Relates to the retention of revenues derived from their actual return on equity in excess of authorized rates of return by gas, electric…

• Democratic25
• Republican1

◆ The sponsor's argument

Why Shelley Mayer says this is needed

Over the last several years, the Public Service Commission has approved significant rate increases for public utilities, stretching many rate- payers to the limit. For example, in 2023, the PSC approved a $457.5M electric rate increase over three years and $187.2 million gas rate increase for ConEd. In January, 2025, ConEd filed another rate increase request with the PSC, seeking $1.6B more in revenue for electric service and $440 million more in gas. The PSC is currently reviewing this rate case, but it is likely to result in further increases for electric and gas customers. For New Yorkers across the economic spectrum, these rate increases are untenable. According to the Robin Hood Foundation, 1.5M New York City residents live in households where their utilities have been shut off at some time in the past 5 years.1 But even for families that haven't expe- rienced shut offs, utility costs represent a growing burden. Under the public service law, the PSC is tasked with reviewing and ulti- mately approving all major rate increases for utilities. The process is long and multifaceted, but one of the determining factors in the rates approved by the commission is the rate of return on equity. The rate of return on equity dictates how much a utility is authorized to earn in return on the equity portion of their capitalization. It is functionally their approved profit. The process for determining a utility's approved ROE is flawed and in need of reform, but the authorized ROE is not actually the ceiling for how much utilities can earn at the expense of ratepayers. When utilities earn in excess of their authorized ROE, they are typically allowed to keep a significant portion of that excess profit. Multi-year rate settlements typically provide for earnings sharing above the approved ROE. That is if a utility exceeds their authorized ROE, or profit, they must share a portion of excess earnings with ratepayers in the form of a discount on future bills. However, these earnings sharing mechanisms typically do not apply to a "dead-band" above the approved ROE. In other words, utilities are usually allowed to earn some amount in excess of their approved ROE before they begin having to share their earnings with ratepayers. For example, a utility may be authorized to earn a 996 ROE; but in actuality may earn 9.59s before they have to begin returning a portion of excess earnings to ratepayers. As a result, a utility's authorized ROE in practice is usually half a percentage point or more higher than what is actually approved. This obvious inequity results in utilities being allowed to keep the vast majority of excess earnings. According to analysis by the Public Utility Law Project, while the most recent major electric and gas rate cases have been in effect, ratepayers have only received, on average, 14% of utilities' excess earnings. This legislation would address these two sources of inequity by prohib- iting the PSC from approving any rate plan that provides a deadband or earning sharing mechanism. Instead utilities would be required to return all earnings in excess of their approved ROE to ratepayers. Utilities are entitled to earn just and reasonable rates under federal law. They should not be entitled to earn a profit above what is approved by the PSC, at the expense of ratepayers.

This is the sponsor's own case for the bill, quoted from their memorandum. It is not Agora's description of what the bill does.