Wall Street’s Perspective on Virginia Rate Re-regulation

Ken Cuccinelli

What follows is a letter from former Attorney General Ken Cuccinelli to members of the House of Delegates two days ago. His discussion of the Wall Street perspective on electric rate regulation adds a new element to the debate, so I publish the letter here with his permission. — JAB 

Dear Delegates,

One of the benefits of being Virginia’s Attorney General is the opportunity to pick various areas of the law into which one can “dig in.” After working on energy projects in the private sector prior to becoming Virginia’s A.G., I was enthusiastic about digging into electricity rates. I learned a lot, including learning about my own mistakes when I was in the General Assembly.

One other thing I learned was that while the issue of electricity regulation is the most complicated with which legislators must contend, “clarity” is often not encouraged but discouraged.  Why would that be so?  Because confusion and the speed of the General Assembly session are used to skew bills against ratepayers (read: taxpayers) while downplaying or denying the worst possible real-world applications of the proposed bill.

This was the case in 2015, and it appears to be the case again this year.

The SCC staff has done an admirable job in their bill summaries of clarifying a complex and confusing issue.  That provides one source of clarity.

Where else might we find clarity?  While you might not think about it, another source of clarity is Wall Street. Any perceived misdirection or incompleteness in Dominion or APCo statements to Wall Street subjects them to lawsuits – a consequence that does not exist within the General Assembly. For example, what was the consequence to Dominion of the fact that their main argument for the 2015 bill was not, shall we say, … accurate?

The main consequence is that Virginia’s taxpayers have electricity rates that amount to the equivalent to almost a $500 million tax increase (combining the cost of both Dominion and APCo).  The 2015 bill thus qualifies as one of the biggest tax increases in Virginia history, except that instead of those dollars being used for transportation, education, public safety, etc., they just go as a windfall to Dominion and APCo shareholders.

So, what does Wall Street think of HB1558/SB966 (hereafter “SB966” or “the bill”)?

On February 1st, investment bank UBS issued a report to their clients that gushed over how spectacularly Dominion handles the General Assembly and Governors of Virginia to boost Dominion’s value (at the expense of Virginia ratepayers). UBS called SB966 a “catalyst” that drives Dominion’s stock price higher, and Wall Street is so sure the General Assembly will pass the bill, and Gov. Northam will sign it, that it has already priced the benefits to Dominion of the bill into Dominion’s stock price!

UBS, in a model of understatement, opens its discussion of the bill by saying “Dominion has proven adept at navigating VA politics.” UBS continues by noting “…the state’s history of constructive utility legislation…” leads them to believe “that the bill has a good chance of passing.”

Of course to Wall Street, “constructive utility legislation” means legislation that makes it even easier for Dominion to make a lot of money, which would be a great thing, if it didn’t amount to legalizing seizure from Virginians and our businesses.  This grab is ‘legalized’ by the General Assembly and the Governor.

How easy does Wall Street think Virginia is on Dominion? UBS thinks Virginia’s regulatory environment is SO favorable to Dominion that they add a full 5% to the expected value of Dominion’s Virginia business just because of Virginia’s anti-consumer/pro-Dominion regulatory structure.  Now THAT is quite a return on Dominion’s “investments” in lobbying and donating to campaigns!

Dominion spends mere millions on TV commercials, on lobbying and on political contributions to candidates and legislators and in return Dominion gets to write its own legislation that returns billions of dollars in cash and value. That means that Wall Street thinks Virginia is among the easiest regulators of utilities in the entire country – i.e., Virginia’s General Assembly and Governors are pushovers for Dominion.

To use a dating analogy, if Virginia were dating utilities, her name and phone number would be on the boardroom wall of every utility in the Commonwealth under phrases like “for a good time call….”  And that “good time” doesn’t even cost Dominion very much.

Farther into the UBS analysis of Dominion they ask the question: “Will HB1558 be good for Dominion?” Answer: “Yes. HB1558 would renew and extend the legislative mandate for constructive regulation in VA.” In other words, the current bill is not undoing any part of the terribly mistaken 2015 rate freeze, rather it is extending the benefits of that legislation.

