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June 14, 2000

Council opposes bills to create new tax to energy
Bills to establish 'clean energy funds' would eliminate more than half of GRT savings

The Business Council is opposing several proposals to impose a new tax on energy, nullifying much or all of the savings expected from repeal of the energy gross receipts tax (GRT) on employers.

Two separate but similar bills (A.8506-C/Engelbright and S.7323-B/Marcellino) are designed to establish and fund a "clean energy fund," said Johnny Evers, The Council's legislative analyst specializing in energy.

The new surcharge could replace an existing, lower "systems benefit charge" already collected by all New York utilities for similar purposes. The current charge supports research and development, low-income residential customers, and technology development. All of those programs are funded through the New York State Energy Research and Development Authority (NYSERDA).

The current rate varies from utility to utility but averages .00078 cents per kilowatt hour, Evers said. The charge has been on the books for two years. It is scheduled for review by the Public Service Commission (PSC) and NYSERDA beginning this fall, he added.

The charge is due to expire June 30, 2001, so this issue may become a key legislative issue between now and then, he said.

The Senate bill would mandate a surcharge on all electricity bills beginning July 1, 2001. The surcharge would begin at 0.1 cents per kilowatt hour. It would escalate to 0.2 cents per kilowatt hour over three years. It would remain at that level until June 30, 2011.

"This bill would add more than $155 million to our energy bills in just the first year. That means the total projected savings from the GRT repeal would be nearly halved in just the first year," Evers said. Under the Senate bill, the 10-year cost would be $3.25 billion, he added.

Assemblyman Engelbright's bill would mandate a"demand-side management" surcharge on energy bills, also for a clean energy fund. This would effectively eliminate the entire first-year GRT savings, Evers said. Its 10-year costs would be nearly $2 billion.

Both bills also would require utilities to eventually supply at least 10 percent of their total output from "clean energy technologies."

"This seeks a very sudden and radical change in power generation in New York—without evidence that utilities have the technology to do so or the ability to do so competitively," Evers said. "The likely result would be a dramatic increase in costs of electricity in the market."

Under both of these bills, utilities would be required to generate at least 0.5 percent of their energy from "clean" sources by July 1, 2003. The required percentage would increase by 0.5 percent a year until it reached 6 percent. After that, the required percentage would increase 1 percent a year until it reached 10 percent.

In addition, both of these bills would restrict the free market by preventing utilities from recovering essential costs of service.

The bills would cap utilities' charges for various services, such as connecting and disconnecting customers from the power grid and other technologies, and providing "standby" power. All utilities impose standby charges to cover costs of providing backup power to customers in their home region who choose a different primary power provider or technology.

"In a truly deregulated environment, which New York is trying to create, the market should set these charges, not the state government," Evers said. "This proposal amounts to a re-regulation of a market that the state has been working assiduously to deregulate."

On top of the proposed surcharges, the bills would require the New York Power Authority to "voluntarily" contribute up to $100 million a year for 10 years to the clean energy fund.

"The proposed surcharges and ‘voluntary' contributions reach a staggering total, especially if you remember that power costs here remain among the nation's highest and a significant impediment to job creation," Evers said.

A third bill (A.6099-C/Tonko) makes many of the same proposals, and calls for extending the "systems benefit charge" (SBC) already added to consumers' and businesses' energy bills for at least 10 years. The current SBC is to be evaluated this fall by the New York State Energy Research and Development Authority (NYSERDA), and it is due to expire next June.