Energetic change: Cuomo takes aim at ESCOs

Gov. Andrew Cuomo’s looking for new revenue streams to plug the state budget gap, and one way he’s trying to scrape together some extra cash is to end a tax break for companies that supply energy.

Energy service companies, or ESCOs, provide electricity and natural gas to residential and business customers, which is then delivered through utilities like Con Edison or National Grid. New York opened up the energy market to ESCOs in the early 2000s in an effort to give New Yorkers more options in how they get their energy and, hopefully, to drive down prices by introducing competition. To jumpstart the market, New York exempted them from paying sales tax.

Now the ESCO market is thriving, with some 200 companies providing electricity and gas across the state. The Cuomo administration has said the sales tax exemption is no longer necessary – and if the taxes are collected, the state expects it would initially bring $96 million into state coffers and $128 million in subsequent years.

But the energy companies aren’t happy.

“The existing tax exemption benefits customers, not ESCOs, by providing them with direct savings and encouraging a more competitive energy market, which is good for all consumers,” said Bryan Lee, spokesman for the Retail Energy Supply Association. “Eliminating the tax exemption for businesses would increase energy costs at precisely the wrong time.”

Others are have raised concerns about the ESCO market. A New York City ESCO was found to charge triple Con Edison’s rate for electricity, and a Finger Lakes region ESCO charged eight times the going rate. State regulators cracked down, banning them from selling to low-income customers.

Some 20 percent of of residential energy customers buy from ESCOs. While some customers enjoy options like receiving only electricity from renewable sources, others are lured in by a promise of lower prices that are never delivered. A much higher rate of commercial and industrial customers also use ESCOs, and largely benefit from the market to fit their different energy needs.

But that isn’t enough to redeem ESCOs for AARP, which has been a major critic of the energy companies’ tactics.

“The ESCO industry kind of went off the rails. … These guys were employing many deceptive marketing practices all across the board in the residential marketplace,” said Bill Ferris, AARP’s state legislative representative in New York. “It’s an industry that in large part has failed in New York. So if the governor believes that he wants to take away a tax break for them, we’re not going to argue for or against it.”

ESCOs could merely add the new tax to customers’ bills, further increasing prices. Ferris said he isn’t sure they will do that, since the companies are benefiting from the recently passed federal tax law, which cut the corporate tax rate from 35 percent to 21 percent.

Arthur “Jerry” Kremer, a former assemblyman who is now chairman of the trade group New York Affordable Reliable Electricity Alliance, argued that customers would suffer from the change.

“If the ESCOs lose the tax exemption, they pass this on to the consumer, and the consumer is paying for it, whether it’s direct or indirect,” Kremer said. “I understand what (the Cuomo administration is) trying to do with ESCOs, since they are somewhat controversial, but it’s just another burden for the utility payer.”

A major state business group found the proposal unfair as well.

“I don’t know how anybody could think it was good for consumers,” said Darren Suarez, director of government affairs for the Business Council of New York State, which opposes the measure. “This is basically the imposition of a tax where there isn’t a tax now, for a product where there’s no change.”

Cuomo would have to get support from the state Senate and Assembly to repeal the exemption. Michael Cusick, Democratic chairman of the Assembly Energy Committee, could not be reached for comment.

State Senate Energy and Telecommunications Committee Chairman Joseph Griffo was noncommittal.

“We are busy reviewing, examining and evaluating all of the governor's proposals at this time,” Griffo said in a statement. “I am sure that there will be counterproposals and modifications to the governor’s proposed spending plan as the process moves along.”

Cuomo’s proposal does have precedent. New York City eliminated the ESCO sales tax exemption in 2009, and consumer advocates called on the state at that time to do the same. Nine years later, it may happen.

ENERGY & ENVIRONMENTAL ISSUES

Plastic bag fees

A year and a half after the New York City Council passed a 5-cent plastic bag fee to discourage their use, and a year after the state Legislature blocked it from going into effect, environmentalists who backed the measure are still waiting for a resolution. A state task force couldn’t settle on one recommendation, so it provided eight possible solutions. And don’t expect lawmakers to be eager to narrow it down. In January, state Senate Majority Leader John Flanagan called the bag fee “just idiotic.”

Pension fund divestment

State Comptroller Thomas DiNapoli has fielded calls to divest the state pension fund from fossil fuels for years, but he’s resisted. Environmentalists say the state’s supporting an industry that’s bad for the planet, but DiNapoli thinks it’s better to have a seat at the table where the state can nudge companies in the right direction. But now a new voice is asking the comptroller to divest: Gov. Andrew Cuomo. The pair will form an advisory committee to discuss divesting the $200 billion fund, so expect real debate behind the scenes.

Energy storage

Cuomo announced an energy storage initiative that would deploy an estimated 1,500 megawatts of energy storage by 2025 – and employ an estimated 30,000 New Yorkers. To achieve this goal and drive down costs, the budget included an investment of at least $200 million from the New York Green Bank toward strategic energy deployment along the electric grid. The New York State Energy Research and Development Authority would also contribute $60 million to help with various barriers, including customer acquisition and interconnection.

Environmental initiatives

The budget continues the $2.5 billion investment from the Clean Water Infrastructure Act that was passed last year. Together with the Water Infrastructure Improvement Act, a municipal grant program to improve water quality, it will fund investments in wastewater, source water protection and initiatives to combat harmful algal blooms upstate. There are also plans to repair the Niagara Falls Wastewater Treatment Plant. After a discharge incident in July, the state Department of Environmental Conservation started an investigation that will be followed by an overhaul to improve the infrastructure of the facility and wastewater system. Cuomo’s executive budget also maintains a record $300 million for the state’s Environmental Protection Fund.