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More than 1mn customers in arrears prompts action by state government

Energy price inflation is hitting home in New York, where electricity rates have shocked residents

opening their utility bills.

For January, the bill for an New York City residence using 300 kilowatt-hours of electricity was

$123.65 versus $82.80 in December, a 50 per cent increase, according to Con Edison, the local

utility company. Spot market prices dropped from January to February but were still on average 79

per cent higher year over year, according to S&P Global.

New York is experiencing some of the most dramatic increases in a broad national rise in retail

electricity prices, driven by a rebound in demand and an increase in the cost of natural gas burnt at

power stations. The price of power is helping feed US consumer price inflation that is the highest in

40 years.

Across all of New York state, roughly 1.3mn residential customers are behind on payments worth

$1.7bn, a historic record, according to the Public Utility Law Project of New York.

“It’s a terrible time for something like this to happen,” said Avi Singh, who owns a restaurant in

Brooklyn. His electricity bill jumped 50 per cent from December to January.

Electricity bills are broken down into delivery and supply charges. While utility companies cannot

alter delivery charges without approval from their regulator, supply charges are determined by the

market.

Average supply charges for Con Edison jumped from $0.08 per kWh in December to $0.20 per

kWh in January, similar to the increase in electricity prices on New York’s spot market.

Con Edison said that an increase in wholesale power prices driven by generators’ gas costs, as well

as higher demand because of cold weather and their billing process, were the factors behind the

recent rise in utility bills.

“We buy the energy on the wholesale market and provide it to customers at the same price we

paid,” the company said.

In addition to the spot market, utilities buy contracted power in advance to help smooth price

volatility. Con Edison said it would apply the full value of its contracted buying programmes to

help reduce supply costs this month by about 9 cents a kWh, responding to a request from the New

York Public Service Commission.

Approximately 14 per cent of Con Edison’s 3.4mn residential and commercial customers are more

than two months behind on their bill payments. The total number in arrears has increased by 42

per cent since before the pandemic. Over 175,000 customers received “final termination” or

disconnection notices in February, according to documents the utility sent to the NYPSC.

“There’s a lot that can happen from these unanticipated expenses,” said Diana Hernández, an

energy insecurity expert at Columbia University, including potentially sending households into a

“downward spiral” in which they cannot pay for food and rent.

New York state lawmakers have proposed at least $400mn in next year’s budget to assist

households that are behind on utility payments. On March 1, Kathy Hochul, New York governor,

announced a campaign to raise awareness about energy assistance programmes.

But customers say the programmes are difficult to

use and provide too little to cover the jump in

electricity costs.

Jennifer Vargas, a Bronx resident, said the 50 per

cent rise in her January Con Edison bill cancelled out

the $25 Home Energy Assistance Program cheque

she normally receives.

“I’m just going to have to put the credit cards

together. I put it on the card or pay it late, because

it’s a big difference I wasn’t anticipating,” she said.

Efforts to charge more for certain items from sofas to T-shirts have met resistance; ‘there was a revolt.’

Apparel retailers and department stores are bumping up against pockets of price resistance, a sign that consumers are curtailing spending as inflation remains at the highest level in four decades.

Macy’s Inc. M 7.76% tried to raise prices on some mattresses and sofas by $100, but shoppers pushed back, Chief Executive Jeff Gennette said. Clothing brand Bella Dahl raised prices on its T-shirts by about $20, then sales fell and the company rolled back the price increase. “There was a revolt,” said Steven Millman, its chief brand officer. “If we go any higher, we’ll do half the sales.”

With inflation at a 40-year high, companies across the spectrum have been charging more to offset rising costs with little resistance from consumers. That trend is starting to change, especially on lower-priced apparel and furniture, according to industry executives, analysts and consumers.

Retail sales slowed in February compared with January, according to the Commerce Department. Compared with February 2021, sales are up 17.7%, but a large chunk is due to rising prices. In some categories, such as gasoline and food, all the gains were driven by inflation, according to research firm GlobalData. In apparel, there is “some trading down with more shoppers turning to value players for some of their purchases,” according to Neil Saunders, a GlobalData managing director. “This is likely in response to squeezed budgets.”

Unit sales of general merchandise goods such as apparel, footwear, toys and sports equipment declined in nine of the 10 weeks from Dec. 26 through March 5 compared with the same period a year ago, according to market research firm NPD Group.

Roughly 43% of consumers surveyed by NPD in February said that if prices continue to rise, they will delay less-important purchases to stick to a budget.

“We are seeing less demand as consumers pay higher prices,” said Marshal Cohen, NPD’s chief retail industry adviser. “Price sensitivity is starting to show up. There is a threshold that consumers don’t want to go over.”

