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1. What is electric deregulation?

Electric deregulation is the removal of governmental regulations from the industry to allow energy prices to fluctuate with market conditions. For deregulation purposes, the electric utility industry can be divided into three parts - generation, transmission and distribution.

Generation, or the manufacture of electricity, has been deregulated and is the only portion of the industry to be deregulated at this time. Transmission, or the moving of electricity from where it is made to where it is distributed, has been re-regulated. Distribution of electricity to the customer remains regulated (unchanged).

2. What is the state of deregulation in New York?

In mid-November 1999, the New York State electric utility marketplace was deregulated. Deregulation was supposed to bring lower costs to the electric utility industry and its customers. For the majority of the customers located in New York, including Freeport Electric customers, so far we have experienced the opposite effect. We have seen the cost of electric on the wholesale market increase steadily over the past 14 months. Currently our energy costs are up 16.5% over 1999. this is not unique to Freeport, but is being felt all over the state. As a comparison, customers in New York City saw their costs go up as much as 50% this past summer. Freeport is fortunate because it has its own generation. Freeport runs its generation when market prices are higher than generation costs. Using this approach, Freeport Electric saved its customers approximately $600,000 in the year 2000.

3. Who monitors energy prices in this new market?

As a result of deregulation, a quasi-governmental agency was created for deregulation, the New York Independent System Operator (NYISO). This organization is responsible for creating a free marketplace for electricity sales and an unbiased operating system for moving electricity from where it is made to where it is distributed. These are two essential elements to prevent market participants from taking advantage of the marketplace.

4. We hear a lot of discussion about deregulation not working in California and other western states. Why isn't it working?

Everyone believed that deregulating the electric industry would create a competitive marketplace and result in lower electric prices. However, in order to have effective competition you need an adequate product supply (electrical generating units), a means to get the product to market (transmission lines), and a customer base.

Unfortunately, the electricity industry only has one of the three elements that make for effective competition. In many parts of the country, including California and New York, there is not enough generation capacity to meet existing electrical demands. In addition, in many parts of the country there are limited transmission lines to carry energy to other places. This means that even when the energy is available it cannot be delivered to various parts of the country. For example, there are only two transmission lines connecting Long Island to the rest of New York State. These lines have a capacity of approximately 1,200 megawatts. Long Island had a 4,800 megawatt peak load in 1999. Due to limited transmission capacity, Long Island has to use generation located on Long Island.

Considering the generation and transmission problems in most parts of the country, it is apparent that deregulation will only result in increased prices for many years to come.

5. What effect has deregulation had on Freeport Electric customers?

Deregulation of the electric utility industry and its reorganization has not progressed easily or inexpensively in New York, or any other state. Fortunately, the Freeport Electric territory is somewhat insulated due to a long-term hydropower supply contract and local diesel generation. The New York Independent System Operator, the essential, quasi–governmental agency, has added a level of cost and bureaucracy to the electric utility marketplace that did not exist before deregulation. The NYISO's year 2000 operating budget was $75.3 million and was projected to be $105.5 million in 2001. Freeport Electric customers have been paying their share of these costs through the fuel cost adjustment portion of their bill since November 1999. This, coupled with the higher cost of fuel, has caused the Freeport Electric customer's average bill to increase by 16% over prior year's costs.

6. Has Freeport Electric raised its electric rates?

No, Freeport Electric has not raised its rates. Our last rate change occurred over 5 years ago.

7. If my rate has not increased, then why is my electric bill increasing?

The amount Freeport Electric is allowed to charge for your electricity is determined by a lengthy and complicated rate case that is presented to the New York State Department of Public Service (PSC) for approval. The electric rate is comprised of the basic service charge, demand charge, energy charge, and fuel cost adjustment charge. For a full detailed explanation, see When Bill Increases While Rate Remains the Same.

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1. What is the Fuel Adjustment?

