Dominion Wants To Rewrite Its Own Rules Again

by Steve Haner

First published today by the Thomas Jefferson Institute for Public Policy.

The headlines in the coming General Assembly may be captured by fights over abortion and taxes, but the deepest reach into your pockets will involve your energy bills. The state’s dominant electric utility appears to once again be seeking to amend Virginia’s regulatory and ratemaking process to its benefit.

A draft bill circulating among energy issue observers, not officially identified yet as Dominion Energy Virginia’s handiwork, would drastically change the rules on consumer choice, the process for determining utility profit margins, and the treatment of any excess profits beyond those allowed returns on equity. The changes are likely to increase the monopoly’s hold on the market and its profits.

A provision would also reverse a major element of the 2020 Virginia Clean Economy Act by eliminating the mandate to close all remaining fossil fuel plants by the 2040s. Instead, the State Corporation Commission would have to approve proposed closures after reviewing their impact on system reliability. Much will probably be made of nearby Duke Energy’s unprecedented brownouts last month as its solar assets proved worthless during bitter winter nights.

Rumors have circulated for weeks that Dominion has a major bill in the works, with two people who met with them to discuss the effort confirming that to me. One tied the effort to the company’s recently announced top-to-bottom review of its operations to improve “shareholder value.”

There will be many other bills, but two deserve mention in this analysis.

The draft presumed to be Dominion’s effort makes no mention of the small modular nuclear reactor technology which Governor Glenn Youngkin (R) wants the state to pursue. A separate bill on that topic is expected, one that so far has not been leaked. The Governor’s nuclear aspirations may be compatible with the utility’s plans to rewire the regulatory process and could be incorporated into one bill.

Also, a news conference has been called for Tuesday by four legislators, three Democrats and a Republican, to announce their so-called Affordable Energy Act. “This bipartisan bill seeks to address rising energy bills in Virginia and customer overcharges from electric utilities by restoring regulatory authority to the State Corporation Commission,” an advisory states.

Their bill reasserting traditional SCC autonomy over rates and profit margins is totally incompatible with the utility’s approach; it is simple, short and clear. The utility draft is long, complex and obscure. If a real debate is allowed to materialize, the contrast between them could be useful, and legislators will face a real choice if both bills advance.

In his 2021 campaign and in his 2022 energy plan document, Youngkin has made controlling consumer cost, increasing choice and competition, and returning SCC authority his stated goals. Much of this Dominion draft moves in the other direction.

It does return both Dominion and Appalachian Power Company, serving Western Virginia, to two-year rate review schedules, something in the Governor’s energy plan. Dominion would have to file its next case later this year, reviewing the expenses and profits from 2021 and 2022.

It also calls for some of the rate adjustment clauses, now separate bill elements tied to specific purposes or power plants, to be rolled into the base rates. Youngkin also called for that. But the SCC is still directed to consider each activity independently, without regard to costs and profits elsewhere in its operation, so it is a meaningless change. The SCC’s hands remain tied in a way they are not under true “cost of service” regulation.

The bill maintains what is called the return on equity (ROE) collar. Dominion’s current authorized ROE is 9.35%, but it really is allowed another 50 basis points and can earn 9.85% before being deemed to have earned excess profits. Excess profits are then divided 70% to customers and 30% to the company.

This bill going forward raises that collar by 70 basis points and the authorized ROE would really be 10.05%, probably an important milestone for Wall Street analysts. And, as noted, that is 10.05% plus 30% of any excess.

But the change that may provide the greatest benefit to the company, and cost to consumers, involves the language guaranteeing that the profit margin will be set equal to or higher than the authorized profit margins at “peer” utilities. Unique in the industry when created in 2007, at least the peer comparison standard gave the SCC some leeway in choosing the members of the peer group. That discretion is taken away in this draft.

