By Frederick Eisenbud
In an earlier blog, published on September 26, 2013 (“LIPA Residential Time-of-Use Customers Beware – Your Efforts to Shift Usage to Off – Peak Hours Is Probably Costing You Money Compared to Regular Residential Rate Payers Who Are Billed the Same Rate Regardless of Time-of-Use”), we urged LIPA residential rate payers who switched from standard 180 rates to one of two principal LIPA time-of-use billing programs to take a hard look at their bills because they likely were spending more, not less, for electricity. The 184 time-of-use billing program is for consumers who expect to use 39,000 kWhs a year or more than 12,600 kWhs during the summer months (June – September), and believe they can shift some of their usage from peak hours (10 AM – 8 PM) to off-peak hours (8 PM – 10 AM and weekends). The 188 program is for consumers who do not meet the criteria for 184 billing, but believe they can shift usage to off-peak hours. I analyzed a full year of my LIPA bills, determined that 67% of my usage was during off-peak hours, and yet I paid more under the 184 program than I would have had I never switched from standard 180 billing. I ran my actual usage through the 184 and 188 rates, and then assumed that my usage was much higher (39,000 kWhs per year rather than 23,000) and determined that I would have saved money under any reasonable scenario had I never switched from standard billing rates.
Why did I pay more each month despite shifting so much of our electrical usage to off-peak hours (e.g., by only washing and drying clothes and washing dishes at night and on weekends)? In the case of 184 billing, it turns out, LIPA imposes a daily “Service Charge” of $1.65 per day, regardless of how much electricity is consumed, compared to only $0.36 per day for standard 180 rate payers. Thus, 184 rate payers pay LIPA approximately $470 a year more for the Service Charge. The only way they can save money by being in the 184 rate category is if the charges for electricity more than off-set the excess Service Charge. While the electrical rates, which are designed to encourage shifting of usage to off-peak hours by charging much more for usage during peak hours (particularly during summer months) than during off-peak hours, in fact resulted in my paying $245 less for the year than I would have been billed as a standard rate payer, my total charges for the year were $225 higher under the 184 rate because of the much higher Service Charge. Despite the fact that 67% of my electrical usage was during off-peak hours, I could not off-set the huge Service Charge differential.
188 rate payers, whose usage does not qualify them for 184 billing, pay the same $0.36 per day Service Charge that standard 180 rate payers must pay. However, LIPA added a $0.10 a day meter charge to 188 rate payers’ bills. No meter charge is imposed on 184 or 180 rate payers. In addition, 188 rate payers pay more for electricity during peak summer month hours than either 180 or 184 rate payers. After the first 250 kWhs during summer months, standard 180 rate payers are charged $.0975 per kWh (regardless of the time of day); 184 rate payers are charged $0.2364 per kWh during peak hours, and 188 rate payers are charged $0.2735 a kWh for every kWh used during summer peak hours.
I performed this analysis because I needed to determine whether it made financial sense for me to stay on 184 billing after a Solar Photovoltaic system installed on the roof of my home went active on August 21st, a system large enough to cover all or most of the electrical needs of my family (I am happy to report that the first bill I received for the first 26 days was for a little more than $10, compared to around $550 for the same period the year before). When I asked LIPA if it would run my usage through the 180 and 184 billing to see which one was better for me based on my actual usage, I was told that LIPA could not do so. Putting the question to Mike Bailis of Sunation, the company that installed our Solar Photovoltaic system, Mike informed me of the huge Service Charge I had been paying compared to most ratepayers who were not shifting electrical usage to off-peak hours. I then took the time to do the analysis myself, and learned for the first time that, rather than save money by shifting so much of our usage to off-peak hours, it was costing me more than $200 a year because of differences between the Service Charge imposed on 184 ratepayers compared to standard 180 customers.
