Political Shifts in NYC and Their Impact on the Utility Industry: A Comprehensive Analysis
Following the June 2026 primary election in New York City, where progressive candidates backed by Mayor Mamdani achieved significant success, numerous analyses have emerged regarding the political implications. Our perspective is straightforward: the last time progressives gained power, particularly in major American cities, many of their policies were eventually adopted by either Progressives or New Deal supporters. In both cases, this has meant a more regulatory environment for utility companies.
The Legacy of Progressive and New Deal Policies
Progressives established the foundation for our current regulatory mechanisms with oversight of operations and capital funding, while the New Deal experimented with public ownership as a means to reduce the influence of investor-owned monopolies like Southern Company. Now, we have approximately 100 years of experience with Progressive administrative reforms and over 80 years with New Deal-inspired utility asset ownership.
From our viewpoint, the results are quite clear. The regulatory agencies initially created with the best intentions to represent the public interest against powerful monopolies have become hollowed out due to regulatory capture - the domination of administrative procedures by wealthy corporate interests. Those entities once inspired by Progressives have become as empty as a cheap chocolate Easter bunny.
The Core Issue: Uncomfortable Questions from an Investor Perspective
But the main issue for us today is that left-leaning political movements consistently pose uncomfortable questions from an investor's perspective. For example, why do we need equity investors in a low-risk, monopoly business like electricity? Critics argue, not without reason, that equity investors in the utility sector provide high-cost risk capital for a low-risk monopoly business that doesn't need it. Simply put, they question whether equity investors are being overpaid for, essentially, doing too little.
International Comparison of Capital Structures
If we look around the world, we can see differences, and it's not just the level of generosity that equity investors are rewarded elsewhere, but how American utility companies are funded differently. By comparison, we allow our utilities to use enormous amounts of equity capital, approximately 50% of their current capital structure, in an extremely low-risk monopoly business, which is completely irrational.
Why? Because business risk (potential revenue volatility) and financial risk (debt ratio in the capital structure) should be inversely correlated. This means that low-risk utilities with extremely stable revenue streams can afford much higher, cheaper debt in their capital structure. Instead, we do the opposite, significantly increasing electricity costs.
| Country | Equity Ratio in Electricity Sector | Ownership Type |
|---|---|---|
| United States | ~50% | Private |
| France | 0% | State |
| Japan (pre-Fukushima) | 20% | Private |
| United States (per Bonbright, 1930s) | ~30% | Private |
From a comparative perspective, our regulators allow too much equity capital in a low-risk monopoly business, thus unnecessarily imposing higher costs on all energy consumers, and that equity capital is also historically compensated at relatively high levels.
Financial Impact on Consumers
To quantify this analysis, electricity consumers could easily pay 10-15% less if the industry didn't have to pay taxes and was financed entirely with government-guaranteed debt.
Electricity: Business or Human Right?
From a long-term perspective, we must acknowledge that equity investors in the utility sector have had their precarious moments. Greedy politicians during the Insull era, forest fires, economic depressions, wars, oil embargoes, new technologies, nuclear accidents, and similar threats have all endangered what seemed during good times to be an easy business, albeit capital-intensive.
The larger question for us, which we believe progressives will eventually ask, is whether electricity should be considered a business, given its essential nature for our existence? Instead, should it be regarded as a human right, like access to food or healthcare? When temperatures outside reach 120 degrees, having air conditioning is a matter of survival, not luxury. Similarly, if temperatures drop below 50 degrees below zero in winter. In extreme circumstances, consumers have little choice but to use electricity.
The New Deal Model: A Benchmark for Private Ownership
These questions or issues lead to larger questions about state ownership versus continued private sector control. Franklin Roosevelt's New Deal compared state ownership of utility assets to a "yardstick" to measure the efficiency of the private sector and, in that way, ensure fair pricing. But these new government entities had two major advantages over their private sector counterparts. Their financial costs were extremely low because they were backed by the federal government, and they didn't have to pay taxes. The TVA (Tennessee Valley Authority) seemed to operate well for about 75 years without a penny of equity capital in its capital structure.
The New Deal solution was to provide people with one of the benefits of modern technology without the higher costs imposed by equity investors. Simply with government debt funded at the lowest possible interest rates.
Current Political Impacts
We believe that the investor risks from today's political developments relate to a shift in thinking. Traditional left-leaning factions call shareholders financial predators, parasites, or rent-seekers. In other words, there's an implicit moral component in how corporations should treat the working class and middle class. Perhaps we're beginning to see a resurgence of these themes today.
But there's a major difference compared to, say, 1935. Roosevelt's people had two advantages in establishing public utilities: low-cost government financing and tax incentives. Today's public power advocates or "New Dealers" might also encourage investment with tax incentives and low-cost financing. However, as we enter a new construction cycle for power generation with all the potential for oversupply driven by data centers, they might also encourage greater use of lower-cost generation technologies like renewable energy.
Americans, electricity utilities with high solar penetration have begun offering free electricity to customers for a few hours each day. We expect to see more of this. This gives an entirely new meaning to the phrase "power to the people."
Written by Leonard Hyman and William Tilles for Oilprice.com
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