That familiar sound reverberating throughout the Virginia Capitol this legislative session is the clash of opposing bills targeting the perennial issue of electric utility rates.
Environmental advocates are championing a measure called the Affordable Energy Act that could lower the costs of a clean energy transition to customers by restoring regulators’ traditional authority to set “fair and reasonable” electricity rates.
Those proponents have been joined by big businesses and tech corporations in opposing a separate, far-reaching and multi-layered Dominion-backed proposal they say would be a financial burden to ratepayers.
That bill could allow the giant utility — and thus its shareholders — to earn even more as the company spends millions on renewable energy infrastructure while moving toward zeroing out its carbon emissions.
“With this legislation, the sticking point is process, but process matters when it comes to ratepaying,” said Albert Pollard, a lobbyist who represents the Virginia Poverty Law Center, a member of a coalition opposing Dominion’s bill.
The Southern Environmental Law Center is also behind what advocates call the “straightforward” Affordable Energy Act, Senate Bill 1321.
“This is a very simple concept,” said Will Cleveland, a senior attorney with the law center. “It puts back into law what doesn’t now exist.”
Crucially, advocates say, it allows regulators to lower base rates.
It is sponsored by Sen. Jennifer McClellan, D-Richmond, credited with delivering the expansive Virginia Clean Economy Act in 2020. In December, she won the Democratic nomination to succeed the late A. Donald McEachin in the U.S. House. That special election is Feb. 21.
The bipartisan duo of Del. Lee Ware, R-Powhatan, and Del. Rip Sullivan, D-Fairfax, are co-patrons to a companion bill, HB 1604.
Cleveland’s law center is one of more than three dozen businesses and clean energy advocates that have joined together to double down against the counter legislation Dominion favors, Senate Bill 1265.
On Monday, both Senate bills advanced out of the energy committee and were headed to the Senate floor. The House energy committee will be reviewing its versions on Thursday.
Dispute over profits
While Dominion boasts that it translates to the average residential customer reaping $5 to $7 in monthly savings, opponents say it has too many strings attached to deliver consistently fair and reasonable rates.
Dominion wants some of its multiple surcharges, which have caused power bills to surge, to be blended with base rates. The latter have stagnated since legislators locked them into place, at the utility’s behest, in 2015.
That move would “free up” $300 million that Dominion proposes offering as customer relief. In tandem, Dominion would allow utility regulators — the State Corporation Commission (SCC) — to adjust base rates.
On the surface, those might sound like appealing olive branches to advocates who have argued for years that not only are Dominion’s bills too high, but that the utility should be forced to reimburse customers for consistent overcharging.
But it’s a wonkier — and harder to grasp — piece of the legislative ask that is the bone of contention. It’s called return on equity. Simply put, it’s a financial tool that gauges a corporation’s profitability and how efficiently it generates those profits.
Dominion claims its 9.35% return on equity is so low when compared to other Southeast utilities that investors are choosing to sink their money into other companies, where return on equity for new energy infrastructure projects is as high as 10%.
Thus, Dominion wants the SCC to be able to consider that higher range if and when it does revisit the utility’s base rates.
Coalition members fear Dominion base rates would rise if commissioners are permitted to consider a loftier benchmark. That, in turn, would boost power bills — eating into the $6 monthly savings on bills promised to customers.
Dominion did not return a request for comment.
SCC sets ‘fair and reasonable’ rates
Pollard said the bills outlining Dominion’s proposals are “especially pernicious” because “legislating a return on equity flies against every good principle of ratemaking.”
Pollard, a former House delegate, points out that Virginia stands alone as a state legislatively prescribing a return on equity based on peer group analysis. That stems from a 2007 state law that the SCC must establish a minimum return on equity based on a pre-selected peer utility group.
The National Association of Regulatory Utility Commissions is among the industry experts that disagrees with that provision, saying it forces regulators to establish returns on equity that might be too high.
Furthermore, he said, Dominion’s proposal to return $300 million to ratepayers means the “utility is giving consumers something that consumers should (already) have.”
Calculations show that a higher return on equity would add at least $1.50 to customer bills in the first year, he said.
Pollard said Dominion’s base rate actually hasn’t budged much since 1992 and that the coal plants and other infrastructure it covered have already been paid off.
“[Commissioners] set rates so that utilities have a fair rate of return and that the rates are just and reasonable,” Pollard said. “And deciding what’s just and reasonable is the reason you can’t micromanage these things in (state) code.”
In a 2019 ruling, commissioners concluded that 9.2% return on equity is “fair and reasonable” for Dominion. They said it satisfied the constitutional standards of maintaining financial integrity, being able to attract capital on reasonable terms and allowing for earnings commensurate with returns on investment of comparable risk.