It was then that I realized for the first time that there might be thousands of rate payers, like myself, who shifted to residential time-of-use billing because they mistakenly believed they would save money, while helping LIPA by reducing consumption during peak hours over the summer. I repeatedly brought my analysis to the attention of LIPA’s COO, CFO, and Director of Regulatory, Rates and Pricing, urging them to go to the LIPA Trustees and change the 184 and 188 rate schedules so they would provide an actual benefit, instead of a penalty, for those who shifted electrical usage from peak to off-peak hours. The only response I received was a letter suggesting that my unusually low usage during non-summer months may be the problem, but that did not mean others did not benefit from the time-of-use rates.
On October 4, 2013, Claude Solnik, writing in the Long Island Business News (“LIPA Tinkering With Fluctuating Rate System”), described a five year experiment adopted by LIPA in May, 2013 (please see our previous Blog which describes this program). The five year experiment LIPA is undertaking for a limited number of customers reduces peak hours from 10 to 5, and increases peak billing rates from the 188 rate of $0.2735 per kWh to more than 40 cents a kWh. The article then states: “LIPA board member Matthew Cordaro said the point of the program is to save money for customers, while Little said that having fewer peak hours has become an industrial trend.” The reference is to John little, LIPA’s Director of Regulatory, Rates and Pricing, and to LIPA Trustee Matthew Cordaro, a Senior Vice President with LILCO when he resigned after 22 years with the company).
In the article, Mr. Solnik briefly mentioned my concern that there may be numerous rate payers who shifted to time-of-use billing in the belief they were saving money, without ever being told that they would be billed so much more than standard rate payers for daily rates, or that, as a result, they likely were spending more, despite shifting use to off-peak hours.
If LIPA wants customers to save money, instead of putting off the problems created for current residential time-of-use customers for five years, it should change those rate schedules now so that they provide an incentive – not disincentive – for customers to shift usage to off-peak hours. In fact, it is questionable whether saving its customers money is LIPA’s goal. In a report presented to the Trustees on May 23, 2013, available on LIPA’s website, the following statement is found: “In addition to creating a greater incentive for participants to reduce their energy consumption during the more expensive peak hours, the proposed higher energy charge will make the experimental rate more revenue neutral with LIPA’s standard non-time-differentiated residential rate.”
John Little’s statement in the LIBN article that “having fewer peak hours has become an industrial trend” makes it seem that this has occurred without any incentives being provided by the industry. LIPA’s purported need for time-of-use billing to be “revenue neutral” appears to be the reason that time-of-use rate payers are charged so much more for daily Service Charges and are charged ever- higher peak rates. Thus what LIPA is saying is that, while its charges for electrical usage might save time-of-use ratepayers money, LIPA must take those savings back through other charges. This most definitely is not the right approach to getting rate payers to shift usage to off-peak hours.
The Public Service Commission requires utilities to have available during peak hours sufficient electricity to meet more than anticipated peak loads. While it is my personal belief that it is in everyone’s interest to shift their usage to off-peak times, because doing so will help reduce the number of new power sources LIPA must induce to be built with promises of long term power purchase agreements, it is doubtful that this is sufficient incentive to get ratepayers to shift usage. While doing laundry and washing dishes at night and weekends has become second nature to my family after twenty years, there is no question that it would be more convenient to launder clothes or wash dishes any time we want. If LIPA wants to persuade the public to shift usage to off-peak hours, it must provide a financial incentive for the public to do so. The fewer power sources that must be constructed, the better it is for all rate payers who ultimately pay for those new sources.
