New Delaware Carbon Rules to Increase Electric Bills

Two auctions have been held for carbon dioxide emission allowances since rule changes were implemented by the state, and we are enroute to increasing residential electric bills by $40 to $70 a year. Electric bills for the largest industrial and commercial customers could rise by over $1 million a year making it harder to keep, or create new jobs in the state. CRI is participating in a lawsuit against the Delaware Department of Natural Resources & Environmental Control (DNREC) for effectively raising taxes without legislative approval as required by the state Constitution.

Each electric generator in Delaware, over a certain size, must buy permits to generate each ton of carbon dioxide released based on 2008 legislation establishing Delaware’s participation in the Regional Greenhouse Gas Initiative (RGGI). The number of permits available was to drop by 10% by 2019. Instead, DNREC reduced the number of available allowances by 45% effective January 1, 2014. To protect electric rate payers from a rapid rise in prices, additional allowances were set aside in a Cost Containment Reserve (CCR) to be released if auction prices hit a trigger price with the trigger price rising each year. The trigger price is set at $4/ton in 2014, rising to $6/ton in 2015, $8/ton in 2016, $10/ton in 2017, and rising 2.5 percent/year thereafter.


Under the previous rules only about half the available allowances were sold for less than $2/ton, resulting in about $6 million a year in revenue. The first quarterly auction under the new rules was held March 5, 2014, with a settlement price at the CCR trigger price of $4/ton and with Delaware revenue of $4.5 million. The entire annual CCR was released as demand was three and a half times higher than the offered allowances as speculators entered the market in hopes of buying at $4 and selling at a higher price later. Electric generators were only able to buy 45% of the offered allowances so will need to buy additional allowances from speculators at a higher price on the secondary market. Secondary market prices have tended to move in step with auction prices. So, for example, a speculator who purchased allowances for $4/ton in March might sell them for as much as $6/ton within a year.

The latest auction was held on June 4, 2014, with all allowances sold, with 45% of the allowances going to speculators, and at a price of $5.02/ton. Demand was 2.9 times the supply with no CCR allowances available as they were all used in the first auction. Delaware revenue was again $4.5 million.

We expect the auctions to continue to settle at the CCR trigger price, or higher. By 2019, at least 4,127,145 allowances will sell for a minimum price of $10.51 each for total revenue of $43 million. We estimate new generating units already under construction will increase demand in 2019 to at least 4,825,000 allowances with as much as half the allowances purchased at even higher prices from speculators for a total cost of up to $71 million. Electric generators pass the cost onto electric distributors, such as, Delmarva Power, the Delaware Electric Cooperative, and municipal utilities, who pass the cost on in our electric bills.

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2 Comments

  • I thought Delaware already got all it’s energy from Wind and Solar sources. Increasing Monthly Power Bills is a step in the right direction, certain segments of society should not have discretionary spending ability and raising Power Bills is a very effective way of accomplishing that.

  • As long as the usage fees can be recouped. All the electric and gas meters are “moving” outside of the buildings ( at least in the City of Wilmington it seems like ). Pay your bill or cut off comes …no more subsidizing dead beats slack.