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Youngkin Thwarts Dominion Push for Higher Profit

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A Virginia House of Delegates committee has rebuffed Dominion Energy Virginia’s bid to change the rules on how much profit it can earn, setting up a confrontation with the utility and its allies in the Virginia Senate. Governor Glenn Youngkin (R) reportedly encouraged the delegates to take the step and sent a member of his cabinet to speak in favor of watering down Dominion’s bill.

When they were introduced a few weeks back, House Bill 1770 and Senate Bill 1265 were identical. It was probably Dominion’s game plan to have them remain identical as they passed in their houses of introduction by the February 7 deadline. Now the bills likely to pass have morphed into very different substitutes, with all observers now expecting a high stakes joint conference committee.

The House substitute, approved by the House Commerce and Energy Committee Thursday afternoon, removes most of the original bill. Now it merely changes the schedule for rate cases and requires additional scrutiny by the State Corporation Commission before fossil fuel generation plants are closed. The sections dictating a higher profit margin are gone.

The provision that might prevent the future closing of a coal or natural gas plant, however, was sufficient to lose the vote of every Democrat on the committee. They are fully committed to restoring the State Corporation Commission’s independence over ratemaking, but still want to dictate by law the elimination of fossil fuels.

The Senate substitute remains the bill Dominion wants. It also faces a full Senate vote next week.  Several of the original elements are stripped out, including the language about additional SCC oversight before plants are closed.  But the heart of the bill remains a new formula for setting Dominion’s return on equity (ROE), its annual profit on capital. It also includes a potentially expensive approach to retiring Dominion’s huge bill for fuel, a solution that will cost consumers years and years of interest payments.

It is important to note the House committee didn’t kill the bill, but instead amended it and sent a clear message the poker game was just beginning. It is too soon to assume Dominion’s plans are dashed.

Before the House acted, two of the House committee members asked the SCC to produce some cost estimates on Dominion’s proposal for a higher return on equity. The SCC letter to the two delegates estimated the utility would collect another $2 billion from customers by 2040 under the higher ROE  calculation.

Since 2007, Virginia has been the only state that dictates to its regulatory commission a formula for profit based on the profit margins of peer utilities. Current law allows the SCC to determine which peer utilities to use, which has produced authorized profit margins lower than the average of them all. The proposed bill dictates the SCC must use them all.   Had that happened in the last review, it would have moved the profit margin from 9.35 percent up to 10.07 percent, the SCC reported.

Allowing the regulatory bodies of other states to dictate Virginia utility profit margins is really no different than allowing the California Air Resources Board to dictate Virginia’s auto emissions standards. In both cases the legislature has consciously decided to surrender Virginia autonomy out of state.

The House substitute that removed the return on equity change drew supporting testimony from Travis Voyles, Youngkin’s Acting Secretary of Natural and Historic Resources. He cited the Governor’s 2022 Energy Plan document calling for increased SCC independence on ratemaking. It also called for greater caution before reliable and dispatchable power plants are closed.

One of Attorney General Jason Miyares’ (R) assistants, a litigator in the Consumer Counsel Division, also spoke up for the bill, calling it pro-consumer. Neither elected official had any staff members testify during the meetings on the Senate version of the bill, but their advocacy now may put some pressure on Republicans in that body.

Credit for derailing the bill in the House is also due to a very aggressive lobbying effort by a coalition of liberal and environmental groups, backed by serious investments in direct mail and digital advertising.

The coalition also backed a pair of bills which add a strong restatement of SCC’s “sole discretion” to lower or raise base utility rates, despite all the handcuffs that now exist elsewhere in the law. Gone would be the existing requirement that the utility has to earn excess profits in two review cycles before a rate cut can happen.

Those bills, House Bill 1604 and Senate Bill 1321 were amended into substitutes, but all the extra verbiage may not have weakened them. The spokesmen for Youngkin and Miyares also endorsed the House version in committee Thursday. The Senate version was approved 40-0 on February 2. Dominion did not oppose them but was probably assuming its own bill (limiting SCC authority in other ways) would also pass.  That is now in doubt.

And there was yet another bill Youngkin’s endorsement helped push out of the committee, House Bill 2267, which restores SCC independence on a different aspect of ratemaking. The bill seeks to give the SCC control over when a utility uses a rate adjustment clause to pay for a project rather than base rates.

Current law encourages utilities to create stand-alone rate adjustment clauses (RACs) for specific purposes or projects, such as the offshore wind development. RACs are outside of and additive to base rates and are charged separately, even if base rates might be sufficient to cover the project. The bill patron complained in particular about the games Dominion has been playing with an on again, off again RAC to pay its regional carbon taxes. Reducing the number of RACs was another element of Youngkin’s energy plan.

Like the ROE formula, the process of creating multiple RACs goes back to 2007 and its major revisions to Virginia’s regulatory approach. The unanimous House committee vote for the bill to end the RAC racket is earthshaking in its implications, but as noted in this column and a previous one, this game is just starting. Even if the Assembly reaches compromise on all these interlocking provisions, then Governor Youngkin gets his turn to propose amendments to a reconvened session in April.

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