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.

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34 responses to “Just Pretending To Protect Ratepayers Won’t Cut It

  1. Yep. Well said.

  2. The “excess profits” calculation refers to base rates only, I think. But reducing or at least not increasing the ROE to what DVP wants will impact customer’s bills in the many, many RAC proceedings.

    • As I noted – but it will not save anybody $174 million….an ROE of 8.75% is only 45 basis points below the current one. Slightly better than a rounding error. Big Whoop.

      • I think they are looking at the distance between what DVP says it needs, the ridiculous 10.75, and what it is, 9.2, and the $147 m is not money coming back but money never going out, if the Commission keeps the ROE current or lower.

        If the ROE goes up, rates increase in all the RACs and the allowable rate goes up in the base case too. More $$ for DVP in each case.

  3. I assume Dominion is heavily leveraged as are most power companies. Ergo, a cut in ROE, while presumably justified based on interest rates alone, won’t do much to reduce rates. It’s overloading the rate base and the riders that are causing the problem. Great story for the media but honest writing won’t help the Democrats, so don’t expect any coverage. Meanwhile the extreme enviros in Europe want us to start eating human corpses to combat climate change.

  4. Yep, the big money was/is in the two laws passed and in the unpardonable ratebasing of Dominion’s entire generation fleet; manipulation of the ROE is [relatively] peanuts. Good recapitulation of where electric consumers stand going into the election this November.

  5. How does the $$multi-billion coal ash outhaul favored by the Dems add into the elec rates? To me that was probably a frivolous sell-out to NIMBY mentality. Dems want to spend tens of billions on off-shore wind, hard to believe they have any real concern about a lousy little $147M.

    • That bill is still to come, probably in the new Rider E for environmental compliance expenses. The 2019 legislation did cap the recovery at $225 million or so per year (over many, many years……)

  6. I agree the older veteran Dems have been co-opted – just like the GOP but continuing to point that out is just a distraction from the real issue and that is that the SCC seems to be virtually toothless to stop much of it.

    • I’m pretty sure you’ve never read the statutes, let alone dissected them. I know you’ve never read an SCC case file or sat through a hearing. If you’ve been coming to meetings of the Commerce and Labor committees, I don’t know about it. (Most people there know me, seek me out.) You were not on any stakeholder group I’ve attended. You probably didn’t read the recent VA Supreme Court decision which confirmed legislative supremacy. There are people who comment regularly who understand this better than I do, who can correct me when I’m wrong. I learn from them. You? You’re just wrong. The SCC’s teeth have been intentionally pulled.

      • I surely do not have your intimate knowledge as 99% of Virginians do not either and it’s from that perspetive that I speak and the funny thing is that we AGREE on what has happened to the SCC but you cannot seem to bring yourself to the point where you conclude the SCC is feckless even as they essentially pretend to function while their supporters say they have been neutered by the GA.

        My question is what should the SCC do about this? I do NOT think they have no choice but to approve these ridiculously RACs. They can take a stand if they had one ounce of backbone and that would lead to headlines in the news and in turn, voters wanting to know what the heck is going on and why their elected reps are not acting.

        It seems those who are closest to the issue have feet of clay.

  7. Larry,

    The SCC commissioners are not the same as members of the Board of Education or other administrative boards. They are judges. As such, they are bound to enforce the law as written. Also, ethically, judges should not pubicly criticize the laws or lobby the General Assembly to change the laws. I have not read the full SCC opinions, but, from various quotes from those opinions in the press, it is clear that they do use those opinions to express their exasperation at being restricted by the General Assembly.

    • Dick – I understand how the SCC is SUPPOSED to work but they have been effectively neutered by the GOP-majority GA and it’s not like Judges in general have not totally followed the law when they felt the law was wrong.

      I expect the SCC to make an issue of what has happened to them – not just meeky carry out the GA-corrupted law as is.

      The only way this changes is if the SCC makes complaints loud enough for all Virginians to KNOW what has happened.

