Environmental Groups Supported Paying “Lost Revenue” Before They Opposed It

Paying an electric utility for power it doesn’t sell is the economic equivalent of paying a farmer not to grow corn or soybeans, and the result will be the same as well – higher consumer prices.

In a legal memorandum filed Friday, Dominion Energy Virginia doubled down on its request that about 40 percent of the money it seeks to recover for a series of new demand management programs be compensation for lost revenue.  If the programs work, and it is verified they reduced demand, Dominion wants to be paid for the electricity it didn’t sell.  Over and over, apparently.  

This element of the request was mentioned in an earlier Bacon’s Rebellion post, along with the complaints of environmental respondents that it should not be allowed.  A major element of the 2018 Ratepayer Bill Transformation was a commitment by the utility to spend $870 million over ten years on energy efficiency and demand management incentives for its customers.

The legal argument was filed along with several sets of testimony by Dominion employees seeking to rebut SCC staff assertions that the proposed programs will not draw as many participants as projected and in some cases won’t make a serious dent in demand.  The next step in the case is a March 20 hearing.

A 2009 Act of Assembly authorized payments for lost revenue in these circumstances, with environmental advocates arguing absent that the company would have zero incentive to engage in efforts to reduce sales.   “As part of such cost recovery, the Commission, if requested by the utility, shall allow for the recovery of revenue reductions related to energy efficiency programs.” 

The Dominion legal memo built around that sentence sparked an angry Twitter response from the patron of that 2009 legislation, former Northern Neck Delegate Albert Pollard, complaining Dominion must have been “JK (just kidding) on $870 actually helping people.”  Who is kidding whom about the value of these kinds of programs is another debate.  Pollard of all people should have asked questions about lost revenue before his friends endorsed the bill.

If Dominion’s opinion is upheld by the State Corporation Commission, perhaps $500 million or so would be spent on the programs (with profit and overhead included), while $370 million might be compensation for lost revenue.  If that $870 million goes only to the programs, it could trigger an additional $350-400 million in payments for lost sales, also collected directly from ratepayers. Suddenly the $870 million becomes about $1.3 billion or more.

Paying for lost revenue in addition to the programs would be the position of many of the environmental groups, who do not seem to have a philosophical objection to paying money for nothing.  They just want the whole $870 million spent the way they wanted, and failed to be specific in the language they accepted.  The Ratepayer Bill Transformation Act would have had trouble passing without their support.

Dominion, I’m sure, knew exactly what it planned to do way back a year ago. Writes McGuire Woods attorney Vishwa Link in Dominion’s brief:

“The Company has historically included lost revenues in the cost caps for its DSM Programs, however, and the Commission has specifically required inclusion of lost revenues in the cost caps it has imposed on the Company’s DSM Programs beginning with the Company’s 2011 DSM Proceeding,”

“…in the 2011 DSM Proceeding, the Commission explained that “rates are impacted not only by the operating cost of a program, but by the lost revenue cost that Dominion may collect from customers for an unspecified number of years.” In the same case, the Commission also found that “lost revenues are a major cost component to be considered in evaluating programs and determining whether they are in the public interest.”

Then she noted this section of the Code:

“In addition, subsection A 5 c goes on to require: None of the costs of new energy efficiency programs of an electric utility, including recovery of revenue reductions, shall be assigned to any large general service customer. (emphasis added).”

Yep.  The advocates for large industrial users could not stop Pollard’s 2009 bill from increasing costs on most other consumers, but we protected our own employers and clients, at least from those earlier energy efficiency programs.  The 2018 language threw many large customers under the new bus, and they will be paying their share for this next round of programs.

As Link’s memo relates, the utility has sought recovery of lost revenues in two previous petitions and both times the Commission said no. This time around the Commission could say yes.  Whether or not it includes lost revenues, the Commission should at least affirm in this case that $870 million is a hard cap.

The 2009 legislation was a major revision to the energy efficiency provisions put in the code just two years earlier in the compromise bill returning the utility to a novel form of regulation.  The 2009 fight was just one example of later anti-consumer changes made over the objections of participants to the earlier compromise.  Most of us from the earlier battles were not in the room negotiating the Ratepayer Bill Transformation Act last year, and that was no accident.

We’d seen the turnip truck.  We wouldn’t have climbed on again.  It was the environmental movement’s time to be taken for a ride.