BIPCo secures power purchase agreement

Mon, 05/01/2017 - 2:00pm

The Block Island Power Company has signed a power purchase agreement with Shell Energy North America that will be in effect for the next 18 months. The overall structure received final approval from the R.I. Public Utilities Commission on April 14. The new rates will go into effect today, Monday, May 1. Not all of the rate structure is new, though.  

BIPCo’s invoices have long consisted of three main components: a flat monthly customer charge, an energy charge, and a fuel adjustment charge.  At this time it is only the fuel adjustment charge (FCA) that is changing, although the “energy charge” will be renamed to “plant distribution charge.”

With the switchover to wind power, Block Island ratepayers will no longer be subject to the constantly changing FCA that is dependent on the cost of diesel. Instead ratepayers will be charged for the energy they use at $0.1244 per kilowatt hour, with an additional one cent charged during the months of June through September. (The one cent surcharge is what the PUC terms “penny money” and is set aside specifically for distribution system upgrades. The charge is a holdover from the current rate structure.)

BIPCo President Jeffery Wright says that the 18-month agreement with Shell was made possible when the PUC extended the company’s exemption from offering customers retail choice from six months after connection to the cable to the mainland, to 18 months. BIPCo will be paying Shell $ .3677 per kwh, with the balance of the $0.1244 coming from a $.0629 transmission charge (Block Island’s share of the cable and interconnection costs, including the new substation), various “other” costs and the R.I. four percent gross receipts tax.

While the $0.1244 per kwh might not be as low as many had hoped, the Fuel Cost Adjustment Charge was $0.1681 in March, and went as high as $0.3819 during the summer of 2008 when energy prices were at an all time high. Not coincidentally, that was about the time when the idea of Deepwater Wind’s Block Island Wind Farm was conceived.

The new rate will be subject to a “reconciliation” after the initial six months, and further savings could come as a result. That is because the rate is based on the average of overall usage in 2015 and 2016. In actuality, usage increased in 2016 by almost 17 percent, and if that continues,, certain fixed costs, such as the transmission charges, would be spread over more kilowatt hours. 

Additional savings could also be realized as a result of the power company being transformed from a private investment company to a not-for-profit municipal utility district. As the new company would be tax exempt, there would be no R.I. gross receipts tax. More savings could be realized if the PUC agrees with BIPCo’s request that the cost of the new, $1.8 million substation be “socialized” throughout Rhode Island, and not be borne solely by island ratepayers.

While the power purchase agreement is for 18 months, these new rates will only be in effect for six. The other components of the overall rates will be analyzed and adjusted as necessary with a new rate structure filing. Things that will be looked at are the net metering policy, demand charges and whether it will be necessary to have different rates in the four, peak summer months than in the other eight months of the year.

What the power purchase agreement allows is for Block Island to participate in the regional New England electrical grid. Participants in the grid must secure “capacity” in the grid, and enter into a contract with some energy producer to send enough energy into the grid to meet that capacity. As a result, there are many energy producers sending power into the regional grid that generate power by various means, from nuclear, natural gas, and coal, to solar, wind, and hydroelectric. It all becomes one soup that the users draw from. And in comparison with average wholesale prices for energy in New England, Block Island’s soup comes at a very attractive price.