The 1.5% rate increase LIPA is proposing in its 2012 budget is just a teaser at this point and will grow in magnitude before ratepayers start paying their bills next year.
For one thing, fuel cost will be greater than the utility is now projecting. Most experts are now looking at a forward market curve for natural gas that will increase the price of that commodity significantly in the short term. With the ability of LIPA to increase rates for changes in fuel costs automatically on a quarterly basis, however, the utility can wait and sock it to the customer at a later time. Thus, they have the luxury now of minimizing the effect of fuel in setting the budget for next year. The result is a smaller announced rate increase than actually will result.
Another wildcard in this is the $60 million that LIPA owes to Suffolk County. This represents the payment of arbitrage with interest on LIPA debt attributable to money borrowed to cover Suffolk County’s liability in the Shoreham over assessment settlement. When this breaks next year, LIPA will have little choice but to go back to the ratepayer.
Lastly, recent experience with storms makes it a joke that LIPA is only increasing its storm budget by $6 million. Combined with a possibility that FEMA may not reimburse LIPA for Hurricane Irene to the extent the utility estimates, this could set the stage for a full run on the customer next year in terms of rates.
LIPA has taken its lumps recently and would like to minimize negative news as much as possible until it heals. Minimizing the budget for next year along with the rate increase it calls for is not the way to do that. The utility must realistically establish its financial needs and avoid setting the customer up for a huge shock in the future.
Updated: November 10, 2011 10:18 PM
By MARK HARRINGTON NEWSDAY
The Long Island Power Authority, citing a $52 million increase in property taxes, Thursday proposed a 2012 operating budget that would hike ratepayers’ bills by 1.5 percent.
The increase would amount to an average $2.24 a month for residential customers whose electricity bills are around $150 a month.
Public hearings on the proposed $3.73 billion budget are planned for later this month, and LIPA trustees will vote on it in mid-December.
The increase comes despite an expected reduction in natural gas costs of $87 million next year compared to 2011. Fuel is the largest component of customer bills.
Other factors increasing bills: a $6 million increase in LIPA’s storm budget; a $25 million increase in renewable energy and efficiency programs; and a $24 million rise in operational expenses tied to a 3.76 percent increase in the regional consumer price index.
LIPA also is increasing staff next year, from a currently budgeted 107 to 113 people, including staffers to more closely monitor contractor costs.
It also is spending more on consultants, including $1.8 million to study 45 different proposals for new energy sources.
LIPA is challenging tax bills on many of its properties, as well as for contractor properties, including several large National Grid power plants, and other properties it owns for substations and transmission towers. Chief operating officer Michael Hervey said there was now hundreds of tax challenges filed, but said it take years for LIPA to realize big savings from the moves.
“It’s our belief utilities are getting hit with a larger portion of these taxes,” Hervey said.
LIPA is proposing a change in the way it charges customers with multiple dwellings on a single meter, a tactic aimed at addressing those who questioned their classification under commercial rates even though they were residences. LIPA would change its rules to make those with less than three dwellings in a home residential.
The rate increase won’t take effect until March, when LIPA implements a hike in the delivery charge. January and February bills will go down slightly because LIPA is reducing the power supply portion of bills to reflect in part lower fuel costs.
This year’s budget won’t include charges related to an ongoing pension dispute with National Grid that Hervey said amounted to $525 million. The future pension costs in dispute will be resolved by year’s end, he said, and it’s still unclear if, or how much, LIPA will need to pay.