Harry Godfrey: Explaining Energy Legislation in the General Assembly
Del. Lee Ware, R-Powhatan, speaks during a press conference on a bipartisan bill seeking to adjust electric utility rates (Charlie Paullin/The Mercury) January 10, 2023, Electric utility rate reform back on General Assembly agenda. The Virginia Mercury. https://www.virginiamercury.com/2023/01/10/electric-utility-rate-reform-back-on-general-assembly-agenda/
Harry Godfrey of Advanced Energy United--and Pod Virginia's favorite energy guy--joins the show this week to break down the energy and utility regulation bills working their way through the General Assembly this session. The first: the Affordable Energy Act, which would restore utility oversight and regulation abilities to the State Corporation Commission. The second, and more controversial: the Phase II Energy Bill, which would allow utilities to add certain line-items to base rates, as well as other changes opposed by AEU.
Episode Transcript
Michael Pope
On this episode of Pod VA.
Thomas Bowman
Rate regulation.
Michael Pope
A powerful discussion about regulating utilities.
Harry Godfrey
The governing assumption for years in Richmond has been if the utility puts a shoulder behind the legislation, it will move forward.
Thomas Bowman
It's all about the base rates.
Harry Godfrey
Watch this space; there's more to come in the days and weeks ahead.
Michael Pope
You are listening to Pod Virginia stick around.
I'm Michael Pope.
Thomas Bowman
I'm Tom Bowman.
Michael Pope
And this is Pod Virginia, a podcast that's totally confused about all the electric utility regulations that are floating around the General Assembly this year.
Thomas Bowman
There are a couple of major bills under consideration. And we want you to understand how they work and who benefits.
Michael Pope
Returning to the podcast is a friend of the show who is going to help us understand what's at stake in this debate. He's the Managing Director of Advanced Energy United, Harry Godfrey; thanks for coming back on the show.
Harry Godfrey
Thanks for having me.
Michael Pope
So there are two big bills, and we're going to talk about both of them. I want to start with the one that is known as the Affordable Energy Act. This was introduced by Delegate Rip Sullivan, who's a Democrat, and Lee Ware, who is a Republican. Essentially it allows the state corporation commission (the state regulatory body) to lower base rates when it determines that's appropriate. Harry explains this bill, what it does this do, and who benefits.
Harry Godfrey
The way to think about this is restoring the oversight and rate regulation powers of the state corporation commission.
Michael Pope
Can I put in here just a little bit and explain the backstory there? How is it that the SEC lost the ability to do this kind of regulation?
Harry Godfrey
It is a long story that we probably don't have enough time for, but in brief, right around 2000, Virginia went about trying to deregulate its utilities and have them sort of compete on the open market. This is about the same time that California was doing that, and that ended very poorly in California; folks may remember a company named Enron and all of the shenanigans and dealings around that. So in about 2007, Virginia went about re-regulating their utilities. And in that re-regulation process and some subsequent bills, the powers of the state corporation commission to sort of set rates and adjust them were constrained and narrowed a bit. And so that's where we then come into this sort of present-day dynamic where there are some limitations set upon just how much oversight the state corporation commission can have on electric rates.
Michael Pope
So Virginia has this body here, the state corporation commission; it's a regulatory body, and it's supposed to regulate the electric utility. And yet, the historical function here to do oversight has been set aside, and this bill would return that historical oversight. Is that correct?
Harry Godfrey
That's correct. In a nutshell, obviously, the state corporation commission has oversight they've been exercising, but there have been some limitations placed upon this. So this just restores them to sort of what the original function was intended to be and cuts out some of that sort of weird complexity and convoluted limitations.
Thomas Bowman
So my understanding of this bill is that it's actually pretty simple. And it does roll the clock back basically to the 1990s. However, in my experience, simple bills often have unintended consequences. So, Harry, I'm curious what your perspective is here on whether the simple bill is better than a comprehensive bill with a variety of stakeholder inputs. Isn't that generally more desirable?
