March 9, 2018 at 3:41 PM
RICHMOND — A new generation of Virginia lawmakers won office last year in part on promises to reduce the influence of the state’s most powerful corporation, Dominion Energy.
Now the legislature is poised to recalibrate the relationship between consumers and the electric utility by subjecting Dominion to new state regulation and returning $200 million in overcharges to ratepayers.
But the force driving this turnabout is not populism; it’s Dominion itself, in an exercise of raw power that both acknowledges the new political landscape and demonstrates the company’s ability to maneuver through it.
Although Dominion appeared to have lost clout after last November’s elections, the utility is emerging from the legislative session as a winner again. After just a few weeks of consideration, lawmakers approved a complicated measure — largely written by the utility — that will set up Dominion with a reliable stream of money for new projects for the next decade and protect it from having to reduce electric rates.
“Ladies and gentlemen, is it a perfect bill? No,” Del. Terry G. Kilgore (R-Scott), who co-sponsored the legislation, told the House last week. “But let’s not let perfect be the enemy of the good.”
Dominion and its lobbyists have driven the process, drawing input from special interests including the League of Conservation Voters, the Virginia Poverty Law Center and the state Chamber of Commerce. Most either came to support the plan or withdrew their opposition. Gov. Ralph Northam (D) is on board, and the legislation has been co-sponsored by both Republicans and Democrats.
All because Dominion, sensing change in the air, moved to protect its interests. It mobilized thousands of in-state employees, retirees and shareholders to contact legislators and push for the bill, which its lawyers helped draft. It ran ads on TV — including one pricey slot during the Super Bowl — and in newspapers.
“I think it was something that we believed we could do. And that it made sense,” said Mark Webb, Dominion’s senior vice president and chief legal counsel. “Our view is when something seems to make sense, at least from the way we look at it, it’s worth pursuing.”
There’s an old line in Richmond that Dominion writes everything but the law of gravity. In fact, the company was so instrumental in shaping the utility legislation that its top lobbyist, the former delegate Jack Rust, testified during a hearing alongside the patron of the bill instead of during the time set aside for supporters and opponents.
To say that Dominion is Virginia’s top corporate campaign donor understates the company’s deep influence. Yes, it gave money to all the legislators who sponsored the utility legislation. It also gave money to many of the delegates and senators who voted against it.
It funds charities and sponsors community events; its revolving door features not only former lawmakers but lawyers from top Richmond firms. The company isn’t so much a backroom operator as an open participant in state government.
So it was shocking last year when state Sen. J. Chapman “Chap” Petersen (D-Fairfax City) came out swinging against Dominion.
With his bow tie and irascible manner, Petersen is a caucus of approximately one, a lawmaker who cuts against the grain of both parties.
A year ago, he took a look at the rate freeze that Dominion won from the legislature in 2015 and decided it didn’t make sense. He introduced a bill to undo it.
Before that freeze, the State Corporation Commission had reviewed the utility’s profits every two years. If it found that Dominion earned too much, it could order refunds or rate cuts.
But when the Obama administration approved the Clean Power Plan, the legislature suspended the SCC’s reviews to protect Dominion from unforeseen expenses of complying with environmental regulations. Base electric rates were frozen, which meant Dominion could not charge customers more — but they also wouldn’t charge them less, or issue rebates.
After Donald Trump was elected president and vowed to kill the Clean Power Plan, Petersen figured there was no need for the freeze anymore. The SCC looked back at the previous two years and determined that Dominion had reaped somewhere between $300 million and $700 million in excess profits during the freeze.
Petersen’s effort to make that argument in 2017 lasted all of about 24 hours. His bill drew bipartisan scorn and quickly died in committee.
Now he feels a measure of vindication. “A year ago I was the crazy man in the wilderness,” he said recently. “But the issue had legs.”
It was as if Petersen had broken a spell. Anti-Dominion sentiment began to bubble up. Former congressman Tom Perriello, running for the Democratic nomination for governor last year, made challenging Dominion a central part of his campaign. All 100 seats in the House of Delegates were up for election, and about 60 candidates pledged to reject contributions from Dominion. Thirteen won, nearly tipping control of the House to Democrats.
Dominion’s plan to build the Atlantic Coast Pipeline to carry natural gas through some of the most scenic parts of the state drew heated opposition from both environmentalists and property rights advocates.
The company viewed the outpouring as part of the national rejection of big institutions, the popular mistrust of the establishment that led to Trump’s election. Dominion pushed back, tapping its network of retirees and shareholders and launching websites to boost the brand.
Last summer, when then-Gov. Terry McAuliffe (D) pledged to establish statewide carbon regulations despite the death of the federal Clean Power Plan, Webb, the Dominion executive, brought his concerns to a state utility commission.
Environmental advocates assumed Dominion would use that as justification for preserving the rate freeze in the next General Assembly session.
But the company was aiming far beyond that.
