Two Steps Back: 2013 and 2014 Energy Bills VA Energy Purchasing Governmental Assoc. May 8, 2014 Stephen D. Haner Black Walnut Strategies Richmond, VA

2012 Energy Conf: Key Points The 2007 legislation was a better outcome than de-regulation. The legislation left the SCC with less authority than it had under Chapter 10, but more authority than the utilities wanted the SCC to have. The 2007 legislation gave the utilities guarantees and advantages that are provided in no other regulated state, and certainly are granted to no other businesses. It will eventually raise our electricity costs above the national and regional average. For industrial rates it already has. As any rational business would do, Dominion is shaping its business decisions to take full advantage of the law and maximize returns. The 2007 legislation included renewable power financial rewards that bear no relationship to risk or investment or environmental benefits. The SCC needs more discretion. The statute should include more “mays” and fewer “shalls”.

USS. AtlanticVirginia Avg. Industrial Rates, 2001 – Present ¢/kwh EIA Data, Chart 5.6

2012: Unusual Provisions Which Add Cost Rate of return “peer group” 60/40 share line on excess earnings (rather than return 100 percent to ratepayers.) 50 basis point reward for (easy) RPS goals basis point mandatory bonus ROE for new utility owned plants 100 basis point ROE performance bonus (not awarded in 2011) No competitive bidding requirement

2013 Legislation: One Step Forward and One Step Back Followed critical 2012 study of 2007 legislation prepared for Attorney General Cuccinelli Dominion & Cuccinelli were only negotiators Eliminated RPS bonus of 50 basis points Eliminated construction bonus for conventional power plants, but retained for nuclear and OSW Widened the “earnings collar” to benefit Dominion Increased the share line to 70/30 BUT… Cooked the accounting on the 2013 rate review

2013 Biennial Review “Severe weather events” costs and plant retirement costs, no longer amortized per 2013 legislation, added $400 million to expense during period This resulted in a finding that no excess earnings were received and ratepayers received no rate credits (unlike 2009 and 2011) SCC strongly asserted its “reasonable and prudent” authority to adjust equity/debt ratio to 50 percent SCC projected Dominion base rates will collect $560 million more than needed during period

2014 Legislation: Two More Steps Back Dominion rewrote the “reasonable and prudent” authority (SB 585) Dominion is allowed to collect $400 million in capital cost on North Anna 3 as a charge against the base rates (SB 643) “All” those costs “shall” be recovered, leaving the SCC unable to reject anything judged imprudent or unreasonable

Changes since 2012 Rate of return “peer group” (Still in force) (70/30) 60/40 share line on excess earnings (but there will be no excess earnings) 50 basis point reward for RPS goals basis point mandatory bonus ROE for new utility owned plants (nuclear and wind only, most profitable) 100 basis point ROE performance bonus (not awarded in 2011 or 2013) (But still permitted) No competitive bidding requirement Strong “reasonable and prudent” provision now weaker. General Assembly has dictated accounting rules for utility two sessions in a row. Future rules will be adjusted at Dominion’s request to prevent excess earnings, credits

Key Points Revisited The 2007 legislation was a better outcome than de-regulation. Less True The legislation left the SCC with less authority than it had under Chapter 10, but more authority than the utilities wanted the SCC to have. Less True The 2007 legislation gave the utilities guarantees and advantages that are provided in no other regulated state, and certainly are granted to no other businesses. It will eventually raise our electricity costs above the national and regional average. For industrial rates it already has. Still True As any rational business would do, Dominion is shaping its business decisions to take full advantage of the law and maximize returns. Still True The 2007 legislation includes renewable power financial rewards that bear no relationship to risk or investment or environmental benefits. Those are gone – the one element that has improved The SCC needs more discretion. The statute should include more “mays” and fewer “shalls”. More “shalls” were added in 2013 and 2014

Dominion’s VA Political Donations Five Year Totals Source: VPAP

Manipulating Cost for PR Value Fuel factor normally set once per year, during summer Set at 2.942¢ per kWh for Fall of 2013 Dominion voluntarily reduces it to 2.572¢, almost 13 percent Dominion defends its plan to use operating rates to pay early for NA 3 by pointing to its “low rates” Last week Dominion files to increase fuel factor to 3.218¢, Up 25 percent Impact is greatest on large commercial and industrial users Did they cut the rate early for political value? To improve their comparison with other providers during GA?

Do You Just Have to Take It? All this raises costs for local governments, as well as individuals and businesses VEPGA is 5.25% of Dominion load and $410 million of its revenue Local governments should also be just as concerned about SCC authority to keep costs reasonable and prudent At the end of the day, like taxes, only people can pay electric bills – government, like business, passes it on Local governments have substantial political clout (and an army of lobbyists larger than Dominion’s) Local governments should be right there in Commerce and Labor along with the rest of us