      If they are not willing to stand up for the basic principles granted them in the Virginia Constitution – if they are going to stand silent about how they have been crippled in their duties – and not stand up – then they are part of the problem also and we end up with a corrupt process that the SCC is abiding by ………

      This current track is untenable.

      The SCC has become a hollowed out body and their “complaints” that you allude to – are essentially whispers down in the text of their opinions. None of them are speaking out or resigning their positions and letting the public know why.

      I expect more out of them and right now, basically, they’re just going along to get along with an ocassional demur …

      this is outrageous… and people need to speak out.

  8. and the REALLY funny thing (NOT!) is – if the GOP took the lead in neutering the SCC , why in the world would I support them?

    It’s true the Dems are almost as bad but there is some hope with the Dems to set things right but the GOP is unrependent.

    Worse than that – they represent themselves as bastions of the free market – to support a free market , to be opposed to crony capitalism and subsidies, etc., except when it comes to Dom.

    The GOP owns this and they show zero inclination to right it, yet they accuse the Dems of being “socialists” as if that means they’d do bad socialist stuff to Dominion if they got the chance.

    so the less of the two evils is to let the GOP effectively neuter the SCC and invite Dom to run amok ! That’s the andtidote to “socialism”!!! 😉

    That’s why we vote for the GOP over the Dems! LORD O’Mighty!

  9. I don’t expect you to support Republicans – you have a partisan POV. The question is, after 12 years of beating my head against this particular wall, why would I support any of these folks? Only a handful in either party really stand up to the utility. You are correct that the Democrats may have more who will. Is GOP legislator blindness on this one single issue sufficient to disqualify them from re-election? Well, having me pound it on a regular basis isn’t helping them, is it Larry? This is a major (and lucrative) bridge I have burned behind me. Just to get ^%$#^ from the likes of you…..

    • Actually, you’re WRONG. I HAVE supported Republicans in the past when they were fiscally responsible and socially moderate.

      I actually hear your own regrets about the GOP these days but you get drawn in to the GOP claim of “socialism” of the far left as if that is representative of all Dems and it’s simply not true.

      NoVa is blue and are most Virgina urban areas but NoVa also has a AAA credit ratings and they guard it carefully – as they should.

      I’ll support the GOP – AGAIN – when they get back to fiscal conservatism and moderate social policies AND in Virginia, get the DOODA out of the SCC and let them do their Constitutional jobs.

  10. Having cried “wolf” over socialism for the past fifty years, perhaps the GOP has lost any credibility on the issue – but in the next room grandma’s getting eaten. The wolf is now in the building, with at least a large number of the Democratic presidential contenders trying to keep up with Bernie Sanders and Elizabeth Warren, both openly anti-capitalist and both promising a huge list of free stuff from government. At the state level a number of the legislative candidates are moving that way. All Democrats? No, of course not. And if the GOP were not led by Trump, the GOP would be drawing many of those Blue Dog/Reagan Democrats appalled by Sanders/Warren/AOC back again. The center is vacant….Many in both parties see it, but the Democrats have the better chance to reclaim the center since they haven’t picked a nominee yet. Let’s see….

    • Even if the Dems nationally don’t pick Biden, I would rather have a Warren or a Harris or a Buttigieg in charge of the federal executive and diplomatic and military functions of our nation than the flaming sewer-mouth in the WH today. Unlike the GOP’s dangerously supine, fawning attitude towards the incumbent’s incompetence and gratuitous vindictiveness, the Democrats in Congress still actually seem open to discussing and implementing coherent and humane policies, and presumably would continue to do so to restrain even a president of their own party, and I think Warren would work with that. As for Sanders, he makes my skin crawl; let’s cross that bridge only if necessary.

  11. I look at a place like Fairfax – with it’s AAA rating – and the cries from the GOP over what Dems would do if they get in power and they are already in power in Fairfax and other blue cities and if the wolf is eating grandma, it’s news to me.