This is the most obscure element in the draft, but it is likely to produce a higher ROE over time. Dominion, worried as it is about its reputation with investors, isn’t going to propose a method that would produce a lower ROE ceiling. Which is also why it will reject the proposal from the four legislators which gives the decision back to the SCC.

Should the new peer comparison process produce an ROE floor above 10%, remember there is still that 70 basis point collar allowing the utility to make and keep even more, plus its claim on 30% of every dollar earned above that.

The return on equity is a percentage of the company’s capital invested in its assets, and they get it every year. The more stockholder funds it uses to build things, the more profit it can keep. An additional 1% annual ROE on the $10-$14 billion Coastal Virginia Offshore Wind project, for example, will add up to more cost to consumers for that energy. In its recent approval of the project the SCC stressed that it doubles the company’s rate base subject to ROE.

It will be interesting to see how all this is pitched as good for consumers, and who helps with the messaging.


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Comments

41 responses to “Dominion Wants To Rewrite Its Own Rules Again”

  1. Dick Hall-Sizemore Avatar
    Dick Hall-Sizemore

    Again, I express appreciation for your explaining a complex subject in terms that even I can understand.

    1. Fred Woerhle Avatar
      Fred Woerhle

      Yes, well-done. Dominion’s excessive power also seems like a good reason to ban Dominion from making campaign contributions, as a bill by Sen. Chap Petersen would do.

      1. energyNOW_Fan Avatar
        energyNOW_Fan

        We should be able to elect Dominion CEO since he runs the state.

  2. James Kiser Avatar
    James Kiser

    I smell hedge funds led by ?

  3. Let the consumer pick the desired energy production source and pay that rate. Simple

    1. Stephen Haner Avatar
      Stephen Haner

      Too many would pick coal or natural gas. 🙂

      1. Which speaks volumes………

          1. Randy Huffman Avatar
            Randy Huffman

            In the article, which was dated 2019 when Trump was still President:

            “A majority of voters support markets instead of mandates, favor electricity choice/competition options, and want their state to be identified as a national leader in clean energy development. To increase clean energy production, by 70%, voters preferred approaches that allow markets and business to provide more clean energy production compared to implementing government mandates and quotas.”

            So it supports increasing use of clean Energy, NOT mandates, and certainly never said anything about closing down all fossil fuel plants. This article supports what KLS said in the beginning.

          2. Randy Huffman Avatar
            Randy Huffman

            In the article, which was dated 2019 when Trump was still President:

            “A majority of voters support markets instead of mandates, favor electricity choice/competition options, and want their state to be identified as a national leader in clean energy development. To increase clean energy production, by 70%, voters preferred approaches that allow markets and business to provide more clean energy production compared to implementing government mandates and quotas.”

            So it supports increasing use of clean Energy, NOT mandates, and certainly never said anything about closing down all fossil fuel plants. This article supports what KLS said in the beginning.

    2. energyNOW_Fan Avatar
      energyNOW_Fan

      Pennsylvania has that choice but they have cheap on-shore wind, which we could get too but we do not want to go that way. I must say it is very confusing in PA there are so many choices, and they all seem to be about the same cost. I have to help my mother who is 94 and it is too many choices for an elderly person to grasp. There are sales people in grocery stores trying to get you to switch their plan. I think if I lived there I would be more comfortable with the system. But I think they need a new job-category of public service employees: energy social workers.

    1. energyNOW_Fan Avatar
      energyNOW_Fan

      Give that map back to me in number of customers…

      1. LarrytheG Avatar
        LarrytheG

        Dom has about 2.5 million, more than half, but there still is a bunch of us who are not
        directly affected by Dominion (or so we think).

        1. Stephen Haner Avatar
          Stephen Haner

          Lucky co-op customers won’t be paying for the wind farm! 🙂

          1. LarrytheG Avatar
            LarrytheG

            I dunno how that works because most Co-ops don’t own any of their own generation, they buy it and I
            thought some of it from Dominion.

