LIPA moving to monthly fuel bill changes

The Long Island Power Authority later this year will start adjusting customer bills every month to cover its fuel costs, a move that could lead to uncharacteristic spikes in LIPA bills -- up or down depending on how the authority implements the plan.

At a recent trustees meeting, LIPA executives argued to allow the authority to moderate or "smooth" the highs and lows by adjusting to a 12-month rolling average, even while recovering its full costs for fuel.

But LIPA board members questioned that plan. They noted that nearly all other utilities in the state simply pass along their full fuel costs to customers each month, regardless of the impact on their bills.

The move to monthly adjustments, while applauded by some ratepayers who say LIPA should not be allowed to overcollect expected fuel costs by hundreds of millions of dollars, was nevertheless inspired by a wish list from bond-rating agencies. They want LIPA to lower its risks by making sure it is quickly compensated for the cost it outlays for fuel.

Whether LIPA goes to the moderated or direct-charge method of monthly adjustments, LIPA officials said certain costs that had not been included in the power supply portion of bills will be added. They did not elaborate on those charges.

LIPA hopes to add the monthly adjustments by October.

Other utilities that already use the direct monthly method of collecting fuel costs have seen bills that fluctuated by 8 cents to 14 cents a kilowatt hour each month, depending on the cost of fuel, trustees were told.

For more than a decade, LIPA set the power supply charge at the start of the year based on a projection of expected fuel costs in the coming year. Some years, LIPA overcollected close to $200 million from customers, and had to give the money back through lower rates over the next year.

In some past years, however, LIPA sharply undercollected, and has had to add a fuel surcharge, to ratepayers' outrage. Last year, LIPA moved to quarterly rate adjustments based on the cost of fuel. Earlier this year, that resulted in a 4.3 percent reduction in customer bills.

LIPA is scheduled to review costs again this month to determine if another cut is warranted -- unlikely, given recent increases in natural gas prices.

Trustees at a finance meeting last month debated LIPA staffers' assertion that customers wanted the smoothed monthly model, which allowed the authority to buffer volatility by recovering spikes over 12 months rather than soon after they are experienced. But it would also mean that customers wouldn't see immediate or sharp rate declines when gas prices dropped precipitously, because some of that padding would be used to buffer anticipated spikes over the coming year.

"We are compensating for the fact that we want to maintain some level of stability in customer prices," LIPA chief financial officer Michael Taunton told trustees, adding that the buffer primarily benefited large commercial customers that needed stability to set annual budgets.

Board members said they wanted more information on how the two difference scenarios could impact bills before they gave LIPA the okay to move ahead with one or the other. "I think what's troubling trustees here is we're still out of step with the other utilities, and if we were to go to the Public Service Commission they would tell us, 'Be like other utilities and forget this smoothing stuff,' " LIPA chairman Howard Steinberg said.

Since residential customers already have the option of balanced billing, which sets bills at a rate between their highs and lows for a year, consumer bills would have a mechanism for moderating the spikes under the new method, trustees were told.