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BY CATHY JETT
Dan W. Wallace was shocked when he opened utility bills for two of the six Arby's restaurants he and his father own in the Fredericksburg area.
Rappahannock Electric Cooperative had charged twice as much per kilowatt hour for the new fast-food franchise in Cosner's Corner in Massaponax, Wallace said, as Dominion Virginia Power had for a similar-size Arby's about a mile away on Salem Church Road.
"I found this out strictly by accident," said Wallace. "One bill was right behind the other. That's when it popped up."
The rate difference means it will cost about $20,000 more per year to use the same amount of electricity at the Cosner's Corner Arby's as the one on Salem Church Road, his father, F. Dan Wallace said.
"It's like one side of town charged $3.25 for gas and the other was charging $6.50," said the elder Wallace, whose other Arby's franchises use Dominion.
Outraged, father and son contacted REC, only to discover that the charge was correct and that they were in the cheapest billing category for a business their size.
"That is wrong," said F. Dan Wallace. "If REC is designed to cover rural areas, it should not be in a commercial area."
RATES VARY WIDELY
Locally, commercial development is expanding into rural locations served by electric cooperatives, including some in Spotsylvania and Culpeper counties. Southpoint II, for example, straddles the boundary in Massaponax between Dominion and REC.
And Terremark Worldwide Inc., a global player in integrated Internet exchanges and information management, plans to build and operate a $270 million data-center campus just outside the town of Culpeper in part because the site is next door to Germanna Community College's new Joseph R. Daniel Technology Center. There, too, REC will be the provider.
But that doesn't mean Dominion, one of the nation's largest producers of energy, wants to expand into areas long served by co-ops.
"It is to their benefit not to shake that tree, because they wouldn't want what would come with it," said Irene Leech, a Virginia Tech associate professor who has been a consumer representative in Virginia's electric restructuring process. "They'd have to take the expensive areas to serve as well as the cheap areas."
While Dominion is owned by investors and covers the most populous areas of the state, electric cooperatives, which were created to bring power to rural farms in the 1930s, are not-for-profit ventures. They still serve relatively rural areas and have slim profit margins that are returned to customers.
"Dominion--nor any of its predecessor names such as the Virginia Electric & Power Co.--has ever purchased an electric cooperative," said spokesman Jim Norvelle. "It's not been a part of our business model."
Buying even a part of an electric cooperative would be difficult if Dominion executives changed their minds. Under Virginia law, one utility can't move into another's territory unless the State Corporation Commission finds that the service in that area doesn't meet public demand.
Even then, the utility covering that territory is given the chance to fix the situation, and power would still be delivered over its lines if the SCC allowed another utility to operate there.
"Our state law has been very cautious about allowing entities to change [their coverage area]," said Leech, who also is president of the Consumer Federation of America and the Virginia Citizens Consumer Council.
PARTNERING A TREND
Instead, Old Dominion Electric Cooperative, which supplies power to REC and the two other co-ops serving the Fredericksburg area, has teamed up with Dominion to produce electricity.
They each own half of Clover Power Station, an 880-megawatt, advanced-technology coal-fired electric generating station in south-central Virginia's Halifax County. ODEC also owns an 11.6 percent interest in Dominion's North Anna Nuclear Power Station in Louisa County and has the right to buy into its proposed third reactor there.
"ODEC is ahead of the curve on doing that," Leech said. "In more rural areas, cooperatives haven't had the money to do what it has done."
Yet, as the Wallaces discovered, Dominion's rates currently are lower than area cooperatives'. Residential users, for example, pay 8.9 cents per kilowatt hour if they use Dominion, and an average of 12.7 cents if they are REC customers.
For commercial users the size of Arby's, Dominion charges 6.7 cents per kilowatt hour, while REC's rate depends on what their peak demand is at a given moment plus the amount of electricity they use per month.
According to the Wallaces' calculations, they are paying REC about 12.5 cents per kilowatt hour. Northern Virginia and Northern Neck electric cooperatives, the other two electricity providers for the Fredericksburg area, charge rates similar REC's for both residential and commercial users the size of an Arby's.
ENERGY SOURCES DIFFER
The rate differences are largely due to not only the utilities' business structures, but also their energy sources, how they are regulated and the population densities of the areas they serve.
Dominion, which serves about 2.38 million homes and businesses in Virginia and North Carolina, relies on a mix of nuclear, coal, pumped storage, oil and natural gas to provide the bulk of its energy needs.
It produced all but 14 percent of its energy needs in 2006 and purchased the rest from the increasingly expensive wholesale market, according to the SCC.
