PROVIDENCE – After state regulators discovered that Rhode Islanders were drastically overpaying for the delivery of power from America’s first offshore wind farm, National Grid came back with a proposal to slash a surcharge on the cable that sends electricity from the project to the mainland, cap the amount the utility would recover for an ongoing project to repair the cable, and pay into a storm contingency fund.
All told, if past spending on the cable holds true, the settlement, which is awaiting approval from the Federal Energy Regulatory Commission, would save electric ratepayers in the state more than $100 million over the next 10 to 15 years.
But one thing that’s not in the settlement is a direct reimbursement to consumers of the $46 million in excess revenues that National Grid reaped from the surcharge in the first four years that the cable connected to the Block Island Wind Farm was in use.
There’s good reason for that, says Ronald Gerwatowski, chairman of the Rhode Island Public Utilities Commission and the public face of the effort to reassess the cable surcharge.
How National Grid consumers were overpaying the surcharge
A legal principle known as “the filed rate doctrine” prevents parties from going back in time to change a rate that’s been approved by a state or federal agency. The principle applies to telecommunications, insurance and, commonly, energy.
When National Grid came up with a surcharge for the transmission cable, it used a formula allowed by FERC that’s aimed at simplifying the ratemaking process while still reflecting the actual costs of operations, maintenance, taxes and other expenses.
That was back in 2014, nearly three years before the cable would go into use. It wasn’t until the latter half of 2020 that regulators realized that the estimates factored into the rate, at least as they applied to what’s known as the Block Island Transmission System, were wildly inflated. In 2020, for example, National Grid collected $13.8 million from ratepayers for the cable when actual costs were only $3.2 million.
Despite the excess payments, the utility wasn’t doing anything illegal and was under no obligation to lower the surcharge. But at a public meeting last March, Gerwatowski slammed the company for what he described as “ripping off ratepayers.”
National Grid immediately followed up with a filing saying it would come up with a solution. In truth, according to the utility and regulators, it was already working on a remedy with the Division of Public Utilities and Carriers, the sister agency to the commission.
National Grid to pay $12 million to storm fund and Block Island Power
At the heart of the proposal is the lower surcharge, which, based on revenues from 2017 to 2020, could save ratepayers $8 million to $10 million a year. National Grid is voluntarily agreeing to the new rate going forward. PPL Corporation, the Pennsylvania company seeking permission to buy National Grid’s operations in Rhode Island, also says it will comply with the agreement.
But National Grid can’t be forced to give back the money it’s earned in the past – to effectively apply the lower rate retroactively – because of the filed rate doctrine.
“It’s water over the dam,” Gerwatowski said at a commission meeting on Tuesday. “There would have been no legal means to do that.”
The $12 million that National Grid is reimbursing – through payments to the Block Island Power Company, which relies on the cable for power from the mainland, and to a fund that’s used to pay for damage to wires, poles and other infrastructure from storm damage – aims to address another discrepancy in the surcharge.
National Grid had classified the cable for distribution use, which paid a higher rate than if it had simply been classified as a transmission line. Distribution lines are generally lower-voltage wires strung within neighborhoods that are subject to more wear and tear than transmission cables often located in rights of way. The $12-million payment roughly accounts for the additional revenues the utility made from that difference, said Gerwatowski.
As for the other $46 million, National Grid has said that it was used to run its Rhode Island business. The money isn’t sitting anywhere in a slush fund, the company has said.
If Rhode Island regulators had filed a complaint with FERC, rather than working out a voluntary deal with National Grid, the best outcome, in Gerwatowski’s view, would have been a lower surcharge going forward.
So to have that new rate paired with the payment to the storm fund and the $144 million cap on repairs to the Block Island cable would appear to be even better.
“I’m always ready to beat up the utility when they’ve done something I don’t think is right, so by the same token I will give them some level of credit for stepping up and fixing this thing going forward,” Gerwatowski said.
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