Utility regulators on Tuesday heard a request by Dominion Energy to increase its profit margins to attract more capital investment, as opponents pointed to excess earnings by the utility and rebutted claims that customers would see little impact.
The State Corporation Commission’s ruling in the case—which is expected in the coming months—will determine how much the company will profit and how much of its excess earnings will return to Virginia customers for the four-year period ending in 2021.
Dominion’s request for higher return on equity—10.75 percent compared with the current 9.2 percent—was pitched to regulators during Tuesday’s hearing as a fair and necessary increase to help the company compete for investment capital.
Consumer advocates and commission staff argued the rate should go in a different direction, arguing that a decrease would square Dominion’s interests with fair utility bills for its customers, who have paid $380 million in excess in the last two years.
The attorney general’s office requested a slight decrease to a rate of 9.09 percent. SCC staff, meanwhile, said the commission could decrease the rate to as low as 8.75%.
Monopoly utilities are limited in their profit margins. Utilities require a return on investment in order to raise capital to pay for projects that regulators or Virginia law deem in the public interest.
If the SCC acquiesces to Dominion’s request, the typical household bill would see a monthly increase of 93 cents. On the other end, the request by SCC staff would mean a monthly decrease of 27 cents.
It would apply to so-called “rate adjustment clauses” tacked onto ratepayer bills as the commission approves Dominion’s capital projects. For a typical residential customer using 1,000 kilowatts per month, the clauses make up $19 of the $114 they pay per month.
Joseph Reed, the lead attorney for Dominion in the case, told regulators that lowering the rate would mean a few extra cents in ratepayers’ pockets, “with ultimately negative consequences for the company and its customers.”
Reed said the rate increase would have no impact on the actual cost of electricity for customers, a claim Dominion’s opponents flatly rejected Tuesday.
“That is fundamentally untrue,” said Carol Myers, deputy director of the SCC’s division of utility accounting and finance.
Myers said the return on equity the commission sets when it rules on the case will determine the extent of excess earnings in the four-year period that ends in 2021. A higher rate could mean Dominion can pocket a larger share of excess earnings from the past two years and any to follow.
Myers said a lower return on equity would mean bigger refunds for customers or a larger pot of dollars for what is known as “customer credit reinvestment offsets”—a wonky term for projects to improve Virginia’s electric grid and move away from fossil fuels that Dominion can legally pay for with excess earnings instead of issuing refunds.
It could also determine electric rates for a three-year period starting in 2021.
Reed insisted that electric rates wouldn’t be immediately impacted, asking Myers what the change in customers’ bills for electric generation would be.
“It’s zero. The number is zero,” Reed said.
Myers responded: “I think that’s misleading.”
She added that the “exact amount” will not be known until the 2021 review of Dominion’s earnings.
“That does not mean there will be no impact on customers’ bills. The [return on equity] the commission determines, will have an impact,” she said. “It could impact the amount of a refund, [customer credit reinvestment offsets], which all impact customers.”
Reed acknowledged Tuesday that the company doesn’t expect the commission to grant its full request for a rate of 10.75 percent.