Dominion Va. Customers Are Bracing for Bigger Bills

By Anita Kumar
Washington Post Staff Writer
Sunday, June 15, 2008; C07

RICHMOND -- Beginning next month, millions of Dominion Virginia Power customers will probably see their electric bills rise by at least 18 percent, the largest one-time rate increase in three decades, to pay for soaring fuel costs.

And it won't stop there.

Dominion is looking to make up for hundreds of millions of dollars spent on fuel last year that it was not allowed to pass on to customers because of a state-imposed cap. As a result, rates are expected to keep rising for at least three more years.

Some Virginians, saddled with the rising cost of gas, food and other items, say this year's increase is too steep. It would raise a resident's average monthly bill from $91 to $107 starting July 1.

"The rates are high enough," said Irene Leech, a Virginia Tech consumer studies professor and president of the Virginia Citizens Consumer Council. "But given how long it's been, I'm afraid that not a lot can be done."

The three-member State Corporation Commission is expected to vote on Dominion's proposal soon after a public hearing June 24 in Richmond. Historically, the commission has approved fuel-rate increases when companies prove that their costs for coal, oil, natural gas and other materials are going up.

Dominion was allowed to ask for an increase of more than 22 percent this year, but company officials say they limited the increase to 18 percent to lessen the impact on residents and businesses. Last week, SCC staff members told commissioners that the law mandates them to approve the full increase.

State law requires that fuel costs, which make up about a quarter of a customer's bill, be passed on to customers with no profit.

"Like a lot of our customers, we're subject to a spike in global energy prices," said Robert Blue, a senior vice president at Dominion, which serves about 2.3 million homes and businesses statewide, including 800,000 customers in Northern Virginia.

Across the state and across the nation, electric companies are seeking rate increases as a result of a global spike in energy prices, driven by Wall Street maneuvering and increased consumption in the United States, China and India. In the past year, Dominion estimates, coal costs have risen 95 percent; oil, 55 percent; natural gas, 20 percent; and purchased power, 28 percent.

The Washington region's other major utilities, Pepco and Baltimore Gas and Electric, have also cited rising fuel costs in applying for recent rate increases. In Maryland and the District, run-ups in fuel costs are embedded in electricity prices that have soared since the switch from regulation to a competitive market for power. Utilities buy power in auctions in which energy companies' bids to supply power include their fuel costs. Electricity prices have gone up more than 80 percent in the Washington-Baltimore region under deregulation.

A week ago, Appalachian Power, which has 500,000 customers in southwest Virginia, applied for a 25 percent rate increase.

"Utilities across the country are grappling with the challenge of higher fuel costs. It's not just Dominion," said Jim Owen of the Edison Electric Institute, an association of U.S. shareholder-owned electric companies that represents about 70 percent of the nation's electric power industry.

Dominion is expected to ask to raise rates again in July 2009 to begin a three-year plan to recoup $700 million it was not allowed to collect last year, when the General Assembly capped the increase at 4 percent. But the company is not allowed to seek $1.8 billion it spent when legislators froze fuel rates between January 2004 and June 2007.

"We're not asking for that entire balance, and the reason for that is we are trying to soften a dramatic increase," Blue said.

Next year, Dominion will be able to ask for an increase in its base rate, which pays for delivery, power lines, plants and company profit and makes up the remaining 75 percent of a customer's bill. The General Assembly froze those rates in 1999 when legislators embarked on an ambitious rewriting of utility law, but those restrictions expire this year.

Many expect Dominion to ask for a base rate increase, but Blue said it would be a "mistake to speculate on future rate filings."

Critics say Dominion was able to survive years of state-imposed caps and freezes because it had been charging unjustifiably high rates since before 1999.

Tony Hylton of AARP Virginia, which has more than 1 million members, said the group is concerned that Dominion is using this year's fuel rate increase to try to make up for years of caps and freezes. "We're extremely concerned about how our members on fixed incomes will be able to pay for these increases," he said.

Dominion disputes that, saying its rates were frozen in 1999 at a 1993 level and still will be below the national average. "We believe our rates are fully appropriate, and those people who criticize us should also take into account that we were not collecting our full fuel expenses for several years," Blue said.

In Virginia, a business-friendly state with a small consumer voice, few groups have organized to oppose this year's proposed rate increase.

Leech and other consumer advocates say people do not usually get involved in electric rate cases because it requires having an attorney, finding an expert witness and understanding complicated utility laws. And, they say, few see the point of going up against Dominion, considered one of the most powerful and influential companies in the state.

"That's been the problem," Leech said. "It's hard for anyone to get involved."

Last week, Sen. James Webb (D-Va.), who has received dozens of letters and calls about the rate increase, sent a letter to the commission expressing concern that it would disproportionately affect low-income families.

Four large commercial customers have filed paperwork to possibly intervene in the case, including the business coalition Virginia Committee for Fair Utility Rates, the Department of the Navy and MeadWestvaco, the paper and packaging company, which is moving its headquarters to Richmond.

Shaun Pharr, senior vice president for government affairs for the fourth group, the Apartment & Office Building Association of Metropolitan Washington, said he questions the magnitude of the increase. "We will be scrutinizing it closely," he said.

The state attorney general's office, which represents consumers in rate cases, recommends that the commission approve a 17 percent increase.

If approved this month, Dominion would bill customers for projected fuel costs incurred in the next year. In July 2009, customers' rates could be adjusted if the estimates end up being incorrect.

But even if this year's proposed increase is approved, Dominion customers would still pay less, on average, than electric customers across the nation, including those in Maryland.

In Maryland, Pepco customers pay $140 and Baltimore Gas and Electric customers pay $150. In the District, Pepco customers pay $89, considerably lower because of the smaller size of the homes. The national average is almost $114.

This year, Dominion will offer more ways to ease the burden on customers. It will spend $5 million on emergency grants to help customers pay their bills and accept more people into its program that allows bills to be paid in 12 nearly equal monthly installments.

For decades, Virginia's power companies operated under State Corporation Commission regulations that controlled prices because companies held monopolies in the market for power.

But in 1999, the General Assembly voted to cap or freeze rates while phasing out some of those regulations in favor of a deregulated industry to foster competition and keep prices low. That idea was pursued across the nation.

But the competition never materialized, leading to huge rate increases in some states, including Maryland. So in 2007, Virginia legislators abandoned the shift to deregulation and again embarked on rewriting the complex laws that govern the state's power companies.

Del. Harvey B. Morgan (R-Gloucester), the most vocal opponent of the bill, said that this year's proposal might be justified by fuel costs but that he worries about the bill's long-term effects on Dominion rates.

"We gave them the moon," he said.

Del. Clarke N. Hogan (R-Charlotte), who helped write the 2007 bill, said this year's situation has nothing to do with the changes in the law and everything to do with fuel prices.

"I don't think anyone is surprised that energy costs most than it did," he said. "These fuel increases are driven by higher fuel costs that are global."

Staff writer Lisa Rein contributed to this report.