# How ConEd's Delivery Adjustments Work: A Complete Explainer

> ⚠️ **Disclaimer**: This guide was generated by an LLM (Claude Opus 4.5) based on the tariff JSON plus the model's background knowledge of utility regulation and NY PSC proceedings. The content looks reasonable but **has not been verified by domain experts**. Please verify any claims before relying on them for business or regulatory purposes.

## Overview

ConEd's delivery charges aren't just a single rate—they're a **base rate plus multiple adjustments**. This guide explains what each adjustment does, why it exists, and how it's calculated.

```
Your Delivery Bill = Base Delivery Rate (Summer/Winter Rate)
                   + Delivery Revenue Surcharge
                   + Reconciliation Rate
                   + Transition Adjustment
                   + Uncollectible Bill Expense
                   + Monthly Adjustment Clause
                   + Revenue Decoupling Mechanism Adjustment
                   + Clean Energy Standard Delivery Surcharge
```

All of these adjustments have `variableRateKey` in the JSON—meaning they change periodically and require the Lookups API to get current values.

---

## Why So Many Adjustments?

Electric utility regulation creates a fundamental timing problem:

1. **Rate cases are infrequent**: ConEd files a rate case every 1-3 years
2. **Costs change constantly**: Fuel prices, labor, taxes, program costs fluctuate
3. **Sales volumes vary**: Weather affects how much electricity customers use
4. **Policy mandates evolve**: NY State adds new clean energy requirements

Rather than constantly filing new rate cases (expensive, slow), regulators allow **adjustment mechanisms** that automatically true-up certain costs between rate cases.

---

## The Adjustment Mechanisms

### 1. Monthly Adjustment Clause (MAC)

#### What Problem It Solves

The MAC is an **umbrella mechanism** that captures cost changes the PSC has pre-approved for pass-through. It's the "catch-all" for costs that vary but shouldn't require a rate case to update.

#### What's Included

The MAC typically includes:

- Property tax changes
- Environmental compliance costs
- Storm damage recovery
- Pension and benefit cost changes
- Other PSC-approved cost pass-throughs

#### How It Works

**Step 1: Rate Case Establishes Baseline**

```
During rate case, PSC sets base delivery rates assuming:
- Property taxes: $X million/year
- Storm costs: $Y million/year
- Pension costs: $Z million/year
```

**Step 2: Actual Costs Differ**

```
Year 1 Reality:
- Property taxes: $X + $5 million (taxes went up)
- Storm costs: $Y + $20 million (bad hurricane season)
- Pension costs: $Z - $2 million (good investment returns)
```

**Step 3: MAC Adjustment Calculated**

```
Net variance = +$5M + $20M - $2M = +$23 million under-recovery

MAC Rate = $23 million / Expected annual kWh sales
         = $23 million / 40 billion kWh
         = $0.000575/kWh
```

**Step 4: Applied to Bills**
The MAC rate is updated (typically monthly or quarterly) and applied to all kWh consumed.

#### Time Lag

- **Lag**: 1-3 months
- **Why**: ConEd needs to compile actual costs, file with PSC, get approval
- **Pattern**: You're paying for cost variances from ~2-3 months ago

#### Variable Rate Key

```json
"variableRateKey": "monthlyAdjustmentClauseResidential"
```

---

### 2. Revenue Decoupling Mechanism (RDM) Adjustment

#### What Problem It Solves

Traditional utility regulation created a perverse incentive: utilities made more money when customers used more electricity. This discouraged utilities from promoting energy efficiency.

**Revenue decoupling** breaks this link by guaranteeing the utility a fixed revenue amount regardless of sales volume.

#### The Core Concept

```
Traditional Model:
- Revenue = Rate × Sales Volume
- If customers conserve, utility loses money
- Utility has incentive to encourage consumption

Decoupled Model:
- Revenue = PSC-authorized amount (fixed)
- If customers conserve, rates adjust upward to hit target
- If customers use more, rates adjust downward
- Utility is indifferent to sales volume
```

#### How It Works

**Step 1: Rate Case Sets Target Revenue**

```
PSC authorizes ConEd to collect $2.5 billion/year in delivery revenue
Based on expected sales of 40 billion kWh
Implied rate: $0.0625/kWh
```

**Step 2: Actual Sales Differ**

```
Year 1: Mild summer → customers use only 38 billion kWh
At $0.0625/kWh, ConEd collects only $2.375 billion
Shortfall: $125 million
```

**Step 3: RDM Adjustment Calculated**

```
RDM Adjustment = Shortfall / Expected Future Sales
               = $125 million / 40 billion kWh
               = $0.003125/kWh surcharge
```

**Step 4: Applied to Future Bills**
Next year's bills include the RDM surcharge to make ConEd whole.

#### The Flip Side

```
Year 2: Hot summer → customers use 43 billion kWh
At $0.0625/kWh, ConEd collects $2.6875 billion
Over-collection: $187.5 million

RDM Adjustment = -$187.5 million / 40 billion kWh
               = -$0.0047/kWh CREDIT
```

Customers get money back when they use more than expected!

