SCC Reports $277 Million in Excess Dominion Earnings

Dominion Energy Virginia made $277 million in excess profits last year, according to a just-released State Corporation Commission report. Instead of returning the excess earnings to rate payers, the utility will apply those funds toward construction of a demonstration wind-turbine project off the coast of Virginia Beach and upgrades to smart meters in concert with its sweeping overhaul of the electric grid.

You can read the Richmond Times-Dispatch account here, and the Daily News account here.

Normally, Steve would write about the latest report about Dominion over-earnings, but he’s on vacation. And I’ll be out of the office all day. So, I’ll just throw open the topic to general discussion in the comments.

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19 responses to “SCC Reports $277 Million in Excess Dominion Earnings

  1. Dominion has greatly misled the GA and the public about how allowing the utility to use money that should be returned to ratepayers will end up saving customers money. The savings will only accrue to Dominion.

    First, Dominion will avoid returning money that rightfully should be returned to ratepayers, because their returns (profits) exceeded what is allowed by regulation. Dominion is already allowed to over-recover by 0.7% before the SCC considers it an “excess” return.

    Second, there is no savings to ratepayers if Dominion uses their money instead of shareholder’s money. The base rates and Rate Adjustment Clauses (RACs) require customers to repay the utility for the full costs of a project, the offshore wind pilot project for example. Ratepayers must also fully repay the costs (interest) of all debt financing, which usually equals about what it costs to build the project, plus two times the project cost in profits for the utility, assuming a 9.5% – 10% rate of return.

    Normally, about half of the capital cost of a project is financed with equity, the shareholder’s money. When some, or all, of this this is replaced by money that belongs to the ratepayers, the utility benefits in several ways. Dominion does not have to use its existing cash, so it can keep earning interest on its cash hoard. Dominion does not have to issue more stock, diluting its earnings per share, which keeps the stock price and executive bonuses higher. Dominion avoids paying dividends to shareholders, about 4% per year, for the amount that would have been required by a new stock issue. Instead, they use ratepayer’s money interest-free for as long as they can get away with it.

    This is a very clever scheme. It returns hundreds of millions in profits to shareholder’s that should have be refunded to ratepayers. It reduces stock dilution and dividend payouts, and it provides a huge amount of interest-free loans by using the ratepayer’s money. It is hard to believe that the lawyers and business people in the GA cannot see this scam for what it is. Money that should be in the pockets of businesses and families in Virginia and circulating throughout our economy is now diverted to out-of-state shareholders and a handful of top executives.

    The rates were fairly set using an evidentiary process. But there has been no thorough rate review since about 2013. Although, a review could occur in 2021, I believe that any refunds of the over $1 billion in over-recovery that has occurred is capped at $50 million, as a result of that first review. And the allowance for the free use of ratepayer’s money can offset future refunds through 2028 according to the current legislation, with no indication that it will ever be returned because the legislative sleight-of-hand makes it seem that giving free loans and never getting the principle returned somehow saves the ratepayers money!

  2. Where are the plaintiffs’ lawyers?

    Dominion would be an interesting target for a RICO suit. At a high level, a plaintiff (or, most likely, a class action of Dominion’s customers) would need to demonstrate that (1) Dominion received money from a pattern of racketeering activity, (2) invested that money in an enterprise, (3) the enterprise affected interstate commerce, and (4) an injury resulting from the investment of racketeering income distinct from an injury caused by the predicate acts themselves. As I recall, two separate violations must be proved. A single act is insufficient. Of course, this is just a 50,000 foot discussion. There are considerable details that must be addressed by plaintiff’s counsel.

    The statute provides for treble damages and attorney’s fees.

  3. TomH raises excellent points. This overcharge situation stinks. It seems that Dominion has scripted the deal through the credulous General Assembly that if it makes money over its required rate of return, it doesn’t matter. They won’t have to give it back. As far as offshore, I understand the pilot project off Virginia Beach is expected to cost $300 million. If so, the $277 million just about covers it. But this raises another question that TomH asks. Why should ratepayers instead of shareholders be stuck with the bill for new energy generation projects that it should be making? My gut tells me that this is one way that Dominion, which has resisted renewables for years, can tell ratepayers, “See, this wind and solar stuff is going to be expensive and you’ll have to pay for it.”

