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LIPA customers face hefty bill for new grid requirements

Energy Budget. Transmission towers carry power lines through

Energy Budget. Transmission towers carry power lines through Suffolk County on Monday, Aug. 18, 2014. Credit: Newsday/John Paraskevas

Long Island electric customers are facing potentially hundreds of millions of dollars in new costs for additional electric capacity that PSEG Long Island previously found was not needed after the New York State grid operator proposed new requirements that put an outsize burden on Long Island, LIPA said in a recent federal filing.

The new rules, which were scheduled to take effect Sunday but have been delayed pending LIPA’s and others’ objections, would require the Long Island Power Authority to increase the amount of excess electrical capacity it has by around 4 percent a year, at a cost that LIPA projects to be $60 million a year, and potentially more over time, according to the filing. That would increase rates upward of 2 percent a year for PSEG customers. 

A person familiar with LIPA’s filing said the requirement, if approved by a federal regulator hearing arguments in the case, would increase gradually over 10 years to that $60 million annual level, starting in 2019. The requirement would mean a new power source on Long Island would be required by 2030, this person said, slicing eight years from PSEG Long Island’s current projection that the utility won’t need any new power resources until 2038.

The New York Independent System Operator, which manages the state grid, introduced the new rules earlier this year. Under existing rules, LIPA is required to have excess electrical capacity to handle spikes in usage. The current excess requirement is 103.5 percent. Under the new rules, LIPA’s excess capacity requirement would increase to 107.5 percent.

Worse, said LIPA in its filing, most of the benefits of that excess capacity would be felt by New York City and lower Hudson Valley utilities.

LIPA is asking the Federal Energy Regulatory Commission to reject the NYISO plan, or at least change or delay it. Spokespersons for LIPA and the NYISO declined to comment.

The new requirement means that LIPA would have to add around 200 megawatts of capacity to the system over time, even though PSEG has found that the LIPA grid has so much excess capacity that it doesn’t need to add resources for decades. At the same time, LIPA is undertaking a state-mandated transition away from conventional power plants to renewable energy, with wind farms planned for ocean waters off Long Island over the next decade. The excess capacity led LIPA to cancel a previous plan for a 750-megawatt power plant in Yaphank called Caithness II.

If LIPA were required to contract for 200 new megawatts of capacity in the short term, the impact would be quickly felt on customer bills. But the utility believes that current excess capacity could make up the deficit short term, if the rule is enacted, said the person familiar with LIPA's position. 

The $60 million increase would amount to just under a 2 percent hike in customer bills, since roughly every $33 million in cost results in a 1 percent hike for ratepayers. For customers with a $162 monthly bill, the change could result in $3.24. The full impact of the increase would take a decade to be felt, the person familiar with LIPA’s filing said.

The move comes as PSEG’s power supply charge edged up this month, to 0.103 from 0.099 in July, a 4 percent increase over July’s charge but roughly even with August of 2017. The increase wasn’t affected by the state plan.

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