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About The Author:

Robert A. Olson is a partner in the law firm of Brown, Olson & Gould, P.C. which maintains a nationwide practice in energy law, public utility law and related commercial transactions.

He can be reached at:

Brown, Olson & Gould, PC
2 Delta Drive
Suite 301
Concord, NH 03301
(603) 225-9716









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STATELINE by Robert Olson


September 1997

Delaware PSC Staff Issues Draft Report On Restructuring
by Robert Olson  --   Brown, Olson and Wilson, P.C.
(originally published by PMA OnLine Magazine: 05/98)

Recently, the staff of the Delaware Public Service Commission issued a draft report regarding restructuring of the electricity industry and the introduction of retail competition in the state. The staff solicited comments from stakeholders and other interested parties to prepare a final report for presentation to the PSC, which has been directed to submit a final report and recommendations to the state legislature in January 1998.

In the draft reports the staff recommends that retail access for generation services be phased in from April 1999 to April 2003, in annual increments of 25% of each electric utility’s generation load. Each customer class should be provided retail access at the same rate and in the same proportion throughout the transition period. By the beginning of the fourth year, 100% of utility customers should be provided with retail access. However, the staff believes that the "transition period" (i.e., the period during which the PSC will regulate certain aspects of the newly competitive generation market) may need to continue past 2003 until it can be demonstrated that sufficient competition exists in the generation market.

Under the staff’s recommendations, the state’s utilities would file proposed unbundled rates and services with the PSC by April 1, 1998. Transmission and distribution services would remain regulated for the foreseeable future, and unbundled rates for distribution services will initially be set on a cost of service basis. All rates should be "unbundled in a way that is revenue neutral". To serve smaller customers who may not wish to or may not be able to effectively shop for power, the staff recommends that the PSC establish a "default supplier" to ensure that power customers are provided with generation services. During the transition period, the state’s existing electric utilities would be required to act as the default suppliers of electricity. After the end of the transition period, default suppliers should be selected using a competitive bidding process. Each default supplier would be required to offer customers standard offer generation services at a price that approximates the market price for retail generation services, subject to maximum price caps throughout the transition period.

With respect to the recovery of utility stranded costs, the staff proposes that each of the state’s utilities file with the PSC an estimate of its potential stranded costs by July 1, 1998, accounting for generation assets with book costs below market value as well as those with book costs above market value. Utilities should have the option, but should not be required, to divest their generation assets, provided that their generation assets and services are functionally and financially separated from their transmission and distribution assets. Utilities that are able to demonstrate a significant amount of non-mitigatable stranded costs should be given the opportunity to recover an appropriate portion of those costs through a non-bypassable "market transition charge". The market transition charge would be assessed on all distribution customers from April 1, 1999 through April 1, 2003. By April 2003, the PSC would compare actual stranded costs incurred to revenues collected through the market transition charge, and reconcile the difference if it exceeds 25% of the original estimate. This reconciliation may result in the assessment of a market transition charge, or the allocation of appropriate customer credits, for an extended period after April 1, 2003. The draft staff report does not contain any specific provisions regarding utility power purchase contracts with qualifying facilities or other independent power producers.

In addition, the staff recommends that a non-bypassable "system benefits charge" be established and collected to finance energy efficiency investments. These revenues would be disbursed to qualified vendors of such energy efficiency services through a competitive bidding process.

The staff further recommends that a renewable resource portfolio be established to promote the development of renewable resources for electricity generation. "Renewable resources" would likely include wind, biomass, geothermal and small-scale hydroelectric projects. By 2010, each retail generation supplier would be required to meet the renewable resource portfolio standard, which could be satisfied through the trading of renewable resource credits.

Robert A. Olson is a partner in the law firm of Brown, Olson & Gould P.C. which maintains a nationwide practice in energy law, public utility law and related commercial transactions. He can be reached at:

Brown, Olson & Gould, PC
2 Delta Drive, Suite 301
Concord, NH 03301 | (603) 225-9716

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