    This is nothing more than a scare tactic that “works” even with reasonable folks like Steve Haner… it does work………

    If we had a choice as to who should run Fairfax – Dems or GOP – what would it be? What would the GOP do that is better? Would they get rid of al that “socialism” that is killing grandma? 😉

    Come on Steve – you’re a reasonable guy. The GOP has left you. You are now what the hard-right GOP calls a CINO.

    But you refuse to leave. You keep hoping they’re going to reform but every time they cry “socialism” they scare you back into the fold!

    On the SCC – they have quite a bit of leeway in their decisions – like other judges, they can summarily ignore a law they do not agree with – and they do -and when that happens – it goes to a higher court where there is a lot more visibility on the issue itself. As long as the SCC just does exactly what the GA “directed” – they are NOT doing their duty – they are complicit in the corruption.

  12. That’s “RINO”, Larry. And Fairfax’s liberal leadership is wonderfully constrained by Dillon’s Rule. Same with Cville, Arlington, Alexandria…..Call me back after two years of full Democratic control in Richmond and we’ll compare notes again. 🙂

    • I love it! Another freedom and liberty loving Republican touting Dillon’s Rule. What a croc. Dillon’s Rule is the antithesis of freedom or liberty. It’s the coercive hangover of The Byrd Machine – so beloved by the corrupt fops and dandies of Richmond’s self-proclaimed upper crust. We’ll see how white upper class Richmonders feel about Dillon’s Rule when the shots are being called by a liberal suburban General Assembly. See that six story tall statue of Robert E Lee? Bye-bye! I’ve been waiting 60 years for the comeuppance of the Richmond power structure and it’s now only two months away.

  13. Seems to me Larry is pretty well on target. He said, “the real issue … is that the SCC seems to be virtually toothless to stop much of it.” You said, “You’re just wrong. The SCC’s teeth have been intentionally pulled.” He replied, “I understand how the SCC is SUPPOSED to work but they have been effectively neutered by the GOP-majority GA ….” OK, Steve, the only difference I see between you two is that he blames the “GOP-majority GA” whereas you point out the Dems are not blameless here, something Larry doesn’t actually deny either. So how is he “wrong”? Peace, people!

    Dick, you said the SCC Commissioners are “judges” and therefore not the same as members of the Board of Education or other administrative boards. “As such, they are bound to enforce the law as written.” I disagree; in fact that comment (which I’ve heard many times before) makes me angry. The SCC has both quasi-judicial and quasi-legislative functions, the same as any administrative agency; mere protocol doesn’t eliminate that distinction. A rate case is by long and hoary regulatory and appellate precedent an exercise of the agency’s legislative authority, no less so than a rulemaking or other investigative proceeding (which the SCC also engages in from time to time); in fact the SCC performs these functions in place of the legislature which used to deal with regulatory matters like rates directly, in committee hearings, before the SCC existed. If the SCC were deciding a complaint case, then sure, that would be adjudicative. I am unaware of any Virginia case that sets the Commonwealth outside the mainstream of federal and State administrative practice on this point.

    If you mean to say, the title “Judge” denies our SCC Commissioners the opportunity to criticize the GA, to comment in its own orders and in testimony before GA committees, to engage directly in the political fray necessary to straighten out the regulatory gelding that is Virginia’s utility regulatory body today, that has to change! First of all it’s legally quite wrongheaded, and second it’s antithetical to how the SCC has to act to protect the public interest, their fundamental charge: WHO ELSE has a better idea what needs to be fixed in Virginia’s regulatory arena than the people who run it? Are they allowed to have no voice in the matter? Without the caveats about GA overrides the constitution reads: “the Commission shall have the power and be charged with the duty of regulating the rates, charges, and services and … the facilities of railroad, telephone, gas, and electric companies.” (art IX) — I say that gives them the positive duty to speak up when the GA does something stupid (or worse) legislatively to tilt the regulatory playing field to favor one of its regulatees. If they don’t, openly and loudly, nobody else can do it for them.

  14. Larry says:

    “On the SCC – they have quite a bit of leeway in their decisions – like other judges, they can summarily ignore a law they do not agree with – and they do -and when that happens – it goes to a higher court where there is a lot more visibility on the issue itself. As long as the SCC just does exactly what the GA “directed” – they are NOT doing their duty – they are complicit in the corruption.

