Wall Street’s Perspective on Virginia Rate Re-regulation


Ken Cuccinelli

What follows is a letter from former Attorney General Ken Cuccinelli to members of the House of Delegates two days ago. His discussion of the Wall Street perspective on electric rate regulation adds a new element to the debate, so I publish the letter here with his permission. — JAB 

Dear Delegates,

One of the benefits of being Virginia’s Attorney General is the opportunity to pick various areas of the law into which one can “dig in.” After working on energy projects in the private sector prior to becoming Virginia’s A.G., I was enthusiastic about digging into electricity rates. I learned a lot, including learning about my own mistakes when I was in the General Assembly.

One other thing I learned was that while the issue of electricity regulation is the most complicated with which legislators must contend, “clarity” is often not encouraged but discouraged.  Why would that be so?  Because confusion and the speed of the General Assembly session are used to skew bills against ratepayers (read: taxpayers) while downplaying or denying the worst possible real-world applications of the proposed bill.

This was the case in 2015, and it appears to be the case again this year.

The SCC staff has done an admirable job in their bill summaries of clarifying a complex and confusing issue.  That provides one source of clarity.

Where else might we find clarity?  While you might not think about it, another source of clarity is Wall Street. Any perceived misdirection or incompleteness in Dominion or APCo statements to Wall Street subjects them to lawsuits – a consequence that does not exist within the General Assembly. For example, what was the consequence to Dominion of the fact that their main argument for the 2015 bill was not, shall we say, … accurate?

The main consequence is that Virginia’s taxpayers have electricity rates that amount to the equivalent to almost a $500 million tax increase (combining the cost of both Dominion and APCo).  The 2015 bill thus qualifies as one of the biggest tax increases in Virginia history, except that instead of those dollars being used for transportation, education, public safety, etc., they just go as a windfall to Dominion and APCo shareholders.

So, what does Wall Street think of HB1558/SB966 (hereafter “SB966” or “the bill”)?

On February 1st, investment bank UBS issued a report to their clients that gushed over how spectacularly Dominion handles the General Assembly and Governors of Virginia to boost Dominion’s value (at the expense of Virginia ratepayers). UBS called SB966 a “catalyst” that drives Dominion’s stock price higher, and Wall Street is so sure the General Assembly will pass the bill, and Gov. Northam will sign it, that it has already priced the benefits to Dominion of the bill into Dominion’s stock price!

UBS, in a model of understatement, opens its discussion of the bill by saying “Dominion has proven adept at navigating VA politics.” UBS continues by noting “…the state’s history of constructive utility legislation…” leads them to believe “that the bill has a good chance of passing.”

Of course to Wall Street, “constructive utility legislation” means legislation that makes it even easier for Dominion to make a lot of money, which would be a great thing, if it didn’t amount to legalizing seizure from Virginians and our businesses.  This grab is ‘legalized’ by the General Assembly and the Governor.

How easy does Wall Street think Virginia is on Dominion? UBS thinks Virginia’s regulatory environment is SO favorable to Dominion that they add a full 5% to the expected value of Dominion’s Virginia business just because of Virginia’s anti-consumer/pro-Dominion regulatory structure.  Now THAT is quite a return on Dominion’s “investments” in lobbying and donating to campaigns!

Dominion spends mere millions on TV commercials, on lobbying and on political contributions to candidates and legislators and in return Dominion gets to write its own legislation that returns billions of dollars in cash and value. That means that Wall Street thinks Virginia is among the easiest regulators of utilities in the entire country – i.e., Virginia’s General Assembly and Governors are pushovers for Dominion.

To use a dating analogy, if Virginia were dating utilities, her name and phone number would be on the boardroom wall of every utility in the Commonwealth under phrases like “for a good time call….”  And that “good time” doesn’t even cost Dominion very much.

Farther into the UBS analysis of Dominion they ask the question: “Will HB1558 be good for Dominion?” Answer: “Yes. HB1558 would renew and extend the legislative mandate for constructive regulation in VA.” In other words, the current bill is not undoing any part of the terribly mistaken 2015 rate freeze, rather it is extending the benefits of that legislation.

Under the heading of “Evidence”, UBS again puts HB1558 in context: “Virginia has a history of passing constructive utility regulation.  The general assembly has demonstrated a proactive approach to utility regulation in the state.  The regulatory construct in VA right now is the result of legislation passed a few years ago.” [i.e., the 2015 rate freeze and other similar pro-Dominion/APCo bills].

Let’s analyze UBS’s evidence.  First, the ‘history’ UBS is talking about is the reliable expectation that the General Assembly will pass Dominion/APCo-favorable legislation. Second, we see the phrase ‘constructive utility regulation’ once more – in the context of a Wall Street analysis that means legislation that guarantees Dominion and APCo more profits at the expense of Virginians and their businesses. Third, the General Assembly’s ‘proactive approach’ means that the legislature displaces the proper regulating body (the State Corporation Commission) to dictate more favorable outcomes for Dominion/APCo (i.e., more money for Dominion/APCo, less for customers/ratepayers.) And finally, ‘regulatory construct in VA right now’ refers to all of the past pro-Dominion/anti-consumer legislation which forms the current legal regulatory environment that make Dominion and APCo the envy of utility executives all over America.

In addition to the fact that we all know that Dominion wrote the original bill, UBS notes that the bill just so happens to line up with Dominion’s already-existing capital forecast. For example, the original bill called for building 4000MW of solar power and, lo’ and behold!  Dominion had already told Wall Street that it would be building 3280MW of solar power!  That is quite a coincidence –or not.

It is worth remembering that what Dominion told everyone about their 2015 rate freeze bill did not turn out to be, well… true. The newest version of the bill does not change much, but it bumps up the solar piece from 4,000 MW to 5,000 MW. In fact, no one knows how that can be done with current technology, given the problems solar power presents as a large-scale source of power for the grid.

If Dominion in its SEC filings, had misled Wall Street to that degree on something so important, they could have been sued for violation of securities laws. If Dominion had misled the SCC so severely in a rate case, Dominion and its lawyers could have been held in contempt. Apparently that doesn’t happen to special interests seeking crony profits at ratepayers’ (i.e., taxpayers’) expense through the General Assembly, with the help of gubernatorial allies (both McAuliffe in 2015, and now it appears, Northam in 2018).

These bills should be defeated and Governor Northam should send down a bill to repeal the 2015 rate freeze and commence an immediate rate case for both Dominion and APCo at the SCC – without further interference from the General Assembly.

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