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Rate Adjustment Questions

2009 Rate Adjustment - Dominion Virginia Power

What did Dominion Virginia Power file with the Virginia State Corporation Commission (SCC) on March 31, 2009?

Dominion Virginia Power made a series of filings designed to provide for the energy needs for our customers. Here is a summary of the filings:

  • One filing is for an increase in base rates, the portion of our rates that covers the investment in existing facilities as well as operating and maintenance costs, and a return for investors. If approved by the SCC, this would be the first increase in base rates in nearly 17 years. These rates previously were frozen under state law.
  • The company also submitted separate filings to cover some costs of building new power stations and for transmission costs. These also must be approved by the SCC before taking effect.
  • We filed information about our energy conservation plan. The actual request for SCC approval and cost recovery is expected to happen in early July, after a new state law covering energy conservation is anticipated to take effect. The cost of the plan was included in the company’s estimate of the impact on customer bills.
  • Finally, the company filed for permission to reduce the fuel rate. The fuel rate went up last summer because of the substantially higher market prices for the fuel needed to generate electricity. The reduction in our fuel rate this year is being moderated by the effect of $755 million in fuel charges that were voluntarily deferred last year to ease the impact on customers. Those deferred costs are to be collected without interest through June 2011.
What are base rates, and what’s the difference between the fuel case last year and this year’s request?

Base rates cover operating and maintenance costs, investments in existing power stations and other facilities, environmental controls, other non-fuel costs and shareholder return. Fuel rates cover only the cost of fuel and must be passed on to customers without profit to the company.

Dominion Virginia Power is seeking its first base rate increase since 1992. Under state law, the company’s base rates will be reviewed every two years. Fuel rates are set annually.

How much will rates increase?

The net increase to a typical residential customer using 1,000 kilowatt-hours of electricity would be 6.9 percent, or $7.54 a month if the State Corporation Commission approves all the changes the company requested. This would occur over about 14 months, with the first change being a 3.3 percent decrease related to lower fuel costs.

Following that, increases would occur to cover the base rate as well as for what are called "rate adjustment clauses" for things such as building new power stations, energy conservation programs and electric transmission costs.

When will these changes go into effect?

The first change is likely to involve a reduction in the fuel rate. If approved by the State Corporation Commission, the reduction in the fuel rate is scheduled to take effect on July 1, 2009. The effective date for new base rates depends on when the commission takes action. If no decision is reached by Sept. 1, 2009, Dominion Virginia Power is permitted by law to begin charging the proposed base rate at that time. The rate is subject to refund if the SCC later decides on lower base rates. The rate adjustment clauses for transmission, generation projects and energy conservation may have other effective dates, such as Sept. 1, 2009, Jan. 1, 2010 and May 1, 2010.

What infrastructure needs contribute to the increase in rates?

Dominion Virginia Power plans to invest more than $7 billion between now and 2011 for environmental improvements, conservation, building new generation, making reliability and service improvements, expanding the grid and maintaining the current system. That is in addition to the approximately $10 billion invested in these kinds of projects since the last increase in base rates. Part of the investment is needed to serve new customers. The company expects to add more than 90,000 new customers by the end of 2011. PJM Interconnection, the regional grid operator, projects that the company’s peak demand will increase by an average annual growth of 2.2 percent over the next 10 years. For more about Virginia’s future energy needs, visit www.PoweringVirginia.com.

How will customers benefit from these new infrastructure programs?

There are a number of customer benefits. Just one component of the energy conservation plan, installation of "smart meters," is expected to save customers more than $1 billion over 15 years once it has been implemented. Building new generation and upgrading the transmission grid are needed to ensure there is enough electricity to keep up with the growing demand. Additionally, reconditioning local distribution circuits will enhance reliability.

What is the economic impact of these new infrastructure projects, in terms of jobs created and spending generated?

A study by Chmura Economics & Analytics of Richmond, an independent economics consulting firm retained by Dominion Virginia Power, estimates that more than 20,000 construction and support jobs will be created by the projects over the next three years. The operation of new generating facilities and associated infrastructure will provide an ongoing economic impact of more than $200 million annually and more than 600 permanent jobs.

Which specific steps has Dominion Virginia Power taken to hold rates down?

Our biggest accomplishment is not raising our base rates for nearly 17 years. This was achieved through an amazing effort to reduce costs and keep them down, enough to finance billions of dollars worth of new infrastructure to connect and serve the electricity needs of well over a half million new customers – and at the same time making major environmental improvements to our power stations. Here are some of the ways:

  • Operating a diverse mix of generating facilities to avoid market fluctuations involving any one fuel.
  • Improving the efficiency of our power plants to generate the same amount of power from less fuel.
  • Improving the reliability of our power plants by 11 percent in the last five years to run longer at less cost.
  • Reducing the refueling and maintenance time for our nuclear power stations in Virginia, making them among the most efficient in the world.
  • Automating our meter reading system from a manual system to one that now enables each meter reader to read approximately 16,000 meters a day.
  • Creating a service company across Dominion to spread the costs of human resources, information technology and other support services over a larger number of business entities.
  • Reducing the cost for connecting new customers.
  • Delaying capital costs whenever prudent.
What is the role of the State Corporation Commission (SCC) and public in this process of reviewing the company’s rate filings?

