SCHUMER: CLOSE EXAMINATION REVEALS ENERGY EAST TRYING TO PULL A FAST ONE ON ITS CUSTOMERS -

FOR IMMEDIATE RELEASE: February 11, 2009

SCHUMER: CLOSE EXAMINATION REVEALS ENERGY EAST TRYING TO PULL A FAST ONE ON ITS CUSTOMERS - SENATOR URGES NY PSC TO SWIFTLY REJECT COMPANY'S RATEHIKE REQUEST


Schumer: Energy East Is Violating Its Deal With NYS - Company Trying to Fast-Track A Steep Rate Hike Four Months After Deal Despite Merger's Stipulation That They Must Wait 13 Months

As Part of Rochester Gas and Electric and NYSEG Purchase, Schumer Pushed Iberdrola To Increase Reserve Funds In Order to Stave Off Rate Hikes

In Letter, Senator Says Energy East's Recent Actions and Statements Raise Serious Questions About Their Pledges To Invest in Capital Projects, Keep Rates Low



U.S. Senator Charles E. Schumer today wrote to the Public Service Commission asking them to reject Energy East's request to raise gas and electric rates on nearly 1.5 million New York ratepayers. In a letter, Schumer outlined a host of reasons for the PSC to dismiss their request, contending that it violated several of the terms established by the PSC in approving Iberdrola's purchase of the utility and also made questionable claims in an attempt to justify the rate increase.

“This rate hike application reeks of profit mongering by a company that promised not to do just this as a condition of the approval of its merger. Just as New Yorkers are struggling to make ends meet, Energy East is trying to pull a fast one on its customers. The PSC should reject this application without any hesitation,” U.S. Senator Charles E. Schumer said.

Iberdrola, a Spanish utility company, recently purchased Energy East, which is the parent company of NYSEG and RG&E, serving over 1.5 million ratepayers, spanning communities across Western NY, the Finger Lakes Region, the Southern Tier and Hudson Valley, the Capital Region and North Country.

During the regulatory approval process, Iberdrola committed to setting aside a $275 million pool of funds -- or Positive Benefits Adjustments (PBA) -- to keep customer rates low. At the time, Schumer said he would only support a deal containing provisions that would keep customer rates low. The final deal stipulated that a rate hike increase could not be requested for 13 months after the merger and that the $275 million Positive Benefits Adjustments be used to reduce rates or offset costs of the merger. Today, Schumer asked the PSC to determine whether the company was planning on using the $275 million in PBAs to offset the proposed rate hike, and if not, to determine how the company intended to use that fund.

All tolled, Energy East is looking to gain $227 million from New York ratepayers per year through increased charges. This would be done by requesting increases in electric and gas rates for both NYSEG and RGE. Specifically, NYSEG has requested a 9.9% increase in residential electricity transmission rates and an 8.8% increase in residential natural gas transmission rates. These rate hikes would mean the average customer’s electric bill would increase by $8.80 a month, while the average gas bill would increase by $12.20 a month. Similarly, RGE is requesting an 11.9% increase in electricity transmission rates and a 7.4% natural gas transmission rate hike. This translates to an average $8.80 and $7.80 a month increase in monthly bills respectively.

Schumer's letter to the PSC argues that the company is barred from requesting a rate increase until the Fall-Winter of 2009 at the earliest. The PSC’s order authorizing the purchase of the NYSEG and RGE stated that in order to protect ratepayers, and possibly pass along synergy savings to them, the earliest the next rate-case could be filed was “30 days following the first anniversary of the acquisition,” or 13 months. The commission did allow that a request could be filed earlier, but only if they could demonstrate that their “financial performance…would fall to levels that would jeopardize safe and reliable service.”

