10/99 - NYC HAS HIGHEST ELECTRIC RATES OF MAJOR US CITIES

NYC HAS HIGHEST ELECTRIC RATES OF MAJOR US CITIES

Electric power costs more in New York City than in any other major city in the United States, according to Comptroller Alan G. Hevesi. Although an agreement to lower prices was signed in 1997 by the New York State Public Service Commission (PSC) and the City’s main supplier, Consolidated Edison (Con Ed), the Comptroller’s study shows City residents have so far seen little in savings. Con Ed residential rates for 1998 averaged 16.2 cents per kilowatt hour in NYC, a slight decrease from an average of 16.6 cents in 1997. Meanwhile, Con Ed’s earnings per share rose from $2.95 in 1997 to a record high of $3.03 in 1998, and are projected by Wall Street analysts to grow another 8% over the next two years.

"New York City residents should not be burdened with paying the highest urban electric rates. The PSC and State Legislature must work quickly to ensure that Con Ed’s customers receive the rate reductions they deserve," said Hevesi. "It is clear that Con Ed can afford to cut rates faster and this should be done to ensure that the City is competitive."

The September 1997 Settlement Agreement between Con Ed and PSC, effective January 1, 1998 gave industrial consumers a reduction of 25%, but residential and commercial consumers receive just a 10% reduction spread out over five years. Con Ed has argued that favoring large industrial consumers will stimulate job growth. Studies by the Comptroller’s Office have found that an overwhelming percentage of new jobs are created by small and medium-sized businesses.

The study also shows that even after deducting the high New York State and City average taxes of 2.4 cents per kilowatt hour, Con Ed charges:

· 15% more than the utility serving the next largest U.S. city, Los Angeles;

· 38% more than the median of utilities serving 12 large cities;

· 15% more than residential customers pay in the next most expensive large city, Philadelphia; and

· 24% more than residential customers pay to the median utility of 9 major non-NYC urban utilities.

The City’s high electric rates partly reflect its above average cost of supplying electricity. Con Ed does not have close access to cheap electric power, nor can it burn cheap coal because of air quality restrictions. It has also made long-term purchases of wholesale electrical power at above market rates and has invested heavily in generating plants that have not been competitive with other suppliers.

However, Con Ed’s rates should come down immediately because of its windfall gains on the sale of NYC generating facilities at Ravenswood, Arthur Kill and Astoria. They and some smaller generating facilities were sold for $1.8 billion, twice their book value, an unanticipated windfall for the company. The facilities sales will more than cover the $300 million PSC deemed "at risk" for Con Ed’s stranded investments.

Hevesi proposes several recommendations to speed up electricity rate cuts and consumer choice among electricity suppliers, including:

An audit by the PSC of Con Ed’s allocation of costs between supply and delivery, of administrative costs, and of the fairness of its supplementary charges, such as the fee charged to a customer for leaving the system.
A review by the PSC of the fairness to customers and to the competitive market of existing "Shopping Credits." A shopping credit is a deduction from the monthly electric bill for a Con Ed customer who chooses an alternative electricity supplier.
An immediate order from the PSC to refund to residential/commercial ratepayers the $300 million in higher Con Ed rates that were granted as an offset to Con Ed’s no longer relevant stranded investments. The value of these investments is no longer at risk.
State-level hearings to review the 1997 PSC-Con Ed Settlement Agreement for its effectiveness in reducing rates and creating market competition.