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Local governments want energy choice, but say LIPA programs are holding them back

LIPA power lines along Motor Lane in Bethpage

LIPA power lines along Motor Lane in Bethpage in 2019. Credit: Newsday / Steve Pfost

State regulators are focusing a microscope on Long Island's energy market after an outpouring of complaints from competitors and local governments who say LIPA’s practices stymie competition.

Those LIPA critics, some seeking to launch so-called "community-choice" power programs that pool customers' buying power to offer cheaper or greener alternatives, say the utility's policies make it nearly impossible for them to succeed.

The situation leaves LIPA's 1.1 million ratepayers with fewer options for energy compared with other regions of the state, where the competitive retail electric market is "flourishing," according to the Retail Energy Supply Association, a Pennsylvania-based group representing energy service companies, in its filing in the case.

Last month, the state Department of Public Service extended public comment time to review the matter, following issues raised by public officials and LIPA competitors who are trying to establish community-choice programs in their districts. Citing the prospect of cheaper power or more renewables in the mix, municipalities including Brookhaven and Hempstead have been exploring the alternatives for not just electric service but also natural gas. Southampton Town has been on the leading edge of the effort, seeking all-green power for its constituents. By using the combined buying power of customers within a defined area such as a town, they aim to negotiate with other suppliers to offer a cheaper alternative to LIPA.

At the heart of their beef with LIPA: They say the utility unfairly charges customers who switch from LIPA to an alternative power supplier for the costs LIPA pays to maintain local power plants — even though the community-choice customers are receiving their power from plants other than LIPA's.

LIPA says all customers must bear the cost of keeping the local plants in shape to help it meet state grid requirements for peak capacity, keeping them at the ready if, for instance, those customers choose to return to LIPA for their power supply, or are forced to because their supplier leaves the market. The utility says if customers who leave for other suppliers were allowed to opt out of these charges, remaining LIPA customers' bills would go up.

Community-choice suppliers and advocates want LIPA to drop or offset the local supply costs, arguing the added charges make it impossible for them to offer competitive prices.

In a statement last month, the state Department of Public Service said its objective on Long Island is to "investigate potential benefits to customers of a competitive retail electric market and examine what reforms, if any, are needed to achieve them." The department will review comments and make recommendations to LIPA that it may or may not follow. The state has only "review and recommend" authority over LIPA, unlike other electric utilities across the state, where the Public Service Commission has ultimate authority.

LIPA currently offers a program called Long Island Choice that allows customers to choose an outside energy service company, but critics say the choices are limited, the savings nonexistent and the programs little subscribed. Even when customers do sign up, LIPA still handles delivery of the power to customers, and those charges continue to appear on the delivery portion of their bills.

LIPA said four energy service companies, or ESCOs, are participating in its program, with 82 large customers and multiple smaller customers under the Altice umbrella.

Critics say that while LIPA may appear to be in compliance with 1990s-era deregulation mandates that opened the door for competitive energy markets and, in 2016, to community-choice programs in the state, the costs it continues to pass along to customers who try to jump ship diminish potential savings so much that they make the alternative suppliers noncompetitive.

'Why should we have to pay their [LIPA's] local supply costs?'

Michael Gordon, chief executive of Joule Assets, company administering Southampton Town's program

"Why should we have to pay their [LIPA's] local supply costs?" said Michael Gordon, chief executive of Joule Assets, a Katonah, New York-based company that is administering Southampton Town's cutting-edge community-choice program. "We can go out and get local supply ourselves."

Brookhaven Town Supervisor Edward P. Romaine, who has repeatedly criticized LIPA for foot-dragging on its community-choice program as the town works to establish a program for its 50,000 Brookhaven electric customers, said benefits of a diverse energy market haven’t been realized because of "structural barriers" in LIPA policies that make competitive energy supply "uneconomical."

Romaine last week said he was considering requesting an audit of LIPA's cost claims surrounding its community-choice program, under a recently enacted state law by Assemb. Fred Thiele (I-Sag Harbor) and state Sen. Jim Gaughran (D-Northport) that calls for audits of the utility in cases of alleged waste, fraud and abuse.