    To a lawyer, this is possibly the most ignorant statement that could be made. Judges do not “summarily ignore” any laws they happen to disagree with. Where a law says such-and-such “shall” happen, that thing happens, whether it’s a noble thing or a venal or idiotic one.

    Where the legislature says a particular act “is in the public interest,” when that act is undertaken, no court of law in the Commonwealth is empowered to say the act is NOT in the public interest and cannot occur.

  15. And AC for some reason is angry at Dick for saying that the SCC “is bound to enforce the law as written.” Again, the intimation is that the SCC stands somehow apart from the law.

    Gentlemen, you have NO CASE to make here. It is true that the Commissioners are called “Judge” out of custom, but the law does require that at least one of the Commissioners have the qualifications of a Circuit Court Judge, and, as it happens, all three current Commissioners have those qualifications. Commissioner West was, in fact, a Circuit Court Judge previously. Commissioner Jadgmann a former Acting Attorney General and Commissioner Christie a longtime counsel to a former Speaker of the House and prior administrations. To suggest that these figures ignore the enactments of the General Assembly as signed into law by the Governor to instead ply some otherwise unidentified path of “public interest” or else be “complicit in the corruption” is simply an unproductive slander.

    • Granted; rather I took umbrage at Dick’s statement: “ethically, judges should not publicly criticize the laws or lobby the General Assembly to change the laws.” No; the Commissioners are in the political realm and must act like it, in their own defense if for no other reason. Even politicians must obey the law as written, but they have no ethical obligation to keep quiet about their opinion of laws they disagree with.

    • On re-reading this exchange it’s evident I got it off track with my incomplete quote. If the Virginia Constitution itself mandated that the Commission must act in the public interest, that might create an interesting test of wills if the Commission concluded that the GA’s laws mandated a result NOT in the public interest; maybe that’s what Larry thought I meant. But the Constitution doesn’t say that. On the contrary, everything about the Commission is, constitutionally, “subject to such criteria and other requirements as may be prescribed by law” as we have discussed here before. But that doesn’t imply that some ethical constraint forbids the Commissioners, just because they are ‘judges,’ to say what they think. Political common sense may limit them, yes, but not ethics.

      • The report they just issued, very pointed, goes way beyond anything produced in previous eras….it is the clearest condemnation of the situation I can imagine, and they’ve been equally clear in other opinions. Bottom line, the pain is not sufficient. The frog doesn’t feel the heat (some of the big one’s do.) And the way Big Pharma and Big University rip off people, Dominion does come off as a lesser problem….just draining a quarter to a half a billion bucks in extra profits, all taxable after all……

  16. I see North Carolina is struggling with “banded return on equity” for Duke, which critics say allows higher than normal profit margins, and they say this is exactly what Virginia’s GA did to allow Dominion to make the excess profits.

    I also see AARP_North Carolina is fighting the “banded return on equity” for Duke…why don’t we seem to have anybody speaking up for rate payers in Virginia (except SteveH of course)?

  17. Acbar you said … “I say that gives them the positive duty to speak up when the GA does something stupid (or worse) legislatively to tilt the regulatory playing field to favor one of its regulatees. If they don’t, openly and loudly, nobody else can do it for them.”

    I read through the SCC’s latest pronouncement from August 29, 2019 … and I picked out a few things that are relevant to the argument and also seem a bit clarifying as well as support what you say, though not robustly …

    “In sum, we approve Dominion’s IRP as legally sufficient, and we recognize the appropriateness of spending on capital project when need is proven by factual evidence in actual cases. We do not, however, express approval in this Final Order of the magnitude or specifics of Dominion’s future spending plans, the costs of which will significantly impact millions of residential and business customers in the monthly bills they must pay for power.”

    AND … the “Commission found that, given the context of rising rates, it is not in the public interest for captive customers, who do not have the ability to obtain lower rates, to suffer from cost-shifting that will result from a large-demand customer seeking its power supply elsewhere through aggregation.”

