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

NYC Pension Funds’ Return Was a Subpar 4.4% in FY 2020

New York City's five municipal public pension funds ended their 2020 fiscal year with a net investment gain of 4.44 percent, well below their 7 percent assumed rate of return. That shortfall, reflecting the pandemic recession and its impact on financial markets, is expected to drive up the city's annual tax-funded pension costs by up to $200 million within the next three years. Read More

New York Has Widened Its Lead in Per-Capita Spending on Medicaid

New York's per-capita Medicaid spending soared to more than double the nationwide rate in 2018, widening its gap with the other 49 states. Read More

State Pension Fund Lost Money in 2020, Pointing to Higher Costs Ahead

New York State’s biggest public pension lost money on its investments during the fiscal year that ended March 31—a completely unsurprising result, given the coronavirus crisis and its impact on financial markets in early spring. Read More

New York’s Medicaid Enrollment Surges to an All-Time High

New York's Medicaid program is growing at its fastest rate in six years, with a quarter-million additional enrollees landing in the safety-net health plan during the first three months of the coronavirus pandemic.  Read More

Lawmakers Look To Dump More Public Cash On Teamsters

State lawmakers this week moved to make public construction more expensive in a bid to steer work to one of New York’s struggling construction unions. Read More

In Slow Recovery, NY’s Job Drop as of June was Still Among the Worst in U.S.

While New York's economy continued to ever-so-slowly recover in June, the Empire State's year-to-year percentage decline in private employment since the pandemic lockdown remained the worst in the continental U.S., according to the latest payroll establishment data from federal and state agencies. Read More

New York’s Health Premiums Remain Among the Highest in the U.S.

The average cost of New Yorkers' health benefits increased by less than the national average in 2019 but remained among the highest in the U.S., according to recently published federal data. Read More

New York’s Medicaid Roller Coaster Takes an Unusual Turn

The state's Medicaid spending was significantly lower than projected in the first quarter, but that's not necessarily a positive sign for state finances. 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
Fax: 518-434-3130
E-Mail: info@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.