Dominion Energy Virginia and Appalachian Power Co. earned millions above their authorized returns on equity for the second year in a row, Virginia utility regulators said.
Dominion Energy Virginia, known legally as Virginia Electric and Power Co., earned $277.3 million above its authorized return on equity in 2018, the State Corporation Commission said in an Aug. 29 report. That translates to a 13.47% ROE for its combined generation and distribution base rate in 2018, compared to the 9.2% base ROE that the commission, or SCC, had set. When broken down, the Dominion Energy Inc. unit's generation base rate had a 20.19% ROE, more than double the authorized level, while the distribution base rate was actually negative.
Appalachian Power had an actual ROE slightly above the authorized threshold; the utility earned $7 million, or 0.47%, above the approved level for its combined generation/distribution base rate in 2018. In a similar pattern to Dominion Energy Virginia, the American Electric Power Co. Inc. subsidiary's generation base rate had a higher ROE, while its distribution base rate was also negative.
The report and the findings are part of Gov. Ralph Northam's reinstatement of rate reviews for the two utilities. Dominion Energy Virginia will have a review in 2021 in which the state will examine its financial performance in 2017-2020. Appalachian Power will have its review in 2020 with a look back at its performance in 2017-2019.
According to the SCC, Dominion Energy Virginia could refund ratepayers up to $379.7 million from its 2017 and 2018 excess earnings, while Appalachian Power could return $10.9 million from its 2017 and 2018 excess earnings. Under state law, the utilities can use their excess earnings for capital investments rather than customer refunds or rate reductions. But what they might do will not be clear until the state conducts its rate review, Appalachian Power spokesperson John Shepelwich said.
"They'll certainly look at the three years as a whole to determine if there was excess earnings, if the target return needs to be changed up and down, or if it's fine where it is," Shepelwich said Aug. 30, adding that Appalachian Power's 2018 ROE was "not dramatically" far off from the SCC's target. "There is a window that we are allowed to hit. It's not exactly at that target number."
Dominion Energy spokesperson Audrey Cannon said the additional revenues will go toward company initiatives that the SCC has already approved, such as its 12-MW Coastal Virginia Offshore Wind Project and grid enhancements. "Reinvesting the revenue identified by the SCC [Aug. 29] will enable us to give our customers what they want while also keeping rates low," she said.
Still, some environmental groups have criticized the additional revenues, particularly in the case of Dominion Energy Virginia.
"Dominion Energy is cheating Virginia customers out of hundreds of millions of dollars in refunds," Clean Virginia Executive Director Brennan Gilmore said in a statement. "It's time to empower regulators to return Dominion's excess profits to its customers. Dominion's CEO makes one of the highest salaries in the entire utilities sector and the monopoly has among the highest profitability of all utilities — that money belongs to Virginians."