In his letter today, Schumer contends that the company has not made that case, pointing out that the companies’ initial proposals state that the rate increase would assist them in “potentially” enacting an $800 million capital investment plan and aiding low-income consumers, among other things. But nowhere has NYSEG or Energy East RGE made the case that this rate increase is necessary to continue supplying power to paying customers. The only other argument that Iberdrola offers for this rate hike is that the rate increase will be used to fund low-income energy assistance. However, assistance to low-income customers is already provided through federal funds via the Low Income Home Energy Assistance Program (LIHEAP).

Furthermore, Schumer said the PSC should reject the Energy East’s application to fast-track their request for a rate increase to five months instead of eleven months. Schumer said expediting the review would not allow ratepayers, municipalities and consumer protection organizations enough time to respond to the proposal. "It's bad enough that the utility wants to balance their books on the backs of customers, but trying to ram these cost increases through quickly it simply unacceptable," Schumer said.

Schumer also wrote that the “several of the arguments used by the utility to justify the merger appear dubious at best.” Schumer said that his research showed that the company’s claim they do not have adequate credit ratings and access to lending facilities did not hold water. Schumer said that both companies have investment grade credit ratings that have not changed since the merger was completed. Schumer noted that a recent Standard and Poor’s report singled out Energy East for their strong credit rating. Moreover, Iberdrola used their “A-" credit rating as a major justification for the purchase.

Finally, Schumer also said thatthe PSC needs to get answers on capital commitments made by the utility as part of the merger. Also, with the company recently stating that they planned to cut their capital projects budget by half, Schumer urged the PSC to find out if they planned of living up to their promise of investing $200 million in renewable energy projects over the next two years.

Schumer long pushed for a fair deal that will benefit Upstate New York by boosting jobs, delivering clean, renewable energy and keeping customer rates low and service levels high. Schumer said today he would continue to fight to ensure this deal stays fair and keeps customer rates low.

Below is a full copy of the letter:

Jaclycn Brilling
New York State Public Service Commission
Secretary
Albany, NY

Dear Ms. Brilling,

I write to ask that the Public Service Commission (PSC) immediately dismiss New York State Electric and Gas (NYSEG) and Rochester Gas and Electric’s (RGE) petition to raise the residential electric and gas rates of New York State consumers. Iberdrola’s purchase of these two companies contained an agreement that the utilities would not increase rates for a period of 13 months. At a time when there is unprecedented economic strain on New York’s economy, balancing these company’s books on the backs of consumer violates both the spirit and the letter of their agreement with the PSC.

The rate increases proposed by NYSEG and RGE are both significant and burdensome. All tolled, the company is looking to gain $227 million from New York ratepayers per year. This would be done by requesting increases in electric and gas rates for both NYSEG and RGE.

Specifically, NYSEG has requested a 9.9% increase in residential electricity rates and an 8.8% increase in residential natural gas rates. These rate hikes would mean the average customer’s electric bill would increase by $8.80 a month, while the average gas bill would increase by $12.20 a month. Similarly, RGE is requesting an 11.9% increase in electricity rates and a 7.4% gas rate hike. This translates to an average $8.80 and $7.80 a month increase in monthly bills respectively.

Despite these proposals, the PSC’s order authorizing the purchase of the NYSEG and RGE by Iberdrola clearly stated that in order to protect ratepayers and possibly pass along synergy savings to them, the earliest the next rate-case could be filed was “30 days following the first anniversary of the acquisition,” or 13 months. The commission did allow that a request could be filed earlier, but only if they could demonstrate that their “financial performance…would fall to levels that would jeopardize safe and reliable service.”

It is my understanding that the commission’s was clear in limiting any request to extraordinary circumstances, where denial of the rate increase would imperil the survival of the utility and prevents the delivery of power to rate-paying customers. The companies’ initial proposals state that the rate increase would assist them in “potentially” enacting an $800 million capital investment plan and aiding low-income consumers, among other things. But nowhere has NYSEG or Energy East RGE made the case that this rate increase is necessary to continue supplying power to paying customers.

