Con Ed: What wrong with this picture?

Real Estate Weekly, Sept 13, 2000 by Greg Carlson

From the inception of electricity deregulation in 1998, managers of multifamily properties throughout New York City have been confronted with steadily escalating costs. But this past summer the increases have been extreme and several of our NYARM members have reported increases exceeding 50 percent for the month of July. In an article that ran on August 22, 2000, The New York Times estimated a 43 percent increase this summer over last year. Ironically, deregulation may be more expensive than the monopoly it replaced. It seems especially true when you consider this has been one of the coolest summers in memory, with little need for such cost-increasing appliances as all day air-conditioners. Of course, only one-quarter of the charges for electricity have actually been deregulated.

Obviously, the current plan for deregulation is not benefiting the consumer or the managers responsible for running their buildings. The genesis of the problem may have something to do with the unusual way that the Public Service Commission deregulated electricity, i.e., without the benefit of legislative debate or ruling. Before most consumers had any inkling, PSC designated a program in which the market would be open to various suppliers and Consolidated Edison required to sell most of its power plants. The purpose was to give customers throughout the state the option to purchase electricity from private unregulated companies. i.e., ESCOs (Energy Service Companies), instead of being forced to buy it from Con Ed. Today, eighteen companies now offer electricity, but 'Con Ed only accepts nine of them for its residential customers.

And therein lies the rub. Con Ed still owns the lines through which electricity travels. Therefore, 75 percent of the cost is for transmission and distribution, which is Con Ed's domain, and only 25 percent is for the actual product.

From both a professional and personal perspective it has been frustrating. For example, I live in and manage a 424-unit complex in Forest Hills, Queens.

Our building burns more fuel during the summer than the winter and we are master-metered. Our management office received a bill for the period June 22 to July 24, including the ten days in which our air-conditioning broke down. In addition, during that same period, the building replaced 400 standard hallway fixtures with energy-efficient ones. Nevertheless, our bill showed a 56 percent crease for the month!

In past years during the summer months -- when everything was in working order -- we averaged between $1,100 and $1,200 per day. Yet, during this billing period, when we actually used less electricity, we paid $2,000 per day. What's wrong with this picture?

Electric bills are divided into three components: Kilowatt hours used, demand charge (charge for peak electricity demand) and adjustment factor (fuel surcharge). Since the increases we are seeing are in the fuel surcharge, which is predicated on transmission of product, it appears as if Con Ed's monopoly remains intact.

For now, the best option for owners and managers is to track usage in individual properties. Monitor how the kilowatts are being used. In addition, such new products as Micro-Turbans should help shave off some of the peak demand, thus saving energy dollars.

Con Ed offered to ease some of this summer's increases by eliminating late payment charges on bills issued from July 3 to August 30, but it's a small concession. The Public Service Commission recently claimed that we will benefit in the long run, but it remains to be seen whether there is any way to compensate for the damage already caused to residents throughout the state. Moreover, since New York is one of the first states to deregulate a utility, we may well become the model for how NOT to disband a monopoly.

As an industry, deregulation may someday offer us benefits. Perhaps the ESCO's will be able to hold onto competitive rates that will balance the transmission costs levied by Con Ed. Then again, winter is drawing near and all of these electrical increases will soon be forgotten while we figure out how to deal with fuel hikes.