State agency: New LIPA rates could hike bills for those who opt out

LIPA's new time-of-day rates were approved last month despite a series of questions and concerns by the state Department of Public Service, including that the new plan could increase the rates of those who opt out by 4.6%.

Documents filed as part of the new rate plan, which is set to take effect next year, show the state agency had raised issues about the plan and PSEG Long Island’s readiness to carry it out, including problems plaguing its call centers. Nevertheless, the state didn’t object to the LIPA board approving the new rate at its regular meeting last month after LIPA staff provided assurances the concerns would be addressed or, if not, the plan would be delayed. 

The state's issues were sent in a letter from Department of Public Service chief executive Rory Christian, who is also chairman of the Public Service Commission, one day before the LIPA board voted on the new rate plan on March 29. 

LIPA is not obligated to adopt the state recommendations because DPS, under former Gov. Andrew M. Cuomo’s LIPA Reform Act, has only review and recommend authority over the Long Island Power Authority.

LIPA has said that most customers would see a $3.50 monthly bill reduction just by being switched to time-of-day rates, without any change in their behavior.

But in his letter to LIPA board vice chairman Mark Fischl, Christian noted that if more than 85% of customers choose to remain on the main time-of-day rate, LIPA would “under-collect revenue" to pay for its budgeted costs.

The shortfall would be made up by higher charges to those who opt out, through an increase in a portion of LIPA bills called the revenue decoupling mechanism, according to the letter. "In other words, customers who remain on the flat rate under LIPA’s time-of-day proposal will experience higher bills due to increased delivery charges,” Christian wrote.

LIPA chief executive Tom Falcone, in an interview, called the rate impacts presented in the DPS letter a "worst case" scenario that would occur only if 15% of customers opt out, a scenario LIPA isn't expecting. He also noted that LIPA will revisit the plan each year to work out any such discrepancies in rates. "LIPA plans to review the actual cost to service the customers in the time of day and flat rate plans, and will make annual updates based on actuals," he said.

Fischl, the LIPA vice chairman, agreed, saying LIPA spent more than a year with DPS and other stakeholders to make sure the plan was right. 

"I was very surprised we received a 21-page letter the night before the board meeting after a 15-month collaborative process in which DPS was at the table," Fischl said Friday. "We worked to give everybody a voice." 

Under the time-of-use plan, customers will get relatively lower rates for all but the four peak hours between 3 and 7 p.m. weekdays. The peak rate, based on 2023 figures, would be 39 cents a kilowatt-hour during the summer starting June 1 and ending Sept. 30. That rate drops to 37 cents in the non-summer period. The off-peak rate, which also applies for all weekend hours and holidays, is 20 cents during the summer and 18 cents during the non-summer months. Average customers, LIPA said, would see a $3.50-a-month benefit without changing their behavior, and LIPA itself could save upward of $30 million a year on power costs. 

LIPA will begin enrolling all residential customers with smart meters into the plan next February, with 25,000 ratepayers. It will enroll another 50,000 before the summer and then gauge the success before adding another 100,000 per month starting in October. By mid-2025, nearly all of LIPA’s 1.1 million residential customers will have been switched over.

Customers can opt out of the time-of-day rate for a standard rate, which, under the current budget, would cost customers 24 cents a kilowatt-hour in the summer and 21 cents a kilowatt-hour for all other months.

LIPA, in the resolution passed by the board, said the time-of-day rate "is designed to have no impact on the revenues paid by residential customers in total in the first year," though in later years "participating customers will realize greater savings." 

But, Christian wrote, “Both the delivery and power supply revenues would be affected by any change in customer usage that occurs in response to the new time of day rates, and customers will make up any shortfall." He noted that power supply costs are a "pass-through, meaning customers are responsible for the cost."

LIPA assured the state that cost studies will be “updated in the future” as more is learned about the impact of time-of-day rates. It noted that time-of-day and flat rates would be updated annually, and that revenue impacts for 2024 would be a “small fraction of the 1.9% potential increase in the typical monthly bill for flat-rate customers" if a lot of customers opt out.

But DPS nonetheless said it “has concerns regarding the lack of uncertainty of the [time-of-day] rate impacts to revenue requirement and the lack of a precise time frame for cost studies to be conducted.”

DPS spokesman James Denn in a statement said that DPS "strongly supports LIPA’s decision to move forward" with the new rates, adding, "Our letter also explained the need to address certain issues, and DPS is working with LIPA and PSEG LI to ensure those issues have either already been addressed or will be."

DPS also urged LIPA to fully assess the costs of the new rate plan, including changes needed to billing systems and customer education. “LIPA and PSEGLI have not realized the total cost associated with several important steps in the transition,” Christian wrote, noting other utilities have spent upward of $40 million on such implementations.

DPS asked LIPA to develop and include a budget forecast for the full implementation of time of use, and to present it to DPS and the LIPA board by Sept. 15.

LIPA in its response noted that computer investments were budgeted for 2023 and that the implementation plan for the transition is part of PSEG’s performance metrics and is due to be in place before Sept. 15. A comprehensive customer education plan is due from PSEG by June 30, LIPA said.

LIPA in its proposal for time-of-day rates included a “bill-impact analysis” for the transition, but the DPS staff expressed concern about it, saying the sample size was too small and “insufficient to draw valid conclusions that can be applied to the broader customer base.”

DPS noted that even with existing time-of-use rates the utility is currently offering, only 2,100 customers have enrolled in the program, a figure that is “significantly lower than participation rates for other parts of the county that have” such rates.

LIPA noted “there has been substantial research from other utilities that have implemented time-of-day rates around the world, and there is no reason to believe the Long Island customer base would react significantly differently than other studies.” 

The state also raised questions about LIPA’s analysis of impacts to customers with solar panel installations and others with so-called net metering, which tracks their production. In LIPA’s analysis, 52% of its sample would pay the same or less under a time-of-day rate, while 32% would see a bill increase of greater than 4%.

“It’s worth noting that many [net metering] customers pay the minimum bill [customer and meter charge only] and hence the bill impact can be relatively high as a percentage, but not in terms of actual dollar increases,” Christian wrote. “It’s difficult to estimate the precise dollar amount of the bill impact on customers since it may vary depending on their behavior and detailed usage patterns."

LIPA worked with solar industry groups to adjust the rate to allow those customers to apply solar credits earned in the off-peak time to the peak, at a 2-for-1 exchange ratio, and vice versa, a plan the solar-industry largely applauded. 

DPS also recommended that LIPA fix potential problems to a successful rollout, including issues with the PSEG call center that led to “significant increases in wait times” last year in 2022. “As customers move to the time of day rates, the call center may anticipate a significant impact," Christian wrote. “It is extremely likely this will increase call volume to the call center and the increase in call volume may lead to longer wait times and changes in the types of calls received.”

LIPA responded that PSEG’s performance issues were a “legitimate concern,” but said the way to work around them was to “establish clear performance expectations” with “suitable financial resources to meet those expectations,” including compensation for meeting the goals.

In any case, LIPA noted, the migration to time-of-day rates will occur based on operational readiness. If PSEG Long Island fails to achieve that operational readiness, as independently verified and validated by LIPA and DPS, the time-of-day migration will be delayed.”

By Mark Harrington

mark.harrington@newsday.comMHarringtonNews

Mark Harrington, a Newsday reporter since 1999, covers energy, wineries, Indian affairs and fisheries.