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LIPA power supply charge's sharp increase attracts regulatory scrutiny

A LIPA electric meter in a Garden City

A LIPA electric meter in a Garden City residence on June 4, 2013. Photo Credit: Newsday / Audrey C. Tiernan

LIPA power supply charges, which spiked 81 percent between September and December as natural gas prices increased far more modestly, are drawing new regulatory scrutiny of the authority and a promise from PSEG Long Island to address the problem starting in January.

The charge, which makes up about half of customers' electric bills, pays for the cost to fuel power plants and purchase energy from a range of power sources. LIPA defends the charge as the most stable of all New York electric utilities and purely a pass-through of actual costs.

LIPA's charge, after hitting its lowest level of 5.9 cents per kilowatt-hour in September, has risen sharply in all subsequent months, hitting 10.7 cents in December. In statements explaining the increases, LIPA has pointed to natural gas prices as the largest single factor for them. LIPA also notes that the charge includes amounts for undercollections in the prior two months, each of which also saw 20 percent-plus increases this fall.

However, LIPA's charge increases come as wholesale natural gas prices from sources that sell to Northeast electric utilities have risen far less until December, when price spikes are typical, according to analysts and figures provided by other local utilities.

PSEG Long Island president David Daly said the company plans to address issues with the charge when it takes over the power markets function from LIPA in January.

"There will be changes in forecasting and [fuel] hedging very early on," he said. Hedging lets a utility cut the risk of higher future prices of fuel. "We're going to get right on it," Daly said of the power supply charge and volatility. "It's a big issue."

The state Department of Public Service says LIPA's application of the power supply charge needs improvement.

"It's a big priority of DPS Long Island that customers shouldn't have to be exposed to such an unusual level of volatility," said Julia Bovey, director of the agency's Long Island office. "We're going to work with PSEG in the rate case to find a solution."

MODEST GAS PRICE INCREASE

While LIPA's power supply charge rose 81 percent from September to December, baseload natural gas prices reflective of Northeast utility purchases by a pricing index known as Transco Zone 6 increased more modestly between September and November before experiencing a seasonal spike in December, according to National Gas Intelligence, a Dulles, Virginia, tracker of gas pricing. Transco pricing was up 26 percent from September to November, then increased 159 percent for December, as LIPA's charge began to moderate.

National Grid's Long Island gas customers have seen similar modest increases. Gas prices climbed an overall 37 percent from September to December, from $3.38 a dekatherm, a common unit of measurement for natural gas, in September to $3.42 in October, $3.86 in November and $4.63 in December, according to spokeswoman Wendy Ladd.

UTILITY CLAIMS LOW VOLATILITY

LIPA has pointed to Public Service Commission figures saying its power supply charge is the least volatile in the state over the past two years. But in the fourth quarter of this year, Con Edison saw considerably more stable supply pricing than LIPA, increasing only 5.7 percent: 11.5 cents a kilowatt-hour for September, 11.6 cents for October, 11.6 cents again for November and 12.16 cents for December.

In a statement, LIPA downplayed the fourth-quarter charge spike.

The utility said it uses "the most current forecast of fuel and purchased power costs for the upcoming month to calculate the power supply charge, allowing for the collection of the majority of costs as close to the month of use as possible."

But the projections aren't always accurate, so LIPA has built in the ability to collect prior months' under- or overcollections in future months' charges.

"Higher or lower commodity costs, higher or lower energy consumption, and weather patterns are factors that can be different than were forecast, and, as such, may lead to an under-or-over-collection," LIPA officials said in the statement.

PAST MONTHS AFFECT CHARGE

LIPA said it assesses the past charges "as soon as the variations become known." The November hike included undercollections from the previous two months.

For instance, LIPA in setting the December power supply charge on Nov. 25 was just getting a clear picture of how far off its projections were for October fuel bills, sales estimates and other variables, according to a statement from LIPA.

"And so, the power supply charge set for Dec. 1 will reflect forecast fuel and purchased power costs for December based on then-current prices, predicted sales, and fuel mix; the entire variance between forecast and actual for October; and much but not all of the variance between forecast and actual for November," LIPA said in a statement.

One expert said LIPA should bill customers the full cost of fuel and power a month after the utility incurs the expense without any projections and past recoveries. That way, "There's no stretching out the payback," LIPA trustee Matthew Cordaro said. "There's much less potential for discretion, and there's much less room for any manipulation or tinkering."

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