Two Decades of Dominion
Last week we discussed Dominion Energy’s lobbying practices and how they have led to increasingly favorable conditions for the utility to maximize profit and disregard ratepayer needs. But lobbying isn’t the whole story. Dominion operates mostly within the legal parameters created by the General Assembly and the SCC over the years. Examining the framework is just as important as scrutinizing the actor.
Background
The SCC is charged with overseeing businesses and regulated industry, including electric utilities. Because Dominion is a state-sanctioned monopoly, its business practices, investments, and profits are subject to regulation. This is where the SCC plays its role. This tradeoff between monopoly and regulation, however, has not been even.
20 years ago, the General Assembly attempted to restructure Virginia’s electricity market to promote competition. The experiment ended poorly with few competitors entering the market, so lawmakers abandoned it in 2007. The failure to restructure left legislators and regulators with fewer choices and gave Dominion more leverage.
Before the deregulation experiment, the SCC would set rates annually based on a “just and reasonable standard, which is common practice throughout the country. The re-regulation bill, which was proposed by Dominion, reduced the SCC’s review of overearnings to every three years, provided for rate adjustment clauses (RAC) which allow utilities to make a profit outside of base rates, and an enhanced rate of return for certain projects of an additional 1-2% above what the SCC determines is the fair rate of return.
These RACs are authorized for investments into generation, environmental compliance, energy efficiency, renewable portfolio standard program costs, transmission costs, and grid transformation expenditures. Projects that are recovered through a RAC guarantee a utility’s ability to recoup all costs plus a rate of return. Base rates, on the other hand, are calculated to give a utility the opportunity to recover costs but does not guarantee them. For this reason, RACs now account for a growing portion of Virginia’s rising energy bills.
Then came the 2015 rate freeze. The freeze to base rates was supposed to last 7 years in order to guard against rising energy costs, which Dominion said were imminent because of the Clean Power Plan. The bill prevented any base rate changes, but fuel costs and RACs were exempt from the freeze. This was seen as a boon for customers, but rates were set at a level that the SCC found previously overcharged Virginians by $226 million in 2013 and $265 million in 2014. The result was Dominion erroneously charging over $1.3 billion in the following years.
The rate freeze sparked a legal battle, which hinged on the constitutional authority of the Commission. The Constitution of Virginia states, “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” (Article IX, Section 2). The case before the Supreme Court of Virginia was to determine whether this language gives the SCC constitutional authority over rate setting or if the General Assembly can curtail that authority.
In a 6-1 opinion, the Justices affirmed the General Assembly’s authority to modify, reduce, and put parameters on the SCC’s regulatory power. Now bills are littered with phrases like “in the public interest” and “reasonable and prudent,” which tell the SCC that independent oversight is off the table.
A Timeline of Dominion’s Legislative “Wins”
2007
HB 3068: The GA declared the construction of a coal plant in southwest Virginia (Wise County) to be “in the public interest,” despite its projected cost of electricity at an exorbitant $93 per megawatt-hour. This coal plant never operated at full capacity.
2014
SB 459: The GA allowed Dominion to pass off hundreds of millions of dollars to ratepayers that were spent planning for a third nuclear reactor at Lake Anna. It was never built.
2015
SB 1349: The GA froze Dominion’s base rates until 2022. This has prevented the SCC from taking up a rate case to examine electricity costs until then. When the corporate tax rate was cut and Dominion started saving an estimated $245 million a year, the SCC was prevented from passing those savings onto customers.
2017
HB 1760: The GA deemed a new pumped hydro storage facility to be “in the public interest.” The cost of this project is now estimated at $2.3 billion.
2018
SB 966: This is the omnibus Grid Transformation and Security Act. It was initially proposed to deal with the 2015 rate freeze but ended up with a slew of wins for Dominion.
1. Utilities are allowed to unilaterally expense certain costs against earnings, making it more difficult for the SCC to determine overearnings.
2. Overearnings, which would have been returned to customers at 70%, are to be reinvested in grid and renewable investment. Dominion has autonomy over how and when this money is spent.
3. The costs of undergrounding distribution lines are deemed “reasonable and prudent” without and understanding of what those costs are.
4. Grid transformation projects are deemed to be “in the public interest,” thus shielded from SCC scrutiny. Included in this has been Dominion’s offshore wind project, which has exorbitant projected costs. The SCC has been vocally against the project but cannot reject it.
2019
HB 1718: This would have made utilities prove any pipeline capacity contracts it enters are the lowest-cost option available before charging customers. It passed the House but failed in Senate Commerce and Labor.
HB 2292: The GA made it more difficult for the SCC to reject a new energy efficiency program by requiring a higher evidentiary burden, even if the rejection was the result of the high cost.
HB 2738 & HB 1814: The GA directed the SCC to approve Dominion’s speculative development projects and pass the costs off on ratepayers.
HB 2645: This would have prohibited utilities from making nonessential expenditures and require a refund to ratepayers if the SCC determines such expenditures were made. It failed in House Commerce and Labor.
2020
HB 1132: This bill would have restored the SCC’s power to examine Dominion’s earnings, set its profit level, and require a rate reduction or refund. It passed the House but failed in Senate Commerce and Labor.
HB 1677: This bill would have disassembled the integrated utility structure and required utilities to reorganize into separate business entities for generation, distribution, and transmission. It was continued to 2021 by House Labor and Commerce.
SB 25: This bill would have prohibited campaign contributions from public utilities. It failed in Senate Privileges and Elections.
SCC Oversight
All of this is not to say the SCC has been flawless in its oversight of Dominion or should not be scrutinized by the legislature. The agency has a history of applying an unduly narrow definition of the public interest. For example, it has historically resisted efforts to consider the social, health, and environmental impacts of carbon generation.
More specifically, in 2018, the Commission rejected Dominion’s proposal to offer renewable energy to large users of energy. The analysis was focused almost entirely on driving down costs, which would have resulted in low-quality resources, like biomass and old hydro dams, being used. In 2014, the Commission approved stand by charges for solar customers, which made distributed solar more expensive for users. It has consistently overblown cost estimates of renewable energy projects and overestimated the cost-effectiveness and longevity of coal resources. Last year, it was instrumental in preventing Virginia from joining RGGI by providing the legislature with a significantly inflated estimated cost. The SCC’s cost projections and analyses are exempt from Virginia’s Freedom of Information Act, allowing it to make questionable decisions based on expense without providing evidence.
The Commission is not truly independent. The General Assembly makes the appointments, which means there is often party politics at play. Before power is restored to the SCC, appointment determinations should prioritize candidates who have a strong sense of consumer protection and the importance of investing in a sustainable energy future.
Virginia’s 1902 Constitution established the SCC as an independent body to combat the railroad monopoly’s political influence over the General Assembly. More than a century later we see the same story with a different monopoly playing. Only this time the SCC does not seem to be in a position to help.
Today’s Landscape
The SCC recently reported that the average electric bill for a Virginia customer is $117.20 per month, compared to the $90.59 per month it was a decade ago. The 29% increase is in small part due to a rise in fuel factor, but a majority of the increase is from RACs.
We recently discussed some pathways to a more effective government in Virginia, many of which are also practical ways to reign in Dominion’s spending and power. These include restoring some of the SCC’s independent power of oversight, limiting lobbying, and reforming campaign finance.
Has Dominion used its influence for its own benefit? Absolutely. But the adage “don’t hate the player, hate the game” comes to mind. The only way to level the playing field is for the General Assembly to write fair rules and for the SCC to make unbiased decisions with consumers and the value of renewables in mind. Otherwise, Virginia’s ratepayers, grid, energy security, and energy future will pay the pay the price.