Wednesday, July 04, 2012

Con Edison Locks Out Employees Who Are Union Members

On July 1 Con Edison locked out approximately 8,000 of its employees who are union members in a dispute over concessions sought by the company.  According to Crain's, "[m]any of the biggest and most politically powerful unions in the state are putting their resources behind the small utility workers union that represents the 8,500 employees locked out by Consolidated Edison since Sunday."

The Con Edison utility subsidiary has been prospering of late, due in part to previously allowed rate increases and customer growth. See the video of "Mad Money's Jim Cramer's May 22, 2012 interview with Con Edison's CEO Kevin Burke and the article Con Ed is the New Treasury. Major server farms are locating in New York City to handle internet business, increasing revenues on the electric side, and due to the decline in natural gas prices, buildings that customarily heat with heavy oil are switching to natural gas, increasing revenues on the gas side.

The company and the Public Service Commission agreed in the last rate plan to "revenue decoupling" adjustments designed to make the company indifferent to increased sales.  In order to advance environmental goals, the perceived incentive for the company to stimulate additional customer usage of electricity and natural gas was ostensibly removed.  (This is an article of faith in the environmental community, but it may overlook the reality that it is customers, not utilities, who make consumption decisions).  The decoupling formula allows the company to keep increased revenues from new customer growth. 

Con Edison's most recent three year rate plan, based on an agreement approved by the Public Service Commission,will expire next year.  In a notable departure from past practice, the company has not sought an increase in rates by filing a rate case eleven months in advance of the expiration date.  Normally this would be welcome relief to ratepayers, who for years have seen rates go up with every rate case, but now the current rate formulas will stay in place. 

Perhaps due to growth in revenues outside the decoupling formula, the company may be overearning.  If so, it might be possible for the PSC to lower the rates while still giving a reasonable return to shareholders on their investment.  

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