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Dominion Unit Freezes Base Rate - Analyst Blog

By: Zacks.com
Posted: 4/1/2013 7:07:00 PM
Referenced Stocks: BIP;D;EIX;OTTR

Dominion Resources Inc .'s ( D ) unit Dominion Virginia Power (Virginia Power) has decided to freeze its electricity base rate for at least the next two years. This move speaks highly of operational efficiency and cost management skills of Virginia Power. Keeping the base rate unaltered will definitely come as a relief for its electric customers in Va.

However, Virginia Power had ample reason to file for a rate hike as it incurred expenses of $450 million in the last two years due to natural calamities and other factors. The base rate comprising 60% of the residential bill can be adjusted every two years.

Virginia Power has not revised the base rate since 1992, which consists of non-fuel operational costs, salaries and other expenses. Its decision to shut down six coal-fired generation units for environmental reasons also affected earnings.

In spite of the increasing expenses over the past two decades, the efficient and effective use of its resources made it possible for the company to keep its base rate stable. Over the next three years Virginia Power will invest $8 billion in infrastructure improvements, service reliability, and the generation of more power to meet increasing customer demand.

However, the company will continue to file for the increase in non-base rates which have increased significantly over the last two decades. Since the base rate does not change, the electric bill of Va. Dominion consumers continues to be lower than the national and regional averages. This will surely help the company to add more customers to its existing base.

Dominion presently has a Zacks Rank #3 (Hold).Other utilities like Otter Tail Corporation ( OTTR ), Edison International ( EIX ) and Brookfield Infrastructure Partners L.P. ( BIP ) are better placed with a Zacks Rank #1 (Strong Buy).

Richmond, Va. based Dominion Resources Inc. was founded in 1909. The company together with its subsidiaries engages in producing and transporting energy in the U.S. With approximately 15,500 employees, the company's market capitalization is $33.53 billion.



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