Thursday, February 16, 2006

Electricity Deregulation in Delaware hits hard in May - rates to go up 59%

A 1999 vote in the Delaware state legislature has far reaching consequences as electric rate deregulation is going to allow a huge increase in electric rates in May for customers of Delmarva power. The headlines have the politician's "running for cover" with a great comment about what the governor does when there is a crisis -
"If a company ever markets a Gov. Ruth Ann Minner doll, it should feature a string in back -- pull it and she forms a task force."
Not many people seem to be volunteering for this task force. She is not the only one asking for an investigation.

A 59% increase in my electric bill will be noticed, I just worry about the people who can't afford a 10% increase, let alone a large one. Politicians in the state are now suggesting a tax relief initiative which would only end up putting tax dollars into the hands of Delmarva as credits for residential customers. This still seems to reward Delmarva's rate hike and is only a stop gap for us customers. It doesn't look like it will fly in the legislature. Most likely reregulation is on the way.

I would love to see the legislature give tax breaks to those who try to save electricity or add local generation like solar power or wind power; it might not address the deregulation mess but it would start to address the long term issue of power generation and resource conservation. On my next house I want solar water heaters (these evacuated tubes even work when it is cold yet sunny) and solar power generation (solar roof tile example). I am afraid the answer to this issue is going to be decreased quality of life. The conservation suggestions lead to hotter houses in the summer, colder in the winter, or colder hot water. I have a new efficient furnace and new efficient air conditioner. What are folks without the resources to make these upgrades to do?

The analysis of the issue yields several reasons for the rate hike and how it isn't just deregulation that is driving the rise:
  • The free market competition in Delaware for electricity has not developed.
  • Energy costs are up.
  • Delmarva doesn't own any generating capacity anymore.
  • It is the worst time to be buying electricity on the market.
Since electricity is traded as a commodity on the open market, everyone pays the highest rate for each 5 minutes. That seems to mean that the expensive electricity generated using natural gas is driving the high rates. Here is an example from the News Journal article -

"... the highest price paid by one customer for five minutes worth of electricity is the price everybody pays for that period.

For example, if you own a nuclear plant you may find a company to buy your power at 3 cents a kilowatt hour. If a natural gas plant begins selling power at 6 cents a kilowatt hour because it is a hot day and demand for power has spiked, the nuclear plant will be paid 6 cents, not 3 cents.

Even though natural gas power plants supply only 7 percent of all of the electricity available from PJM, they drive the price for all plants, Monacell said. And since Delmarva's contracts are based on the price of power on the PJM market, natural gas is driving its price increases as well."

Seems to me it is time to change the system, or get rid of the expensive power produced by natural gas power plants. Everybody talks about peak oil coming and spiking those prices, but nobody mentions peak natural gas explicitly, if there is such a thing. By the way, Delmarva passes gas price hikes right through to their customer, so gas bills have already been on the rise.

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whirdly said...

Am I the only one who thinks it would be better if companies make a few small increases rather than one HUGE one? An extra dollar a month will make people mumble and grumble, but it won't get hyped in the media and customers won't stage protests over it. The gov't needs to stop meddling.

Richard Koehler said...

whirdly is correct, this spike in rates is due to electricity rates returning to the market level after being held artificially low by government intervention. Interfere with the free market and face the consequences. The alternative is controlling rates forever and other fun effects like a black market economy or shortages.

ookaboom said...


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Bree Howard said...

This is ridiculous because as the market changes so does the price and therefore Delmarva power bills everybody is on a variable rate that changes with the market. The good thing is because Delmarva is deregulated now we can pick our own source to get a fixed rate despite the market which for turns out to be way cheaper especially for businesses. They've sent information out but if you all would like info on how much you'll save email me Bree@udel.Edu