Fuel Adjustment Clause or FAC is the method in which Freeport Electric accounts for fluctuations in the cost of energy without having to change our base rates. The term FAC is a little misleading because many factors other than fuel are considered when calculating the value each month. Many utilities use the term purchased power adjustment clause or PPAC because it addresses the multitude of cost associated with producing the electricity and getting it delivered to our location. They are pretty much interchangeable, but do not reflect the cost of gasoline in we put in our trucks. Even though gasoline prices have come down, the overall price of natural gas and hydro‐electric has increased.

2. How long has Freeport had the FAC on our bills?

The FAC line has been on all Freeport Electric bills since the early 1970’s.

3. How is the FAC rate calculated?

The FAC is calculated the beginning of each month, and must be submitted to the Department of Public Service (DPS) for approval 3 business days before it can be billed. Without DPS approval, we cannot send out bills. It is calculated every month based on the actual costs from the prior month and is spread out based on the anticipated kWh sales for the current month. For example: to calculate the August FAC we would take our total energy expenses for the month of July and divide by what we think our sales will be for August and come up with a rate to charge our customers. If the weather or some other factor causes our sales to increase or decrease we will over or under collect and have to make an adjustment the following month.

4. Does every utility calculate the FAC the same way?

Yes and No, we all use the same basic calculation and most New York utilities use a formula approved by DPS. Some do it annually, others do quarterly. Freeport calculates ours monthly, this is the most transparent and means the charges most accurately reflect the actual cost for the actual period. There is very little chance of over or under collecting. It does however lead to the wide fluctuations in monthly charges. We often hear about other Utilities over charging their customers. This is often the result of not recalculating the FAC on a regular basis

5. How is the FAC applied?

The FAC is applied as a rate/kWh. Every customer pays the same rate per kWh, the total amount of the charge on your bill depends on how much consumption you have during the billing period. For example: If the FAC for a particular month is 1 ½ cents per kWh a customer using 500kWh would be charged $7.50 for the period. While a customer using 1500 kWh would be charged $22.50.

6. Does Freeport profit from the FAC?

No, the FAC reflects the actual cost of energy. These costs are passed on directly to the customer, and Freeport does not profit from them. Alternatively, when costs are very low customers will see a credit on their bills.

7. But I thought we get most of our power from Niagara Falls?

This is true. About 85% of our power comes from Niagara Falls and is purchased at a fixed rate. However, the cost associated with getting that energy to us fluctuates with demand and the paths available, the term congestion charges is used to account for this. To get power from Niagara Falls to Freeport we use lines owned by LIPA, CON ED, NYPA, NYSEG, Niagara Mohawk, Orange and Rockland, Central Hudson and many others. Each one gets paid based on how much power is transferred.

8. What are congestion charges?

Just like there are only 2 bridges connecting Long Island to the rest of the state there are only a few cables bringing in electricity on hot humid days these cables are operating at peak capacity and demand is high. Along with higher demand comes higher costs. If a cable goes out of service costs can skyrocket and we either have to pay the increased rates or we can’t get the power we need to keep the lights on.

9. What about the new power plant?

The new power plant is now almost 20 years old. Freeport owns one of the 2 generators at the Buffalo Ave. location. The other is owned by an independent company that leases the land from the Village of Freeport and sells the power on the open market, they help Freeport save money by sharing many of the common expenses. Our generator continues to save our customers a tremendous amount of money. Any profits from the sale of energy are used to reduce the monthly FAC.

10. Freeport’s rates are higher than LIPA’s!

This is just not true, every month we compare the rates of several local utilities. Freeport is always between 30% and 40% less than LIPA. Even with our high September FAC we were still 30% less. The comparison is posted monthly on our website: Bill Comparison page.

11. Some Key Points:

Freeport Electric has a team of people dedicated to keeping our energy costs as low as possible. We recognize that the FAC value can fluctuate widely from month to month. We are working with the Department of Public Service to find a solution to stabilize this, but for now we are mandated to use the formula prescribed by our tariff.