  4. You know, this not on Dominion – it’s on the GA. In most other states – their GA acts to insure that taxpayers and ratepayers are treated fairly and not ripped off.

    But in Virginia, we have this spectacle of a project that should have been put on for bid instead of a cost-plus sole source scheme.

    Why should ratepayers have to pay extra to clean up the coal ash rather than using the excess profits to do that and then on top of that pay more for a project that is a “cost-plus” that Dominion will get every penny no matter the cost – from ratepayers.

    And it looks like only Dominion ratepayers are going to pay – none of the other ratepayers of other non-Dominion electricity providers. Is that true?

    And at this point, I’m more suspcious of the SCC’s current excuse “we can’t help it – the GA is forcing us”. If this is really true – it’s clear that none of them, not a single one, is going to fall on their sword for ratepayers.

  5. Right, Larry, a court of record is going to act in a manner contrary to state law, merely to be appealed successfully. Nope. This is 105 percent on the legislators. The SCC is doing what it can by issuing this report, now for several years in a row. The bottom line is that voters are easily distracted by bright, shiny objects and Dominion has an army of fellow travelers in on this deception. This particular knight errant is tired of battling the windmill…..It is very easy to conclude the chumps deserve what is happening to them, if they don’t care. And they don’t seem to. Back from OBX, will read through the report this weekend….

    • Standard approaches to beat Dominion won’t work. GOP business-friendly people won’t pay attention. And mentioning renewable energy gets the Democratic enviros and the fell-good suburbanites to tingle. It will take court action that hits Dominion in unexpected areas, such as a RICO class action or a widely supported campaign to revoke Dominion’s franchises one-by-one. Virginia needs an anti-Dominion Ho Chi Minh.

      Dominion is just a nasty company with no internal ethics. Unfortunately, it’s not alone.

    • In my mind, the SCC needs to take a stand or they risk looking like they are complicit in this.

      This is outrageous. what happened to the tax refund? Why are ratepayers having to pay for coal ash cleanup when they already paid more money than Dominion was entitled to? That money was basically stolen from ratepayers and will be squandered on a project that Dominion will ensure “fails” and the SCC is basically bean counting… rather than taking a stand on state-sponsored crony capitalism.

      The ratepayers NEVER know what is going on – and in theory that.s why we have an SCC whose job it is – to represent the interests of ratepayers. If that’s not going to happen, then ratepayers need to find someone else to represent them – like Ivy Main or similar but then of course some would label her as a leftist enviromentalists or some such – as if she and others like her really don’t have the ratepayers interests at heart.

      I say the have the ratepayers interests at heart way, way more than the SCC does. It’s basically a pro-forma protector of Dominion because that’s “the law”. They might as well be lapdogs of the crony-capitalists GA in that regard. Someone needs to stand up and it’s not the SCC.

      • No Larry, the Attorney General is supposed to represent the ratepayers. He/She is consumer counsel by statute. The 140 members of the legislature are voted in or out by the ratepayers. The Guv is voted in or out by the ratepayers. The SCC is just another court of law, one with a level of expertise you won’t find in the local circuit courts. Even the SCC staff is not really charged with representing the ratepayers, not directly. Your continued efforts to blame the SCC for the horrible mistakes made by a confused and corrupted legislature is not helpful (perhaps no accident.)

        Have you ever spoken to a state delegate or state senator about any of this?

        • Perhaps I do not understand their role as well as I should but I look at things like this which looks a lot like they are supposed to help ratepayers:

          ” Virginia Energy Sense is the Commonwealth’s energy education program under the guidance of the State Corporation Commission. Virginia has set a goal to reduce electric energy consumption 10 percent below 2006 levels by 2022.

