PJM Capacity Auction Costs Coming to Your Dominion Bill
by Steve Haner
Dominion Energy Virginia has asked to increase the amount it charges customers for fuel by more than 50%, in part because the cost of that fuel has proven stubbornly high and in part because it now wants to charge us for its out-of-state capacity contracts using the same account as fuel.
The proposed increase in the fuel factor is $10.92 per month ($131 per year) on an average bill of 1,000 kilowatt hours, but of course many customers use far more kWh than that in an average month. The Rider A charge has been $20.74 per 1000 kWh since last July.
This is separate from and in addition to the company’s proposed increase in its base rates, filed on the same date. That may be the focus of a future column.
The proposed fuel change, if approved, would go into effect July 1. The annual review of the fuel charge used to be a routine and boring process but is now worth exploring.
The increase in Rider A is also separate from and in addition to the $3.22 per 1,000 kWh that Dominion is collecting for the massive deferred fuel charges incurred before 2023. That second, “securitized” fuel recovery remains in effect for several more years. The combined fuel cost as of July 1 will be just under $35 per 1,000 kWh. The sum of the two does not seem to be mentioned anywhere in the application (but could have been missed).
As this author predicted, all the 2023 election year blather about that deferral process being “bill relief” was utter nonsense, and this warning came true:
Here’s the elephant in the room: there is no reason to believe that the past two years were outliers. Similar volatility in fuel prices, natural gas and uranium for reactors, could easily become the rule not the exception.
The March 31 application includes several affidavits from company staff on the costs of the various inputs that make up this part of the bill: natural gas, coal, uranium for the reactors and the piece many forget, power purchased from non-Dominion generators through the PJM Interconnection regional marketplace.
Based on those, the company is predicting it will need more cash to buy fuel or imported power during the year that starts July 1. It is also seeking to recoup about $205 million to cover unexpectedly high costs during the current fuel-cost recovery period. All that is routine and usually the company’s math is not challenged.
Reading through those affidavits, however, certain gems of data can be found.
A few years back the State Corporation Commission achieved a win for customers by imposing performance standards on some of Dominion’s earlier solar projects. Production targets were set, and the company was ordered to reimburse consumers (through this fuel factor) if the goals were not met. The reimbursement is compensation for the purchased power necessary to fill the gap, and this fuel factor calculation includes $3.8 million in penalty for non-performance. The money is not huge, but it is another sign that the assumptions underlying the green energy fantasy are, well, fantasy.
Another table predicts power production for four months in 2025 by generation source. The system is predicted to generate or buy 32 million megawatt hours during the period, and all of 1.7 million megawatt hours will come from Dominion’s solar. That is 5%. Solar won’t do it, Virginia, but state law demands more be built.
As this case develops in front of the SCC, the focus is likely to be on the idea of using Rider A to collect the company’s PJM capacity costs. Regular readers will recall that the PJM auction last year for capacity contracts in the 2025-26 period produced a shocking result, especially in the Dominion territory. Capacity contract costs have long been part of the base rates of the utility with no effort to collect them separately, but they used to be a small amount.
Dominion responded to the huge spike by asking the SCC to pass the projected $145 million impact directly on to customers, a petition that was opposed by Attorney General Jason Miyares and then withdrawn. Now Dominion is seeking to recover the future capacity charges through this stand-alone Rider A.
For the wonks, this testimony gets deep in the weeds on the capacity contract process.
Given that Rider A already includes the cost of purchased power, it is logical that capacity costs should also be recovered there. And with Rider A being adjusted annually, the rise or fall in those capacity costs can be reflected annually.
What is expected is that the 2025 prices will not be repeated in the next auction, but the lower historical prices are gone for good. If the PJM member utilities or merchant generators do not respond by building more dispatchable generation (gas and nuclear), the gap between supply and demand will keep the auction results challenging. Rider A will keep rising.
Here is the big wrinkle: the cost of fuel and purchased power in Rider A has been uniform across customer classes, residential to big industrial. Dominion does not propose collecting the capacity charges on a uniform basis but will set different costs for different customer classes. That will be the fight, and advocates for residential customers may complain that the big customers are getting a break.
In the application, Dominion acknowledges that moving the capacity charges out of base rates and over to Rider A should also result in a corresponding reduction in base rates, a significant one. Whether and how that accounting change is reflected in the base rate application filed concurrent with Rider A will require examination. Those documents were slower to post at the SCC’s website.
