Utility District gets down to business

Thu, 05/16/2019 - 4:45pm
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Customers of the Block Island Power Company may not have noticed any changes with the recent sale of its assets to the Block Island Utility District. The bills are the same, the rates are the same, and one still writes out their check to the Block Island Power Company. Even the ‘man behind the desk,’ President Jeffery Wright, is the same.

But for the Block Island Utility District it has been a long and sometimes bumpy road. The BIUD’s enabling legislation was passed by the R.I. General Assembly almost two years ago, paving the way for the District to acquire BIPCo. After almost two years of negotiations and legal struggles the sale was finalized on March 23 at a cost to the District of $5.8 million.

Now that that hurdle has been crossed it’s time for the Board of Commissioners for the District to get down to the business of running a power company under its new not-for-profit model. At their meeting on Tuesday, May 14, they began tackling a long list of items.

First up was setting new management policies and procedures. Treasurer Bill Penn presented a draft policy, much of it “boiler plate” policies provided as a model by CFC Bank, which financed the acquisition. It entails among other things, debt limits, authorizations for borrowing and expenditures, and overall goals. While some items were easily tweaked, it was decided others needed a bit more study, such as limitations on spending for unbudgeted items.

Commissioner Mary Jane Balser suggested following the town’s guidelines on spending limits for unbudgeted items, which she recalled was $5,000.

Commission Chair Barbara MacMullan said that with a spending limit of $5,000, Wright “would be coming to us all the time” for approval.

As to just what the limit should be wasn’t decided. “Upping it to $100,000 would cover a lot of sins,” said Commissioner Everett Shorey.

Wright said that there was some existing language in his original job description that could be referenced.

Another task for the Utility District is to refinance the loan used to purchase  BIPCo’s assets. The initial loan was short term and needs to be converted to a long-term loan, or loans. The commissioners were presented with three different options. While the maximum loan term could be up to 31 years, Wright said: “There’s room for us to be more aggressive in paying off the debt.” Part of that “room” comes from the fact that there are built-in savings resulting from the transition from a for-profit company to a non-profit one, as non-profit organizations pay no income taxes.

As opposed to one loan term, some portions of the $5.8 million could be paid off in seven years, some in 10, and some, such as the recently financed “tank loan,” could be paid off in 15 to 20 years. (The tank loan was taken out to finance the removal of the five underground oil tanks and to replace them with above-ground tanks.)

Wright told the Commissioners that the “stated interest rate” for a single loan would be 4.58 percent, but the effective rate would be more like 4.18 percent. He also said that there was currently $200,000 isolated as collateral for payments to ISO in a Blackrock bank account. That collateral could be replaced by a line of credit, freeing up the $200,000 for cash flow purposes.

It will take some time for the loan documents to be executed, and as they are long-term debt, the borrowing must be approved by the R.I. Public Utilities Commission, a process that would take 30 to 45 days. The impact of these financial decisions will be fed into the revenue and expenditure calculations needed to file a new rate case with the PUC. Much of the work was done a year ago when it was expected that BIPCo needed to file its rate case by August first. That deadline was extended by the PUC and now the filing can go forward.

Long before the connection to the mainland electric grid was made two years ago BIPCo was exempted from state laws requiring utilities to offer their customers “retail choice.” But there was a caveat – that exemption would be only until six months from when, if ever, that connection was made. The six months is now long gone, but due to the uncertainties of the timing of the transition to the Utility District, the PUC has granted further short-term exemptions. The exemptions have been timed to mirror the terms of BIPCo’s power purchase agreements – contracts to buy power from producers through the regional electric grid. The current power purchase agreement, with Shell, expires on April 30, 2020.

Wright suggested asking the PUC for another retail choice exemption that would be for five years, thereby enabling the company to secure a power purchase agreement that would also extend for up to five years at a lower price. Power producers want to make their bids based on what the utility needs and will purchase – something that can easily be thrown off if customers opt to exercise their rights under retail choice and purchase their power from another producer. Wright said: “Energy New England is telling us our suppliers aren’t going to bid without this provision.”

There are other problems with retail choice. The cost of software to implement it would cost $100,000 or about one cent per kilowatt hour for ratepayers — “even if no-one took it,” said Wright.

Retail choice, once touted as a means of potential savings to consumers, has not lived up to expectations. Shorey, who lives outside of Boston, said it had gotten “a lot of negative reviews.” He also noted that the Pascoag Utility District, the only other electric utility in Rhode Island other than National Grid and BIPCo, had a permanent, legislative exemption.

“I prefer not to seek a legislative exemption,” said MacMullan. “You never know what’s going to come down the road.”

Resident Chris Warfel said: “I agree. Retail choice has not lived up to its promises.” He did, however, think five years was too long and preferred three years.

In the end, a motion was passed to ask the PUC for a five year exemption.

Also, as part of his President’s Report, Wright informed the Commissioners that he would be talking with National Grid about acquiring a spare transformer for the utility. The current transformer is somewhat unique to Block Island because of the small capacity of the transmission system and a replacement could take up to eight months to secure and install, at a cost previously estimated at $500,000. If the current transformer fails, BIPCo would have to utilize its diesel generators during the replacement period.

Another item of discussion was BIPCo’s net metering policy. State law limits net metering to three percent of a utility’s peak load, and Wright said that recent solar installations have caused BIPCo to reach that peak, thereby eliminating the ability for new solar or wind installations from benefitting from net metering.

This sparked a lengthy discussion on options for private citizens who wish to install renewable energy systems in a world of rapidly changing technologies – especially when it comes to battery storage. “The world of possibilities is huge,” said Wright, “but constrained by state law.”

One solution could be to create a new tariff, one that could accommodate additional solar and wind customers under the “avoided cost” method of crediting installers for the power they produce. Anyone who wishes to install solar or wind technology should consult with Wright first.

Even though it seems the Utility District is just getting started, it is already time to begin planning for a new election of commissioners. There are five commissioners – three who were elected for four-year terms, and two for two-year terms, to provide for staggered elections. Those with terms expiring this fall are Mary Jane Balser and Jack Savoie. The new terms for these two positions will also be for four years.

Details on the nomination process and elections will be included as “bill stuffers.” Some ratepayers — those with more than one meter under an individual or business name — may need to appoint a “qualified elector” to vote.