Harry Godfrey
I think for the purpose of restoring reasonable SEC oversight, over rates really specifically. The clarity this bill brings to that role is actually what's desirable here. Thomas, I agree with you on the need for sort of comprehensive stakeholder input when you think about it. Have your policy briefly, and it's worth taking half a step back to think about the relevant roles of the legislature versus the SEC. The legislature goes about setting energy policy, quite rightly, in terms of how we generate energy in the state; who owns which aspects of that? How do we transmit it? Who gets to operate in this space? The VCA is a perfect example of that in a place where lots of different stakeholders with lots of different priorities came together to set Virginia's energy policy and put us on a path towards 100% clean. That is exactly the role that the General Assembly and sort of big comprehensive stakeholder work; that's where that should happen. And that makes a lot of sense. The SEC was created to be an adjudicatory body to oversee the implementation of that policy, make certain that utilities were following through on it, and do so in the most cost-effective manner possible. And so a simple, clear set of guidelines for them, that they can then operate within and go about delivering upon that. Let's implement this policy; let's do it in the most cost-effective manner. I think that there is actually real merit here. So we're talking about, are we setting policy? Or are we helping a body essentially undertake its mission? This is about doing the latter thing, and that's the right role for the SEC. So simple, I think, in this case, is probably better.
Michael Pope
So what's the current status of the Affordable Energy Act? So this bill was introduced by Delegate Rip Sullivan, who is a Democrat, and Delegate Lee Ware, a Republican?
Harry Godfrey
There is a Senate version of that as well, that was introduced by Senators McClellan and Deeds.
Michael Pope
Okay. All right. Well, we've got Sullivan and McClellan, who were key players in the clean Economy Act. What's its current status of it?
Harry Godfrey
These are each moving through their respective chambers; the Senate bill is, I think, on a slightly faster track; it is moved through subcommittee, and I do think it's it is tied into a larger conversation with some of the other legislation we'll talk about a little bit later. So I think what ultimately happens to it depends in part upon what sort of other activity we see occur. But today, they are still moving forward.
Michael Pope
Is there any opposition to this? This kind of seems like a no-brainer, right? The SEC is set up to do this, but for whatever reason, it has not been doing this for the past few years. This bill would restore the right of the historical ability that the SEC used to have; who's against this?
Harry Godfrey
I think, in all likelihood is the folks that might stand to lose from it, which is probably the utilities. The ability of them to set through legislative policy, how much they are, which we'll, we'll talk about more in a minute. They would prefer that happen than in front of an independent body that doesn't necessarily answer to them. Now, I think they would ostensibly tell you they can embrace components of this, but they would like some restrictions or restraints on it. But sort of fundamentally, it goes against the philosophy of why we have an SEC and why we have an oversight body like that for that purpose. So if you're gonna identify the Biggest Loser from this. It might be the incumbent utilities, the biggest winners, or anybody who pays an electric bill.
Thomas Bowman
Harry, one thing that some of those incumbent utilities have said in a public conversation about this bill. As introduced, the Sullivan, McClellan, and Deeds bill could potentially call into question their ability to provide customer refunds. What do you say to that? And do you think that's a valid concern?
Harry Godfrey
The ability of the individual utility to go about providing customer refunds? I think that hinges upon the particular decision-making of the state corporation commission. In particular cases, the state corporation commission says, we've looked at these various rates, and we decided that you probably over earned here, and you need to return that money. That seems like they would readily be able to issue a customer refund. So I would have to better understand why they would articulate that. I don't see that as being a real downside risk here.
Michael Pope
All right. Well, let's move on to the other significant utility regulation that's floating around the General Assembly this year, which is way more complicated, and some people have taken this calling this the phase two energy regulation bill, aka the Dominion bill. This was introduced by leadership, Senate leadership, and House leadership here, Dick Saslaw and Terry Kilgore. So I guess you could look at this as the leadership bill as well. There's a lot of stuff that's in here, but I think the headline here is that it allows Dominion to make more money. Is that one aspect of this bill?
Harry Godfrey
I am sure that Dominion would contest that headline, but we'll go into the mechanics of that a little bit more. I think that's an accurate portrayal.
Thomas Bowman
So what is that bill, the face-to-energy regulation bill, and how does it work? What are they proposing?
Harry Godfrey
Yeah, so there are a couple of different sorts of elements to it, but I want to drill in on What I think is the sort of central purpose of that. And it's worth noting this, too, as with everything, in this General Assembly session, it too is in flux. So the original version of this bill had a number of different elements in it. Those elements, at least on the Senate side, as this bill is sort of moved along, a number of those have come out. So let's talk about what I think still really remains in the bill is sort of the core of the bill. And that the utility wants to take some of these racks and they want to put them into base rates.
