What drives up New York’s electricity rates?
Electrical power lines. (Source: Shutterstock photo)
ALBANY — When a typical New Yorker settles their electric bill each month, they pay 35 percent more than average in the continental U.S.
Statewide, New York has the capacity to generate more power than it’s expected to use at its peak this summer, according to a recent report by the state Independent System Operator, which oversees the state’s power grid.
So why, then, do prices here outpace many other states?
The answer is a complicated maze of transmission lines, taxes, long-term efforts to combat climate change and the challenges of powering a state whose major population base is confined to a geographically small — and expensive — area in its southeast corner.
And a state decision this month means the costs are set to rise again, though state officials say the long-term benefits outweigh the hike.
Price in context
In May, the average price of residential electricity in New York was 17.73 cents per kilowatt-hour, the seventh-highest rate in the contiguous 48 states, according to the U.S. Energy Information Administration.
The average price was 13.08 cents per kWh.
Regionally, New York fares better: The New England states had an average May price of 19.20 cents, though neighboring New Jersey (15.40) and Pennsylvania (14.42) were lower.
Prices in New York, however, can vary widely, and higher prices in New York City and its suburbs drive up the statewide average.
In Westchester County, a Consolidated Edison customer using 600 kWh of electricity in their home paid a monthly average of $142 in 2015, according to data from the state Department of Public Service.
Compare that to a typical Rochester Gas & Electric customer, who paid about $80 a month for the same amount of electricity last year, according to the data.
Wholesale energy prices have dropped to a 12-year low in New York this year, spurred by a significant drop in natural gas prices over the past several years. That’s led to a drop in retail electric rates in the state — where they once peaked at above 21 cents per kWh in February 2014 — and across the nation.
New York’s industrial electric rates, meanwhile, are more in line with the national average. In 2015, the average industrial rate was 6.37 cents per kWh in the state and 6.89 nationwide, according to the federal data.
And New Yorkers use less energy per capita than all other states, with the U.S. EIA ranking the state lowest when it comes to energy use per capita in 2014.
A contributing factor to the cost difference is where the majority of the state’s power is generated and an aging series of transmission lines carrying it south.
New York City, Long Island and the lower Hudson Valley use about 58 percent of the state’s electricity, according to a recent report from the Independent System Operator.
But the densely populated downstate region produces only about 40 percent of New York’s electricity, relying on an 11,000-mile system of transmission lines — with 80 percent of the high-voltage lines built before 1980 — to carry upstate electricity south.
The remaining power is largely generated upstate, buoyed by a massive hydropower facility near Niagara Falls and a series of power plants located mainly in rural areas with far lower property values than the New York City area.
“The reliability of the region’s power grid is made more complex by physical limitations on the transmission system’s ability to freely move electricity from more efficient generation resources where and when it is needed,” according to the report.
Additionally, much of New York City’s electrical network is underground, which makes it costlier to maintain, according to the state Public Service Commission.
In 2012, Gov. Andrew Cuomo launched the Energy Highway program, which promised to invest up to $5.7 billion in public and private dollars to clear the state’s transmission bottleneck. Construction is pending for the Champlain Hudson Power Express, a $2.2 billion, 333-mile transmission line connecting Quebec to Queens.
The state is also in the midst of implementing its Reforming the Energy Vision plan, or REV, a multi-year regulatory overhaul meant to modernize the energy grid in part by incentivizing customers to use less energy and having utilities distribute renewable energy equipment.
The REV plan is focused on trying to make the state’s power grid more efficient. According to the Public Service Commission, customers pay about $2 billion a year for so-called “idle” capacity — power generation needed for the hottest summer days but rarely used throughout the year.
“While overall demand for electricity is flat, ‘peak’ demand continues to increase, resulting in even higher costs to customers,” said Jon Sorensen, spokesman for the PSC. “Maintaining the power grid cost New Yorkers $17 billion over the past 10 years, and if trends are not addressed, $30 billion will be spent in the coming decade.”
Utility companies that own the state’s transmission lines — including ConEd, RG&E, New York State Electric & Gas Corp. and Central Hudson — have banded together for upgrades in recent years. Those projects are funded through charges on ratepayer bills statewide, not just in the region where they occur.
