The legislative battle over how to reset the regulatory landscape for Virginia’s two largest electric utilities — nearly three years after the controversial 2015 rate-freeze law that has allowed Dominion Energy and Appalachian Power to keep millions in excess earnings — can now begin in earnest.
Watched for since the powerful Senate Commerce and Labor Committee killed a rate-freeze repeal bill Monday, a bipartisan group of lawmakers filed a sweeping, Dominion-backed legislative package Friday that they christened the Grid Transformation and Security Act of 2018.
The legislation would restore the oversight of the State Corporation Commission over base electric rates as well as utility costs and earnings and refund $143 million to Dominion Energy and Appalachian Power customers, according to a statement issued Friday by the office of Del. Terry Kilgore, R-Scott.
The package supports the addition of thousands of megawatts of solar power and 16 megawatts of offshore wind to the grid, the installation of two-way electric meters at homes and businesses, and other upgrades that would allow utilities to better isolate outages and restore power more quickly, the lawmakers say.
Also included: energy efficiency programs to reduce power usage, a pilot program for energy storage systems to allow electricity generated from renewables to be used around the clock, conversion of street lighting to more efficient LED systems, and more electric vehicle infrastructure.
In addition to Kilgore, the package is sponsored by Sens. Frank Wagner, R-Virginia Beach; Dick Saslaw, D-Fairfax; and Steve Newman, R-Lynchburg, as well as Dels. Lamont Bagby, D-Henrico; and Kathy Byron, R-Bedford.
“The Grid Transformation and Security Act of 2018 has $1 billion in customer benefits, fully restores SCC oversight and transforms the grid-system into a stronger, smarter, safer and greener machine,” said David Botkins, spokesman for Dominion Energy. “Customer bills would drop 6 percent immediately.”
Bagby said it also will include extending Dominion’s Energy-Share program, which provides assistance to low-income households, people with disabilities and veterans, to 2028.
In a statement, John Shepelwich, a spokesman for Appalachian, which has 500,000 customers in Southwest Virginia, said the company would monitor the legislation.
“At this point we think it is a proposal that Appalachian Power does not object to and will be a benefit to our customers,” he said of legislation filed by Byron and Newman. “Customers will be receiving credit for federal tax reductions more quickly than if we waited until our next rate case in 2020. More funds become available to strengthen and smarten the grid, while facilitating the addition of renewable energy and electric vehicle infrastructure. We also see potential to help stimulate economic development in the Appalachian Power service area.”
Keys for Dominion
The bills include key priorities outlined in a presentation Dominion officials gave to state lawmakers in December, when the utility giant announced it was time to “transition away” from the rate freeze law. The law had survived a challenge before the Virginia Supreme Court but had become a thorn in the company’s side, especially after a report by the SCC in September that found Dominion could have “overearned” by as much as $426 million in 2016.
In December, Dominion said it favored a “reinvestment” model that credits money spent on grid upgrades, cybersecurity and renewable energy, among other projects, against its earnings for the purpose of setting base rates. The new regulatory model was also expected to come with a three-year review period instead of the former two-year period for establishing that the utilities “overearned.”
“Virginia’s electric grid needs to be modernized to keep up with the challenges and opportunities of a swiftly changing technological landscape,” Wagner said in a statement Friday. “Physical and cyber security are big issues this legislation addresses.”
Saslaw said in a statement that the legislation would return $133 million to Dominion customers, the same the SCC said could be due if rate review were in place.
Per legislation filed by Byron and Newman, Appalachian customers would get a $10 million credit as well as “benefits from the recent federal tax reform laws.”
Dominion’s nearly 2.5 million Virginia customers would also get “all savings” from the tax reform. The total savings for Dominion customers, the statement says, would top $1 billion over eight years, including $740 million in biomass project costs, and works out to a rate reduction of about $6 a month for the average customer. The biomass savings come from the elimination of three riders for projects that converted coal plants to biomass and amounted to $25 million per year in eligible recovery for Dominion.
‘The forever freeze’
Veteran lobbyist Stephen Haner, who spent years working for large electric customers and now represents the Virginia Poverty Law Center, called the package “the forever freeze,” adding that it appears to exempt utility profits for 2015, 2016 and 2017, offering a “modest rebate” that might leave Dominion with hundreds of millions of dollars in excess profits.
“The amount returned represents pennies on the dollar compared to the potential refunds the SCC might order. And the company deserves no praise for passing along the savings from the Trump tax cut — that was our money all along,” Haner said. “The SCC’s review will be hampered by changes in the accounting rules and by new ways for them to manage their earnings. Under the current law, the 2022 review might have ordered a reduction in base rates, but under this bill that could not happen until 2024.”
Other lawmakers, including Sen. Chap Petersen, D-Fairfax City, who saw his proposal to repeal the rate freeze law die Monday, want a return to traditional rate review that would require the grid enhancement and renewable energy projects proposed as a part of the package to be evaluated on their individual merits by the SCC.
In a joint letter to Gov. Ralph Northam, Petersen and Del. Sam Rasoul, D-Roanoke, who has called the 2015 law “corrupt,” asked that the SCC analyze “any bill that impacts the cost of service and fair rate of return of electric public service corporations” prior to a vote by the General Assembly and the governor’s approval.
“The General Assembly must be able to understand the fiscal impact to ratepayers — small businesses, families, and taxpayers — prior to considering any legislation,” they wrote.
Clean Power Plan
Citing the then-looming Clean Power Plan, President Barack Obama’s attempt to cut carbon emissions from power plants, Wagner pushed through a bill in 2015 that halted the ability of the State Corporation Commission to review Dominion and Appalachian’s base rates for the purpose of issuing refunds, supposedly to shield ratepayers from the costs of regulation.
“The freeze protected Virginia consumers from billions of dollars in potential costs that could have been imposed as a result of federal regulations, referred to as the Clean Power Plan,” Kilgore’s office said Friday.
Opponents, however, always argued that the rate freeze was really about locking in rates that were already too high, and the SCC has said the rate freeze wouldn’t have shielded any customers from Clean Power Plan costs.
Now, President Donald Trump’s administration has moved to unwind the Clean Power Plan and Virginia has published its own draft carbon regulations for power plants.
Tom Cormons, executive director of Appalachian Voices, an environmental organization with an office in Charlottesville, called the legislative package “bad policy and dangerous.”
“The rate freeze Dominion pushed through in 2015 was a blatant money grab, but this is far more dangerous, allowing the monopoly to increase its profits going forward by skirting State Corporation Commission approval of expenditures that line company coffers and jack up rates on families and small businesses,” Cormons said.
In an interview Friday, Northam said he hadn’t sifted through the legislative package yet.
“Obviously with the Clean Power Plan no longer in existence, we need to revisit the rate freeze and the SCC’s involvement. I’ve had discussions with folks on both sides of the aisle. And I’m paying close attention to it. That’s another process that’s going to take time. And I don’t expect you’ll see anything in the near future,” Northam said.