Also, in that same decision, they stated that a range of 8.3% to 9.3% “fairly represents the actual cost of equity in capital markets for companies comparable in risk to Dominion.”
Pollard also pointed out that Dominion’s stock rose after a 2021 settlement approved by the SCC allowed the utility to set its return on equity at 9.35%.
Dominion on edge with potential loss of ally?
Senate Majority Leader Richard Saslaw, D-Fairfax, is the patron of the Dominion-favored SB 1265, the Virginia Electric Utility Regulation Act. House Majority Leader Terry Kilgore, R-Gate City, has introduced a companion bill, HB 1770, to Saslaw’s measure.
The potential exit of Saslaw, a longtime powerful Dominion ally, after this hurried 46-day session has the utility in full-court press mode to pass its bill this session. It’s the last before all 140 legislative seats are on the ballot in the state’s off-year election this November.
For instance, energy lobbyists say they are spotting Dominion CEO Robert Blue at the Capitol more frequently than in recent years. Historically, it’s rare for a Dominion chief to be in the building.
Virginia-based Harry Godfrey, who co-leads Advanced Energy United’s manufacturing and infrastructure working group, noted that Dominion is in overdrive this session because Saslaw isn’t likely to be in the legislative picture next year. Observers have speculated that the 82-year-old will retire rather than face a Democratic incumbent in his redistricted Northern Virginia region.
Godfrey said he has several reasons to be optimistic about McClellan’s Affordable Energy Act. Just the presence of the Dominion bill could merit a move in the opposite direction by legislators frustrated with a handcuffed SCC, he added.
Cleveland, the law center attorney, noted that the arguments over the competing bills are part of a fundamental philosophical debate in the state about how electric rates are set and who does it.
“It’s about setting a base rate that is fair,” he said. “In Virginia, there’s been enough attention, awareness and realization about the unfairness of Dominion’s rate that (the Affordable Energy Act) has a good chance of passing both chambers.”
Conversely, the Saslaw and Kilgore bills “are good only for Dominion. Regulators’ hands would be more tied than they currently are,” he said.
What will the governor support?
When Virginians elected GOP Gov. Glenn Youngkin in November 2021, they also flipped the 100-member House to a Republican majority body. The 40-member Senate retains a Democratic majority.
The Youngkin administration has not stated publicly whether it backs either of the competing bills.
However, one keystone of the Energy Plan the governor released last fall was a commitment to affordable energy prices. His plan included a chart showing how surcharges — also called riders and rate adjustment clauses — have consistently been responsible for close to 100% of rising electricity rates since 2007.
That was the year legislators passed the Re-Regulation Act, allowing utilities to recover certain costs outside of their base rates through riders.
For instance, last year the typical Dominion residential bill, using 1,000 kilowatt hours, was roughly $137. Riders make up almost one-quarter of that total, according to the SCC.
“The governor has been very clear in stating that he thinks electricity prices are too high in Virginia and are hurting Virginians,” said Cleveland. “We just disagree on the cause.”
Advocates for clean energy say the source of the problem is the existing regulatory structure built by Dominion, while Youngkin attributes it to power sector transition initiatives such as the Virginia Clean Economy Act and the state joining the Regional Greenhouse Gas Initiative.
Clean Virginia, a Charlottesville-based nonprofit, is encouraging Virginians to fill out an online form that encourages their legislators to vote for the Affordable Energy Act.
A pre-written letter states that Dominion consistently overcharged customers between $100 million and $270 million annually. Current law limits commissioners’ ability to mandate customer refunds.
Lobbyists have pointed out that the wide-ranging coalition remains united against HB 1770 and SB 1265, even after Dominion stripped out an earlier proposal to prevent renewable energy producers from competing in the utility’s territory.
Godfrey, of Advanced Energy United, said it’s wrongheaded for Dominion to legislate what ought to be the SCC’s authority.
“If the legislature is determining how much a utility will earn,” he asked rhetorically, “then what’s the point of having the commission?”
The two entities need to achieve the intended balance, he continued.
It’s wholly appropriate for legislators to shape energy policy that reflects a state’s priorities, values and larger societal concerns, Godfrey said. For example, climate change and concerns about human health prompted Virginia lawmakers to craft the Clean Economy Act.
The law tasks Dominion and Appalachian Power with decarbonizing the power grid by 2045 and 2050, respectively.
“That’s the role of legislators,” Godfrey said. “But then we need the SCC to take over to make sure what’s being done is cost-effective for the ratepayers.”
