With drastic energy rate hikes looming, Gov. Ruth Ann Minner responded this week with an executive order authorizing the Public Service Commission (PSC) to conduct a feasibility study that may lead to deferred electricity rate increases.
Electrical power generators — in this area, Indian River Power (a subsidiary of NRG Energy) — are fast approaching the end of rate caps dating back to the late 1990s. But the market for energy generation had seen greater-than-anticipated volatility since then, PSC Executive Director Bruce Burcat pointed out.
The local plant burns coal, primarily, and coal is abundant, so those fuel costs haven’t risen nearly as fast as oil or natural gas. “But it’s not just the fuel itself,” Burcat added. “It’s the costs of operating the plants.”
He said free-market pricing was certainly compounding rising operational costs’ effect on rates, although to what extent, he didn’t know.
According to Burcat, people hoped deregulation would bring energy pricing “at least as good, or better” than what they had in the regulated market. And not just the interested companies — a lot of customers felt that way, too, he said.
But given Delaware’s diminutive stature as a market, Burcat said there’d been some concern at the PSC regarding the real, versus perceived, benefits of deregulation.
Now, with the rate cap lifting, delivery companies like Delmarva Power (a subsidiary of Pepco Holdings) and the Delaware Electric Cooperative (a member-owned nonprofit) are reporting the inevitable.
Burcat said there hadn’t been a real shortage of bidders for these companies to buy from — 11 different power supply companies competed for the residential contracts. But they’re all up, sharply. Minner’s executive order recognizes anticipated rate increases for residential customers in excess of 50 percent.
Small- to medium-sized commercial customers take even more of a hit, with up to 67-percent increases in their electric bills. Large commercial and industrial customers could see their bills more than double if they don’t choose alternative suppliers.
Minner’s executive order directs the PSC to look into efficiencies in energy generation, and the possibility of requiring Delmarva Power to build its own power generation facility (the company handles only power delivery — not generation), or to enter into long-term contracts with energy suppliers.
Burcat admitted the long-term contracts would be something of a return to regulation.
“The question is whether we can go back, 100 percent, to the way things used to be, or whether we need to look at concepts of regulation mixed with market concepts,” he said.
Even local Sen. George Howard Bunting (20th District) has questioned whether a return to full regulation is the answer.
And Bunting was the sole legislator to oppose deregulation, back in 1999.
“Fifty-nine percent (the anticipated increase for residential customers) — that’s going to hurt,” he said. The state would need to work with the schools, and indigent residents, Bunting added — points also iterated in Minner’s executive order.
But he also offered the reminder that a lot of homeowners had saved a lot of money over the past six years. And Bunting compared the situation to carrying around credit card debt — he suggested that delaying the power-generation sector’s return to true market pricing might just lead to bigger problems later on.
“We could compound the situation by deferring it,” Bunting said.
Burcat said he felt Minner’s directive was entirely appropriate, though, given the unanticipated volatility in the energy market since 1999 (and the equally volatile rate increase). “I definitely think it would be prudent to go back and take a look at some of the things we did in the past, try to stabilize some of these rates,” he said.