Dominion Virginia Power's downtown Richmond headquarters.

The Virginia Supreme Court has ruled that the city of Richmond cannot tax Dominion Virginia Power for natural gas it uses to generate electricity.

The power company, which operates a gas-fired electric generation station in Richmond, challenged utility tax assessments from the city for gas it used from 2001 to 2008. According to the Supreme Court opinion, in total the city sought $7.3 million in taxes and late fees for Dominion Virginia Power’s gas consumption from 2001 to 2013.

The utility’s challenges were denied by the city, and the city’s denials were later affirmed by the state tax commissioner. Dominion Virginia Power appealed to Richmond Circuit Judge Margaret P. Spencer, who sided with the power company.

The city cited a state law that permits the taxation of gas provided by pipeline distribution companies and used by consumers to furnish heat and light. The power company said it used the gas to generate electricity, not to furnish heat or light and so was not subject to the tax.

The city argued that when Dominion Virginia Power burns the gas it produces heat, subjecting the company to the tax. Spencer, however, held that any heat or light created when the power company consumed gas at the station was merely incidental.

The judge cited another part of the state law that reflected the General Assembly’s intent to exclude companies transmitting gas consumed solely to produce electricity and ruled that the company was not subject to the tax.

The city appealed to the Virginia Supreme Court, which led to last week’s ruling by the high court.

Dominion Virginia Power spokesman Dan Genest said: “We are pleased with the court’s ruling and are glad to have this issue behind us.”

Genest said the Bellemeade Power Station is a 266-megawatt natural gas power station in South Richmond.

A spokeswoman for the city said the ruling brings the matter to a conclusion and that the Department of Public Utilities had not been accounting for this money in its budget.

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