            Dominion has ALWAYS played hardball on their monopoly, investors and profit. This goes way back
            over the years to include not paying back excess profits, not giving back tax rebates, and making a “profit” on cleaning up coal ash. Everything they touch, they want to make a profit on.

        2. f/k/a_tmtfairfax Avatar
          f/k/a_tmtfairfax

          We get electricity from Wake Electric Membership Corp. It raised rates for residential customers on January 1 from 10.7 cents per kWh to 11 cents. According to the Company, it’s the first increase since 2015.

          The Duke Energy Progress residential rate in Raleigh is 11.815¢ per kWh in November through June and 12.316¢ per kWh from July through October. I don’t know what, if any, riders are on the Duke bill.

          1. LarrytheG Avatar
            LarrytheG

            so you’re getting power from a co-op?

          2. f/k/a_tmtfairfax Avatar
            f/k/a_tmtfairfax

            Yes sir. Some residents of the Town of Wake Forest get electricity from the Town. I think it’s the older areas. The rest of us get it from Wake Electric Membership Corp.

            I think the rest of Wake County gets its electricity from Duke Energy Progress.

      2. how_it_works Avatar
        how_it_works

        You can be sure that wherever Dominion yellow is on that map, are the lowest cost to serve, highest density customers.

        1. LarrytheG Avatar
          LarrytheG

          but how do their rates compare to these other utilities?

          And are these other utilities and co-opts affected by what happens to DOminion?

          1. killerhertz Avatar
            killerhertz

            I have NOVEC and I’m fairly happy with their service and rate. We pay ~11.34 cents/kWh for service and distribution in Fauquier.

        2. energyNOW_Fan Avatar
          energyNOW_Fan

          …or what was the highest density back in the day it was portioned out.

          1. how_it_works Avatar
            how_it_works

            I’ve heard that Dominion (back when it was Virginia Power) wanted to buy the service territory of NOVEC’s predecessor, Tri-County Electric Co-op. Dominion thought that they could get it cheap, because Tri-County was having some financial difficulties. Tri-County decided instead to merge with Prince William Electric Co-op. The merged co-op became NOVEC.

          2. LarrytheG Avatar
            LarrytheG

            Do you know how NOVEC rates compare to Dom?

          3. how_it_works Avatar
            how_it_works

            2 years ago I was paying 12 cents per kwh.

            More recently it has gone up to 14 cents per kwh.

            This does not take into account the capital credit refunds that NOVEC issues every year.

  4. Nancy Naive Avatar
    Nancy Naive

    Whatever happened to the “benevolent monopoly “? Where is Ma Bell?

    Thanks Steve, good reporting on rates and the machiavellian moves of Dominion. I anxiously await my next rate increase. I’ll repeat “you get what you pay for” over and over until I believe it.

    (D)ominion NYSE
    Forward Dividend & Yield 2.67 (4.35%)

  5. Stephen Haner Avatar
    Stephen Haner

    I get pushback through Thomas Jefferson Institute, too. Just got an email from a Dominion stockholder upset that the earnings per share have been flat for five years. At least she is honest about the purpose of this bill!!! 🙂

    1. f/k/a_tmtfairfax Avatar
      f/k/a_tmtfairfax

      So, why not start a campaign to toss Dominion’s current executives? If they were any good, they could run the company to make higher profits and provide better service without significant rate increases.

      1. LarrytheG Avatar
        LarrytheG

        you want the govt do that?

        1. f/k/a_tmtfairfax Avatar
          f/k/a_tmtfairfax

          No, the shareowners who aren’t happy with the dividends should consider pressuring the biggest shareowners to push to clean house.

          1. Stephen Haner Avatar
            Stephen Haner

            Do we blame Blue for this? Was Farrell a better CEO? I do think that is a subtext to this. Farrell was certainly a hard act to follow. I own stock thru an ETF but not voting shares. 🙂

    2. Dick Hall-Sizemore Avatar
      Dick Hall-Sizemore

      She should be happy with being flat, as opposed to being volatile.