Under the heading of “Evidence”, UBS again puts HB1558 in context: “Virginia has a history of passing constructive utility regulation.  The general assembly has demonstrated a proactive approach to utility regulation in the state.  The regulatory construct in VA right now is the result of legislation passed a few years ago.” [i.e., the 2015 rate freeze and other similar pro-Dominion/APCo bills].

Let’s analyze UBS’s evidence.  First, the ‘history’ UBS is talking about is the reliable expectation that the General Assembly will pass Dominion/APCo-favorable legislation. Second, we see the phrase ‘constructive utility regulation’ once more – in the context of a Wall Street analysis that means legislation that guarantees Dominion and APCo more profits at the expense of Virginians and their businesses. Third, the General Assembly’s ‘proactive approach’ means that the legislature displaces the proper regulating body (the State Corporation Commission) to dictate more favorable outcomes for Dominion/APCo (i.e., more money for Dominion/APCo, less for customers/ratepayers.) And finally, ‘regulatory construct in VA right now’ refers to all of the past pro-Dominion/anti-consumer legislation which forms the current legal regulatory environment that make Dominion and APCo the envy of utility executives all over America.

In addition to the fact that we all know that Dominion wrote the original bill, UBS notes that the bill just so happens to line up with Dominion’s already-existing capital forecast. For example, the original bill called for building 4000MW of solar power and, lo’ and behold!  Dominion had already told Wall Street that it would be building 3280MW of solar power!  That is quite a coincidence –or not.

It is worth remembering that what Dominion told everyone about their 2015 rate freeze bill did not turn out to be, well… true. The newest version of the bill does not change much, but it bumps up the solar piece from 4,000 MW to 5,000 MW. In fact, no one knows how that can be done with current technology, given the problems solar power presents as a large-scale source of power for the grid.

If Dominion in its SEC filings, had misled Wall Street to that degree on something so important, they could have been sued for violation of securities laws. If Dominion had misled the SCC so severely in a rate case, Dominion and its lawyers could have been held in contempt. Apparently that doesn’t happen to special interests seeking crony profits at ratepayers’ (i.e., taxpayers’) expense through the General Assembly, with the help of gubernatorial allies (both McAuliffe in 2015, and now it appears, Northam in 2018).

These bills should be defeated and Governor Northam should send down a bill to repeal the 2015 rate freeze and commence an immediate rate case for both Dominion and APCo at the SCC – without further interference from the General Assembly.

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8 responses to “Wall Street’s Perspective on Virginia Rate Re-regulation”

  1. The former Attorney General makes his case very clearly.

    I understand that the political contributions make it very alluring for members of both parties to support handouts to Dominion. What I don’t understand is how business and labor leaders, Chambers of Commerce, economic developers and ordinary citizens continue to let their representatives pick money out of their pockets and and give it to a few companies.

    I suppose it is easier for Dominion to pay millions to legislators to pass bills that Dominion writes to gain billions in profits than doing the harder work of collaborating in crafting a bill that allows utilities to earn more when they serve their customers and the state economy better. There is a win-win outcome available here if we commit to doing the necessary work to make it happen.

  2. LarrytheG Avatar

    This is pretty shocking coming from Cuccinelli whom many would characterize as a business-friendly GOP guy.

    it’s actually pretty scathing.. and I do give Jim B credit for publishing it.. he could have not…

  3. Steve Haner Avatar
    Steve Haner


    Large industrial and commercial customers (500 KW and up) get two open payoffs in this bill as it stands. First, an enactment clause grants them an immediate 2 percent base rate reduction in exchange for an agreement to stay with Dominion for three years (which of course they will because real retail competition is not easy). Second, they are specifically excluded from any and all added costs related to the coming storm of new demand management programs (which means the burden falls even heavier on the other 70 percent of customers..)

    How much that is saving them and costing us we will never know. Sweet, huh?

    We know what Amazon is getting – its own underground transmission line, charged to all jurisdictional customers.

    Note that large industrials are already exempt from the residential underground boondoggle, so as that balloons under this bill it also hits other classes of customers only.