The LIBN article indicates that there are approximately 12,000 residential rate payers in one of the time-of-use billing programs, a small percentage of LIPA’s one million customers. In my last Blog, I suggested that LIPA eliminate 188 time-of-use rates, along with its $0.10 per day charge for the meter (a charge not imposed on 180 or 184 ratepayers), and make the Service Charge billed 184 ratepayers the same as everyone else is charged - $0.36 per day rather than $1.65. Under such a rate schedule, I would have saved $245 compared to what I would have been billed under 180, instead of paying $225 more to LIPA. LIPA estimated in 2008 that the average residential home on Long Island uses 9,548 kWhs a year, an increase of 1,811 kWhs since 1997. (See “Long Island Power Authority Summary: Recent Trends In Residential Electrical Use.”). Projecting this increase forward, the average residential home on Long Island today should consume about 10,290 kWhs per year. Thus, the average residential ratepayer on Long Island consumes about 43.4% of the electricity that my family consumed. If I would have saved $245 under the amended 184 rate schedule I proposed, the average rate payer, whose off-peak usage equaled 67% of total usage (as was the case with my family’s usage), would be expected to save $106 a year. Multiplying that by the 12,000 time-of-use customers, LIPA would receive $1,272,000 less than it would have had these ratepayers been in the 180 standard rate category. Since all rate payers benefit from the reduced capacity LIPA must have on hand during peak hours, because their rates will go up less quickly, those ratepayers who decline to participate in time-of-use billing programs could be billed approximately $1.27 a year to cover the lost revenue from the incentives offered to time-of-use ratepayers, a rather insubstantial amount.
Next in the LIBN article, we are told that “Little said LIPA suggests customers ask for rate comparisons, including meter costs, before signing up. In most cases, the time of use plan works out for the customer, Cordaro said.”
Considering LIPA’s rejection of my express request for a rate comparison, I question whether Mr. Little is correct. Further, it is difficult to see how LIPA could do the comparison which it purportedly recommends. People on the 180 billing rate schedule (the standard rate) receive a bill that tells them their total kWhs consumed during the billing period. Without a different meter installed for time-of-use customers, how will LIPA know what percentage of the customer’s usage is during peak hours and what percentage is during off-peak? Without that knowledge, it is not possible to compare what a 180 ratepayer would have been billed had 184 or 188 rates been applied.
As for Mr. Cordaro’s assertion that, “In most cases, the time of use plan works out for the customer,” I do not believe he has any basis for his statement.
My son assisted me by creating an Excel program that permits existing 184 and 188 time-of-use LIPA customers to input their actual annual usage, and learn what they would have been billed under 180, 184, and 188 rates. Anyone interested in performing such analysis to determine if they should switch back to standard 180 rates can find this program on my website (www.LI-EnviroLaw.com) along with instructions for its use.
The beauty of the program created by my son is that, once actual kWhs for the year are known, and the percentage of total kWhs that are used during summer and non-summer months, and the percentages of peak versus off-peak usage during summer months and non-summer months are determined, the total cost of 180, 184 and 188 billing is automatically calculated (just electrical charges, Service Charges, and, for 188 customers, meter charges, are calculated because every other charge on the LIPA bill is the same for everyone, so cannot effect the bottom line as to which billing rate will be best for a customer based on actual usage).
To examine whether Mr. Cordero’s assertion that most customers benefit from time-of-use plans is correct, I ran a number of different scenarios through the program. First, I determined whether my actual usage (23,712 kWhs for the year; 47% during non-summer months and 53% during summer months; 71% off-peak during non-summer months and 63% off-peak during summer months) which resulted in my paying higher sums to LIPA whether billed under 184 or 188 when compared to 180 rates, would create savings if the same percentages were applied to lower or higher annual usage. Starting with a presumed annual consumption of 10,290 kWhs, the approximate average residential usage on Long Island in 2013, right up to 50,000 kWhs per year, the conclusion was the same: ratepayers pay less if they are in the standard 180 rate rather than 184 or 188. Finally, at 60,000 kWh per year, the 184 ratepayer would save money when compared to the 180 ratepayer: $4.00! If the average home on Long Island consumes 10,290 kWhs a year, how many homes can there possibly be that consume 60,000 kWhs a year? Whatever the answer, and I suspect it is close to zero, the conclusion does not support Mr. Cordero’s claim that “In most cases, the time of use plan works out for the customer”.