      1. Nancy Naive Avatar
        Nancy Naive

        Flat in this year’s market is a skyrocket.

  6. Teddy007 Avatar

    Lowering the costs by fiat almost never works.

  7. AlH - Deckplates Avatar
    AlH – Deckplates

    We should anticipate the rewriting of the requirements and a continued push to provide more requirements with more funding to those who make electricity and manage the grid. They will not tire of it, as our legislators and general public will. Mandates raise costs.

    It sounds like many of the proposals going forth will transfer more control and more money, per unit of electricity, to Dominion. Why is ROE being negotiated? Another good question is how will Quality of Service, be improved? And of course, who owns & controls the grid? [I know, this is rhetoric. Nevertheless, pieces of the service requested]

    Another big problem is that we have too many moving parts and
    changes, which disguise the real issue: making & distributing reliable electricity at an acceptable cost.

    We need to have power generation & distribution competition without a social issue mandate (the claim that humans can increase or decrease the earth’s temperature, funny, eh?). Having SMR’s, owned by a different company would be a good start. Contract GE + one other install & operate them, & make em own a piece of the grid – competition, right? At least that technology, has a track record of producing reliable power, at a reasonable outlay & maintenance cost. AND THEN phase in the other technologies, only when they mature.

    As previously stated, put it ALL on the table, in a format and language that the taxpayers can get. Then let us tell the providers of power & our elected reps what we want and what we are willing to pay to get it.

    Excellent update.

  8. killerhertz Avatar
    killerhertz

    This is obvious to anyone who knows what their logo really means. They really stick it to the consumer if you know what I mean.

  9. Jim Kibler Avatar
    Jim Kibler

    I’ve spent a good part of my life in the utility sector, with a lot of experience in many states, North, South, East and West. Without casting judgment on any opinions stated herein, let me just say that there are a lot of examples of states pushing down ROE and neglecting the consequences. Capital chases returns. The largest investors in utility stocks tend to be institutional – especially pension funds, who are looking for low risk equities. There is a defined market for that equity, and it generally looks for comparative returns among a peer group. The market defines that peer group.

    SCC staff have advocated for peer groups different than what the market defines. Sometimes the judges agree, sometimes they don’t – but that risk is factored in by the market.

    The optimal choice is an ROE that is above the average for the utility’s peer group. Why? Because it allows the utility to attract equity (and debt) at favorable and stable rates, which in the long run favors ratepayers and the utility. It reduces the gaming effect on rate cases. If you have an issue with cost of service, fix that – but keep the utility competitive in the capital markets if you want stable, predictable and reliable energy and energy costs.

  10. Eric the half a troll Avatar
    Eric the half a troll

    “…Duke Energy’s unprecedented brownouts last month as its solar assets proved worthless during bitter winter nights….”

    I guess the first time I pointed out the problem with accepting this statement as fact was too snarky since it was censored. Therefore, I will spell out that the way this reads is that you are blaming the Duke Energy rolling blackouts on their solar systems (which actually reliably performed exactly as designed). In actuality, their solar systems are not to blame at all – as documented here: https://governor.nc.gov/news/press-releases/2023/01/03/readout-governors-office-meeting-duke-energy-officials-following-christmas-power-outages

    “As the cold front moved into North Carolina, instruments froze at two Duke Energy coal facilities and three natural gas facilities, disabling or reducing output from these facilities.”

    I hope this helps you to more accurately describe the system failures in the future.

    1. LarrytheG Avatar
      LarrytheG

      Sorta looking like this is how some comments have to be depending on the commenter?

      Starting to feel that way.

  11. William O'Keefe Avatar
    William O’Keefe

    This is what we get when we opt for a monopoly. We need a General Assembly that is not bought by Dominion and a system that promotes competition and cost-competitive/effective power.

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