For much of the past year, critics have been assailing Dominion Power for its "$76 million rip-off": a bonus the company claimed for meeting Virginia's renewable energy goals using old dams, trash and wood, much of it out of state. Environmental groups say Dominion should get a bonus only if the company invests in new wind and solar projects in Virginia. Attorney General Ken Cuccinelli says utilities shouldn't get bonuses for renewable energy at all.
This month the company finally piped up, appearing to deny all charges. Ratepayers haven't had to pay anything, said the carefully-worded response to a media inquiry. Base rates are frozen until December 1, 2013, and its compliance with the renewable energy goal will "be only one of a large number of factors that affect the SCC setting our rates going forward."
Reporters were left scratching their heads. A year ago the State Corporation Commission, which regulates Virginia utilities, determined that the company has "earned" the $76 million bonus by meeting the absurdly lax terms of the state's renewable energy law. (See SCC case PUE-2011-00027.) So if customers aren't paying, how is Dominion collecting?
But of course, customers are paying, and you can bet Dominion intends to get every dime. To understand how this can happen, imagine that you hire a contractor for a long-term project. You agree to pay her a set amount every month. Out of your payments, the contractor will take her expenses and profit, and when she meets a particular goal, she can take out a bonus as well. At the end of two years, you will recalculate your monthly payments to ensure the contractor recoups anything still owed to her, as well as to cover what she is entitled to going forward-expenses, profit and bonuses-and the work will continue.
This is roughly how electric rates are determined in Virginia (although utility customers' payments also depend on how much electricity they use). Regulators set the rates, and Dominion takes its expenses and profit, including any bonus, out of the payments it receives from customers. If there is money left over at the end of the rate period, Dominion has to refund 60 percent of the excess to ratepayers. (Why doesn't the company have to refund the entire overcharge, you ask? Sorry, that's a different rip-off, and I can handle only one at a time.)
On the other hand, if the rates don't bring in enough revenue to cover expenses and profit, they will be reset at a higher level for the next rate period. One way or another, the utility get its money.
So Dominion's lawyerly response to critics turns out to be both correct, and irrelevant. Utility rates are currently frozen, but that tells us nothing about whether the company is collecting its bonus. And if Dominion does not collect the full $76 million before the end of 2013, it will be one of the "factors that affect the SCC setting our rates going forward." That is, rates will be set to ensure Dominion collects the full amount.
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