BIPCo readies for a rate case

Some unique aspects to how rates can be designed
Wed, 07/03/2019 - 6:30pm
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It has been more than a decade since the Block Island Power Company has filed an overall rate case with the R.I. Public Utilities Commission — and now it has a deadline of July 25 to do so.

A lot has changed since 2008 when the current rate structure went into effect. Two years ago, in the waning hours of the R.I. legislative session, legislation was passed allowing for the creation of the Block Island Utility District, and it took most of those two years to achieve its ultimate mission: acquiring the Block Island Power Company.

On March 25, 2019 the deal was closed, with the Utility District acquiring the assets of BIPCo for $5.8 million. (If you are wondering why you still make your monthly electric payment out to BIPCo, it’s because the Utility District has retained the BIPCo name, while the old BIPCo has reverted to its previous name, Block Island Power and Light.)

That transaction set the clock ticking on a new, 90-day deadline to file a new rate case. Other, earlier deadlines for the filing were extended by the PUC due to the uncertainties surrounding the acquisition, that were mainly due to litigation filed by BIPCo minority shareholder Sara McGinnes. But because of those earlier deadlines, much of the work required for the filing has already been performed.

The new proposal is for a “revenue neutral” rate design, meaning the utility will collect roughly the same amount of money each year as it has in the past, but without some of those revenues going back to the then shareholders in the form of profits. On the expense side, there will be savings in income and other taxes as the Utility District is a not-for-profit entity. Those cash savings can be put to use in many ways, from plant and distribution improvements to a more aggressive debt repayment schedule. In general, every $100,000 in the budget represents one cent per kilowatt hour to the ratepayer.

There are three main highlights in the proposed new design: elimination of the “system charge,” elimination of the demand charge for residential customers, and the move towards three seasonal rates from two seasonal rates.

It is only the third change that will affect all customers. Currently there are two seasonal rates — one from October through May and one for June through September. The new design incorporates a shoulder season that includes the months of May, June, September, and October, leaving the highest rates for July and August and the lowest rates for November through April.

The PUC has nine months to consider a rate case, including holding public hearings, and a lot can change between the initial filing and the end result. Utility District President Jeffery Wright said, at the district’s meeting on June 25, that the PUC “wants to make us the poster child, which is both good and bad.”

Why? Because BIPCo is the only electric utility in the state that has 100 percent of its customers on smart meters, and that means that all kinds of creative rate structuring, theoretically, could be incorporated into the design, such as time of use pricing.

Wright said that in preliminary talks with PUC staffers, they asked for information on consumption by rate class during peak periods of electric use. “They want brass tacks,” said Wright. “Who was using what, when.”

It’s not data the company has collected historically, but they could collect it this summer. Last summer, when much of the rate design work was completed, there were discussions on time-of-use pricing, but in the end, it was concluded that it would adversely affect the businesses that drive the summer economy, such as restaurants and hotels, as peak usage occurs in the evenings.

One of the biggest changes for BIPCo since turning off its diesel generators and joining the regional electric grid is the need to pay a capacity charge to ISO, the operators of the grid. The charge can best be described as a “pay to play” charge, whereby each utility in the grid pays for its proportional power usage as measured on the highest day of electric use during the year.

Wright said at the meeting that as a result of last year’s peak, BIPCo was charged about $500,000 for its capacity. The amount could have been $100,000 more. In 2018, the ISO peaked on July fifth, a busy time for Block Island. But that peak didn’t last, and another, higher peak was achieved later in August, when Block Island’s proportional share of the load was lower than on July 5.

There is something that the Utility District could do to mitigate the capacity charge, called peak-shaving. By running one of its diesel generators for a few hours during a predicted regional peak period, the utility could draw less energy from the grid, thereby lessening its capacity charge for the upcoming year.

Wright said that the peak-shaving was not only legal, but “encouraged” in order to alleviate the load on the regional grid. While the timing is everything, Wright said that the ISO provides forecasts for peak usages. “I will tell you, it’s very predictable.”

Utility District Commissioner Bill Penn said he had a “philosophical problem” with running the generators, as they are polluting and turning them off was a major accomplishment environmentally.

Commissioner Mary Jane Balser had a different take, arguing that engines “need to be run” and that coordinating engine maintenance with peak-shaving would be in the best interest of ratepayers.

“My job is to bring it to you,” said Wright. He said it could save one cent per kilowatt hour. “Is it worth it?”

That’s a question the commissioners decided to leave to the ratepayers. “This is a topic that needs a lot of input,” said Penn, suggesting it should be the topic of the annual meeting.

Barbara MacMullan, chair of the Board of Commissioners said: “We can have a ballot referendum. We have an election coming up in August.”

The referendum was agreed upon as the proper course to take. There will be a “bill-stuffer” included in the next electric bill with details about the timing of the elections and deadlines for those who might like to run for one of the two available seats on the five-member board.

There is also an advertisement on page 8 of this issue of The Block Island Times with the same information.