By Steve Haner

Dominion Energy Virginia’s proposed changes to how and how much it charges data centers for electricity appear to have divided the industry, based on testimony filed at the Virginia State Corporation Commission (SCC).

The utility’s ideas are in general being supported — with some caveats — by the Office of the Attorney General and the staff of the SCC, both of which are charged by law with watching out for consumers.

Several state legislators have also filed letters supportive of Dominion’s application with the State Corporation Commission, but they avoid taking positions on the many specific provisions that the data centers have complained about. If the typical SCC case is as complex as rocket science, this one borders on high energy particle physics. 

“I support the idea of a separate class for such customers, agree with the need for significant minimum charges, and believe that Dominion’s proposal should be a floor, not a ceiling,” wrote Senator Scott Surovell, D-Fairfax, chair of the legislature’s Commission on Electric Utility Regulation. The prize for understatement goes to Senator Jennifer Boysko, D-Fairfax, who put in her letter: “I acknowledge that consensus may be elusive.”

One of the strongest statements in opposition to the proposal was filed by Google, which just this week stood beside Governor Glenn Youngkin to announce another $9 billion in Virginia capital investments. A state media that was paying any attention might have picked up some of the controversy to ask about in the news conference. 

Amazon Data Services, on the other hand, filed testimony generally supportive of Dominion. Microsoft’s expert is closer to the middle, focused on major amendments to Dominion’s proposal but not calling for rejection  Three 800-pound economic and political gorillas, three different positions for the SCC to ponder. The file contains many more.

The proposal to create a new large customer rate class, GS-5, with some strict new terms and conditions and higher rates, is just one of several aspects of Dominion’s pending general rate case. There will be a public hearing starting Tuesday and it won’t be a short one. 

The case record is already one of the longest seen in recent years, made even more dense by several hundred public comments that have flowed in, most of them complaining of high electric rates and blaming the data centers for them. The SCC clerks have taken to posting them in batches of 50. 

The case itself makes it clear there are many things that have driven up the cost of electricity. Dominion seems to have gotten agreement that operating expenses grew so much it failed to earn its allowed 9.7% profit margin during 2023 and 2024, the period under review. Just how far short it fell is disputed, but it looks like some level of base rate increase is coming.  

The data centers are still a big part of the problem. For example, Dominion has identified about $1.5 billion in capital expense in the next couple of years just to build distribution substations (not the powerlines, just the substations) to serve expected data centers. Who pays for those and how much is another contested point in the record. The Office of Attorney General was one participant arguing to trim that back.  

There is universal rejection among the respondents of Dominion’s push for a higher profit margin in 2026 and 2027. Setting that profit margin is another major issue in the case, and the higher the allowed profit, the higher will be future bills. Once established for the base rates, the same profit margin is prospectively applied to all the capital rate adjustment clauses (RACs), which increases those as well.  

But the heavy lifting is over the issues around the existing data centers, those still in the pipeline and other high-demand customers – not data centers – getting caught up in the debate. 

Dominion already has several rate classes aimed at large users, termed “general service” and designated as GS-1 through GS-4. It proposes that any customer that has a peak demand of 25 megawatts or more, and steadily uses at least 75% of that required capacity, would be placed in the new GS-5 category.  The peak demand is important because Dominion must promise to provide that much electricity whenever the customer asks for it, and the customer pays a part of their bill based on that guaranteed demand, whether fully used or not.

To provide a ridiculously simplistic explanation of Dominion’s proposal, the GS-5 users would be locked into contracts for long period, and if they want to reduce their demand at some point the utility is demanding years of advance notice. Financial guarantees are being demanded, also controversial. Along with a fixed minimum charge tied to peak energy demand, Dominion wants payments for fixed minimum amounts on the generation and distribution portions of their bills, to impose on them a higher percentage of the utility’s costs in those categories.    

And these large users, in GS-5 and in the other GS categories, would start paying for energy use on what are called market-based rates. 

Dominion has had a market-based rate, or Schedule MBR, for the larger GS-3 and GS-4 customers for several years. Only six companies have taken it, but they apparently are among the largest users. The Schedule MBR is somewhat comparable to what might be charged by an independent energy provider.

The energy cost on Schedule MBR is directly tied to the cost for electricity in the PJM regional interconnection market and can fluctuate wildly. The argument appears to be that if a large customer is paying exactly what Dominion pays PJM for electrons, there is no cross-subsidy coming from the smaller customers. Schedule MBR has been deemed experimental and allowed for only a limited amount of the company’s demand, but Dominion wants to make it commonplace at that use level.  

While only six huge users take Schedule MBR now, Dominion also uses a similar PJM-linked energy rate with 62 big customers who have negotiated their own individual special contracts with the utility (all approved by the SCC but not published.) Here is Dominion’s testimony on how all that works now and will work if all these changes are approved.

What I did not see – and it may be buried in there and I just didn’t find it – are some hard dollar examples, how much more money a data center might pay under these new rules, compared to what it is paying now. What is the “fair share?” That balancing act between various rate classes is easy to advocate in a campaign speech, but the accounting gets tricky.