Q: What is the fuel rate?
A: The fuel rate is the part of the bill that is designed to recover the cost of fuel — such as coal, oil, uranium and natural gas -- used to produce power. It also covers the cost of electricity we buy from other producers to serve our customers. All customers pay the same fuel rate — there are no separate rates for different kinds of customers.
The fuel rate is a straight pass-through, designed only to recover actual utility costs from customers. The company makes no profit through it.
The fuel rate has been part of utility bills for decades, with the current fuel rate law being in effect since 1978. About 40 states have similar provisions.
Q: Is the re-regulation law causing this increase?
A: Re-regulation and the fuel rate having nothing to do with each other. The fuel rate law has been on the books since 1978, long predating the re-regulation bill. In fact, it even predated the restructured system put in place back in the 1990s.
Through it all, the fuel rate law operated the same way: It is designed to recover fuel and purchased power expenses, with no profit for Dominion or any other utility, from customers on a dollar-for-dollar basis. The only exceptions to this were a three-and-a-half year freeze of Dominion's fuel rate imposed by the General Assembly in 2004, and a 2007 law that limited last year's increase to four percent for residential customers.
In fact, re-regulation will be very effective over the long term in holding down customer costs by encouraging construction of new facilities producing low-cost power. This includes units using clean coal and nuclear technology.
Q: How is the fuel rate determined? Is it adjusted automatically or does it require regulatory review?
A: It requires review and approval by the State Corporation Commission (SCC). Utilities cannot raise rates one penny without SCC approval.
The SCC determines the fuel rate annually, based on a utility’s projection of fuel costs for the next year. If necessary, the rate also includes adjustments to correct the previous year's under or over-collections from customers.
The SCC will conduct a full proceeding, with opportunity for public comment and hearing. The SCC will fully review the case and has full discretion to disallow any costs found imprudent or unreasonable. It also checks to ensure all fuel expenses are accurate.
Q: What is the fuel rate increase this year?
A: Dominion is requesting a fuel rate of 3.893 cents/kWh. Our current rate is 2.232 cents/kWh.
Typical residential customer (1,000 kWh/month) — The monthly bill would increase from $90.59 to $107.20, for a $16.61 increase. This would represent an increase of 18.3% in the monthly bill.
Since all customers pay the same fuel rate, the impact will be larger on commercial and industrial customers, since fuel charges make up a significantly larger portion of their bills.
Typical small commercial customer (GS-2, 50 kW/15,000 kWh) — The monthly bill would increase from $1,159.97 to $1,409.12, for an increase of $249.15. This would represent an increase of 21.5% in the monthly bill.
Typical commercial and industrial customer (GS-3, 1,000 kW/200,000 kWh on/300,000 kWh off) — The monthly bill would increase from $26,696.25 to $35,001.25, for an increase of $8,305.00. This would represent an increase of 31.1% in the monthly bill.
Q: What about the other portion of the bill, the "base rate?" Is it changing?
A: No. The “base” rate is capped — and effectively frozen — by state law and will remain so until 2009.
Q: Why so large an increase? A: There are two major factors contributing to the magnitude of the increase.
First, the cost of fuel has sky-rocketed since the last time the fuel rate was set at market levels, in 2004. Since that time, forward prices for some commodities used by utilities have more than tripled. For example, forward prices for utility fuel oil have risen by 224 percent, natural gas by 129 percent and purchased power by 130 percent. Even the price of coal has surged. Spot prices for central Appalachian coal have risen 143 percent during the past four years. (>> charts)
One of the major factors behind this increase is the global energy market, with high demand for scarce resources being driven by blistering growth in China, India, and other regions. For example, China’s share of the world’s oil consumption has tripled since 1990.
Second, Virginia's demand for electricity has grown at a break-neck pace. Our peak demand exceeds our installed capacity by around 2000 MW and is expected to grow by about another 4000 MW in the next ten years. Meeting this higher demand requires more fuel. And we are forced to import more power from other states to serve our customers. Although we work hard to get the best deals available, this power is often more expensive than if we were able to produce it here in Virginia with lower-cost resources, such as clean coal and nuclear technology.
Q: What is Dominion doing to help its customers?
A: Dominion is pursuing a four-pronged strategy to help our customers in the short-term.
First, we have submitted a proposal to the SCC that will significantly reduce the increase facing customers this year. We want to defer collection of all the fuel expenses we failed to recover from customers during the year beginning July 1, 2007. The deferred amount, a total of $697 million, would be collected from customers over the three years beginning July 1, 2009. This moderates what would have been a more substantial rate increase this year.
Second, we are encouraging conservation and are helping our customers use energy more wisely. In an environment of rising energy costs, the surest way to lower costs is to lower usage. For instance, we have partnered with The Home Depot to sell millions of compact fluorescent bulbs (CFLs) at a deep discount to customers. More than 1.2 million have already been sold.
Third, we are expanding our EnergyShare program to help struggling families meet their energy bills and contributing an additional $5 million to the program as of July 1. EnergyShare provides valuable assistance to our most vulnerable customers.
Finally, we are offering customers billing options that can help smooth out the increase. We are expanding eligibility for our Budget Billing program that helps households by offering customers the same bill each month, based on previous usage. Beginning in July, most residential customers will have the option of signing up for Budget Billing on their monthly bills. And we are creating a budget billing option for small and medium-sized businesses, as well as most houses of worship and non-profit organizations. Eligible customers can sign up for the new program, called Business Advantage, from July 1 to October 1 of this year.
Q: Is there anything that can be done about rising fuel costs in the long-term?
A: Yes. In the long term, we need an integrated strategy to meet our energy needs in Virginia. this includes ramping up conservation and renewable energy resources. It also will require more generating stations using a diverse mix of fuels, especially those capable of running around the clock at low-cost, such as clean-coal and nuclear-powered units.
Q: Is this increase being sought to pay for the coal plant in Wise County or for the Meadow Brook-Loudoun transmission line in Northern Virginia?
A: No. This request has nothing to do with either the Virginia City Hybrid Energy Center or the proposed Meadow Brook-Loudoun transmission line. The fuel rate includes only fuel and purchased power costs.
