Dominion ordered to allocate transmission costs to data centers

Solmar Insights

Dominion Energy has been ordered by the Virginia State Corporation Commission (SCC) to directly assign transmission infrastructure costs to new large-load facilities such as data centers, a decision expected to impact up to $1.5 billion in investments and shift cost burdens away from residential customers. The ruling, issued July 31, 2026, will require mandatory contributions for substations and transmission lines that serve these high-demand users, with Dominion mandated to file amendments to its existing policies within 90 days.

Regulatory order details

The SCC’s order specifically targets Dominion’s allocation of grid upgrade costs prompted by the growing electricity demands of data centers and other large-load commercial facilities. Previously, Dominion’s cost allocation model distributed much of these expenses across the entire rate base, including residential ratepayers. With the new order, the utility will need to assign costs for “direct connect” transmission infrastructure, facilities like substations and connecting lines that are built due to the requirements of specific customers, directly to those entities in the form of a mandatory contribution in aid of construction (CIAC).

This policy is designed both to protect residential and small business consumers from rate hikes and to ensure that data centers bear the economic responsibility for the infrastructure that’s constructed primarily for their benefit. The commission’s ruling emerged from a proceeding on Dominion’s Rider T-1 charge, intended to recover costs from transmission network upgrades, where Dominion sought to recoup around $1.5 billion in expenditures. Dominion has been directed to submit an amended line extension policy for Commission review within 90 days.

The SCC also made clear in its order that future dockets may consider expanding this approach to upstream, systemwide transmission investments, not only those strictly labeled as “direct connect”, opening the possibility for an even broader cost reallocation ahead.

Cost allocation mechanics

Dominion’s previous network cost recovery mechanisms spread the financial impact of grid upgrades across its service area, factoring for coincident peak demand. Rate classes like GS-4, which applies to large commercial or industrial users demanding at least 500 kW and drawing power directly from the grid, were affected by the allocation factor changes established by the SCC’s July 31 order. The commission approved Dominion’s amended twelve coincident peak (12CP) allocation method, but tempered the effect by reducing the proposed monthly increase for a typical residential customer from $2.90 to $0.94, a 67.5% decrease overall.

The new approach will require “direct connect” data centers and similar users to provide upfront CIAC for the construction of transmission lines and substations serving their facilities. This effectively transitions certain grid buildout costs from blanket rate recovery to targeted capital contributions, aligning cost causation with cost responsibility and reducing cross-subsidization within rate classes.

While Dominion must still submit its amended policy for SCC approval, the direction is clear, data center projects that create new, dedicated strain on the grid must shoulder a proportional share of the associated transmission investments, lessening the financial exposure for non-industrial customers.

Data center growth in Virginia

Northern Virginia continues to stand as the largest data center market in the United States, hosting both enterprise campuses and hyperscale facilities supporting cloud, AI, and enterprise workloads. This fast-paced development has driven significant growth in energy consumption, necessitating hundreds of megawatts of new grid capacity and prompting extensive buildouts of substations and transmission infrastructure along the power corridors serving Loudoun, Prince William, and Fairfax counties.

The Trappe Rock substation in Ashburn, cited in the regulatory proceedings, exemplifies the type of direct connect infrastructure that large-scale data center campuses require. Facilities from major operators, such as those located near Google’s data centers, are directly tied to Dominion’s transmission upgrades, which feed their expanding energy requirements.

Virginia’s policy move to assign a higher proportion of costs to data center operators follows ongoing debate about the appropriate balance between economic development and ratepayer protection, as the scale and timing of grid reinforcements are increasingly driven by hyperscale and colocation buildouts.

Impacts on commercial and residential rates

The SCC’s revised cost assignment reduces strain on the residential rate class by adjusting the minimum demand allocation factors. According to the July 31 order, the adjustment decreased the residential class’s allocation factor by 2.84% but correspondingly increased the factor for GS-4 commercial and industrial customers by 4.33%. This recalibration clarifies the expectation that large-load facilities, primarily data centers, must contribute significantly more to infrastructure costs, given their disproportionate influence on grid investment decisions.

Dominion spokespersons have emphasized the company’s ongoing commitment to ratepayer protection, noting that Virginia already has stringent regulatory measures designed to limit cost pass-through from data center expansion to residential and small business customers. With implementation of the CIAC model, these protections will be further strengthened, offering a predictable framework for funding new grid infrastructure without shifting the burden onto households.

Simultaneously, the ruling puts new pressure on data center developers and digital infrastructure investors to incorporate CIAC and potential grid connection costs into their financial models for projects sited in Dominion’s territory.

Next procedural steps

Dominion is required to file the proposed amendment to its line extension policy in a new regulatory docket within 90 days from the July 31 order. The SCC may use this proceeding to further define the scope of “direct connect” facility treatment and signal whether additional categories of grid upgrades, possibly including regional and backbone transmission lines, should also be subject to CIAC requirements.

The development is closely watched by the utility, digital infrastructure builders, and state policymakers, as it could become a precedent for similar regulatory actions in other states with growing data center footprints and corresponding grid stress. Multiple stakeholders are expected to participate in the forthcoming docket, seeking to clarify technical standards, cost allocation triggers, and the boundary between customer-funded and system-funded upgrades.

Market participants should expect further regulatory guidance on the extent to which upstream and system-wide investments could be carved into the CIAC structure, a potential shift that would have meaningful consequences for data center siting, interconnection timelines, and project economics across the region.