Dominion Virginia Power's Customers Projected To Save Up To $871 Million During Transition To Customer Choice
RICHMOND, Va. - Capped
rates will save Dominion Virginia Power's residential customers up to $871 million
during the transition period to full electric competition, projects a new economic
study released Tuesday.
Chmura Economics & Analytics (CEA), a Richmond
economic research firm, performed the study of savings during the capped rate
period of 1998-2007. It indicated that the average residential customer on capped
rates would save between $429 and $480 on electric bills during the transition
period. Dominion Virginia Power has approximately 1.8 million residential customers.
The Virginia Electric Utility Restructuring Act
of 1999 imposed caps on Dominion Virginia Power's base rates through July 1,
2007, as a short-term stabilizing mechanism during the transition to increased
competitiveness and market-determined prices. The law extended an earlier cap
on Dominion Virginia Power's base rates imposed by the State Corporation Commission
in an August 1998 order approving a settlement between the company and other
parties in a rate case.
The average annual savings per residential customer
range from $45 to $50 during the capped rate period, the CEA study found. This
represents yearly savings of up to 5 percent for the typical residential customer
using 1,000 kilowatt-hours per month, according to the CEA study.
"Virginia's response to the electric industry
restructuring movement, through the policies implemented by the SCC and the
General Assembly, is already producing benefits of significant magnitude for
Virginia consumers," the study continued. "Through customer savings,
the SCC and Restructuring Act rate caps can be expected to free between $780
million and $871 million that would otherwise have been spent on electricity
from 1998 through 2007."
"The study indicates that Virginia residential
customers are enjoying marked savings under the capped rates," CEA said
in its findings.
The study projected that if rates had not been
capped, base residential rates would have risen between 7.9 percent and 9.2
percent from 2001 to 2007 to pay increasing costs of service such as new power
plant construction or enhanced environmental controls.
To put the savings into
perspective, the study found that the least amount of savings from the capped
rate -- $780 million - would have provided enough money for the purchase of
5,237 homes in Virginia, with an average selling price of $149,000.
Moreover, the stability in electric rates stands
in stark contrast to other prices for consumer goods in the national economy,
according to the study. For example, between January 1998 and July 2002 butter
increased in price 48 percent, gasoline 25 percent; ground beef 17 percent and
frozen orange juice concentrate 15 percent.
Consumer savings on electricity during the capped
rate period also will generate an additional $132 million to $148 million in
Virginia economic activity through the multiplier effect, the study found. Spending
on retail goods has a stronger impact on the economy than spending on electricity.
The savings provided to Dominion Virginia Power customers because of the cap
will multiply through the economy as consumers spend those savings on other
goods.
Dominion Virginia Power commissioned CEA to perform
the study after receiving questions from customers and public officials regarding
the potential for savings in the Commonwealth, and after other states had conducted
similar studies.
The study examined three separate elements of
Dominion Virginia Power residential customer savings under the base rate caps:
Using SCC data, the CEA study found that savings for the
company's residential customers totaled $285.6 million for the 1998-2001 period.
By using two economic models, CEA found that Dominion Virginia
Power residential customers would save from $302.7 million to $393.7 million
during the 2002-2007 capped rate period imposed by the Restructuring Act.
Both models tracked actual data closely, with error rates of less than 1 percent.
The company's inability to seek rate increases to cover
"extraordinary expenses," such as sophisticated anti-emissions equipment
for its fossil-fired power stations, will provide customers with another $192
million in savings from 2002 through 2007, according to the study.
Richmond-based Chmura Economics & Analytics
is a leading consulting firm specializing in traditional economics and quantitative
research. Its president and chief economist is Christine Chmura, formerly chief
economist with Crestar Bank and associate economist with the Federal Reserve
Bank of Richmond.
Dominion is one of the nation's largest producers of energy,
with a production capability of more than 3 trillion British thermal units of
energy per day. Dominion also serves more than 3.8 franchise natural gas and
electric customers in five states. For more information about Dominion, visit
the Company's web site at www.dom.com.
