Why Your Energy Bills Are Going Up

Utilities and the PSC broadly agree that the process delivers fair compromises between the interests of customers and those of the utility’s investors. “For the major electric and gas utilities, the approved rates … are nearly always dramatically lower than what is requested,” said PSC spokesperson James Denn. “This transparent, stakeholder-accepted review process has been an outstanding success in New York.”

Not everyone shares that view: Assemblymember Zohran Mamdani of Queens, who fought ConEd’s current rate hikes, called the deal “a failure of how an industry should be regulated.”

And the result doesn’t just affect your wallet: Because rate cases govern a large part of the energy system, they also shape the state’s ability to meet its climate goals.

So how does it all work? Here’s what you need to know.

The two sides of your energy bill

A monthly energy bill breaks down into two main categories. First is the cost of “supply” — basically, the price of energy on wholesale markets. On a gas bill, that’s the price of the gas itself; for electricity, it’s the price set by power plants or other generators on the statewide grid. (Gas prices still play a role since most of those plants burn it to produce electricity.)

Utilities are not allowed to earn a profit on this side of the bill — they’re required to pass along the energy supply to their customers at the same cost they buy it for.

Then there’s the delivery side, which pays for all the infrastructure and staff it takes to get that energy to your home. This is the core of utilities’ business — and, in the case of the private utilities that serve most New York customers, the source of their profits. Utilities are entitled to earn a fixed rate of return, typically hovering a little under 10 percent, on their infrastructure spending.

The delivery side is what utilities negotiate with state regulators, who are tasked by law with ensuring “safe, reliable utility service at just and reasonable rates.” Deciding how much it costs to actually deliver energy to customers is the crux of the bartering that happens over the course of a rate case.

A utility budget battle

The opening salvo in a rate case is a proposal from the utility, often thousands of pages long, detailing all the reasons they feel they need to raise rates in order to keep the lights (or gas, or water) on and sustain their business.

This kicks off a proceeding similar to a court case, overseen by an administrative law judge. The state’s Department of Public Service (DPS) assigns a team of its own to scrutinize the utility’s proposal, and interested parties sign up to become “intervenors” in the case.

The process is open to anyone, but in practice, rate cases draw a familiar roster of intervenors: local officials, businesses and institutions that use a lot of energy, and groups advocating on behalf of consumers and the environment, all backed by countless lawyers and consultants.

“What people don’t usually know about is that they also have the opportunity to become an intervenor and to get a lot more involved in the case,” said Jessica Azulay, program director of Alliance for a Green Economy. Her group and others train members of the public to take this step and weigh in throughout the process.

But even those eager to dive in might find the process daunting. The sheer amount of information published on the PSC’s website is “so extensive that it’s practically impenetrable,” Assembly energy chair Didi Barrett said.

“Putting all the information out there doesn’t necessarily make it more accessible or more user friendly,” she told New York Focus.

PSC Chair Rory Christian acknowledges that the bar to entry in rate cases is high.

“While any party can participate, the path to meaningful engagement is fraught with obstacles that perplex the uninitiated and often test the patience of seasoned participants,” he recently wrote. “Parties and individuals who have long participated … possess an undeniable advantage over newcomers.”

Today, most rate cases in New York are settled through secret negotiations, where all the parties seek to broker a compromise behind closed doors, rather than being decided by a judge. The utility and regulators have to reach agreement on a final deal before it’s presented to the public, and they aim to get as many other parties as they can on board too. The recent ConEd settlement had the backing of New York City, the MTA, Walmart, and two groups representing real estate, universities, hospitals, and other major energy users. (The New York Power Authority and one large environmental group also backed the electric side of the deal.)

“Usually we see these joint proposals come out — that starts an inevitable march toward that being approved, largely as is,” said Joe Stelling, associate state director at AARP New York, a regular intervenor in rate cases. That’s what happened in the recent ConEd case.

Fossil fuel upkeep — and clean energy development

It’s hard to pin rate hikes on any one factor alone: Like most businesses, utilities have costs that range from staff and pensions to computers and software to property taxes and more.

Generally, though, the biggest driver are infrastructure investments. These can range from hardening electrical equipment against storms to replacing “leak-prone” gas pipes, an expense that has been hotly contested by environmentalists.

Utilities argue that upgrading fossil fuel infrastructure is necessary to maintain reliability and even reduce emissions. In its rate case filed in April, for example, National Grid proposed spending an average of $500 million a year on leak-prone pipe replacement, projecting that it would slash emissions by preventing leaks of methane, a potent greenhouse gas.

Climate groups argue that the aging pipes should simply be removed and replaced with all-electric systems. The underlying problem, for Azulay, is that the state still hasn’t fully reconciled public service law — which governs utilities and gives New Yorkers rights to gas service — with its climate law, leaving the PSC to constantly juggle two competing goals.

