Thanks to legislation passed in 2015, Virginia’s two largest investor-owned electric utilities will pocket more than $1 billion in overcharges over the next seven years, according to the State Corporation Commission.
That extra $1 billion will come directly from the pockets of its customers, who account for 81.4 percent of all electricity consumers in Virginia.
The two Richmond-based utilities—Appalachian Power Company and Dominion Virginia Power—are both government-approved monopolies. In the past, in return for being able to operate without competition, they have had to undergo base rate reviews every two years by the SCC, which has the power to approve or deny a rate increase.
The independent state agency can also order the utilities to refund money collected in excess of what the commission considers a “fair return” to shareholders.
For a century, the SCC’s regulatory oversight worked well. It allowed utilities to recoup their costs and amply reward their investors, while making sure they did not use their monopoly status to gouge consumers.
That all changed in 2015, when the General Assembly passed, and Gov. McAuliffe signed, amendments to the 2007 Virginia Electric Utility Regulation Act that suspended the SCC’s biennial review of APCO’s base rate for four years and Dominion’s rate review for five years.
After subtracting the cost of providing electric service to its customers, Dominion reported a 12.87 percent earned rate of return on equity for calendar year 2016. But that exceeded the 9.6 percent most recently allowed by the commission, costing Dominion customers an extra $251.9 million, according to a Sept. 1 report to Gov. McAuliffe and the General Assembly.
APCO’s 11.09 percent earned rate of return was also higher than the 9.4 percent the SCC determined to be fair, costing its customers an extra $27.9 million in 2016.
The end result of the rate freeze is that both utilities are currently charging their consumers much more for electricity than the SCC considers fair and, with Richmond’s blessing, will continue to do so.
Why would the governor and state legislators override the SCC and do something so completely at odds with the best interests of their constituents?
According to the Virginia Public Access Project, Dominion was one of the top political donors in 2014-15, handing out $1.3 million to state candidates of both parties, while APCO’s bipartisan donations totaled $225,493.
Since the utilities are now allowed to pocket a billion dollars in overcharges that should rightly have been returned to their customers, for them it appears to be money well spent.
A group of APCO’s industrial customers filed a lawsuit arguing that the General Assembly’s rate freeze was unconstitutional because it prevented the SCC from exercising its constitutional mandate to protect consumers. They cited Article IX, Section 2 of the voter-approved 1971 Constitution of Virginia, which gives the SCC authority to regulate electricity rates.
But the Virginia Supreme Court disagreed. In a 6-1 decision on Sept. 14, the court ruled that the state Constitution gives the General Assembly the power to regulate electricity rates, which it then delegates to the SCC, so the legislature is within its rights to override the agency.
The lone dissenter was Justice William Mims, himself a former state legislator, who pointed out that the majority failed to “explain how that constitutional provision can possibly represent a delegation of power by the General Assembly, rather than by the people of Virginia who adopted it.”
The court has spoken, but if the General Assembly has the power to freeze the SCC’s electric rate reviews, it also has the power to unfreeze them to benefit the people of Virginia, who deserve much better from their elected representatives.
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