Dominion pushed deeper into the costly power market by Virginia data center boom

Dominion fuel prices in Virginia rose?nearly 90 percent in five years, as the utility became more exposed to volatile wholesale electricity prices due to data center-driven demand.

Fuel costs have risen in Virginia, which is the largest data center market in the world. This raises doubts about claims that AI is driving electricity demand and not increasing residential power bills.

Dominion's fuel costs include the money it spends to purchase coal, natural gases and nuclear fuel for electricity generation. Dominion estimates that nuclear fuel will cost less than one penny per kilowatt-hour, as opposed to purchasing electricity at wholesale prices of 6.28 cents per kilowatt-hour.

Data centers are growing rapidly in many states, including Virginia. Governor Abigail Spanberger (a Democrat) announced last week that she would intervene during the regulatory review for NextEra Energy’s proposed $66.8 Billion merger with Dominion to demand commitments regarding power bill affordability, job protection and clean energy investment.

Virginia Electric and Power Company (a unit of Dominion Energy) forecasts fuel expenses of $4.35 Billion through the end June 2027. This is an average of 3.95 cents per?kilowatt-hour. This cost is 88% more than in 2021 when the electric utility’s system fuel expenses were $2.31 billion or an average of 2.59 cents per KWH, according to recent filings with Virginia regulators.

Virginia Electric, which operates a grid that stretches between Washington, D.C., and Chicago, expects to purchase 23% of the energy it uses from PJM Interconnection, a wholesale electricity market managed by PJM Interconnection. This market serves 67,000,000 people across PJM's territory. This is up from 14% by 2021.

Scott Gaskill is vice president for regulatory affairs at Virginia Electric. He said that the utility's generation portfolio was the best hedge to PJM prices. Dominion is expected to benefit from the planned merger with NextEra by accelerating its?buildout' of power plants and green energy. This will reduce Dominion’s reliance on PJM purchases.

Gaskill stated in his testimony to Virginia regulators on July 28, that "every megawatt-hour produced by company-owned sources reduces the requirement to purchase energy from PJM."

Virginia Electric provides electricity to 2.7 million homes, businesses and other facilities in Virginia. According to Virginia regulatory filings, fuel costs could increase the average monthly bill by as much as 13 percent - from $173 to $195. According to the filings, a 5% increase is possible if Dominion issues bonds that allow them to defer some of their fuel costs from customers until future years.

The staff at the utility regulator Virginia State Corporation Commission stated that significant growth in data center load exposes Dominion to wholesale electricity markets where spot prices can soar to several thousand dollars per Megawatt Hour during heatwaves or extended cold snaps.

Regulators, consumer advocates, and many lawmakers are increasingly arguing that the data-center driven load growth creates costs that still need to be spread out too widely?across residential consumers.

Dominion, along with the data center industry, argues that data centers pay their own costs and aren't responsible for recent residential bills increases.

Dominion executives claim that their $11.7 billion Virginia off-shore wind project will save customers about $5 billion in fuel costs during the first 10 years.

(source: Reuters)