Business Report

PUD Business Report 2009
New Energy Reality

Pascoag Utility District – Electric Department

Presented by:

Judith R. Allaire – November 2009

As energy consumers, we are all facing the same questions and concerns. The bar has been raised on energy pricing, and several elements, all beyond the control of Pascoag Utility District, are in place that have the potential to impact the rate in the upcoming year.

With all that in mind, however, Pascoag is pleased to announce that rates have been held in place from January 1, 2009 through December 31, 2009.

Working closely with our energy partner, Energy New England, Pascoag has worked diligently, crafting innovative power contracts that provide reliable energy at the most economical rates. By structuring our contracts so that the District has sufficient energy at all times, but that still allow Pascoag the flexibility to take only the energy it needs, PUD has avoided paying premium costs for on-peak energy. These cost-saving measures are passed along to our consumers.

In order to make Pascoag a more viable player in the energy market, we worked to obtain a credit rating. In 2008, Standard and Poor’s assigned Pascoag a credit rating of A-. This will enable Pascoag to continue to negotiate the most favorable rates on contracts on a going-forward basis. In order to position the District to obtain a beneficial rating, a number of steps had been taken, including the creation of two Restricted Fund accounts, reducing outstanding debt service, the creation of a strategic plan, and investment in capital assets. In 2009, a year that Standard and Poor’s downgraded many ratings, Pascoag maintained its favorable A- rating.

The District’s power portfolio is a diverse mixture, including hydroelectric, nuclear and fossil fuel. Power contracts are structured to give Pascoag the flexibility to take energy only as needed. We rely on our partner, Energy New England, to formulate strategies that allow Pascoag to combine with other municipal utilities, thus increasing our market presence.

As always, PUD works diligently to insure system reliability. The District has a preventative tree-trimming program in place that helps to reduce system outages. In addition, we have a program of preventative maintenance on all equipment, as well as annual testing procedures. In recent years, PUD completed a conversion to a higher, more efficient voltage and constructed a new state-of-the art substation.

By now, most people in the energy industry realize that prices will never fall to the levels we enjoyed several years ago. While there are no pressing issues on the horizon that threaten the supply and no indications that indicate a shortage will occur, prices continue at high levels, with all indicators pointing to higher prices in the future due to market forces.

Another driving force behind increased energy prices is the emergence of the Regional Transmission Organization (“RTO”), which has the authority to run the regional transmission delivery points in New England. We are already experiencing substantial increases in transmission rates, and expect that the trend will continue over the next several years as the RTO redefines transmission reliability standards.

Additionally, the impending climate and energy legislation in Washington has the potential to increase electric rates. Pascoag staff continues to have an open dialogue with our senators and congressmen to ensure that our ratepayers concerns are heard and addressed.

On the local side, growth in our own area has slowed down slightly, and now continues at about one percent. While we have no indication that large commercial customers will move to the area, residential and small commercial growth seem to be fairly consistent.

Back in 2001, the Pascoag Utility District emerged as a separate entity from the Pascoag Fire District. The new, legislatively created PUD, positioned itself to go into the newly deregulated energy market in Rhode Island. The separation from the Fire District allowed PUD management more time to concentrate on issues such as the volatile energy market, newly emerging technologies, and investigating other opportunities created under the new market system.

Pascoag is investigating the potential of purchasing energy from two municipally owned generator units – one in Ludlow and one in Taunton. Both plants are in the permitting and approval process and are not expected to be operational before 2013. Even with all that Pascoag is doing to keep electric rates as low as possible, based on the market conditions, there is every indication that energy prices will continue to rise. Therefore, all large and small consumers need to be aware of the very real issue of price increases in the future.

