Delmarva Power profits may be too high, public advocate says 

Why Should Delaware Care?
Delaware officials have scrambled to take action after high power bills sparked consumer outrage across much of the state. Reducing the allowable profit for utilities like Delmarva Power could lower those bills, but it could also destabilize the company financially.

Delaware Public Advocate Jameson Tweedie wants state energy regulators to lower the amount of returns that Delmarva Power can earn in the state.    

To do so, Tweedie last month formally requested that regulators open an investigation into the profit models of all private utilities in the state. 

Tweedie — the governor’s appointee charged with advocating for the public on proposed power bill increases — said new research suggests utilities across the country earn more profit than necessary. 

That means customers may be paying too much for electricity, water, sewer and gas, he said. 

“At a moment where customers are being squeezed from all sides … we need to be looking at everything we can to make sure that the system is working properly,” Tweedie said. 

His request comes four months after Gov. Matt Meyer called for such an investigation. He did so as part of an ongoing effort to take action after uncharacteristically high power bills sparked outrage in Delaware, largely from customers of Delmarva Power, a subsidiary of Exelon Corp.

The state’s energy regulators at the Delaware Public Service Commission (PSC) will discuss the request for an investigation at its meeting Wednesday. 

Get Involved: The Public Service Commission will meet at 1 p.m. on Wednesday, Nov. 4 at 861 Silver Lake Blvd. in Dover. Public comment will be at the beginning of the meeting. Information about virtual attendance is available in the meeting agenda. 

While the inquiry would look into the profit structure for all regulated utilities, Tweedie primarily criticized Delmarva Power’s profits. 

He is focused on Delmarva Power because it is currently requesting that regulators allow it to increase revenues by $67.8 million, which would be the largest utility increase in Delaware history. That could raise an average homeowner’s utility bill by about 4%. 

Meyer said last week he supports the inquiry because Delmarva Power’s revenue and rising power bills do not back up its “supposed interest in providing affordable electricity.” 

Delmarva Power spokesman Matthew Ford said the utility “welcome[s] a review of that process to identify opportunities for improvement.”

Still, the company’s regional president, Marcus Beal, said Delmarva Power’s current regulated profit structure keeps it financially healthy. 

He also emphasized that much of the increase in power bills recently is coming from electricity supply costs, which the utility does not earn a profit from. 

Delaware is part of the PJM grid, which has seen increased electricity prices as the  development of new power plants continues to fall behind the increased demand for power in the region, in part from data centers.  

Finally, Beal said power bills have increased because costs for transmission infrastructure have surged due to demand from data centers.

How do regulated utilities like Delmarva Power make money?

Regulated utilities are able to recoup the costs of infrastructure upgrades through rate increases, plus more in profit. 

They can legally earn up to a 10% return on equity — which is essentially profit — on infrastructure upgrades. 

It means the utility can earn about 10 cents on every dollar it invests from its bank account into poles, wires and substations. The level of profit is about the average for utilities across the country. 

Beal said the company’s investors’ actual return can be “higher or lower” than 10%, but said the actual return on equity is often lower because state regulators can take months to approve rate increases. 

He also argued that a return on equity is essential to attract investment. And he said that if the company were to rely more on debt to fund infrastructure upgrades, it would become less financially stable. But it’s a claim that Tweedie, the public advocate, disputed. 

Beal also said that Delaware residents benefit from the financial health of Delmarva Power and its parent company, Exelon, because state pensions are invested in Exelon stock and a stable utility company attracts businesses to the state. 

“So if you negatively adjust ROE [return on equity], you’re going to have cascading impacts that may have negative consequences for everyone,” Beal said. 

But Tweedie argued that regulated utilities should not be more profitable than the average equity investment on the stock market, which is around 7%. 

Delmarva Power is a regulated monopoly for electricity distribution, meaning it is the only company allowed to build the poles and wires across more than half of the state. 

That makes Exelon, which owns several other regulated utilities, a safe bet for investors, Tweedie said, so it does not make sense for its shareholders to get an above average rate of return. He said the return may be that high partially because of precedent, rather than necessity. 

Ford, Delmarva Power’s spokesman, and Tweedie both said funding infrastructure upgrades ahead of time rather than after they are already built could be one way to bring down costs. 

Tweedie said state energy regulators should also look into setting the return on equity to be equal to the return on U.S. Treasuries plus 2%, among other potential reforms. 

The interest rate as of Monday on a 10-year U.S. Treasury note is 4.89%