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Testimony of Con Edison to the City Council Committee on Consumer and Worker Protection

Good morning. Thank you, Chairwoman, and members of the committee for the opportunity to provide comments today. My name is Kyle Kimball, and I am Vice President of Government, Regional, and Community Affairs at Con Edison. I am joined by my colleagues, Kerri Kirschbaum, Director of State Regulatory Affairs, and Stephanie Merritt, Director of Tax. We are here today before this committee to discuss how we can work together to reduce customer bills.

Explanation of Customer Bills

At the outset, I want to spend just a moment reviewing – at a high level - a customer’s Con Edison bill. A customer's bill reflects three categories of costs, each representing roughly one-third of a customer's bill:

  • Supply Charge: This reflects the amount power generators charge for the supply of electricity that Con Edison then delivers to its customers. As a reminder, Con Edison does not generate electricity, nor do we produce (drill for) natural gas. Most of the electricity that powers our city comes from natural gas-powered generators. When the price of natural gas increases, the cost to generate power increases, which, in turn, increases the supply cost on customers’ bills. The cost of energy supply on the Con Edison bill reflects the price charged by power generating companies without any markup from Con Edison. Con Edison makes no money on this supply. A customer's Supply Charge is the unit price of the electricity multiplied by the amount that was used by the customer during the bill period. For customers who purchase their energy from Con Edison – as opposed to a third-party supplier - customer supply costs are also affected by Con Edison’s hedging program, the purpose of which is to mitigate supply price fluctuations.
  • Delivery Charge: This is the portion of the bill that reflects the costs of building and operating the energy delivery system, including investments in our energy delivery infrastructure to support reliability, resiliency, safety, and public improvement projects requested by government entities (e.g., a City of New York water main project). It also reflects investments in energy efficiency to help our customers control their energy usage and thereby control their bills. In addition, a meaningful portion of our capital investments now go toward advancing the clean energy transition. It is within delivery charges that Con Edison earns our regulated rate of return that is approved by the NYS Public Service Commission (NYS PSC). From 2011-2021, residential bills increased at, or less than, the rate of inflation and average residential consumption decreased.
  • Taxes: Con Edison is the single largest property taxpayer in New York state and paid $2.2B in property taxes to municipal and state entities in its service territory in 2021--$2B of that goes to the City of New York. We pay these taxes on the pipes and wires that deliver electricity, gas, and steam to our customers (this is called the special franchise tax), and on our facilities (real estate tax). These tax costs are reflected in the delivery charges our customers pay. In addition to the special franchise tax and other property taxes, government entities also add other taxes and surcharges to the bill, including sales and gross receipts taxes, and fees to fund the clean energy transition which go to the State. Altogether, about 30% of our bill is the result of government taxes; special franchise tax and property tax are a little more than ½ of all these taxes and are about 17% of the total bill.

Help for Our Customers

We are committed to affordability for our customers who require assistance, and we recognize that many customers have struggled recently with higher-than-expected bills. For those customers, Con Edison has a range of programs that offer meaningful discounts or more flexible payment terms, as well as education resources, including:

  • Deferred payment agreements, which more than 100,000 customers currently use to spread payments out over time.
  • Payment extensions, which provide additional time for customers to make payments.
  • Energy Affordability Program discounts for qualified low-income customers, which aim to limit utility costs to 6% of the average low-income customer’s income based on a statewide formula that is updated annually, and which can adjust if delivery costs change. More than 400,000 Con Edison customers participate in these programs today; a typical discount is $23 per month, which represents a 25% discount on a typical electric customer bill of $90. On March 1st, we unveiled a new online enrollment option for this program, allowing customers to self-certify that they qualify.
  • Working with customers and local and state government agencies to facilitate the receipt of public assistance by customers.
  • Level payment plans that allow customers to pay in equal monthly amounts over the year even as their bills change, thereby reducing bill volatility.
  • Regular virtual customer community resource forums for interested stakeholders to learn more about our programs and activities.

In addition, the best way for customers to manage their bills and minimize environmental impact is to manage their usage. We offer energy-saving tips, energy efficiency programs that help customers save, and assistance for customers. More information about these programs can be found on our website at coned.com.

Some other actions we will be taking going forward include the following:

  • The NYS PSC has approved our proposal to adjust our billing process to more closely align, on monthly bills, the impacts of power generation supply price volatility with the results of our hedging positions. The adjustment, implemented as of June 1, will serve to reduce the likelihood of significant supply cost volatility on customer bills.
  • Before this winter, Con Edison informed its customers that it expected natural gas prices to rise. Going forward, we will specifically address both gas price volatility and its follow-on impact on electric price volatility in our pre-winter communications. These communications will also continue to provide cost-saving tips and information on payment assistance programs.
  • We will also provide notice to customers in cases where supply price increases could result in significantly higher bills. We do expect, as has been recently reported in the media and by our regulator, that bills may be 10% or higher than last summer. This is not unique to New York City or even New York State. It is happening all around the country.
    • In fact, Barclays Plc calculates that, from a national perspective, monthly bills will be more than 40% higher than last year’s, and projections from the US Energy Information Administration show this year’s retail residential rates rising the most since 2008.
  • Con Edison, recognizing that the Covid-19 pandemic has caused economic hardship for low-income families and individuals, is also implementing approximately $338M in relief toward past-due bills owed by residential customers participating in our Energy Affordability low - income discount program. This program is consistent with an order by the NYS PSC and includes a combined $250M that was allocated to all utilities to help with low-income customer pandemic related arrears. Notably, it is supported by the Public Utility Law Project (PULP), AARP, and the Department of State Utility Intervention Unit. Con Edison’s share of the statewide amount is approximately $165M, and Con Edison is recovering an approximate additional $167M with a bill surcharge of just under one half of 1 percent over four years. The Company is providing an additional $18M of shareholder contributions.

