by James A. Bacon
I’m still trying to figure out the legislative deal that Dominion has struck with the General Assembly. The grand bargain moving through the legislature freezes base rates for five years and requires the utility, not customers, to bear the risk of power plant closures due to federal carbon regulations. The bill has accumulated a lot of extraneous ornamentation — rate cuts reflecting lower fuel costs, promises to build more solar power, assistance to low-income families to weatherize their homes — but the main piece is the rate freeze.
The bargain responds to new Environmental Protection Agency rules regulating carbon dioxide as a pollutant, which, if carried out, would shut down several of Dominion’s coal and oil fuel plants. According to a State Corporation Commission (SCC) staff report, the changes could cost Dominion Virginia Power customers between $5 billion to $6 billion. The same rules would impose tremendous costs on customers of Appalachian Power Co. as well.
On the face of it, the legislation looks like a good deal to Virginia electricity rate payers. They get to lock down low electric rates for five years, while Dominion absorbs the financial risk of power plants shutting down. During that time, the SCC would audit Dominion’s books but not engage in rate setting.
But is it a really good deal for rate payers? I don’t know. I have questions for which I have seen no answers in the press accounts I have read.
First question: How real is the threat of power-plant shutdowns in the next five years? For all I know, the threat may be very real. But, then, maybe, given the glacial pace at which the EPA moves, and the ability of Dominion (and other electric utilities) to stall through lobbying and lawsuits, perhaps Dominion has reasonable expectations of fending off the shutdowns during that time-frame. Similarly, Dominion could be taking a calculated gamble that, if the power-plant shutdowns can be delayed two years, a Republican will be occupying the White House in 2017. A Republican president likely would reverse the EPA regulations through executive action just as the current occupant imposed it through executive action.
Of one thing we can be sure, Dominion can better assess its risks than Virginia’s politicians can. There is a dramatic asymmetry of information. Dominion has access to legions of lobbyists, lawyers, engineers, accountants and energy economists who keep the top brass fully informed of the risks and rewards associated with every action. Virginia’s lawmakers can draw upon the expertise of the SCC, but even the SCC doesn’t have access to all the information that Dominion does — and there’s no assurance that lawmakers would appreciate the significance of that information anyway. One thing we can reasonably assume: Dominion would not back the legislation working its way through the General Assembly unless it were advantageous to Dominion.
Second question: What happens if power plants get shut down after five years? While the rate freeze would end in 2020, the next rate review for Dominion would not be held until 2023, reports the Richmond Times-Dispatch, which quotes Edward Petrini with Virginia Committee for Fair Utility Rates as saying that effectively means Dominion is getting an eight-year rate freeze. But Dominion would absorb the financial risk of power-plant shut-downs for only five years. Could the costs of shutdowns in years six through eight be dumped onto rate payers?
Third question: What would likely happen to electric rates in the absence of a freeze? Would they head up or down? It makes no sense for Dominion to take on added risk unless it benefits from a freeze in base rates. This logic implies that Dominion expects that base rates would decline over the short run in the absence of a freeze. (Over the longer-term, rates assuredly will rise as non-compliant power plants are phased out.) How much will a freeze on base rates benefit Dominion? We don’t know. Is that amount, whatever it is, reasonable compensation for Dominion’s extra risk? We don’t know.
These are all basic questions to which lawmakers should know the answers. Alas, if they do, they haven’t seen fit to inform the public, and Dominion’s Keep Rates Low web page doesn’t address the issues. I don’t share the knee-jerk antipathy to Dominion that many pundits have — the utility has done a good job of ensuring reliable, low cost power — but I also have no illusions that Dominion is doing anything other than looking out for Number One. I find it inconceivable that Dominion would voluntarily (a) agree to a rate freeze that lowers revenue and profits, (b) take on the financial risk of power-plant shutdowns, and (c) make costly commitments to build solar power and weatherize homes. Something doesn’t add up.
I’m not saying that the legislation is a bad deal for the public — I’m saying the public doesn’t understand the deal. We don’t know if it’s a good deal or not. Lawmakers are buying a pig in a poke.
