New York City talk of ditching Con Ed would face major obstacles

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During a wave of power blackouts in July, Gov. Andrew Cuomo and Mayor Bill de Blasio suggested New York City should consider alternatives to the entrenched, investor-owned Consolidated Edison, the nation’s largest utility.

The frustration revealed itself last week during public hearings by state lawmakers and the City Council, just as hurricane season intensifies.

“Maybe we should think about whether it should be publicly owned because some of the decisions they’re making, shutting off parts of Brooklyn that maybe are not the most well-to-do parts of the city, or not investing enough in that infrastructure to keep it from failing in the first place,” said state Sen. Michael Gianaris, D-Queens.

Blowing off steam about replacing Con Ed is one thing. Doing it is another, said Howard Cure, director of municipal bond research for Evercore Wealth Management.

“It is really complicated,” Cure said.

On Long Island, investor-owned PSEG took over public utility Long Island Power Authority’s operations after the LIPA Reform Act of 2013. The legislation also paved the way for LIPA to refinance a portion of its $7.6 billion debt through the issuance of up the $4.5 billion bonds through its Utility Debt Securitization Authority.

“By all accounts, PSEG has done an excellent job, but that took a lot of communicating and a big debt issuance to cancel that debt,” Cure said. “This is different. This is a regulated utility that owns a lot of the transmission and a big debt issuance to cancel that [prior] debt.”

City Council members grilled three Con Ed executives for four hours over the blackouts, and their proposed rate increases for 2020 of 8.6% and 14.5% for electric and gas, respectively.

“If Con Ed is not up to the job, then we need to find someone else,” said Costa Constantinides, who represents northern Queens.

Audio: Bond Buyer's Paul Burton, speaking from City Hall, reflects on New York's infrastructure challenges, including the power grid.

Council Speaker Corey Johnson was visibly angry at the Sept. 4 City Council hearing about the utility's performance.

“You said you’d be ready for the heat wave the weekend of July 13. Is this what ready looks like?” he told the executives. “All I get is this technical gobbledygook.”

“The outcomes are the outcomes, sir,” said David DeSanti, Con Ed’s vice president for Brooklyn and Queens electric operations.

DeSanti defended Con Ed’s decision to shut off service in southeastern Brooklyn on July 21, citing system conditions. “We remain convinced that it helped avoid a large-scale outage that would have stretched on for days,” he said.

Many city businesses sustained hefty losses because of the outages around July 20. Canceled Broadway shows cost the industry an estimated $3.5 million, while restaurants could not keep food at safe temperatures.

Council member Mark Treyger from southern Brooklyn said the city could work to include the grid as part of any federal infrastructure bill that winds through Congress.

“This is a resiliency issue. This is a public safety issue and your company cannot do it alone,” Treyger told Con Ed’s executives.

The infrastructure bill, though, remains stalled in Washington.

“I wouldn’t wait for the federal government to come around for funding for resiliency and these types of projects,” Cure said.

City Comptroller Scott Stringer called on City Hall to detail its updated emergency preparedness plans. In a letter to de Blasio, Stringer cited failures in the aftermath of the October 2012 Hurricane Sandy, which killed at least 44 New Yorkers.

The city has a $20 billion climate resiliency plan underway.

“As the city continues to install and construct resilient infrastructure and coastal defenses funded by federal dollars, New Yorkers are relying on the city to make use of interim and temporary flood protection measures,” Stringer said in the letter to de Blasio.

Increased competition would be more viable than public operation, said Yuri Dvorkin, a professor at New York University’s Tandon School of Engineering.

“Resiliency is not incentivized and the penalties are laughable,” Dvorkin said.

“There is no economic incentive to enhance the resiliency of the system and it is not sufficient to provide measures for post-outage recovery.”

The current regulatory framework, he said, hinders alternative electricity suppliers.

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