Calloway Cook of Northampton, Mass., had been spending freely throughout the pandemic, but he started cutting back in the past two months as higher prices and a stock market made volatile by Russia’s invasion of Ukraine have him feeling less affluent. Instead of buying a new winter coat, he is sticking with the one he has and is forgoing the sneakers he had been eyeing. “It seems like it’s a good time to be more frugal,” said the 28-year-old seller of herbal supplements.

Apparel retailers have been among the biggest beneficiaries of consumer spending as Covid-19 restrictions ease and people refresh their wardrobes in anticipation of more in-person meetings and social events. Chains from Macy’s to Target Corp. TGT 0.11% reported strong holiday sales, and many have curtailed promotions and raised prices, a departure for an industry that had been in a deflationary spiral for decades.

Crocs Inc.’s CROX 7.11% finance chief Anne Mehlman told analysts in February that the company’s average selling price rose nearly 19% last year because of price increases and fewer discounts.

But as Citigroup Inc. analyst Paul Lejuez noted in a recent report about the impact of inflation on apparel companies, despite a strong job market and rising wages, consumer “wallets are not infinite.”

Roketa Dumas, a financial blogger who lives in Charlotte, N.C., planned to refresh her wardrobe this spring, but got sticker shock on recent shopping trips. Instead of buying four pairs of jeans, she settled for one pair. Rather than five new bras, she bought two. “The budget I had set aside isn’t enough given how much prices are up,” the 38-year-old said.

It isn’t just the rising prices of gasoline and toilet paper that are eating into disposable income, but also a shift back to spending on services like dining out and travel.

The pushback from consumers varies across categories and brands. Luxury players have been jacking up prices with no visible collapse in demand. Items that are scarce because of supply-chain shortages also can command higher prices. And shoppers are more willing to pay up for fashion items like spring dresses than basic T-shirts, executives said.

Analytics company DataWeave Inc. found wide disparities in the price increases by item and gender. The average price of skirts is up 31% compared with a year ago, while pants cost only 8.6% more. Women on average are paying an extra 13% for pants, while men are paying an additional 5.3%.

“Women tend to be more fashion conscious and are willing to pay up for the newest styles,” said Krishnan Thyagarajan, DataWeave’s president.

Retailers are trying to figure out how far to push prices without losing customers and developing workarounds when price increases aren’t feasible, the executives said.

Some brands are reducing costs by using lower-grade leather, lighter-weight cotton or cheaper trim, said Brian Ehrig, a partner in the consumer practice of consulting firm Kearney. Others are switching to less-expensive manufacturing techniques such as single-brushed instead of double-brushed fabrics—the difference being that rollers only fluff the fibers on the outside to make them softer, not on both sides, said Jackie Ferrari, CEO of clothing manufacturer American Fashion Network.

Premium brands are taking the opposite tack, by adding quality to products in the hope that consumers will pay more. When Coach introduced the latest version of its Tabby 26 handbag last spring, which is made of softer, fluffier leather than the original, it raised the price by $100.

“Consumers could really see the additional value,” said Todd Kahn, CEO of the Coach brand, which is owned by Tapestry Inc. TPR 5.43%

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The firm is looking to raise a new buyout fund, sources say, after wrapping up a predecessor fund with $16 billion in February 2021

Clayton Dubilier & Rice is returning to the fundraising trail with a new buyout fund nearly a year after wrapping up its predecessor with approximately $16 billion, according to four people familiar with the fundraising efforts.

The firm has begun talking to investors about its next buyout fund and plans to raise at least $20 billion for the offering, these people said. If the firm reaches the target, the fund would be around 25% larger than its predecessor, Clayton, Dubilier & Rice Fund XI LP, which closed in February 2021.

The firm had not yet distributed private placement memorandum documents to potential investors or opened a data room, the sources said. PPM documents, which firms distribute when they are officially marketing a new fund, typically provide a summary of the terms of a proposed fund offering, along with other important details, such as a firm’s track record and strategy.

CD&R joins a growing crowd of private-equity firms pitching or planning to pitch a fund seeking $20 billion or more. Others include Thoma Bravo, EQT, Vista Equity Partners and Silver Lake.

While the firm’s previous fund is still too young to generate much in the way of meaningful performance, Clayton, Dubilier & Rice Fund X LP, a $10 billion fund raised in 2017, had produced a nearly 53% net internal rate of return as of Sept. 30, 2021, according to documents from the California Public Employees’ Retirement System, which committed $150 million to the fund.

Last year, in addition to its prior flagship fund, CD&R also raised almost $4 billion in a single-asset secondary transaction that enables it to hold its U.K.-based portfolio company Belron Group AB for longer, WSJ Pro Private Equity reported.

Founded in 1978, New York-based CD&R invests across North America and Europe, focusing on businesses in the healthcare, consumer and retail, industrial and services sectors, according to its website. The firm focuses on acquiring noncore corporate divisions and founder-owned and family enterprises in transition.

