Taxing Times: Storm-Battered Utilities Already Face Rising Taxes and Fees

Taxing Times: Storm-Battered Utilities Already Face Rising Taxes and Fees

Taxing Times: Storm-Battered Utilities Already Face Rising Taxes and Fees
January 28, 2014

Over the past year, Con Edison has become one of Gov. Andrew Cuomo’s favorite punching bags.

When Superstorm Sandy shut down entire swaths of New York City, Cuomo threatened to revoke Con Edison’s license. In April the governor blasted post-Sandy bonuses for top Con Edison executives, who were pressured into returning the money. And in October the governor attacked the utility for its role in a power failure on Metro-North’s New Haven line and its performance during Sandy, concluding that its proposed $450 million rate hike should be denied.

If the rate increase is rejected as the governor has called for, some question whether the utility company will be able to reinforce the grid and better protect it from future storms.

One partial solution would be to reform the many taxes and fees charged to utilities, which could free up money to invest in energy infrastructure.

New York places a higher tax burden on energy companies than any other state in the country, the Public Policy Institute of New York State found in 2010. One major reason is the state’s huge property taxes, according to the report.

In the case of Con Edison, New York City residents are charged for three things each month: the cost of producing electricity (36 percent of a typical bill), the cost of delivering electricity (33 percent) and taxes and fees from federal, state and local governments (31 percent), all of which are passed on to customers.

Only a few fees are listed on a customer’s bill, however—including a systems benefit charge for energy efficiency and education projects, and the renewable portfolio standard charge, which promotes wind and solar projects. Several others, like the gross receipts tax, do not appear on consumers’ statements.

Another fee is the controversial 18-a utility assessment, a 2 percent surcharge that state lawmakers renewed this year with Cuomo’s support, despite opposition from business groups.

But the biggest headache for Con Edison is property taxes, which are assessed on everything from cables to substations to a steam generating station on the East River. The company’s property tax payments to New York City rose from $1.03 billion in 2009 to $1.27 billion in 2013, including a jump of more than $100 million in a single year in 2010. Along with state property taxes, the costs make up about 13 percent of a customer’s bill.

“Taxes and fees drive up costs for our customers by as much as 25 percent on the dollar—and we’re put in the posi-tion of being the tax collector,” said Kevin Lanahan, a Con Edison lobbyist. “This means less ability to pay for critical system investments necessary to guard against the next extreme weather event. The state Legislature has a direct role in helping to bring down these sometimes hidden costs in the bill.”

The challenge is particularly acute in New York City. The city’s property tax system has four classes. Con Edison makes up most of Class 3 all by itself, an unfortunate circumstance brought about by a historical anomaly. Company officials say that leaves the utility with little recourse to successfully challenge property tax increases, because it can only be compared with itself. And while the city’s other three classes have property tax increases phased in over time, Con Edison faces immediate tax increases.

Opposition at City Hall in New York City has stalled legislation to merge Class 3 with the much larger Class 4, which includes most nonresidential commercial and industrial properties.

“Ultimately it’s for us in the state Legislature to pass legislation, but you really need a mayor who wants to set forth a real change in the system,” said Assemblyman Dan Quart, the sponsor of the legislation. “I don’t think there’s been a large-scale commitment by the state Legislature because the city of New York has been largely absent in taking a leadership role in reforming the property tax system.”

The Bloomberg administration argued in a memo in May that while the legislation would save Con Edison $170 million a year in tax relief, the city would have to increase taxes on other properties, including residential buildings, to make up the difference.

“The sponsors’ memorandum in support of the bill claims that lower taxes on utility property will lead to lower rates for consumers, but there is no guarantee that the tax savings will translate directly into rate reductions,” the administration’s memo says.

Even so, Jerry Kremer, the chairman of the New York Affordable Reliable Electricity Alliance, believes that tax reform could provide the funding that utilities like Con Edison desperately need.

“Now when you’re talking about hardening the system, and taking all these preventative steps, if you provided a pool of money to some of the utility companies and lower taxes and set it aside, they could do some meaningful things and really allocate it to some very important things,” he said.

Jon Lentz
is City & State’s former editor-in-chief.