Toray Plastics of America in North Kingstown is the kind of business that state leaders salivate over. The company employs just shy of 600 people, pays $73 million in wages and vendor purchases, creates millions in economic impact and anchors the Quonset Business Park. But a hike in electricity distribution costs proposed by National Grid would cost the company $586,735 more a year and quash any future expansion or job creation.
“We need to bite the bullet to survive, but we’re losing competitiveness,” said Shigeru Osada, Toray’s senior vice president for engineering and maintenance.
This fall the R.I. Public Utilities Commission (PUC) will mull National Grid’s proposal to increase its rates and change the formula that sets them. For most small commercial customers the company says, monthly rates will increase 7.1 percent, with larger companies seeing increases ranging from .8 percent to 4.4 percent. The very largest industrial companies, National Grid says, will see a rate decrease of 1 percent.
Osada doesn’t buy it. National Grid’s figures do not incorporate proposed increases for other charges that Toray and many other companies pay. And the widely circulated sheet assumes that the PUC accepts National Grid’s proposals in its entirety.
“The public doesn’t know this,” he said sitting in a conference room at the plant that manufactures film with uses that range from snack food packages to holograms on credit cards to digital prints at CVS/pharmacy.
Osada estimates Toray’s bill from National Gird would rise 23 percent to $3.18 million a year if the PUC adopts the proposal. That price includes only the delivery of the electricity and not the actual energy, which Toray purchases directly from suppliers. The half-million dollar increase would come on top of a $548,995 annual increase the Tokyo-based company saw earlier this year after National Grid raised its transmission charges.
Osada said much attention has been paid to National Grid’s proposal to increase most residential rates by 11.2 percent and rates for low-income residents by 20.5 percent, but that fails to tell the entire story.
In essence, National Grid has asked the PUC to approve a guaranteed rate of return of 8.98 percent that would provide its shareholders up to an 11.6 percent return on equity while covering the costs to maintain and upgrade its infrastructure, support its pension obligations and meet all its other obligations. Right now it is allowed a 10.5 percent return on equity, but its actual return last year was 1.18 percent because of the underlying rate structure, said National Grid spokesman David Graves.
“The driving goal of all our rate mechanisms is simply to allow the company in the future to recover its costs,” said Mike LaFlamme, National Grid vice president for regulatory pricing, electricity.
National Grid is also proposing to detach – or “decouple” – its profit from the amount of electricity it sells. Currently, the utility purchases electricity from suppliers and sells it to customers at cost. National Grid makes money by charging for delivery of electricity per kilowatt-hour. The more electricity the company delivers, the more money it makes.
In testimony before the PUC and interviews with the Providence Business News, company executives argue that the system encourages the utility to sell more electricity during a time when local and national officials are trying to lower Americans energy use. So the company wishes to jettison that structure and instead establish a guaranteed return on equity regardless of how much electricity it sells. Under this scenario, a formula approved by the PUC would automatically adjust rates each year to ensure National Grid collected enough revenue to receive its return based on the company’s projected costs.
National Grid executives also argue that decoupling is good for the environment because it encourages customers to conserve electricity, LaFlamme said. As overall energy usage goes down, customers who reduce their usage at a greater rate than the drop in total usage will reap savings. Those who do not decrease their energy usage at a rate greater than the overall drop will see their prices hold steady or go up.
That works for people who can afford to lower their electricity use, but not for big businesses such as Toray and Polytop Corp. that are heavily dependent on electricity.
Polytop Plant Engineer Tom D’Amato said he and other executives fear they will be left holding the bag when residential customers reduce their energy usage. D’Amato fears that National Grid will increase big users’ bills as they constitute a larger and larger percentage of the total electricity sold through the system.
D’Amato called such a scenario a “nightmare” and one devastating to the state’s manufacturing industry that is already struggling to survive. If the PUC approves the plan and higher rates prevail, D’Amato said the company would need to find ways to reduce its costs.
And D’Amato said there is little left the company – which makes plastic containers – can do to reduce its electricity consumption. It has spent $5 million in the past four years to upgrade its equipment and take energy-saving steps. At Toray, Osada said the company has spent about $8.84 million in the last three years to change its lighting to more efficient bulbs, upgrade its chillers, install new HVAC systems and take other measures to increase energy efficiency.
It would be unfair, Osada and D’Amato said, if their costs increase even if their energy use remains level. And Osada pointed out that would leave Toray with less money to invest in capital improvements meant to reduce energy use.
Osada wants National Grid to justify why it needs $75.3 million more in revenue. He said he understands the company must keep its system operating but points to electric costs at Toray plants in the southern part of the country. In Virginia, the company pays about 4 cents a kilowatt-hour, and that includes distribution and the cost of electricity. In Rhode Island it pays about 3 cents just for distribution and 6 to 12 cents when the price of electricity is factored in. That’s why when the economy rebounds, Osada said there will be “a discussion about expanding in the future, but definitely not here.”
Osada said because the fee is set based on the capacity of the generator, it has the effect of discouraging businesses from installing things like wind turbines or solar panels. The fee offsets any savings, Osada said, and questioned why a state government that advocates renewable energy sources would allow such a process.
Osada has written letters to the governor and R.I. Economic Development Corporation, but no one, Osada said, appeared to care much.
In a response from the governor’s office, Deputy Chief of Staff Beverley Najarian suggested Toray contact the Energy Council of Rhode Island and submit its comments to the PUC. Toray is already the largest member of the Energy Council and the group had already officially requested to join the rate case when the governor’s letter was sent. After the Providence Business News inquired about the response, spokeswoman Amy Kempe said the governor was happy to meet with Toray executives and planned to arrange a meeting.
The EDC had not responded to Osada, but when informed of his perspective, also indicated it would set up a meeting, although a spokeswoman for the agency said that the EDC had been in contact with another executive at Toray on the subject. •
