The traditional utility rate hike dance has begun: National Grid lays out its case for increasing charges for delivering natural gas and electricity by 22 and 25 percent, respectively, and various advocates denounce the request as unconscionably high.
In the middle of the fray is the state Public Service Commission, which is gearing up for 11 months of hearings, research and deliberations before deciding how much National Grid can raise its rates.
Typically in these proceedings, the utility gets less than it is asking for but more than opponents might like.
Utilities are allowed to exist as monopolies because they provide a vital service that would be costly and disruptive for a second company to duplicate. They are regulated by the state, with the goal of ensuring enough of a profit that they can operate efficiently and satisfy their shareholders, but not so much that they are gouging consumers.
The key term in this calculation is “return on equity.” According to Advanced Energy Economy, a national trade association, the average ROE allowed to utilities nationwide by their state regulatory boards is 10.13 percent; individual utility ROEs range from 8.64 percent to 13.75 percent.
In the rate increase request filed April 28, National Grid is requesting an ROE of 9.79 percent.
ROE does not equal profit.
For the fiscal year that ended March 31, 2016, National Grid reported operating revenue of $2.86 billion and net income of $195.6 million from its upstate New York division, which serves 1.6 million customers. That’s a 6.9 percent profit margin, up from 6.5 percent in 2015 and down from 7.9 percent in 2014.
So where does it all go?
National Grid Spokesman Patrick Stella said a large portion of the rate hike the utility is seeking would pay for infrastructure upgrades. A decade ago, the utility was not meeting standards set by the PSC for the number and duration of service outages, so it began making improvements. After spending $6 billion over 10 years, it has improved its performance and was able to hold the rates paid by customers at or below the cost of inflation by various means, including deferred payments by customers, Stella said.
Those options are gone now, Stella said, and National Grid wants to spend $2.7 billion on additional infrastructure upgrades over the next three years. To pay for those upgrades, the utility is asking for a 21.8 percent increase in delivery charges for residential electric customers and 24.8 percent for residential natural gas customers, effective April 1, 2018.
(The prices of gas and electricity themselves are fundamentally different and separate from the cost of delivering them. The commodity prices rise and fall with the market; National Grid doesn’t set those prices and doesn't take a profit on the sale of the commodities, nor does the PSC regulate the commodity prices.)
The proposed rate increase caused a bit of bipartisan uproar in the Capital Region’s legislative contingent. State Sen. Jim Tedisco, R-Glenville, and Assemblyman Angelo Santabarbara, D-Rotterdam, both criticized the size of the increase being sought, and Santabarbara was among the first to submit critical comment electronically to the PSC. (As of late Wednesday afternoon, 19 comments had been submitted, all of them opposed to the increase.)
Russ Haven, general counsel for the citizen advocacy organization New York Public Interest Research Group, said the big increases sought by utilities are often a ploy: The utility submits an overly high number that it knows the PSC will reduce.
“There’s a little bit of a gaming of these rate hike applications,” he said.
As a result, any reduction in the rate increase doesn’t necessarily mean the PSC has fulfilled its mission and served the rate-paying public, he added.
Haven reserved judgment on the size of National Grid’s rate hike, saying: “Until you get into the numbers, it’s hard to say if it’s excessive.”
He did not reserve judgment on the impact of such a large hike on poorer people.
“It will cause hardship,” he said. “It’s a big hit, and it’s not including any supply costs. It’s purely on the delivery side of the equation.”
Haven noted that NYPIRG and AARP had sought creation of an independent public utility advocate in New York, like those established in some other states, to advocate for ratepayers when rate hikes are proposed. But they were unsuccessful.
Instead, the New York PSC assembles a team that includes lawyers, accountants, engineers, economists, financial analysts and consumer service specialists who audit and investigate a proposal. The team typically develops an opposing position and counterproposal to the rate filing.
Bill Ferris, a state lobbyist for AARP, said senior citizens are vulnerable to rate hikes as large as those proposed by National Grid.
"We’re concerned,” he said. “The issue is that seniors use about the same amount of power as other people, but to pay their bill consumes more of their household income.”
He said he’s unsure if AARP will become an actual party to the rate hike case, “But we will definitely weigh in.”
The organization has 2.6 million members in New York, and it will be urging them to get involved by commenting to the PSC and voicing their opinions.
Both Haven and Ferris noted the number of people having their gas and/or electric service cut off for nonpayment has been steadily increasing each year, and a big rate hike can’t help but exacerbate that.
“That should be something that should be scrutinized by the Public Service Commission,” Ferris said. “New Yorkers pay some of the highest utility costs in the country.”
One of the tools used to help needy people pay their utility bills and avoid cutoffs is the federal Low Income Home Energy Assistance Program. One of the agencies that helps people struggling with home energy costs is Fulmont Community Action, a human services organization serving Fulton and Montgomery counties.
Deputy Executive Director Ann Black said she doesn’t see a single dominant reason why people get their service cut off, but she has found it happening more often.
“We do see those individuals, especially lately,” she said. “We have been experiencing an increase in people coming in for those services."
