Kingston, NY – The Office of Assemblymember Sarahana Shrestha is an intervening party to the ongoing Central Hudson rate case, which is undergoing confidential settlement negotiations. The Department of Public Service is expected to release a joint proposal soon.In the meantime, Shrestha will host an online town hall on April 23rd, at 7pm, to provide an overview of how Central Hudson makes profits, how the state regulates it, why delivery rates are high, and how to make an effective comment at the upcoming in-person hearings the PSC will host in Kingston, Poughkeepsie, and Catskill. RSVPs are required at https://bit.ly/cenhud-103

“To understand why delivery rates are high, and why Central Hudson is likely to get approval for even higher rates, we need to first understand how state regulation works and how investor-owned utilities are allowed to calculate their profits,” said Shrestha, “Investor-owned utilities are private companies that earn profits for shareholders and are nonetheless granted a monopoly status. This is because they’re considered to be a natural monopoly—an industry where fixed costs are so high that competition would drive rates up rather than down. Imagine if two or more companies delivered energy on the same streets, not only would the multiple sets of wires and pipes be cumbersome, they’d each have to recover the high costs of operation and capital from a smaller share of customers. So we allow investor-owned utilities to be monopolies, and in return they allow the state to regulate them. Under such regulation, Central Hudson is allowed to charge rates that are high enough to collect 100% of operating costs, 100% of capital investments, 100% of financing costs, and a profit margin that is calculated by applying a rate of return on equity (ROE) to the value of their capital investments. That means, the more costly capital investments they make, the more profit they can collect. Because of this formula, investor-owned utilities have a perverse incentive to undertake capital projects that are as costly as possible, and since capital projects last for decades, these investments pile up over time, leading to an upward spiral of delivery rates. For example, there may be two ways of addressing the same problem: one option costs $50 million in capital investments, and the other costs $20 million. Investor-owned utilities are likely to propose the $50 million option, and the PSC may not even be aware that the $20 million option exists. The PSC will simply decide whether or not to approve the $50 million proposal that is in front of them, with or without modifications. If approved, not only are the customers on the hook for paying the yearly share of the $50 million, they’re also on the hook for paying over $2 million in new profits that is calculated by applying the ROE rate to that amount. Additionally, as more money is needed for more costly capital investments, more debt has to be issued, so ratepayers will also be on the hook to pay higher amounts in interest rates over the years. And what happens if the PSC doesn’t let Central Hudson collect 100% of the costs and the profit margins? In theory, the company’s financial integrity will take a hit, which will increase the financing costs, and therefore the rates. In other words, Central Hudson wants us to believe that it is in the interest of ratepayers for it to make profits, a lose-lose situation. Nonetheless, the PSC has control over what the authorized rate of ROE should be, and this rate should be kept as low as possible to reduce profits. Before 2024, the rate was 9%, and when Central Hudson asked for it to be 9.8%, the PSC increased it to 9.2%. In the current rate case, Central Hudson is asking for it to be increased to 10%, which would make the profits they can collect on the same amount of capital investment much higher than before.

Keeping the ROE low would be the fairer option for ratepayers in the short-term, but we, of course, believe that the profit margin should be eliminated altogether in the longer-term. Doing so would also eliminate the perverse incentives that spiral the rates upward with unnecessarily capital-intensive investments. We can run the utility as a publicly-owned corporation that not only does away with profits but can also access lower financing costs and focus on low rates and the quality of service. Join us on April 23rd to learn more about the rate case, and how to make effective comments at the upcoming PSC hearings.”