    During the 2015 debate, the large industrials were bought off with an $85 million write off of fuel charges from the polar vortex. The fuel charge is a larger part of their bills overall, so when the refund is in that manner it is a payoff for industrials. Ka-ching. Most of them just want to know the impact on the next few quarters, not long term. For even more of them, its just a minor line item in their budgets.

    Small business is screwed of course, but what else is new?

    You would be surprised by how few big companies actually do real lobbying, and it would take you only minutes of conversation to size up the caliber of the association lobbyists on this issue. Dominion is usually the largest member of many of them, including local chambers….When I was chief lobbyist for the VA Chamber, we didn’t question the utilities.

    There is a price to pay for taking them on directly. Years ago when I was challenging them on something things started happening to a bill I had for my employer, very important to my employer. They know where you live…they know where your loved ones live. Best not to wrestle the bear.

    As to ordinary citizens, well, they are getting a steady diet of campaign-style advertising that started before Christmas and behind the scenes the modern PR apparatus is well engaged. Legislator offices are getting emails demanding this bill – but they are clearly canned and generated, while the anti-messages are written by the constituents themselves.

    Yes, thanks Jim for putting up Ken C’s message. Ken is working off some sins, most related to the 2013 bill where I literally yelled at his people in the hallway of the GAB over their quick agreement to that piece of …….That is the Dominion specialty, premature legislative ejaculation (wham, bam, thank you mam – regret at leisure…).

  4. Peter Galuszka Avatar
    Peter Galuszka

    Cuccinelli has been skeptical of Dominion for years. As attorney general, is had a very right wing social agenda but not so much on other issues such as economics. He has a populist side.

    He’s right to suggest that industry analysts really know what utilities are up to. Dominion is controversial but the consensus seems to be that it is well run in a classic business sense even though its stock has taken a slide recently and investors seem to be skittish about utilities as heavily involve with nuclear power as Dominion is. The company has come a long way from the 1970s when it was a little club of retired Navy nuke guys. It was so badly managed that the U.S. Department of Energy sent out warnings that it might have rolling blackouts.

    Analysts are also more credible because they are out of Dominion’s intricate system of political donations. They have to answer to investors and not to various utility bureaucrats.

    1. Yes he does have an anti-industry, double standard. Basically, if NOVA gov’t is polluting due to road projects etc, that is highly commendable civic duty…he will fight EPA like a pitbull over it. If industry is polluting just a little hint of pollution, those criminals should be fined a billion dollars to offset our tax base.

      But he is not alone in that double standard, so word to the wise.

  5. musingsfromjanus Avatar

    What a wondrous thing. Mr. Cuccinnelli had an epiphanic revelation on his road to Dam,,er Richmond in which he was graced with a vision of new Corporate Eco-Social sins – favorable Wall Street reviews, a proactive approach to utility regulation, executive envy and ambitious solar goals. Protesting guilt and remorse over his past failures, in penitence it appears, he has offered, pro bono we are to assume, an encyclical damning his former colleagues, two governors, and the current GA for anti-consumer legislation, complicity in crony profits, and legalizing seizure.

    The only thing missing that there be no shadow on the inevitable calls for his beatification is his full disclosure and revelation of his largest clients and eradication of any doubt that he would benefit personally from success in his call for “an immediate rate case for both Dominion and ACPO at the SEC”. He is, after all, an attorney trained to argue heatedly for whatever side he is paid to represent, regardless of his personal views and as he has so eloquently argued. payments to interested parties raise doubts.

  6. Posted on behalf of Ken Cuccinelli:

    I did want to take issue with comments about the legislation I advanced when I was A.G. from Steve Haner, namely, that legislation eliminated all rate “adders” based on generation except two: off-shore wind and nuclear, and those two were cut in half from 200 basis points (i.e., 2%) to 100 basis points. Those changes were projected to lower fuel costs well over $1 billion dollars for the customers of Dominion and APCo b/n implementation and 2025 (roughly $100 million per year).

    Those adders were pure policy bribery and had nothing to do with the actual cost of electric generation. It was one of the biggest eliminations of legislative cronyism ever.

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