In an effort to reduce operating costs, Pascoag has taken several steps over the past years. The District is actively investigating the newest technology – “smart metering.” These meters allow two-way communication between the utility and customer, giving the customer more control over their energy consumption. In July 2009, Pascoag applied to the Department of Energy for a grant under the American Recovery and Reinvestment Act to fund a project that would allow smart metering to begin in its service territory. Unfortunately, Pascoag’s project was not selected for the grant, but this is still a technology that the District will continue to pursue. We are also actively working to upgrade our customer service training to strengthen cross-function abilities to develop a more diversified staff able to address overlapping duties and complex situations. And, equally as important, we are working with customers to keep outstanding receivables at low levels.

Finally, we are working with our large commercial and industrial customers, as well as with our residential customers on ways to conserve energy. Pascoag’s conservation program, recognized for its success by the Rhode Island Public Utilities Commission, offers several innovative programs that encourage, and reward, customers for saving energy. Pascoag, now an ENERGY STAR partner, offers lucrative incentives to customers who purchase ENERGY STAR compliant products such as appliances, electronics, doors, windows and heating systems. Industrial and commercial customers are offered incentives, of up to sixty percent, on energy efficient improvements. Since 2005, Pascoag has partnered with its customers to complete projects that have saved over 600,000 kilowatt-hours of electricity.

In the spring of 2009, Pascoag installed a 5 kV photovoltaic system at its business office. This system is capable of producing approximately one-tenth of the electric requirements at the business office and transportation facility.

Pascoag strives to keep its customers informed about changes that affect our mutual interests. This new report is an example of that commitment. We invite you to take a few minutes to learn more about our ongoing activities in this report, as they do have an important impact on your business operation.

If you have the need of specific information on your account, please feel free to contact the District at any time. We have the capability to produce a history of your account, including your energy use and demand, which can be a beneficial tool for your business planning. We believe that knowing more about how you use energy and how it affects your bill is critical to your business, and we are here to help you manage your energy requirements.

About our rates:

PUD’s large commercial and industrial rates, as well as its residential rates, are designed to recover the cost of the peak demand required by our customers, the cost of energy supplied, transmission costs, the cost of Pascoag’s distribution system, system maintenance, and capital improvements.

Pascoag’s industrial rate combines an energy charge and a demand charge. The energy charge is a per kilowatt-hour charge based on actual energy consumption. The demand charge records your highest demand, in any fifteen minute period, and indicates how you use energy. The best way to minimize your demand charge is to aim for a high power factor, the most efficient way to balance your energy requirements.

The demand charge is a major component of our industrial customer’s bill. The fee of $6.53 per kilowatt represents the cost to have reliable supply and distribution facilities available at all times – whether the customer demands it or not. It is very important to realize that once you hit a “peak demand,” you will continue to pay that demand for the next eleven months. Since the District is required by ISO-NE to maintain an energy supply at all times that meets its system peak,, that cost is borne by the customers who typically cause the system peak.

The Transmission charge, Transition charge and Standard Offer Service are pass-through costs of actual energy purchases as used and as charged in a competitive market environment. This is the variable component of the bill that fluctuates to reflect the cost of energy due to changeable gas and oil prices. This is where Pascoags power contracts come into play – to protect against constant price fluctuations. Pascoag tries to mitigate “roller coaster” rates – a situation where rates change from month to month. In fact, our current rates have been in place since January 1, 2009, and it appears that the rates will remain in place through 2010.

FAQ’s:

Q. How can I reduce my demand charge?

A. You can use energy efficiently. For example, if you own a manufacturing plant, don’t turn on all your major equipment at one time. By cycling on equipment, you’re not “demanding” energy at such a high level. Remember that once you hit a peak demand, you’ll be required to pay that demand for the next eleven months.

The demand charge is reflective of the effective cost for Pascoag to have at the ready your peak demand level of supply at all times, even if you never reach that peak demand again.

Q. What is the power factor on my bill?

A. The relationship between demand and energy use is called the power factor. The manufacturing plant that turned on all his equipment at one time, but then uses very little energy the rest of the day will have a poor power factor. The demand is very high compared to the overall energy use. This is the ratio of average load to peak load for a specified period. It is expressed as a percentage of potential energy available.

