Stakeholders debate rate-adjustment clauses as a core PBR concern in Virginia

At a stakeholder meeting facilitated by the Virginia Department of Energy, participants spent the largest portion of discussion examining rate adjustment clauses (often called RACs or “riders”) and how they interact with Virginia’s performance‑based regulation (PBR) options. State Corporation Commission (SCC) staff and a range of stakeholder organizations described RACs as mechanisms that typically recover specific project costs outside a utility’s base rate and are subject to a true‑up process.

Stakeholders said RACs reduce the financial risk to utilities because costs placed in RACs are trued up dollar‑for‑dollar, shifting downside risk from shareholders to customers. SCC accounting staff described RACs as generally faster to recover and typically updated more frequently than base rates. As SCC staff Patrick Carr summarized, RACs “are typically updated and often are updated annually,” whereas base rate reviews are less frequent for the large investor‑owned utilities.

Several participants argued that the prevalence of RACs in Virginia weakens incentives for cost containment and encourages a capital bias. Multiple commenters noted RACs were introduced or expanded after the state’s reregulation era and that in Virginia many capital investments remain in riders rather than rolling into base rates once a project is in service. Carmen (participant) described the distinction: base rates cover the utility’s full cost of service while RACs are “only the recovery for a particular project.”

Some stakeholders advocated limiting RACs to construction periods and rolling projects into base rates once assets are “used and useful.” Others proposed tighter justification and periodic review before a utility may use a RAC for a given project. Opponents of wholesale RAC reduction cautioned that some RACs exist because statute or policy choices require cost recovery that would otherwise be difficult to allocate (for example, compliance costs for mandated programs or specific statutory riders).

Participants also discussed cross‑state variation and whether Virginia is an outlier. SCC staff said many states use riders but that rules and frequency vary by jurisdiction; examples cited included Ohio, California and Pennsylvania. Some speakers proposed that if RACs remain in use, states should design cost‑containment checks in the RAC process (for instance, more stringent prudency review, defined transition rules from RAC to base rate, or sunset triggers tied to an asset becoming operational).

The group did not adopt formal recommendations at this meeting. Stakeholders asked SCC accounting staff for follow‑up analysis on ROE comparators and whether RAC treatment affects financing costs; staff agreed to pursue accounting questions and to consider supplying additional expert briefings in later meetings.