Just Pretending To Protect Ratepayers Won’t Cut It

by Steve Haner

If you have nothing substantive to offer, try some meaningless virtue signaling. That’s the only way to interpret a claim from 36 General Assembly Democrats that they are taking steps to oppose “Dominion raising Virginian’s energy bills by $147 million,” to quote a Blue Virginia headline today.

The story reports on a letter to the State Corporation Commission signed by three state senators and 33 delegates, asking the SCC to support a lower authorized return on equity for Dominion Energy Virginia for 2019 and 2020.  Here is the “so what” paragraph: 

“Notice, by the way, how every single General Assembly member signing this letter is a Democrat? So basically, Virginia Republicans are the main part of the problem when it comes to Dominion ripping off Virginians (and polluting our environment…and delaying the transition to clean energy…and…). Just keep that in mind on November 5 when you head to the polls!”

That is absolutely false.  Here is what you need to keep in mind:

  • Of the 33 delegates on the letter, 15 of them voted for the 2018 Ratepayer Bill Transformation Act (Senate Bill 966) that was a devastating blow to the ratepayers they claim to care about. Most (but not all) of the signatories who are clean on that issue are the 2017 freshmen who came in promising to oppose Dominion.
  • Two of the signatories with longer tenures (Vivian Watts and Ken Plum) voted for the equally bad anti-consumer bill in 2015 (a.k.a. the rate freeze) that gutted SCC authority to offer rebates or cut rates after 2015.
  • The three senators who signed the letter all voted against both the 2018 and 2015 bills (good), but where are the other Democratic senators, including senior members such as Dick Saslaw and Janet Howell? Their absence from the letter and their votes for the 2015 and 2018 bills prove the lie in any claim “Republicans are the main part of the problem…”  They do get points for refusing to sign the letter and engage in hypocrisy.
  • Even if the SCC does exactly as the letter asks, it will not lower electricity bills by $147 million. It will not lower base rate charges at all.  Dominion’s request won’t raise them, either.

The case involved deals with the profit Dominion may earn on the equity (money) it gets from investors (stockholders) for its capital expenditures.  The return on equity (ROE) authorized by the SCC will matter when (and if) there is a general rate review as scheduled in 2021, six years after the last one in 2015.  That is when the SCC will open the utility’s books and apply the profit margin, seeking to determine whether the company made more or less money than allowed.  There is an open betting pool on whether that case even happens, given the utility’s control over the legislature.

Dominion’s current authorized ROE for 2017 and 2018 is 9.2%, and it is asking for 10.75%. Various other interested parties are seeking a lower ROE, with the Office of the Attorney General taking the position (endorsed in the Democratic letter) of 8.75%. The difference of 200 basis points a year roughly translates to $130 to $150 million per year.

Having been through so many previous ROE cases, this one has me bored.  They amount to a watching retained economists dance on the head of a pin, and at the end one suspects the commissioners just close their eyes, run their fingers from the high to the low end of the range and pick a number.  The current 9.2% target won’t change much, the massive case record notwithstanding.  The Dominion-written 2007 legislation has a “Lake Woebegon” provision that prevents its ROE from falling behind its peers, more fodder for reams of economic argument.

Just last week the SCC issued a report estimating Dominion’s real 2018 profit margin at about 13.5%, similar to 2017.  It put Dominion’s excess profits at $277 million for that year, with a similar figure having been reported the year before.  By 2021 the combined “excess profit” total on the table will be $1 billion or so, with the outcome of this case adjusting it only a bit.

Will you as a customer ever see that money?  No, you will not, and that is entirely because of the votes cast by many of the Democrats who signed the letter, and the scores of other legislators in both parties who did not.  The ultimate impact of the 2015 and 2018 bills was to prevent excess profits from triggering either refunds or rate reductions, ever.

The 2018 legislation did create one scenario where ratepayers may benefit from the excess profits. The utility, solely at its own discretion, may use some of those millions to pay for certain legislatively blessed capital expenses: offshore wind, solar, various investments to modernize the grid, etc. These are things we ratepayers probably have to cover either way, so we get some advantage if the excess profit cash is used to cover some or all of them.

And it is possible that at least a few of the 36 signatories on the letter grasp that. If the SCC does set a lower authorized ROE for 2019 and 2020, meaning more dollars end up in the “excess profits” pot, the Democrats may be hoping those funds are used on their priorities – shutting down coal plants, covering more farmland with solar panels, etc.  This case is boring, but the 2021 case will be great theater.

The one area where the ROE number really does help ratepayers is in the various capital rate adjustment clauses, or RACs, buried on our bill.  On those charges tied to specific generation projects, the utility is held to a firm profit margin and it is reviewed annually.  An 8.75% ROE on those would reduce the RAC charges for 2019 and 2020, but hardly in the hundred million dollar range.

What you see on Blue Virginia today, and may soon see in Facebook ads and mailed flyers from these candidates, is simple legerdemain, a distraction from the actual votes that enriched and protected utility stockholders and continue to do so.