It is troubling that the utilities proceeded well in advance of their 13 month agreement to request this rate hike. As such, NYSEG and RGE’s petition fails to meet the threshold for consideration by the PSC, and should be swiftly rejected.

Iberdrola argues that this rate increase is necessary because of Energy East’s BBB bond rating. But, Energy East’s bond rating is the same as it was Iberdrola consummated its purchase, it is unclear how the Energy East’s bond rating can be used to support a rate increase. The only other argument that Iberdrola offers for this rate hike is that the rate increase will be used to fund low-income energy assistance. However, assistance to low-income customers is already provided through federal funds via the Low Income Home Energy Assistance Program (LIHEAP). Further, I note that a recent Standard and Poor’s report indicates relative strength in electric utility credit and even singled out Energy East for having stable investment grade credit rating. What’s more, throughout the acquisition process, Iberdrola repeatedly cited their strong credit as a reason for approving the deal. Their credit rating now stands at a very healthy A-. To now argue that the companies credit ratings justify a rate increase simply strains credulity.

While the petition should not even be considered based on previous agreements, there are several other important factors that the PSC should weigh in assessing this request. As shown below, I find it very troubling that Energy East is trying to expedite this request and may not even be living up to other conditions of the acquisition.

First, I am troubled that Energy East has made clear they intend to request the Commission to expedite their request for a rate increase and approve the order by July 1st, 2009. Rate cases generally take 11 months to complete, giving all interested parties the time to perform the necessary due diligence and review. The utilities’ petition that this massive spike in rates be granted less than 5 month would deny ratepayers and intervening parties such as municipalities and consumer protection organizations the ability to cogently respond to this proposal. An expedited review should be denied.

Second, even if the Commission finds that higher rates are justified, the Commission should make it clear that this increase in rates must first come out of the $275 million positive benefit adjustment (PBA) fund Energy East and Iberdrola set up, as part of the acquisition agreement, to “either reduce rates or moderate requested rate increases.” NYSEG and RGE’s rate increase would yield them $225 million annually, which could shield NYSEG and RGE ratepayers for over a year, if the Commission should deem these rate increases to be justified. as part of the order that allowed the merger to proceed, Energy East and RGE agreed to set aside a fund for consumers that would offset rate increases. The acquisition of these utilities NYSEG and RGE called for $275 million in positive benefit adjustments (PBA) intended to “either reduce rates or moderate requested rate increases.” I believe the commission and other parties must determine how, if at all, the $275 million in PBAs will be utilized here.

Third, according to correspondence between the PSC and Energy East, I am troubled by the utilities recent decision to significantly reduce capital spending targets in 2009. When the PSC signed the final order approving Iberdrola’s acquisition of NYSEG and Energy East in December of last year, it was contingent on the company investing $200 million in renewable projects over the next two years. The PSC must continue their queries as to what specific projects will be downsized and/or eliminated and ensure that they live up to their capital commitments as outlined in the order.

Fourth, several of the arguments used by the utility to justify the merger appear dubious at best. Among them, I believe that the commission should focus on the claim that the utilities do not have adequate credit ratings and access to lending facilities as a justification for raising rates. It is important to note that both companies have investment grade credit ratings of BBB that have not changed since the merger was completed.

A recent Standard and Poor’s report, indicates relative strength in electric utility credit and even singled out Energy East for having stable investment grade credit rating. What’s more, throughout the acquisition process, Iberdrola repeatedly cited their strong credit as a reason for approving the deal. Their credit rating now stands at a very healthy A-. To now argue that the companies credit ratings justify a rate increase simply strains credulity.

New York State law calls for there to be a “public benefit” to justify a utility merger.

In approving this merger, I believe the PSC achieved this threshold through striking the a balance in protecting consumers and encouraging the development of renewable energy. The strength of this order, however, is only as effective as its implementation. I believe this goal can still be achieved, but only if erroneous requests such as this rate increase are rejected. Thank you for your consideration of this matter.

Sincerely,


Charles E. Schumer