Dominion Virginia Power rate request due

Dominion Virginia Power will ask the State Corporation Commission this week for its first base-rate increase in 17 years.

With tens of millions of dollars likely at stake, the rate case has large implications for the company's financial well-being, Virginia's energy security and customers' pocketbooks.

Rate cases establish the regulated utility's allowable profit and are different from the annual adjustments for fuel costs, such as the 18 percent increase last summer.

The electric utility company will seek a "modest" rate increase, according to Thomas F. Farrell II, Dominion Resource Inc.'s chairman, president and chief executive officer.

And, Farrell told industry analysts in January, "We expect to obtain the modest rate relief we will seek."

How much the company will ask for -- and its possible impact on consumers -- will not become public until Dominion Virginia Power files its rate request, due Wednesday, with the commission.

In the past, rate cases -- which involve public comment, staff studies and trial-like evidentiary hearings -- have typically taken almost a year for the commission to decide, but by law any proposed rate increase can go into effect Sept. 1 pending the commission's decision.

The first under the state's new 2007 electric utility regulation law, Dominion Virginia Power's case before the corporation commission will revolve around what rate of return on equity the company should be allowed -- but not guaranteed -- to earn on what's called its rate base.

The higher the rate of return, the more money the company can earn; the lower the rate of return, the lower customers' bills will be. The commission's job is to balance those interests.

Rate of return is basically the cost of attracting investors who put up the money to pay for the large facilities -- the rate base -- that the company uses to provide customers reliable electric service.

Despite learned advice and reams of testimony from engineers, economists, accountants and other experts, officials say, determining rate of return is considered as much art as science.

Because Dominion Virginia Power is the state's largest electric utility with nearly 2.3 million customers, its coming application is already attracting attention.

"We will certainly be participating in the case," said David Clementson, spokesman for the attorney general's office, which speaks for the interests of consumers in electricity rate proceedings.

The Virginia Committee for Fair Utility Rates, which represents large industrial customers such as DuPont and Honeywell, plans to make its voice heard too, according to attorney Louis Monacell with the Richmond law firm of Christian & Barton.

None of the parties, however, would speak on the record in any detail about the coming rate case.

As a regulated monopoly, Dominion Virginia Power last received an increase in its base rates in 1992. The commission actually rolled back the company's rates in 1995-1998.

Then in 1999 the General Assembly froze all rates while it considered deregulating the state's energy industry, an initiative abandoned in favor of re-regulation in 2007 after deregulation began to look like a bad bargain for Virginians.

In 2008, Dominion Virginia Power received an 18.3 percent rate increase from the SCC to pay for the rising cost of fuel the utility burns to power its electric generating plants, though the company agreed to defer charging customers $697 million of fuel costs to lessen the shock of the increase.

The base-rate charges make up 65 percent to 70 percent of a typical Dominion Virginia Power customer's electric bill; fuel costs account for 30 percent to 35 percent.

Other large investor-owned utilities -- Appalachian Power and Allegheny Power -- are also required to come to the SCC for rate cases later this year.

State policy calls for Virginia's electric utilities to build enough generating plants to accommodate the state's population and economic growth. As matters stand now, Virginia has to import about a quarter of its electricity from other states, the Virginia Energy Plan says.

Building plants to handle that demand, even with aggressive energy conservation measures, will be expensive. Dominion Virginia Power is spending $1.8 billion to build the 585-megawatt Virginia City fossil-fuel plan in Wise County, for instance.

Because of the huge price tags for electric power plants, transmission lines and other infrastructure investments, small percentage increases in the rate of return translate into large amounts of money.

Each quarter of a percent increase in Dominion Virginia Power's rate of return would equal $15 million in additional cost to customers annually, according to Steve Sinclair, Fairfax County's utilities chief and vice chairman of the Virginia Energy Purchasing Governmental Association, citing State Corporation Commission information.

The association represents 180 Virginia political subdivisions -- cities, counties, school divisions, public authorities -- that hammer out their rates directly with Dominion Virginia Power. Though the SCC does not regulate the group's agreements with the power company, Sinclair said, the state rates serve as the benchmark for those negotiations.

In one of its central features, the state's utility re-regulation law provides that a floor for power companies' authorized rate of return on common equity be used in setting electric rates.

That floor is based on the average actual rates of return earned by a peer group, selected by the commission, of about a dozen other investor-owned electric utilities in the southeastern U.S.

In a 2007 case involving Appalachian Power Co., the State Corporation Commission concluded that applying the new law would likely result in higher rates of return for the company than traditional rate-making standards, which did not specify a minimum limit on rates of return.

Utilities are allowed to recover reasonable costs for providing electric service, and because of strong growth in the number of its customers, and higher prices for goods and services, Dominion Virginia Power's costs have gone up since 1992.

The number of customers in Virginia served by the company has grown 34 percent in that time, from 1.7 million to nearly 2.28 million today. And over the next 10 years, Dominion Virginia Power expects peak demand for its electricity, currently about 19,000 megawatts, to grow by about 4,000 megawatts.

Despite that growth in load, the monthly bill of a typical Dominion Virginia Power residential customer is 9.3 percent lower than the national average, according to information from the Edison Electric Institute and the utility.

While the U.S. average monthly home electricity bill has gone up 52 percent since 1993, Dominion Virginia Power's average residential bill has grown just 25 percent.

Nonetheless, "it goes without saying that this is an especially challenging time for manufacturers," said Monacell with the Virginia Committee for Fair Utility Rates.

"Electricity rate increases, such as the 'modest' rate increase that was approved last year and that took effect on Jan. 1 for the Southwest Virginia coal plant," Monacell said, "are especially unwelcome in this economic environment."

Contact Peter Bacqué at (804) 649-6813 or pbacque@timesdispatch.com.