Considering the future
Beginning last fall, Dominion held an unusual series of separate meetings with commercial, environmental and consumer advocacy groups.
“I suspect they felt more than they have in previous years that they really had to get some organizations on board with what they were thinking,” said Bob Shippee of the Virginia Sierra Club, which met with Dominion in December.
While the political world was still looking back at the rate freeze and the pipeline, Dominion was thinking about the future of its business, Webb said.
Solar and wind energy were getting cheaper. The grid — the power distribution system — hadn’t been updated in decades. It would need changes to adapt to the new forms of power, not to mention to guard against cyberattacks or devastating storms.
Dominion decided the easiest way to tackle all that would be to reinvest extra revenue in new technology instead of returning it as rebates to customers.
From that point of view, the State Corporation Commission had long been an impediment. Its three judges, elected by the General Assembly, typically reviewed each project in terms of cost and benefit to ratepayers. A lot of that new investment was hard to justify on a strict cost basis.
Lawmakers, too, had expressed frustration over the years that the SCC frowned on expensive new projects in favor of keeping rates low.
So Dominion began meeting with various groups, compiling a list of components it might seek in legislation — and working to spread support for its plan. It would invest in renewable energy such as wind and solar, which the environmental groups liked. It offered to expand programs to help low-income and disabled people pay their power bills, which consumer groups liked.
In December, Webb went back to the utility commission and suggested it was time to “transition away from the rate freeze.”
That set off anther round of buzzing among watchdog groups, which wondered what Dominion had up its sleeve.
But even so, they were stunned by the scope of what Dominion created with legislators when the General Assembly convened Jan. 10.
“It took creative minds to think, ‘How do we create a regulatory scheme that’s never been done before?’ ” said Albert Pollard, a former delegate who now lobbies on environmental issues.
Giving up too much power?
The bills hit the House and Senate at the same time, carried by some of the legislature’s biggest heavyweights. Both measures were largely the same: Dominion — and the far smaller Appalachian Power Co., which serves the rural southwest — would again submit to oversight by the state, but with enormous caveats.
Rate reviews would be every three years instead of every two. If Dominion was found to have made too much money, it could invest in renewable energy or grid modernization instead of returning cash to customers. The utility would also get advance permission for expensive projects to bury power lines, to the tune of up to $200 million a year.
In return — and lawmakers managed to push these numbers up as the bills were debated — ratepayers would get back $200 million for overpayments generated between 2015 and 2017, along with $125 million for Dominion’s share of the federal corporate tax cut. The average consumer would see about $6 per month in savings.
Northam stepped in, convening meetings to tweak the details. Most consumer and environmental groups were won over.
Two prominent players — the consumer affairs office of state Attorney General Mark R. Herring (D) and the SCC — argued that the state was giving up too much power, locking in a system that would make rate reductions almost impossible for a decade.
Nonetheless, the bills kept advancing in both chambers, with one important change made in the House. Del. David J. Toscano (D-Charlottesville), the House minority leader, successfully introduced an amendment to kill the “double dip” — a provision that he said allowed Dominion to both avoid refunds by making investments in renewables and put those investments into base rates. In effect, the utility would be charging customers twice.
Toscano’s change made that impossible. This is the one area where the legislature inflicted a change that Dominion did not want. Both chambers passed the amended bill.
Limits to a populist wave
A minority of lawmakers from both parties remain opposed to the bill on the most basic of grounds: They want to simply repeal the rate freeze and return the SCC to its usual oversight.
Del. R. Lee Ware (R-Powhatan) said the pending legislation is too much, too fast.
“Obviously, the regulated utility wants to see it as soon as they can,” he said.
Webb, the Dominion executive, said the company can’t afford to wait. Look at Florida, he said — the advanced grid there snapped back quickly after Hurricane Irma last year. A similar blow to Virginia’s antiquated system would be catastrophic.
Critics point out that the changes are also essential to Dominion’s bottom line. Much of the company’s profit comes not from consumers but from a rate of return — guaranteed by the state — on big capital projects. Modernizing the grid and building new systems for renewable energy would ensure continuing returns for shareholders.
There was one final test of the oversight legislation, when Del. Sam Rasoul (D-Roanoke) prepared a floor amendment that would have restored more authority to the SCC and made it harder for Dominion to charge big projects against customer overpayments.
It never got to a vote. Rasoul withdrew the amendment after a majority of his fellow Democrats told him it went too far.
He had apparently found the limits of last fall’s populist wave.
Petersen credits Dominion for executing a neat judo flip after all the negative politics.
“They were smart in two respects. One is, they got out in front of it,” he said. The other is that they were able to cast the bill as the state’s best bet for ramping up solar and wind energy, “that if you vote against their bill somehow you’re opposed to environmentalism,” he said.
Petersen said he’s already planning a strategy for next year: A constitutional amendment that would require a supermajority vote before the General Assembly could restrict the powers of the SCC.
“I’ll be happy to go to the voters to say you cannot trust the people in this building on this issue,” he said.