As Dominion seeks to upgrade grid, critics say customers could shoulder unfair burden

RICHMOND, Va. (AP) — Dominion Energy says Virginia needs a critical upgrade of its electric grid at an estimated cost of between $2.4 billion and $3.5 billion, and regulators say the company wants to fund the upgrade in a way that makes customers pay twice for some of the costs.

The state’s largest electric utility is scrambling to secure lawmakers’ support for a major rewrite of how the state regulates electricity, which has been met with stiff resistance from consumer rights groups, environmentalists and others.

Democratic Gov. Ralph Northam, who has expressed “serious concerns” about Dominion’s initial proposal, has organized a private working group to try to find a compromise.

“We’re going to take our time,” Northam said. “We want to do this the right way.”

The heart of the legislation would lock in Dominion’s base rates, which make up the majority of a customer’s bill, at levels that regulators say are currently producing excessive yearly profits of about $400 million.

Doing so, according to the company, would permit upgrades needed to strengthen the electric grid against bad weather and cyberattacks, while making it more accommodating to renewable energy sources. Dominion has launched an aggressive public relations and lobbying campaign in support of the legislation.

“It’s trying to find a way where we can make an important investment in the grid while keeping rates stable,” Dominion lobbyist Jack Rust told lawmakers Wednesday.

Current customers would pay a premium for that stability, but how much is unclear.

Company officials were initially unable to say how much a needed upgrade would cost, indicating last week that even a ballpark estimate was impossible. Several company officials, including CEO Tom Farrell, declined multiple requests from The Associated Press for details during the past 10 days. After an initial version of this story was first published, Dominion spokesman David Botkins said the grid upgrades would cost between $300 million and $350 million a year for eight to 10 years, for a range of $2.4 billion to $3.5 billion.

Grid modernization has a broad definition under Dominion’s proposal, including installing “smart meters” on homes, burying transmission lines and boosting physical security at certain substations.

Critics of the legislation say grid upgrade costs should be spread out over time like other capital costs, not borne entirely by current ratepayers. Democratic Sen. Chap Petersen said that the previous absence of a price tag for the grid modernization “shows a lack of credibility” and that the legislation’s main purpose is to block regulators from ordering refunds or dropping rates.

“This whole thing, it’s a pretext,” Petersen said.

In 2015, Dominion helped usher through a law to lock-in base rates for several years, saying the move was needed to stabilize rates in the face of potential federal carbon regulations. That law has resulted in a windfall for the company and could result in large future profits if not repealed or altered.

The State Corporation Commission said the current legislation would effectively double grid modernization costs by blocking refunds. Regulators used a hypothetical situation where a utility owed customers a $100 million refund but spent the same amount on grid upgrades, plus interest and a profit margin, and avoided having to pay a refund.

“Effectively, customers are more than $200 million out of pocket … for these $100 million of new distribution grid transformation projects,” the SCC wrote in a letter to lawmakers.

Dominion said the SCC is not focused on the right issues and the legislation is needed to make long-term investments and avoid volatile rates.

“The commission is concerned with capital; the commission is not looking at the rates,” Rust said.

And Botkins said the legislation is a fair trade-off because it would limit the company from seeking new rate add-ons that would take decades to pay off.

As a regulated monopoly guaranteed a return on investment, Dominion’s business model relies on getting approval to spend on new projects like power plants, pipelines and upgrades to the grid. In a recent presentation to investors touting its capital spending, the company boasts of a “best-in-class” annual dividend rate projection of a 10 percent yearly increase through 2020.