“We’re hashing out a lot around the climate law in these rate cases, and we’re having to do it over and over and over again in each rate case,” Azulay said. “That is very time-consuming, because the Commission has not taken the [climate law], clearly looked at it, and said, ‘This is what now needs to happen with the utilities.’”

She and other climate advocates have made a priority of passing the NY-HEAT Act, which aims to resolve the tension by ending subsidized gas hookups and giving utilities hard targets for reducing gas sales, among other provisions.

As the state legislature repeatedly punted on passing dedicated climate funding over the last several years, New York resorted to paying for clean energy through energy bills. Some argue that this puts an unfair burden on low-income customers, since — unlike income taxes — nearly everyone pays the same utility rates.

“When there’s not an overall vision for things like implementing our state’s climate goals, the default so far has been, well, throw it on the backs of ratepayers,” Stelling said.

How much has that cost so far? The PSC calculates that state climate policies accounted for anywhere from four to 10 percent of the average electric bill last year, or $6 to $9 per month, depending on the utility. (The impact on gas bills was negligible, at one percent or less.)

The largest chunk of the subsidies went to the state’s Clean Energy Fund, which supports clean energy research, development, and finance, as well as community solar. Another big chunk went toward energy efficiency and heat pump programs run by the utilities themselves. All of these are paid for on the delivery side of the bill, while the supply side includes subsidies to nuclear plants and a tiny but growing sliver of renewables.

The bottom line? Climate policy has not been a leading driver of rate hikes to date, but we’re still in the very early stages of the state’s energy transition. Lawmakers, regulators, and advocacy groups broadly agree that finding ways to share the costs equitably is a top priority as the state develops its cap-and-invest program, its first overarching effort at funding climate action.

Bargaining over corporate profits

How much of the hikes go to the utilities’ shareholders?

Utilities are allowed to earn a fixed rate of return on their investments. National Grid told regulators this spring that returns accounted for roughly one-fifth of the increased rates they were requesting, similar to the amount ConEd listed in a presentation last year.

“The entire regulatory construct is set up so that the utilities are incentivized to keep building … to make those profits,” Azulay said.

PSC Chair Christian, testifying before the Assembly in July, defended “fair and equitable” shareholder returns. Without them, he said, utilities wouldn’t be able to attract the investment they need to operate, and they would face higher borrowing costs, which would in turn get passed on to customers.

“Utilities in New York earn among the lowest [returns] in the United States, in large part because of the outstanding regulatory work done by our employees in reviewing rate cases,” Christian said.

Still, even some of those in charge of the process admit that the results can be hard for many customers to swallow.

“There will be pain,” said Public Service Commissioner Diane Burman before casting her vote in favor of the ConEd hikes. “It’s a huge rate increase.”

The hikes come even as utility debt remains at crisis levels. Some 406,000 households are still overdue in paying their ConEd bills, for a total of $560 million, according to the company’s latest report. Statewide, utility debt totaled more than $1.4 billion in May 2022, or an average of $1000 per indebted household, according to filings reviewed by the Public Utility Law Project, a consumer protection group. That’s even after the state distributed more than $1 billion over the last two years to help low-income customers and small businesses pay off their debts.

Meanwhile, ConEd recorded $1.7 billion in profits in the first half of this year — nearly double its earnings for the same period last year and triple the year before.

ConEd spokesperson Jamie McShane presented the company’s latest rate hikes as a down payment on an electrified future, and a win for customers and shareholders alike.

“Our commitment to leading the clean energy transition and providing world class reliability for our customers delivers strong and stable financial results for our investors,” McShane said. And low-income customers will actually see lower bills under the agreement, he said, thanks to an expansion of the state’s Energy Affordability Program, which uses a portion of the rates collected from all customers to offset bills for those most in need.

Assemblymember Mamdani sharply disagreed. “I don’t know how you can see a $64 increase for the average customer as anything other than letting ConEd run the show,” he said.

Mamdani favors full public ownership of the energy system, and said legislation to take over New York’s private utilities was on the horizon, though he didn’t specify a timeline.

Stelling, of AARP, said that state regulators deserve credit for their work trying to balance the competing pressures in rate cases, but that the results of the ConEd case underscored the need to reform the process.

“They’re working in a broken system,” Stelling said of the Department of Public Service staff. “The results come out with astronomical numbers, but because the original ask [from the utility] was so high, they can still claim victory in a press release. It’s just not working for ratepayers.”

Stelling wants to see the state return to one-year litigated rate cases, which he said would boost transparency and help redress the disproportionate power that the utility and DPS staff have in closed door settlement negotiations.

Azulay isn’t so sure. She said that, despite the process being “stacked” against them, climate activists have won some significant victories through settlement negotiations, such as a provision that ultimately blocked National Grid from building two new liquid gas vaporizers in Brooklyn.

Laurie Wheelock, executive director of the Public Utility Law Project, said that one way or the other, it’s clear that reforms are needed to keep energy bills in check.

“We can’t just do business as usual,” Wheelock said. “We have to open things up and look at them to find ways to really help cut the cost for repairs.”