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Delmarva Power and State Agree on Distribution Rate Decoupling Plan

Friday, April 16, 2010

New Approach Opens Door for Greater Energy Efficiency, Conservation


NEWARK, Del. – Delmarva Power, Delaware officials and other interested parties, after two years of discussion, including public hearings, have agreed on a proposal to decouple the company’s distribution rate revenue from sales volume. This approach will enable the company to recover its customer-related and delivery costs at the level authorized by the Delaware Public Service Commission and no more. Most important, it paves the way for greater energy efficiency and conservation programs in Delaware and for a new relationship between the utility, its customers and the state.

Parties who signed the agreement include the Delaware Public Service Commission staff, the Division of the Public Advocate, the Delaware Department of Natural Resources and Environmental Control, and the Delaware Energy Users Group, which represents large industrial consumers of electricity.

This decoupling measure will apply only to revenue associated with the electric delivery system -- the network of poles and wires regulated by the state that carry power to homes and businesses. Those costs of running the system are primarily fixed and this measure will enable the Commission to authorize a fixed level of revenue to cover those costs. The delivery portion represents about 25 percent of the customer’s monthly bill. The supply portion, on the other hand, which is the electricity actually consumed by a customer, represents about 75 percent of the bill. The Supply portion of the bill still will fluctuate according to the customer’s consumption of electricity.

"This agreement is an important piece of the puzzle that will help the state make the transition into the new era of energy use, and it will do so in a way that seeks to ease the impact on customers who would otherwise be most significantly affected by the change" said Bruce Burcat, Executive Director of the Delaware Public Service Commission. Mr. Burcat emphasized that at this stage of the proceeding this is only a proposal that must be reviewed by a hearing examiner and approved by the Commission before it can be implemented. "The Commission staff worked to see that customers would not see any significant rate impacts on their distribution rates as a result of decoupling, which is mandated by law."

Gary Stockbridge, President of the Delmarva Power Region, said a settlement on decoupling will allow the company to work as a full partner with the State of Delaware as the state pursues ambitious energy reduction goals over the next several years.

"We recognize the need for greater energy independence, environmental protection and for helping customers to better manage their energy use and to help them keep down the costs," he said. "This proposal, along with other changes such as the installation of smart meters and rate incentives, will allow Delmarva Power to help Delaware achieve the state’s vision."

Breaking the link between revenue and sales will align the company’s interests with those of its customers. Under the traditional rate structure, the company has depended upon ever-increasing levels of energy consumption by customers to cover the cost of maintaining and expanding the energy distribution system. But today, consumers and policy makers increasingly are seeking ways to reduce energy consumption. The proposed decoupled rate design for Delaware will enable the company to recover the commission-approved costs of maintaining a safe and reliable electric system without depending upon increases in the volume of energy consumed. As a result, the company can fully engage with customers in energy efficiency and conservation programs and support state and federal efforts to reduce energy consumption.

In addition to supporting energy efficiency and conservation, the decoupling measure will assure that Delmarva Power and its customers are financially neutral to the impact of dramatic swings in seasonal weather patterns.

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Delmarva Power, a public utility owned by Pepco Holdings, Inc. (NYSE: POM), provides safe and reliable energy to nearly 500,000 electric delivery customers in Delaware and Maryland and over 121,000 natural gas delivery customers in northern Delaware