Under state law, an electric utility cannot be both a generator and distributor of electricity.
Once the Block Island Wind Farm becomes operational, the Block Island Power Company (BIPCo) must restructure its operations to comply with the law by either completely giving up its power to generate electricity or by breaking into two companies, one to generate electricity, and one to distribute it.
The other option is for BIPCo to file for a waiver from the law, and that is what the company has indicated it will do. The filing is expected to take place in early 2016. A waiver would allow BIPCo to retain its diesel generators in order to provide backup to Block Island customers in the event of a power outage. At a special Electric Utilities Task Group (EUTG) meeting on Monday, Nov. 30, it became clear just how important this could be, as BIPCo employee Dave Milner explained his concerns about possible malfunctions at National Grid’s substation that will be built on Block Island.
A waiver could also open up the possibility of BIPCo generating electricity to sell back into the regional grid, a concept that has many people on Block Island worried.
Navigating these changes has not been easy and, in order to help, the Public Utilities Commission has hosted three meetings at its offices in Warwick, with both BIPCo and the town (through the EUTG and Town Manager Nancy Dodge). The last meeting was held Nov. 16, and EUTG Chair Barbara MacMullan gave a brief summary of the events to those in attendance.
“We spent a lot of time on the waiver filing,” MacMullan said. “BIPCo hopes to apply for a waiver in January. The PUC thought that might be a little optimistic.” She summarized BIPCo’s plans, noting that the company wished to retain all five of its generators, remove the five underground fuel tanks, and install two above ground fuel tanks.
EUTG member Everett Shorey asked Milner if that was correct, and Milner said that it was.
Another item on the table is whether BIPCo could be able to provide standby capacity for the regional grid that is operated by ISO New England. That would provide revenues to the company, just for ‘standing by.’ “We need to get our hands around that,” said Shorey. “That plays with the generators as backup question. I’m not comfortable with what those answers are.”
“The implication is that BIPCo will be making sales at retail,” said MacMullan. She questioned whether there was an economic benefit to Block Island ratepayers if the generators were kept available.
“It seems logical to me that BIPCo keep the generators and apply for a waiver,” said Mike Kirkwood, the general manager of the Pascoag Utility District, and who had been invited to the meeting. He spoke of Martha’s Vineyard, some 20 years ago. “There were times when the cables failed,” he said. “It’s good to have backup.” The Pascoag district is a quasi-municipal utility that provides both electricity and water to its customers in Pascoag and Harrisville, R.I. It is the only other electric utility in Rhode Island besides National Grid and the Block Island Power Company (BIPCo).
Referencing the state law regarding divestiture, and the possible waiver, EUTG member Bill Penn said: “The question that we as ratepayers have is how much do we need for backup capacity.”
One audience member said: “The turbines would never have gone in if people knew the generators would stay. It’s BIPCo’s problem, not ours.”
MacMullan explained that abandoning the generators would create what is called “stranded costs” that would be reflected in a new electric rate design. In order to evaluate the impact, information on the resale value, if any, of the generators was needed.
From the audience, resident John Warfel asked how many generators were in working condition. Milner said that four were working and one needed repairs, which would not occur until late spring. At this time of year BIPCo operates on one generator, and in the summer it runs on two, with a small, third generator added at peak demand times.
Rev. Steve Hollaway, also in the audience, asked about the environmental and health costs of running the generators to provide electricity to the mainland.
“It’s unlikely there would be a market for Block Island power on the mainland,” said MacMullan, adding that the amount of fuel on hand would only be a three-day supply, for the island. “If we keep the generators here for backup power, there’s a possibility of providing backup capacity to the mainland.” She said there might be an economic benefit to that. “That’s a question we need to find out more about.”
Shorey added that BIPCo had recently hired Energy New England (ENE) as a consultant, and ENE was looking at those numbers now. Later he explained that in the capacity market, the lowest costing power is bought first. “BIPCo would be at the top of costs,” he said. “Our understanding is that… no diesel capacity has been bought in the past five years.”
