Politicians Back Interest-Heavy Fuel Debt Payoff

Better yet, how about ten years from now? With a decade of interest added on, of course.

By Steve Haner

Several Virginia legislators have encouraged the State Corporation Commission to allow Dominion Energy Virginia to convert a $1.3 billion unpaid fuel debt into a ten-year revenue stream for the utility, adding up to $370 million in additional costs onto its customers.

The SCC will open a hearing Tuesday on the utility’s pending application to convert the unpaid fuel costs for the past three years into a bond. A public comment period on the application just ended, and four legislators and the Virginia Chamber of Commerce filed letters supporting Dominion’s request. The 2023 General Assembly created the bonding option during session as part of an omnibus regulatory change.

The issue is simple. Dominion failed to foresee the explosion in fuel costs caused by the Russian invasion of Ukraine and the generalized wave of inflation. A year ago the SCC approved a plan to cover the first batch of those unpredicted costs that accrued through June 2022, with a three-year payoff schedule.

But the second year of unexpected fuel expenses added almost $700 million more to the unpaid balance by June 2023. Years two and three of the original payment schedule and the new additional costs combine to the total of about $1.275 billion, not including interest. And the interest is what this is all about, with the trade-off being smaller installment payments but a decade of interest charges.

The letters of support focus on the major increase in electricity prices that would result from collecting the $1.3 billion in unpaid fuel charges in the usual way, in 12 monthly installments. Had Dominion not thrown a curve and changed the game earlier this year, those charges would already be on the bills in these weeks just before the 2023 elections. It would have added about $15 to a 1,000-kilowatt hour bill.

“I wish to register my support for mitigating the immediate bill impact associated with fuel costs and for stabilizing electric rates to the greatest extent possible,” wrote State Senator David Marsden (D-Fairfax). Virginia Chamber of Commerce President Barry DuVal offered basically the same message in his letter, found on the same link: “…the Virginia Chamber of Commerce wants to express its support to protecting all ratepayers—business and residential customers alike—from a spike in electric rates associated with fuel costs.”

The other letters came from House Commerce and Energy Committee Chair Kathy Byron (R-Campbell), House Minority Leader Terry Kilgore (R-Gate City), and Delegate Scott Wyatt, R-Hanover. Just by way of comparison, not one legislator of either party or the Chamber has so far communicated with the SCC on any aspect of the pending Integrated Resource Plan with its vigorous debate over the future forms of generation.

It is unlikely the legislators spent any time reading the file on the case, which includes testimony raising questions, proposing alternatives or outright opposing the stretched-out payments. Dominion asserts in its rebuttal testimony that only one stakeholder has asked the SCC to reject the securitization plan, but the others who intervened clearly refused to endorse it. Which is probably why the company went out looking for those letters (oh, did you think those appear spontaneously?).

Damaging testimony came from an accounting expert hired by Attorney General Jason Miyares, Ralph C. Smith from a Michigan utility consulting firm. He reminded the Commission (and instructed this author, who is always learning more) that under traditional rate regulation, the carrying charges on a debt related to fuel costs normally come out of base rates. It is not normal practice to tack the interest costs onto the separate fuel cost rider on the monthly bills. Doing so required a change in state law.

You remember base rates. Dominion never raises and never cuts them but plays constant games to move costs out of base rates into separate riders, so the profit margin gets just a little bit fatter. If nobody else was, the utility was watching the impact of the potential interest bill on its base rates and profits. The first ah-ha moment arrives.

Last year, the Attorney General’s Office opposed Dominion’s initial plan to cover that earlier debt and the way it would handle interest charges. The three-year approach that emerged as a compromise included interest charges onto consumers, but at a discounted interest rate. For years two and three, the interest rate on the unpaid balance was to be just a little over 3%, half of what was allowed for the first year.

Now the Commission is being asked to take the $578 million in balances from those two years, initially financed at 3% for two years or less, and roll them into this new bond. Instead of 3% on up to two years, the balance will be financed for up to 7 or 10 years at almost 5%, Smith points out. That adds more than $100 million to consumer costs and Dominion income. Again, ah-ha!

Smith concludes by helpfully reminding the Commission that once this is approved, and a bond created, going back to amend that in any way is basically impossible. The ratepayers will be stuck.

The assumption that many people really won’t mind, given how small the installments will be, is probably correct. This is the way many of them manage their personal debts, making banks rich in the process. Why not do the same for the utility?

Want another reason current customers (and voters) probably won’t mind? Much of this added interest expense will be paid by customers not yet part of Dominion’s service area, and avoided by those who leave. That is highlighted in the testimony of Frank Lacey, hired by Direct Energy. There is no benefit, and clear harm, caused to future customers by charging them for fuel used by others years ago, and then tacking on years of accrued interest.

Put off the payments for years? Make bills appear smaller in an election year? Push the costs onto people or businesses not even in Virginia yet? Make the state’s biggest political donor happy? A deal any politician can love.