by Steve Haner
It doesn’t matter what you say, only what they say you said. This was demonstrated once again this morning as the State Corporation Commission’s hearing on Dominion Energy Virginia’s profit margin unfolded in Richmond courtroom.
While Dominion’s lead attorney droned on in his opening statement, Sarah Vogelsong of Virginia Mercury – doing running commentary on Twitter – posted this: “He also seems to be taking a swipe at “half the Democrats in the General Assembly” and what they think about utility rates, which seems unusually political for these hearings.”
Now your reporter was probably staring at his own phone and half-heard the comment about the letter 36 Democratic legislators put into the record on this case, discussed in an earlier Bacon’s Rebellion report. It’s not in my notes. Nor do I follow Vogelsong on Twitter. But during the first break, an advocate organizing the effort to stir public interest on this case called it to my attention. He wanted to be sure it made it into my Bacon’s Rebellion piece. Well, be careful what you ask for.
By the time I saw Vogelsong’s post, it was already being recirculated with added negative comments. “Lawyer in this hearing gets very partisan and slams (Virginia House Democrats and Virginia Senate Democrats) for wanting greater oversight of Dominion….” And the person who approached me, Albert Pollard, was recirculating it as well. One of the legislative signers, Del. Alphonso Lopez of Arlington, had already reacted badly in yet another Tweet.
Here is how Blue Virginia is playing it already.
So, at the second break, I asked Vogelsong what the lawyer’s actual statement was. At that moment, as the Twitterverse was at work proliferating the meme, she said she didn’t have it in notes either and couldn’t recall it exactly. “I need to listen to the recording,” she said.
After lunch, and perhaps after my question, she did. Attorney Joseph Reid had said that the SCC had a duty to come to a reasoned decision on the case, “regardless of what the forum commentators say in this case, and frankly regardless of what half the Democrats in the General Assembly say to the Commission in this case.” She sent out the full quote perhaps two hours after the first Tweet.
(Note: The initial post incorrectly identified attorney Joseph Reid III as David Reid, an error I should not have made given his regular appearances at the SCC.)
So now that we have the quote, you can judge whether he was “taking a swipe” or making the legal point that law, evidence and precedent should determine the outcome, not public sentiment. Virginia Mercury has continued through the day to dribble out snippets on the hearing, sometimes on testimony and sometimes on how a judge moves his head. But that one exchange will live on a while.
These cases do routinely include an opportunity for public comment, and an organized effort has produced a strong crop of people complaining about Dominion’s request to raise its authorized profit margin (return on equity) from 9.2% to 10.75%. Economics and environmental advocacy have become mixed, with one public witness today complaining from the stand about Dominion “expanding use of fossil fuel” and “demanding that Virginia ratepayers pay for their own demise.” Death seldom stalks the halls at the SCC.
The public testimony is scintillating in comparison to the actual case, with dueling economists arguing over the Discounted Cash Flow Model, Capital Asset Pricing Model, Comparable Earnings Model, risk premiums over the 30-year Treasury Bill interest rate, Moody’s commentary on risk and other ways to determine the return rate Dominion needs to attract investors. There is no sign the current 9.2% return is inadequate. State law requires the SCC to keep Dominion’s profit margin in line with its peers but allows endless legal wrangling about which other utilities should be counted.
Here is the Big Thing being ignored by all. While the ROE is set at 9.2%, there is a band around it. Dominion can keep the first 70 basis points of excess profits above that target automatically. So, 9.2% is really 9.9%, and 10.75% would really be 11.45%. The bottom ROE amount suggested in this case, 8.6%, is really 9.3%. (Remember, the SCC says that Dominion is already earning 13.5%.)
If the SCC changes the current 9.2% return on equity, up or down, it will have an impact on the rate adjustment clauses in 2020 and 2021. SCC staff’s financial testimony underlines just how much the RAC portion of the bill has grown, and it represents about one-third of the money being argued about. Should Dominion get its requested 10.75% return rate, that would add about $48 million in revenue annually on the RACs, more than just a rounding error on customer bills. Not even Dominion really expects that outcome.
For more detail on the case, try this dispassionate account from the Richmond Times-Dispatch. Its reporter picked up on the real news in Reid’s opening statement, and that was a clear message the company knew 10.75% was a stretch and would count it as a win to see something in the 9.4% range.
But base rates, two thirds of the money involved, hiding place for excess profits, cannot change until the 2021 rate review and likely will not change then. An existing state law, voted for by many of the legislators, states that no matter how much excess profit Dominion earns, that case cannot lower base rates more than $50 million. All this talk of “saving” customers $147 million is, as previously stated, legerdemain. Do not build your 2021 household budget on rate rebates from Dominion.
By greatly exaggerating the impact of this pending case, likely to be decided post-election in November, Democrats and others hope to portray a strong stand on behalf of Virginia consumers. Along with the letter filed in the record, the effort includes a rally Monday outside Dominion’s headquarters, a Richmond Times-Dispatch guest editorial Sunday, even sponsorship of the Virginia Public Access Project daily news clips by an advocacy group, timed to the case.
Perhaps cynicism is unwarranted. Perhaps at least some of the legislators who have followed Dominion’s arguments like sheep previously are suddenly awakening to the impact of their bad decisions and will seek to repair the damage starting in the 2020 General Assembly. But this case underlines several inconvenient truths about the state of the law thanks to their previous sell-out of customers. The new Assembly may continue to seek to regulate Dominion directly, leaving the SCC in a subsidiary role. That’s not progress.
One reason to worry: Their deep concern for consumers dissolves when the higher costs are tied to their environmental goals, including the carbon tax that will be imposed when Virginia joins the Regional Greenhouse Gas Initiative. Irony of ironies, that tax works out to about $150 million dollars a year, as well, and would have the same potential cost to consumers as the 10.75% ROE. There will be no letter from 36 Democratic legislators protesting that.