Investment Plan Rate Filing

Importantly, the electric supply increases charged by power generators are completely unrelated to our recently filed investment plan for the energy grid. This investment plan contains groundbreaking programs and innovative proposals to accelerate New York’s transition toward a clean, renewable, and resilient future and our recently expanded Clean Energy Commitment sets forth our vision to help the State achieve its goal of a net zero economy by 2050. Furthermore, in recognition of the City and State’s ambitious clean energy goals, we have proposed a plan that is no longer focused on growing the natural gas system and places the financial benefits of renewable energy investments in the hands of our lowest income customers. The investment plan is a key step in a transition to a clean energy economy while continuing to provide safe and reliable service, and resilience against storms. For these reasons, we believe this plan is worthy of support. We’re in the middle of the year-long, open, and transparent process, and our goal is to seek an agreement with our stakeholders that balances affordability and cost impacts with the need to invest in our system. Disinvestment is simply not an option.

Property Taxes are Regressive and Increasing Astronomically

The Company strives to make sure that its property taxes are fair through negotiation with municipalities and other initiatives to reduce property assessments--but we need help if we want to bring down bills.

To level set: Our New York City property taxes have increased from about $500M in the year 2000 to more than $2B today, which is more than a 300% increase. New York City property taxes are not set by the state but by the City of New York.

New York is unique in the way that utilities like Con Edison are assessed for property taxes. In addition to paying taxes on our buildings and land like other businesses, utilities in this state are also taxed on the actual infrastructure we build and install. These fees, authorized by the state and collected by municipalities, are called “special franchise taxes”. New York is unique in that it taxes not only the real estate but the utility infrastructure in the ground, the pipes, and wires, needed to provide delivery service to our electric, gas and steam customers. Again, this circumstance is different from how other businesses are taxed and has resulted in an ever-increasing tax bill that contributes significantly to higher rates. The special franchise tax also has the unintended consequence of penalizing our customers for needed investments in the system, including to maintain high levels of reliability, storm resilience, and to meet our City and State clean energy goals. For example, if the Company added $2B of infrastructure investment in the City, the Company, and that means our customers, would pay an annual property tax of approximately $100M on that infrastructure investment.

This current property tax framework raises the cost of the clean energy transition and serves only to compete with the necessary investment in energy infrastructure that is necessary to meet our region’s needs. A partnership with elected officials, including all of you, is needed to fix this broken property tax system and we would like to add this item to the larger discussion of inequitable property taxes. This unjust property tax system has already been called out as such by some elected officials, regulators, and advocates. In fact, some PSC Commissioners have expressed major concerns about this issue.

Comments on the Proposed Office of Utility Advocate (Intro 372-2022)

This proposed bill would create a new utility advocate office within the New York City Department of Consumer and Worker Protection.

If the intended goal and concerns of the Council are to lower costs for customers, adding another level of government rarely achieves that goal. We also currently provide numerous reports to our regulator, including related to reliability/outages, storm preparedness, and customer service. These reports are available to the public on the New York State Department of Public Service (NYS DPS) website.

This proposed department seems duplicative and unnecessary considering the numerous entities whose mission it is to represent customers’ interests in utility matters: the NYS DPS’s Office of Consumer Policy and Consumer Services, the Utility Intervention Unit within the Department of State, the Office of the Attorney General, the statewide Special Counsel for ratepayer protection within the NYS DPS, in addition to not-for-profit entities focused on smaller customers such as PULP, among others. Of note, the Mayor’s Office of Climate and Environmental Justice works closely on utility issues and represents the City’s interests in our rate cases. Creation of another office would be an additional cost that would be unlikely to yield any significant impact on customer rates considering that consumers are strongly represented by these entities. In fact, a very similar proposal has been vetoed repeatedly in the state legislature for the above-stated reasons.

As an alternative to creating a new office of utility advocate, the Council should focus on meaningful ways to reduce the costs to customers. The elephant in the room here is property taxes and the overall cost of doing business in New York City. Other charges and fees, such as revocable consents and permits continue to increase and drive up the cost of providing our essential services. As just one example, we pay $1,500 annually for each communication device on City poles we use to transmit information to our smart meters. We then pay property taxes on those very same devices—so New Yorkers are paying twice.

Also, the delays we experience every day to do the work we need to maintain our infrastructure is often slowed down by many processes, this includes our “public improvement” work. We would welcome a city process for identifying and working with us and other interested stakeholders on these added costs, fees, etc., that could provide real relief from upward pressure on customer bills.

Notwithstanding our concerns about duplicative entities working in the same space, should the legislation become law, we would coordinate with the new department as needed.

And finally, we need to ensure we all understand that policies to accelerate our transition off fossil fuels require building out the electric grid, e.g., Local Law 154 (ban on new gas connections). If we want to “electrify everything,” and customer outages are considered unacceptable, it is ignoring reality to state that our investment plan rate filing is not necessary or it’s just to enrich our shareholders. We would like to and need to find a common understanding of this important point. I should add anyone can join the rate case as an intervenor, and the NYS PSC has held multiple public statement hearings on this topic.

We look forward to working with the Council and other stakeholders on this important topic and are happy to answer any questions you may have.

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