

  2. I’m not understanding why this money is not going to take care of the coal ash problem. That would take care of all the back and forth as well as probably satisfy most critics.

  3. Coal ash costs were part of the justification offered by DE, but that was a weak argument from the get-go.

    Steve, yau say, “in a few years.” There are a lot of sections in Title 56 giving the VSCC investigative authority and the ability to demand special reports. I’m not familiar with the words in this year’s Act that tie the SCC’s investigative hands and prevent them ordering a full annual review or refunds, but I’m betting the SCC nevertheless could require DVP to report everything required to lay out its financials, embarrass and shame the utility before next year, when the Democrats likely will expand their reach in the GA and can do something about the GA’s overreach this year. It seems to me it’s a question of the SCC’s political guts to try such a manuver.

  4. Whatever credit or blame accrues to legislators for this year’s result, it is fully bipartisan. The House Democrats did band together for the key vote on removing the double recovery on certain investments, but it was a single glorious moment and overall the majority in both caucuses in both chambers and the administration were fully on board. The proud minority that didn’t buy into the bill was also bipartisan.

    Any Republican attacked for his or her vote will simply point to all the Democrats who voted the same way, and vice versa. Any newcomer Democrat who seeks to run as anti-Dominion will be met with far more skepticism.

    There will be opportunities before the next rate case in 2021 for the SCC to report on financial results in general, and perhaps it will be as frank as it was this past September when it projected massive over-earnings based on then-current rates. But the real economic impact will take longer to measure, and frankly only a long term measurement is fair. There will be a downward blip in rates because of the tax changes and the small rebates – just in time for the 2019 election! – but from there I expect a steady creep higher for operating rates (ex fuel costs) and company profits.

    • Steve – well stated, but the WaPo will easily be able to distinguish between Republicans and Democrats who voted the same way (either way) on the Dominion issues.

      It’s a real shame that Jeff Bezos didn’t spend $250 M to create a media outlet to challenge the Post and tell the stories that the editors there prohibit from publishing.

  5. Also I continue to be amazed that a Dem. like Dick Saslaw would take credit for the Grid Transformation Act as a “landmark piece of legislation” on his website, praising its support for undergrounding, and its backing by the NRDC and League of Conservation Voters. As you say, no point in “rearguing” that bill, but if the GA is going to do all the regulating in place of the SCC, how to get them better informed? Why did the NRDC and LCV abandon the SCC on this?

  6. re: “weak argument for using money for coal ash cleanup”

    Really?

    We’ve got this expensive liability to deal with – and a good amount of the
    money needed to do it – has already been collected and is available.

    Why is this a “weak” argument?

    Most folks would readily accept the use of the excess profits for this purpose rather than some of the bogus “ideas” being promoted by Dominion .

    We have an unfunded liability and we have a way to fund it. It’s a win-win.

    Someone needs to explain why this is not a good idea….

    • No, no, I don’t disagree with using the money for that, what I’m saying is, they claimed they would and the legislation doesn’t in fact make any such commitment — on the contrary it guts the Commission’s ability even to find out how much they ought to refund, let alone to spend on coal ash restoration if that’s your priority. It was a weak argument because they didn’t actually do anything about coal ash in the bill; all that talk about grid upgrades was equally bogus.

      • Thanks Acbar. Clearly Dominion is driving the bus on the “profits” and cleaning up the Coal Ash is not on their mind or anyone in the GA.

        And it’s probably beyond the SCC’s ability..it probably would take action from the GA to direct it.

        It’s just a perfect opportunity to get it done and get the issue behind us.

        • On dealing with the ash, I’m sure Dominion will comply with any valid order from EPA or DEQ or a court of record, or any state law which is more stringent. I believe its position is the steps it is now taking meet the current requirements (not sure if they’ve dealt with all the sites yet, but they claim to have spent hundreds of millions to date.) I don’t know why it should exceed those regulatory dictates just because you or some other advocate believes the current steps to be insufficient.

          • re: ” but they claim to have spent hundreds of millions to date.) I don’t know why it should exceed those regulatory dictates just because you or some other advocate believes the current steps to be insufficient.”

            so two questions:

            1. How can they have already spent hundreds of millions without SCC approval ? Where did those hundreds of millions come from if not ratepayers?

            2. It appears to me that Dominion is opposed to doing what most other states have decided is the right way to proceed. Dominion is opposed to any cleanup at all right now as far as I can tell.

            Can you tell me what Dominion has agreed with and wants to move forward on? I bet not.

  7. Jim this is in your article, but I want to point out that the July 1 rate adjustments due to the tax law changes are just that, rate adjustments that will permanently lower base rates, and customers will benefit until those rates get raised again, which may be never. Also, there will be a second rate adjustment in 2019 to ensure that all the tax cuts go to reduce rates.

    The other Commission order sets up two, one-time refunds, the first for $133 million on July 1 and the second for $67 million on January 1, 2019. Both are one time events.

    And as for Larry’s question as to why these funds aren’t going to coal ash remediation, the new law mandates these dispersals, they are not discretionary.

    • I will concede that point – given they are currently excessive, I doubt the base rates will rise in the near future. But a hurricane of new or increased rate adjustment clauses is just over the horizon. We get to pay for them, too.

  8. re: ” the new law mandates these dispersals, they are not discretionary”

    Can you expand on this? what law? what dispersals?

    Is there some law that requires coal ash cleanup or am I off track here?

    • The 2018 legislation that started this thread directs the utilities to make these refunds to the ratepayers, about $200 million total for Dominion and a big fat $10 million for APCo. Of course Dominion wrote the bill….

      Define “clean up.” Again, I have not followed the coal ash discussions closely but my understanding is that following the leaks down in North Carolina Dominion has gone through a permitting process with DEQ and is taking steps to prevent similar leaks from its storage facilities. They were ponds and and I think they are getting rid of the water, then covering (encapsulating) them to to keep out rainwater. The DEQ checked off on the plan – leaving many unhappy, but it was approved. They are NOT digging up the pits and moving the ash to other landfill locations (may be in some places) and they are NOT moving forward with any efforts to recycle the ash for other uses. There is no law or regulatory or court edict in place that requires those steps.

      The SCC does not have to check off in advance on every expenditure by the utility to comply with existing environmental laws or regs, which is what Dominion is apparently doing. And yes I assume it was all funds provided by ratepayers.

  9. The amounts DVP agreed to pay back in customer credits in exchange for the end of the “rate freeze” are included in Senate Bill 966. These are what the SCC entered orders about which Jim is writing in this column, Larry. That same bill (SB 966) obligated both DVP and Apco to reduce rates to reflect their tax savings from the federal Tax Cuts and Jobs Act. Is that clear enough?

    And Steve is right–the SCC does not manage the utilities it regulates and does not control their spending other than as required by law.

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