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Reforming Va.’s system of electric utility regulation

(VM) – As the 2021 General Assembly session begins, lawmakers are set to consider a slate of bills that aim to reform Virginia’s system of electric utility regulation with the goal of bringing down customer bills.

“This work is an extension of the work we did last session to commit Virginia to massive clean energy investments,” said Del. Sally Hudson, D-Charlottesville. “There’s two pieces going on here: There’s confronting climate change and investing in clean energy. And then there’s doing it at a fair price.”

More than a dozen legislators, largely from the House of Delegates but drawing on both sides of the aisle, are behind the push, which builds on a smaller handful of proposals put before the General Assembly in 2020.

The bills run the gamut from getting rid of a cap the General Assembly previously placed on potential rate reductions to requiring that 100 percent of utility “overearnings” — revenue above their allotted profit margin — be returned to customers, rather than the current 70 percent mandated.

All, however, have a central aim: restoring authority to the State Corporation Commission, a body established by Virginia’s 1902 Constitution that oversees utility regulation.

“We have on paper at least a monopoly utility structure in Virginia. You could either revise that structure so they are actually regulated, as opposed to self-regulated, or you could dismantle the monopoly altogether,” said Will Cleveland, an attorney with the Southern Environmental Law Center, which is supporting the reform measures. “We are focused on the first piece: letting the regulators do their jobs.”

A shifting landscape for electric utilities

Virginia has long been seen as a state friendly to electric utilities, especially investor-owned Dominion Energy and Appalachian Power. Dominion in particular has a reputation for cozy relationships with lawmakers and has been one of the state’s largest corporate campaign donors, giving generously to both Democrats and Republicans.

In recent years, however, the utility has experienced a backlash. In 2018, Charlottesville-based hedge fund manager and millionaire Michael Bills founded a political action committee and advocacy group called Clean Virginia explicitly to counter Dominion’s influence in Richmond. Recipients of the PAC’s funds must pledge not to accept donations from Dominion. To date, 41 members of the 100-member House of Delegates and 10 of the 40-member Senate have made the pledge, with 49 receiving Clean Virginia funds.

At the same time a new generation of Democrats more skeptical of the ties between state government and business interests have swept into the General Assembly and, with the party’s ascendance to power in 2019, have been emboldened to curtail what they perceive as the utility’s excessive influence.

“The current system has been papered over, has been skewed, has been manipulated by Dominion, so they’ve basically set the terms of their (regulatory) reviews,” said Del. Jay Jones, D-Norfolk.

Jones, joined with long-time Del. Lee Ware, R-Powhatan, was responsible for one of 2020’s most ambitious reform efforts. The pair’s Fair Energy Bills Act would have applied the same standards of rate review used for most non-electric utilities in Virginia — a regulatory framework known as Chapter 10 review, in reference to the portion of Title 56 of the state code that outlines it — to Dominion and Appalachian Power, which are governed by an unusually complex set of rules outlined in Chapter 23.

Advocates justified the measure on the grounds that Dominion has overearned by hundreds of millions of dollars in recent years. A recent SCC estimate has pegged those excess earnings at roughly half a billion between 2017 and 2019. Last January, the SCC estimated that since 1994, Dominion had overearned $3.4 billion, of which it has returned only about $1.3 billion to customers.

How much that has hurt customers is a long-running dispute. Dominion has emphasized that its rates compare favorably to those in many other states: “Dominion Energy Virginia customers pay rates more than 10 percent below the national average and receive excellent service from increasingly clean energy sources,” spokesperson Rayhan Daudani told the Mercury in an email.

But advocates of reform have highlighted the distinction between electric rates and electric bills, especially in a state like Virginia where customer bills have been significantly increased by additional charges known as riders even as base rates have not changed. These groups point to U.S. Energy Information Agency findings that Virginia has the sixth-highest electric bills in the country as proof of the need for legislative action.

Last year, despite passing the House on a decisive 77-23 vote, the Fair Energy Bills Act was killed by the Senate Commerce and Labor Committee, helmed by Majority Leader Dick Saslaw, D-Fairfax, a major recipient of Dominion’s campaign contributions and a longtime ally of the utility. Dominion had fiercely contested its passage, disputing the SCC’s estimates and implying that if the bill was passed, Virginia would encounter the same troubles as Pacific Gas & Electric in California, which had filed for bankruptcy after devastating wildfires were linked to various problems with its infrastructure.  

But while the utility won that battle, FEBA’s demise was narrow, failing on an 8-7 vote. And just days later, another reform measure passed the Senate on a surprise vote, against the wishes of both Majority Leader Saslaw and Minority Leader Tommy Norment, R-James City.

“The Virginia General Assembly has changed,” the bill’s patron, Del. Suhas Subramanyam, D-Loudoun, told the Mercury at the time.

A new tack

In 2020, Jones and Ware pledged that they would be back with reform proposals, said Jones — and they are.

As of the second day of session, eight bills that aim to rework the regulatory system have been filed. Jones’ and Ware’s measure, which appears as both House Bill 2057 and House Bill 2200, is one of the broadest. Besides specific provisions such as getting rid of the $50 million cap on rate reductions instituted by the 2018 Grid Transformation and Security Act and requiring the SCC to return 100 percent of any overearnings to customers, the legislation would reword numerous instances in which the statute says the SCC “shall” do something to instead say that it “may,” allowing the body greater discretion in its decision-making.

Asked why they had chosen not to revive the Fair Energy Bills Act, Jones said the new approach “allays some concerns folks had last year about changing the chapter of the review.”

“This bill takes an approach that I think (Dominion) would appreciate,” he said.

Subramanyam too is back with House Bill 1835, which would also get rid of the $50 million rate reduction cap and allow the SCC to order “any rate reduction it deems necessary and appropriate” as long as the utility can recover its costs and earn a fair rate of return.

Another measure, House Bill 2160 from Del. Kathy Tran, D-Fairfax, would allow the SCC to determine whether or not a utility should have an “earnings collar” — a range of acceptable earnings falling above and below the approved rate of return — rather than setting such a collar by statute. A Virginia Poverty Law Center study has found that Virginia is unique among comparable states in having a statutorily set collar. Ironically, Appalachian Power has challenged a recent rate ruling by the SCC on the grounds that the collar will cause it to underearn in the future, an interpretation of the law that it says may be unconstitutional.

Perhaps the most transformative proposal is House Bill 1984 from Hudson, a Section 1 bill that would allow the SCC to evaluate earnings and rates with “any methodology it finds consistent with the public interest to determine fair rates of return” and defer to its judgment on whether or not rates should change.

“The General Assembly has bit by bit handcuffed the SCC in all sorts of quirky ways over the last decade and a half,” said Hudson. “And we could go through and surgically remove them one by one, or we could do the simple thing.”

While most of the reform bills are sponsored by Democrats, Republicans have begun to sign on to some of them. Ware is a long-time champion of utility reform, while Dels. Carrie Coyner, R-Chesterfield, and Glenn Davis, R-Virginia Beach, are patrons on one measure with Del. Dan Helmer, D-Fairfax.

The Senate may prove a bigger hurdle. Only one of the reform proposals, Senate Bill 1292 from Sen. Jennifer McClellan, D-Richmond, comes from that chamber, which has been friendlier to the utilities. Asked whether the Senate Democratic caucus considers utility reform a priority, spokesperson Jacqueline Hixson said in an email that “it is a priority for some of our members but the caucus as a whole does not carry a position.”

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