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Con Edison Public Information
Richard D. Mulieri, Director
Telephone: (212) 460-4111, Office Hours,
(212) 460-6981, All Other Times

For Immediate Release: March 13, 1997

Con Edison and Public Service Commission Staff
Reach Agreement on Lower Electric Rates
and Customer Choice

Con Edison announced today that it has signed an agreement with the staff of the New York State Public Service Commission and other parties to reduce electric rates for its three million customers, accelerate the development of a competitive electric market in New York City and Westchester County, and enable the utility to participate more broadly in rapidly evolving energy markets.

The agreement culminates months of intense negotiations following an extensive regulatory proceeding in which energy companies, consumer groups and government officials examined ways to encourage a more competitive electricity market in New York State. The agreement will now be reviewed in hearings before the proceeding's Administrative Law Judge, followed by a determination by the Public Service Commission (PSC). Con Edison is urging that the PSC act quickly, so that consumers can start benefiting from the lower rates as soon as possible.

"The rate reductions contained in the agreement continue our drive to foster economic development and job growth," said Eugene R. McGrath, Con Edison's Chairman and CEO. "They will help stimulate the local economy by making it more attractive for new businesses to locate in New York City and Westchester County and for existing businesses to remain and expand here," McGrath noted.

"Operating under this agreement, however, will present major challenges. Because the costs to serve our customers are certain to rise, we will need to absorb the increases without letting service deteriorate. We intend to accomplish this through several measures, including continuing efforts to reduce costs and improve efficiencies. The agreement," McGrath continued, "does give us a reasonable opportunity to grow our business by providing customers with additional services and by expanding into new, competitive markets where we can leverage our considerable experience and expertise."

The agreement features a five-year rate reduction plan that calls for a 25-percent rate decrease for large industrial customers, effective April 1997. It also provides, over the period covered by the plan, a 10-percent rate decrease for large commercial customers, like hospitals and office buildings, and a 3.3-percent rate reduction for small businesses and residential customers. All customers will see additional reductions if New York State and other government authorities reduce taxes that Con Edison is required to collect from its customers in their energy bills.

After factoring in inflation, Con Edison's price for electricity has already declined by more than 25 percent over the past decade. Once the five-year rate decrease is fully implemented in 2001, the price for electricity after accounting for inflation will have decreased by nearly 40 percent since 1986.

The agreement will give Con Edison the opportunity to recover past investments and commitments made under the current regulated industry structure, including the cost of state-mandated power purchase contracts, but does not guarantee full recovery of these costs. Legislation passed by the State Senate last year, and introduced in both the Senate and Assembly this year, could provide for the refinancing of these investments and commitments. This practice, which has been adopted by other states and is generally referred to as "securitization," would reduce rates further for small commercial and residential customers.

Under the agreement, Con Edison will implement full "retail access" during a five-year transition period to a competitive market. Retail access provides electric customers with the opportunity to purchase energy from the supplier of their choice.

A small number of large customers will be permitted to choose alternative energy suppliers before the end of this year. The program will be expanded the following year to include up to 60,000 customers whose electric usage is approximately 500 megawatts. The program will be expanded further each year. Five hundred megawatts is enough electric capacity to power the entire borough of Staten Island during a period of peak demand. All customers who wish to choose alternative suppliers could have that opportunity as early as 2000.

In order to create a truly competitive electric market in New York City, Con Edison committed to selling at least one-half of its in-city electric generating capacity. A specific divestiture plan will be filed with the PSC within one year after the commission approves the agreement.

The agreement also allows Con Edison, with the approval of its shareholders, to form a new corporate structure that initially will consist of a holding company with four subsidiaries - one regulated and three unregulated. The regulated subsidiary will provide transmission and distribution of electricity, as Con Edison does now, to all customers in its service area. Two of the unregulated subsidiaries will compete in the generation and energy services businesses, both inside and outside of the Con Edison service area. In addition, a third subsidiary will invest in energy-related projects worldwide.


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