“It’s not too often that diesel is called in,” said Kirkwood.
“We could have some kind of regulatory control over that,” said Penn, adding that the town could ask the PUC to put conditions on the waiver, limiting what BIPCo can do.
Shorey said BIPCo might not have a choice. “BIPCo may be required to enter the capacity market if we keep the generators.”
Another concern was the possibility of a failure at the National Grid substation in Wakefield. Regarding how long it would take to restore power in the event of a widespread power outage, “they have their priorities,” said Shorey, meaning that National Grid would prioritize areas with the greatest number of customers.
What is unknown are the current value of the generators and what kind of revenue they might generate, especially in the capacity markets. “We need more information before the town can take a position,” said MacMullan.
When asked who would figure out those numbers. Shorey said, “At some level, that will be in the waiver application,” meaning that BIPCo would need to provide those numbers, and make them available to the town before the filing of the waiver.
“We have an opportunity to weigh in and convey our concerns to the Town Council,” said Penn.
Hollaway asked: “If there’s no waiver, couldn’t they form a separate company?”
“They could,” said MacMullan. If there were two separate companies, they could not share employees and the BIPCo would have to divide all of its assets and liabilities between the two resulting entities. “It doesn’t seem like the best road to go down,” she said. Not only would it be inefficient, but it would result in an unregulated generation company.
“The absence of a waiver is a triple negative,” said Shorey, one of which would be all five generators remaining.
Kirkwood added that in New Hampshire, some power companies had been exempted from breaking apart, and MacMullan asked him why. “They had just made significant investments,” said Kirkwood. It was something of a bargain with the state to avoid high stranded costs.
Chris Warfel said he worked in some of those plants. “It was deemed in the ratepayers’ benefit” to grant the waivers.
Resident Pat Tengwall asked whether the PUC had ever gone through a waiver process.
Shorey said “Yes,” and cited Pascoag.
Tengwall’s second question was under what conditions there could be a cable failure. “Bad weather is the worst time to bring a generator over from the mainland.”
“The bigger issue is the Wakefield substation,” said MacMullan. “We could be looking at a one to two week power outage.”
Milner said his “greatest fear” is the lack of redundancy at the new substation being built by National Grid. He said it will be fed by a 24 volt transformer. “If that fails, then there’s a three to four month window to get a new one.” He explained that BIPCo has two transformers, one as a backup. “We have double redundancy in our system.”
Tengwall asked: “Why is that not being built – with double redundancy?”
“It’s National Grid’s substation,” said Milner.
Reacting to Milner’s surprise revelation, MacMullan said to him, “That maybe should be discussed with National Grid.”
“National Grid did not want to do it,” said Milner.
MacMullan asked: “The issue is, there’s a single transformer?”
“Yes,” said Milner, adding that the cost of a new transformer would be “at least a half a million dollars for that one unit.”
“That bears an explanation,” said MacMullan. “Every meeting we find something new.”
After a bit more discussion, Chris Warfel said: “I would like to comment that it’s in the best interest of the island to retain backup.” About concerns of BIPCo selling power to the mainland, he said: “I think we would be so uncompetitive, that it wouldn’t be used.”
Resident Ray Torrey said that power companies that “stand by with capacity are compensated for that.” Providing backup capacity without being called to utilize it is “like the Golden Goose,” said Torrey.
Kirkwood said that the highest cost power would only be utilized if the grid were having a “reliability” problem. As for how the price for back-up capacity is negotiated, “everyone bids in three years in advance” at the forward capacity auction. He added that the “clearing price” can go up and down. “Lately it’s going up because some power plants are shutting down. It will offset rates here.”
Penn said: “Fox Island does get paid for back-up, and has had a cable failure.”
Shorey said: “Let’s switch topics slightly, and go to purchase power questions. At the moment, National Grid on the mainland has a standard offer rate that is good for a year.”