ODEC, by contrast, owns approximately 2,050 megawatts of generation capacity and had to buy about 55 percent of its electricity on the open market in 2006, according to the SCC.
The utility announced earlier this year that it is reviewing the feasibility of constructing a base-load power generation facility on either a 1,600-acre site in Surry County or a 1,200-acre site in Sussex County.
REGULATIONS PLAY ROLE
Dominion's existing plants also are fully depreciated, and the General Assembly capped its base rate--the cost of power excluding fuel--and froze its fuel rate four years ago.
"Dominion is still under capped rates right now," said David F. Koogler, the company's director of state regulation and pricing. "There was an adjustment for fuel on July 1 of 2007. I'm sure that will occur again in 2008."
The co-ops are allowed to pass on the constantly fluctuating cost of fuel, an amount that is offset slightly by the fact that customers are entitled to a share of their profits. REC, for example, returned about $8 million last year, using a formula based on a number of factors, including usage and length of patronage.
Residential users received an average rebate equal to about 3 percent of their bill, while rebates for commercial customers vary more widely, REC spokesman Matt Faulconer said.
It could be anywhere from $1,000 or more to zero, which is what the Wallaces got last year because their Arby's wasn't built until 2007.
DELIVERY COSTS HIGHER
Co-ops serve far fewer people per mile of power line than does Dominion, which is the state's largest power company. That alone raises the co-ops' delivery costs by about a penny per kilowatt hour.
REC, for example, serves 102,308 homes and businesses in two towns and 16 counties including the southern end of Spotsylvania up to where Massaponax Creek cuts through Southpoint II.
That means it has had to install miles of new lines for residential developments, such as Lee's Parke in Massaponax, as well as maintain them past thousands of acres of tree farms in the Paytes area of Spotsylvania, Faulconer said.
REC averages 7.84 customers per circuit mile of its power lines compared with 42.5 per circuit mile for Dominion. Northern Virginia Electric Cooperative, which has 130,000 residential and business customers and covers part of Stafford, has only 21 customers per circuit mile.
Northern Neck Electric Cooperative--which serves 17,800 members in six counties including King George, Stafford and Westmoreland--has 8.9 customers per circuit mile. But 30 percent of those are part-time residents.
WEIGHING THEIR OPTIONS
Area economic-development directors point out that energy prices in Virginia are much lower than in other parts of the country.
That makes Virginia an attractive state for businesses, although energy costs rank far below location as a reason for selecting a particular site, according to both area businessmen and economic-development directors.
"We have not been contacted by companies that said the cost between the two power companies serving Spotsylvania is a factor in locating here," said Russell Seymour, that county's economic development director. "What larger companies tend to look for more is capacity. For a smaller or startup company, [cost] could be a concern."
Neither Vienna-based Ches-apeake Restaurant Group, which owns Chili's, nor Overland, the Kansas-based owner of Applebee's, however, looked at energy prices when researching sites in Southpoint II, which is served by both Dominion and REC.
"Location--that and just availability of sites in [the] area where you want to be--is the biggest thing," said Paul Truskey, Chesapeake Restaurant Group's director of finance.
The Southpoint II Chili's--as well as the nearby Wal-Mart, Lowe's and American Family Fitness--are Dominion customers. They are in the main part of the development, which is on a hill and has visibility from I-95. Applebee's picked a site down the hill in the smaller section of Southpoint that faces traffic on U.S. 1. This part gets its power from REC.
The utilities' boundary is Massaponax Creek, which flows under Southpoint Parkway just west of the section of the development fronting U.S. 1.
"When we picked out that [Chili's] site, we had no consideration as to whether we were in one electric provider area or another," Truskey said. "Now that [electricity] prices have gone up so much, it might make a big difference."
The Wallaces said they looked at a number of factors when choosing locations for their Arby's restaurants in the past, including access and the number of rooftops in the area. Now they'll probably put energy costs on the list.
"I've learned a good lesson," F. Dan Wallace said.
Cathy Jett: 540/374-5407
Email: cjett@freelancestar.com
Electric cooperatives trace their roots back Agriculture continued as a way of life in these areas as factories and businesses bypassed them for cities, where electric power was more prevalent. To help bring electricity Today, rural electric cooperatives serve 12 percent of all consumers of electricity in the United States and its territories, account for approximately 10 percent of total sales of electricity and own about 5 percent of electric-generation capacity, according to the National Rural Utilities Cooperative Finance Corporation, a private, nongovern-mental organization. --Cathy Jett |
