Electric rates soar; 2nd highest in nation

Mon, 07/28/2008 - 5:00am
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Block Islanders paid the second highest electric rates in the country in June, according to the U.S. Energy Information Administration (EIA).

In June the fuel surcharge pushed the electric rate to 61 cents per kilowatt hour for residential customers that also pay a customer charge of $12.38 a month. Lindgren Carroll, a contract analyst for the EIA, said only 300 customers of a small electric company in Texas called Electric Now paid higher rates, at about 73 cents per kilowatt hour in May. (Numbers for June were not in yet but Carroll expected them to be similar.) However, that company is in the process of going out of business and has seen its customer base shrink significantly. Excluding Electric Now, Block Island rates lead the rest of the country.

The next highest rates following Block Island were paid by customers on Kauai Island in Hawaii and those served by Bethel Utilities in Alaska. Both companies charged 46 cents a kilowatt hour in June, including fuel surcharges.

In February, the most recent national comparison available, American residential customers paid an average 10 cents per kWh for electricity, according to the EIA. Rhode Islanders paid 15 cents on average.

While base rates for electricity on the island have remained relatively stable, the fuel surcharge has increased more than 76 percent during the past year, jumping 16 cents to 37 cents. And with the volatile global market, Block Island residents can expect little relief.

“I think [the surcharge] is going to be in that 30-range, high 20s or low 30s,” Block Island Power Company Chief Operating Officer Cliff McGinnes said Monday.

The charge has risen steadily as the price of oil and diesel has skyrocketed over the last year. The island’s power plant runs on diesel generators and diesel hit $4.72 a gallon on Monday, up $1.83 compared to last year, according to the EIA. A rocky political situation in Iraq, Iran and Venezuela is also contributing to speculators driving prices higher.

And because the island’s fuel must be reserved well ahead of delivery, BIPCo is unable to delay delivery to take advantage of a dip in oil prices like one that occurred last week.

“It’s the fuel surcharge stupid,” McGinnes said, playing off Bill Clinton’s campaign mantra of “It’s the economy stupid.”

Under state regulations BIPCo can raise and lower the fuel surcharge to correspond with market prices without permission from the state Public Utilities Commission, spokesman Tom Kogut said. There is no maximum cap on the surcharge and BIPCo is allowed to continually raise it without formal review, although eventually some of the increase would be built into the standard base rate.

Besides the fuel surcharge that varies with the cost of oil, residential customers pay a 24-cent per kWh energy charge along with a host of taxes. Commercial customers pay $12.38 a month plus a 27-cent per kWh energy charge, plus a demand charge that can vary widely depending on usage. Some commercial customers pay as high as 70 cents a kWh when all the costs are factored in, McGinnes said.

The high energy costs have particularly hurt business that run air conditioning, refrigerators, and other equipment. The costs are cutting already slim profit margins and businesses can only pass on expenses to customers for so long before they leave.

“Without curing the energy issue there won’t be a town in 10 years cause no business can afford it,” Spring House owner Frank DiBiase said.

DiBiase has watched the Spring House electric bill grow by more than a third during the past year and surpass $30,000 a month. DiBiase said there’s only so much he can do to lower his electric costs and said the town needs to step in and take a proactive leadership role in finding alternative energy sources.

If nothing is done some fear the effects could stretch well beyond tourists paying $7 for a beer or guests shortening their hotel stays.

“There is a trickle down effect, everybody’s going to feel that,” Executive Director of the Chamber of Commerce Kathy Szabo said. “[Businesses] are going to feel it, their customers, their suppliers, everybody’s going to feel it.”

Coupled with a general downturn in the country’s economy and rising costs of gas, businesses are worried.

“As long as the costs keep going up everything is going to go up,” Tourism Council President John Cullen said.

Cullen said he was in complete shock when he opened his electric bill for BIT’s, the T-shirt shop he owns. The bill doubled from $100 in June 2007 to $200 in June 2008 for the 400-square-foot shop where seven florescent ceiling lights consume the most electricity.

Cullen said perhaps the island should re-explore the possibility of running a power cable from the mainland to the island. Two years ago a consultant for BIPCo called such a cable a poor financial investment in the long run. And in March the U.S. Department of Agriculture turned down a $5 million grant request from BIPCo to help cover the cost of installing a $17 million cable.

David Graves, a spokesman for National Grid, the main electric provider for mainland Rhode Island, said the company was not actively considering laying a cable to the island. In the mid-1990s then Narragansett Electric conducted a study that determined laying a cable not worth it at the time.

However, Graves said many things have changed since then and the results of the study were today questionable at best. Still, installing a cable would incur a huge expense for the company that recently installed two 37-mile submarine cables from Hyannis, Mass. to Nantucket at the cost of more than $40 million.

Graves said a cable to Block Island would be shorter - about 13 miles - but infrastructure improvements would need to be made on both the mainland and on the island. In Nantucket those costs were passed on to ratepayers.

There, residential customers pay a $6.21 monthly customer charge plus 4 cents a kilowatt hour. Customers pay an additional 3 cents per kilowatt hour in the summer and 2 cents in the winter to pay off the costs associated with installing the cable.

Graves said it would be difficult to estimate the cost of a cable to Block Island because its year-round population is smaller than Nantucket. Whereas Nantucket has about 10,000 year-round customers, Block Island has just 1,600 in total year-round and seasonal residents.

Graves said National Grid likely wouldn’t study the idea of a cable unless directed to by the PUC or asked to by the town or BIPCo. If it did install a cable McGinnes said he would expect BIPCo to continue to operate as the electric distributor rather than selling off the company to National Grid as happened on Nantucket.

With little potential for a cable, many have hung their hopes on a wind farm off Rhode Island. A task force put together by the governor is evaluating bids submitted after the state put out a request for proposals that would generate 15 percent of the state’s electricity, or 1.3 million megawatt hours. A tie in to the island was strongly encouraged as part of the bid. The panel is expected to complete its work by the end of summer.

The winning bidder would not receive any direct funding, however the state would help the company navigate regulations surrounding the construction of a wind farm. Any completion of a wind farm, however, remains years away.