    The aggregation issue applies to the request from Walmart to obtain service from other than Dominion using a Power Purchase Agreement … service that would aggregate meters from all over the Dominion territory … a type of virtual power plant. The SCC does point to the legislative need to change the regs in whst they have said.

    • Thanks for pointing these quotes out, Jane –I’ve been traveling and just got back to the net. The Commission, of course, regulates under several statutes with overlapping authorities under each. I take the phrase “approve Dominion’s IRP as legally sufficient” to mean, “DE, you’ve done what you were required to do telling us about your long range integrated resource planning, but all bets are off when you finally come back to us with specific proposal(s) under either a Facilities Act application to build, or in a general rate case or facility-specific RAC proceeding to recover the cost of building” — in other words, approving a broad overview of the future is not tantamount to approving the construction elements necessary to implement it. Of course the Commission may have intended other signals here but that’s how I took it.

      On the cost-shifting issue, that’s a little more subtle. As a ratemaking matter, I don’t believe DE’s retail ratepayers should have any fixed responsibility for DE Generation’s embedded investment. DE should be building only what will generate energy and capacity that sells profitably in the competitive wholesale marketplace, in competition with all the independent generators and other IOUs in PJM. If that were the case, then DE’s gaining or losing retail load would be financially uncoupled from DE’s level of generation owned and operated; the gain or loss of retail customers has no effect upon the profitability of generation in the wholesale markets. When load is lost to another supplier within PJM, the total load in PJM, hence the sales opportunity for DE’s generation, does not change; only the LSE, the middleman responsible for the retail sale, changes. But — in Virginia, where DE continues to place all newly constructed generation in rate base: if DE loses ratepayers, the remaining ratepayers remain responsible for the entire generation ratebase so their cost of service has to go up. That may be offset, perhaps wholly offset, by the operating profit from wholesale sales from that generation, which also should go to the remaining (smaller number of) ratepayers and therefore they should see an offsetting cost of service reduction — but that’s the kind of detail that gets reviewed in the context of a general retail rate case that looks at all retail embedded costs, expenses and revenues allocated to the retail jurisdiction for a recent test period, a kind of review that DE has gone out of its way to avoid. In any event, I don’t think it’s all that clear that DE’s remaining retail ratepayers are in fact harmed even under the current ratebasing regime when a big customer leaves DE, whether through retail choice or by the customer physically relocating to another utility’s service territory. I know the Commission Staff as well as DE have concluded that remaining DE ratepayers could be harmed but I thought those analyses were unpersuasive.

  18. Hope you had a nice trip …
    I read the first part the same way you describe, but regarding the potential cost transfer burden when major customers find alternative generation … I think I am viewing rate increase a bit differently. Maybe I am not making an appropriate differentiation between ‘rates’ and what seems like a bewildering variety of RACs … including the distribution cost. I saw this as a problem of leaving the payment for the entire costs of the distribution grid when major customers leave to fewer customers … ie the monopoly remaining part of the utility business.

    I also think that because we are not decoupled, Dominion will automatically want to overbuild, something that also has as time frame issue. Any build has a very long life, could be rightly decided, but then only watch its justifying numbers change well before the end of the infrastructure’s life.

    And … justification for builds now should include PJM’s competitive prices as you point out. I just don’t see high priced fossil or nuclear generation continuing to make a profit in PJM as the other states move ahead with renewables. Doesn’t the wholesale PJM market make those nuke redos look pretty silly? High priced, but rapidly declining, offshore wind has much lower operating and maintenance costs.

    Finally, my cynical self says Dominion liked the ‘100% or nothing’ rule because it blocked onsite generation of wind and solar while Dominion claimed it was protecting the customers from the cost transfer. With the declining price of storage and the software now available for major users to have their own ‘virtual’ substation via a microgrid, that restriction won’t continue do the job for Dominion. So … how is the state going to get our major, stuck in the past, utility to address reality before they are very badly damaged?

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