#### Time Lag

- **Lag**: 12-18 months typically
- **Why**: RDM is usually reconciled annually after a full year of data
- **Pattern**: This year's RDM reflects last year's over/under-collection

#### Why This Matters for Clean Energy

Revenue decoupling is foundational to NY's climate policy. Without it:

- ConEd would fight rooftop solar (reduces sales)
- ConEd would oppose efficiency programs (reduces sales)
- ConEd would resist electrification messaging (complicated)

With decoupling, ConEd's revenue is protected regardless of sales trends.

#### Variable Rate Key

```json
"variableRateKey": "revenueDecouplingMechanismAdjustmentSc1"
```

---

### 3. Delivery Revenue Surcharge

#### What Problem It Solves

This is a **supplemental revenue adjustment** that handles specific revenue shortfalls or policy-driven rate changes outside the normal MAC and RDM mechanisms.

#### Common Uses

- Implementing PSC-ordered rate changes mid-period
- Recovering costs from specific events (major storms, infrastructure failures)
- Adjusting for regulatory lag when costs change faster than rate cases

#### How It Works

Similar to MAC, but used for more specific, identifiable cost categories that the PSC wants tracked separately.

#### Variable Rate Key

```json
"variableRateKey": "DeliveryRevenueSurchargeSc1"
```

---

### 4. Reconciliation Rate

#### What Problem It Solves

The Reconciliation Rate handles **true-ups for deferred costs** from NY's electricity restructuring in the late 1990s.

#### Historical Context

When NY deregulated electricity in 1996-2000:

- Utilities sold off power plants
- Some sold at losses ("stranded costs")
- PSC allowed utilities to recover these over time
- The Reconciliation Rate adjusts for actual vs. expected recovery

#### Why It Still Exists

Even decades later, there are ongoing reconciliations for:

- Legacy power purchase contracts
- Deferred regulatory assets
- Long-term debt from restructuring

#### Time Lag

- **Lag**: Annual
- **Pattern**: Reconciles prior year's deferred cost recovery

#### Variable Rate Key

```json
"variableRateKey": "macAdjustmentReconciliation2252"
```

---

### 5. Transition Adjustment

#### What Problem It Solves

Another legacy of deregulation. The Transition Adjustment handles costs related to the **transition** from regulated monopoly to competitive markets.

#### What It Covers

- Costs of separating generation from distribution
- Stranded cost recovery adjustments
- Contract buyouts from the restructuring era

#### Why It's (Usually) Small Now

Most transition costs have been recovered, so this adjustment is typically minimal. It persists for final true-ups and any remaining legacy obligations.

#### Variable Rate Key

```json
"variableRateKey": "macAdjustmentTransitionAdjustment2252"
```

---

### 6. Uncollectible Bill Expense

#### What Problem It Solves

Some customers don't pay their bills. ConEd can't collect from them, but still incurred costs to serve them. This adjustment recovers those costs from paying customers.

#### How It Works

**Step 1: Rate Case Estimates Bad Debt**

```
PSC assumes 1.5% of billed revenue will be uncollectible
Base rates include recovery for this expected level
```

**Step 2: Actual Bad Debt Differs**

```
Year 1: Economic downturn → 2.3% of bills unpaid
Excess bad debt: 0.8% × $2.5 billion = $20 million
```

**Step 3: Adjustment Calculated**

```
Uncollectible Expense Adjustment = $20 million / 40 billion kWh
                                 = $0.0005/kWh
```

#### COVID-19 Impact

This adjustment spiked during COVID when:

- Moratoriums prevented disconnections
- Many customers fell behind on bills
- Bad debt rates exceeded historical norms

The separate "Arrears Management Program Recovery Surcharge" (a rider) handles some of this, but the Uncollectible Bill Expense adjustment captures ongoing bad debt variances.

#### Time Lag

- **Lag**: 6-12 months
- **Why**: ConEd needs time to determine which bills are truly uncollectible (not just late)

#### Variable Rate Key

```json
"variableRateKey": "macAdjustmentUncollectibeBillExpense2252"
```

---

### 7. Clean Energy Standard Delivery Surcharge

#### What Problem It Solves

NY's Clean Energy Standard (CES) mandates that utilities procure increasing amounts of renewable energy. This surcharge recovers the **delivery-side costs** of that mandate.

#### What It Covers (Delivery Side)

- Grid upgrades needed to integrate renewables
- Interconnection study costs
- Distribution system modifications for DERs (Distributed Energy Resources)
- Administrative costs for clean energy programs

#### The Supply Side Counterpart

There's also a "Clean Energy Standard Supply Surcharge" that covers:

- Renewable Energy Credit (REC) purchases
- Zero Emission Credit (ZEC) purchases for nuclear
- Tier 4 (offshore wind/transmission) costs

The delivery surcharge is separate because these are **infrastructure costs**, not commodity costs.