Building new transmission lines, however, is not an easy task. Such projects, including the Champlain line, are often met with vociferous opposition from property owners and local officials, particularly those along their route, who question their cost and benefit.
In a mass letter to the Public Service Commission in 2013, the Sierra Club Atlantic Chapter said the Champlain Hudson project touted “exaggerated and false claims” about the jobs it would provide and New York’s need for additional energy.
“However, the jobs claim is unfounded, and NY needs to be focusing on energy conservation, efficiency and true renewables, NOT a greenwashed transmission line,” the Sierra Club members wrote.
There’s always been a “push-pull relationship” between upstate and downstate New York when it comes to power, said Paul Steidler, spokesman for the New York Affordable Reliable Electricity Alliance.
The alliance has the backing from labor groups and businesses, including Entergy, which owns the Indian Point nuclear plant in Westchester County.
“One of the bigger and more fundamental issues is to build anything in New York of any kind, including renewable power, is very difficult,” Steidler said. “The not-in-my-backyard people have come out against solar, against wind. They want to close Indian Point, and they oppose pipelines.”
Climate change costs
Programs meant to combat climate change have a smaller impact on residential ratepayer bills in New York.
New York has been one of the leading states in promoting programs designed to cut greenhouse-gas emissions and provide incentives for renewable energy. A surcharge — around $4 to $5 a month for an average homeowner — is tacked on each month to help fund them.
But the programs — which are popular in Northeastern states — aren’t replicated in many southern states where electricity costs are low, which some economists say artificially lowers their cost by not accounting for the social costs of carbon emissions.
Beginning in April, a new program will add about $2 a month to the average residential electricity bill, according to the state Public Service Commission.
On Aug. 1, the PSC approved a clean-energy plan that will require utilities and energy service companies to effectively purchase power at an elevated rate from three upstate nuclear plants, including the R.E. Ginna Nuclear Generating Station in Wayne County.
That way, the financially struggling plants can remain profitable and stay online, preserving their power output and avoiding having to replace them with dirtier fuels like coal or natural gas. At least two of the plants had faced likely closure in the near future if the plan wasn’t approved.
All told, the 12-year plan will cost ratepayers about $1 billion in its first two years.
Benefits outweigh cost?
Gov. Andrew Cuomo and his administration, however, say it’s short-sighted to only look at nuclear subsidies’ implications on ratepayer bills.
Last year, about 31 percent of New York’s electricity came from the state’s four nuclear power plants, according to the Independent Systems Operator. Unlike fossil-fuel plants, they don’t produce carbon emissions.
At a rally Tuesday at Nine Mile Point Nuclear Power Plant in Oswego County, Cuomo said the state cannot afford to lose its supply of nuclear energy “because it is important to keep the balance of supply.”
“If you lose nuclear, you will see that natural gas will spike or will be subject to price increases from other sources because we don’t have balanced alternatives,” Cuomo said. “I believe the state has a moral obligation, a financial obligation, and a civic obligation to step in to this situation to avert a crisis for central New York and to avert a crisis, an energy crisis, for this entire state.”
Cuomo’s relationship with nuclear energy, however, is complicated.
He has long advocated for closure of the state’s largest nuclear plant, Indian Point Energy Center in Westchester County, because of the potential for a nuclear-related accident in such a densely populated area, just 35 miles north of New York City.
Opponents of the subsidy plan — including natural-gas interests in competition with nuclear plants — are assessing whether a lawsuit could stop it.
“We’re still looking at it and reaching out to other stakeholders, so I think it’s probably a little bit early to know what our next steps will be,” said Jenny Fordham, senior vice president for the Natural Gas Supply Association. “But this issue is pretty egregious.”
Bill Ferris, New York legislative representative for AARP, said his organization is looking for more information from the Public Service Commission on the cost to ratepayers moving forward.
The nuclear plan is separated into six two-year “tranches.” So far, the state has provided cost estimates for only the first two years of the program, warning that future years will go up or down based on the price of natural gas and other energy commodities.
“Our concerns always lie with the residential ratepayer, whether it’s with this case or any other case or policy New York has,” Ferris said. “Before we say whether (the $2-a-month increase) is reasonable, we’re wondering whether that number will increase in the future. That is our concern to date.”