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SCC rejects Dominion Energy’s proposed rate of profit

dominion energyThe State Corporation Commission has rejected a proposal from Dominion Energy Virginia to set its future rate of return on equity at 10.75 percent. Instead, the SCC approved a rate of 9.2 percent.

The return on equity is effectively the allowed profit that Dominion’s shareholders receive on their investment in Dominion’s equity.

The return on equity set by the Commission impacts two major components of the monthly electric bill paid by customers. It will be used in future rate adjustment clause cases. Through these rate riders, Dominion collects from its customers the costs of various capital projects, including the authorized profit on those capital expenditures.

In an annual report to the General Assembly last August, the SCC reported that Dominion is planning new capital expenditures of more than $12 billion between 2019 and 2023. If the capital expenditures are approved by the Commission, Dominion is eligible to collect a return on equity on the projects through its Virginia customers’ rates.

For illustration, on $12 billion of capital expenditures recovered over 25 years (a minimum recovery period for recent capital projects), a 155-basis point difference in rate of return (the difference between 10.75 percent and 9.2 percent) could cost customers an additional $1.4 billion.

Secondly, the return on equity will be used during the 2021 review of Dominion’s earnings on base rates for years 2017 through 2020, under applicable state law.

In rejecting Dominion’s requested return on equity (ROE) of 10.75 percent, the Commission said that the proposed profit “represents neither the actual cost of equity in the marketplace nor a reasonable ROE for [Dominion]. Nor is Dominion’s proposed ROE of 10.75% consistent with the public interest.”

In contrast, the Commission found that a return of 9.2 percent was “consistent with the public interest” and “reasonably balances the interests of [Dominion], its customers, and its investors.”