January 12, 2004

RICHMOND, Va. - Capped electricity rates would save Dominion Virginia Power's residential customers about $1.8 billion and generate about $307 million in additional economic activity if the Virginia legislature approves a proposal by the governor and attorney general for a three-year rate cap extension, an updated economic study showed Monday.

The updated study found total savings from the capped base rates during the extended 1998-2010 transition period could be between $789 and $966 for each of Dominion's 1.87 million residential customers in Virginia. The average annual savings could range from $61 to $74, or up to 7.3 percent of the bill of the typical customer who uses 1,000 kilowatt-hours of electricity each month.

Chmura Economics & Analytics (CEA) of Richmond conducted the study, which was commissioned by Dominion. The company asked CEA to update its original November 2002 study to take into account the three-year rate cap extension recently proposed by the offices of the governor and the attorney general.

"Capped rates are a central part of Virginia's restructuring program, and they have resulted in big savings for Dominion's customers. The updated CEA study shows the three-year extension would dramatically increase those savings," said Thomas F. Farrell II, Dominion president and chief operating officer. "The extension of the rate caps would give the act more time to accomplish its goals, allow more time for competition to develop, and provide three additional years of price protection for consumers."

The initial CEA study said Dominion's residential electric customers could save up to $871 million during the present capped rate period scheduled to end July 1, 2007. The updated study shows that with the extension through the end of 2010, capped rates can produce total savings of $1.5 billion to $1.8 billion. As much as $700 million of forecast savings would come during the three-year extension alone.

The updated CEA study also found that savings during the original capped rate period (1998-2007) would be somewhat greater (as much as $1.1 billion vs. as much as $871 million) than anticipated in 2002 because of several changes in economic factors. These include changes in the rate of electricity demand and use and in the pace of the current economic recovery.

Among the updated study's findings:

• Base residential rates would have increased by 22.3 percent from 2001 to 2010 if the caps were not in place and the rates had risen at the pace of inflation, as measured by the Consumer Price Index.
• Base residential rates could have risen from between 8.4 percent to 11.7 percent, not adjusted for inflation, under probable rates from 2001 to 2010 if the caps not been in place.
• Consumer savings on electricity during an extended capped rate period can generate an additional $251 million to $307 million in Virginia economic activities through the multiplier effect. Spending on retail goods has a stronger impact on the economy than spending on electricity. Savings provided to Dominion Virginia Power customers because of the cap ripples through the economy as consumers spend those savings on other goods.

Base rates cover virtually all utility expenses except fuel and also allow companies to earn a return on their capital investment.

The Virginia Electric Utility Restructuring Act of 1999 imposed caps on Dominion Virginia Power's base rates through July 1, 2007, during the transition to increased competitiveness and market-determined prices. The act extended rate caps first put in place in 1998 by the company's settlement with the State Corporation Commission.

Chmura Economics & Analytics is a leading consulting firm specializing in traditional economics and quantitative research. Christine Chmura, its president and chief economist, was the chief economist with Crestar Bank and an associate economist with the Federal Reserve Bank of Richmond.

Dominion is one of the nation's largest producers of energy with an energy portfolio of more than 24,000 megawatts of generation. Dominion also serves 5.3 million retail energy customers in nine states. For more information about Dominion, visit the company's Web site at www.dom.com.

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