Solar Economics
Press release: For immediate release
Fishers Island Electric Corporation
Solar Economics
By Tom Siebens, Director
September 28, 2023
Context
Fishers Island Electric Corporation (“FIEC”)* has recently made a filing with the New York Public Service Commission (the “PSC”) as required to allow FIEC to interconnect with the island’s electricity distribution network a rooftop solar facility proposed by the Fishers Island Community Center (“FICC”) and another solar facility already built by Mr. Brad Burnham.
As part of that filing and in compliance with New York law and PSC policies, FIEC has proposed special tariff terms that will allow interconnection of both facilities with the island’s electricity network without awaiting the new electric rate structure that needs to be developed for FIEC to remain economically viable.
At present, FIEC’s revenues from sales of electricity do not cover its fixed costs for operating and maintaining the island’s electrical infrastructure. All revenues are applied to ongoing operations. FIEC does not pay dividends to shareholders.
Under its current rate structure, FIEC earns some of its revenue from a set minimum charge on each customer designed to cover administrative costs associated with metering, billing and basic customer service. Most of FIEC’s revenue comes from sales of electricity at regulated rates which are intended to cover its fixed costs to maintain the distribution network as well as its variable costs, primarily to purchase power as needed to meet demand.
Accommodating more solar facilities would reduce sales of electricity and further erode FIEC’s revenues. Revenue erosion with no replacement revenues would make it very challenging for FIEC to continue its mission for the community: providing reliable electric service to all customers.
The filing with the PSC accommodates the two solar facilities while FIEC develops a more sustainable rate structure.
Proposed Rate Accommodation
The filing provides that a customer with a residential-sized facility, like Mr. Burnham’s, will pay only for power drawn from the FIEC’s electric network. Under its current rate structure, FIEC will have no way to make up the shortfall in revenues needed to cover the fixed costs of operating and maintaining the island’s network. This adverse result would be magnified if more residential solar facilities were interconnected.
For FICC’s commercial scale facility, the filing proposes a tariff that will value, at FIEC’s applicable rates, the total network and solar power used by FICC and then deduct, as a credit to FICC, the solar power it uses, valued at FIEC’s cost to otherwise buy that amount of power from Groton. This “avoided cost” formula has been used elsewhere in New York, is economically neutral for FIEC and is relatively easy to implement. FICC would still be paying its proportionate share of the fixed costs for the network.
Interim Limit on Solar Interconnections
The filing with the PSC will allow the interconnection of rooftop solar facilities with a combined generating capacity of up to 30 kW on terms that will accommodate both Mr. Burnham’s and FICC’s facilities. The limit is double what FIEC is obligated to interconnect under New York law.
Some have assumed that the proposed limit is permanent, preventing future development of solar on Fishers Island. That is not the case. The limit could be raised. For reasons explained below, this should be considered only after FIEC’s rate structure has been changed to ensure that its revenues always cover the fixed costs for operating and maintaining the electricity distribution network, regardless of how much network power customers actually use.
FIEC could accommodate more solar interconnections by simply increasing its existing rates for all customers. The increase would replace shortfalls in the revenues necessary to cover its fixed costs for the network infrastructure. However, under FIEC’s current rate structure, a rate increase, in effect, would recover disproportionately more of the fixed cost of the infrastructure from customers without rooftop solar. That outcome would be inequitable because customers with interconnected solar would continue to rely on the same infrastructure for power when their solar generation is inadequate to meet their electric demands.
Economically Viable Solution
The economically fair and sustainable solution for increasing the amount of interconnected solar generation is to change FIEC’s rate structure so that the fixed costs of the electric distribution network are matched by revenues from a fixed charge each customer pays to remain connected to the network. Such a distribution charge is payable regardless of how much network power a customer consumes. As a result, the utility can afford to operate and maintain its network regardless of variations in the demands for network power. Rates for power actually consumed can be set and charged separately to cover the utility’s variable costs.
Redesigning FIEC’s rate structure will take time. FIEC’s new automated metering infrastructure (“AMI”) will be fully installed in the next few weeks and will be used to collect detailed data on power usage through next summer’s peak season. Independent utility rate consultants will use the AMI data to design a rate structure that equitably recovers FIEC’s costs using both fixed distribution charges for network access and variable rates for network power. The proposed rate structure will then be submitted to the PSC. New rates will not be implemented until the PSC completes a review and is satisfied as to their necessity and fairness.
Until rates can be redesigned, a limit on the amount of interconnected solar is necessary to avoid economically unsustainable revenue losses from lower sales of electricity and to avoid unfair cross-subsidies for solar paid by non-solar customers. Meantime, the limitation will nonetheless specifically accommodate the first two rooftop solar facilities seeking interconnection with the island’s electricity network.
* Fishers Island Electric Corporation is a New York corporation, regulated by the New York State Public Service Commission. It is managed and 51% owned by Fishers Island Utility Company, Inc. and 49% owned by Fishers Island Development Corporation.