Why Delmarva Power believes its electricity price hike is necessary
Brandon Holveck, Delaware News Journal
Updated 6 min read
An upcoming proposed rate increase by Delmarva Power is too high, consultants and staff for the Delaware Public Advocate found in August.
Delmarva Power responded in late September explaining that a number of factors, including inflation, storm damage and the impact of COVID-19 make the rate increase necessary.
The hike will increase the average monthly bill for residential space heating customers by more than $7.
When utilities want to raise rates they must justify the increase with the Delaware Public Service Commission. The case will continue to unfold until the sides reach a settlement agreement or a hearing (scheduled for Dec. 4-Dec. 7) is conducted.
Delmarva Power workers construct a crossbar on-site. A worker will install it at the top of a pole using a bucket truck. Electrical wires will run across the bar.
"The Company is consistently meeting the Commission's reliability targets, focusing spending in areas to support system reliability and safety, while still managing to propose a rate increase in this case that, if approved, will result in customer bills that are lower than the average bill for customers of its peer utilities in the Mid-Atlantic region," Pepco Holdings LLC Vice President of Regulatory Policy and Strategy Amber Perry said.
When Delmarva Power initially proposed the rate increase last December, then-Delaware Public Advocate Andrew Slater, noted it as one of the "largest requests we've ever seen." Under the proposed rate increase at that time, Delmarva Power would get almost $60 million more annually through electric distribution rates.
That number has since been reduced to $39.3 million as projected data has been replaced with actual data over the past year and other adjustments have been made in the course of the case.
The commission can either not grant the rate increase, grant a partial increase or grant the full increase.
Even though the processing is still playing out, the rate increase went into effect July 15 on an interim basis. If the commission does not grant the rate increase in full, Delmarva will have to return the difference to customers.
Here's how Delmarva Power responded to the arguments against its proposed rate increase.
System reliability and need for more investment
One of the main critiques of Delmarva Power's request was that outside analysts believed the utility company was overinvesting in its electric grid. Testimony from Gregory Booth and William Watson on behalf of the Public Advocate Division called the tactic "gold-plating" — unnecessary grid improvements that are made without weighing the costs.
"There is no benefit-cost analysis to justify the added technology and millions of extra dollars required. The technology additions are an expensive, rate base-adding solution looking for a problem which does not exist," they said.
Delmarva Power's representatives denied those assertions.
"A resilient grid enables Delmarva Power to accommodate customer trends — such as today's hybrid working environment and electrification of vehicles — as well as to enable novel technologies so that the Company can quickly respond to, and effectively recover from, outages and other disruptions from severe weather events," said Daniel Guy, senior manager of strategic planning at Delmarva Power
Citing data from the Edison Electric Institute, Delmarva Power said its customers' average bill is lower than the average utility bill in the Mid-Atlantic region.
Perry, vice president of regulatory policy and strategy for Pepco Holdings LLC, Delmarva Power's parent company, said mandating the use of a benefit-cost analysis for capital investments is "not efficient from a time- or cost-based perspective." Delmarva Power and its related companies have their own process to evaluate new technologies and system needs, she said.
Delmarva Power representatives said many of the projects criticized by the Public Advocate and others were outside the purview of this rate increase request, which covers capital improvement costs from April 2020 through June 2023. They also critiqued future planned spending, which Delmarva said shouldn't be considered as part of the case. Perry said the testimony against Delmarva failed to raise specific issues with spending during the test period.
Delmarva Power is considering a separate proposal from the Public Service Commission that would introduce a framework by which "stakeholders" could discuss priorities prior to future capital and operating plans are made and executed.
Work crew begin clearing and repairing damage from an August 2020 storm.
Storm damage recovery
There is disagreement over how Delmarva Power will recover storm damage expenses.
Delmarva proposed using a three-year normalization of storm damage costs and asked to create a regulatory asset for individual storm damage expenses greater than $3 million.
The commission precedent is to use a three-year average for storm restoration expenses. The previous case average was $4.2 million. This request's average is $8.7 million. Tropical Storm Isaias and tornadoes in 2020 pulled that average up — for the year ending June 30, 2021, Delmarva logged $18.8 million in storm damages.
Most recently, an Aug. 7 storm cost the company more than $18 million, according to testimony.
"More frequent and severe [storms] driven by climate change... have put additional pressure on Delmarva Power's system causing the Company both to incur additional costs to recover from the damage sustained from those storms and identify additional investments to support a reliable and resilient system in the future, i.e., storm hardening," Perry said.
Inflation
The Public Service Commission has previously ruled against including inflation adjustments, arguing that "institutionalizing" an inflation adjustment would remove the incentive for the utility to control expenses.
Delmarva Power representatives said just because Delaware hasn't implemented an inflation adjustment before doesn't mean it shouldn't consider it now.
"The Company maintains that while prior levels of inflation may not have played as impactful a factor in prior Commission decisions, the levels of inflation that have existed in this current proceeding include those that have not been experienced in over a decade, which is an important factor that should be considered when the Commission assesses this Adjustment in this proceeding," said Kenneth Barcia, manager of rate administration in pricing and regulatory services department of Pepco Holdings.
Barcia cited examples of approved inflation adjustments in Maryland.
In addition to having a significant impact on the company's overall spending, Perry argued that Division of Public Advocate consultants did not account for the impact of inflation when criticizing the company's increase in capital spending. She argued more than of the company's increase in spending from 2015 to 2023 could be attributed to inflation.
"There are external factors that drive higher costs for the Company, such as storm remediation work, inflation, and technology and grid improvements, which costs necessarily must ultimately be passed on to customers for whom these infrastructure improvements and/or replacements are made," Perry said.
Information on energy assistance
Delmarva Power spokesperson Zach Chizar said the company offers energy efficiency programs and energy saving information at delmarva.com/waystosave.
Customers can visit delmarva.com/energyassistance or call (800) 375-7117 to learn about energy assistance programs and services.
