Two Steps Back: 2013 and 2014 Energy Bills
VA Energy Purchasing Governmental Assoc.
May 8, 2014
Stephen D. Haner
Black Walnut Strategies
Richmond, VA
2012 Energy Conf: Key Points
•
The 2007 legislation was a better outcome than de-regulation.
•
The legislation left the SCC with less authority than it had under Chapter 10, but
more authority than the utilities wanted the SCC to have.
•
The 2007 legislation gave the utilities guarantees and advantages that are
provided in no other regulated state, and certainly are granted to no other
businesses. It will eventually raise our electricity costs above the national and
regional average. For industrial rates it already has.
•
As any rational business would do, Dominion is shaping its business decisions to
take full advantage of the law and maximize returns.
•
The 2007 legislation included renewable power financial rewards that bear no
relationship to risk or investment or environmental benefits.
•
The SCC needs more discretion. The statute should include more “mays” and
fewer “shalls”.
Avg. Industrial Rates, 2001 – Present
¢/kwh EIA Data, Chart 5.6
2001
2002
2003
2004
2005
2006
2007
2008
US
5.05
4.88
5.11
5.25
5.73
6.16
6.39
6.83
S. Atlantic
4.34
4.25
4.47
4.78
5.30
5.45
5.67
6.28
Virginia
4.16
4.13
4.23
4.27
4.46
4.69
5.07
5.82
2009
2010
2011
2012
2013
6.81
6.77
6.89
6.67
6.82
6.69
6.66
6.75
6.55
6.48
6.91
6.66
6.61
6.72
6.65
2012: Unusual Provisions Which Add Cost
• Rate of return “peer group”
• 60/40 share line on excess earnings (rather than
return 100 percent to ratepayers.)
• 50 basis point reward for (easy) RPS goals
• 100-200 basis point mandatory bonus ROE for
new utility owned plants
• 100 basis point ROE performance bonus (not
awarded in 2011)
• No competitive bidding requirement
2013 Legislation:
One Step Forward and One Step Back
• Followed critical 2012 study of 2007 legislation
prepared for Attorney General Cuccinelli
• Dominion & Cuccinelli were only negotiators
• Eliminated RPS bonus of 50 basis points
• Eliminated construction bonus for conventional
power plants, but retained for nuclear and OSW
• Widened the “earnings collar” to benefit Dominion
• Increased the share line to 70/30 BUT…
• Cooked the accounting on the 2013 rate review
2013 Biennial Review
• “Severe weather events” costs and plant retirement
costs, no longer amortized per 2013 legislation, added
$400 million to expense during 2011-12 period
• This resulted in a finding that no excess earnings were
received and ratepayers received no rate credits
(unlike 2009 and 2011)
• SCC strongly asserted its “reasonable and prudent”
authority to adjust equity/debt ratio to 50 percent
• SCC projected Dominion base rates will collect $560
million more than needed during 2013-14 period
2014 Legislation:
Two More Steps Back
• Dominion rewrote the “reasonable and
prudent” authority (SB 585)
• Dominion is allowed to collect $400 million in
capital cost on North Anna 3 as a charge
against the base rates (SB 643)
• “All” those costs “shall” be recovered, leaving
the SCC unable to reject anything judged
imprudent or unreasonable
Changes since 2012
• Rate of return “peer group” (Still in force)
• (70/30) 60/40 share line on excess earnings (but there will
be no excess earnings)
• 50 basis point reward for RPS goals
• 100-200 basis point mandatory bonus ROE for new utility
owned plants (nuclear and wind only, most profitable)
• 100 basis point ROE performance bonus (not awarded in
2011 or 2013) (But still permitted)
• No competitive bidding requirement
• Strong “reasonable and prudent” provision now weaker.
• General Assembly has dictated accounting rules for utility
two sessions in a row. Future rules will be adjusted at
Dominion’s request to prevent excess earnings, credits
Key Points Revisited
•
The 2007 legislation was a better outcome than de-regulation. Less True
•
The legislation left the SCC with less authority than it had under Chapter 10, but
more authority than the utilities wanted the SCC to have. Less True
•
The 2007 legislation gave the utilities guarantees and advantages that are
provided in no other regulated state, and certainly are granted to no other
businesses. It will eventually raise our electricity costs above the national and
regional average. For industrial rates it already has. Still True
•
As any rational business would do, Dominion is shaping its business decisions to
take full advantage of the law and maximize returns. Still True
•
The 2007 legislation includes renewable power financial rewards that bear no
relationship to risk or investment or environmental benefits. Those are gone –
the one element that has improved
•
The SCC needs more discretion. The statute should include more “mays” and
fewer “shalls”. More “shalls” were added in 2013 and 2014
Dominion’s VA Political Donations
Five Year Totals Source: VPAP
3,500,000
3,163,000
2,868,000
3,000,000
2,500,000
1,951,000
2,000,000
1,500,000
1,000,000
623,000
500,000
0
1995-1999
2000-2004
2005-2009
2010-2014 YTD
Manipulating Cost for PR Value
• Fuel factor normally set once per year, during summer
• Set at 2.942¢ per kWh for 2013-14
• Fall of 2013 Dominion voluntarily reduces it to 2.572¢,
almost 13 percent
• Dominion defends its plan to use operating rates to pay
early for NA 3 by pointing to its “low rates”
• Last week Dominion files to increase fuel factor to 3.218¢,
Up 25 percent
• Impact is greatest on large commercial and industrial
users
• Did they cut the rate early for political value? To improve
their comparison with other providers during GA?
Do You Just Have to Take It?
• All this raises costs for local governments, as well as
individuals and businesses
• VEPGA is 5.25% of Dominion load and $410 million of its
revenue
• Local governments should also be just as concerned about
SCC authority to keep costs reasonable and prudent
• At the end of the day, like taxes, only people can pay electric
bills – government, like business, passes it on
• Local governments have substantial political clout (and an
army of lobbyists larger than Dominion’s)
Local governments should be right there in Commerce and
Labor along with the rest of us