Thursday, October 16, 2008

PSC Expresses Concern for Utility Welfare

At its October 15 meeting, the Public Service Commission expressed concern that the economic downturn could affect the finances of New York's utilities. According to the Times Union,
Utilities are coping with a rising number of delinquent bills, and the state Public Service Commission said Wednesday it is seeking ways to make sure the delinquencies don't affect the companies' credit ratings and ability to raise capital. "This is very important for us to get in front of this issue," said PSC Chairman Garry Brown.

Senior advisory staff said during the agency's monthly meeting in Albany that rising electricity and natural gas costs, combined with the economic deep-freeze, are making it more difficult than normal for people to pay their utility bills.That means the utilities are bringing in less revenue than usual, which could hurt their credit ratings and make it more difficult to access the capital markets.

National Grid, the dominant utility in the Capital Region, had a 23 percent jump in the number of accounts at least 60 days in arrears during the first six months of the year, said company spokesman Patrick Stella. "We have seen a rise in people that are falling behind," he said.
Stella could not say how the delinquencies were affecting the company's balance sheet.
Unpaid Bills Chill Utilities: PSC Seeks Ways to Ensure Delinquent Accounts Don't Sink Credit Ratings.

In today's environment of very low interest rates, even if a bond rating were to slip, and thus raising the cost of new capital, utilities would only pay a higher rate with respect to new bonds, it would not affect the cost of previously is sued bonds. In the current financial climate, few new bonds are being issued, and interest rates may be low when they are. Indeed, bonds issued years ago at even higher rates may be callable, that the utility may be able to issue new bonds at lower interest rates, despite a slightly lower bond rating.

New York's distribution utilities are not at serious financial risk.

Utilities have the opportunity to file for a change in rates if their revenues are deemed too low, and the Commission has the power to set temporary rates, which are required to be cufficient provide a return on invested capital of at least 5% , under section 114 of the Public Service Law.

It is conceivable that utility bond ratings could slip if their uncollectible accounts balloon. Distribution utilities are still reliable cash cows, however, because they provide essential services to the public, and their bonds should remain solid investments even in hard times, provided they have not squandered too much of their revenue streams and capital in unfruitful holding company affiliates.

New York utility customers are at heightened risk of loss of service because they cannot afford to pay what the utility demands.
To reverse the trend of increased deliberate service terminations, the PSC needs to
  • reform utility gas and electricity purchasing practices to lessen reliance on short term markets
  • stop its deliberate policy to introduce price volatility that many family budgets cannot withstand
  • adopt low-income rates that are affordable to the poor
  • reform harsh and unreasonable collection practices that make it impossible for customers with real economic vulnerability to obtain or keep service
  • create performance metrics and disincentives to the use of service termination as a utility collection tactic.
The PSC needs to devote more concern to its obligations to fulfill the legislative objective of reasonable rates and continued service for all residential customers, and to the growing number of customers facing real financial hardship and real loss of service due to unaffordable bills and harsh utility practices, rather than wringing its hands over hypothetical concerns about utility bond ratings whose impact on future rates is speculative at best. See Will Governor Paterson Repurpose the Public Service Commission to Protect Consumers?

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