Consumers would pay in multi-year Con Ed deal

 

There’s a wild card in this year’s Con Edison rate case — and if it turns up, consumers could pay.

Con Ed, the state and other parties are still jostling over whether the company’s rates will go up or down next year — see this Wall Street Journal story for up-to-date information and numbers on the rate case.

But on the sidelines, Con Ed has been in confidential talks with the state Public Service Commission that would convert the utility’s request for a one-year gas, electric and steam rate deal into a three-year plan. If that happens, Con Ed expects the PSC to sweeten the deal by raising rates a bit more during the plan’s second and third years.

It’s hard to tell the likelihood of such an agreement. The existence of the negotiations — routine in a rate case — was disclosed in a PSC document in May.

Con Ed chief financial officer Robert Hoglund tipped the company’s hand at an investors’ conference on Sept. 12, when he said that along with its request to the commission for one-year hikes in electric and gas rates and cuts to steam rates, the company “provided the outlines for a three-year proposal” it hopes would provide some extra ratepayer money for its shareholders.

Because the talks are confidential, how much consumers could end up paying isn’t clear. Hoglund himself said the PSC staff has not said what Con Ed could get from consumers in a three-year deal.

Ratepayers would pony up through what’s called a “stay-out premium.” The idea is that by agreeing to a three-year rate deal, Con Edison and its shareholders deserve a bit of extra customer cash because they’re giving up the chance to get even higher prices via a series of one-year rate deals. “I think what they really have in mind in that stay-out premium is the notion that you are forgoing the opportunity for a higher return on equity [profit] in the second and subsequent years of the plan,” Hoglund explained. “There is sort of a formal recognition of the fact you are forgoing opportunity and need to be compensated for that.”

“The process by which they [the PSC] establish that premium has never been terribly clear. They obviously have a lot of flexibility in using their judgement,” Hoglund said. He added that the PSC staff has been “purposefully unclear about what sort of range of premium they would offer. They want some flexibility in that determination.”

Update, Oct. 9, 2013: Gov. Cuomo’s letter to the PSC opposing a rate increase, made public after I posted this item, seems to reduce the likelihood that the commission will award Con Edison a bonus for cutting a multi-year deal. In any case, time is running out. A final ruling in the case is due in December, and a PSC official said at a hearing tonight that an administrative law judge has begun drafting a proposed decision.

 

About Bill Sanderson

I'm a New York-based journalist, and a former reporter at the Concord Monitor in New Hampshire, the Bergen Record in New Jersey, and the New York Post. My work has appeared in The Wall Street Journal, MarketWatch.com and Politico New York. Twitter: @wpsanderson.
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