It is important to keep in mind that even during months with a higher than average FAC our bills are still 30% lower than LIPA.

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1. What are "rolling blackouts"?

Rolling blackouts are temporary interruption of electrical service. NYISO will implement rolling blackout only if and when New York's electrical system is unable to meet heavy peak demands because of an extreme deficiency in power supply. By temporarily disconnecting electrical circuits on a rotating basis, a majority of customers have power, inconvenience is minimized and a more serious widespread problem is averted. Each rotation is of a specific duration, usually no longer than a few hours, but it could take longer in some locations due to the manual nature of the operation.

2. What is "load shedding"?

Load shedding is a purposeful, immediate response in electric service by the NYISO to a block of customers because demand for electricity has outstripped supply. Load shedding has never occurred in New York.

3. What is "voltage reduction"?

If, after the other steps to manage capacity have been taken, the demand for electricity continues to exceed generating capacity, the electric utility can reduce voltage by 5%. This reduction essentially stretches out the available supply of electricity to all customers. It is rarely noticed by customers but may affect sensitive electronic equipment.

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1. What is a voltage reduction?

A voltage reduction reduces power demand system wide. The percent of the voltage reduction determines the size of the reduction. For example, a 5% voltage reduction results in a 2% reduction in power demand.

2. Why do utilities do this?

During peak load periods when electric energy may be in short supply, a voltage reduction reduces customer demand and allows a utility to stretch out its supply. This is one of a series of steps that allows utilities to maintain uninterrupted service to customers.

3. Am I going to see a voltage reduction this summer?

It is possible that there will be voltage reduction this summer. Hot weather, combined with limited availability of generating capacity, could mean utilities need to take these measures to meet demand for power and to continue to provide uninterrupted service to customers.

4. Will there be any advanced notification of voltage reductions?

When feasible, utilities will alert customers through broadcast media when a potential for voltage reductions exists. In extreme circumstances, however, there may not be time for notice.

5. What effect will this have on my service?

Generally, a voltage reduction will not have an appreciable effect on your service. Standard household appliances and electrical equipment are manufactured to tolerate a 10% plus/minus change in voltage. A 5% voltage reduction is within that tolerance. In fact, utilities sometimes perform voltage reduction tests with little notice to customers.

Customers with concerns about their electric service or about sensitive electronic equipment should check equipment manuals or their equipment suppliers about potential precautionary measures to protect equipment or data. Computer users should save files and data frequently.

6. What if I depend on electricity for life support or other health-related equipment?

People who use electrically powered life support systems should always have a backup.

7. How long will the voltage reduction last?

The reduction will last until the New York Independent System Operator (NYISO) or the Long Island Power Authority (LIPA) can achieve a balance between capacity and demand. If voltage reductions are necessary, they will typically be during the period of 12 p.m. to 8 p.m., or shorter.

8. Why do utilities ask customers to avoid using power?

The appeal is made to reduce customer demand, to balance generating capacity and demand on Long Island and to help maintain uninterrupted power for customers.

Heavy electricity use, hot weather, limited available generating capacity, and limited transmission capacity have prompted utilities to issue appeal to customers.

9. How much difference can turning off lights and appliances really make?

A big difference - probably several hundred megawatts statewide. (A megawatt is 1 million watts and serves roughly 300 single homes.)

10. How many times will you have to do this?

Public appeals are one of several steps utilities take in times of excess demand to safeguard the electric system. During periods of hot weather and when available generating capacity is limited, appeals may be issued whenever heavy electricity use reduces power reserves to unacceptably low levels. Often an appeal is all that is needed to reduce demand.

11. What will happen if not enough people pay attention to the appeal to reduce consumption?

Utilities would be forced to reduce voltage, or possibly black out customers in certain areas. Depending on where and what the problem is would determine the extent of the blackouts and who would be blacked out. California is experiencing rolling blackouts due to the lack of available capacity and energy. The electric is turned off to specific areas for a designated time each day, then the lights are turned back on and another area is blacked out.