Small businesses in New York pay prices that, on average, exceed the prices charged small business customers in every other state in the continental United States. Small businesses, even those engaged in manufacturing, generally pay commercial electric rates rather than industrial rates, which are applicable only to the largest electric customers. Commercial prices are, therefore, the appropriate basis for comparison of electricity prices paid by small businesses.

These higher prices are the result of numerous factors that vary depending on the utility. For example, fuel and purchased power costs paid by New York utilities are generally higher than the average paid by utilities nationwide. Also, New York utilities' prices reflect higher-than-average taxes, with state taxes accounting for about one-third, and local taxes comprising well over one-half of New York utilities' tax payments. In addition, New York utilities made significant investments in expensive and uneconomic nuclear facilities for which ratepayers are forced to underwrite much of the cost.

The average rate charged in 19952 to commercial customers in New York was 11.86 cents per kilowatt-hour (kwh), or 54 percent higher than the national average commercial electric price of 7.69 cents. Yet, this figure understates the actual cost of electricity to most small business customers in New York, since it represents the average price paid by all commercial customers, including those which receive low-cost power from PASNY. The average price charged by the state’s investor-owned utilities, excluding PASNY’s low-cost power, is 12.02 cents per kwh, or 56 percent higher than the national average.

Table 1 displays the average prices charged to commercial customers in the 50 states and the District of Columbia, ranked from high to low.

SMALL BUSINESSES AND JOB CREATION

The health of New York’s small businesses is key to the creation of employment opportunities in New York. Most new jobs have been created in recent years by small businesses. Table 4 presents data on the number of jobs in businesses of different sizes over the period from 1980 to 1996. The total number of jobs in firms employing less than 50 workers increased almost 25 percent between 1980 and 1996. The overall increase in employment for firms with fewer than 100 employees was 22 percent. In contrast, total employment in firms employing more than 100 workers declined slightly, and the number of jobs in the largest firms, with more than 500 employees, declined by nearly 13 percent. If this historical trend holds in the future, significant job growth in New York State will be achieved only through a healthy and vibrant small business sector.

Robust job growth in the small business sector in New York State depends upon the health of existing New York businesses that seek to expand operations, as well as on decisions to form new businesses. New York’s high electricity prices charged to small business customers act as a brake on job growth, by imposing a substantial competitive disadvantage on small businesses compared to businesses in other states.

The disparity between typical small business electric bills in New York State and competing states is depicted in Tables 2 and 3 and Figures 2 and 3, which show annual bills in 1996 for two types of small business customers. The states shown for comparison are those that have actively sought to attract New York businesses or that have aggressively worked to reduce electricity prices.

As Table 2 and Figure 2 show, a business customer with a peak demand of 50 kilowatts (kw) — a well-equipped restaurant or large warehouse, for example — pays an annual premium of up to $12,968 for electricity in New York State compared to similar businesses in competing states. That premium equates to a cost disadvantage of 136 percent over a competitor in the lowest price state examined, Washington. Even in the case of a relatively high cost electricity state such as New Jersey, commercial businesses located across the bridge from the Con Edison service territory have a nearly 20 percent electricity price advantage over a New York-based competitor. A small business customer with a peak demand of only 10 kw — a store front service or retail establishment, for instance — faces an even greater competitive disadvantage in percentage terms compared to similar business customers in competing states, as is shown in Table 3 and Figure 3.

The average prices charged to the business customers in New York offer a clear indication that all New York businesses are disadvantaged by high electricity prices and need significant rate relief. However, smaller commercial and industrial customers are burdened even more. As a general rule, average cost per kwh falls as electric use increases. That is, larger customers pay less than smaller customers.

Figure 4 depicts the average prices charged by New York electric utilities for business customers of different sizes from 1992 through 1996. The average price per kilowatt-hour charged to lower use customers is consistently, and significantly, higher than the average price charged to high use customers.

In recent years, in response to pressure from businesses and in the face of competition from other states, New York utilities provided some rate relief to their largest business customers. This rate relief can be seen in Figure 4 as a slight dip in average prices for the largest (10,000 KW) customers between 1994 and 1996. However, Figure 4 also shows that smaller business customers have not been provided with the same rate relief given to the largest industrial customers. On the contrary, the smallest business customers have seen electric prices rise by 15 percent since 1992. During that time, prices charged to the largest industrial customers have increased by 1 percent.