          Our mission is to work toward that goal by helping Virginians understand their energy use, and what they can do to save energy easily and cost effectively. Energy efficiency and energy conservation are the most affordable, available tools to achieve this goal. That’s where Virginia Energy Sense comes in: Everyone can do their part to help, with the right information.

          The Virginia Energy Sense program provides the tools to educate and empower all Virginians to get involved and lower the amount of electricity they use.

          Reducing energy use puts money back in consumers’ pockets. It also helps our state’s economy and cleans our air, land and water. That’s why saving energy just makes good sense.”

          Now, CLEARLY the decisions they are making with regard to Dominion are NOT in the best interests of the ratepayers and actually WON’T help them reduce their energy use and won’t put “money back in their pockets”.

          I might not be 100% dead on – but I’m not buying your characterization 100% either!

          • In theory smart meters, if coupled with measures just as time-of-day pricing or programs that automatically turn off appliances during periods of peak demand, could allow customers to conserve energy. So, it all depends on what Dominion does with the smart meters.

            If all the smart meters do is help save Dominion money reading the meters, they won’t do much at all to conserve energy (unless you count the gas consumed by meter readers riding up and down the street). But if paired with other programs, the smart readers would be very helpful indeed. We need to know more before drawing a judgment.

        • Back in 1981, I worked with the general counsel of the then Iowa State Commerce Commission to draft the statute that established an office of consumer advocate. It’s mission is “To represent Iowa consumers and the public interest in all forums with the goal of maintaining safe, reliable, reasonably-priced, and nondiscriminatory utility services for all consumers in all market settings while informing and educating the public on utility related issues.” As I recall, it doesn’t represent big industrial or institutional purchasers, but rather, small businesses and residential customers.

  6. The credo in Richmond is you don’t mess with our rent seeking behavior, and we won’t mess with yours….

  7. re: ” So, it all depends on what Dominion does with the smart meters.

    If all the smart meters do is help save Dominion money reading the meters, ”

    And WHO is responsible for developing more information than DOminion will provide?

    I say it is the SCC and that the SCC – DOES have the power to set up a Smart Meter protocol that benefits consumers instead of just Dominion.

    I’m more and more of the view that the SCC is part of the problem. They’re good at shifting blame to the GA (i.e. “we have no choice”) but there is a lot they have the power to do – to protect and benefit consumers of electricity – that they are not doing.

    Dominion is basically running amok and the SCC is doing very little about it other than claiming they cannot.

  8. If you haven’t personally complained to your legislators, you are part of the problem, a bigger part than the SCC. Attacking the SCC makes you a giant Dominion tool…..Luckily on this I’m sure 100 percent of the readers and the others who comment (TomH, Acbar, Rowinguy) understand this is a problem created by Dominion getting 99 percent of what it wants into the law 99 percent of the time.

  9. Larry: “The ratepayers NEVER know what is going on – and in theory that’s why we have an SCC whose job it is – to represent the interests of ratepayers. If that’s not going to happen, then ratepayers need to find someone else to represent them.” — Good discussion! I agree with Larry, and maybe TMT has a point suggesting RICO but of course that would have to overcome the protection of the GA’s statutes.

    Steve, you say, “the Attorney General is supposed to represent the ratepayers. He/She is consumer counsel by statute.” You are correct that the AG represents the individual consumer, the little guy, but it’s more than a little fuzzy as to other ratepayers like small businesses and industrials and institutional customers like colleges and hospitals. The statute says the Consumer Division is “to represent and be heard on behalf of consumers’ interests” (sec. 2.2-517). Years ago I remember an attorney for the “Committee for Fair Utility Rates,” a business lobbying group represented at the time by the venerable A. C. Epps, arguing with the A.G.’s rep. that the Consumer Division had a statutory duty to represent ALL ratepayers not just the individual consumer — but that mud-fight went no-where; the Consumer Division wanted no hint of a conflict of interest in opposing what the big ratepayers wanted, so took the narrow view. I have no idea whether the Commission itself has ever ruled on the Consumer Division’s precise role; but it was created around 1970 at a time when utility regulatory commissions around the country were coming up with small-ratepayer reps (on the theory that they were generally unable to pay for the kind of representation the big customers organized routinely in the significant utility cases). The office is often called the “Peoples’ Counsel” in other jurisdictions.

