The SCC Decides: Dominion’s Rates and Profits Go Up, New Rules on Data Centers

The massive data centers behind a growing energy crunch in Virginia will begin to pay substantially more for electricity in Dominion Energy’s territory, but not until 2027. The State Corporation Commission’s (SCC) approval of a new rate structure for the largest users will probably only intensify debates about what their “fair share” is.

On Nov. 25, the Commission issued its final order on a Dominion general rate review, approving the new GS-5 rate class for the large digital customers and a general rate increase for all customers. It was the same day the SCC approved another Dominion application, this one to build a contested natural gas generation plant in Chesterfield County.

It wrapped up the first general review of the utility’s revenues, profits, and operating rules since the 2023 General Assembly had relaxed some of the mandates it had imposed to protect the utility’s profits.  At the time, the Thomas Jefferson Institute praised the discretion returned to the SCC, but warned it would not lower customer costs, despite promises to that effect. The coming price hikes might have been worse, however, without that added independence. 

The bottom line for consumers is that their bills will rise as of Jan. 1 and then will rise again a year later. Over 2026 and 2027, the utility can collect more than $1.3 billion more from its 2.8 million customers through higher base rates. The SCC also approved an increase in the utility’s authorized profit margin, from a 9.7 to 9.8 percent return on equity.

For a residential consumer using 1,000 kilowatt hours of electricity, a typical month for many, the base rate will rise $11.24 on January 1 and another $2.36 on January 1, 2027.  There will be comparable cost increases in the customer categories for businesses of all sizes, as well. The rising cost of doing business usually ends up adding to prices for the customers of those businesses. 

The higher authorized return on equity will also apply to all the utility’s various rate adjustment clauses, such as the separate charges it imposes to pay for the offshore wind construction, all the recent solar projects it has added and now the approved Chesterfield County natural gas generator. The Chesterfield project will also spark a price hike next month, initially another 60 cents per 1,000 kWh, but quickly rising to over $2.  

Dominion had asked for an even larger base rate increase and higher profit margin. The SCC, its analyst staff and a host of other stakeholders dissected Dominion’s accounting and challenged many of the expenses, both in the past and future. The Commission accepted many of their objections.  In exchange for the huge advantage it gets as a monopoly provider, the utility gets subjected to a nit-picking analysis in these cases.

One request from Dominion that was rejected would have moved payment for its energy capacity purchases within the PJM Interconnection regional grid out of its base rates and over to the separate fuel charge. Once a minimal cost, those capacity prices have exploded and are now expected to remain high as Dominion relies on purchased power.

Other Dominion requests that the SCC denied were costs the utility had specifically blamed on the growing data center presence in Dominion’s territory. Should the costs materialize, Dominion can seek recovery in the future. 

Now that the record is complete, it shows that strong increases in the utility’s equipment and labor costs across the board led to its failure to meet its earlier profit targets. There was overall agreement that the company needed a rate hike to cover those costs and earn the authorized profits. Despite the public rhetoric, a rate was coming despite the data centers.

But the pressure from that sector is going to grow, and the debate over whether other groups of customers are unfairly subsidizing is valid. One of the orders the SCC issued will start a general review of the entire methodology used by Dominion to charge different classes of customers. 

The new rates and terms of service imposed on the future GS-5 class of large users appear to closely follow Dominion’s initial proposal. At first that had divided the largest companies in the industry, with some in support, but then they proposed their own joint compromise with less stringent terms. The proffered compromise was largely rejected. 

One goal of the new contract requirements is to protect other ratepayers from getting stuck with the bill if Dominion spends heavily to meet the demand of the data centers, but then that demand fails to materialize, or later drops substantially.  The biggest users are in effect being forced to pay for electricity they expect to need, whether they use it or not.  

The SCC’s order itself does a good job of explaining some of the details:

“The contract provisions shall apply to customers taking initial service and signing an (electricity service agreement) on or after January 1, 2027. The contract term shall be 14 years. A customer may also include, within the contract term, a load ramp period not to exceed four years (with a minimum annual ramp of 20%).

“If the customer continues to take service after the conclusion of the contract term, the minimum charges approved herein shall continue. If the customer ceases operations or otherwise defaults on its agreement during the contract term, the customer shall be required to pay an exit fee covering any outstanding minimum charges over the remaining contract duration.”

Customers in the GS-5 class will also have to put up collateral that Dominion could collect if they default and must give three years’ notice of any plans to reduce demand, with limits on how much they can reduce it. The demand charge they pay – not something imposed on small customers – will also include minimum monthly payments toward transmission and distribution, not just generation assets. 

Data centers are not the only large customers who reach the 25-megawatt demand threshold for the GS-5 class. Customers with a long history with Dominion (for example, the shipyard in Newport News) are exempt from some of these new rules. Nobody will be exempt, however, from the general review of all the allocation rules this order calls for. The political pressure in such reviews is always to lower energy costs for homeowners by increasing costs for businesses.