Pascoag, like all utilities, strives for a very efficient or high power factor because it allows the costs they must pay for peak demand (whether used or not) to be spread over a higher number of kilowatt-hours, driving down the cost per kilowatt-hour. Generally, residential use is higher in the evening hours and commercial and industrial use is higher in the daytime hours, effectively leveling out the load over the course of the day. In 2009, PUD system-wide power factor averaged 97%. A high system-wide power factor is a contributing reason that our customers enjoy competitive rates.

Q. What conservation programs are available for my business?

A. Pascoag offers a wide range of programs for your business. From rebates on your new office equipment (providing that it is ENERGY STAR compliant) to a complete lighting retrofit, or new energy efficient heating/cooling equipment, Pascoag offers rebates of up to fifty percent. If you’re planning a major addition or retrofit, please call us as soon as possible in the planning process so that we can work with you to tailor a custom made program that fits your needs.

We can also offer you a free audit that will determine what areas you can improve to increase your energy efficiency and to determine a payback period on your investment.

Q. Can I get a complete history of my energy usage?

A. Absolutely. Just call our business office between 7:30 a.m. to 3:30 p.m. and ask for Desarae Downs. She’ll be happy to help you review your electric usage and she can send you a history of your electric account. She will also be able to offer you some valuable ideas on energy conservation, too.

Q. Can you explain some of the items on my bill, such as Transition Charge, Transmission Charge and Standard Offer?

A. Transition costs are those costs tied to past energy contracts negotiated prior to deregulation. Before the deregulation legislation was enacted in 1996, utility companies contracted for energy, often long-term. These contracts were put in place to provide energy to all customers. With the onset of deregulation, utilities faced losing customer load to competition, yet were still obligated to pay for these existing contracts. These costs are still being paid by utilities, and the current law allows them to be recovered through rates.

Transmission costs are the costs incurred to get power from the generating stations, often over several hundred miles, to a distribution utility, such as Pascoag. Over the next few years, transmission costs are expected to increase due to introduction of the Regional Transmission Organization and ISO-NE’s commitment to increasing system reliability.

The Standard Offer charge on your electric bill is the portion of the bill that customers can “shop” for. Pascoag’s current Standard Offer charge is currently at $0.06338.

In summary…

Pascoag is working to hold a competitive advantage in today’s emerging energy market. Although it’s not possible to totally alleviate all of the increased energy costs, we here are PUD are working hard on you behalf to find ways to lessen the impact on rates. Weve done this in many ways:

  • By creating a Purchased Power Restricted Fund account that allows the District financial security to meet its power bills in a timely manner in periods of low cash flow, thereby eliminating late fees and penalties;
  • By the creation of a Restricted Fund dedicated to the payment of existing debt service and used to fund capital improvements, thereby reducing the need for additional debt service
  • By creating a working partnership with outside experts, such as Energy New England, to create working strategies to meet the challenges in the new energy market;
  • By building a diverse power portfolio and structuring power contracts so that in periods that market costs are low, Pascoag can purchase power, yet be protected from market costs when prices are high;
  • By working with our customers to keep the system power factor as efficient as possible; and
  • By offering innovative conservation programs to all customers so that energy consumption can be reduced through the use of energy efficient equipment.

This report represents Pascoag’s commitment to providing our commercial and industrial customers with vital information about our operations as it affects your business. We hope that it gives you some added insight as you plan for the future of your business. In order to provide you with the service you need, we ask that you inform us of any major changes to your operation that will impact your energy usage so that we can plan accordingly and continue to serve you well.

Finally, because we are a quasi-municipal utility, serving a relatively compact area, we consider your plans, opinions and requirements a large part of what drives our service. Thank you for taking the time to review this information and, we hope, come to a better understanding of our connection to your business. We look forward to working with you well into the future.

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