Last year, the state Department of Public Service cut PSEG Long Island’s proposed rate hike on its delivery charge for electricity. The agency argued that PSEG didn’t need the full increase it sought, partly because the company’s projection of falling revenue, caused by increased efficiency and a burgeoning solar market, would not materialize.
It turned out that power use was lower than either side projected for the first half of 2016, so the company said it was closer to correct. The Department of Public Service said revenue and use came up short mostly because the winter was unusually warm. Either way, the customer pays.
As a result of the lower power use, the “decoupling charge,” a fee initiated in March that allows PSEG to make up revenue lost to low power usage, including from green-energy initiatives and weather variance, will increase. “Decoupling” means untying the revenue needed to run a utility from the volume of power used, so that energy efficiency doesn’t lead to revenue shortfalls.
When the charge was put into effect in March, the average residential customer was to pay $1.69 a month. In September, that will go up to $4.30, just under 3 percent of an average bill.
It’s hard to create a revenue model in which a utility can still make money while encouraging customers to use less power. Energy efficiency is good for Long Islanders and the environment. So is customer-owned solar power. But both efficiency and home solar reduce utility revenues more than they reduce expenses like labor, property taxes and maintenance. And home solar installation has been growing fast on Long Island, with as many as 15,000 new systems being installed annually.
It’s also hard to accurately predict short-term weather trends and power use. Part of the point of decoupling is to deal with such variance. When weather is worse than expected and power use rises, the decoupling charge will be reduced.
Decoupling was devised to encourage conservation, but not ruin the balance sheets of investor-owned utilities. Most municipal utilities don’t need the device to deal with short-term variances in revenue because they have ample cash reserves to absorb revenue losses until they can make them up with rate hikes. But Department of Public Service officials say decoupling does make sense for LIPA, because it is largely debt-financed and has almost no cash cushion to absorb such swings. The agency sets PSEG’s power-supply rate once every three years, so interim adjustments in revenue are needed to respond to power use that misses estimates.
LIPA has to enter long-term agreements to buy power from suppliers, and those contracts cost money even when the power isn’t needed. As we get more power from renewable sources, LIPA will be able to make fewer such deals and help keep costs down, but not as fast as we’d like.
LIPA must have enough power on call for the full needs of the Island, including customers who use solar. Those customers still need power when it rains, and LIPA has to have deals in place to provide it.
Over time, building a green-energy supply will reduce costs and help the environment. Power storage and efficiency will improve, as will our knowledge of wind and solar reliability. And LIPA’s expensive long-term contracts will expire.
But in the meantime, the transformation is going to cost a few bucks. It’s not LIPA’s or PSEG’s fault, and it’s a good investment.
— The editorial board