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A second look at the Con Ed rate increase and Atlantic Yards

Did Consolidated Edison, requesting an unprecedented 17 percent rate increase, really blame Atlantic Yards? A NY1 report--and subsequently other reporters, bloggers, and advocates--singled out the development as increasing demand on the electric grid.

I similarly cited the NY1 report, but it wasn't fair to single out Atlantic Yards. A belated look at a May 23 hearing transcript shows that it was just one of numerous projects increasing demand. Indeed, NY1 apparently updated its story sometime later.

However, Con Ed shouldn't be let off the hook so easily. A look back also shows that, as Atlantic Yards was being evaluated, the utility was closemouthed about the significant fiscal impact of its preparations to serve a growing city.

In other words, even though Con Ed claimed confidence it would be ready to supply power to Atlantic Yards, it failed to acknowledge that the project, along with others, would trigger a significant rate hike.

The rate announcement

In a May 4 press release, Con Ed announced a state filing that calls for an 11.6 percent average increase in customer bills beginning 4/1/08, which includes a 17 percent rise for a typical residential customer and 10.7 percent for the typical business customer. Also proposed were overall increases of 3.2 percent in 2009 and 3.7 percent in 2010.

Con Ed had an explanation, stating:
New York City and Westchester County are booming. Among the many new projects are the development of Lower Manhattan and Manhattan's West Side, and new construction in the South Bronx. New developments are also planned for the New Rochelle waterfront in Westchester and Long Island City in Queens...."This growth is good news for the people of New York as well as for those who continue to come here to improve the quality of their lives, but it means our present infrastructure must grow, too. These projects will place further demands on the transmission and delivery infrastructure," [Chairman and CEO Kevin] Burke added. "Many of our substations are already operating near 100 percent of their capacity

The storm increases

The rate hike generated criticism from Assembly Speaker Sheldon Silver, who charged that the "bold attempt to once again extract a blank check from ratepayers flies in the face of common logic." A public hearing was called for May 23.

From the hearing, NY1 initially reported that Con Ed, blamed, among other things, Atlantic Yards:
Con Ed came before a State Assembly committee to explain the rate hike. Officials argued Wednesday the system is strapped and that massive projects like the Atlantic Yards in Brooklyn will burden the system even more.
They say the rate hike would cover improvements to handle energy needs, some of which have already been made, but have not been fully paid for by customers.

When I followed up, Con Ed spokesman Chris Olert challenged the nomenclature. “They are the ones who characterized it as burden,” he told me. “We characterize it as demand,” and that involves more than Atlantic Yards.

Indeed, it looks like NY1 updated that story, which now states:
Officials say that an investment into the system must be made to support large city projects, such as Atlantic Yards, the development of the West Side Railyards, and the new Yankee and Mets Stadiums.

The transcript

Olert was unable to provide me with a transcript of remarks by Con Ed representatives at the hearing, and it took quite a while to get it from the State Assembly. Indeed, testimony by John Miksad, senior VP of Electric Operations, cited a large amount of growth beyond Atlantic Yards:
All you need to do is look at the skyline to see the cranes throughout the five boroughs and Westchester County... And it ranges from we've got the Millennium Tower down in Battery Park to the new New York Times Building. We've got the new Manhattan Auto Mall up in Harlem. And we've got Trump up in Westchester as well as on the west side of Manhattan. Queens, you got Silver Cup West going in place. And there's many, many other examples. Now, this is not particularly unique. We always have had high rises in the city. It's just the number that are coming together at this time. In addition, housing from -- residential housing permits are currently at a 30-year record level. And that is also driving a lot of this growth that we're experiencing. And one of the things that this rate proposal does is it makes sure we keep up with this kind of growth.

But there's also really an unprecedented level of infrastructure projects that are going on. We've not seen this in 30 years or 40 years and even 50 years. You've got two new stadiums for the Yankees and the Mets for Opening Day 2009. You've got the Atlantic Yards Project in downtown Brooklyn, which is a commercial and residential development, as well as bringing the Nets arena into Brooklyn. The Second Avenue Subway. When was the -- when was the last time a subway line was built in the city?.. As well as, obviously, the redevelopment of the World Trade Center site starting -- it actually already started with 7 World Trade Center, which is actually up and running, and the Freedom Tower is now being constructed. The plans for the Hudson Yards, even without a Jets stadium, is significant. It accounts for 65 million watts of -- of energy usage. And the Seventh Avenue -- the No. 7 subway line extension, which brings service over to the west side for the whole redevelopment of the Javits Center, as well as supports that residential and commercial development going on over on the west side. For those of us who have lived or worked in the City for some time remember a very different picture in Times Square.

The AY environmental review

So, were we warned? Not quite.

n the November 2006 Atlantic Yards Final Environmental Impact Statement (FEIS), Chapter 24 explained, as I noted:
...increased demands on electricity, water, and sewage services as a result of the proposed development would not be significant and can be accommodated largely through existing infrastructure systems with local improvements in sewer pipes, water mains, electrical and gas lines, and the proposed project’s stormwater management techniques.
(Emphasis added)

Apparently the word "largely" is key, because the rate increase implies the need for increased capacity.

