By karl baker
Spotlight Delaware is a collaborative, nonprofit, community-driven newsroom covering the First State. Learn more at Spotlightdelaware.org)
Electricity rates in much of Delaware will rise after a federal appeals court recently ruled that the results of a flawed power auction could stand.
The December 2022 auction was aimed at ensuring a constant supply of electricity in the region in future years. But, due to a curious series of events that are still not entirely clear to the public, it instead produced abnormally high wholesale electricity prices for Delaware and the Eastern Shore of Maryland.
The high prices are likely to cost the region’s utilities $100 million more than they would have otherwise paid over the next year, according to federal regulators whose decision in 2023 to change auction prices was overturned in March by judges of the Third Circuit Court. of Appeals of Philadelphia.
As a result, the average price of household electricity will also increase, although the exact amounts are not yet certain.
The impact will be different
The bulk electricity auction was conducted by PJM, one of 10 different regional transmission organizations across the country that ensure there is enough electricity available to consumers and Delaware’s only provider.
Within the PJM network, the organization divides six subregions where the cost of energy varies due to different supply and demand needs. The subregion known as DP&L South, which covers all of Delaware below the C&D Canal, was affected by the auction error.
Rony Baltazar-López, a spokesperson for the Delaware Public Defender’s Office, said in an email that state regulators expect to see an increase of $7 a month for the average customer of the region’s largest utility, Delmarva Power. , as a result of the court’s decision and a previously approved $2.34 increase.
But a spokesperson for Delmarva Power – which serves most of New Castle County, as well as parts of Kent and Sussex counties – said the state’s estimate could be accurate, but only “if we implemented these changes.” .
As a regulated, for-profit utility, Delmarva Power must apply to state officials when it wants to increase electricity or natural gas rates. The application will then go through a formal legal review by the Delaware Public Utilities Commission, one that often involves the Delaware Public Defender arguing against the rate increase.
Such an increase for Delmarva Power customers would come on top of two price increases that went into effect last summer, which together caused rates to rise more than $7 for the average household. State regulators later reversed a portion of that increase, and as a result, Delmarva customers will see refunds on their bills this summer, according to a company spokesperson.
Increases are also likely to occur for municipalities outside Delmarva Power’s purview as a result of the appeals court ruling.
Last month, Seaford City Council approved a $5.72 increase for monthly energy bills for homes that use 1,000 kilowatt hours, about the average amount used by a home.
The measure was approved despite a similar rate increase four months earlier that sparked strong opposition from city residents, according to a WBOC report. Seaford Mayor Matthew MacCoy, who took office in April, seemed aware of the public outcry during the May vote to approve the latest increase, noting that “discussing raising rates is never a fun conversation.”
“But we’re dealing with this in real time,” MacCoy said during the council meeting.
While the 2022 auction raised wholesale prices for the calendar year that begins June 1, there is at least one Delaware electric company that says it won’t raise rates immediately.
Rob Book, president and CEO of Delaware Electric Cooperative, said his utility is a member of a regional energy cooperative, stretching from Pennsylvania to Virginia, that is large enough to absorb in the near term the increase that is affecting only Delaware and the East Coast, locally.
Still, Book characterized the price increase as a “heavy burden” and estimated it was raising wholesale costs in Delaware by about 50%.
A faulty projection
The price increase comes after a year-long fight in which federal regulators decried its impact on “real people” and judges ultimately decided they couldn’t take those impacts into account.
In December 2022, PJM held an auction with wind farms, coal plants and power generators to purchase the electrons that would eventually flow to businesses and homes in the region.
The auction had a strict set of parameters in place to help determine prices. Among them was a projection of how much supply and demand would be needed in Delaware and Maryland’s Eastern Shore during the 2024/2025 calendar year.
“The real people, the consumers of the Delmarva area, may pay more than $100 million more than necessary because of this operating result.” FERC COMMISSIONER MARK CHRISTIE
But that projection was wrong, PJM would later claim in court papers, because it appeared to underestimate the region’s electricity supply.
When PJM realized the error, it attempted to revise the electricity prices that producers had been able to purchase at the auction.
In early 2023, it received permission from regulators at the Federal Energy Regulatory Commission, or FERC. Those regulators stated unambiguously that they believed the error needed to be corrected to protect consumers.
In a February 2023 press release, FERC officials said that “in no universe would the results” of the auction be considered “fair and reasonable.”
“Real people, Delmarva area consumers, may pay more than $100 million more than necessary because of this operating result,” regulators said in the news release.
But power generators, likely with their sights set on that same additional $100 million, disagreed. Last August, a consortium of electric generating companies and industry groups challenged the decision to modify the auction with a petition filed with the Third Circuit Court of Appeals in Philadelphia.
In the end, federal judges sided with the power plants.
Supporting precedent
Relying on dense legal language, the justices said in their March decision that altering the results of the previous auction violated what they called the “presented rate doctrine” because it “nullified a legal consequence attached to a past action.”
The judges further said that “actions play no role” in the decision, although it could “produce a harsh result.”
The ruling came as a surprise to at least one official who works in Delaware’s energy industry. Chris Simms, owner of Smart Utility Management, called the judges’ decision unprecedented because it overruled federal regulators “very late in the process,” sending cities and utilities scrambling.
“No one would have expected it to be repealed,” said Simms, who serves as a consultant for municipal services, including the city of Seaford.
Simms noted that PJM appears to be changing its rules for future auctions to avoid a repeat of the drama. He noted that the error that caused the failed auction appears to be related to the amount of estimated power supply that was submitted to PJM for the local Delaware region.
“I think they sent the information correctly. “What happens is that the fundamental calculation of the liquidation price produced an undesirable result,” he said.
In a statement, a PJM spokesperson said the error that occurred during the 2022 auction was caused by certain new electricity generators not participating in the auction, “causing a mismatch between planned and actual supply.”
PJM did not disclose which power plants did not “bid in the auction.”
“Unfortunately, the United States Court of Appeals for the Third Circuit vacated FERC’s order, so PJM was required to authorize the auction pursuant to that court directive,” PJM’s statement said.
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