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Delmarva Power Proposes Plans to Ease the Impact of Higher Energy Prices in Delaware

Tuesday, February 28, 2006

Delmarva Power today unveiled a wide-ranging proposal to help ease the impact of rising energy prices on its Delaware customers. The proposals include a phase-in of rate increases resulting from dramatically escalating fuel prices, along with programs to help customers become more efficient in their energy use and increased help for low-income customers.

For the past six years, Delmarva Power customers have been paying electric rates capped at or near 1999 levels. During that time, the cost of fuel used to generate electricity has escalated dramatically, in some cases up to 400%. Because Delmarva Power no longer owns power plants, the company recently conducted a competitive bid process under the regulatory oversight of the Delaware Public Service Commission to secure electricity supply for Delaware and announced that the bids would result in a 59% overall increase for residential customers, reflecting market prices.

Phase-in of higher rates

“While the prices Delmarva Power customers would pay with the 59% increase are in line with those paid by customers in neighboring states, we recognize the difficulty an increase of this magnitude may create for customers, coming all at once” said Gary Stockbridge, President of Delmarva Power, “For that reason we are suggesting a three step phase-in of the higher rates for residential and small commercial customers, with one third of the increase effective May 1, 2006. Another one third would take effect January 1, 2007, and the new rates would be in full effect June 1, 2007.”

The phase-in would mean an increase of $18 a month for the average residential customer in May, 2006. The average bill would increase another $18 eight months later. Assuming no further increases in wholesale prices, the June 2007 bill would increase by $34 to complete the phase-in. This would cover the costs deferred during the phase-in period, including costs to finance the deferral. While we all hope subsequent energy prices will go down, there is no assurance of this, given the volatility of the national energy market. The Company will work with the Delaware Public Service Commission and the Delaware State Legislature to accomplish the phase-in.

$500,000 in assistance to low-income customers

Delmarva Power also proposes the State adopt a Universal Service Fund program to protect low-income Delawareans, similar to many surrounding States. This program would ensure that customers at or below a designated federal poverty level pay no more than a small percentage of their income, typically not more than 6%, toward their energy bills. Delmarva Power will contribute $500,000 to the community to help bridge the gap until such a program is put in place.

New Energy Efficiency Programs

Delmarva Power also is proposing to offer the following significant new programs to help customers conserve energy and reduce demand. We recommend the State increase the existing funding to support these types of programs as has been done in surrounding states so that we can move forward quickly on them:

  • Energy efficiency loans – Delmarva Power proposes to work with banks to offer low interest loans up to $10,000 per customer for the purchase and installation of energy efficiency improvements, typically those that qualify for Federal Tax Credits.
  • Programmable thermostats – Delmarva Power proposes to install up to 60,000 remotely controlled programmable thermostats. This will give customers two benefits- reduced energy use by automatically adjusting the thermostat settings, and in the future the option of earning a credit on their bills by participating in programs that would cycle their heating/cooling equipment off briefly during times of peak demand.
  • Demand Response - Delmarva Power proposes to establish an Internet based program to encourage large commercial and industrial customers to reduce demand at peak times.
  • Online energy analysis tool – Delmarva Power will offer a comprehensive energy analysis tool on the Delmarva Power Web site. This interactive program will provide personalized information to enable residential and small business customers to identify energy saving recommendations and payback periods. This program does not require any State action.

These proposals were presented as part of a response to a February 6, 2006 Executive Order from Governor Minner requesting an analysis of options to address rising energy prices. Said Stockbridge, “The Governor’s order provides us an opportunity for thoughtful and deliberate discussion about policy approaches to managing the significant increases in national energy prices. We believe these proposals will provide customers with the help they need today in dealing with rising prices and provides long-term solutions as well.”

Additionally, Delmarva Power’s response to the Governor included recommendations on the evolution of energy markets and the impact on restructuring. Said Stockbridge, "It’s important to keep in mind that competition in the retail residential segment has not yet had an opportunity to develop during the recent period of artificially low prices. The extended period of price caps have saved Delmarva Power customers more than one billion dollars since 1999. Additionally, restructuring has helped keep our large customers competitive with out-of-state competition and enabled them to keep jobs in Delaware . The issue of restructuring is complex and should be considered as part of a broader discussion that reflects the national challenge of rising prices for the fuels used to generate electricity."

See the complete report.

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Delmarva Power, a public utility owned by Pepco Holdings, Inc. (NYSE: POM), provides safe, reliable and affordable regulated electric and natural gas delivery services to more than 500,000 customers in Delaware, Maryland , and Virginia .