Fulmont has a weatherization program that can help homeowners and renters reduce the cost of heating in the winter, but participating can be tricky for renters, as the landlord has to agree to foot part of the bill.
Stella, at National Grid, said service terminations are bad, both from a humane point of view and business point of view -- a customer who has been cut off is less likely to pay the past-due bills, and is also gone as a source of future revenue.
The number of cutoffs is likely to soar in coming weeks, as temperatures warm, because National Grid doesn’t terminate service when the temperature is below 32 degrees. This is a policy the company instituted voluntarily; it's not a regulatory requirement.
That helps avert health emergencies, such as someone freezing in their home, but it also creates a backlog of cutoffs to be performed after the spring thaw.
National Grid cut off 10,371 residential customers in May 2016, for example, compared with 8,797 in the preceding three months combined.
In the chilly month of March 2017, the last month for which records were submitted to the PSC, National Grid terminated service to only 1,560 residential customers -- but it issued 83,565 final termination notices for nonpayment.
The number of termination notices is always vastly higher than the number of actual terminations, Stella said, because getting a notice jars customers to action and sets in motion tools that can help the customers avert a shutoff.
“They wind up paying or they reach out to us,” he said. “As soon as the customer reaches out to us, we have a lot of things at our disposal.”
Stella said the utility will reach out on its own, too.
“We have customer service advocates throughout upstate New York,” he said.
Among the tools that can help National Grid customers pay their bills are budget plans, energy audits and the Low Income Home Energy Assistance Program.
“HEAP is really a large player in helping those customers,” Stella said.
One other tool for which certain National Grid customers will qualify is the deferred payment plan, through which they can pay off their past-due balances a little at a time, as long as they pay their future monthly bills on time and in full.
As part of the rate hike proposal it submitted April 28, National Grid is planning to expand eligibility for deferred payment to 50,000 more people.
The following data from the state Department of Public Service shows the number of final termination notices issued by National Grid in its upstate New York service area vs the number of actual cutoffs:
|Residential notices||Residential shutoffs||Business notices||Business shutoffs|
National Grid’s plans
As part of its April 28 rate hike request, National Grid is proposing several things in the public interest:
- Investment of approximately $2.7 billion over the next three years in its core electricity and gas networks across upstate New York.
- Installation of advanced metering infrastructure for both electricity and gas service that will provide customers enhanced energy consumption data and more products and services for managing their energy use.
- New demonstration projects, including initiatives to test smart home technologies and a distributed generation cost-recovery model.
- Investments in the natural gas systems that will ease regional capacity constraints, expand availability of gas service and improve the safety and reliability of the distribution network.
- Increased customer assistance and energy affordability programs for those having difficulty managing their energy costs.
- Continuation of economic development and energy efficiency programs that help grow the upstate economy.
- Creation of more than 280 jobs over the next three years to support electric and gas operations, grid modernization and customer programs.
- The utility has requested the rate hikes take effect all at once but says it would accept a three-year phase-in as a compromise.
Here is a sample of the comments that have been submitted to the New York state Public Service Commission in response to National Grid’s proposed rate hikes:
Hello Please do not allow Nation Greed (Grid) to raise your rates. It's expensive enough to pay for utilities. Thanks.
I am writing this email to express my outrage and opposition to the proposed National Grid rate increase for customers in New York. Please to not allow National Grid to place the burden of increased gas and electric costs on the folks living in New York State. Thank You.
—John T. DePietro, North Syracuse
I can't believe you are considering letting National Grid have an increase on delivery cost; it is already almost twice to the cost of my usage every month. Shame on you.
—Patrick W Aregano, Clay
I would like to advise that National Grid's proposed rate hike should be REJECTED in light of the fact that inflation is so low that the proposal is tantamount to STEALING!!!!!!!!! This year, Social Security recipients only received THREE-TENTHS of ONE PERCENT as a raise because the Social Security Administration determined that was the increase in the cost of living in 2016. Moreover, the proposal by this British company will do nothing but make them richer and the Public poorer!!!!!!! Tell National Grid to take a HIKE.
—Jim Hennessey, Albany
Please stop this. It's the highest in NY already.
—Florence Hunt, Queensbury
I write to express my deep concern over National Grid's recent application proposing rate increases for Upstate New York customers.
—Assemblyman Angelo Santabarbara, D-Rotterdam
I disagree with National Grid's request to raise rates. Their "Delivery Charge" contained in each and every bill should be used to maintain the "power grid". Perhaps their CEO's and management should take a pay cut and put service back into Electric Service as opposed to Electric Profit. It is the responsibility of you, the PSC, to protect the Public's interest in this case. Frankly, we've been exploited enough. Please do your job and deny NG's rate hike.
—Michael J. O'Brien
There is no data to justify the need for this rate increase. One look at National Grid's books and it's clear that their earnings have consistently risen while their operating costs have remained static. Low and fixed income earners are already struggling to keep their homes warm through the Winter. This proposed additional cost isn't merely unreasonable, its cruel and unusual punishment. Although this world is full of problems and suffering, in this particular case, you have the power to make the right decision and as a product of that decision, keep families healthy and happy in their homes.