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Dominion Files to Lower Fuel Charge

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Dominion Resources, Inc.’s (D - Free Report) unit Dominion Virginia Power, a power distribution company in Virginia filed with the State Corporation Commission of Virginia (“SCC”) to reduce fuel charges, thereby lowering the monthly electricity rate. Mild weather also propelled the company to revise the rate. The customers who are consuming larger volume of electricity would get greater reductions.

Currently, the average residential customers, consuming electricity of 1,000 kilowatt-hours (kwh) per month, pay $112.05. If the revised rates are approved by the commission, the customers will have to pay $108.35 per month, down 3.4% from the previous rate, effective Dec 1, 2013.

Dominion Virginia Power pays fuel charges for power generation at the power stations. The fuel charges are passed on to the customers. If the revised rates are approved, the consumers will be paying lesser amount.

Due to the electricity rates revision, the residential bills will remain below the state and national averages. If the reduced fuel charge is approved by the commission, a residential customer’s bill, with monthly consumption of 1,000 kwh, will decease 16% and 22% than the U.S. and the East Coast average, respectively.

Dominion Virginia Power aims to provide uninterrupted utility services to its customers at lesser prices than its peers. According to the Energy Information Administration, the average cost of electricity in the U.S. was $119.50 per month in Jun 2013. The new monthly rate of $108.35 will be approximately 9.3% lower than the national average.

Dominion Resources has made considerable investments over the last couple of years to upgrade existing infrastructure, construct high-efficiency power plants, and acquire assets. Recently, the company received approval to construct Brunswick Power Station, and invested substantial amounts to acquire three solar projects in Indiana and a biomass conversion project at Altavista Power Station. We believe successful completion of these projects along with addition of new assets through acquisitions will enable Dominion Resources to provide uninterrupted reliable utility to its customers at a lower price. Moreover, a reduction in fuel charge will enable the company to trim down operating expenses, which in turn will improve the margins going forward.

Despite these positives, we remain concerned about stringent regulations, and higher expenditure for construction of generation and distribution assets, which may challenge Dominion Resources’ forthcoming performance.

Dominion Resources currently has a Zacks Rank #4 (Sell). However, other stocks that are worth considering include Brookfield Infrastructure Partners L.P. (BIP - Free Report) , Alliant Energy Corporation (LNT - Free Report) and PPL Corporation (PPL - Free Report) , each carry a Zacks Rank #2 (Buy).

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