Now We Will Enrich Dominion’s Creditors, Too

Who gets rich when debtors make smaller payments over longer periods of time? The lenders, that’s who.

by Steve Haner

Facing the prospect of a jaw-dropping jump in electricity prices because of fuel price hikes last year, the State Corporation Commission approved Dominion Energy Virginia’s request to defer most of those costs for future collection. The unpaid bill for fuel already burned is now about $1.5 billion, apparently, and Dominion has a new plan on how to collect it from you.

Have you ever made the mistake of running up a big credit card bill, and then trying to pay it off by making just the minimum payment? The banks behind the credit cards love it when you do that, because of all the interest they collect over the years it takes you to pay down to zero. Dominion is proposing to do exactly that with that unpaid $1.5 billion in fuel costs.

So far, the General Assembly seems to be going along. Dominion lobbyists have said that paying off the unpaid bill in cash over one year would add $17 per month on that illustrative 1,000 kilowatt hour bill. It will start to be collected when the fuel factor is adjusted next summer, a process known as a true-up. In general, the fuel factor is a bigger hit on the largest industrial users.

That jump in prices would show up just before the 2023 elections. This new scheme, if approved by regulators as well, greatly reduces the immediate cost. But how much will the total bill turn into over years and years? For fuel that was burned years before. Will interest costs equal or exceed the principal?

Basically, Dominion is proposing to securitize the fuel debt with a long-term bond. It has rolled the language authorizing this approach into its omnibus regulatory bill, the one mainly focused on increasing its allowed profit margin. The language on the bond appeared in the most recent substitute for that bill. Nothing like this has been inserted in the utility regulatory statutes before, so it takes more than 450 lines of small type to create (lines 16-472 on the substitute reached by the link.)

The entire bill, Senate Bill 1265, has been approved by the Senate Commerce and Labor Committee on a 12-3 vote and is now pending on the Senate floor. The House version, House Bill 1770, is on the docket for House Commerce and Energy Committee this afternoon and the same substitute will likely be offered.

In presenting the idea, Dominion’s lobbyist stressed in a committee hearing Monday that the State Corporation Commission will have full authority to say yea or nay on this approach. All the financial data will have to be spelled out in advance – how many years it will take to pay off the debt, at what interest rate, and at what ultimate cost to consumers. The claim is that all the legal verbiage will allow the debt to carry a better credit rating than normally applies to the utility and its parent company.

As with all the other aspects of this major regulatory re-write, legislators signed off without asking for or getting any input from the SCC staff in the room, or hearing from the Office of the Attorney General, charged by law to be the consumer counsel for the state.

After years of complaining about how General Assembly decisions enrich Dominion’s stockholders, we now have a bill where the Assembly is also enriching the company’s creditors. A two-fer. Even with an AAA rating, the debt will pay a nice dividend, far better than average folks get on their own bank accounts or a certificate of deposit.

Government-authorized debt to pay for a capital asset – a school, library or road – allows the citizens to benefit from the project while paying it off. Government-authorized debt for a long-gone consumable, for fuel already burned, is harder to justify.

Fuel costs began to explode a year ago after Russia invaded Ukraine and started using its oil and gas exports to add economic pressure to its military assault. Soon after his election President Joe Biden began to put pressure on American domestic fossil fuel production, as well, cancelling one major pipeline. His principles on that front disappeared when supply constrictions (both his and the Russians’) had the predictable result on consumer prices. Uranium prices also spiked after the invasion.

Prices have since come down, but in this case past performance has to be viewed as a predictor of the future. Prices could rise again and there could soon be another undigested mass of unpaid fuel costs that are 100-percent passed along to customers. A fuel cost bond for 2023 might be just the start. In many European countries, the government is directly intervening to either pay those fuel bills with tax revenues or to make the utilities eat them with lower profits.

This might be a third bad alternative to just paying what we owe when we owe it.