Thriving in the world of utility giants

In these days of skyrocketing energy prices, owning an electric company is a good way to keep costs under control.

Just ask some folks in Burrillville, where the Pascoag Utility District, owned by its customers in Pascoag, serves that village and part of neighboring Harrisville with electricity as well as water service in Pascoag.
They are paying a little over 7 cents per kilowatt-hour (kWh) for electricity. By contrast, National Grid, which serves the rest of Rhode Island except for Block Island, recently won a rate increase from the Public Utilities Commission, upping its charge for the electricity to light lights, power air conditioner, and supply the juice for the televisions, radios, computers and myriad other necessities of the plugged-in society of the 21st Century, to 12.4 cents per kWh.
That means the average monthly electricity bill for the typical Rhode Island household — once distribution rates, taxes and a list of other confusing charges are added up — is about $93 a month, while Pascoag Utility customers pay just $71. So more than $260 a year stays in the Pascoag family’s budget for food, gasoline, clothing and all the other things whose prices are also increasing inexorably. Customers of the even tinier Block Island Power Co., which generates electricity using expensive diesel power, pay — this is not a typographical error — $330 a month for the typical 500 kWh.
How does this mini-utility district (just 5,000 households) manage to obtain and distribute electricity so much cheaper than the international energy conglomerate that serves the rest of the state’s 240,000 electricity-using households?
“We’re the littlest guy in the world with a stone and a slingshot,” says General Manager Ted Garille. But he says Pascoag bargains hard when it signs contracts to buy electricity.
“When we put out a request for proposals and get prices back, that isn’t the end of the story, it is the beginning,” Garille says, “we negotiate from there.
“It’s a wonder they don’t throw me out of their office, some of these big guys,” Garille adds with a chuckle when recalling previous bargaining sessions.
Pascoag has been able to survive and thrive in a time when the energy business is dominated by huge mega-corporations, Garille asserts, because, “we went with the concept of having the lowest rates possible and the highest level of customer service possible. That is more than an inscription on a piece of paper. It is truly our mantra up here. It is how we do business.”
As an example of the customer service Pascoag provides, Garille noted, “our typical response time to a trouble call is between 10 and 15 minutes.” He notes that almost all of the employees live in Pascoag and Harrisville or nearby, so are available quickly in an emergency.
The community utility was created back in 1887 as the Pascoag Fire District, and in 2001 General Assembly passed legislation allowing the electricity and water providers to split from the fire service and form a quasi-municipal, not for profit corporation.
The district holds regular meetings where Pascoag residents and property owners vote to, among other things, elect a seven-member board of commissioners that sets policy and hires administrators.
“The people we are serving are literally the owners,” Garille said. “There are no shareholders, there are no dividends to be paid.”
That not-for-profit, quasi-municipal status gives Pascoag numerous advantages. A principal one is that it allows the utility to purchase cheap hydroelectric power from the New York Power Authority (NYPA), something that is not available to National Grid. When NYPA recently tried to cut back the amount of power it sold outside of New York, many of its customers had to cut the amount of power they purchased in half, but Garille said Pascoag managed to purchase a bit more than it had been from the generator in Messina, New York, on the St. Lawrence River and the same amount that it had been from Niagara Falls.
Tom Kogut, spokesman for the RI Public Utilities Commisison (PUC) explained that because those generating facilities were developed using tax dollars, NYPA is directed to sell to bordering states. Because a “water border” exists between New York’s Fisher’s Island Sound and Rhode Island’s Block Island Sound, Rhode Island qualifies as a border state.
The low-cost hydroelectric power comprises at least 20 percent and sometimes as much of a third of what Pascoag buys.
Another 25 percent or so comes from a 40-year contract Pascoag has to buy electricity from the Seabrook nuclear plant in New Hampshire. The utility has been a participant in the Seabrook facility since 1986 and its contract runs until 2026.
For the rest of its load, Pascoag puts out requests for proposals to energy providers, most of which generate power using fossil fuels like oil, natural gas or coal.
By comparison, National Grid gets just 3.2 percent of its power from hydroelectric, according to David Graves, the company’s spokesman, while 33 percent comes from burning natural gas, 28 percent nuclear, and lesser amounts of coal, oil and diesel.
Those built-in advantages Pascoag has as a non-profit, quasi-municipal agency are just one reason that Graves says that comparing National Grid with Pascoag is “apples and oranges.” Garille agrees, using the same words in a separate interview.
“Pascoag serves 5,000 customers in a highly concentrated geographic area,” Graves told The Times. “They have limited equipment to maintain in terms of poles, transformers, miles of wire, that type of thing. They also don’t pay municipal taxes. They pay something in lieu of taxes, but National Grid pays tens of millions of dollars in property taxes to cities and towns and to the state as well.” In 2006, the last year for which figures are available, Graves said National Grid paid $20 million in property taxes to Rhode Island cities and towns.
“We also have a renewable surcharge that we pay of about eight-tenths of a cent per kWh,” to acquire a portion of the energy supply from renewable resources, he said. “We also support an entire infrastructure throughout the entire state. We’ve got about 5,100 miles of overhead line, over a thousand miles of underground cables, 115 substations.”
Despite the criticism it has taken lately for sharp rate hikes cause by increases in the price of natural gas and oil, Graves said National Grid’s “standard offer” to household customers “served the people quite well for a long period of time,” Graves said. “It is only in the last few years that we have seen some spikes in the cost of the commodity.
“Up until August, 2004,” he added, “customers paid less than six-tenths of a cent per kWh. It is only in the last four years, as the price of natural gas and oil have run up, have the cost of a kWh increased as well.”
Garille warns that the cheap ride may not last forever.
One of its contracts with a fossil fuel provider, Dominion Power of Virginia, expires in 2010. “Am I going to be able to go out to the market and get another 7.6 per kWh contract? I don’t know the answer to that.
“I can tell you that when I look at the daily spot market prices, it’s 10 cents, it’s 12 cents, it’s 14 cents, so it’s moving around all the time,” Garille said.
Recently, he suggested, “there has been a reluctance on the generators’ part to give you a benefit” for multi-year contracts. “We have seen a complete reversal of that, whereby generators have refused to enter into long-term contracts or have quoted a higher price out three or four years.”
So that means power in Pascoag could become more expensive in the coming years?
“Absolutely,” Garille answers, adding quickly, “I hope not.”