Con Edison Recommendations for Property Tax Reform

Con Edison has reviewed the recommendations of the Advisory Commission on Property Tax (Commission). Noting the Commission’s vision of “...simpler, clearer, fairer...”, Con Edison was hopeful that the Commission’s work would have addressed the many problematic issues with the current system of utility real property taxes – whether it be the lack of transparency, the regressive nature of how they are assessed and collected, or their large and growing magnitude in the face of combatting climate change. Unfortunately, that did not happen in this report. Therefore, we are providing testimony to highlight that Con Edison’s customers, and the $2.5 billion in property tax burden they currently bear, deserve to be incorporated into this Commission's final recommendations to address their magnitude, impact on rising energy bills, and their regressive nature. Additionally, we are providing recommendations for consideration that would make the utility property tax system fairer, and more beneficial to the clean energy future we all desire.

Few New Yorkers fully understand that there are actually TWO property tax payments they are making: 1) the payment they are making on the real property they own, lease or are renting and 2) the property taxes the City of New York (“City”) charges them to have an energy system that are hidden in plain sight on their monthly energy bills.

New York’s property taxes, and their perennial increases, result in higher electric, gas, and steam bills for customers - in fact, property taxes have, at times, accounted for nearly 30% of energy bills in NYC. In both the current electric and gas rate case proceedings before the New York State Public Service Commission (“PSC”), as well as one that will soon be filed with the PSC for rates charged to Con Edison steam customers, property taxes are a large, if not the largest, driver of those increases that customers will see in their future bills.

For those reading this testimony that are unfamiliar with how utility property taxes affect utility customers, a utility bill consists of three parts: 1) the cost of the energy that is consumed by the customer also known as “Supply Charges”; 2) the cost of the infrastructure investments to deliver that energy, known as “Delivery Charges”; and 3) the cost of property taxes the City charges New Yorkers to have an energy system that goes to filling the City’s tax levy general fund and plugging budget gaps. Those charges are collected on behalf of the City of New York in the utility bill. These are not charges on the buildings of Con Edison, but rather on the pipes, wires and other infrastructure that deliver energy throughout the City.

For context: Con Edison customers, as a class, are undeniably the largest property taxpayer in the City and the NYC property taxes in their bill have increased steadily from roughly $500M in the year 2000 to almost $2.5B in 2023 – that’s more than a 300% increase. When New Yorkers talk about the steep rise in energy costs, what they may not know is that City property taxes have played a leading role in driving those bills higher.

New York is unique in the way utilities like Con Edison are assessed property taxes for the infrastructure and equipment needed to deliver energy. Instead of paying a special franchise tax, which is the national standard, utilities like Con Edison customers pay taxes on both the tangible property in the public right of way, as well as the value of the franchise right, and the authority or permission to occupy such public spaces. Additionally, Con Edison is required to pay hundreds of millions of dollars in other special fees that come in the form of revocable consent fees, public interference construction costs, street opening permitting, to name a few. These circumstances are different from how other businesses are taxed and have resulted in an ever-increasing tax bill that contributes significantly to higher utility rates for customers. Through these taxes, fees and other special assessments, the City is undoubtedly the largest financial beneficiary of the NYC energy system.

It all adds up to a NYC real property tax system that also has the consequence of penalizing our customers for needed investments in the system, including investments to maintain high levels of reliability, storm resilience, and to meet our City and State clean energy goals. Without thoughtful utility property tax reform, these assessments will only increase as Con Edison makes the resiliency investments as we adapt to climate change, as well as the delivery capacity investments necessary to combat climate change. For example, when we make upgrades to submersible transformers in the streets of flood prone areas, or when we put in new electric distribution feeders in disadvantaged communities that are seeking to stop burning natural gas through electrification, or build big substation hubs to accept offshore wind, or install EV chargers in neighborhoods, the City property tax system will see new and higher assessments on those investments, all of which will show up as higher property taxes on utility bills. For example, if the Company added $2B of infrastructure investment in the City, our customers, would pay an annual property tax of approximately $100M on that infrastructure investment.

Indeed, through its current property tax system the City stands to make a windfall profit off the investments that will be necessary to achieve both the City’s and the State’s clean energy transition goals.

The unjust property tax system in NYC has already been called out as such by certain elected officials, regulators, and advocates. In fact, some PSC Commissioners have expressed major concerns about this issue. Some commissioners have repeatedly made the point that anyone who is serious about doing something about utility bills should look no further than the City of New York’s property tax system.

The City is required to ensure that the assessments within each tax class are uniform. Instead, the recommendations of the Advisory Commission do nothing to change a property tax structure that is discriminatory and unduly burdens neighborhoods with lower income distribution than areas where higher-earning New Yorkers tend to live, when it comes to utility property taxes. As tax policy would show you, any class with a market share of its property greater than its share of the tax levy is receiving a tax preference, which is then absorbed by the other classes. Historically, however, utilities in NYC have been burdened (lack of advantage) by this system, wherein its class share of the property tax levy is more than double its market value. For fiscal year 2022-23, utility properties were 3% of the total market value, but its share of the property tax levy was 7%. Until this inequity it addressed by this or future Commissions, Con Edison customers will be required to pay higher and increasingly regressive property taxes on the necessary investments to ensure a reliable and clean energy future in the face of climate change.

A few suggested actions:

1. Transparency: Con Edison calls on the Commission to continue its work in making the property tax system “...simpler, clearer, and fairer...” and to examine ways to increase education and understanding of the scope and nature of utility property taxes, both how they are assessed, their public policy ramifications for the clean energy policy goals, and the potential regressive nature of their collection, with particular attention to environmental justice communities. The City should support Con Edison’s ability to specifically highlight property taxes on a customer’s bill as a first step.
2. Encourage Clean Energy Investments: the Commission should study the magnitude of potential future property taxes that will be borne from the transition to a clean and electrified energy system and partner with the utilities to find creative ways to harness those taxes to make the clean energy transition more affordable and accessible. This could come in the forms of:
   1. Providing a property tax exemption for investments made to facilitate clean energy generation and delivery;
   2. Setting aside the incremental taxes charged to clean energy investments to help facilitate adoption and affordability to energy efficiency investments needed at the building level to meet the City’s and the State’s decarbonization goals.
3. Eliminate Wasteful Assessment Bureaucracy: Property taxes on utilities are currently assessed by different agencies using different assessment methodologies. It is a bureaucratic tangle that does nothing to help ease the cost burden for our customers, despite our continual efforts to challenge unreasonable assessments. Utility property located on a public right of way is assessed by the State while that same property located on a private right of way is assessed by the City. Employing different assessment methodologies leads to duplicative work, lawsuits, delays, confusion, and, ultimately, higher costs to energy customers. A better way to assess utility property would be by “central assessment”. Under such a system, the state would establish assessment ceilings for utility property located on private rights of way. A similar successful program, established in 2015, exists for property owned by telecommunication companies. The NYS Department of Tax and Finance along with the PSC specifically endorsed the idea of central assessment of utility property. The State found that central assessment would provide greater efficiency, fairness and reduced administrative and legal costs for utilities and municipalities. Curiously, however, the Advisory Commission’s recommendations rejected this notion of central assessment of utility special franchise tax, with little justification or evidence of thorough examination. We believe this conclusion should be reconsidered.

Con Edison stands ready to work closely with the City Council as well as the State Legislature and Executive to effectuate real, sustainable, and equitable reforms to New York City’s real property tax system. Such reforms should include – as a cornerstone – central assessment by the state of utility property located on private rights of way as well as tax incentives and/or exemptions for utility projects that are in furtherance of the City and State’s climate and resiliency goals.