Michael Pope
You said racks. Explain that word rack.
Harry Godfrey
That is a rate adjustment clause, better known as a rider. Basically, it is a line item that you would see on your bill that says, we're charging this amount for this specific project. And these were created to allow the utilities to recover costs on specific projects. And particularly since that re-regulation that I talked about from 2007 onwards, these had been the individual line items that had been steadily added and added to customer bills. So even as base rates have remained relatively stable and constant. As you get more and more line items added to your bill, your bill steadily rises. So part of this bill was about moving some of those individual racks are riders into base rates. But I think the biggest thing would be a requirement that the state corporation commission looks at a set of pure utilities that Dominion has identified and set the utilities' return on equity. This is the margin they can make for capital investments that they set that return on equity to be an average of that peer group, which by the way, if you do the math, is higher than their authorized return on equity right now. So that would be how they make more money.
Thomas Bowman
One key distinction between these bills, the Phase 2 leadership energy bill, or the Dominion bill, does roll back something that when I was in the House caused a lot of consternation, and that was a tri-annual review. And this is proposing a bi-annual review. So if we're trying to hold utility companies accountable, wouldn't we want to review rates more often?
Harry Godfrey
I think that's reasonable. It also sort of opens the possibility that if rates are unnecessarily low, they will get increased more quickly. So it can be cut both ways. It is a feature of the bill. From a substantive standpoint, I think whether it's bi-annual or tri-annual matters, but it doesn't make a huge deal of difference and certainly isn't necessarily a reason to object to the legislation.
Thomas Bowman
One thing that could matter to a lot of people in this face-to-energy bill is that it could provide relief faster to a lot of the customers who feel the brunt of like inflationary pressure. Because it would give rate relief in review, at least in 2023, this calendar year, instead of waiting until 2024. You've mentioned these are in flux. Is this something that would make sense for either of these bills?
Harry Godfrey
I think moving forward, certainly, with the first piece of legislation we talked about, the Affordable Energy Act would provide that relief; moving over to a bi-annual process might provide that relief as well here. But that's only if the calculus that's done around the rate review then comes away saying, here's how the utility earned or here's where this money is in, it should be returned to consumers. If part of what this bill does and currently as the bill is written, this is part of what it does; it says the utility is under-earning on his capital investments. So it should have a higher marginal return. It should be able to essentially earn more money and charge more money. I'm not certain that that necessarily results in bills going down, but that could result in bills going up, too.
Michael Pope
So you mentioned earlier the sort of people who support these pieces of legislation, people who oppose them. So just for the record here, your organization, Advanced Energy United, has taken a position on both of these bills, right? So share with our listeners what your position is on both of these bills.
Harry Godfrey
So we are in support of the Affordable Energy Act. And we are in opposition to the legislation that the phase two energy regulation, also known as the Dominion bill, has been proposed. It's worth noting we're not alone in that, by far, a wide variety of organizations and companies have expressed serious concerns about the Dominion legislation. Everybody from the Sierra Club to Americans for Prosperity, companies like Microsoft, representatives like the Virginia Poverty Law Center, Wegmans, Appalachian Voices, Google, and many more. So there is lots of consternation about what this legislation would really mean for consumers and businesses in Virginia.
Michael Pope
You just listed a wide variety of groups there that have a variety of interests; I would imagine they probably don't all oppose this bill for the same reason. But just as a group, what are their reasons? What kind of reasoning are we talking about with that long list that you just enunciated?
Harry Godfrey
And I don't know, let's be clear, I don't want to speak for any other organization in that from the standpoint of Advanced Energy united and the clean energy industry, we want to make certain that there's this reasonable balance and policymaking that we're getting good energy policy in Virginia. But that is implemented in the most cost-effective manner possible, and the SEC is able to do its job effectively. If the SEC finds its hands bound, or the process of building out new technology, new transmission, and new generation resources becomes more expensive. It's harder to make the sort of energy transition we're talking about toward a zero-carbon energy future. And so there's a concern for us, you see this legislation, what happens to that transition? Does this slow or stagnate as a result? That's where we come from in terms of concern, but I don't want to speak for any of the other organizations that are out there talking about this.
