State Comptroller Bid Floats Pension-Backed Utilities to Cut New Yorkers’ Electric Bills

Prodding the state to lower utility investor profit margins could lighten the burden of New Yorkers’ electricity bills—if politics and precedent permit.

To live in New York is to pay dearly for the privilege of illumination. The city’s households face an average monthly electricity bill hovering just shy of $140—30% higher than the American median. As rent, food and transport expenses lurch ever upwards, the electric bill has become an unlovely constant, outpacing wage growth and sapping the spending power of countless families.

The official explanations for this unwieldy expense are as familiar as skyline silhouettes: costly natural gas, a patchwork of aging substations, and the weather’s feisty unpredictability. But buried within the knotted prose of utility filings lies a less-publicised force. State regulators, in their wisdom, guarantee utility companies a profit margin—called the “return on equity”—that ultimately props up shareholder profits at ratepayers’ expense.

The argument catching fire in New York’s policy circles is that this margin is uncommonly generous. The state’s Public Service Commission currently approves returns of about 9.5% for utilities such as Con Edison, National Grid and their peers. Remarkably, these are among the sector’s safest businesses: privately owned monopolies, enjoying regulated rates and a customer base that cannot easily defect. With paltry chance of bankruptcy, their risk profile is unadventurous. Yet ratepayers are on the hook for billions in what some reckon are unjustifiable premiums.

Drew Warshaw, a candidate for the state comptroller’s office, is now banging the drum for change. He proposes that New York’s own vast pension fund—second only to California, with more than $200bn under management—could help refinance utility infrastructure. In this scheme, the fund and similar “patient capital” investors would accept lower returns, closer to their own 5.9% target, replacing expensive capital that Wall Street firms demand for taking on utility investment.

If such plodding but reliable investors did step up, regulators would have to lower the rates passed on to customers. The financial logic is sound. Lower the cost of capital for utilities, and—by regulatory fiat—lower bills flow to consumers. The pension fund’s time horizon, spanning decades rather than the next quarterly earnings call, bodes well for New Yorkers who crave less sticker shock each month.

For New York City, where more than one in four residents lives close to the poverty line, even minor reductions could be material. The savings would accumulate across the five boroughs, lightening the load for the city’s hundreds of thousands of lower-income families, as well as its motley collection of small businesses. And as climate-driven demands for electrification rise, reining in the cost of power becomes more, not less, important.

Critics will fret—a New York pastime—that tweaking investor returns could capsize long-term grid investment. The spectre of underinvestment in hardening infrastructure, boosting resiliency, or greening the grid is real enough. But the distinction here is not between penury and riches: it is between profits set richly above contemporary risk and a recalibration more in line with both economic logic and the public interest.

Even in an industry famed for regulatory inertia and litigation, the principle of moderating returns is hardly radical. Across the pond, British and European regulators have pared allowable returns to reflect falling capital costs—sometimes to the evident irritation of shareholders. In California and Illinois, recent rate cases have begun to chip away at the heights once attained by utility investors. Inflation, for its part, is a double-edged sword: it erodes real returns, while higher interest rates theoretically justify some upward adjustment. Still, the clockwork certainty of utility revenue means New York’s upward bias is becoming harder to defend.

The politics of kilowatts

Operationalising Mr Warshaw’s proposal, however, would require more artful choreography than a Broadway revival. The comptroller’s office cannot dictate rates, but it does bring the heft of the pension fund and a megaphone for public debate. The state’s regulatory apparatus is rarely cowed by populism, but consistent, data-driven pressure—backed by unions, consumer groups and a sprinkling of large institutional investors—could eventually shift the terms of debate. No less important, the practicalities of pension-fund investment merit quiet scrutiny: the fund’s mission is to provide retirements to public employees, not moonlight as a rate-cutter for Con Edison’s 3.6m New York City customers.

Other risks abound. The balance between fiduciary duty to retirees and the social benefit of cheaper power is not easily struck. Should the return slip too low, the pension fund’s own obligations could come under pressure, exposing taxpayers to unforeseen liabilities. The regulatory process, a swamp of filings, hearings and expert testimony, gives utilities ample room for delay and dispute.

Yet the alluring logic is that with prudent reforms, the winners could outnumber the losers. Policymakers are forever being reminded that in a city of sky-high costs and deep inequality, every lever to ease household budgets deserves sober consideration. Substituting patient, lower-cost capital for premium-priced, risk-averse private money might actually leave all parties—consumers, grid operators and even most investors—modestly better off.

As for a wholesale adoption elsewhere, the prospects are mixed. America’s patchwork of utility regulation resists easy harmonisation. Prevailing political winds, legal precedent and the patchy organisation of public pension schemes stand in the way of national consistency. Yet, if New York must eternally play guinea pig for urban policy, this experiment may at least offer lessons, if not a path for wholesale imitation.

If there is reason for optimism, it is that this debate signals a broader reckoning with who pays, and who profits, for life’s basic comforts in 21st-century cities. Letting guaranteed profits inch ever higher, untethered from underlying risk, is a habit that deserves scrutiny. In the meantime, New Yorkers might wonder why the lights come on for shareholders as reliably as for anyone else.

A proposal to give public capital a greater role in financing private utilities will not, by itself, illuminate New York’s future. But it threatens no harm that deeper transparency and keener competition would not solve, and promises relief to those for whom electricity is a monthly trial—a risible state of affairs in a city that prides itself on modernity. ■