In 2015, the General Assembly enacted legislation that froze electric rates and allowed electric monopolies to get away with overcharging customers. Last week, Del. Sam Rasoul took to the House floor and blasted that law as “corrupt.”
In politics, those are fighting words. But, if anything, Rasoul, D-Roanoke, understated the problem.
Sen. Frank Wagner, R-Virginia Beach, sponsored that shameful, dishonest law. Already, it’s cost electric ratepayers an estimated $400 million. The price tag could top $1 billion if the law stays on the books.
Passing it was no isolated incident. It was part of a long-running effort by electric monopolies and their pusillanimous patsies in the General Assembly to defang a regulatory framework that protected consumers.
Now, there’s more Richmond treachery in the works. Virginia electric customers are about to get royally screwed for at least the fourth time in 11 years. This year, the proposed swindle is even worse.
It’s being orchestrated to benefit Dominion Energy and (to a lesser extent) Appalachian Power, the commonwealth’s dominant electric-power monopolies. The former gets special consideration in Richmond because Dominion (by far) is the top corporate donor to political campaigns.
That raises blunt questions. Why do voters put up with this? Why haven’t they revolted? Don’t they care that their elected representatives repeatedly have cheated them?
The breathtaking fraud foisted upon Virginia consumers goes back to 1999. To understand it, one has to begin in the late 1990s.
Back then, electric providers were tightly regulated by the State Corporation Commission precisely because they were monopolies. They were guaranteed a “return on equity” — profits — but the law put limits on those. The formula was complicated but basically the authorized return was slightly more than 10 percent.
The companies would set their rates and collect their revenues. And then each year, the SCC would analyze previous profits. If those exceeded the limit, 100 percent of the excess was returned to ratepayers, often in discounts on future bills.
In 1999, the General Assembly enacted an ill-fated experiment in electric deregulation. The idea was to loosen the regulatory chains, which would prompt other power producers to sell electricity in Virginia. In theory, the resulting competition would drive down rates and save consumers money.
The 1999 deregulation law took effect in 2002. At that time, Virginia froze electric rates until other power providers entered the market. None did. The benefits of competition never materialized. Meanwhile, the SCC’s annual profit reviews continued.
The General Assembly took five years to realize deregulation was a pipe dream. In 2007, at the urging of Dominion and Appalachian, state lawmakers adopted re-regulation. That took effect in 2009.
But it wasn’t the old regulatory framework. You could call it “regulation-lite” because the power companies won significant breaks.
No longer would the SCC perform annual reviews. The new law said they would happen every other year, hence “biennial rate reviews.” Moreover, the agency could order lowered rates only if an electric utility had excess profits in two successive biennial reviews — in other words, over four years.
The regulation “lite” law also redefined the term “excess profit.” In 1997, those were everything over the authorized return on equity.
The 2007 law changed it to anything over that limit plus seven-tenths of 1 percent. Thus, if the authorized rate was 10 percent, refunds wouldn’t kick in until the return on equity topped 10.7 percent. The monopolies could keep the difference.
Besides that, the 2007 law said the utilities had to refund only 70 percent of the excess, rather than all of it as earlier regulations required. The companies could keep the other 30 percent.
That was the first screwing of Virginia ratepayers. Despite the extra latitude (and profit) the law offered monopolies, the SCC still had some power to act on overcharges. From 2009 to 2015, the commission ordered Dominion to pay $824 million in refunds and credits and Appalachian to pay $5.8 million.
The 2015 rate freeze was the second screwing. It suspended biennial reviews and SCC-ordered rate reductions. It was adopted, putatively, because the utilities argued they faced uncertain future costs related to former President Barack Obama’s Clean Power Plan and consumers needed to be protected from those.
But that argument evaporated with President Donald Trump’s election in November. He canceled Obama’s plan. Nevertheless, last year, the General Assembly rejected legislation to repeal the 2015 law and reinstate biennial rate reviews. Call that the third screwing.
(This year, lawmakers killed a similar effort sponsored by Sens. Chap Petersen, D-Fairfax City, and Dave Suetterlein, R-Roanoke County.)
The fourth screwing is currently being considered in Richmond. Among those promoting it are Wagner, Sen. Richard Saslaw, D-Fairfax; and Del. Terry Kilgore, R-Scott. Those three collectively raked in more than $596,000 in campaign donations from electric monopolies, according to the Virginia Public Access Project. The legislation they’re pushing is a doozy.
The former biennial rate reviews would become triennial rate reviews, or every three years, dragging them out over an even longer term. No longer could the SCC order any refunds to consumers if it found overcharges in two successive rate-review periods, as the 2007 law allowed. Instead, the power companies could “invest” those overcharges on their own expansion.
Suetterlein said shareholders, rather than ratepayers, ought to be footing the bill for those. As for the hundreds of millions of dollars in “refunds” those lawmakers are touting, those mostly are the result of recent changes in federal tax law, Sutterlein said. Translation: the refunds would have occurred anyway.
If the General Assembly approves this stuff, it’ll represent an almost complete defanging of the SCC’s authority to regulate the electric monopolies.
Ironically, the father of capitalism counseled that monopolies are the very entities elected legislatures should regulate most vigorously. In “The Wealth of Nations,” Scottish philosopher Adam Smith predicted monopolies would influence lawmakers at the expense of their constituents. That’s exactly what’s happening.
“This monopoly ... like an overgrown standing army, they have become formidable to the government, and upon many occasions intimidate the legislature,” Smith wrote. “The member of parliament who supports every proposal for strengthening this monopoly, is sure to acquire not only the reputation of understanding trade, but great popularity and influence with an order of men whose numbers and wealth render them of great importance.”
As for lawmakers who take on monopolies, Smith wrote this: “If he opposes them, on the contrary, and still more if he has authority enough to be able to thwart them, neither ... the highest rank, nor the greatest public services, can protect him from the most infamous abuse and destruction, from personal insults, nor sometimes from real danger, arising from the insolent outrage of furious and disappointed monopolists.”
Virginia is moving in exactly the wrong direction on electric-power regulation. Why are voters putting up with it?