November 19, 2002
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.
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||David Botkins, (804) 771-6115