Excess Profits Squeezed Out From Dominion Rates

By Steve Haner

The long struggle to prevent Dominion Energy Virginia from earning excess profits in its base rates year after year appears to be over and consumers finally won.  That is the main takeaway as the first general review of its base rates since the 2023 regulatory re-write is moving toward a quick settlement.

The complicated changes in the regulatory structure included wins and losses for consumers, but the impact on this first rate case review is proving to be net positive for the 2.6 million customer accounts.  Most of the various parties who have been dissecting the company’s accounts and forward projections are now willing to end the case with a settlement.

Another reason the case is proving less contentious than previous reviews is that many important decisions – such as the company’s allowed profit margin for the future – were predetermined by the legislation.  The first ever politically dictated profit level will be 9.7% for the next two years, just as underlying interest rates elsewhere in the economy collapse.

A draft stipulation was filed by the parties November 14 with the State Corporation Commission. It leaves the utility’s base rates intact.  It also includes a $15 million rebate to consumers, perhaps $2 for a residential customer, which caused the Richmond Times-Dispatch to announce the deal with a banner front page headline.  Don’t spend it all in one place.  In fact, expect to spend it immediately on other parts of your Dominion bill, something the newspaper (again) failed to report.

The base rates are the largest element of Dominion’s bill but are only part of it.  The company continues to pay for many of its newer generation projects and non-generation programs with rate adjustment clauses that are separate from base rates, so the share customers spend on base rates is shrinking.

Stable base rates for 2024 or 2025 do not mean the total bill will not rise.  You also have to also watch those rate adjustment clauses.  As reported here just the other day, the rate adjustment clause dedicated to paying for Dominion’s offshore wind project may almost double next summer, another $4 per month for homeowners.  The so-called Rider OSW will likely rise again in 2025.

Another example is Rider U, which provides Dominion with a rolling pot of money to use to place individual residential tap lines underground (U = underground, get it?). The cost per individual home is sometimes quite high, and we all pay for it.  Dominion has now applied for an increase in that rate adjustment clause in 2024 to keep that program expanding.  The extra $2 or so per month that will cost you more than wipes out the $2 single rebate that the Times-Dispatch thought so newsworthy.

But it was the elimination of three of those individual rate adjustment clauses, each to pay for a different natural gas power plant, that finally brought Dominion’s base rate revenues into closer alignment with its actual base rate costs.  They had been sucking $350 million or so from ratepayers in addition to base rates and now those costs are absorbed into the base.

Again, that decision flowed from the 2023 legislation and was merely blessed by the SCC, which had no say in the matter.  But absent that accounting change, it is fair to assume the current base rates would again have produced excess profits for the utility in the coming years.

A rate case like this one touches on just about every aspect of the company’s operations. In its review the SCC’s accounting staff identified several hundred thousand dollars of lobbying and charitable expenses that the company tried to force ratepayers to cover, and in the stipulation the utility promises to change its ways.

Read the document and you will see other complex issues covered such as whether costs are for generation or for distribution, how to allocate costs between different customer classes, electric vehicle rate design and an opt-out policy for advanced digital metering technology.  Advocates for low income customers were pushing for new rules on disconnections and payment plans.

Another issue that was stirring around in the documents and pre-filed testimony (look at it all!) was the depreciation schedule for the company’s fleet of fossil fuel power plants.  Virginia law – unlikely to change now that the Democrats have restored their General Assembly dominance – calls to retire them faster than Dominion’s internal accounting does.  The stipulation appears to punt on that issue.

Now in the age of the Virginia Clean Economy Act, the SCC’s reviews of Dominion’s renewable energy portfolio and its demand for regular updates on the overall integrated resource plan will provide the hot action.  Once this stipulated deal runs its course, and the base rates come back to the SCC for review in two years, by law the SCC will finally have full authority to determine the profit margin and to raise or lower the rates as indicated.

We can be confident that the rules adopted in 2023 won’t change again by 2025, right?  Or is it still possible for the utility to repeat its favorite pattern and hike down to the General Assembly with a whole new set-up, wrapped up in a shiny ribbon of “bill relief”?  The smart money should be on the second scenario.