Are you saving money?

Fri, 08/31/2018 - 10:00am
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When the Block Island Power Company connected to the National Grid sea2shore transmission cable and turned off its diesel generators on May 1, 2017, it was the end of an era. Instead of electric rates that fluctuated monthly due to the cost of diesel, a new, steady standard offer rate began to be used to calculate each ratepayer’s charge for electricity used.

Throughout the development of the Block Island Wind Farm, the cost of diesel was quite high. The last highest price was in June 2008 at $4.677 per gallon. The price fell off and then stabilized somewhat at around $4 per gallon from late 2011 to April 2014. Then it began falling, and hit a low of $1.998 per gallon in February 2016. 

This low price caused many to question whether the wind farm would actually result in cost savings to consumers — especially as the BIPCo combined standard offer rate and transmission charge rose from $0.1244 per kwh in May 2017 to $0.1488 in December 2017, and once again to $0.1624 in May 2018.

These price increases arose largely from increased costs for the cable and National Grid’s substation on Block Island, and then again from capacity charges for participation in the regional power grid.

There are those who thought no money would be saved, or at least not nearly as much as they believe had been “promised.” Of course, how would one know without doing the math? So The Block Island Times did the math to see how much money we did save by switching from diesel. 

Here’s how it was done: Since we don’t know what the fuel cost adjustment would have been each month since connecting to the cable, we checked the monthly diesel prices as listed on the U.S. Energy Administration’s website for each month since May 2017. Then we found a comparable diesel price for an earlier date and found the Fuel Cost Adjustment calculated by BIPCo for that particular month. For instance, in May 2017, the cost of diesel was $2.56 per gallon. The closest historical price we could find was in February 2017, when diesel was $2.568 and the Fuel Cost Adjustment was $0.1729 per kwh. For some months, we had to go back all the way to 2005 to find a comparable price. When no exact match in price could be found, a slightly higher price was used in order to be “conservative.”

Once we had an approximate Fuel Cost Adjustment rate for each month, the cost for 500 kwh of power was calculated and compared to 500 kwh at the month’s Standard Offer Rate. What we found was that from the period of May 2017 through April 2018, a ratepayer using 500 kwh per month would have paid $1226.25 for diesel, but actually paid $807.40 under the Standard Offer Rate, a savings of 34 percent. 

Of course, this wasn’t an exercise in exact science. There is no fixed correlation between the cost of diesel and the Fuel Adjustment Charge as additional costs for urea and freight are folded into the equation. Additionally, BIPCo’s diesel used was most likely purchased in the previous month(s) when the price could have been lower or higher.

Post-May 2018, the news gets even better. In April the cost of diesel was $3.096 per gallon and has since risen. In July the price was $3.233 per gallon.  In December 2010, diesel was a smidgeon higher at $3.243 per gallon, and the Fuel Cost Adjustment was $0.2684 per kwh. Using that price in comparison with the Standard Offer Rate of $0.1624, consumers saved 39.5 percent. Ka-ching.