Consumers lose in Con Ed rate freeze proposal

Con Ed image off Twitter


Con Edison’s electricity rates will be frozen for two years and its gas rates will be frozen for three years under a proposed settlement filed Dec. 31 with the state Public Service Commission – a big win for the company’s efforts to maintain some of the highest rates charged by any major US utility.

The deal means what you pay now is about what you’ll be paying for a while, not counting for fluctuations in the market prices of electricity and gas, which are not regulated by the state.

That’s sure better than paying more. But if it’s adopted, the settlement will represent a thumb in the eye to consumer advocates — including those within Gov. Cuomo’s administration — who fought to lower the company’s rates.

Con Edison had sought rates that would give it a 10.15 percent return on equity, which is the percentage return the company is allowed to make from the estimated value of its gas mains, transformers, transmission wires and other infrastructure.

The proposed settlement shaves just a little from the company’s original request. On the electric side, the company will be allowed to earn up to a 9.8 percent return on equity, and on the gas side it may earn up to 9.9 percent. Consumers would get some of their money back if the company earns more than that.

It looks better for consumers under another measure: Deep in the proposal, Con Ed is allowed a minimum return on equity of 9.2 percent on the electric side and 9.3 percent on the gas side.

But those are minimums, and don’t tell the whole story. The company will be allowed to keep everything it makes up to the 9.8 percent electric threshold and the 9.9 percent gas threshold. Given that rates would stay level, it’s hard to see how the company would miss those marks, since its present rate of return — set in a rate case that expired in early 2013 — is around 10 percent.

The proposal fails consumers by several other benchmarks.

For one thing, the allowed returns on equity are higher than those granted other utilities in the region.

The upstate Niagara Mohawk utility, for example, was given a 9.3 percent return on equity in a three-year gas and electric case decided in March. Niagara Mohawk is required to share with customers any of its earnings above 9.3 percent. Connecticut officials gave United Illuminating Company in New Haven a 9.15 percent return on equity in a case decided in August. United Illuminating is also required to share with customers earnings over 9.15 percent.

It’s also a far worse deal than Gov. Cuomo had initially wanted. His Utility Intervention Unit wanted to give the company a 7.87 percent return on equity, which would have slashed electric rates by 10 percent but would have kept gas rates level.

The Public Service Commission’s non-partisan staff also wanted more from this deal – it sought an 8.7 percent return on equity, which would have cut electric bills by about 1.7 percent and gas bills by about 6.7 percent.

And a look at the charts accompanying the deal show that on the electric side, monthly bills will likely increase by a few pennies for residential customers. For example, someone who uses 300 kilowatt hours of electricity in July would pay $82.25 under the proposal, an increase of 14 cents. That’s an increase of just 0.17 percent — small enough that a public official would call it “level.”

Though Cuomo’s Utility Intervention Unit lost its bid for lower rates, the governor still touted the outcome as a good for consumers. His news release cited the deal’s “customer-friendly rate freeze” and called it a “clear victory for consumers and businesses.”

Cuomo and Con Edison also noted that the deal will allow the company to gird the electric grid against future Hurricane Sandy-scale disasters. Unsaid, though, is that the proposals to lower rates would also have allowed the grid improvements.

The PSC plans a hearing on the proposal in Manhattan on Jan. 14. There’s no firm timetable for the commission to give final approval to the deal.

For more details — especially about what the proposal would mean to low-income consumers — see this post on the Public Utility Law Project blog.

Here, in full, is Con Ed’s statement on the plan.

We are pleased that the joint proposal developed by us, the staff of the NYS Public Service Commission, the City of New York, as well as other parties, will allow us to move ahead with our $1 billion investment plan to better protect New Yorkers from the next major storm.  In addition, the joint proposal will support our continued investment across our electric, gas and steam services to address reliability, new business and oil to gas conversions.

We’re also pleased that most of our customers will see little or no change in their delivery rates for electric service for two years, nor in the delivery rates for their gas and steam service for three years.  Lower financing costs and our continued focus on cost savings will help to offset rate increases and help fund our storm hardening programs.

The discussions and public hearings that have taken place over the past year have resulted in a more thorough and comprehensive plan than the proposal we put forward in January, shortly after Superstorm Sandy devastated our area.  We thank all of the experts and outside parties who have taken part in developing this plan.

Also, financial markets are expected to like the plan — see this Bloomberg news story.

Update, Dec. 31: I’ve made some minor fixes to this post, mostly for clarity.


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, and Politico New York. Twitter: @wpsanderson.
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