Con Edison Is Expected to Request Rate Increase

- For the first time in nearly a decade, Con Ed will ask in the coming weeks for permission to raise its electricity rates, utility analysts and state lawmakers say. The utility has requested a hearing with state regulators to discuss its rates, but officials, speaking in an interview recently, would say only that they might seek an increase and would not say how much.

There could hardly be a touchier time to make such a request.

Con Ed will go before the same panel, the state Public Service Commission, that is threatening to try to fine it $37.5 million in the electrocution of a Manhattan woman as she walked her dog last month.

If it seeks higher rates, the utility will have to explain why it needs the money after a year in which it turned a profit estimated at more than $80 million above the ceiling set by the commission. It will also have to respond to accusations from state lawmakers and others that it has decreased its spending on maintenance, accusations that some state records seem to corroborate.

Still, many power-industry analysts predicted that the utility would probably get its way.

"I'd be very surprised if they didn't," said Derek HasBrouck, senior partner at PA Consulting Group, an energy consultancy firm, citing a recent surge in electricity demand that Con Ed has faced. Leonard S. Hyman, a utility consultant for R. J. Rudden Associates, concurred. "The commission may be reluctant at first," he said, "but eventually I think they will concede."

A date for the rate hearing has not been set, but analysts say it will occur by the end of next month. If approved, new rates would go into effect in April 2005.

Assemblyman Richard L. Brodsky, a Westchester County Democrat who held a hearing on the utility's safety record this month, said: "Con Ed will, without a doubt, ask for an increase. People would fall off their chairs if Con Ed asked for anything other than an increase."

A jump in electric rates would come as a particular surprise for Con Ed's 3.1 million customers in New York City and Westchester, where rates have actually fallen over the last several years as the utility sold off its power plants as part of the state-ordered deregulation of the power business.

Michael S. Clendenin, a Con Ed spokesman, emphasized that the utility had not yet officially asked for a rate increase. But, he said, one may be needed to help pay for improvements to infrastructure - transmission lines, transformers and substations - to keep up with sharp increases in electrical demand.

The growth in demand is partly the result of the new housing, which almost always comes with central air-conditioning, he said. Dropping prices for window-mounted air-conditioning units has also increased usage and compounded the pressures on the utility, he said.

Con Ed filed its request for a rate hearing a week after the death of Jodie S. Lane, who was electrocuted on Jan. 16 after stepping on a metal street plate while walking her dogs in the East Village. On Feb. 11, the commission said it would sue the utility for fines as high as $37.5 million unless Con Ed proved within 30 days that it was in full compliance with state safety regulations at the time of Ms. Lane's death. The utility has conceded that human error played a role in the electrocution, but has not yet responded to the commission's request.

John C. Liu, chairman of the City Council's Transportation Committee, who has become one of the utility's most vocal critics over the death, said a rate increase would be an outrage coming on the heels of the accident. "But the utility can get away with it," he said, "because it has a monopoly on the New York City electric market."

During the rate hearing, the commission will determine an earnings cap for the utility. In most years, the utility's profits have met the ceiling - a percentage of the company's total earnings - established by the commission. But in the fiscal year that ended in March 2003, the most recent year for which numbers are available, the company made a 12.1 percent profit, exceeding the 11.75 percent limit set by the commission. David C. Flanagan, a spokesman for the commission, estimated the excess earnings at $85 million.

Under regulatory guidelines, 65 percent of that excess must go toward improvements that benefit customers. The rest goes back to stockholders and the company, he said. The portion of the excess money earmarked for the benefit of ratepayers, roughly $55 million, has been set aside, Mr. Flanagan said. During the coming rate hearing, the commission will discuss how that money should be spent, he said.

Mr. HasBrouck, the energy consultant, said that while the timing of the rate hearing was inopportune, waiting could hurt the utility financially.

He also said the utility's request for a higher earnings cap could be hindered by downward swings in the stock market. "Everyone's return on investments has decreased," he said. "Con Ed could arrive asking for a raise in their profit ceiling and end up leaving with a ceiling lower than when they started."

In the past two weeks, state Assembly members and community groups have accused Con Ed of cutting its maintenance spending. Gerald Norlander, executive director of the Public Utility Law Project, a nonprofit law firm in Albany, said maintenance spending had steadily declined since 2000. Citing Con Ed reports filed with the commission, he said the utility actually spent less than it budgeted for maintenance.

Mr. Clendenin, the Con Ed spokesman, said that any decreases in the maintenance figures were the result of the utility having sold several plants in recent years. He also said that critics have tended to use the wrong category of numbers to measure spending. Rather than using operation and maintenance figures, he said, the real measure of maintenance is transmission and development investment, which has gone up in recent years.