Another Double Dip? That’s One Issue With Dominion’s Proposed Market-Based Rate

Dominion Energy Virginia’s proposed market-based pricing structure for large industrial customers has been criticized as a way for the utility to double collect, harking back to a key issue during the 2018 legislative push for its Grid Transformation and Security Act. 

The criticism comes in an overall endorsement by Microsoft Corporation of the proposal pending at the State Corporation Commission. Microsoft owns a growing fleet of data centers in Dominion’s territory and is already eligible to seek electricity from a competitive service provider (CSP).   The purpose of this new rate (the full case record is here) is to keep big customers happy, so they lose interest in third-party providers.  One detail of the proposal has Microsoft unhappy.

“Dominion admitted in discovery that the minimum charge does not recover any costs that are not already recovered from customers in other rate components….To the extent that Dominion collects a “minimum charge” in addition to these other charges, the “minimum charge” would effectively double-recover the cost of service,” a Microsoft attorney writes in comments requesting a hearing on key elements of Dominion’s proposal.

“The minimum charge appears to be an arbitrary mechanism by which Dominion is adding to its revenues with little oversight by the Commission… Finally, Dominion has admitted in discovery that the minimum charge will be applied to customers who choose a CSP.

An order filed Wednesday granted that motion for a hearing on the case. The staff analysis of the proposal is still to come, and the case so far has only drawn participation from that one major customer.  Representatives of other major industrial users are not listed as parties but could join the party late.

What’s up here?  Any large customer with a peak demand hitting five or more megawatts has a right to find a competitive supplier now, but takes a risk because Dominion could make it wait up to five years to return.  This new rate schedule is aimed at them.  It is a separate and much more comprehensive proposal than the generation charge discount for industry that the General Assembly mandated in the 2018 GTSA, which I still call the Ratepayer Bill Transformation Act.

Dominion has had experimental market-based rates for large industrial users since 2016, with some participation but not the authorized level. An MBR rate tracks the fluctuations of the wholesale prices in the PJM Interconnect LLC, allowing time-of-day pricing. The experimental rates are set to last until 2022, but Dominion is moving now to first improve the program based on customer feedback and then make it permanent.

Large industrial users who agree to three years in the program would see their costs decline but lose predictability.  Just how much of a decline is a part of the company filing which has been held confidential, with one skirmish already over making those figures public.  Dominion in its filing asserts the new rate would have no impact on other customer classes and will protect them from financial harm that might result if large customers deserted in droves.

Dominion’s Gregory J. Morgan, director of customer rates and regulation, is the point person on the application and cited three main reasons Dominion customers have given for requesting a new MBR schedule, one that is better than the existing experimental rate.

  • These current and potential customers view market-based pricing as being critical to their business strategy and such customers make expansion or new facility siting determinations based upon the availability of market-based pricing.
  • Sometimes the driver for such customers is to match renewable facilities with their load. Most renewable facilities sell power into the market at hourly prices. If these customers place load on an MBR tariff, a natural hedge can be created with the renewable facilities.
  • Many such customers have facilities in neighboring states where market-based pricing prevails.

Along with the minimum charge that caught Microsoft’s attention, and which may or may not double collect costs, Dominion includes a margin for its own administrative and fixed costs, and in this new rate that is greatly reduced.  The charge is a flat fee based on usage, but it goes up as the customers demand drops below 85 percent of their peak.  (You pay more the more your load fluctuates.)

As Morgan noted, this is Dominion seeking a way to offer customers costs similar to what they can get either from a CSP or by moving production somewhere else.  It is a response to competitive pressures, but the discovery and the staff analysis may reveal how effective a response. Others besides Microsoft may intervene, and the Office of Attorney General as Consumer Counsel should be watching for a shift of risk to other customer classes.

Anticipating the question in his testimony, Morgan has reasons why this approach is not being offered to residential or smaller commercial customers, but some of those reasons could easily disappear if that interactive, interconnected, super-duper grid transformation which was promised ever appears.  This rate could also be an alternative for those smaller commercial customers seeking to aggregate their scattered stores and warehouses into a five-megawatt load and escape to a CSP.

This case was not on the Bacon’s Rebellion radar screen, but it is now.  Stand by for updates.  Surely the ongoing integrated resource plan case, the current energy efficiency applications, the anticipated revision to the grid modification plan, the implementation of the carbon tax, cap and trade scheme, and the new rate adjustment clause for environmental expenses – not covered yet – will keep readers transfixed.