Dominion Tax Methodology

The Dominion “Tax” is an estimate of the excess dollar amount each individual ratepayer in Dominion Energy’s and Appalachian Power Company’s (APCO) service area in Virginia must pay in higher energy bills due to their utility’s lobbying efforts, oversized political power, and the privatized gains that come from the laws, regulations, practices, and projects that allow for excess earnings. Although only 81.5% of ratepayers fall under Dominion and APCO’s service territory, nearly every state legislator has some amount of Dominion or APCO service territory in their district.

To compute the cost of each basket of utility spending, we scoured public records, rate case filings, research studies, and a host of other sources. Using them, we were able to capture the most accurate picture to date of how much Dominion and APCO are able to extract from ratepayers beyond the normal provision of electricity. They include:

  • Excess profits beyond the normal, reasonable rate of return approved by the SCC (and comparable with reasonable rates of return for other utilities)
  • Advertising costs
  • Excess executive compensation
  • Lobbying and influence expenses
  • The net cost to ratepayers of the Atlantic Coast Pipeline (Dominion ratepayers only)
  • Political donations to elected officials and PACs
  • Industry association dues
  • Increased energy costs due to a lack of energy efficiency efforts

Here’s a breakdown of each spending item and how we calculated it (with sources highlighted). In general, numbers are indexed to 2018 dollar figures based on annual energy bill inflation rates at each utility. We do not index spending items like political donations and lobbying costs that are not nominally tied to underlying rising energy bill rates, as well as the cost of the Atlantic Coast Pipeline, which has flat cost projections:

Excess Profits

The “rate freeze” law of 2015 and the grid modernization law of 2018 broke the normal historical precedent of requiring utilities to issue refunds or reduce rates in cases of excess profit. These changes cleared the way for Dominion to keep a nearly 14% rate of return in 2017, instead of having to refund profits over the most recently SCC-approved 9.2% rate of return. (For APCO, those rates were 11.3% and 9.4%, respectively.) We use an average of the SCC’s calculation of excess profits from 2016 and 2017 rates of return, the years immediately following the 2015 law change, indexed to 2018 to calculate excess profits ratepayers are likely to incur in the future. Ours is likely a conservative estimate, because investment in generation capacity carries a legally guaranteed return on investment, and SCC filings by these utilities consistently declare a need to build more generation capacity–even though energy usage has flatlined in Virginia according to Governor Northam’s 2018 Energy Plan. Therefore, utilities are able to exploit this loophole by funneling profit into generation capacity, which in turn guarantees them additional profit.

  • Annual cost to Dominion ratepayers: $406,521,865
  • Annual cost to APCO ratepayers: $32,249,486

Advertising Costs

We use figures from the most recent rate case from 2014 for Dominion and 2013 for APCO. This is the most up-to-date public disclosure of advertising costs. We only include include non-legal, non-public interest spending on advertising.

  • Annual cost to Dominion ratepayers: $4,105,795
  • Annual cost to APCO ratepayers: $1,114,757

Excessive Executive Compensation

We benchmarked the total executive compensation packages according to the Securities and Exchange Commission (SEC) filings for the top five executives at Dominion Energy and American Electric Power (APCO’s parent company) to the top five executives at the largest public electric utility (Los Angeles Water and Power Department) and prorated the amount to only account for Virginia’s share of each utility’s revenues. This projection calculates the amount ratepayers pay in excess of what it would cost for a municipal-like utility to provide these executive-level services.  

  • Annual cost to Dominion ratepayers: $13,492,528
  • Annual cost to APCO ratepayers: $1,811,805

Lobbying and Influence Expenses

Disclosure of lobbying and influence expenses (such as lobbying personnel costs, lobbyist compensation, communications, entertainment, gifts, and travel expenses) are notoriously unreliable in Virginia due to weak reporting guidelines. As the Virginia Public Access Project (VPAP) notes:

“Itemized lobbyist spending reports long have been a problematic data set. The lack of clear standards in how certain expenses are reported – personnel and communications costs in particular – make it difficult to compare spending by different organizations.”

Most lobbyists at Dominion and APCO simply put in “$0” for their lobbying expenses, which does not capture their personal salaries and compensation from Dominion or APCO. Lobbyist disclosures are also not audited, so there is no incentive to accurately report expenditures, and there is no accountability for those who fail to do so. Most importantly, Virginia’s legal definition of lobbying is extremely narrow–only applying to direct oral and written communication. This creates a loophole in which the full cost of lobbying activities (staffing, preparation, research, etc.) are not entirely disclosed. As a result, we may never know the total cost of Dominion and APCO’s full lobbying efforts.

We use the lobbyist disclosures from the Virginia Conflict of Interest and Ethics Advisory Council (VCIEAC) from the most recent full lobbying cycle (2017-2018) to calculate lobbying and other influence costs. These figures almost certainly underestimate the full cost to ratepayers for their utility’s influence operations. For example, APCO employed four full-time lobbyists and five part-time lobbyists during this same disclosure period, and only reported $91,053 in total. That amounts to just $10,000 per lobbyist, an almost impossibly small sum. Dominion lobbyists only disclosed $1,089,926 in lobbying and influence expenses last cycle. That money supposedly employs at least nine full-time and thirteen part-time lobbyists working for the utility — less than $50,000 per lobbyist. Compare that to the public federal filings of a single Dominion lobbyist — Bob Blue –who made close to $2 million in 2017.