Keeping in mind that Mr. Little had suggested to me that the 184 rates might not have worked for me because my family consumed such an unusually low amount of power during non-summer months (11,145 kWhs for the months of October through May; 12,567 kWhs for the summer months of June – September), I ran a different assumption through the program. I assumed that usage was flat throughout the year such that each month, the same amount of energy is consumed. This assumption would cause 67% of usage to occur during non-summer months, rather than the 47% my family’s bills showed to be the case. Based on this assumption, everything from the average 2013 residential usage of 10,290 kWhs, up to 20,000 kWhs per year, led to the same conclusion: 180 rates produced lower bills than would 184 or 188 rates. However, at the actual usage my family had, 23,712 kWhs, 188 billing created a savings when compared to 180 rates: we would have saved ten cents ($0.10)! At 30,000 kWhs, both 184 rates and 188 rates produced a savings compared to standard 180 rates ($66 cheaper for 184; $9 for 188). That said, keep in mind that these results occur only if usage each month throughout the year is the same. It is difficult to imagine how anyone with air conditioning in the summer and, perhaps, a pool pump, could ever have flat usage each month. If the point at which there is any savings at all is at roughly 23,000 kWhs a year, it is reasonable to assume that anyone consuming that much energy (which is more than twice what the average residential home uses) has air conditioners in use during the summer months. The amount the average home uses does not produce a savings for those in the time-of-use billing category, so how many people exist that use 23,000 kWhs a year and consume the same amount of electricity each year? Whatever the answer, it provides no support for Mr. Cordero’s assertion as to the benefits of time-of-use billing plans.
The final quote from LIPA Trustee Cordero in the LIBN October 4th article is as follows: “’The bottom line should be less,’ Cordero said. ‘If not, you should get off those rates.’”
What Mr. Cordero and others at LIPA ignore is that the typical LIPA customer does not have the time to summarize a year’s worth of bills and to run them through a program like the one on my website (and how many would even be aware that a Rate Calculator exists on my website, or, for that matter, that I have a website). How are these customers to know if they are paying more, rather than less, by reason of being on a time-of-use plan?
How 12,000 LIPA customers came to switch from 180 billing to 184 or 188 is not known. It seems likely that they were not told that higher daily Service Charges or higher peak hour billing would lead to their paying more for their electricity, regardless of how much usage they could switch to off-peak hours. I have been asking numerous people if they are aware they are charged a daily Service Charge regardless of use. Most of those I have spoken with are not aware that they pay a fixed daily charge, regardless of use, even though the bill is on their bills, and none could believe that every customer is not charged the same Service Charge. LIPA’s bills merely list the Service Charge for that customer, so the bill provides no hint that others pay a different Service Charge.
If LIPA has the means of running its 12,000 customers through a program like the one on my website, which compares actual costs based on each 184 and 188 customer’s actual usage under 180, 184 and 188 billing, it should do so. The results should be sent to each time-of-use customer so each can make an informed decision whether to stay on time-of-use billing or switch back to standard flat billing rates. There is no question that LIPA and its consumers benefit when consumers shift usage to off-peak times. However, without a financial incentive to change long held habits, it is not likely that many will alter their conduct. As soon as possible, the LIPA Trustees should change the time-of-use rates, so those who shift usage to off-peak hours are rewarded with lower bills, and those who do not, will see their bills go up. The proposal set out above and in my last Blog should accomplish this. If neutral net revenue is necessary, the 180 rates should be adjusted so that those not participating in time-of-use plans will make up the difference. This should not cause 180 ratepayer bills to go up by much more than $1.00 a year.
If LIPA does not act quickly to notify existing customers in time-of-use plans whether they are in fact saving or losing money by reason of their switching from the standard 180 rate plan, or, at least, does not change the 184 and 188 rates so that those shifting usage to off-peak hours will not pay more than those in the 180 standard rate plans, the Attorney General should be asked to intervene in support of LIPA’s rate payers.
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The Law Office of Frederick Eisenbud’s Blog is published solely for friends and clients of the Firm and members of the community with an interest in staying current with regard to environmental issues, pertinent laws and regulations, and case law developments. The contents of this Blog should in no way be relied upon or construed as legal advice. For specific information on recent developments or particular factual situations, the opinion of legal counsel should be sought. These materials may be considered ATTORNEY ADVERTISING in some jurisdictions.