Earlier this month, for example, CD&R agreed to acquire publicly-traded building-products manufacturer Cornerstone Building Brands Inc. for $5.8 billion. Last fall, the firm partnered with private-equity peer KKR & Co. to acquire publicly traded enterprise software provider Cloudera in a roughly $5.3 billion deal, and earlier that same year it acquired a majority stake in healthcare provider Vera Whole Health Inc.

Clayton Dubilier & Rice managed $43.44 billion in client assets at the end of 2020, according to a regulatory filing.

Investors should play safe in the face of war and inflation

When I drew attention a few weeks ago to the high cash holding in the fund as its biggest strength in the current conditions, I was thinking of the need to curb inflation and the likelihood of further monetary tightening by the leading advanced country central banks.

A few days later the spectre of war started to spook the markets — and the world.

The decision by Vladimir Putin to tear up the rules of international behaviour and launch a full-scale invasion has understandably shocked many of us. It led to a fall in markets as the extent of the damage being done to Ukraine, Russia and the rest of the world becomes clearer.

There have been wide-ranging and extreme market reactions, with energy, grains and some other commodities sent much higher as investors evaluate the impact of the sanctions imposed on Russia and supply interruptions.

These events will bring both higher inflation and slower growth in advanced economies.

High inflation erodes spending power and reduces discretionary purchases, as people face a large fall in their real incomes. As home heating bills, fuel costs and supermarket food prices surge so many will have to rein in their other spending.

Share markets generally have fallen as the outlook worsens. Russian asset prices have collapsed as they are no longer supported by western buyers. Chinese shares too have now suffered a major fall. This reflects both the new surge in Covid in China leading to more lockdowns, and growing US pressure on Beijing to amend its stance on Russia. China faces the risk that its much larger trade could be sanctioned if it gives too much support to its Russian ally.

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Chinese equities

China shares fall sharply on concerns over Covid outbreak and Ukraine war

The FT portfolio has been helped by the past exit from direct Chinese exposure, by the large holding in indexed bonds offering some inflation protection and from the cash.

The global shares and the specialist indices in energy transition and digital have gone down with the rest, as there have been few safe havens against the consequences of inflation and the war.

Central banks now have to accept a worse outcome in terms of the trade-off between inflation and output. They need to recognise that energy prices staying higher for longer is a kind of tax on consumers, slowing demand and therefore output. The war has curtailed air travel, interrupted trade and hit confidence. Companies with assets in Russia or trading with Russia are seeing large write-offs and revenue losses.

While the length and intensity of the war is the biggest influence on events, much now rests on how the Fed, the European Central Bank, the Bank of Japan and Bank of England respond to the much more difficult situation.

If they tighten money too much with several rate rises and some reduction of their balance sheets they would increase the chances of recession, reinforcing the hit to incomes that will be felt.

It seems more likely they will abate their growing hawkishness a bit despite the further rise in inflation, as they seek to fulfil their mandates to allow employment and growth as well as control price rises.

This is a bad background for investors. Overall markets will be lower the longer the war lasts. There will continue to be very volatile movements in prices of everything from oil to defence shares as news gyrates over prospects for a truce or peace and as traders start to sort out a reliable supply of energy and crucial metals and foodstuffs.

The West’s response will damage the Russian economy. Russia will look to Asia and particularly China to replace market access it is losing from Western sanctions.

There will be renewed efforts to speed the electrical revolution, but taking Russia out of the oil, gas and coal supply of the West will cause strains

John Redwood

The world will see an accelerated retreat from globalisation with more countries and regional blocs seeking domestic or friendly supply of energy, other commodities and important technologies.

Governments are likely to spend more on energy changes, expanding their militaries and cushioning the effects of inflation. Some of this will be financed out of additional borrowing and some from tax rises. There are also likely to be more price controls, state involvement in business and regulations to try to tame unruly markets.

Energy will remain a central focus of world concern. This decade was always going to be a decade of heavy reliance on fossil fuels, with the main emerging economies expanding their use and with the advanced countries taking time to replace domestic gas heating systems, petrol and diesel vehicles and gas fuelled industry with renewable electricity.

There will be renewed efforts to speed the electrical revolution, but taking Russia out of the oil, gas and coal supply of the West will cause strains.

In due course a new pattern of energy trade and more realistic prices will re-emerge, which will help to calm share markets.

The drive to net zero needs more ways to store renewable power to handle the days when the wind does not blow. Some combination of hydrogen, pump storage, large batteries and other methods will be deployed to make this possible.

Germany will need to rethink its attitude to nuclear and speed its transition from Russian gas. The US will benefit from gas self-sufficiency and considerably lower domestic gas prices.

I will continue to run with the cash and indexed bonds until we see how the central banks respond to the twin problems of slowing growth and more inflation, and as the war continues to damage so much and so many. The difficult balance the central banks need to achieve has just got a lot more difficult to pull off. The sooner the war ends the better for those involved and for markets.