Beyond that, the FEIS stated:
As discussed in the DEIS, increased demands on electric and gas service as a result of the proposed development would be insignificant compared with overall energy consumption within the City (the proposed project would add less than 0.1 percent to this demand).

That may be true, but incremental “insignificant” demand is part of a package that’s driving the rate hike. In other words, the FEIS answered the question of whether the demand would overburden the system, not whether consumers would pay more to ensure the system would meet the growing demand.

At the Borough Board

At the 3/2/06 Brooklyn Borough Board Atlantic Yards Committee Meeting on Infrastructure, Air Quality, Noise and Energy, according to notes of the session, Con Ed's Joseph Murphy and Lawrence Laskowski seemed sanguine about the utility’s capacity.

Q. How will the grid accommodate the 7,000 new residences? Looking ahead at the demands, how is Con Ed going to keep up? Do you work with the city and state agencies overseeing this to be sure the construction will not negatively impact the service?

L. Laskowski: Each year we look at the projections for community – called the load – and at how that impacts our facilities. We evaluate against the ratings of the system. Con Ed is a network design, so that on the forecasted peak day, we can beat that load with any two facilities. That is our criteria. Right now, we have an annual system improvement budget that covers this, as well as improvements on a secondary system.
(Emphasis added)

Unmentioned, apparently, was how and when that system improvement budget would come due, and who would be paying.

J. Murphy: Two things. One, much of this project will not be supplied from our network system, so we don’t envision that it will impact. It won’t have the traditional network supply. It will have network supply feeders because the need is so intensified, with high tension feeders into the building. For a portion of the project, it’s closely married to the Borough Hall network, which is probably one of the most robust, that represents one of the only day-peaking networks in the borough. So this gives us the opportunity to use some of our existing capacity, swinging to evening use of the arena and residential units.

Clearly, however, the existing capacity was not sufficient.

Who pays?

Q. Who bears the costs of this work? General rate payers? The developer?

J. Murphy: It depends. It is an as-of-right as a customer that Con Ed is obligated to extend facilities. There are instances, whether or not there are space limitations, like a sidewalk. For the arena and towers, the burden of the installation of transformers are shifted to the developer because it’s inside property line. The bulk of the cost is installation, and that would be shifted to the developer.

The bulk of the cost for outfitting the project's electrical capacity does fall on the developer, because of the new equipment, Olert told me. However, because of growth in the Downtown Brooklyn area, “we would still have to make investment.”

Did that system improvement budget Laskowski mentioned in March 2006, I asked, contemplate the 11.6 percent increase--the increase that means a 17 percent jump for residential customers?

“It’s no one project that triggers the rate case,” Olert responded. “We have to plan for the future. The increase is for the whole system. Atlantic Yards is a piece of it.”

Sufficient disclosure?

It's understandable that Con Ed has to plan for the future, but should there have an acknowledgement last year that such planning includes a rate increase, I asked Olert. “That’s understood,” he suggested, offering this metaphor. “The time to save for child’s future is not when they’re in college… You’ve got to make investments today.”

And when did Con Ed first acknowledge that rate increase? In March, Olert said. “We do this every three years.” He noted that the utility had been able to keep rates down by selling property, among other tactics.

The bottom line, apparently, is that a big utility bill was due to come due this year, in part because of Atlantic Yards. Con Ed didn't warn anyone about it. And the AY environmental review didn't address the question.

Rate case continues

As the New York Times reported Saturday, in an article headlined Con Edison Is Supported on Bid to Raise Rates, the State Public Service Commission recommended that Con Ed be granted only a portion of its request, and it was unclear what the effect would be on customers’ utility bills.

Con Ed and city officials have until September 28 to respond to those recommendations, and a final decision will be made by a board by the end of next March.

Sham process?

The Times reported:
“This is all part of the sham that goes on with every rate hike request,” said Assemblyman Michael N. Gianaris, a Queens Democrat who sits on the Assembly’s power committee and who has criticized the utility for its response to the 2006 power failure in his borough. “Con Edison asks for more than it expects to get,” he said. “The P.S.C. rides in on its white horse and takes credit for slashing the request. But the end result is still what Con Edison wanted all along.”

Con Ed prepared?

As far as I could tell, none of the New York State Department of Public Service staff testimony before the Public Service Commission made specific reference to Atlantic Yards. However, testimony did indicate that Con Ed could have planned better:
The Company’s transmission lines average approximately 40 years in age. Con Edison’s aging transmission and distribution equipment needs to be reinforced and upgraded to meet both its Public Service Law requirements and its customers’ expectations for a safe and reliable system.

...Although the Company is accelerating many of its existing programs and adding new programs in an effort to address its aging infrastructure, load demand, growth and systemwide reliability, the Company has known about these major issues for several years. For this reason, this, our specific recommendations are, in part, made to ameliorate rate impacts while allowing the Company to address its system-wide problems.


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