June 1,2009
National Grid today filed a proposal with the Rhode Island Public Utilities Commission that would support years of completed infrastructure improvements, lay the foundation for the company to make critical investments in future improvements that will enhance reliability and meet the changing needs and expectations of its customers.
The company is requesting approval to increase distribution rates that would add approximately 11.2 percent or $8.95 to the monthly bill of a typical residential customer who uses 500 kilowatt hours of electricity. If approved, the new rates would take effect on January 1, 2010.
Distribution rates in Rhode Island were last increased in 1998 and have been lowered twice since that time; in 2000 as part of the merger with Eastern Utility Associates and again in 2004. Rhode Island customers experienced an aggregate distribution rate reduction of $22.6 million as a result of these actions.
According to Tom King, president of National Grid’s U.S. business, while the company has not sought distribution rate relief in more than a decade, its costs have steadily increased and the landscape in which it operates has changed dramatically.
“We are acutely aware that it’s difficult to raise rates for customers, especially in a challenging economic environment,” said King. “However, we must increase our investment in the electric distribution system in Rhode Island in order to replace aging infrastructure, and ensure that proper maintenance and operating costs are covered. Replacing this aging infrastructure will produce long-term benefits for customers by increasing the reliability and safety of the system.”
It is important to note that distribution rates are separate and distinct from the commodity, or supply portion of customer bills. While distribution rates were reduced over the past decade, commodity costs have fluctuated wildly during the same timeframe because they are linked to the global market prices of oil and natural gas. National Grid does not profit from commodity costs, which are passed through to customers from suppliers without any markup. Commodity is the largest portion of customer bills.
On January 1, National Grid lowered commodity costs for typical Rhode Island residential customers by 23%, resulting in a decrease of $12.84 on the bill of a typical residential customer who uses 500 kilowatt hours a month.
Infrastructure Investment
Since 2000, National Grid has invested nearly $300 million to upgrade and expand its Rhode Island distribution system, including a significant amount to improve and upgrade the reliability and safety of the network King noted that while the company has sharply increased its investment over the past several years, it has not been able to recover a large portion of these costs.
Benefits to Low Income Customers
National Grid is continuing its commitment to the nearly 35,000 Rhode Island customers who qualify for a discounted distribution rate. These customers will continue to pay less for the distribution component of their bills than do other residential customers. The company also proposes creating a Consumer Advocate service to assist Rhode Island customers in determining if they are eligible for low income rates, assisting them in managing past due balances and identifying energy payment assistance funds for which they can apply.
Revenue Decoupling
The filing also proposes a revenue decoupling ratemaking plan in Rhode Island. The proposal would benefit customers by changing the way the utility recovers its costs. Decoupling severs the tie between revenues and kilowatt hour sales, thereby removing an obstacle to aggressive pursuit of energy efficiency, demand response and distributed generation programs. King emphasized that revenue decoupling is not responsible for any of the increase the company is requesting in this proposal.
King also noted that National Grid is a nationally recognized leader in developing and implementing energy efficiency programs that help customers permanently lower their energy bills while reducing greenhouse gas emissions. In fact, over the past 22 years, National Grid’s Rhode Island customers have cumulatively saved more than $660 million, and reduced their energy use enough to power more than 740,000 homes for one year.
In 2006, the Rhode Island General Assembly enacted the Comprehensive Energy Conservation, Efficiency, and Affordability Act requiring the establishment of standards for energy efficiency. As a result, in 2008 and 2009 the PUC adopted energy efficiency procurement standards. Under these plans, National Grid is ramping up its energy efficiency activities and working towards achieving even more dramatic increases in annual customer energy efficiency savings by the end of 2011.
Other Significant Costs
In the filing, the company also sets forth a series of proposals that collectively will address factors that make it difficult for National Grid to maintain rate stability over time. These factors include increasing costs of pensions and other post-employment costs as well as costs incurred by the company as a direct result of uncollectible expenses related to the commodity portion of customer bills.
In an effort to offset all of these spiraling costs, National Grid has instituted a broad range of cost-control and efficiency measures in the areas of work practices, procurement, facilities consolidation, and new technologies and systems. The company also achieved significant synergy savings from its merger with KeySpan and its acquisition of New England Gas Company. However, all of these efforts have been dwarfed by the sheer volume of capital that has been and will continue to be required to maintain a safe and reliable system.
King stressed the importance of National Grid’s ability to recover these significant costs in a timelier manner while doing everything it can to hold down operating costs.
“We are transforming our business to meet the changing demands of our customers who expect and deserve superior service,” King said. “The central target of this undertaking is to reduce costs over the long term through a broad-based effort to increase the efficiency and effectiveness of our operations. We already have made significant progress and achieved substantial savings.” King concluded, “At the same time we need the financial security to attract the funding we must have to invest in the system, and which we then request permission to recover from customers. National Grid must be seen as an attractive company in which to invest so that we can continue to deliver electricity safely and reliably to our customers.”
National Grid is an international energy delivery company. In the U.S., National Grid delivers electricity to approximately 3.3 million customers in Massachusetts, New Hampshire, New York and Rhode Island, and manages the electricity network on Long Island under an agreement with the Long Island Power Authority (LIPA). It is the largest distributor of natural gas in the northeastern U.S., serving approximately 3.4 million customers in Massachusetts, New Hampshire, New York and Rhode Island. National Grid also owns over 4,000 megawatts of contracted electricity generation that provides power to over one million LIPA customers.