Electric utility rate reform back on General Assembly agenda

As the 2023 legislative session looms, legislators have filed two competing electric rate reform bills, one focused on giving state regulators greater power to lower rates and the other offering a broader overhaul of the state system backed by utilities.

The simpler legislation is the bipartisan Affordable Energy Act, proposed by Dels. Rip Sullivan, D-Fairfax, and Lee Ware, R-Powhatan. That bill would allow the State Corporation Commission, the body responsible for regulating electric utilities, to lower electricity base rates when it determines customers will be overcharged.

The legislation “will re-empower the SCC by restoring its traditional authority to adjust rates. It does not mandate any outcome,” Sullivan said. “It simply provides a fail-safe ability for the SCC to determine fair and reasonable electricity rates while preserving the utilities ability to recover costs and earn a fair rate of return.”

Under current law, if the state’s two largest electric utilities, Dominion Energy and Appalachian Power Company, record profits above an upper threshold determined by state code, then 70% of the excess earnings have to be returned to ratepayers. If they make within a middle band of profits, nothing happens. If they earn below the lower threshold, rates must be increased.

The Affordable Energy Act would leave that system in place but would make rate reductions no longer reliant on regulators’ determination of whether customers are owed refunds — a conclusion that has been difficult for the SCC to reach during formal reviews because of other parts of the state law allowing the utilities to subtract or reinvest various earnings from their overall total.

Instead, the commission could decrease future rates if it “determines in its sole discretion” that those rates will “produce unreasonable revenues in excess of the utility’s authorized rate of return.”

“This is a reaction to the times when the State Corporation Commission has found one or more or both of the electric utilities have earned more than the reasonable profit and costs recovered (and) they said their hands were tied and they couldn’t do anything about it,” said Sen. Jennifer McClellan, D-Richmond, during a press conference on the bill Tuesday.

Dominion-backed proposal

A more complicated bill filed by House Majority Leader Terry Kilgore, R-Scott, and Senate Majority Leader Dick Saslaw, D-Fairfax, is being backed by Dominion.

Like Ware and Sullivan’s proposal, Kilgore and Saslaw’s legislation would give the SCC discretion to decrease base rates. But while the bipartisan Affordable Energy Act focuses solely on base rates — the core charge on customers’ electric bills that are based on energy use — the sweeping Virginia Electric Utility Regulation Act would go much further.

Kilgore and Saslaw’s bill would roll back numerous changes made over the past 15 years to Virginia’s regulating Dominion and Appalachian Power system.

Starting this year, it would increase the frequency of SCC rate reviews from every three years to every two, reversing a change sought by the electric utilities under the 2018 Grid Transformation and Security Act, which replaced biennial reviews with triennial ones.

It would also consolidate certain rate adjustment clauses — the additional charges the utilities can levy on customers for specific projects — into base rates. These costs, often called riders, have been the greatest contributor to rises in Dominion residential customer bills since 2007.

Dominion residential bills, 2007-2020. (State Corporation Commission)

And it would sunset customer credit reinvestment offsets, a controversial tool that was also part of the Grid Transformation and Security Act after this year. CCROs allowed the company to reinvest its excess earnings in particular projects instead of returning them to customers as refunds.

Other changes would curtail retail choice for large electric customers, prohibit the utilities from retiring power plants without getting approval from the SCC and adjust the peer review group, the collection of utilities that the SCC uses for comparison points in reviewing rates.

Dominion says the changes could lead to $300 million in customer bill savings next year, or roughly $5 to $7 less than the average residential customer would pay on their monthly bill

“As Virginians face historic inflation and rising energy costs, there is broad agreement that consumers need relief on their power bills,” spokesperson Aaron Ruby stated by email. “The proposed legislation would provide significant and ongoing rate relief to our customers. It would provide strong state regulatory oversight. And it supports our mission of delivering reliable, safe, affordable, and clean energy to our customers.

Asked about Ware and Sullivan’s bill, Ruby added, “Dominion Energy supports immediate rate relief for our customers and comprehensive legislation that strengthens SCC oversight and simplifies Virginia’s regulatory model” before repeating his comments on the Virginia Electric Utility Regulation Act.

But Will Cleveland, a senior attorney with the Southern Environmental Law Center who has been actively lobbying for rate reform, said Kilgore and Saslaw’s bill would continue eroding SCC authority by removing the body’s discretion in setting the peer group, among other changes.

He also questioned the $300 million customer relief calculation.

“What is the total bill [savings] impact? Nobody knows what that is yet,” Cleveland said.

Cleveland said he is optimistic that rate reform measures will pass this session because legislators are becoming increasingly skeptical of utility-backed legislation. Along with McClellan, Sen. Creigh Deeds, D-Bath, is another senator supporting Ware and Sullivan’s bill.

Nevertheless, past electric rate reform proposals have failed to make it out of the Democrat-controlled Senate in recent years. Facing pressure after killing a slate of proposals during the 2021 session, the Senate Commerce and Labor Committee agreed to forward several bills to the state’s Commission on Electric Utility Regulation to more closely review their reforms.

The commission never met to discuss the proposals. The body has not met since 2017.

“To the extent, the system is broken, Dominion broke it,” Cleveland said. “We shouldn’t ask Dominion again to fix it.”