BY RICHARD THOMAS
This winter”™s skyrocketing cost for electricity has showcased that New York has the highest residential electric rates in the 48 continental United States, and that the current situation is no longer acceptable.
In February, New York”™s residential electricity costs were an average of 21.75 cents per kilowatt hour, 83 percent above the national average of 11.88 cents per kilowatt hour and 62 percent higher than the average rate of 13.43 cents per kilowatt hour in Pennsylvania.
This has a number of ramifications. For example, opponents of the Federal Energy Regulatory Commission”™s new capacity zone for the lower Hudson Valley would be better served by making a broader and more concerted effort to more substantially and permanently, reduce electricity costs.
To find the best way to cut electricity costs, we examine what has been driving New York”™s costs higher. There are three core components of electricity: the cost to make it (generation or wholesale market prices), the cost to move it (transmission), and taxes, including explicit items as well as arcane subsidies and related fees.
Using publicly available information from the New York Public Service Commission, the bottom line is this: Since 2008, the cost to produce electricity has stayed the same or been reduced while transmission costs and taxes have shot up dramatically.
Benefits of competitive markets
The component of utility bills that has actually decreased significantly in the past five years is the generation of power that is purchased by the electric utility companies. Deregulation is an important factor.
In 1996, the PSC split the power generation function from the distribution function, creating an industry of merchant power producers in New York state for the first time. The tremendous benefits that come from a competitive marketplace are being realized by consumers, though this benefit is cold comfort for consumers struggling under the burdens of high fees and taxes that come with their utility bills, in addition to the costs from important investments in transmission infrastructure.
Ӣ For Central Hudson Gas & Electric Corp., from 2008 to 2013, the average monthly bill for a residential user of 600 kilowatts of electricity has risen 4 percent. However, generation or commodity costs have fallen by 33 percent. The price increase comes from transmission charges, up 55 percent, and taxes and surcharges, which have risen by 415 percent.
Ӣ For Consolidated Edison Inc., from 2008 to 2013, a typical New York City residential user of 600 kilowatts of electricity a month, total costs are up 13 percent. However, generation or commodity costs have fallen by 21 percent, delivery or transmission charges have risen by 48 percent, and taxes and surcharges have risen by 89 percent.
Ӣ For New York State Electric & Gas Corp., from 2008 to 2013 the average monthly bill for a residential user of 600 kilowatts of electricity has fallen by 13.5 percent, from $81 to $70. Generation or commodity costs are down by 30 percent. Transmission charges are down 2.9 percent, while surcharges have risen 150 percent.
By taking the average of the above three typical usage scenarios, overall costs are up 3.5 percent from 2008 to 2013. While generation costs are down 29 percent, transmission costs are up 36.3 percent and explicit surcharges are up 168 percent.
It is important to emphasize that electricity bills are lengthy and complicated and do not follow a unified format. And many taxes and fees are built into the supply and delivery costs.
Statewide costs
The Independent Power Producers of New York has found that “Up to 70 percent of a residential consumer”™s electric bill is composed of delivery costs, taxes and public policy fees. Additional taxes and fees are built in the supply and delivery costs.”
When it comes to taxes, 26 percent of the typical New Yorker”™s monthly electric bill is for taxes, fees and surcharges, according to the Public Policy Institute of New York. Once energy taxes come into being, they can stick around for a long time.
In 2009, at the height of the financial crisis and the need for drastic fiscal measures in Albany, the state adopted an explicit, “temporary” 2 percent tax on all electricity bills, known as the 18-a surcharge. In 2014, the first steps to end this tax were enacted into law when the state began to phase out 18-a. The 18-a assessment is reduced to 1.63 percent for 2014, 1 percent for 2015 and 0.73 percent for 2016.
The Public Policy Institute has also called attention to four alternative energy fees the state imposes. These include New York”™s participation in the Regional Greenhouse Gas Initiative, the Energy Efficiency Portfolio Standard, Renewable Portfolio Standard and Systems Benefit Charge. The institute estimates the total haul for these “off budget” items in 2009 was $569 million.
Ramifications for public policy
There are several clear and compelling effects the above should have on policymaking.
Ӣ Reduce state energy taxes. To reduce the highest cost of residential electric rates, policymakers should reduce by more than one third, or more than 10 percent of the typical bill, the electricity taxes that New York residents pay.
Ӣ Increase transparency on electric bills and state expenditures. As the New York Affordable Reliable Electricity Alliance outlined in a 2010 issue brief, the typical electric bill is often a byzantine and lengthy collection of more than 20 line items. The net effect is that the bill is indecipherable to many consumers. Each New YorkerӪs bill should be broken down by three clear line items: Generation costs, transmission costs and taxes/surcharges.
All electricity fees, taxes, and surcharges should be determined and reported by the state comptroller, along with a bottom line estimate of what these annual costs are for the typical New York residence.
Ӣ Support the new capacity zone in the Hudson Valley. The Federal Energy Regulatory Commission, based on studies and data provided by the New York Independent System Operator, has determined a new pricing structure is necessary to attract power plants to the Hudson Valley. Additional power supply generated in the region will eventually place significant downward pressure on pricing. But the new power is also critically important for maintaining reliability, which is driving the change. Blackouts and brownouts, which disrupt manufacturing processes and lead to food spoilage, public health concerns and numerous other costs are quite expensive.
In 2013, generation costs accounted for only 40 percent of the Central Hudson bill. The PSC said in October 2013 that the new zone would add 5 to 10 percent overall to the typical bill. This can be more than offset by cutting electricity taxes.
”¢ Pursue additional transmission prudently, and at no additional cost to consumers. As New York continues to develop and take the initial steps to roll out an energy highway, to bring power from upstate to downstate, these projects need to be evaluated prudently. The costs and the risks of these projects should be entirely born by those developing projects ”“ not New York”™s ratepayers. There should be no state subsidies, direct or indirect.
By taking these steps, policymakers can ensure that New Yorkers”™ electricity costs are significantly reduced, provide transparency for consumers that will help guard against future cost increases, and avoid expensive and unnecessary costs that would add to consumers”™ burdens.
The matter is one of urgency. High electricity costs are a de facto regressive tax, which impact working class New Yorkers and the poor most significantly. The funds from reduced electricity taxes will also serve to stimulate New York”™s economy, as consumers spend this money on other important, necessary household items.
Richard Thomas is director of the New York Affordable Reliable Electricity Alliance, a coalition of more than 150 business, labor and community groups. He can be reached at 212-683-1203.
