Con Edison Asks PSC for 17% Increase in Residential Electric Rates: Low Income Customers Would Pay Even More

Overview
On May, 4, 2007 Con Edison filed with the New York Public Service Commission (PSC) a plan for new rates for electric service that, according to the Con Edison Press Release would raise residential customer bills by 17%. It is expected that the effective date of new rates will be suspended until April 2008 by the PSC while the agency conducts its review to determine if such a major rate increase would be just and reasonable.

Con Edison filed more than 1,700 pages of testimony and exhibits containing tariffs with new rates for the delivery portion of electric service. The residential customer increase estimated by Con Edison in its press release -- 17% -- differs from the overall increase mentioned in the filing letter -- 11.5% -- and the residential increase mentioned in Appendix E to the filing letter --15.46%. These differences may be based on a heavier allocation of new costs and revenue responsibility to residential customers, assumptions about future costs for the electricity portion of service, or other reasons. In the coming months PULP and other parties will intervene in the PSC rate case proceedings, and will conduct discovery regarding the details of the proposal for increased rates and a plethora of other issues that affect terms and conditions of service.

According to Con Edison, 42% of the rate increase is due to a legacy of prior ratemaking decisions of the PSC:

Overall, the existing rate plan will account for approximately $515 million or forty two percent of the requested increase. Expiring credits represent $250 million, carrying costs on plant added during the existing rate plan represents $195 million, deferred costs represent $80 million, and updating the rate allowance for current pension and property tax costs amounts to $50 million. Partially offsetting these amounts are $60 million of available credits.

The balance of the requested increase is due mainly to new investment:

The balance of approximately $710 million is primarily from carrying costs for new infrastructure investments, new and expanded operating programs, an increase in the allowed return on equity, and proposed changes in depreciation rates, offset in part by sales growth.

Electricity Is Extra
Under the PSC's "restructuring" and "unbundling" initiatives, - an effort to deregulate retail electric service which no state has followed since the failure of Enron in 2001 - customers can buy the electricity portion of their electric service from other companies. See (Disconnected Policymakers). Most residential and small business customers, however, choose to be "full service" customers of Con Edison: that is, they receive both delivery and electricity service from the same electric company. (See Think Twice Before Switching Utilities).

The new rate filing does not propose to set future rates for electricity. The new plan would basically continue Con Edison's policy of unpredictable and volatile rates, which were opposed by PULP and AARP but encouraged and approved by the PSC. Under its current rate plan, Con Edison files projected rates for the electricity portion of service quarterly, and then files monthly adjustments to those. These monthly adjustments in the "Market Supply Charge (MSC)" and "Market Adjustment Charge (MAC)"depend, in significant part, on the level of wholesale market rates established by the volatile NYISO spot markets (See NYISO Costs Skyrocket, Benefits Questioned), with monthly adjustments sometimes exceeding the previously posted price by more than three cents/kWh.

A Rosy Scenario?
The new rate filing contains optimistic projections of a decline in future electricity costs. For example, it assumes that the cost of energy, including fuel, for Con Edison owned steam-electric generation will decline from $113.4/MWH to $97.4/MWH, a 14% reduction. It also assumes that much more energy will be purchased at potentially volatile spot market rates for energy, increasing from 33% of energy sold to customers in 2007 to 49% in 2011, and that the cost of spot market prices for energy and capacity will decline substantially, from $177/MWH to $135/MWH. These assumptions seem to imply substantial reduction in the future cost of natural gas.

If Con Edison's assumptions about declining future costs of producing electricity and purchasing it prove wrong, the portion of customer bills for energy could increase.

Benefits for 245,000 Low Income Rate Customers Would be Reduced
In 2000, at PULP's urging, Con Edison adopted a reduced rate for low income customers to implement a rate case settlement agreement approved by the PSC. At the time, the Chairman of Con Edison stated "We are taking significant steps in this agreement to provide assistance to our low-income customers to help them manage their budgets in this rapidly changing marketplace. . . .” The reduced rate is implemented by a reduction in the customer charge, which is the portion of the bill for delivery service that does not change with usage. The current residential customer charge is $11.78 per month.

Low income customers pay a reduced charge of $6.50 per month under the 2007 tariffs, so their benefit is presently $5.28 per month. Approximately 245,000 customers now receive the benefit of the reduced charge, the value of which during the current three year rate plan ending March 31, 2008 is expected to save low income customers $45.5 million.

If Con Edison's new 2008 residential rate proposal were to be approved by the PSC, the customer charge would increase from $11.78 to $15.21 per month, i.e., $3.43. For customers receiving service at Con Edison's reduced low-income rate,however, the customer charge would increase from $6.50 to $10.96, i.e., an increase of $4.46 per month. Thus, Con Edison would increase the rates of its low income customers by approximately $1 per month more than those of other customers. The benefit would be reduced from $5.28 per month to $4.25 per month, even as overall rates and typical bills increase. Over a three year rate plan, low income customers now receiving the reduced rate would pay approximately $7.7 million more. This, of course, is subject to modification by the Public Service Commission through its major rate increase review procedure.

PULP is concerned that Con Edison rates have been rising while incomes of low income consumers have not. See Utility Ratemaking to Meet the Needs of Low- and Fixed-income New Yorkers. During the PSC rate case proceedings that will be held to consider Con Edison's proposed rates for 2008 and alternatives, PULP will again propose expansion of the low income reduced rate program - by increasing the monthly rate reduction - and expansion of the number of eligible customers receiving the benefit of a lower rate.

A Tale of Two Edisons: A Sharp Contrast with California
Con Edison's low income rate reduction - now only about 5% of a typical bill - provides proportionally smaller benefits and reaches proportionately fewer of the eligible customers than do the low income rate programs of California utilities, such as Southern California Edison, which provide a rate reduction of 20%.

Under the California Alternate Rates for Energy (CARE) program

Low-income customers that are enrolled in the CARE program receive a 20 percent discount on their electric and natural gas bills and are not billed in higher rate tiers that were created for Southern California Edison (Edison), Pacific Gas and Electric Company (PG&E) and San Diego Gas and Electric Company (SDG&E). CARE is funded through a rate surcharge paid by all other utility customers.

California's utilities vigorously promote CARE and other low income programs, and encourage eligible customers to apply. See Southern California Edison's website for the discount rate program, which contains information and a way to sign up for the reduced rates on line.

In contrast, Con Edison's low income rate appears to be a well kept secret, unindexed and buried in tariffs of hundreds of pages. The majority of customers who receive it have been automatically enrolled, but the automatic enrollment procedure does not identify all eligible customers. Since it was first announced in a press release in 2000, the low income rate has not been publicized by Con Edison. For example, it is not mentioned at Con Edison's web page for special services. It is not unusual for customers who call Con Edison to ask for the reduced rate to be denied by Con Edison employees who do not know of it.

Visit PULP's web page on Con Edison's low income programs for more information on the programs and how eligible customers can receive the reduced rate, including a sample letter for a low income customer requesting a change to the lower rate.