(This blog is the third in our series examining why Virginia is just one spot away from the Top 5 list of the highest electric bills in the nation, when we could easily lower them instead, with commonsense reforms that also lower climate pollution.)
As of last month, only five states in the country have higher household electricity bills than Virginia (we just passed Tennessee this year, and due to forthcoming “RAC” costs, we will likely pass Mississippi next year, and enter the ignominious Top 5). That’s bad for Virginian families and small businesses trying to stay afloat. And it hits our low-income neighbors worst of all.
With Virginia’s economy now in a perpetually uncertain new normal, inflated energy costs are a commonsense place for lawmakers to trim unnecessary “drag” on our state’s economy. That includes making a broad reassessment of whether Virginia’s monopoly-friendly rules of the road are unfair to Virginia households. Because the indicators are not good, with swelling electric bills in stark contrast to electric prices on our regional PJM grid currently at their lowest point in history.
So why are Virginians missing out on this cheap electricity, and instead paying so much?
A major offender –one ripe for reform — is the “RAC,” a very special arrangement for Virginia utilities enshrined in state law – and a gross aberration from normal utility oversight elsewhere – that allows large utilities like Dominion Energy to use this highly unusual “rider” accounting method to sneakily increase the bills you and I pay every month.
This third-in-a-series blog attempts a brief, user-friendly tour of how these RACs have functioned to help make our once sleepy, run-of-the-mill, steady-as-she-goes basic utility service provider, Dominion Energy, into a Wall Street juggernaut.
RAC accounting, in a nutshell, is simply booking beyond-review costs outside of the regularly reviewed big bucket of costs called “base rates.” RACs, aka “riders,” are not used by any other state to such an extreme extent, as it’s an approach that directly benefits power monopolies at the expense of the rest of us. With rising bills and increasing economic strain, it’s growing high time for this to be fixed.
While briefly covered the RAC-racket in our last post in this blog series (see “Goody # 1: Dominion’s Remunerative “RAC” Loophole” in that post), here’s how Virginia law allows Dominion to extract excessive earnings by tacking on a flurry of RAC surcharges onto our monthly electric bills, above and beyond the advertised per-kWh “rate” we are led to believe is what we pay.
But first, how does normal electric utility regulation typically work elsewhere across America? It’s simple: utilities recover their cost to provide electricity by filing a “rate case,” where they open their books, note all expenses and compare them to revenue, tabulate the necessary per kWh rate to charge to ensure they recover expected costs, and request a corresponding per kWh rate change as needed, all out in the open and before state regulators. (Virginia’s APCo just had one of these “rate cases.”) If approved, utilities replace their old rates with new, updated rates, to reflect that most recent calculation of what they need to bill their customers, to cover their going forward costs, plus sufficient profit (or “return on equity”) to attract investment as needed.
Pretty straightforward, right? Sadly, not so for beleaguered Dominion customers, under Virginia’s one-of-a-kind, increasingly costly monopoly regulations. First, Dominion hasn’t been subjected to a true rate case and earnings review, one with no arcane accounting muzzle placed on the utility watchdogs at the SCC, since 1992.
Just as bad, Dominion also repeatedly increases Virginians’ electricity bills by filing, outside of and in addition to their “rates,” the exotic RAC instrument for most of its new costs since 2007’s regulatory re-write. The State Corporation Commission has approved nearly every one of the RAC surcharge proposals, per the dictates of Virginia law. These scores of costly riders enable Dominion to tack a wide panoply of new costs onto our bills, all without regard to the “big picture” impact on Dominion’s total, all-in cost of providing its basic utility service. Instead, Virginia law even goes a step further and actually prohibits state regulators from considering total, all-in cost-of-service, when reviewing Dominion’s flurry of new RAC surcharges (see lines 1063-1064).
This asinine accounting approach is akin to a small business, let’s say a bakery, keeping five separate accounting books, one for flour purchases, one for buying equipment, another for packaging costs, one for delivery expenses, and last for employee wages, rather than a single accounting book with all cost-of-doing-business expenses in one place, balanced against total revenues, to clearly assess how the business is performing. The RAC approach is instead a labor-intensive morass of endless bookkeeping, the perpetual wheel-spinning of which is moreover paid for twice: once by ratepayers for Dominion accountants, and again by taxpayers for SCC accountants, with absolutely zero sense of just how inefficiently our high-cost utility is operating, when balancing all costs against all revenues.
Instead of that comprehensive look at all costs taken together that utilities undergo as a matter of course everywhere else, Dominion instead has booked literally dozens of these isolated, one-trick accounting ponies over the last decade, all of which stick to our electric bills until fully paid off and regardless of their usefulness.
These rider one-offs free Dominion from having to publicly defend, under clear-eyed, fully-vested regulatory scrutiny, its scores of one-off increases to Virginians’ total electricity bills. Moreover, it has filed such an avalanche of riders that SCC regulators scramble to consider a new one or update an old one on an almost monthly basis, an outrageous and costly regulatory accounting burden no regulator faces elsewhere.
By using this piecemeal, blinders-on approach to tack on additional ratepayer costs outside of the usual “rates,” Dominion bills are very likely inflated well beyond what it should actually cost to simply provide basic electricity. That is because regulators are literally disallowed by Virginia law to examine how any one new project fits within Dominion’s total cost of its basic utility service (see lines 1063-1064).
The end result is akin to those way-too-good-to-be-true cell or cable service offers, where the total bill quickly shoots up once the various fees and add-ons (riders) are crammed in. In Dominion’s case, those extra RAC fees make the tired claim that Dominion has “low rates” as misleading as a time-share tout: RAC surcharges now make up a full quarter of a Dominion electric bill (and growing).
Make no mistake: riders do have a useful and very appropriate place under normal utility regulation elsewhere: utilities rightly use them to recoup costs from a single, unusual, unexpected, or larger-than-forecasted event or expense, like restoring the grid after a hurricane. That is an appropriate use of this accounting tool.
But back here in Virginia, Dominion has tacked 20-plus riders onto our bills, the vast majority of which are for run-of-the-mill projects to provide general electric service and which therefore belong squarely in the base rate, alongside all the other reviewable “costs of doing business.” Virginia could get back to normal-sized electric bills, ones enjoyed by every one of our neighbors, all of whom enjoy lower bills, simply by returning to normal, cost-of-service based ratemaking.
Otherwise, the steep costs to Virginians will continue: the SCC determined that Dominion collected more than $500 million above its authorized earnings in 2017 and 2018 alone. And in 2020 the average Dominion household paid an average monthly bill of $129 for 1,100 kWh of electricity, which the SCC determined is a 30% increase since Virginia “re-regulated” with excessive RACs back in 2007. Of that 2020 electric bill, RACs comprise 25 percent of the total bill, meaning that a full quarter of Dominion’s electric bills are now literally unreviewable by the state’s watchdogs at the SCC.
That is not just absurd, it’s also not right, especially in this uncertain, belt-tightening new normal.
Lawmakers can cleanly and neatly cut our electric bills down to size, simply by ending the runaway use of riders by our regulated monopolies.
Simple: disallow RAC-based cost recovery for basic generation and related service costs moving forward, and move most existing RAC costs over into base rates where they belong. Only then will SCC watchdogs be fully capable of their charge to fully assess, and lower as appropriate, the rising cost our state economy – and you and me — pay for what should be a humdrum, basic feature of modern life.
Dominion can — and will — thrive when we get back to normal, time-tested regulatory oversight, and then so too might our economy be assured of more resilient prosperity.