By Tim McLaughlin
Aug 11 (Reuters) - Dominion's fuel costs in Virginia have risen nearly 90% in five years as data-center-driven demand leaves the utility increasingly exposed to volatile wholesale electricity prices.
The surge in fuel costs in Virginia, the world's largest data center market, is casting further doubt on claims that AI-driven electricity demand is not saddling residential customers with higher power bills.
Fuel costs are the expenses Dominion pays to buy the coal, natural gas and nuclear
fuel to generate electricity. Nuclear fuel, for example, is expected to average less than a penny per kilowatt hour, compared with purchasing electricity on the wholesale market for 6.28 cents per kilowatt hour, according to Dominion estimates.
Rapid growth in data centers is becoming a political headache in states like Virginia, where Governor Abigail Spanberger, a Democrat, said last week she would intervene in the regulatory review of NextEra Energy's proposed $66.8 billion merger with Dominion, to press for commitments on power bill affordability, job protections and clean energy investments.
Virginia Electric and Power Company, a unit of Dominion Energy, forecasts fuel expense of $4.35 billion through the end of June 2027, averaging 3.95 cents per kilowatt hour. That cost is 88% higher than 2021, when the electric utility's system fuel expense was $2.31 billion, or an average of 2.59 cents per kilowatt hour, according to recent filings with Virginia regulators.
The surge comes as Virginia Electric expects to buy 23% of its energy supply from the wholesale electricity market operated by grid manager PJM Interconnection, which serves 67 million people in a territory that stretches from Washington, D.C., to Chicago. That's up from 14% in 2021.
Scott Gaskill, vice president of regulatory affairs for Virginia Electric, said the utility's own generation portfolio is the best hedge against PJM market prices. The planned merger with NextEra is expected to accelerate Dominion's buildout of power plants and renewable energy, reducing its reliance on PJM market purchases.
"Every megawatt-hour generated by company-owned resources reduces the need to purchase energy from the PJM market," Gaskill said in his July 28 testimony filed with Virginia regulators.
Virginia Electric serves 2.7 million homes and businesses in Virginia. Fuel costs could drive up the average monthly bill by as much as 13% to $195 from $173, according to Virginia regulatory filings. The increase would only be about 5% if Dominion can issue bonds to defer some fuel cost recovery from customers into future years, the filings said.
Staff at utility regulator Virginia State Corporation Commission said significant load growth from data centers increasingly exposes Dominion to a wholesale electricity market where spot prices can skyrocket to several thousand dollars per megawatt hour during heatwaves and extended cold snaps.
As a result, regulators, consumer advocates and many lawmakers increasingly argue that data-center-driven load growth is creating costs that are still being spread too broadly across residential customers.
Dominion and the data center industry argue that data centers are paying their costs and are not responsible for recent residential bill increases.
Meanwhile, Dominion executives say its $11.7 billion Virginia offshore wind project will generate fuel savings of about $5 billion for customers during the project's first 10 years of operation.
(Reporting By Tim McLaughlin; editing by Timothy Gardner and Aurora Ellis)
