Dive Brief:
- Despite the PJM Interconnection’s 2025/26 capacity auction seeing record high prices, Dominion Energy customers won’t experience noticeable rate hikes, thanks to the company’s “natural hedge” of owning its own generation, Dominion Energy CEO Bob Blue said on the company’s second-quarter earnings call.
- In contrast, the wires-only Exelon announced Thursday that the increased prices would likely lead to double-digit rate increases for some of its utility subsidiaries.
- “While we may need to purchase some capacity at the higher price, we also sell our own power generation into the same market, so that helps offset increased cost for customers,” said Aaron Ruby, a spokesperson for Dominion Energy.
Dive Insight:
“Higher capacity market prices do not mean the everyday cost of electricity will increase that substantially for our customers,” Ruby said. “Capacity market purchases account for less than 1% of our customers’ monthly power bills.”
Ruby noted that the PJM capacity market also “does not serve the everyday electricity needs of our customers most of the year.”
“It’s simply for long-term ‘reserve capacity’ to ensure there is enough power during rare extreme weather events and the hottest and coldest days of the year,” he said. “Our own power generation fleet and our daily power purchases from the wholesale market serve our customers’ daily power needs most of the year.”
“Customers do not have material exposure to the outcome of the capacity market and therefore higher prices do not automatically translate into higher customer costs,” Blue said on the call, noting that and as of the company’s most recent biennial rate review, net capacity expense accounted for around 1% of customer bills, as of the company’s most recent biennial rate review.
“We'll have a holistic view of customer bill impacts when we file our next biennial case next March with rates effective by the end of the year,” Blue said. “Until those new rates become effective and as a result of a small short generation position, we expect the impact from higher capacity prices in the second half of 2025 relative to our prior assumptions to be about a $0.04 headwind in 2025, which we fully expect to overcome.”
Anthony Crowdell, managing director at Mizuho, said Dominion “has to absorb that four cents of higher capacity and power price expense” for a year, “but in their next biennial [rate] review, they will be able to submit whatever the auction results are for this December.”
“So there's no catch up or whatever for Dominion to get that money that they'll lose,” Crowdell said. “But the cadence of the capacity auction is steady now — because if you remember, we had some challenges to the auction process, and that's what caused this out-of-cycle capacity auction where Dominion was not able to set their customer rates based on it.”
PJM in 2023 got permission from the Federal Energy Regulatory Commission to delay upcoming capacity auctions to incorporate potential market reforms. FERC Commissioner James Danly approved the decision but warned that delays are “an extreme measure that severely destabilizes markets.”
In Dominion’s case, Crowdell said, “They own their generation, so that if capacity prices are up for generation, their units caught the higher price,” which then gets refunded on the customer side, resulting in a net zero impact to rates.
“So they do have this natural hedge,” he said. “The issue with 2025 is that with this out-of-cycle auction, there's a mismatch in load next year, and that's why they had to go out and buy power in the open market.”
