A kick in the gas – Rhode Island Energy rate increase – Richard Asinof

by Richard Asinof ConvergenceRI, contributing writer

R.I. Attorney General, Peter Neronha, and his top civil attorneys, Miriam Weizenbaum, talk about plans to change the regulatory structure in order to phase out the use of fossil fuels in the generation of electricity

The news that Rhode Island Energy, the newly formed utility company formed as a result of PPL buying National Grid, was planning to raise its rates in response to the increasing costs of energy supplies, was greeted with outcries from many of its Rhode Island customers.

In a letter to its customers dated July 21, Rhode Island Energy wrote: “Beginning Oct. 1, the default rate you pay for electricity supply will increase. We’re reaching out now to let you know about the change, give you time to prepare, and share some steps you can take to lessen the impact.”

The letter continued: “The default rate [also known as Last Resort Service] is increasing. If you use 500 kWh of electricity a month [this is about average], your bill will go up by about $52.”

Rhode Island Energy explained the rate increase on what’s known as the supply side of the equation as follows: “At Rhode Island Energy, we deliver your electricity, but we don’t own the power plants where it’s generated. You can shop for an electricity supplier that’s right for you. If you don’t shop for electricity supply, we buy it for you and pass along the cost at no profit to us.”

The letter continued: “We update the default rate twice a year based upon competitive energy auctions. We just completed our auctions and the rate changing on October 1 represents the lowest rate available.”

The announcement of the rate increases for the electricity bills for Rhode Islanders took many customers by surprise. To garner a better understanding of what had happened, ConvergenceRI spoke with R.I. Attorney General Peter Neronha and Miriam Weizenbaum, chief of the Civil Division at the Attorney General’s office.

The rate increases had occurred on the supply side of the equation, which functions as a direct pass-through charge to consumers, based on what it costs to buy electricity on the energy markets. No profit can be made from the supply side costs.

On the delivery side, Neronha and Weizenbaum described what was a more complex process now underway, reflecting efforts focused the restructuring of electricity rates at the Public Utilities Commission, under a new “de-gasification” docket, which is looking to develop a regulatory process to replace fossil fuels and to speed compliance with the state’s Act On Climate law.

The new docket, explained Weizenbaum, seeks to answer the question: “How do we get off fossil fuel? The PUC has opened what is called a de-gasification docket. Part of the purpose of that docket is to look at how we are using [natural] gas now, and how do we get off of it, in a way that is fair to ratepayers.”

Weizenbaum continued: “And, to the extent to which we can rely on, for example, local solar, or even wind, we become less dependent on those larger energy markets.”

For all those looking for a guide for the perplexed concerning electric rates, here is the ConvergenceRI inteview with R.I. Attorney General Peter Neronha [first image] and Chief of the Civil Division Miriam Weizenbaum second image].

ConvergenceeRI: What is the status of your intervention with the PUC regarding the recent proposed rate hikes by Rhode Island Energy?
WEIZENBAUM: We filed to intervene so we are going to participate in what’s known as the docket, I am sure you are familiar with that.

We expect there to be an evidentiary hearing in mid-September and that [the PUC] will issue a decision by Oct. 1. We will be requesting information and reviewing any information as interveners.

ConvergenceRI: Has Rhode Island Energy been forthcoming? Have you requested information from them? And, have you gotten it?
WEIZENBAUM: Yes. It’s early, so, they have not yet had to produce information. We’ll see how it goes. I will say that with this docket, the parameters are fairly well established, so I don’t anticipate a lot of difficulty. We may have challenges in the future on other dockets, but I am hoping we will be getting what we need.

ConvergenceRI: I admit that I was a little confused by Rhode Island Energy filing for this rate increase, because I felt as if the agreement that you reached for the sale of National Grid precluded this kind of dramatic rate increase for a few years.
NERONHA: Why don’t I start there and then Miriam can try to fill in.

Part of this, Richard, is an understanding of what comprises our rates. There are a number of buckets. And Miriam can probably fill in some of the smaller ones. But there are two major buckets: one is for the delivery of energy, and one is for the supply of energy. Supply is buying energy on the marketplace, and that has a cost. Rhode Island doesn’t generate its own energy.

Rhode Island Energy never produces its own energy. They have got to go out and buy it so that they can deliver it to Rhode Island homes.

There is the cost of buying it, and then there is the cost of delivering it, and all that that entails.

The way that the system is set up in terms of how they make money is, on that supply side, they can’t make money.

If they go out on the marketplace, the futures market, and buy energy for this coming winter, if they spend $100, they pass that $100 [onto] the ratepayers.

