NEWS
NYS Public Service Commission Approves Village Electric Rates
New Rates Fund Power Plant #2 As It Meets Operation Schedule This Week
Support Increased Utility Operating Costs and Stabilize Long-term Rates
Freeport, New York, March 29, 2004 - The NYS Public Service Commission has approved an electric rate increase of 18.2%, effective April 1, 2004. The NYS Public Service Commission also approved the Village’s request to apply approximately $2 million of the settlement payment from NYPA to offset the full impact of the rate increase in the first year. With the NYPA monies applied, the net impact to the monthly bill is projected to be approximately 10% in the first year of the rate increase. The Utility will rebate this money as a line item credit, which will appear on your monthly bill. The credit will apply for approximately one year depending on electric usage in that year.
The Utility will initiate a second method to further minimize the full effect of the approved rate increase in future years. Starting in May 1, 2005, and for all succeeding years, the Utility will return profits earned from the sale of electricity and capacity to entities other than Freeport Electric customers. These sales are possible as a result of the completion of the new power generation project at Power Plant #2. This rebate will also appear as a line item credit on your monthly bill. The full benefit of this plan is difficult to project because it is dependent on the wholesale energy market, weather conditions and the price of natural gas. This rate adjustment strategy is an extension of the current Utility practice, which applies LIPA capacity payments to pay down the debt on the new PP2 unit. The sale of energy should help minimize the cost of energy and keep Village rates competitive with other utilities.
This rate increase, initiated by Village one year ago in April 2003, is driven by several factors, primarily funding the new Power Plant 2 generation project which began commercial operations - on schedule - on April 1. The rate increase also supports the rising routine operating costs of the Utility.
The Utility carefully managed the construction and startup testing of the Power Plant 2 combustion turbine project to meet the April 1 schedule for commercial operations. Commercial operations will allow the facility to generate electricity at a competitive cost in the market, and also allow the facility to generate revenues for the Utility and its ratepayers. The Village was required to begin payments on the $51 million project Bond Anticipation Notes in January 2004, with a payment of $1 million dollars.
“The Utility and its contractors under the aegis of our general contractor [GFS] worked closely together to meet the April 1 schedule for several reasons,” explained Mr. Hubert Bianco, Superintendent of Electric Utilities. “We needed to ensure that the project operates before our peak summer season, and we needed capacity to make up for the old Power Plant 2 diesels which the NYSDEC ordered shut this January.” Mr. Bianco elaborated, “The need for our independent supply of electricity became evident again on February 26th when the Village’s supply from NYPA and out of Village sources was interrupted by a malfunction at the LIPA/Village interchange. While power was restored in just over an hour, protecting public health and safety necessitated activating the old Power Plant 2 diesels for less than an hour. It’s a comfort to know that the new generation facility is now operational, providing 44 MW of capacity, a net increase of 27 MWs compared to the old Power Plant 2 diesels.”
“As we stated during the PSC proceedings on the rate increase, the project development costs for the new Power Plant 2 facility are above and beyond current operational maintenance of existing facilities,” added Bianco. “Therefore the old rate structure couldn’t absorb the development costs which then had to be built into the rate structure. The estimated cost to complete the new combustion turbine project is $60,000,000.”
In addition, the cost associated with the new generation unit and significant regulatory changes over the past several years have added to the operational expenses of the Utility. The 1999 implementation of the New York Independent System Operator (NYISO) resulted in increased costs due to higher energy purchase costs. Adding to the financial demands is deregulation, which was originally intended by federal initiatives to increase competition and reduce energy costs. In fact, deregulation has resulted in significant increases in wholesale energy prices. Wholesale energy market prices have increased the cost of electricity purchased by the Village by 30% since 1999.
A main source of energy purchased by the Village is hydroelectric power supplied by the New York Power Authority (NYPA). NYPA itself has approved a 40 % rate increase phased in over three years. The first year of the NYPA increase took effect May 1, 2003. Phase one of the NYPA rate increase has been folded into the Village’s bills as a passed-through expense beginning in the second quarter of 2003. The Village’s contract with NYPA was also extended as part of a global settlement, which included the rate increase, with all Municipal Utilities in the State, and now expires in 2025. The future terms, costs and availability of this energy are not known at this time. Therefore, the Village seeks to establish a rate structure now to create better revenue flow and stabilize long term rates. LIPA and other utilities have also experienced significant increases in operating costs associated with rising fuel costs and the price of electricity purchased from the market.
“Freeport Electric is proud of its century-long history of providing the most reliable and cost-effective electric service possible to its residents and business,” stated Mr. Bianco. “We are trying everything we can to hold rates down. We have tried to identify innovative ways to reduce our independent system operator costs, our energy costs, and we have aggressively negotiated contracts to get reduced costs for additional capacity.”
“The municipal electric system, in providing this cost effective and reliable power has played a very significant role in the economic growth and stability of the Village,” added Mr. Bianco. “Low cost electricity is a strong asset for businesses locating in our community and stable electric rates are critical components of the continued health of the Village economy.”
The Utility was last granted a rate increase of 7.1% in February 2002, under the terms of a negotiated settlement answering the 2001 filing. That increase addressed immediate financial requirements of the Utility, which had developed over the six years since the preceding filing in 1995. The rate petition prior to that was filed in 1986.
###
#
##