psc-150x150-2713629Governor Andrew Cuomo’s regulatory attack on National Grid’s Long Island gas moratorium threatens to have broader negative financial effects on all of the state’s investor-owned utilities—with implications for the overall business climate as well.

Three days after Cuomo made public a letter threatening to strip National Grid’s natural gas franchises downstate, Moody’s Investor Service announced a “ratings downgrade review” of Brooklyn Union Gas Company and KeySpan Gas East Corporation, both owned by National Grid:

The rating action reflects social and governance risks around customer relations and broader stakeholder engagement…

Moody’s incorporates a view that one of the core competencies for all US regulated utility companies is the ability to maintain a supportive and constructive relationship with their respective regulators.  [Brooklyn Union’s and KeySpan’s] current situation in New York evidences, however, that the relationship and communication channels between the utility and key stakeholders are currently extremely strained. Moody’s views political intervention as a material credit negative, especially when the intervention emanates from a governor’s or attorney general’s office. [emphasis added]

In a separate research note (behind the rating agency’s paywall, and first reported by POLITICO), Moody’s said Cuomo’s “heightened willingness” to “intervene in utility regulation” through the state Public Service Commission (PSC) was “credit negative for all New York investor-owned utilities.”

Franchises are the providence of the PSC, a five-member appointed panel, but the governor has taken to saying franchises are not “God-given.” Besides National Grid, Cuomo has threatened to strip three other companies’ franchises during 2018 alone: Charter (cable), American Water (water) and Con Ed (electricity).

The governor, in fact, has treated the ostensibly independent PSC as if it were an agency answerable directly to him.

Under Cuomo, the commission has all but perfected a technique under which the governor publicly reacts to an an issue dominating news coverage, such as a power outage, issues a directive to the PSC, its chair, or its subordinate Department of Public Service (DPS) to “investigate.” The PSC often then issues an “order to show cause,” which commences an investigative and penalty process. That quickly morphs into closed-door negotiations—where the governor’s office is free to exercise influence, utilities are eager to reach a deal, and the public is left in the dark. Charter, for instance, was in secret talks with the PSC for nearly a year after its franchise was threatened.

As Moody’s observed:

“The threat to revoke a utility’s license represents a weakening of the consistency and predictability of New York’s utility regulatory environment…While there have been instances of negative political rhetoric regarding utility franchise licenses in the past, they have not resulted in a formal letter which appears to bypass the regulatory process.”

Cuomo’s approach constitutes a major departure from more than a century of PSC protocol and sparked criticism from a contingent of retired DPS employees, including the former chief counsel. The governor has meanwhile used the PSC’s powers to levy surcharges on utility bills to collect (and spend) money for items such as a multi-billion bailout for Exelon and a slew of other smaller energy programs—all without involving the Legislature.

But beyond driving up energy costs with new hidden taxes, the Moody’s note is a salient warning that Cuomo’s mishandling of the PSC presents added risks to the state’s business climate.

For one thing, any downgrade in bond ratings will make it more expensive for utilities to finance capital projects—and those higher borrowing costs will translate into higher rates and delayed or cancelled investments.

That’s an especially big problem for people in more rural areas waiting for natural gas or internet service expansions. These buildouts wouldn’t just be more expensive. In the current climate, businesses need to think twice about locking up capital in New York and increasing their exposure to Cuomo’s erratic regulatory whims.

And an example of that came just yesterday: American Water, a private company that provides water service on Long Island, announced Wednesday it was selling off its New York assets. The business came under fire in recent years for making miscalculations in filings to the PSC, and then for hiking rates for high-volume customers. The decision to cash out suggests the company didn’t see New York as a good place in which to invest—despite the fact that, for utilities, the customer base is essentially permanent.

Finally, Cuomo’s rhetoric risks fueling calls for government entities to provide utility services.

As if government’s track record operating New York City’s subways and public housing—not to mention Long Island’s electricity service—hadn’t put people through enough.

About the Author

Ken Girardin

Ken Girardin is the Empire Center’s Director of Strategic Initiatives.

Read more by Ken Girardin

You may also like

Sluggish in September: NY job growth still trails U.S.

New York's employment recovery slowed to a near halt in the crucial month of September, falling further behind the national growth rate in the 18th full month since the pandemic hit in March 2020, according to and federal monthly job reports. On a sea Read More

The Health Department’s response to a FOIL request for nursing home data triggers 2020 déjà vu

Despite Governor Hochul's promise of transparency, the Health Department keeps responding to requests for COVID data with tactics from the Cuomo administration Read More

How Are the Billions in Emergency Aid to New York Being Spent?

A new  posted yesterday on the Comptroller’s website could become the lens through which New Yorkers see how tens of billions of dollars in one-shot federal funding is being spent by governm Read More

Hochul’s Emergency Order Imposes Insurer Restrictions Sought by Hospital Group

Buried in Governor Hochul's emergency order on health-care staffing is a temporary bar against insurance companies challenging claims submitted by hospitals–and an influential hospital association is taking credit. Read More

Home Care Agencies Project Widespread Staffing Shortages in the Next Phase of New York’s Vaccine Mandate

Agencies providing home-based care to elderly and disabled New Yorkers face a large-scale loss of employees when the next phase of the state's vaccine mandate takes effect on Oct. 7, according to a newly released industry s Read More

Remembering the scandal that brought down Health Commissioner Howard Zucker

The resignation of Dr. Howard Zucker as state health commissioner marks the end of a term marred by scandal over his role in managing the coronavirus pandemic. The much-debated compelling nursing homes to admit COVID-positive patients, though it origi Read More

As leaves turn, NY’s post-pandemic recovery still has very far to go

Entering the second autumn since the COVID-19 outbreak of March 2020, the pace of New York State's pandemic economic recovery has been abysmal by almost any standard. New York was the national epicenter of the pandemic, and Governor Cuomo's "" business Read More

More NY job gains in August—but employment needs to rise a lot further

New York's jobs report for August looked relatively strong—but only by comparison, that is, with . On a seasonally adjusted basis, New York gained 28,000 private-sector jobs last month—a growth rate of 0.4 percent, according to . This was double th Read More

Subscribe

Sign up to receive updates about Empire Center research, news and events in your email.

CONTACT INFORMATION

Empire Center for Public Policy
30 South Pearl St.
Suite 1210
Albany, NY 12207

Phone: 518-434-3100

General Inquiries: Info@EmpireCenter.org

Press Inquiries: Press@EmpireCenter.org

About

The Empire Center is an independent, non-partisan, non-profit think tank located in Albany, New York. Our mission is to make New York a better place to live and work by promoting public policy reforms grounded in free-market principles, personal responsibility, and the ideals of effective and accountable government.

Empire Center Logo Enjoying our work? Sign up for email alerts on our latest news and research.
Together, we can make New York a better place to live and work!