Audit: Dominion Power overcharged customers $524M

Electricity customers paid Dominion Virginia Power $523.7 million more than they should have last year, state auditors have concluded.

The auditors on the State Corporation Commission's staff recommended a cut in the company's base rates, reducing its annual revenues by $365.3 million.

The auditors did not calculate how much that would reduce the average residential customer's bill.

The staff recommendation comes about a month after Dominion acknowledged in an agreement with the Virginia Attorney General's Office that the company had earned $397 million more than necessary in 2008. They presented a plan that would give residential customers an average of nearly $100 in refunds and bill reductions.

The State Corporation Commission began looking at Dominion's rates after the company filed in March for the first increase in its base rates since 1992. Base rates cover a utility's costs to operate its plants and distribute electricity, plus a return on its investment.

The commission staff found that Dominion had earned much more than it needed in order to make a reasonable profit in 2008. They determined that the company's return on average equity, a measure of profitability, was 19.12 percent last year. Dominion should be earning a 10.2 percent return, according to their calculations.

Under state law passed in 2007, if Dominion is found to have made too much money, the commission has two options. It can require Dominion to refund customers a portion of the overpayment or reduce its base rates going forward, until its next rate review.

A refund would allow customers to recoup less than 60 percent of Dominion's excess earnings. A rate reduction cuts customers' bills but allows Dominion to keep the extra money it has collected in the past.

In the SCC staff's filing, Kimberly Pate, manager of audits for the commission's Division of Public Utility Accounting, concluded that a refund would give back

$295.8 million to customers next year but a rate reduction would save them more money over time. It would also decrease the likelihood that Dominion would continue to overearn in future years.

Dominion is scheduled to file its response to the staff's report next week.

"We are still reviewing the staff testimony," Dominion officials said in an e-mailed statement. "However, we continue to believe that the proposed settlement agreement presented jointly by Dominion, the attorney general and many others provides significant benefits to our customers while allowing Dominion to meet the long-term energy needs of the commonwealth."

The State Corporation Commission's public hearings on Dominion's base-rate case are set to begin Jan. 20. The SCC will consider both proposals and other testimony.

Its final ruling, which could take a few months, might include all, part or none of the alternatives proposed.

If the SCC agrees with its staff's recommendation, customers' bills would be lowered. Customers would receive credit for higher base rates paid since Sept. 1 and lasting at least one year.

If the SCC agrees with the attorney general's plan, residential customers using 1,000 kilowatt hours would get a one-time refund of about $24 and see their monthly bill reduced by $6.33, retroactive to Sept. 1.

Separately on Wednesday, the commission ruled on three other cases involving Dominion's rates. It approved two surcharges on Dominion customers' bills to cover the company's costs to build two new power plants in Virginia.

The surcharges, to take effect in January, add $3.03 to the bills of residential customers who use 1,000 kilowatt hours of electricity per month.

In the other case, the commission further reduced Dominion's fuel rates, which cover the cost of coal and other fuels used to generate electricity. Its the third fuel-rate cut since July and, starting Jan. 1, would reduce the monthly bill for customers using 1,000 kilowatt hours by $3.83.

Carolyn Shapiro, (757) 446-2270, carolyn.shapiro@pilotonline.com