How scheming politicians made utilities their energy bagmen

Electric utility bills have exploded in New York: As of May, the average monthly residential rate had jumped 13% over the previous year, and a whopping 54% since May 2019.

Headline-hungry politicians have found the culprit: the utility companies.

Press releases excoriate greedy executives and their heartless shareholders: Why, these rascals even installed special machines in our homes to decide how much to charge us!

It turns out, though, that Albany pols aren’t just using the utilities as a fall guy for their political theater.

They’ve also pressed them into service as state government’s bagmen, collecting for various climate programs that we’d otherwise recognize as tax hikes. 

The black cables go back to the electric company, but the trail of green leads straight to the state Capitol.

Decades ago, monthly electricity bills were based on your usage and two added factors.

The first was supply cost: Electricity is a commodity sold on a competitive wholesale market, where its price fluctuates based on supply and demand.

About half of New York’s electricity is generated with natural gas, so fluctuations in gas prices translate into electricity-price changes.

The second factor is the utility company’s charge for delivering that electricity.

These rates are tightly regulated by the state Public Service Commission, which requires gas, electric and water companies to account for literally every dollar they collect from ratepayers, and every dollar they spend.

The PSC then sets the profit they’re allowed to keep, decided by a formula.

But, as state officials discovered in the 1990s, that utility-bill system is a fabulous way to tax electricity customers without taking the blame.

Utility companies had no choice but to play along.

In 1996, the PSC made utilities add a “system benefits charge” to customers’ bills. The cash went to various state efficiency, research and affordability programs.

It was a relatively small amount — one-tenth of a cent per kilowatt-hour, or less than $3 per month for a typical New York City home.

But it set a dangerous precedent.

A few years later, the PSC added another fee, making the utilities collect extra funds — outside their approved rates — to subsidize state renewable-energy projects.

New York next joined the Regional Greenhouse Gas Initiative, a “cap and trade” program that required power plants to buy allowances for their carbon dioxide emissions.

RGGI proceeds don’t flow to the state general fund, though, but into a separate public authority controlled by gubernatorial appointees.

Last year the state’s RGGI take surged to $236 million — one of many reasons for the recent jump in customer bills.

In 2016, then-Gov. Andrew Cuomo took things to a new level and required utilities and large electricity customers to subsidize the three fiscally struggling nuclear power plants on Lake Ontario.

That ongoing bailout costs customers more than $500 million a year, but most New Yorkers have no idea: When the utilities asked for permission to show the cost on customers’ bills, the PSC balked.

New York’s renewable-energy efforts have been dialed up to 10 in the meantime, as the state tries to roughly quadruple its wind and solar generation in the next five years.

Electricity ratepayers are unknowingly financing subsidies for new wind and solar projects — hidden behind their supply charges — and major grid upgrades needed to accommodate more wind and solar on the grid.

Those and other changes necessitated by New York’s 2019 Climate Act are a big part of why rates are mushrooming.

All told, New York state this year expects to collect over $2 billion from customers through various utility-bill charges and credits.

And the worst is yet to come.

New Yorkers haven’t yet begun paying the subsidies promised for the construction of offshore wind turbines, or for the massive amounts of battery storage needed to keep electricity supply stable using intermittent wind and solar generators.

The cost for these will run into the hundreds of billions of dollars, with electricity customers living north of New York City picking up about half.

If Albany is going to keep using utility companies as taxmen with bucket trucks, state legislators and Gov. Kathy Hochul should at least be honest about it.

That means having bills show the RGGI and mandatory renewable and zero-emission credits baked into supply costs, as well as the Climate Act compliance costs now mashed into delivery rates.

Utility companies would leap at the chance to be forthright with their customers about why their rates have jumped.

But if New Yorkers find out utilities aren’t to blame, they’ll soon discover it’s really the fault of their elected officials.

That’s a risk Albany just can’t take.

Ken Girardin is a fellow at the Manhattan Institute.