Brattle Q&A: Energy Leaders & Innovators
Long Island Power Authority CEO Tom Falcone on Modernizing Residential Rate Design

Ryan: Tom, let’s start from the beginning. What are the factors that led LIPA to modernize its residential rate offerings?

Tom: There were several factors. First, customers like choices, and modernizing our residential rate design and actively marketing choices is good for customers – and, if done well, also improves customer satisfaction. We’re providing our residential customers with three options. Our new standard rate – the one that you’re put into if you don’t choose another – will be a two-period TOU rate, with one price from 3–7 p.m. during the weekdays and another price the rest of the time. But customers will also have the option to choose a flat rate or a three-period TOU rate, with a deeply discounted super off-peak overnight price. So they can choose.

To further enhance the experience, we’re saying try the rate for a year, and we’ll provide customers with a bill protection guarantee. If they would have been better off on the flat rate over those 12 months, we’ll refund the difference without them asking. By our calculations, most customers will automatically be the same or better off on a TOU rate, and nearly all could be better off if they respond to the new price signals – so we think getting people to give it a try is a good idea.

Second, LIPA is looking to decarbonize the electric grid, as well as transportation and heating. Since TOU rates offer deep discounts for customers with electric vehicles or who use cold climate heat pumps to heat, TOU rates fit with our larger strategic objectives.

And third, because of our electrification objectives, we will see an increase in load. But we’re a summer peaking utility and have a lot of excess capacity, provided we can encourage our customers to add that electric load overnight or in the winter. In every other walk of life, we show customers prices and let them choose. As we add significant renewables to our supply and pursue high levels of beneficial electrification, can we really do all we need to do with flat rates? In the future, we may need to do even more than TOU, with managed charging or other programs. But these are very simple, easy-to-understand TOU rate designs that move us in the right direction, and it’s hard for me to see why this wouldn’t be a tool in the toolkit of every utility. We estimate that, if nothing else, we’ll be able to reduce our peak demand and the associated power plant capacity cost, by over 300 megawatts by 2030 — the equivalent of getting rid of a power plant.

Ryan: We had the pleasure of working with you and your team to develop LIPA’s new portfolio of residential rates. Something that really struck me was your commitment to bringing all stakeholders on board with the proposal. What advice do you have for other utilities considering similar initiatives?

Tom: Changing 1.1 million customers’ electric rates is something we do with appropriate caution. Those customers are my neighbors, and I like living on Long Island. So, if you’re approaching something like this, it should be with stakeholder support. We started this process with vocal buy-in from the state of New York, our board, and the New York Solar Energy Industries Association. And we built from there so that, when our board approved the new rate structure, we also had the support of local elected officials, environmentalists, business groups, and others.

One other piece of advice relates to the bill protection guarantee. Often, TOU rates are met with some initial skepticism – people asking, are these rates better for the utility or for me? But money-back guarantees have been around for more than 100 years because they work. So, we took a lesson from Madison Avenue. We’re still rolling out our program to customers in phases, but in the stakeholder acceptance phase, when people heard there was a money-back guarantee, they very much understood that this was about the customer’s benefit and not the utility’s.

Ryan: In our work with you, I observed a constant focus on making sure that the rate transition would be a positive experience for your customers. What are the important features of LIPA’s transition strategy from a customer’s standpoint?

Tom: Our focus is on easy-to-understand, simple communications for our customers. We want them to understand what we’re doing without investing a lot of time figuring it out. We also want good tools – for both our customers and customer representatives – to understand the potential bill impacts of the choices we’re offering. And we’re using data.

So far, our new TOU rates are available to all customers, and they are the new “standard” rate when you call us for service. We are going to be migrating all our customers to these new rates throughout 2024 and 2025. But, like the Willie Nelson song, we have phases and stages, and we’re going to be monitoring the actual customer experience with each cohort that transitions to TOU, looking for opportunities to improve our marketing, tools, communications, and customer journey. Doing this in stages will also limit the impact on our call center and customer communications — because we can roll it out at the rate where we can provide the right customer experience.

We aim to do this right. Check back at the end of 2025 and see how we’ve progressed. But that’s the plan, and we’re not the first utility to do this, so we’re learning from others who went before us.

Ryan: I love that Willie Nelson-inspired transition strategy! Our research has shown that opt-out (i.e., default) deployment of TOU rates has the potential to lead to materially higher adoption and more beneficial load impacts than offering the rates on an opt-in basis. How will you define success for the rollout, and what will be critical to achieving it?

Tom: Our focus is on getting customers to try the rate rather than opt-out and also on their satisfaction with the rate. So our definition of success is a very high level of customers choosing a TOU rate rather than our flat rate and being happy with their choice. It’s all about the customer. Out of that will flow savings to the customers and a more efficient, lower-cost grid.

Ryan: Aside from the TOU rollout, can you give us a preview of your other top priorities for the coming year?

Tom: To name a couple of things we’re excited about — the first is offshore wind. LIPA was the first utility in the country to sign a contract for utility-scale offshore wind. When we did, no one had been through the federal permitting process. And that project is coming online in early 2024 — it’s the first in the nation, but with thousands of megawatts to come. In fact, by 2030, we project Long Island will obtain about half of its energy from offshore wind.

Second, about 40% of our customers heat with oil. Most of those customers should transition to cold-climate heat pumps. The economics of doing so are already overwhelmingly positive because oil is very expensive, and with our rebates and new federal tax credits, it’s an opportunity for those customers to cut their heat bills and carbon emissions in half. But our customers aren’t adopting heat pumps at anything close to the level the economics would suggest, so in addition to TOU rates – which provide those customers a further discount on their electric bill – we’re looking to understand the customer journey, our marketing, referral programs, and other things we can do to greatly accelerate this transition to clean heat, because it’s good for our customers and the environment. I don’t expect to solve the problem in 2024, but we do want to try some things and learn what works and what doesn’t.

Ryan: Fantastic. Like Willie Nelson’s 1987 album, it sounds like great things are in store for your “Island in the Sea.” We can’t wait to see how all of this progresses over the coming year and beyond. Thank you for your time!