In a series of posts on its website, the Delaware Municipal Electric Corporation details the various factors driving power in layman’s terms as part of a proactive effort to cut through the complexities of electricity markets and educate customers.
DEMEC was incorporated in 1979 as a public corporation constituted as a Joint Action Agency and a wholesale electric utility. DEMEC represents and serves all of Delaware’s municipal electric distribution utilities located in the state of Delaware.
In September, DEMEC made a series of posts on its website that explain the factors driving power costs.
Those factors and the DEMEC explanations are as follows:
COST DRIVER 1: Power Supply
“Pricing for the fuel required to run power generation sources fluctuate throughout the year – similar to gas for your car. You may notice a rise in gas prices before big travel times, like holidays. Power costs rise when lots of people use more electricity at the same time. Current events and policy changes also influence the cost of materials, stacking up even more costs for the customer.”
COST DRIVER 2: Federal, Regional, & State Compliance
“Utilities must meet several federal, regional, & state rules like renewable energy standards and emissions limits, which add to the cost of electricity, regardless of benefit or intent. Much like the money you pay into taxes, utilities do not decide how the money collected by these agencies are spent. Examples included the Regional Greenhouse Gas Initiative (RGGI), and cost allocations from the Federal Energy Regulatory Commission (FERC) such as the Indian River Reliability Must Run (RMR) charges.”
COST DRIVER 3: Shared Transmission
“All utilities share in the cost of maintaining and upgrading power infrastructure. The cost to utilities is decided at the federal level, with severe weather precautions, regional grid planning, and innovation impacting these fees.”
COST DRIVER 4: Capacity
“Planning for peak usage, like the hottest days of the year, is very important to ensure the lights stay on. While you may not need that much electricity all the time, utilities make sure the energy is there when you need it. When there isn’t enough power, similar to a mall needing a bigger parking lot, it takes time, planning, and money to increase availability.”
The genesis of this effort “goes back to a couple of years ago” when Indian River, the last of the coal plants in Delaware, was going to close, but then the PJM Interconnection “basically said no, we need that” to stay in operation, said Kimberly Schlichting, DEMEC’s CEO.
DEMEC members ultimately had to pay the ensuing Reliability Must Run (RMR) pricing in order to keep Indian River available to run if needed, “but there was no commitment in the agreement to make” the units run.
“So we were paying a lot of money for RMR and then subsequently the capacity auctions the following year that went up, signaling generation is needed in our area. We were getting double hit…with really high charges and people started to complain about the higher rates – that’s what’s going to grab people’s attention, higher rates and what was the cause of it,” she said.
Schlichting noted that DEMEC is constantly working to communicate to customers that “we’re not for profit…we’re the good guys, we’re advocating on the federal levels, on the local and state levels, community levels, everywhere we can, to fight for” fair and just and reasonable rates.
And currently the capacity auctions “keep clearing higher, you’re getting governors involved to try and fight to keep the costs down and cap it.”
She pointed out that “this is a very complex issue.” Customers don’t get to see “the many line items of the PJM bill that make up the subsequent overall bill that we receive and then have to pass on.”
DEMEC’s board asked Schlichting and her team to develop a plan to clearly explain the cost drivers.
Commenting on Delaware’s overall generation mix, Schlichting said: “We need to be looking at different types of dense use generation.”
There is a need for state leaders to start listening “to people in the industry and helping support natural gas buildout and putting policies and regulations in place that will support the dispatchable type of generation that all the professionals and other leadership and the RTOs are saying we need. Does that mean we are biased and that we don’t like solar and renewables? No.”
She pointed out that she has been “advocating and working to get the first floating solar [project] in the state of Delaware. We’ve been working on that for….several years now and I think we’re finally over the hurdle.”
Circling back to the question of why DEMEC decided to post details on cost drivers, “the biggest challenge I see right now for all of utilities is really that educational piece of educating the consumer,” Schlichting said.
She noted that if DEMEC members get questions about costs, those members can point customers to DEMEC’s rundown of cost drivers on DEMEC’s website.