All of Dominion Virginia Power’s filings are subject to review and approval by the SCC. The SCC will thoroughly review all of the requests to evaluate the costs that Dominion Virginia Power is seeking to recover in the rate requests. The company’s requests also will be subject to public hearings. At the end of this review process, the SCC will determine what the company’s rates should be. Not one penny can be added to customer rates without SCC approval.

Is Dominion Virginia Power guaranteed a profit?

No. The rates set by the State Corporation Commission (SCC) are designed to allow the company the opportunity to earn a fair and reasonable profit only if all goes as expected. However, unforeseen events such as hurricanes, other weather conditions and higher-than-expected expenses can reduce earnings. If Dominion Virginia Power were to earn significantly more than expected, the SCC can order a partial refund to customers and lower the company’s rates.

Didn’t Dominion Virginia Power receive an increase in 2008?

The State Corporation Commission approved Dominion Virginia Power’s request in 2008 for reimbursement of the sharply higher cost of fuels needed to generate electricity. The company can recover only dollar for dollar of its actual cost of fuel, with no profit. The company deferred about $755 million in fuel expenses to future years to help ease the impact on customers. Last year’s fuel rate increase was the first since 2004. While fuel rates were frozen by state law from 2004 and 2007, the company paid $1.8 billion more for fuel than it received from customers.

When was the last non-fuel increase for Dominion Virginia Power?

The only non-fuel increase in Dominion Virginia Power’s rates since October 1992 was a charge of about $1.53 a month for a typical residential customer using 1,000 kilowatt-hours of power to help cover costs of constructing the Virginia City Hybrid Energy Center. That charge took effect on Jan. 1, 2009.

How do Dominion Virginia Power’s rates compare with inflation?

In the past 15 years, inflation as measured by the Consumer Price Index increased 48 percent, compared with approximately a 32 increase over the same time period in Dominion Virginia Power’s rates if the State Corporation Commission grants the full amount of our request.

How do Dominion Virginia Power’s rates compare with other utilities?

Dominion Virginia Power’s rates are currently about 9 percent below the national average. If all of proposed rate requests are approved by the State Corporation Commission, the company’s residential rate would still be about 3 percent below the national average of Jan. 1, 2009.

Are other utilities asking for rate increases?

Yes. More than two dozen other electric utilities have rate increase requests pending as of mid-March.

Why is Dominion Virginia Power seeking to increase rates when other energy costs like gasoline are down?

Virginia needs to move forward with energy infrastructure improvements and conservation efforts. This requires a significant investment. Even with the recession, electricity demand at Dominion Virginia Power continues to grow. Virginia already is the second largest importer of electricity after California. More than half the world’s Internet traffic passes through large data centers in Virginia, and additional data centers are planned. If we could possibly avoid this increase at this time, we would, but the need to prepare for Virginia’s future energy requirements is critical.

Why can’t Dominion Virginia Power put off a rate increase until the economy recovers?

Building for the future in our business takes a long lead time. Even during this recession, Dominion Virginia Power is continuing to connect new customers at the rate of about 30,000 per year. We need to prepare for the recovery and beyond by making sure we have enough power generation to meet demand and a transmission system that can deliver the electricity to where it is needed, along with having good energy conservation programs in place. That will require more than $7 billion in investments through 2011. More will be needed beyond that. Dominion Virginia Power needs rates in place that allow those investments to be financed, a special challenge given the state of the financial markets.

What is Dominion Virginia Power doing to help people who can’t afford to pay their electric bill?

Dominion Virginia Power is sensitive to these difficult economic times. A customer may qualify for assistance through the EnergyShare program, which has helped our most vulnerable customers for more than 25 years. Any customer having difficulty paying an energy bill should contact us at 1-866-DOM-HELP (1-866-366-4357).

Why can’t energy conservation reduce or eliminate the need for new power stations and transmission lines?

Dominion Virginia Power is taking an active role in promoting conservation and has a comprehensive plan for energy efficiency. But even the most aggressive conservation proposals would only slow the increasing demand for electricity, not reverse it. Virginia is the second-largest importer of electricity behind California. The state needs 4,600 megawatts of new power generation over the next decade, even if conservation efforts meet all of their promise. On top of that, delivering renewable “green power” requires expansion and improvements in the transmission grid.

Do Dominion Virginia Power’s filings support and promote energy conservation and efficiency?

Yes. Dominion Virginia Power notified the State Corporation Commission that the company plans to seek approval later this year to offer 13 energy efficiency programs. These programs will enable customers to better manage their electricity use and save money. The programs are based on the success of energy conservation pilots we initiated last year.

The company is already testing "smart meters" to determine how well the digital technology can help us reduce outside electricity purchase and improve customer service. If all goes as planned, we intend to install these new meters throughout the system by 2013. Once installed, we expect the new meters to save customers more than $1 billion over 15 years.

We have provided discounts on more than 2.7 million energy-saving compact fluorescent light bulbs at Home Depot stores. And, Dominion’s Web site features an energy conservation blog and other information to help customers save money and energy.

What is Dominion Virginia Power already doing to help customers conserve power and save money on their bills?

We are offering a comprehensive consumer education program through its Web site at www.dom.com, keyword "conservation," and the company’s blog devoted to energy conservation issues and ideas at http://e-conserve.blogspot.com. We are continuing to offer discounts for the purchase of compact fluorescent light (CFL) bulbs at The Home Depot stores. More than 2.7 million bulbs have been purchased through this program. And through our EnergyShare program, we are weatherizing homes of qualifying senior citizens.