The Bottom Line: In a regulated monopoly system where there’s no competition, the only way to tell if rates are “low” is if regulators say they are. Right now in Virginia, regulators say that Dominion and APCO rates are too high and that these utilities are collectively overcharging ratepayers by hundreds of millions of dollars each year. Without Dominion’s corrupting influence on the General Assembly, energy bills and rates would both be much lower.
The Virginia Chapter of PolitiFact recently rated our observance that Virginia has the 11th highest energy bills in the nation as “half-true,” despite the fact that this figure comes directly from the Federal Energy Information Administration. PolitiFact notes that Virginia also has the 17th lowest residential energy rates; therefore, they claim, Virginians’ energy bills are only high because we use a lot of electricity and that there is not a clear link to corruption.
But the fact is that energy bills in Virginia are needlessly high because legalized corruption from regulated energy monopolies has distorted the relationship between energy consumption and energy bills. The connection between this legalized corruption hinges on two main factors:
- Virginians use much more energy than they need to. Dominion has failed to invest in energy efficiency, which saves consumers money, but hurts Dominion’s bottom line. Indeed, Dominion is ranked 50th out of 51 major utilities in energy efficiency.
- Our base rates have not gone down, despite flat energy demand and declining rates elsewhere. Simply put, the rates that Virginians pay Dominion for electricity are artificially inflated through a variety of mechanisms (explained below) in order to make profit when demand is flat.
Dominion’s ability to keep rates high is directly tied to legislation it has passed due to its strong influence in the General Assembly. This influence has also allowed the monopoly utility to get a free pass on making the necessary improvements on energy efficiency that would save us money on our bills.
Let’s take a closer look at what PolitiFact missed–and what makes our assertion 100% true:
- Dominion is 2nd-to-last in the nation on energy efficiency. Dominion ranks 50th out of 51 when it comes to the largest utilities on energy efficiency according to the ACEEE. Dominion is behind the median utility by about .8% (which is cumulative year-on-year) in terms of savings from energy efficiency. This means that every year, Dominion is adding another few dollars to your energy bill–compounding every year– compared to other utilities.
- Rates are much higher than they should be, but more importantly, rates are rigged against consumers. Dominion and APCO don’t face market pressure from competition because they are state-sanctioned monopolies providing a massive and complex necessity. In exchange for this market capture, regulators– theoretically– decide what a fair rate should be. But multiple pieces of legislation passed with bipartisan support through the General Assembly over the last five years have enabled Dominion and APCO to increase rates, despite flat demand and decreasing rates in nearby states. For example, a “rate freeze” law passed in 2015 allowed Dominion to overearn by $426.3 million in 2016 and $365.6 million in 2017. This is in addition to the SCC-sanctioned normal and “fair” profits Dominion receives; under traditional utility regulation, that money should have lowered rates or been refunded to ratepayers.
- Your energy bill isn’t just the cost of your energy usage. PolitiFact claims: “Power bills are generally tallied by multiplying two figures: the cost rate for a kilowatt of energy per hour times the number of kilowatt hours used” [emphasis ours]. But fact checks don’t examine generalities; they examine specific claims. In reality and for Dominion and Appalachian Power Company (APCO) ratepayers in Virginia, the result of that calculation yields a fuel charge, not a total power bill. The bulk of your energy bill is comprised of base rates (which cover operating and capital costs) and Rate-Adjustable Clauses (RACs, which cover single projects like new generation or environmental compliance; view one example RAC request here). Base rates and RACs make up the vast majority of your average ratepayer’s energy bill. As a result, saying your energy bill is just the product of your level of electricity consumption is false.
Dominion Energy Virginia (DEV) Residential bill, image from SCC Report to the Governor, August 29, 2018
- The RACs are bloated and costing ratepayers. Since 2007, Virginia has allowed utilities to use RACs to recover the costs of numerous new generation facilities and infrastructure projects– see one RAC application here. RACs also allow utilities to get a separate rate increase to pay for certain investments–even if base rates are already producing excess profit. Moreover, before the law was changed in 2013, utilities received rate of return bonuses to construct or acquire at least four new coal and gas-fired generation facilities. Since utility infrastructure projects are monitored by agencies without meaningful regulatory authority, Dominion and APCO don’t have to prove the necessity of this infrastructure. What this means is that utilities can charge you more for infrastructure that they didn’t have to justify building, even if their profit already covers the cost of that infrastructure. It also means that regulated utilities are guaranteed additional profit on top of base profit from those projects. Virginians will continue to pay these inflated rates for decades to come.
The truth is this: our rates are slightly lower than the national average and often above average for the region, but that’s not how we determine whether rates are actually low in a regulated energy system. We grant regulators the authority to set a fair price that reflects the minimum necessary to provide reliable electricity to a captured consumer market. Virginia’s regulators have been saying for years that utilities like Dominion and APCO are charging too much, but they have been stymied by a state-sanctioned monopoly with hundreds of millions of dollars of profit at stake. And for over a decade Dominion and APCO have worked to create a permissive environment in the General Assembly which has steadily weakened oversight over their monopolies. That’s why our energy bills, and the underlying rates behind those bills, are too high — and truly are the 11th highest in the nation.