A power struggle in New York between state lawmakers and electric companies concerning a proposed double-digit rate hike was resolved amicably last month, if not without a little drama.

When New York power generation companies sat down to set their electricity prices for the next few years, there was one feature missing from their calculations. State lawmakers had promised the electric companies $500 million in combined property tax breaks that generators were counting on to determine how much to charge New York electric customers.

The problem was, the tax breaks were backed by nothing more than a promise. The power generation companies told state lawmakers that they wouldn’t settle for a mere promise, and that without passing legislation that made the tax break law, the generators would be forced to increase rates to cover any property tax increases that might be issued by the state.

When lawmakers balked at the generator’s request, the electric companies took their case to the Federal Energy Regulatory Commission (FERC), which ultimately agreed in January to allow the generators to include potential property tax increases in calculations used to determine electric rates. As a result, generators were set to raise rates on May 28 by 12 percent for residential customers and 14 percent for business customers. City and state officials called FERC’s decision a windfall for electric companies, which could have taken in additional revenue totaling $1 billion or more over the next three years.

After the FERC decision, the state found itself on the losing end of a high-stakes game of chicken with the power generation companies. Called to action by Gov. Andrew Cuomo, the state Senate acquiesced and crafted an eleventh-hour bill that wrote the tax breaks into law. The bill quickly passed the Assembly and the state immediately petitioned FERC to reverse its decision on rate hikes since there now was no longer any need for them.

Days later, with the state’s promise to generators now on paper, FERC announced that it had officially reversed its decision and rolled back the rate increase.

In the end, the electric companies got their promised tax breaks.

Sources

“State Zaps Power Companies’ Reason for Huge Rate Hike,” New York Post, May 18, 2011.

“A Pleasant Shock From Albany,” New York Post, May 21, 2011.