When Companies Overcharge, Who Gets the Money? When Companies Overcharge, Who Gets the Money?

Lawmakers vote down proposal to give the money back to customers.

RICHMOND-When utility companies overcharge, who deserves that extra money? A proposal before the Virginia Senate this week would have returned that money to the company’s customers. The bill didn’t make it out of subcommittee, however, with lawmakers voting it down.

Virginia State Sen. Jennifer McClellan (D-Richmond) filed SB 1292, which had a fairly simple premise. The bill required “the State Corporation Commission to direct that 100% of the amount of a utility’s earnings above a certain threshold be credited to customers’ bills.”

Utility companies are limited on the amount of profit they can make, in order to prevent price gouging. They can cover expenses and then every two years, the SCC sets a rate of return. For example, Appalachian Power’s rate of return is 9.7%. For Dominion, it comes in at 10.7%.

Now companies can and do at times go over the allowed rate. SCC officials discovered in 2020 that Dominion overcharged customers by $502 million from 2017 to 2019. Currently, companies in those situations have to pay back 70% of the overcharged amount. They get to keep 30%, however. In this case, 30% of $502 million is $150.6 million.

Making a Change

McClellan’s proposal would have changed that. Under her bill, Dominion and other utilities would have been required to reinvest that money. If you overcharge customers by $502 million, then all of that money would have to go towards things like covering energy bills for people who can’t afford to pay or simply crediting the money back into the customers’ accounts.

McClellan, one of several Democrats running for governor this year, pointed out if the company struggles, they simply raise rates to get it back. But when they overcharge, customers can’t get that money back.

“If Dominion underearns, 100% of that underearning goes into increased rates,” McClellan said. “The customer bears all the risk, but they don’t get 100% of the benefit of the overearning and I just don’t think that’s fair.”

In public testimony, Bob Shippe from the Sierra Club echoed that argument.

“If I overpaid my taxes by $1,000, I’d expect to get $1,000 back not $700,” Shippe said.

He pointed out companies right now in Virginia have an incentive to overcharge, because they can keep 30% of that extra profit.

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Do Companies Overcharge?

Being overcharged is a pretty common practice. A study by Consumer Energy Solutions found that utility companies overcharge 70% of commercial customers alone. That’s 70% of all commercial customers across the country.

It’s not a recent problem either. A U.S. House Ways and Means Committee organized a study of the issue in 1986. They found in one year, public utility companies overbilled customers by an estimated $19 billion. Now 35 years later, it’s still an issue.

And it’s an issue Virginia constantly struggles with. When the SCC announced its findings about Dominion, Gov. Ralph Northam recommended that the utility be required to pay that money back, in the form of assistance to its customers. The General Assembly rejected the idea.

Part of the problem is that utility companies are often big political donors. According to data from the Virginia Public Access Project, Dominion contributed $1.329 million to races across the state from 2020 to 2021. That makes it the top political donor in the entire state. 

Bills that would ban utility companies from giving political donations die in committee. For example, State Sen. Chap Petersen (D-Fairfax) tried to get his SB 1236 passed for the third straight time this year. It died in a Senate Elections Committee vote.

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Now’s Not The Right Time

Opponents of McClellan’s bill said in a Wednesday meeting that now wasn’t the right time. Speaking to the Senate Energy Subcommittee, State Sen. Tommy Norment (R-James City County), argued that it wasn’t a good idea to hit companies with this during a pandemic.

“I know it’s popular to attack our regulated monopolies, [but] at some point, we have to pause this assault and let things stabilize,” Norment said. “I just think it’s premature.”

He pointed out that the SCC will review Dominion’s rates again next year. That would be a better time to make changes, he argued. Sen. David Marsden (D-Fairfax) agreed. Marsden said he would be willing to consider something like returning 80% or 85% to customers, rather than 70%, if it’s done next year.

There are currently no General Assembly races scheduled for 2022.

During their testimony, representatives for Dominion and Appalachian Power said their companies have a right to recoup expenses. They also asked what happens when they underearn, rather than overcharge? McClellan again pointed out later in the meeting when that happens, companies can and do increase rate costs on bills.

Regardless, the bill failed by a 4-0 vote, with Sen. Steve Newman (R-Bedford), Norment, Marsden and Sen. Lionell Spruill (D-Chesapeake) all voting against it. Sen. Louise Lucas (D-Portsmouth), the final member of the subcommittee, declined to vote.

All four men who voted no have received significant contributions from Dominion. Norment has received $187,240 and Spruill is right behind with $152,569. Marsden has received $51,236 in campaign donations from the company during his career. Newman took the least from Dominion, at $27,500.

Brian Carlton is Dogwood’s managing editor. You can reach him at brian@couriernewsroom.com.