#### How It Works

**Step 1: PSC Sets CES Targets**

```
2025: 70% renewable electricity
2030: 100% carbon-free electricity
```

**Step 2: ConEd Incurs Costs**

```
Year 1 CES delivery costs:
- Distribution upgrades: $50 million
- DER integration: $30 million
- Program admin: $10 million
Total: $90 million
```

**Step 3: Surcharge Calculated**

```
CES Delivery Surcharge = $90 million / 40 billion kWh
                       = $0.00225/kWh
```

#### Time Lag

- **Lag**: Varies (quarterly to annual updates)
- **Why**: Depends on when costs are incurred and PSC reporting requirements

#### Variable Rate Key

```json
"variableRateKey": "cleanEnergyStandardDelivery2252"
```

---

## Complete Timeline: How Delivery Adjustments Flow

Here's how all these adjustments play out over time:

```
YEAR 0: RATE CASE
────────────────────────────────────────────────────────────────────────────
│ PSC sets base delivery rates for 3-year period
│ Assumes specific levels for: property taxes, storm costs, sales volume,
│ bad debt, clean energy costs, etc.
│
▼

YEAR 1: ACTUAL OPERATIONS
────────────────────────────────────────────────────────────────────────────
│ Q1: ConEd operates, incurs actual costs, serves actual load
│ Q2: Costs tracked, variances accumulate
│ Q3: ConEd files quarterly/annual reconciliations with PSC
│ Q4: Year-end data compiled
│
│ Meanwhile, customers are billed at:
│   - Base rates (fixed from rate case)
│   - Prior period adjustments (from Year 0 or earlier)
│
▼

YEAR 2: ADJUSTMENTS APPLIED
────────────────────────────────────────────────────────────────────────────
│ Q1-Q2: PSC reviews Year 1 reconciliation filings
│ Q2-Q3: PSC approves adjustment factors
│ Q3-Q4: Adjustments appear on customer bills
│
│ Customer bills now include:
│   - Base rates (still fixed)
│   - Year 1 cost variances via MAC, RDM, etc.
│   - Prior period true-ups being finalized
│
▼

YEAR 3: NEXT RATE CASE (OR CONTINUED ADJUSTMENTS)
────────────────────────────────────────────────────────────────────────────
│ Either: New rate case resets base rates
│ Or: Adjustment mechanisms continue accumulating
```

---

## How the Adjustments Interact

These aren't completely independent—they're designed to work together:

| Adjustment                 | What It Catches                    | Frequency | Typical Lag  |
| -------------------------- | ---------------------------------- | --------- | ------------ |
| MAC                        | Cost changes (taxes, storms, etc.) | Monthly   | 1-3 months   |
| RDM                        | Sales volume variance              | Annual    | 12-18 months |
| Delivery Revenue Surcharge | Specific revenue shortfalls        | As needed | Varies       |
| Reconciliation Rate        | Deferred cost recovery             | Annual    | 12+ months   |
| Transition Adjustment      | Legacy restructuring costs         | Annual    | 12+ months   |
| Uncollectible Bill Expense | Bad debt variance                  | Quarterly | 6-12 months  |
| CES Delivery Surcharge     | Clean energy infrastructure        | Quarterly | 3-6 months   |

---

## Why Variable Rates Instead of Fixed?

You might wonder: why not just set these adjustments at fixed levels?

| Approach             | Problem                                                     |
| -------------------- | ----------------------------------------------------------- |
| Fixed adjustments    | Would be wrong as soon as actual costs differ from forecast |
| Frequent rate cases  | Expensive ($millions), slow (12-18 months), adversarial     |
| Variable adjustments | Allow continuous true-up within PSC-approved framework      |

The variable adjustment mechanism is a regulatory compromise:

- **Utilities** get timely cost recovery
- **Customers** pay actual costs (no more, no less)
- **PSC** maintains oversight through filing requirements
- **Rate cases** can focus on major issues, not routine variances

---

## Practical Impact: What This Means for Your Bill

For a typical ConEd residential customer using 500 kWh/month:

| Component          | Typical Range     | Monthly Impact |
| ------------------ | ----------------- | -------------- |
| Base Delivery Rate | $0.161/kWh        | $80.50         |
| MAC                | ±$0.001-0.005/kWh | ±$0.50-2.50    |
| RDM                | ±$0.002-0.008/kWh | ±$1.00-4.00    |
| Uncollectible      | $0.0003-0.001/kWh | $0.15-0.50     |
| CES Delivery       | $0.001-0.003/kWh  | $0.50-1.50     |
| Others             | ±$0.001/kWh       | ±$0.50         |

The adjustments typically add/subtract **$2-8/month** from your base delivery charges, or about **3-10%** of the delivery portion of your bill.

---

## Summary: The Big Picture

1. **Base rates are set infrequently** (rate cases every 1-3 years)
2. **Costs change constantly** (weather, taxes, policy, bad debt)
3. **Adjustments bridge the gap** (automatic true-ups between rate cases)
4. **Each adjustment has a specific purpose** (not arbitrary line items)
5. **Time lags exist** (you're always paying for past variances)
6. **Net effect is revenue neutrality** (ConEd recovers actual costs, no more, no less)

The complexity isn't arbitrary—it's the result of decades of regulatory evolution trying to balance utility financial health, customer protection, and policy goals like decarbonization.