    Further, the State Corporation Commission is charged in the Constitution (Art IX) with this: “The Commission shall in proceedings before it ensure that the interests of the consumers of the Commonwealth are represented, unless the General Assembly otherwise provides for representation of such interests.” So if the Consumer Division didn’t exist already by statute the SCC would have to create the equivalent by rule.

    But I would maintain that the SCC itself, by virtue of being the utility rates and services regulator for the State, is charged with finding and ordering “just and reasonable” results “in the public interest” where the notion of who is the “public,” of who the results are supposed to be “just and reasonable” for, is tantamount to the ratepayers of that utility in the first instance, and the economy and integrity of the State in the larger sense. That’s why we have utility regulation: to counter the abuses that could otherwise flow from a private corporation with monopoly powers.

    And so in this instance, I think it was damnable that the Supreme Court held that the SCC’s constitutional authority and assigned duties are subject to the GA’s ability to strip away those duties and hem in its authority. I think that decision was fundamentally flawed; but then again, I fault the drafters of the 1971 constitution for putting that “subject to . . . law” clause in this sentence in the constitution: “Subject to such criteria and other requirements as may be prescribed by law, the Commission shall have the power and be charged with the duty of regulating the rates, charges, and services and, except as may be otherwise authorized by this Constitution or by general law, the facilities of railroad, telephone, gas, and electric companies.” That provision is antithetical to the very notion of utility regulation being constitutionally protected. It makes me a believer in DJR’s “imperial clown show” to see what has happened to utility regulation in Virginia as a result — specifically the regulation of Dominion Energy.

    • The AG’s office IS the Consumer Counsel, as noted by others. The Virginia Committee for Fair Utility Rates, mentioned in this post by AC, still exists and represents certain large industrial customers in matters concerning Virginia Power. A.C. Epps’ former law firm, Christian Barton, still represents the “Committee” as well as the Old Dominion Committee for Fair Utility Rates in matters concerning Appalachian Power and the Virginia Industrial Gas Users Association in natural gas cases. Many large customers, Wal-Mart and Amazon to name a couple, have their own representation in Commission cases.

      I fully agree with your characterization of the Virginia Supreme Court decision, AC, that stripped the Commission of its Constitutional powers and duties. I guess however when the Justices of that Court are themselves elected by the General Assembly, they have an incentive to be deferential to it.

  10. The Nebraska constitution (Article IV-20) creates the Public Service Commission. It reads:

    “Public Service Commission; membership; terms; powers.
    There shall be a Public Service Commission, consisting of not less than three nor more than seven members, as the Legislature shall prescribe, whose term of office shall be six years, and whose compensation shall be fixed by the Legislature. Commissioners shall be elected by districts of substantially equal population as the Legislature shall provide. The powers and duties of such commission shall include the regulation of rates, service and general control of common carriers as the Legislature may provide by law. But, in the absence of specific legislation, the commission shall exercise the powers and perform the duties enumerated in this provision.”

    The case law, IMO, is mixed as to what degree the Legislature can affect the PSC’s jurisdiction and powers but there is case law that upholds pretty strong limits on its authority when set by the Legislature.

  11. Makes sense; although I do not know Nebraska law there is a parallel in nearly every state. In the ancient days the Legislatures did all the granting of corporate charters, franchises, monopolies and tolls directly, and eventually, they undertook direct rate regulation of “public service companies.” It got to be too technical to handle, way too time consuming, and too easy a source of corruption.

    Most States wrote their version of a public utilities regulatory commission into their Constitution in order to clean things up. Inevitably State legislators looked for ways, for leverage, to put their thumb on the scale anyway. In the Virginia Supreme Court case mentioned above, the GA was given a green light to tilt the entire table toward Dominion or anyone else they chose to favor — effectively neutering the constitution: that was about the worst result possible for ratepayers.

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