Virginia Is Redrafting Electricity Regulation
Dominion-Backed Bill Prompts Rate Fears

By Michael D. Shear
Washington Post Staff Writer
Monday, February 5, 2007

RICHMOND -- The Virginia General Assembly is trying to rewrite the complex laws that govern the state's power companies, moving toward an untested approach to electricity regulation and prompting charges from consumer groups that monthly bills will rise.

Legislation speeding through the House of Delegates and Senate would ensure that the state's largest power company, Dominion Virginia Power, continues to be regulated by the State Corporation Commission. But the bills would give the company broad rate flexibility it says is necessary to build a new generation of coal, natural gas and nuclear power plants.

If the legislature doesn't act, Dominion will be free of regulation in 2010, the result of previous action intended to give consumers a choice in their electric companies. But competition that was once predicted has not materialized, giving rise to fears that rates for electricity could soar even higher without the changes. That's what happened last year in Maryland, where utility rates in some areas rose as much as 75 percent.

But instead of returning to a system of regulation that controlled prices for almost 50 years, Dominion is pushing for a novel approach that has angered state regulators, environmentalists and consumer protection groups. Dominion serves 2.2 million customers in Virginia, including about 860,000 in the Washington area.

The approach would restrict regulators' ability to reduce Dominion's rates if the company's profits soar. Instead, Dominion would share its profits with customers. With "the old system, the message that we got was, 'If you do very well, then your reward's going to be we're going to reduce your rates,' " said Paul Hilton, the company's senior vice president for regulation. "What we're proposing with an incentive system is, 'If you do well, you share in that.' "

The Dominion-backed bills would also help ensure the company's ability to earn profits similar to those for other electric companies in the South. Under the proposal, the SCC commissioners could not lower rates below a certain, predefined point. And if profits were higher than expected, the company would split the excess with customers.

Critics of the plan say it will lead to higher electric bills and will strip the SCC of the necessary authority to rein in rate increases. They say the pending legislation would allow Dominion to increase rates with impunity.

"If you want to have rates going up higher than they ought to be, take this bill," Theodore V. Morrison Jr., one of three commissioners on the SCC, warned House lawmakers Thursday night. "I don't see there's anything but higher rates."

The House Commerce and Labor Committee ignored those warnings, voting to approve the Dominion-backed bill 18 to 1 and sending it to the full House for approval. It is scheduled for a full vote there early next week. A Senate committee is expected to vote on a similar measure Monday.

But all sides say the legislation is still a work in progress, with more changes likely as critics and supporters struggle over what the far-reaching measure will mean for the state's future.

"There's still more work to be done on the bill before it will be acceptable to business customers," said Mike Carlin, a lobbyist who represents industrial and retail companies. "We need to make sure we take the amount of time to make the right decision."

A Tough Choice

After nearly a decade of marching toward deregulation, Virginia is now racing the other way.

In the span of a few weeks, a handful of part-time lawmakers is rewriting decades of rules that govern how Dominion and other power companies generate power and distribute it to customers across the state.

In December, Dominion lawyers and executives put forth a proposal that sought to strip virtually all authority from the SCC to lower rates. The suggested bill landed with a thud in the General Assembly when lawmakers returned in January.

But the proposal formed the starting point for a series of closed-door discussions hosted by the attorney general's chief deputy, Bill Mims, a former state senator from Leesburg. Dominion officials, consumer advocates and corporate electric users sat in a conference room in the attorney general's office for two weeks.

"The discussion draft before you is the result," Mims told lawmakers last week. "It is a work in progress. It is not perfect, but neither was the process. We would have benefited from 14 weeks rather than 14 days."

What has emerged is a revised plan, still supported by Dominion and still opposed by environmental groups, consumer advocates and some big companies that use large amounts of electricity.

Now, the tough decision shifts to lawmakers, many of whom have received tens of thousands of dollars in gifts and campaign contributions from Dominion over the years.

The company gave almost $560,000 to candidates in 2006 and has given about $3.8 million since 1996, according to the Virginia Public Access Project, which tracks campaign fundraising. In addition, several lawmakers own more than $250,000 worth of Dominion stock, which hit a new high Friday after the House committee approved the legislation.

The company also takes advantage of state laws allowing lobbyists to offer gifts to lawmakers during the legislative session. In 2006, the company spent $7,245 on sporting events for lawmakers, according to the Virginia Public Access Project. It spent $5,545 on meals, $4,808 on airfare, $3,646 on hunting and fishing, and $750 on theater shows.

The company's adversaries are also active contributors. Northrop Grumman, which runs a large shipyard in Newport News and has other locations in the state, gave $77,000 to lawmakers in the past year and about $1 million over the past decade.

Dominion officials say their contributions are not part of a quid pro quo to get legislation they want.

"In our experience, members of the Virginia General Assembly vote on the basis of issues, not campaign contributions," said David Botkins, a Dominion spokesman. "We strongly dispute any notion that tries to link contributions and legislative action."

But critics say the campaign donations help grease the way for new regulations that could guarantee profits for the company worth billions of dollars over the next several decades.

"We can be sure that Dominion will be one of the top, if not the top, contributors, should this bill pass," said Mike Town, director of the Virginia Sierra Club.

A Need for Power

The half-finished North Anna nuclear power station, about 50 miles northwest of Richmond, is a symbol of what's driving the debate over Virginia's electric future.

Designed to house four nuclear reactors, the power station has two, in part because Dominion could not afford to finish it. Now, the company says it needs the certainty of greater profits to attract the billions of dollars in capital it will take to build nuclear power plants.

Dominion officials say the state's surging population and growing economy are fueling a dramatic need for more power. Homes in Stafford County, data centers in Loudoun County and hotels in Virginia Beach all require additional electricity, they say. And to provide it will cost money.

"Virginia does not want to depend on the market to the north for power," Hilton said. The state "really must make sure the resources are available here."

But how to do that?

The company says the answer is to embark on a $4 billion construction program that could include nuclear reactors as well as new coal or natural gas plants. Company officials say they need to operate under a more flexible regulatory system that allows profits to rise as the company becomes more efficient.

Environmental critics say the company should instead be required to increase its use of solar and wind power and put in place tools to reduce demand for electricity. That will negate the need for new power plants and allow rates to stay low, they said.

"Everything that Dominion is trying to do with this bill would not only affect the environment and consumers, but it all accelerates Virginia's contribution to climate change," said Mike Tidwell, executive director of the Chesapeake Climate Action Network.

Proponents of the company-supported legislation say it sets targets for the use of renewable energy and will encourage electric customers to conserve.

But the big issue for lawmakers during the next few weeks is likely to be rates. All 140 lawmakers will face the voters in November, and they do not want to be explaining dramatically higher electric bills during their campaigns.

Carlin, whose clients include big retailers such as Wal-Mart, as well as mom-and-pop businesses, said the debate boils down to one question for users of electricity.

"How much authority will the State Corporation Commission have to act to make sure that rates are fair?" Carlin asked. "That's the bottom line."