Needless to say, these disclosures are extremely problematic, and we believe they make our estimate of the true cost of Dominion and APCO’s lobbying efforts far too conservative. Still, we make this conservative estimate in order to reflect the bare minimum ratepayers are ultimately funding.

We also include the cost of federal lobbying efforts according to lobbying disclosures submitted to Congress, prorated by the amount Virginia ratepayers account for Dominion and APCO’s revenues. Again, we believe our total estimate of cost to ratepayers to be conservative.

Please see the section following Methodology on why we include these costs in the “Dominion Tax” when these costs are not traditionally recovered in rate cases.

  • Annual cost to Dominion ratepayers: $2,644,831
  • Annual cost to APCO ratepayers: $860,419

Net Cost of the Atlantic Coast Pipeline

Independent analysis presented by the Southern Environmental Law Center to the SCC showed that the net cost of the Atlantic Coast Pipeline (even taking into account the possibility that this gas will be sold to Virginia ratepayers) is most likely to reach upwards of $3 billion over the next 20 years. This figure is derived from comparing the projected costs of gas from the Atlantic Coast Pipeline to simply buying natural gas from current market sources. We anticipate only ratepayers in Dominion’s service territory being required to pay higher rates to fund these costs, as APCO does not have any ownership stake in the Atlantic Coast Pipeline.

  • Annual cost to Dominion ratepayers: $150,000,000

Donations to Political Campaigns and PACs

We use Virginia political contribution figures according to VPAP for Dominion and APCO for the year 2017. We also add their federal political contributions, prorated by the amount Virginia ratepayers account for their utility’s parent company’s revenues. These numbers do not include parent company PAC donations because they are often funded by employees, thus making these estimates of ultimate cost to ratepayers conservative.  

  • Annual cost to Dominion ratepayers: $857,077
  • Annual cost to APCO ratepayers: $276,433

Industry Association Dues

We use the last rate case filings from 2014 for Dominion and 2013 for APCO presented to the SCC. These are fees paid to trade and lobbying groups such as the American Legislative Exchange Council (ALEC) and local chambers of commerce.

  • Annual cost to Dominion ratepayers: $13,743,374
  • Annual cost to APCO ratepayers: $818,837

Energy Efficiency Deficit

The American Council for an Energy Efficient Economy (ACEEE) ranks Dominion Energy 50th out of 51 for large utilities in energy efficiency (APCO is not a large enough utility to be listed). According to the ACEEE, in 2015 the average utility saved 0.89% on total expenditures thanks to their energy efficiency efforts; Dominion only had a 0.11% savings rate. This energy efficiency “deficit” represents the cost of the failure to lower electricity usage as the difference between those saving rates multiplied by a utility’s total Virginia revenues. For APCO, we use Virginia’s overall savings rate of 0.09% according to the ACEEE’s state energy efficiency scorecard as a proxy for APCO and use the difference for the median state (0.59%) to calculate the deficit, indexed for 2018.

  • Annual cost to Dominion ratepayers: $60,510,413
  • Annual cost to APCO ratepayers: $10,490,076

Total

To derive the total Dominion and APCO “taxes”, we added these costs together and divided them out per ratepayer. In August of 2018, the SCC reported that Dominion had 2,574,679 ratepayers across all customer classes, and that APCO had 536,588 customers across all ratepayers classes. Due to their size, individual commercial and industrial ratepayers will inevitably bear a greater share of these excess costs due to their high energy usage, but there are also much fewer individual commercial and industrial consumers. They also pay significantly lower rates than residential customers, making direct comparison of the burden of these costs difficult to make. In other words, we do not know what percentage of these excess costs are attributable to each customer class. As a result, we simply average the cost among all ratepayers to best and mostly clearly express costs across for customers.  

  • Annual total cost for Dominion: $651,875,883
  • Annual total cost per Dominion ratepayer: $253.19

 

  • Annual total cost for APCO: $47,621,814
  • Annual total cost per APCO ratepayer: $89.20

 

How Can Dominion and APCO Charge Ratepayers for Non-Essential Spending like Lobbying and Political Activity?

The law does not prevent Dominion and APCO from charging ratepayers for non-essential spending. In general, Dominion and APCO can force ratepayers to pay some or all of non-essential spending, like lobbying or industry trade associations. It is the responsibility of the SCC to deny these requests. For example, the SCC has previously allowed Dominion to charge ratepayers for the costs of charitable contributions to Virginia charities and higher education institutions.

The SCC has not always allowed Dominion and APCO to charge ratepayers directly for lobbying costs, but has made exceptions. In 2012, the SCC allowed Dominion to pass along $16,000 of a $40,000 lobbying expenditure directly to ratepayers.

Current law prevents regulators at the SCC from reviewing Dominion or APCO’s line-item spending, and regulators will not be allowed to do so again until 2021 for Dominion and 2020 for APCO. This lack of oversight prevents the SCC from striking these spending items from rate calculations. This means Dominion and APCO could be using ratepayer funds to directly or indirectly reimburse themselves for these costs — and ratepayers would never know.

Dominion and APCO also employ full-time government relations executives and employees whose costs are borne by ratepayers but fall within the SCC’s definition of permissible business. Those employee costs are subsidized lobbying and are covered by revenues derived from rates.

As a result, we include this spending in our calculation of the “Dominion Tax” because current law does not ensure ratepayers do not actively bear these non-essential costs. Ultimately, the money for these activities comes from ratepayers in one form or another under our current system.