Amid global energy price spikes, Dominion customers’ bills could rise between 12 and 20 percent
Company points to renewables as a long-term shield against volatility
Dominion Energy offices in Richmond, Va. (Parker Michels-Boyce/ For the Virginia Mercury)
Dominion customers could see their monthly bill rise by between 12 and 20 percent due to rising fuel costs linked to the COVID-19 pandemic, inflation and the ongoing war in Ukraine, according to company filings with the State Corporation Commission Thursday.
The electric utility, Virginia’s largest, is asking state regulators to approve an increase in its fuel factor, the rate levied on customers to cover the costs of purchasing fuel for power plants.
Depending on whether the SCC opts to spread the costs over one, two or three years — all options Dominion has outlined in its application, noting a preference for the three-year paydown — the fuel hikes could increase the average residential customer’s monthly bill by $24.12, $17.23 or $14.93, respectively.
“We know it’s a difficult ask,” said Dominion spokesperson Craig Carper. “Our focus has been on how do we make this the lowest number possible?”
Dominion, which serves about five million Virginia residents, says it aims to reduce the cost impact not only by spreading the increase out over three years but through decreases to two separate riders, additional charges that are added to customer bills.
First, the utility is asking the SCC to approve a decrease in a transmission-related rider that the company says would lead to a $3.69 decline in the monthly bill for the average residential customer, defined as a household that uses 1,000 kilowatt hours a month. Scott Gaskill, Dominion’s general manager of regulatory affairs, said in an email that the reduction was due to PJM-related transmission costs being less than expected in 2021.
Second, Dominion is asking regulators to suspend a charge for its participation in a regional carbon market and to fold the remaining costs into the base rate, reducing the monthly residential bill by an additional $2.39.
If the rider changes are combined with the proposal to spread the high fuel costs over three years, the company estimates that the typical residential customer’s monthly bill would increase by approximately $9.
“The company believes that its voluntary fuel factor mitigation proposals recognize the interests of customers in avoiding abrupt rate increases … and are consistent with the public interest,” Dominion wrote in its application to the SCC. “While either mitigation proposal is preferable to the full recovery rate, the three-year mitigation offers the smallest near-term fuel rate increase, promotes rate stability across the next several years, and offers the commission flexibility next year if circumstances around commodity markets have improved.”
But Will Cleveland, an attorney with the Southern Environmental Law Center, said the two rider petitions were “not relevant” to the SCC’s decision in the fuel factor case.
“This linking of cases is very unusual,” he said. “The law generally prohibits the commission from taking into account what’s going on in one case when deciding another.”
What isn’t unusual is the dilemma in which Dominion finds itself: as reported in the New York Times, electric bills are on the rise nationwide, largely due to soaring natural gas prices driven by war in Ukraine and supply chain woes. Coal prices have also risen.
Recovering the costs of fuel
Under Virginia law, Dominion is allowed to recover its fuel costs from customers but does not earn a profit on them.
The SCC is charged with reviewing and updating those costs annually. A 2009 law requires the commission to review fuel costs on a six-month basis if an increase in the fuel rate leads to residential customers’ overall rate rising by more than 20 percent, but SCC spokesperson Andy Farmer said that situation has not occurred since the law went into effect.
While less high-profile than reviews of the company’s base rates — the costs customers pay for most of the generation, distribution and transmission services the utility provides — the annual fuel cases generally have noticeable impacts on customers’ bills.
The 2021 fuel factor case, for example, increased the average residential customer’s monthly bill by $3.43, while in 2020 residential customers saw an average decrease of $6.23 due to fuel costs.
“It’s a not insignificant sum that we basically take for granted,” said Walton Shepherd, the Virginia policy director for the Natural Resources Defense Council’s Climate and Clean Energy Program.
The case filed by Dominion Thursday is unusual in the size of the proposed increases. The company is seeking to cover both a $1 billion gap between expected and actual fuel costs for the current year and almost $2.3 billion in projected costs for the year between July 2022 and June 2023.
Dominion attributes the jumps largely to increases in fuel commodity prices.
“Fuel commodity markets experienced unprecedented uncertainty during the past two years, and we continue to see impacts today,” wrote Dominion Manager of Gas Supply Dale Hinson in testimony to the SCC.
“Coal, natural gas and purchased power prices have increased since last year’s fuel filing,” wrote Dominion energy market consultant Katherine Farmer in testimony to the SCC. In particular, she noted that because 40 percent of Dominion’s generation over the past 12 months came from natural gas, the higher natural gas prices were a “main driver” of the $1 billion gap between the utility’s expected and actual fuel costs for the current year.
Long-term plans focus on renewables
Shepherd and Cleveland said the rapid upswing in fuel prices was further evidence of the need to transition the power sector away from fossil fuels and toward renewables.
“If natural gas prices continue to be this volatile in the future, Dominion customers are in for a hell of a ride,” said Cleveland. “And sadly the law places all of that fuel price volatility risk on the captive ratepayer.”
Dominion has pivoted aggressively toward renewables in the past few years, setting a goal of net-zero emissions by 2050, canceling the Atlantic Coast Pipeline and marketing its efforts to investors as the “largest regulated decarbonization opportunity” in the nation.
In a letter to the SCC enclosed with the utility’s fuel factor application, Dominion Energy Virginia President Edward Baine also pointed to renewables as one of the company’s long-term solutions to volatility in fuel costs.
“The company is taking significant action to reduce customers’ exposure to future fuel cost fluctuations,” he wrote. “The ongoing diversification of its electric generating fleet — specifically, the addition of solar and offshore wind resources including the Coastal Virginia Offshore Wind project which have no associated fuel costs—will mitigate the risk of commodity price upheavals.”
Shepherd, however, said the company’s decision to embark on a major buildout of natural gas plants over the past 15 years has made it vulnerable to turmoil in the global fuel markets.
Since 2009, Dominion has added almost five gigawatts of natural gas to its generation fleet. Some of those, such as the Greensville Power Station that began operating in 2018, are today among the utility’s largest power plants.
“Doubling down on large natural gas plants for nearly a decade was just a very top-heavy approach to planning that’s really come back to bite everyone,” said Shepherd. “Gas is a global commodity, so you’re kind of just asking for it at some point in the life cycle of a power plant to be exposed the way they are.”
All of those plants were approved by state regulators.
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