Standard Offer Service (SOS)
Overview – Delaware law requires Delmarva Power to use a competitive bidding process to buy electricity for customers who do not choose a competiting electricity supplier. Customers are charged for this service—called Standard Offer Service (SOS)—under rates approved by the Delaware Public Service Commission to permit recovery of Delmarva’s cost of purchasing power at competitive wholesale market prices. Under a settlement approved by the Commission, Delmarva Power will begin offering SOS at market-based rates on May 1, 2006 for residential and business customers. Rate caps that have been in place for the past six-and-a-half years will expire at that time.
|Summary of Rates|
|Average Cents per kWh**|
|Small General Service - Non-demand||0.107||0.159|
|General Service - Space Heating||0.075||0.129|
|General Service - Water Heating||0.067||0.117|
|Medium General Service||0.080||0.132|
|Large General Service||0.067||0.135|
|General Service - Primary||0.057||0.125|
* Rates are effective May 1, 2006 and have been approved by the Delaware Public Service Commission.
** The rates stated are average total bill costs (including delivery and supply costs) for each rate class, actual rates may vary based on usage.
- The impact on small and medium commercial customers will vary greatly with usage. The range of impact is between 47% and 68%, depending upon rate classification. All new rates are available at Delaware Tariff.
- Delmarva Power does not generate electricity. It delivers the power but does not produce it. The power delivery company purchases the electricity it needs for its customers from unregulated wholesale suppliers.
- The prices for other energy products have increased significantly since 1999. According to the U.S. Department of Energy’s Energy Information Administration, between December of 1999 until December of 2005 wholesale energy prices have increased as follows: crude oil is up 128%; gasoline is up 128%; heating oil is up 154%; propane is up 147%; and natural gas is up 347%. Several of these fuels are used to produce electricity, and none of these increases have so far been reflected in Delmarva Power’s Delaware customers’ bills. The increase in fuel prices is the primary driver for the higher prices for electricity.
- Delmarva Power is sensitive to the hardships that higher energy bills cause for many of our customers. That’s why we have the Good Neighbor Energy Fund; We encourage our customers to conserve; We offer customers a Budget Billing Program that will spread the increases over 12 months; We lobby for more federal dollars to assist lower-income customers with their energy bills; and We’re looking at additional initiatives to help customers with these rising costs.
Frequently Asked Questions
Why are the rates going up so significantly?
The answer is two-fold:
- Delmarva Power’s rates have been artificially low for several years due to rate reductions and rate caps, which are expiring;
- The price increases in fuels used to generate electricity are the primary driver of the higher rates. According to the Energy Information Administration, between December 1999 and December 2005, wholesale energy prices have increased dramatically. Specifically, crude oil is up 128%; gasoline is up 128%; heating oil is up 154%; propane is up 147%; and natural gas is up 347%. (See attached chart.) Several of these fuels are used to produce electricity and none of these increases have been reflected in Delmarva Power’s Delaware customers’ bills until now.
What is Standard Offer Service (SOS)?
In order for the retail electric industry to become competitive in Delaware per the Electric Utility Restructuring Act of 1999, Delmarva Power no longer has an exclusive franchise to serve retail electric utility customers. That means third-party suppliers can compete for customers within the Delmarva Power service territory in Delaware. Under the Restructuring Act, those customers who do not choose an alternative electric supplier will default to Standard Offer Service (SOS), which is provided by Delmarva Power throughout its Delaware service territory.
When will the rates change?
Rates for Delaware customers will change May 1, 2006 when caps are lifted on the Standard Offer Service rate.
Why are rates going up so much at once?
Delmarva Power’s Delaware customers have benefited from stable, capped electric rates since October 1999. During that time, the costs of fuels used to generate electricity have risen significantly—leading to the significant increases reflected in the new SOS rates.
Why were the projected rates significantly lower than the actual rates?
The company made an initial projection of 30 – 40% increases several months ago based on previous rounds of competitive bidding in surrounding states and on wholesale market prices, which were—and continue to be—extremely volatile. The purpose of the projection was not to estimate what the actual prices would be, but to give customers a sense of what order of magnitude they could expect—i.e., significant increases. In recent weeks, we stated publicly that the rates increases were likely to be in the 50-plus percent range.
Are my delivery rates going up as well?
Delmarva Power is proposing changes to its delivery rates on May 1, 2006 as well. That rate case, however, is still being evaluated and reviewed by the Delaware Public Service Commission. We will not know the result of the case until April, at which time Delmarva Power will notify its customers of any delivery rate changes.
How much will Delmarva Power profit from the SOS increase that will take effect May 1, 2006?
The SOS rate has a small margin to compensate for associated risks of supplying SOS. This margin is allowed by law and is no different than what other businesses receive for handling this type of transaction. The anticipated additional revenue stream from the overall SOS rate increases is $2.75 million.
What process was used to set the new rates?
The new rates were established through a competitive bidding process conducted in the wholesale electricity marketplace. This process was designed and approved by the Delaware Public Service Commission and various stakeholders including Delmarva Power. Two years of preparation were invested in creating the process. Requests For Proposals (RFPs) were issued to energy suppliers in August of 2005 and bidding was completed in mid-January, at which time the winning bids were submitted to the Delaware PSC for review and approval.
The RFP process was set up to achieve several critical goals, including providing customers with prices based on wholesale market competition while tempering price swings from that market, enlisting multiple suppliers to help avoid reliance on one or two companies to meet customers’ electricity requirements; achieving price stability by staggering contract lengths so that the entire load will not come up for bid at the same time in the future; and making the process as competitive as possible so that all classes of SOS customers—residential, commercial, industrial and small business—can get the best market price for their SOS service while ensuring that suppliers are properly paid.
When did Delmarva Power last increase its electric rates?
With the exception of minimal, pass-through increases, Delmarva Power’s rates have not increased since 1999.
I thought deregulation was supposed to bring about competition but you’re telling me Delmarva Power is still a monopoly. Isn’t that an indicator that deregulation has failed?
Tthe new supply rate was achieved through a competitive bid process that attracted 11 bid proposals from wholesale suppliers. Such wholesale competition creates the lowest possible prices for consumers given the costs of fuels used to generate electricity.
Will my bill look the same or will it contain new information?
Your bill will essentially look the same. The new rates for Standard Offer Service will be reflected in the Supply portion of your bill.
Why are your rates higher than some other utilities?
Utilities across Delaware have varying schedules for ending their rate caps and they structure their contracts for obtaining supply in varying ways as well. Our rates are in line with the vast majority of utilities in Delaware and surrounding states. Over time, we expect rates for all utilities to reflect wholesale market prices.
Will I still have a different rate in the summer than in the winter?
Yes. The SOS rates that will take effect on May 1, 2006 will be according to the company’s winter rate schedule. On June 1, 2006, the rate will switch to a summer rate. It will return to a winter rate on October 1, 2006.
Are my electricity rates going to go up every year because of this market-based pricing mechanism?
Nobody can say what the energy markets will do from year to year. SOS rates will be set annually based on a competitive bidding process in the wholesale electricity market. In the fall of 2006, Delmarva Power, under the supervision of the Delaware Public Service Commission, will conduct another bidding process that will result in new SOS supply rates that will take effect on June 1, 2007.