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The Electric Competition Debate in...New York

Fortnightly Magazine - May 15 1998

of 'x' percent," Helmer said in February. "The same solution will not fit all customers."

Helmer quipped that Silver "apparently is hanging by a cliff and talking to God and not liking the answers." She explained the PSC was restructuring the electricity industry using a bottoms-up approach. "This process began in 1993 and is based on the recommendations of more than 90 diverse parties," she added.

Many of the larger New York utilities have cut their own deals with generators, which has slowed the pace of deregulation in that state, said Dan Scotto, senior managing director of Bear Stearns & Co. He predicted that New York would be more active during the next year.

Silver questioned whether the market that will emerge from the PSC's efforts truly will offer competition. He said New York utilities charged the highest electric rates in the nation. For example, he noted that in 1996 New Yorkers paid an average of 62 percent more than the national average for their electricity. The disparity continues to widen each year.

"You don't have to be a financial analyst to see that right now New York continues to go in the wrong direction," Silver said. "I think therefore it is fair to say that ongoing attempts to reduce rates and start competition are not working." He said PSC rate cuts for small businesses are "minuscule" and "nonexistent" for homeowners (em all at the benefit of large industrial customers.

Silver pointed to the takeover of the Long Island Lighting Co. by the state's Long Island Power Authority, and noted that the contract guaranteed rate cuts that were enabled due to the use of tax-exempt financing. He pointed out that the governor made sure in that deal that all customer classes, not just large industrial customers, would receive equal savings. In fact, that deal came closer to realization in March when the Internal Revenue Service issued a ruling allowing LIPA to move forward. LILCO will issue $7.3 billion in municipal bonds as approved by the IRS. The IRS further ruled that revenues produced by LIPA's utility business would not be subject to federal income taxes.

Helmer defended the PSC's efforts. She said the PSC decided to provide larger rate decreases to industrial customers under rate cap plans. This action was based on the belief that industrial customers needed a bigger boost given the state of the economy in New York. Generation of new industrial jobs has languished in the state due to high electricity rates. To retain an industrial clientele, the PSC realized it needed to provide faster rate relief.

Working Out the Details

The issues of securitization, stranded costs, and the state's gross receipts tax have generated a bit more cohesion between state house and commission.

Silver noted that in every state that has passed securitization legislation, it was either part of a general restructuring bill or passed after a comprehensive bill.

"Here in New York, the calls for securitization have deteriorated to desperate claims and that's all." He explained that some parties have claimed that securitization alone could reduce rates