This story was reported and written by our media partner the Virginia Mercury.
The regional electric grid that supplies power to Virginia during times of extreme weather announced a 1,400% increase in some electric costs after its most recent capacity auction. But Dominion officials were quick to assure customers that they would not see an increase in their bills before the end of next year.
PJM Interconnection, which oversees the electric grid serving several mid-Atlantic states, including Virginia, announced the increase for its capacity market. Dominion buys electricity off of capacity markets during peak, or emergency, demands.
In a news release, PJM blamed the increase on the need to meet surging electricity demand, which is coming from data centers, and electrification of vehicles and home appliances.
Those needs also come amid the retirement of generation sources, PJM officials noted. State’s around the region have implemented policy goals to take offline older, fossil fuel sources to decarbonize electric grids. Virginia has a target to do so by mid-century as a way to combat increasing storm intensities caused by climate change.
Understanding the capacity market begins with knowing that Dominion owns generation sources to provide the electricity it transmits and distributes throughout its grid. Dominion also purchases electricity from a separate wholesale market, which is where third-party power producers sell the electricity they create.
But when the grid experiences high demands of electricity, such as winter and summer when either heaters or AC systems are cranking, the utility may have to purchase electricity from the capacity market to meet its obligations.
The auction prices, which are set for future periods to give the third-party power producers an idea of how much they could make and whether it’s feasible to keep their sources online, were recently set for the broader PJM region at $269.20 for 2025-26. For sources within Dominion territory, they were set at $444.26 per megawatt, and in Baltimore Gas and Electric territory at $466.35 because of a limited number of them and transmission constraints. Previously, the price for the PJM region, which then included Dominion’s territory, was $28.92 per megawatt. The highest cost for other constrained areas, those with limited generation sources and transmission lines, in the previous auction was $96.24.
“The significantly higher prices in this auction confirm our concerns that the supply/demand balance is tightening across the RTO,” said PJM President and CEO Manu Asthana in a statement. “The market is sending a price signal that should incent investment in resources.”
The costs to customers
Dominion, on its investor earnings call last week, said that the utility shouldn’t be impacted too much by the capacity market increase because those purchases only account for about 1% of current customer bills.
Current rates, which on average are about $128 for a residential customer, are locked in until Dominion undergoes its next rate review next year. That means Dominion will bear any increased capacity market costs from June until rates change at the end of 2025, said Steven D. Ridge, executive vice president and chief financial officer on the earnings call. And, since Dominion sells power it produces into the wholesale market, any capacity market purchases has a “natural hedge” by those sales.
“We’ll have offshore wind come in, we’ll have the Chesterfield [natural gas combustion turbines] come in,” said Ridge, speaking to generation sources that could come online. “But demand is growing. So as that persists, we’ll think about ways to become effectively self-sufficient as we have been in the past as we catch up on demand. But from a financial impact, it truly is just a temporary item.”
The concern over grid reliability is why Dominion is proposing the 1,000 megawatt natural gas plant in Chesterfield County, as well as a natural gas storage tank to supply other facilities, and transmission line projects to deliver power from various sources. It is also seeking proposals to design a small modular nuclear reactor. Those developments come alongside Dominion’s continued buildout of offshore wind, some solar projects and long duration energy storage devices.
“Virginia needs more reliable power generation and new transmission infrastructure to reliably serve the growing needs of our customers,” Dominion spokesperson Aaron Ruby told the Mercury after the earning’s call, while adding that additional generation sources, “will be evaluated in our 2024 [Integrated Resource Plan] this October.”
One environmental group, the Natural Resources Defense Council, says it’s the unreliability of natural gas that contributed to the rising prices in the capacity market auction. That concern stems from natural gas delivery systems freezing during Winter Storm Elliot in 2022, said Claire Lang-Ree, advocate, sustainable FERC project, climate & energy.
“[Natural gas] actual added value is kind of diminished, considering some constraints,” said Lang-Ree. “I think it also points to the benefits of a diverse resource mix — being able to have not only storage, but also onshore and offshore wind. Offshore wind has a really high capacity factor and can provide reliability when there’s big winter storms or places where the rest of the grid is experiencing outages.”
PJM has been criticized for a large backlog of solar generation sources waiting to come online across the grid. The approval process has undergone reforms, but elected officials said PJM should also adopt some cost-saving measures outlined in a recent order from the Federal Energy Regulatory Commission aimed at improving regional planning for transmission lines.
“There is no time to waste in planning for the transmission system to support our future energy needs,” said a letter from the officials, which included Del. Rip Sullivan, D-Fairfax, and Sen. Ghazala Hashmi, D-Richmond.
But while Virginia’s regulators have noted a gap in the capabilities of solar to provide electricity generation to meet capacity needs, since the amount of electricity a solar panel produces isn’t always at its fullest potential, Lang-Ree acknowledged there are other steps Dominion can also take to add capacity. Those include pursuing more power purchase agreements with third party generators, which environmental groups say Dominion should do more of because of their lower cost to provide electricity, in addition to allowing some buildings to interconnect solar panels to alleviate their strain on the grid.
“When prices are this high, small amounts of [megawatts] can make huge cost differences,” Lang-Ree said.
