Virginia Regulators Approve New Dominion Rates, Assign More Costs to Data Centers

RICHMOND, Va.—The State Corporation Commission in November approved a new Dominion Energy rate increase for 2026 that will add $16 a month to the typical residential bill and assign more costs to data center operators to cover necessary grid upgrades the following year. 

After months of legal filings and a hearing that lasted nearly two weeks, instead of the typical few days, the SCC took what lawmakers from both parties and consumer advocates considered a good first step toward deciding what is a fair way to pay grid upgrades needed to accommodate the giant server farms that power Silicon Valley’s race to develop energy-intensive artificial intelligence systems. 

The $16 monthly would make the total average residential electric about $165 a month for the next two years. The increase includes a .1 percent increase in the utility’s allowed profit margin to 9.8 percent, which is less than the 10.4 percent Dominion requested. The total amount Dominion is allowed to recover from ratepayers through the profit margin and bill increases is $775.6 million, about $500 million less than Dominion’s about $1.2 billion request. 

“There’s broad, bipartisan recognition that the protections approved by the SCC are a win for consumers. I’ve seen nothing but positive reactions from environmental and consumer advocacy groups,” said Aaron Ruby, a Dominion spokesperson. “These protections will ensure that data centers continue paying their fair share of power costs, and they will prevent data center costs from being passed onto residential customers.”

Peter Anderson, director of state energy policy with the nonprofit environmental group Appalachian Voices, lauded the SCC for engaging with the data center issue. “Residential customers should not be subsidizing these wealthy companies, and Virginians are relying on the commission to address these fundamental questions of fairness,” he said. 

The Piedmont Environmental Council, another environmental nonprofit, said the proposal didn’t go far enough in protecting consumers. A 14-year contract term data center operators must agree to when buying power from Dominion—covering the costs of grid investments necessary to serve their interests—should have been 20 years, it said. The group’s analysis showed that the SCC decision would still put 61 percent of the costs of those grid upgrades onto individual ratepayers after the 14-year period ends.

“The SCC’s decision to continue the current allocation of costs among rate classes for the next two years is still unfair and does not go far enough to protect the average Virginian ratepayer,” said Chris Miller, president of the Piedmont Environmental Council. “During a time when families are struggling to make ends meet, the SCC is asking their constituents to continue to subsidize the energy needs of the richest companies in the world. It doesn’t make sense.”

A Class for Data Center Customers

A new GS-5 rate class will start Jan. 1, 2027 to include data center customers with a demand of 25 megawatts and a 75 percent load factor, the rate at which a customer requires its maximum demand. 

Data center customers for Dominion previously had an average size of 13 megawatts, the equivalent of 3,250 homes, in 2013 but have grown to a typical 300-megawatt size and sometimes even 7,000 megawatts in size. Their load factor is higher than that of residential, industrial or commercial customers, because of the data centers’ need to constantly process data, instead of using electricity for more defined portions of the day.

The GS-5 customers’ will be subject to 14-year contracts that come with demand charges to pay for a minimum of 85 percent of the transmission and distribution costs and a minimum of 60 percent of the generation costs of what they need. 

Before this change, a data center could, for example, enter into an agreement for 100 megawatts of electricity, but only use 20 megawatts as the facility is built to its full capacity. That meant Dominion would build grid upgrades for the full agreement amount, and the charges would be passed onto ratepayers based on their need. Meaning, the data center customer would pay for only 20 megawatts worth of what is built. 

The change means data centers will be on the hook for larger portions of what it costs to serve them, regardless of how much they actually use and without saddling the rest of the customer base with as much of the costs to serve the full agreement amount.

Unprecedented Energy Demand Challenges

In its decision, the SCC acknowledged concerns about affordability. “The concern…is understandable,” the three SCC judges wrote. But “inflationary, economic, and policy impacts that have affected other segments of the economy,” are things that “the Company is not immune from,” they said.

The SCC said it will more specifically evaluate how transmission costs are assigned to the customer classes in a future hearing and debate the allocation methodology to be used in the next rate case in two years. The current methodology, which assigns costs to the customer classes based on when peak demand occurs, favors data centers’ more steady, albeit constant, usage that avoids use spikes that lead to larger shares of the costs, consumer advocates say.

“The size of individual large-load customers, their number, and the speed with which they are seeking to connect to the system, jointly present challenges for [Dominion], existing customers, and the grid at large not seen in decades, if ever,” the judges wrote in their order.

What drove Dominion to seek the new increased rates was its lack of changing base rates for several years. Bills have gone up through other increases in rate adjustment clauses, or riders, tacked onto utility bills to recover costs for more specific sets of projects, but those methods cannot take the place of an overarching rate increase indefinitely.

Grid Upgrades 

Now, as more and more data centers are built in Virginia—which has more of the giant server farms than any other jurisdiction in the world—Dominion needs to spend money to upgrade all aspects of the state’s electric grid. That includes more electricity generation sources, transmission cables to deliver power across vast distances and distribution equipment “to reliably serve a growing customer base,” a Dominion news release said.

That growing customer base for data centers led the SCC to assign more costs to them and to include some provisions in the rate decision to get better estimates of how much, and when, power needs will grow by. Those forecasts are used by Dominion to justify its upgrades, which were recently expanded to include a polluting natural gas plant. 

Money to upgrade the grid is what is recovered from ratepayers through the base rates, which contribute to the profits the utility distributes with shareholders. The expected data center customer estimates have been constantly disputed, and similar ratemaking measures in Ohio have already yielded reductions in prospective projects.

Data Center Speculation 

As both the SCC and Dominion weigh how best to allocate costs among classes of customers, another quandary involves how much new data center capacity—and all of the related grid updates—will actually be needed as the AI race unfolds. 

Data center customers under the new GS-5 rate class taking electricity from Dominion must pay upfront collateral payments to ensure grid upgrade costs, largely driven by the data centers, are covered. In Virginia, there are limited allowances for large electricity users to shop for deals for electricity from third-party independent sources while still using Dominion’s grid to have it delivered.

Collateral payments would offset the expenses the rest of the ratepayers would be saddled with if a data center leaves and no longer buys electricity from the utility, providing revenue to cover the costs of upgrades. There are also exit fees if a data center shops for electricity before their contract term is up.

“These financial commitments are really the best way to shake out that speculative load,” said Nate Benforado, a senior attorney with the Southern Environmental Law Center that represented Appalachian Voices in the most recent rate case. 

Often, data center projects will be submitted in multiple jurisdictions as they work to find the best electricity, water source and tax break deal they can, or are incrementally built without a need for the full amount of electricity they request. In Ohio, data center requests fell from 30 gigawatts to 13 gigawatts after utility regulators there adopted ratemaking provisions similar to Virginia’s new provisions. 

“You really saw that substantial reduction in growth projection pretty quickly,” Benforado said. “We will see what the impact is in Dominion territory. It’s certainly a good start, a good way to go.”

The SCC judges took notice of the speculative nature of some projects by removing about $350 million in revenue that Dominion could recover from ratepayers for data center projects that were in the less costly first phase of Dominion’s three-phased contract process. Staff and Dominion also agreed to better track projects in each of the contract phases to inform future customer projections and spending needed if they’re actually connected.

“In 2027, all participants will have the benefit of two more years’ experience with these large-load customers, any initial impacts of the tariff design that we approve today, and potential technological innovations and other developments that could all impact the rate of growth of the projected load forecast,” the SCC judges wrote.