Governor’s Budget Raises Utility "Assessments," Hurting Low Income Customers, but Gives Break to Cable Telephone Service Providers

Governor Paterson’s proposed budget, released a month early on December 16th, attempts to balance a projected state budget deficit in the state fiscal year beginning April 1, 2009 through a variety of new program initiatives, and “revenue enhancements” (never say “tax”). Among the more controversial, yet very “revenue enhancing,” proposals is to increase utility assessments.

Section 18-a of the Public Service Law authorizes the Public Service Commission (PSC) to levy assessments on utilities in order to pay for “the actual costs and expenses of the department and the commission. ” These assessments are considered to be a cost of utility operation when rates are set. As a result, the $83 million cost of the PSC and its 560 employees in 2009 -10 will not by met with state taxe revenues; instead the cost is embedded in utility bills.

Utility assessments for PSC costs have been capped by the statute at one-third of one percent of intrastate utility revenues for at least 25 years. While the concept of an assessment rate adjustment after many years — and after changes in the structure of New York utilities that allow much revenue to escape assessment — may have been expected, no one could have anticipated the PSC’s assessment rate being tripled, to one percent, on a permanent basis. In addition, the Governor proposes a “temporary state energy and utility service conservation assessment” of an additional one percent through Fiscal Year 2011 – 2012.
According to the Governor’s Briefing Book chapter on Revenue Actions:

Increase Utility Assessment. Increases the current regulatory fee on public utilities throughout the state, including electric, gas, water and telephone. This action will pay for state regulatory and management oversight by raising the fee from 1/3 of 1 percent to 1 percent of intrastate revenues, expanding the fee to include energy service companies, and establishing an additional 1 percent state energy and utility service conservation assessment, which will expire on March 31, 2012.

Since the same percentage assessment has always applied to all utilities (primarily telephone, electric, water, and natural gas), it is unclear whether the temporary assessment will apply to telephone utilities. All in all, the increased assessments are expected to produce $651.6 million in revenue for the state, in addition to the Commission’s $83 million requirement for its expenses. Apparently this will be transferred to the state’s General Fund and made available for other state purposes. Presumably, the law would be changed to allow the PSC to assess about nine times the amount of its actual expenses and to transfer those funds to the state’s General Fund.

Presto! Revenue is increased by $651 million without increasing taxes. Instead, it will increase utility bills.

This new burden will, of course, be paid by rate payers in the form of higher rates. According to an article in the December 17th edition of the Rochester Democrat and Chronicle, Patrick Curran of the state Energy Association, a utility trade group, says that the increased assessments are a new expense sure to be passed on to utility customers. “Any time you raise revenues on what is truly a fundamental necessity, you enact maybe the most regressive form of taxation,” he said. “You have to have heat. You have to have electricity,” no matter the cost. The increased rates will likely negate the token “low income rates or discounts” offered by several of the state’s utilities. Parenthetically, we note that while utility service taxes or assessments are in the nature of regressive sales tax, when compared to an income tax, they far are more difficult for businesses to avoid than income taxes, because there are no loopholes, and so it is not uncommon to see business organizations bemoaning the impact on the poor.

At the same time, the Governor proposed extending the assessment to include energy service companies (“ESCOs”) for the first time. PULP commends this action, and believes this is long overdue. PULP sought to end the PSC’s omission of ESCOs from PSC assessments in the PSC’s ESCO Marketing Proceeding (Cases 98-M-1343, 07-M-1514, and 08-G-0078), where the issue is still under consideration by the PSC. See PSC Issues ESCO Marketing Order. By assessing ESCO revenues from their sale of electricity or natural gas, the playing field between distribution utilities and the ESCOs would be significantly leveled (although more needs to be done, such as require ESCOs to file tariffs revealing their rates, terms and conditions of service). The Commission has long assessed the intrastate telephone service revenues of local exchange carriers and resellers. Telephone resellers are a type of competitive LEC which, like the ESCO, do not own their own facilities, but merely deliver the utility service using the distribution utility’s wires or pipes.

While the decision to assess ESCOs is a wise decision by the Governor, and may finally push the PSC into action regardless of the fate of the proposed budget, PULP believes that the time has come for cable companies to pay assessments on their intrastate revenues for the telephone services they provide, as every other provider offering local telephone service in the state must do. Not only would such a decision help level the playing field, as the decision to include ESCOs would do, but such a step would greatly assist in balancing the state budget. The local exchange carriers in New York like Verizon and Frontier continue to lose tens of thousands of customers every month to the telephone service offerings of cable companies, resulting in significant amounts of lost revenue for the state. The omission of cable company voice services from the PSC assessment process provides an unnecessary (and substantial) break to a well-funded competitor. There is no prohibition on assessing such providers, as the FCC has recognized (in a Brief filed in the Eighth Circuit in April 2008) that requiring Voice over Internet Protocol providers, such as cable companies, to contribute to state universal service funds does not frustrate federal policy. PULP does not believe that assessing cable companies for the PSC’s regulatory assessments would frustrate federal policy either.

Competitive parity and the state’s economic condition require such a result.

Lou Manuta

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