They can’t charge $101, they can’t charge $110; they can’t charge $100.01.

They have got to take the entire cost and pass it on. That’s by law. It is required by law that they have a plan; [approved] by the PUC [Public Utilities Commission], before they go do that.

They have to have a plan as to what they are going to buy, and where they are going to buy it. They follow that plan, go buy it, and then pass that cost on to Rhode Island ratepayers.

That is the cost increase that we’ve been reading about in recent weeks, over the last month or so.

What we did, over the last year, we fought over [the sale of National Grid] for over a year, both before the DPUC and later, in front of Judge Stern, [the fight] was on the delivery side. And, on the delivery side, that’s where formerly National Grid, now Rhode Island Energy, can make profits. They can make up to 9.2 percent of profit on that side. They can’t make more profit than that.

On that side, they cannot increase their rates for three years [as a result of the sale agreement]. And, more than that, that is why we were fighting so hard on that delivery side, to get the direct rebate relief for Rhode Islanders, to forgive outstanding accounts, to get direct rate relief back, that was around $100 million.

And, then, also to make sure that they couldn’t pass off transition costs [from the sale] to Rhode Island ratepayers, which was about another $100 million.

So, when we talked about $200 million in value coming back to Rhode Islanders, all of that was on the delivery side.

So, no rate increases on the electric bills on the delivery side for three years, and then there is $200 million in value that comes back [to ratepayers].

So, that is a long way of saying, had we not fought for that, things would be even worse.

You can’t fight on the supply side, unless they are doing something deceptive about what they are passing on to Rhode Islanders. Or, they didn’t follow their own plan. And we are going to do due diligence about that.

ConvergenceRI: Your legal battle took place on the delivery side?
NERONHA: Yes, where you have to fight is on the delivery side. And that’s where we fought. And, frankly, that’s where the DPUC [the R.I. Division of Public Utilities and Carriers] didn’t fight. Not only did the hearing officer [for the DPUC] issue a decision which left all of that money on the table.

All of that $200 million in value that presumably the hearing officer could have achieved, but didn’t. And, worse than that, Richard, worse than that, the DPUC filed a brief in Superior Court in front of Judge Stern, siding with National Grid. In other words, claiming that the Attorney General didn’t have the right to fight for ratepayer relief. To me, if we are talking about the whole picture, that is something worth talking about.

ConvergenceRI: Miriam, did you wan to add to that?
WEIZENBAUM: No, that captures it. A couple of things I might add is that Rhode Islanders do not now have to pay those transaction costs. What that is, per consumer, you can do rough calculations that is not too accurate, for the rate relief, that’s about $64-$65 per customer for electric, and about the same for gas. So each customer is being saved in that first year, when those rebates go out, they are being save that amount on an annual bill. That is not insignificant.

NERONHA: Remember, that just a portion of the $200 million in value that we are bringing back. That doesn’t quantify the $52 million in outstanding account forgiveness that we would have had to pay, collectively, and it doesn’t take into account the $100 million in transition costs that they were going to be able to recover on the ratepayer side.

But this is why it is so important for the DPUC, and the hearing officer, and the agency itself, to fight for ratepayers, because you’ve got to fight on the delivery side, because you can’t fight on the supply side.

So, iif you go back and look at our Powerpoint again. I know you followed it carefully. Look at what the hearing officer said about not taking into account the effect on ratepayers in determining whether the transaction was in the public interest.

He said it didn’t matter. Of course, it mattered – because every dollar counts. And, on the supply side, in an environment where energy is going up for a lot of international reasons, and maybe some profit taking nationally, you are not able to fight over there because of the way the system is structured. That’s why we need a DPUC, in my opinion, that needs to do a much better work on behalf of the people of the state of Rhode Island.

ConvergenceRI: So, what is happening on the supply side?
NERONHA: What is happening on the supply side is Rhode Island Energy is passing along to customers this fall the cost of the energy they purchased on the futures market to go through the winter, when the costs were really high.

You asked: What are we doing on the docket? What we are going to do on that docket is to make sure that: a) they are not profiting, and b) that they follow the plan that they filed with the PUC, and c) for whatever reason, there wasn’t a better deal they could have gotten out there for Rhode Islanders.

Look, I am not going to say, I anticipate great results from that. But we are going to do our due diligence. And, one of the things that we look at there is: Are we paying a lot more for supply than say Massachusetts or Connecticut? And, if we find that we are, then we are going to want answers.