MacMullan asked Kirkwood to explain standard offer rates. Kirkwood said that Pascoag’s standard offer rate is currently 6.7 cents, but in January they will file to actually lower that rate to about 5.4 cents per kwh. The rate, which is lower than National Grid’s, is possible because of the portfolio of power purchase contracts it has negotiated. National Grid operates on two six-month contracts, and because of pipeline capacity, the winter price is very high, he explained.
Pascoag negotiates its contracts through Energy New England, and BIPCo is planning on doing the same. “ENE served us very well,” said Kirkwood. “Those rules are extremely difficult.” He said: “We discuss our needs with ENE and they go out and contract for it. They know how to represent small companies well.”
MacMullan asked about the length of the contracts and Kirkwood said that it varies, with some in effect for six years, especially for renewables, such as one for hydroelectric power from Upstate New York, and some for less.
“So they’re staggered, in effect?”
“Yes,” said Kirkwood. “Diversity is important to me,” adding that it helped smooth over fluctuations in fuel prices. “I believe in not putting all your eggs in one basket.”
From the audience one person asked: “Is it a requirement that all Pascoag buy directly from you?”
“Yes,” said Kirkwood, explaining that it was “different because it’s a public entity.” He said this wasn’t a problem for customers “as long as I deliver a good price.”
Resident Linda Powers asked him about net metering customers.
Kirkwood said that Pascoag does net meter but only has two solar customers. Under the net metering, solar customers get paid less than they would on Block Island as the “replacement cost” that Pascoag credits those customers with is so low that people find it is not “worth the investment.”
The conversation turned to the possibility of individual BIPCo customers being able to purchase their power from different entities. “It’s a matter of state law that that’s an option,” said Shorey.
“People with homes on the mainland are familiar with solicitors,” said MacMullan, who cautioned that one had to be careful of what type of contract they might be entering. “It could be like a three-year cell phone contract.”
As the largest power buyer on the island, Shorey said that the town could take advantage of the possibility by joining a municipal power buying co-op.
Tengwall suggested that other large customers such as the Block Island Grocery “could go out and look,” but he doubted whether single families would take the time to do the research for themselves.
Chris Warfel asked Kirkwood about Pascoag’s energy efficiency programs.
“We do that in-house,” said Kirkwood. It gets slightly redefined each year and is reviewed by the PUC. “As a public utility, it’s good for customers,” he said, “but not for the revenue stream.” (Broadly speaking, Pascoag’s energy efficiency programs entail providing customers with rebates for replacing appliances and consumer electronics with more efficient ones.)
Penn said: “It’s pretty impressive what they offer their customers.”
The program is funded by a per kwh charge to customers that is a fraction of a cent, but adds up to a total of $100,000 per year. MacMullan asked about participation.
Kirkwood said that generally the entire $100,000 is used up in any given year, but sometimes a portion gets carried over.
MacMullan noted that when Block Island offered free energy audits, not many were interested, and that it was hard to gauge the need.
There were more questions for Kirkwood, but time was running short. Kirkwood was leaving on the 2:30 boat and it was 2:04.
Among the more pertinent questions was one from John Warfel regarding line loss, which he thought was currently around 14 percent on Block Island.
Kirkwood said that Pascoag’s line loss was around five percent.
“I don’t see why we can’t get that down more,” said John Warfel.
Shorey said that BIPCo had plans to upgrade the distribution system, but it was putting them off for two or three years. “Management is sufficiently stretched,” he said, with all that they are going through in the transition. He also said that currently, line loss “goes through the fuel charge” portion on one’s bill. “After the waiver, they will be doing a rate case, and this will come up.”
That seemed to be a good point to end the meeting, and those going back to the mainland on the 2:30 boat quickly gathered their belongings. Shorey thanked Kirkwood for coming, and also profusely thanked the two dozen or so people that attended the workshop.
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