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February 21, 2006


Delmarva Power might be amenable to re-regulation, a company official indicated as he began a round of presentations before civic organizations in the wake of strong adverse public reaction to plans to boost electricity rates nearly 60% when deregulation takes effect on May 1.

"We need to look at re-regulation seriously for small businesses and residential [customers]," Tim Brown, director of corporate communication,  told a meeting of the Greater Hockessin Area Development Association.

He also disclosed that Conectiv Energy is one of three unregulated suppliers of electricity that were successful bidders to supply Delmarva Power with electricity for distribution and resale. Delmarva Power and Connectiv Energy are both wholly owned subsidiaries of Washington, D.C.-based Pepco Holdings Inc.

Citing confidentiality agreements, Brown refused to divulge the identity of the other two beyond saying that Delmarva Power "has no ownership interest" in them.  Nor would he comment on the proportion of Delmarva Power's needs that each of the three will supply.

He said 25 companies responded to Delmarva Power's request for contract proposals and that a representative of the Delaware Public Service Commission was present to witness the bid opening.

Brown also said that there are discussions underway with Governor Ruth Ann Minner, legislators and other officials about the possibility of phasing in the 59% rate increase instead of imposing it all at once, as now planned. He did not indicate how long a period for phasing is being contemplated.

But, he added, doing so "would be like buying on a credit card -- there is a cost to that." As a result, the total additional cost would be higher.

As would be expected given public reaction to the company's announcement about the magnitude of the impending rate increase, much of the question and discussion period following Brown's presentation at the meeting on Feb. 20 took the form of complaint. Among other things, it was pointed out that businesses paying more for electricity will, in turn, pass that cost on to their customers. Even government services will take a similar hit. People are thus facing a significant across-the-board rise in their individual costs of living as the ripples from Delmarva Power's splash spread through the local economy.

Brown said that the 'typical' Delmarva Power residential customer is looking at paying an additional $54 a month for electricity. Still, he maintained, the resultant cost will be "somewhere in the middle" of the range of what the seven municipal utilities in Delaware and power companies in surrounding states charge. Newark, Dover and other municipals, he said, are on the verge of seeking rate increases that "will bring them closer to where we are," he said.

He acknowledged that it would be better to have allowed incremental increases during the three-year moratoriums which followed in succession deregulation in 1999 and Delmarva Power's being acquired by Pepco in 2003. A relatively modest increase was allowed when the acquisition occurred.

He said that customers 'saved' $1 billion during those six years, but stopped short of acknowledging that the company expects to make up that difference now. He did acknowledge that, because it had long-term supply contracts in place, the company "did not loose money during the period."

Pepco spokespersons in Washington had not responded to a Delaforum request for information about profitability as this article was being prepared.

Brown said the massive rate increase is the result of great escalation of the cost of fuel needed to generate electricity. Since 1999, he said, natural gas has gone up 400%, oil 300% and coal 150%.

The cost of nuclear power has not increased with the same order of magnitude, but environmental and other concerns limit its availability, he noted. About a fifth of the electricity Delmarva Power distributes is generated by nuclear power. After being acquired by Pepco, the company that is now Delmarva Power sold its interests in nuclear plants in New Jersey and Pennsylvania to the larger participating companies.

"If we hadn't been deregulated, we still would have had to pass through [the added costs] on a continuing basis," he said.

Under terms of deregulation, Delmarva Power remains under Public Service Commission jurisdiction relative to what it charges to transmit electricity to customers, but is allowed to buy that electricity in the free market and pass on that cost -- presumably with a markup -- in much the same way that any business factors cost of supply into selling prices.

Brown said regulated distribution charges have risen only minimally during the six-year period.

Deregulation was justified, he said, by an expectation that it would generate competition resulting in lower costs for users. "That hasn't happened. ... As of right now there doesn't seem to be any competitions [to Delmarva Power] out there willing to come in [to its market]," he said.

Delmarva Power's large commercial customers, Brown said, are facing rate increases which, in some cases, are more than double present rates. However, they "have [potential] alternate suppliers anxious to sell to them," he said.

2006. All rights reserved.

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