If we find that they are paying about the same, then we know, whether we like it or not, that Rhode Island Energy bought energy on the futures market at cost. That is just what it is. That’s why Miriam may have described it as a fairly narrow focus. It is to determine whether or not they followed the plan, which was pre-approved by the PUC. It is really about doing due diligence. Because, we have seen in the past, that there have been some issues where things have turned up later that weren’t the way we had wish they had been.

ConvergenceRI: Is there a way to reform the way that the PUC operates? And, the DPUC operates?
NERONHA: I’ll start, and then I’ll let Miriam jump in. I think that one of the things that we are looking at here, is whether the way rates are structured makes sense at all. And, I’ll let Miriam get in the weeds there.

For me, from where I sit, and I don’t what to criticize the DPUC Advocacy Section, because they were with us in opposing the hearing officer’s position. They couldn’t join us in the Superior Court, because they are not allowed to, by law.

But I have a broader question, particularly because the head of the DPUC, signed off on the hearing officer’s decision, which I think was demonstrably, legally wrong, it was not in the best interests of Rhode Island ratepayers. What does that say about the DPUC, the division itself? The longer-term issue is to whether we are structuring rates the right way, particularly given that we think where we get our energy from is going to change.

WEIZENBAUM: Well, I think you teed it up right. How rates are structured is only under the current system, which significantly relies upon fossil fuels, is not greatly within the control of the state.

There is federal energy regulatory commission, FERC, there is ISO New England, there are all these larger entities, that are significant in how rates are structured.

Really, the place for us to focus our energy is: Making sure that when we do have to buy on the market, that it is done in the best way possible for ratepayers. And,that is why we will be interrogating in this docket to see, as Peter said, whether it conforms to the plan

But the other [issue] is: How do we get off fossil fuel? And, the PUC has opened what is called a de-gasification docket, and part of the purpose of that docket is o look at how we are using gas now, and how do we get off of it, in a way that is fair to ratepayers. And, to the extent to which we can rely on, for example, local solar, or even wind, we are less dependent on those larger markets. That will definitely affect our costs.

The other thing, just to go down that path a little further, is [the fact that] renewables are decreasing in price. That is not true, and it is not going to be true, for fossil fuels. Gas is expensive. We know that when we buy it, we are paying for enormous profits. I think Exxon [profited] $6 billion in the first two quarters of 2022, that’s one company alone. And that’s Rhode Islanders buying from Rhode Island Energy, which is buying from the sources that it has to go to, to purchase natural gas. So, gas is expensive, obviously, it has enormous environmental consequences.

We put in a lot of our energy into the de-gasification docket, and what you will see in the agreement that we entered into with PPL, is that this office willl get $2.5 million to use to bring in experts to identify the best way for Rhode Island to de-gassify. So, it really gives us the power to able to propose changes and to partner with other entities in the state, and I will just add that I want to reference back to the Act On Climate.

That’s a mandate that’s come home to roost in 2030. The more that we can do on the front end, that is also going to save the state money, because in a few years, citizens will be able to sue the state, if agencies are not participating in whatever way they can in moving toward those mandates.

We want to, as much as we can, get everybody on board, to be moving in that direction. So that we meet those mandates and stop paying attorney’s fees to defend agencies that haven’t gotten on board.

And that was another big area of contention before the hearing officer, in the PPL//National Grid transaction: the hearing officer making a finding that the Act On Climate didn’t apply to that transaction. Judge Stern found otherwise. I think that was a big impetus behind reaching an agreement with PPL.

ConvergenceRI: Am I asking the right questions about the rate increases? Is there another angle I should be pursuing?
NERONHA: If you are asking about the rate increase, the take-away is: This is why it is really important to fight on the delivery side, for every dollar on the delivery side.

There is sort of a “disconnect” there. And, I heard that disconnect from other parts of our government during the last few weeks, where they put [electric rates] into separate boxes. They are not in separate boxes; they are inexplicably linked. If you don’t fight like hell on the delivery side, you are hurting ratepayers, because there is only so much you can do to help ratepayers on the supply side. It’s a pass-through cost. You’ve got to fight on the profit-taking side. That’s the delivery side.

WEIZENBAUM: Our North Star in the PPL/National Grid transaction was two-fold: to protect ratepayers, and to engage on the climate question. Any measure that supports renewables is going to help in each of those areas. It’s such a win-win, because the cost of renewables is going down. We don’t have to buy from Exxon or BP. We can buy more locally sourced energy. With renewables, the more local it is, the more effective, because the electrons don’t have to travel so far.

_____

Richard Asinof is the founder and editor of ConvergenceRI, an online subscription newsletter offering news and analysis at the convergence of health, science, technology and innovation in Rhode Island.

To read more stories by Richard Asinof: https://rinewstoday.com/richard-asinof/

*