Separately, Thiele said he is preparing legislation that would amend state public service law to give the Public Service Commission the authority to establish hard-and-fast rules for a community-choice program for Long Island that would supersede LIPA's highly criticized program.

Few customers in the LIPA territory use third-party suppliers "because, for small customers, the benefits of retail access are basically nonexistent," due to those LIPA constraints, Gordon wrote in comments filed with the state. More recently, however, Gordon said LIPA offered some helpful concessions to make the choice programs run more smoothly.

And Joule itself in recent days introduced a new program that could work around some of the LIPA impediments by combining the best of the community-choice program with state-approved community solar offerings. Joule is proposing to offer customers in Southampton discounts for locally generated solar power pooled to benefit the town's 25,000 homeowners. The plan could reduce the cost of power from LIPA's current 20 cents a kilowatt-hour to around 18 cents, a 10% savings, Gordon said. The Southampton Town Board could take it up in coming weeks, he said.

'In the end there are a certain number of power plants you have to have on Long Island, and everybody has to pay for them, otherwise everybody would want to be in the bucket of not paying.'

LIPA chief executive Tom Falcone

LIPA and its grid manager, PSEG Long Island, in responses this month, said while its policies comply with state law, any difference between LIPA and other state utilities results from its core mission to keep supply available from a pool of local plants, even if customers decide to shift to an outside supplier.

"In the end there are a certain number of power plants you have to have on Long Island, and everybody has to pay for them, otherwise everybody would want to be in the bucket of not paying," LIPA chief executive Tom Falcone said in an interview. Those costs, he said, "can’t be left to the one guy who didn’t join" an outside service company.

LIPA prepared an analysis for Newsday showing that if 10% of its customers shifted to an outside supplier and didn't pay local supply costs, the increase in bills for LIPA's remaining customers would be $2.87 a month. If 50% switched over, the figure would leap to $25.80 more per month, LIPA estimated.

$2.87 per month Cost increase for remaining LIPA customers if 10% of its customers shifted to an outside supplier

$25.80 per month Cost increase for remaining customers if 50% of its customers shifted to an outside supplier  Source: LIPA analysis

Gordon of Joule pushed back on LIPA's assertion, noting that LIPA's cost for that local energy should decline in direct proportion to the energy Joule and other community-choice companies secure for their subscribers from other sources.

LIPA in its most recent filing did offer changes to its choice program, including eliminating the $10 switching fees for those converting to an outside provider, and providing a single bill instead of two bills for customers who sign on with an outside company. It also offered increased visibility into how it arrives at different components of its power supply costs.

But not everyone is eager to see more energy service companies operating on Long Island.

AARP and the Public Utility Law Project, in a state filing, noted the checkered history of third-party energy suppliers operating in the state, pointing to 20 years of cases that showed "residential customers generally and low-income and elderly customers particularly have fallen prey to misleading marketing practices" of third-party energy companies.

For that reason, the two groups said, they opposed allowing companies on Long Island to convert customers en masse into the programs until state reforms issued by the Public Service Commission in 2019 are "thoroughly implemented and analyzed." The state crackdown on energy service companies called for stricter rules for their marketing practices, to protect unwitting customers from being switched from their traditional utilities without their knowing, and requiring full disclosure of the potential downsides, including the prospect that costs could increase.

But the latest wave of companies seeking to enter the market are doing so on a larger scale, and with the backing of local governments and tens of thousands of customers.

Brookhaven, Southampton, East Hampton and Hempstead have either launched or are seriously considering choice programs that would automatically enroll nearly all residents and businesses in their towns to third-party power supply contracts that promise either discounts from LIPA prices or a deeper commitment to green energy.

That could shift more than 100,000 of LIPA’s 1.1 million customers to an outside supplier such as Joule or Good Energy. Customers could opt out of the program at any time and go back to LIPA, but officials expect enough to remain with the choice programs for the companies to negotiate price-competitive contracts.

None of the programs is supplying energy yet. Town officials complain their programs have continually come up against the LIPA practice of charging customers for local power supply even if they opt for an outside supplier.

Fourteen members of the Suffolk Legislature, in a December letter to the state, cited the same structural problems and said it was "high time that Long Island experience meaningful reform of the retail energy market."

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