By Michael Brooks and Rich Heidorn Jr.

Virginia Gov. Terry McAuliffe signed a controversial bill last week that suspends the State Corporation Commission’s reviews of Dominion Virginia Power’s base rates for the next seven years, allowing the company to collect potentially hundreds of millions in excess profits.

The bill (SB1349) was introduced by Sen. Frank Wagner (R-Virginia Beach), who has acknowledged that Dominion helped him write it. The bill freezes the utility’s base rates for five years and prevents the SCC from conducting its biennial reviews until 2022. Dominion, however, would still be able to request increases for fuel and infrastructure costs.

The freeze locks Dominion’s base rates at a level that the commission concluded in November 2013 was resulting in $280 million a year in excess profits.

“This bill is the result of strong collaboration among bipartisan legislative leaders and General Assembly members along with business, consumer, community and environmental groups,” Dominion said in a statement. “As a result, Dominion Virginia Power customers will see a rate cut and long-term rate stability.”

The “rate cut” is a reference to an early reduction in Dominion’s fuel cost surcharge. Bills for typical residential customers will drop by 5.5% in April rather than July, as previously scheduled. Commercial customers will see bills drop about 7% and industrials will save 10%.

The bill passed both houses of the General Assembly last month with bipartisan support, with the Senate voting 32-6 and the House of Delegates voting 72-24. (See Bill Halting Dominion Rate Reviews Passes Va. Legislature.)

Legislative Sway

The lopsided votes were typical of the treatment Dominion receives in the Virginia legislature.

During the 2015 legislative session, Dominion helped defeat a cap-and-trade proposal, legislation that would have prevented the utility from erecting power lines in parts of Haymarket, Va., and a bill that would have limited Dominion’s ability to conduct surveys on property owners’ land for its proposed Atlantic Coast Pipeline, according to the Associated Press.

In addition to the rate freeze, Dominion also won continuation of a coal-related tax credit.

“Nobody does it better,” Democrat state Sen. Adam Ebbin told the AP. “Unfortunately consumers don’t have full-time, highly paid lobbyists.”

Political Contributions

Dominion is perennially a top campaign contributor in Virginia, which has no limits on the size of donations.

In 2014-15, according to the Virginia Public Access Project, Dominion contributed $744,540 — more than any other donor aside from party and candidate campaign committees. The company’s contributions were more than double that of the second-ranked Virginia Bankers Association. (See chart).

Dominion’s political donations are almost evenly split between Republicans and Democrats, with the largest contributions going to statewide candidates and legislative leaders. McAuliffe campaign committees have received $160,000 from Dominion since 2013.

Wagner’s campaigns have collected more than $38,000 from the utility since 2000.

Dominion also courts allies through its charitable arm, the Dominion Foundation, which gives away about $15 million annually. Three groups that testified in favor of the bill — Senior Connections, the American Red Cross and the Better Housing Coalition — each received donations from the foundation in 2013, the Richmond Times-Dispatch reported.

“No single company even comes close to Dominion in terms of its wide-ranging influence and impact on Virginia politics and government,” University of Virginia political analyst Larry Sabato told the Times-Dispatch.

‘Concessions’ for McAuliffe

McAuliffe (D) said that he negotiated directly with Dominion Resources CEO Thomas Farrell II, at the latter’s request, while the bill was being debated in the General Assembly. McAuliffe asked the company to accept several proposed amendments as a condition for his support, the governor told reporters at the state Capitol on Wednesday, the day after he signed the bill.

“When this bill was introduced, I expressed concerns about several of its provisions,” McAuliffe said in a statement. “However, after working with the General Assembly to make several key changes, I have concluded that this legislation represents a net positive benefit to Virginians and to our economy.”

Those changes include encouraging the utilities to invest in up to 500 MW of solar generation and requiring them to implement energy-assistance programs for low-income, elderly and disabled ratepayers. The solar project was already planned, but the announcement was accelerated to win environmentalists’ support, the Times-Dispatch reported.

Rate ‘Certainty’

Wagner said the purpose of the bill was to provide stability while the U.S. Environmental Protection Agency’s proposed rule on carbon emissions from existing power plants is being finalized. In a statement, Wagner praised McAuliffe for signing “a clear and unmistakable, bipartisan call for electric rate certainty during this time of regulatory turmoil.”

Virginia would be forced to reduce its emissions by 38% under the proposed EPA rule. Dominion, which has said it could have to close coal-fired power plants worth up to $2.1 billion as a result, agreed to cover the cost if the plants close before 2020.

While base rates are frozen, the suspension of biennial reviews means customers won’t get refunds if the company’s profits exceed what was approved by the SCC. Normally, the commission can reduce base rates if profits are judged too high for two consecutive reviews.

Dominion paid $78.3 million in refunds after its 2011 review. The SCC also reduced the company’s return on equity to 10.9%, down from 12.5% (PUE-2011-00027).

In 2013, the commission found that Dominion’s annual revenues were $5.15 billion, $280 million more than the $4.87 billion needed to recover its cost of service and earn a fair return. The SCC reduced the company’s ROE further to 10% but did not order refunds (PUE-2013-00020).

The rate freeze bill signed last week also requires all electric utilities in the state to file their integrated resource plans annually. Previously, utilities were required to file them every two years.

It was amended to apply to American Electric Power subsidiary Appalachian Power as well, though its review suspension period begins and ends earlier.

The bill starts Dominion’s suspension period on Jan. 1, so the SCC can conduct its rate review of the utility for the past two years. Originally, the suspension would have begun in 2013 and lasted until 2023.

Because of the freeze, SCC spokesman Kenneth Schrad said, the commission won’t be able to adjust base rates regardless of what the review finds, although there could be a partial refund of any over-earnings.

However, he noted that while the 2011/12 review suggested that base rates might be higher than necessary,  the 2014 General Assembly passed legislation allowing the company to recover an estimated $600 million in expenses it incurred exploring the possibility of a third nuclear unit at North Anna.

“Allowing that recovery to be included in the coming biennial review more than likely ensures that the company’s earning fall within the authorized range,” he said.