Dive Brief:

• The State Corporation Commission last month approved Dominion Energy’s fuel factor rate to recover $2.691 billion in projected fuel costs from the 2026 and 2027 rate years, and about $65.8 million in underrecovered costs from the 2024 to 2025 rate year.
• The Commission also approved the utility’s legislatively authorized request to securitize, or issue bonds, for about $922 million in underrecovered fuel costs from the previous 2025 and 2026 rate years.
• The securitization avoids a $21.79 increase in a typical residential monthly bill and instead results in a $7.97 increase for the fuel factor, plus a $2.26 increase for the securitization by spreading out recovery of the underrecovered fuel costs over a seven year period.

Dive Insight:

Securitization spreads out fuel payments, lowering their immediate impact on bills, but also winds up costing more as interest adds up, customer advocates note.

Virginia regulators’ decision came after a two-day hearing in which Dominion argued cold temperatures in the lead-up to and days after Winter Storm Fern between Jan. 23 and Feb. 2 contributed to unexpected increases in fuel costs.

Those freezing temperatures increased demand for power and caused the utility to purchase more power from PJM, which is also recovered through the fuel factor. The cost of purchased power went up 28% for the 2026-2027 rate years, according to testimony from Katherine Farmer, energy market strategic advisor at Dominion.

The latest securitization comes after the commission in 2023 approved a legislatively authorized securitization of about $1 billion in deferred fuel costs, which the company said rose because of global events, including the Ukraine War. 

Scott Gaskill, vice president of regulatory affairs at Dominion, said during the hearing that he agreed fuel costs are “becoming more volatile and more difficult to forecast as supply and demand across PJM has tightened,” but he added that this time was different than the 2023 securitization.

Events “could not be easily forecasted,” he said. “If we had come in our fuel forecast last year and said, ‘Hey, we're planning on a $600 million January and $90 power prices,’ I would have had no basis for justifying that [when] setting our fuel factor last year.”

Carol Myers, SCC deputy director in the commission’s Division of Utility Accounting and Finance, was more blunt, saying “the repeated securitizations of deferred fuel costs on an ongoing basis is untenable.”

Myers' analysis found that approving Dominion’s fuel factor request will charge a typical residential customer $43.59, up from $20.45 during the 2021 fuel year.

“Staff believes this has likely put upward pressure on power prices and significant upward pressure on the Company’s purchased power expenses, which is only further exacerbated during periods of extreme weather,” Myers said. 

During the hearing, Myers added that the 2023 securitization, or deferral, of fuel costs haven’t been paid off yet. Yet, customers will be saddled with a “pancaking” of paying for another securitization from this ruling. 

“I don't think we can keep doing this,” Myers said, adding, “I think continuing down this path, it's dangerous and puts customers in a bad position.”

Environmental groups said fuel price volatility resulted from uneconomical coal-powered generation decisions, the Iran War and liquefied natural gas exports increasing natural gas prices. 

The Southern Environmental Law Center, representing Appalachian Voices, and the Sierra Club argued for more renewable energy use as well as cost-sharing mechanisms that put Dominion on the hook for fuel cost overruns as an incentive to reduce recovery from customers. A new law signed by Democratic Gov. Abigail Spanberger that will scrutinize the cost effectiveness of Dominion’s fuel use took effect July 1, meaning it will be followed in next year’s fuel factor case.

“As the General Assembly has indicated, the Commission can and should be considering ways to reduce the burden on customers, like fuel cost-sharing mechanisms,” said Grayson Holmes, a staff attorney for the SELC representing Appalachian Voices in the case. “We will continue to advocate for the Commission to take actions to protect customers from the risks of Dominion’s continued reliance on volatile, pricey fossil fuels.”