Thomas Bowman
Harry is speaking as somebody who's worked in a lot of Democratic politics; the Governor really matters when appointing people to various executive agencies and positions. Why should Democrats trust the SEC to appoint people who will operate in good faith under, frankly, either one of these bills?
Harry Godfrey
Yeah, so Thomas, it's worth noting the SEC is a little unique in the appointment dynamic around that; unless we're in a period where the House and Senate are in recess, it is actually the responsibility of the General Assembly to make appointments to the SEC. And currently, there are two open seats in the SEC. So this is a very active dynamic right now. But we have a divided legislature, so Democrats and Republicans need to come together and find a way of filling those seats, so the SEC can do its job and move forward. It's really a secondary question of whether or not Governor Youngkin will have any influence over that. It's first and foremost, how can the General Assembly come together and find candidates that allow this really important adjudicatory body to continue functioning? There are three members on it, or two vacancies right now; it effectively can't function; we're
Thomas Bowman
Harry, these bills are still in flux. And by the time this episode comes out, either on Thursday, or just a week from now, the posture of one or both of these bills could look or will look very different. Can you give us a peek behind the scenes at some of the pain points or how these negotiations are going, or a preview of perhaps what we can expect an outcome to be?
Harry Godfrey
You know, I don't want to try and forecast how this comes out, in part because, look, the governing assumption for years in Richmond has been if the utility puts a shoulder behind the legislation, it will move forward. I think the power dynamics in Richmond are complicated between a divided General Assembly and, obviously, the Governor's diverse priorities in the state and beyond the state. So there's definitely some tension there. For the energy plan that the Governor released last fall, we were not necessarily cheerleaders of that, and the Governor highlighted some of the places where they've had real issues with utilities. So you can't automatically assume that the Governor is necessarily supportive of the utility legislation. Combine that with the wide variety of stakeholders who have expressed really serious concerns about the Dominion bill, and it's not impossible to see a path forward. They certainly have significant support there. But it's not easy, either. We could have some interesting bedfellows on both sides of the aisle as a result. So that can be a little difficult. But I think there are a lot of different factors being weighed in there. That bill has already been slimmed down, and some of the initial proposals have been pulled out. I think you'll see it modified further before it ultimately makes progress. But I think we'll continue to see progress. It's been moving in the Senate, but it has not moved as quickly in the House. So I'd watch the Senate very carefully around that. And then I think it's how the Dominion bill moves forward will also, for better or worse, govern how the Affordable Energy Act moves forward, so watch this space. There's more to come in the days and weeks ahead.
Michael Pope
Great. Well, we talked about the Affordable Energy Act. We talked about the Dominion bill. Before we let you go, Harry Godfrey, one other bill that I want to get your thoughts on that's related to this stuff, but a little bit different, which is a bill to reinvigorate the Commission on electric utility regulation. So this is a body that was created back in 2008. And has been dormant for a while. Senator Surovell and Delegate Kilgore are working together to reinvigorate this Commission to staff it with seven people, which could spend a billion dollars for seven staffers. Tell us about this Commission on electric utility regulation. And what do you think the fate of Surovell and Kilgore has been, the bill is going to be here?
Harry Godfrey
I'm really optimistic to see that we have bipartisan, bicameral support for reinvigorating this Commission. The legislative session in Virginia is too short to handle the complexity of energy policy that we face. And we're going to face the future. And so having that sort of professional Commission that is managing that and thinking about that policy outside of it, and then informing the legislative process, I think is incredibly important.
Michael Pope
And members of the General Assembly would also be on that Commission, too, right?
Harry Godfrey
Absolutely. So they would be engaged in it, could meet outside of session, they could work through this policy, they could dive into the weeds, you could take some of this legislation, pull it out of the crush of the session, and really think it through. I think that the key thing so I'm optimistic about that legislation moving forward, given who's supporting it in the Senate and the House, and that we've got both Democrats and Republicans thinking about it, talking about it. The key question that folks should work for and really should fight for around this is not only should that legislation be passed, but the Commission needs sufficient funding to hire staff to actually carry out these tasks. So it's really important. I know on the Senate side; there is there there are budget proposals to do that. I don't know that that exists in the House, but I'm optimistic about the final budget. There will be dollars for that.
Michael Pope
All right, Harry Godfrey of Advanced Energy United, thanks for coming back on the podcast.
Harry Godfrey
Thanks for having me.
