Tuesday, December 31, 2013

Happy New Year for Con Edison: News Year's Eve Proposal Would Continue High Rates if Approved by PSC

Con Edison filed new rates last year with data regarding a one year case, and the PSC suspended implementation of new rates until they could be reviewed.  Department of Public Service (DPS) Staff and other parties filed testimony regarding the filed one-year rate proposal, cross examination of witnesses was conducted over several weeks, and parties submitted post-hearing briefs to the presiding expert Administrative Law Judges.  A public Recommended Decision of the Judges was not issued, and instead the case went into extended secret multiparty negotiations.

The outcome of those negotiations was revealed in a non unanimous "Joint Proposal" for resolution of the Con Edison gas and electric cases filed this afternoon, New Year's Eve.  See CON EDISON RATE PACT TO BE UNVEILED ON LAST DAY OF BLOOMBERG ADMINISTRATION.

The proposed deal would continue Con Edison's high rates. It is not supported by any independent advocate for residential customers.

The Project opposes the settlement and will urge the PSC to reject it.  The PSC Secretary today scheduled an evidentiary hearing to review the proposal for January 14, 2013.

The Joint Proposal of Con Edison and  parties who joined in it recommend approval by the PSC of  a 2 year electric rate deal with a $76 million reduction in Year 1.  Though on the face of the proposal bills could be reduced, the $76 million "reduction" for Year 1 is phantom, and would be held by Con Ed to defray a putative increase in Year 2.

The gas case would be settled in a 3 year deal, with a $54 million decrease in Year 1 again not used to reduce rates, but would be held by Con Edison for use to defray putative future increases in Years 2 and 3.

Rates are basically set to allow an investor-owned utility to recover its reasonable costs of operation, based on a forward looking budget of income and expenses, and a fair return on its investors' capital, i.e., the "Return on Equity."

DPS Staff testified at hearings held before negotiations began that using established PSC approved methodology, the Return on Equity (ROE) for Con Edison should be 8.7%.

The settlement allows a 9.2% ROE for electric and 9.3% for gas.

These upward ROE adjustments in the allowed profit on investment come at a very high cost to consumers.  In addition, the deal would allow  Con Edison to keep all excess earnings above the ROE up to 9.8% before even beginning to "share" any excess profits with customers.  Also, some revenue is not counted when calculating the amount to be "shared."

 It appears this will allow Con Edison to continue to earn more than a reasonable return on shareholder investments while perpetuating the nation's highest rates. There is no adequate explanation in the Joint Proposal for the capitulation by DPS Staff in allowing the higher ROE and the "dead band" above it.

Customers are hundreds of millions of dollars behind in paying Con Edison's high bills. Hundreds of thousands of Con Edison customers are threatened with shutoff every month.  Approximately 80,000  customers are shut off each year for bill collection purposes, sometimes with disastrous consequences when households resort to less safe energy sources.

Large numbers of Con Edison customers are facing hardship from its high rates, and will continue to face hardship if rates remain "frozen" at their current high level.  Modest improvements in low income programs contained in the Joint Proposal do not come close to meeting the need for more robust customer assistance programs, measures to make bills more affordable for the poor, and measures to reduce reliance on bill termination for bill collection purposes.  The continuation of existing customer service performance standards and incentives, agreed to by the utility in the Joint Proposal, do not measure and incent performance related to keeping service on for the poor.

The Joint Proposal would give Con Edison more money than necessary, because it would end Con Edison's "austerity" program and would have customers pay for additional management bonuses.

The Joint Proposal is being styled as a rate "freeze" but in fact bills can go up a lot.  The Joint Proposal will allow rate changes without notice for dozens of adjustments which could significantly increase customer bills.  These automatic adjustments allow Con Edison to shift its major business risks to customers. The deal would allow Con Edison to have the same revenue whether or not there are major outages, and will guarantee that customers will pay all expenses for major storm outage costs.  which is another reason why the settlement ROE is too high and should be lowered.

New York consumers are suffering and deserve relief from Con Edison rates.The Governor has asked the PSC to lower Con Edison rates  if feasible. It is feasible to lower rates and to begin a reversal of the record-setting trend of high Con Edison bills.  The PSC should reduce the ROE, continue austerity measures, disallow expenses for management bonues, and adopt a one year plan with lower rates.  The year should be used by the PSC to prepare for fdeeper scrutiny of any future request for increases.

The Joint Proposal filed today again illustrates why the Governor should implement the Moreland Commission recommendation for a well funded independent residential utility consumer advocate office.

Gerald A. Norlander

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