Con Edison Asks PSC for 17% Increase in Residential Electric Rates: Low Income Customers Would Pay Even More

Overview
On May, 4, 2007 Con Edison filed with the New York Public Service Commission (PSC) a plan for new rates for electric service that, according to the Con Edison Press Release would raise residential customer bills by 17%. It is expected that the effective date of new rates will be suspended until April 2008 by the PSC while the agency conducts its review to determine if such a major rate increase would be just and reasonable.

Con Edison filed more than 1,700 pages of testimony and exhibits containing tariffs with new rates for the delivery portion of electric service. The residential customer increase estimated by Con Edison in its press release -- 17% -- differs from the overall increase mentioned in the filing letter -- 11.5% -- and the residential increase mentioned in Appendix E to the filing letter --15.46%. These differences may be based on a heavier allocation of new costs and revenue responsibility to residential customers, assumptions about future costs for the electricity portion of service, or other reasons. In the coming months PULP and other parties will intervene in the PSC rate case proceedings, and will conduct discovery regarding the details of the proposal for increased rates and a plethora of other issues that affect terms and conditions of service.

According to Con Edison, 42% of the rate increase is due to a legacy of prior ratemaking decisions of the PSC:

Overall, the existing rate plan will account for approximately $515 million or forty two percent of the requested increase. Expiring credits represent $250 million, carrying costs on plant added during the existing rate plan represents $195 million, deferred costs represent $80 million, and updating the rate allowance for current pension and property tax costs amounts to $50 million. Partially offsetting these amounts are $60 million of available credits.

The balance of the requested increase is due mainly to new investment:

The balance of approximately $710 million is primarily from carrying costs for new infrastructure investments, new and expanded operating programs, an increase in the allowed return on equity, and proposed changes in depreciation rates, offset in part by sales growth.

Electricity Is Extra
Under the PSC's "restructuring" and "unbundling" initiatives, - an effort to deregulate retail electric service which no state has followed since the failure of Enron in 2001 - customers can buy the electricity portion of their electric service from other companies. See (Disconnected Policymakers). Most residential and small business customers, however, choose to be "full service" customers of Con Edison: that is, they receive both delivery and electricity service from the same electric company. (See Think Twice Before Switching Utilities).

The new rate filing does not propose to set future rates for electricity. The new plan would basically continue Con Edison's policy of unpredictable and volatile rates, which were opposed by PULP and AARP but encouraged and approved by the PSC. Under its current rate plan, Con Edison files projected rates for the electricity portion of service quarterly, and then files monthly adjustments to those. These monthly adjustments in the "Market Supply Charge (MSC)" and "Market Adjustment Charge (MAC)"depend, in significant part, on the level of wholesale market rates established by the volatile NYISO spot markets (See NYISO Costs Skyrocket, Benefits Questioned), with monthly adjustments sometimes exceeding the previously posted price by more than three cents/kWh.

A Rosy Scenario?
The new rate filing contains optimistic projections of a decline in future electricity costs. For example, it assumes that the cost of energy, including fuel, for Con Edison owned steam-electric generation will decline from $113.4/MWH to $97.4/MWH, a 14% reduction. It also assumes that much more energy will be purchased at potentially volatile spot market rates for energy, increasing from 33% of energy sold to customers in 2007 to 49% in 2011, and that the cost of spot market prices for energy and capacity will decline substantially, from $177/MWH to $135/MWH. These assumptions seem to imply substantial reduction in the future cost of natural gas.

If Con Edison's assumptions about declining future costs of producing electricity and purchasing it prove wrong, the portion of customer bills for energy could increase.

Benefits for 245,000 Low Income Rate Customers Would be Reduced
In 2000, at PULP's urging, Con Edison adopted a reduced rate for low income customers to implement a rate case settlement agreement approved by the PSC. At the time, the Chairman of Con Edison stated "We are taking significant steps in this agreement to provide assistance to our low-income customers to help them manage their budgets in this rapidly changing marketplace. . . .” The reduced rate is implemented by a reduction in the customer charge, which is the portion of the bill for delivery service that does not change with usage. The current residential customer charge is $11.78 per month.

Low income customers pay a reduced charge of $6.50 per month under the 2007 tariffs, so their benefit is presently $5.28 per month. Approximately 245,000 customers now receive the benefit of the reduced charge, the value of which during the current three year rate plan ending March 31, 2008 is expected to save low income customers $45.5 million.

If Con Edison's new 2008 residential rate proposal were to be approved by the PSC, the customer charge would increase from $11.78 to $15.21 per month, i.e., $3.43. For customers receiving service at Con Edison's reduced low-income rate,however, the customer charge would increase from $6.50 to $10.96, i.e., an increase of $4.46 per month. Thus, Con Edison would increase the rates of its low income customers by approximately $1 per month more than those of other customers. The benefit would be reduced from $5.28 per month to $4.25 per month, even as overall rates and typical bills increase. Over a three year rate plan, low income customers now receiving the reduced rate would pay approximately $7.7 million more. This, of course, is subject to modification by the Public Service Commission through its major rate increase review procedure.

PULP is concerned that Con Edison rates have been rising while incomes of low income consumers have not. See Utility Ratemaking to Meet the Needs of Low- and Fixed-income New Yorkers. During the PSC rate case proceedings that will be held to consider Con Edison's proposed rates for 2008 and alternatives, PULP will again propose expansion of the low income reduced rate program - by increasing the monthly rate reduction - and expansion of the number of eligible customers receiving the benefit of a lower rate.

A Tale of Two Edisons: A Sharp Contrast with California
Con Edison's low income rate reduction - now only about 5% of a typical bill - provides proportionally smaller benefits and reaches proportionately fewer of the eligible customers than do the low income rate programs of California utilities, such as Southern California Edison, which provide a rate reduction of 20%.

Under the California Alternate Rates for Energy (CARE) program

Low-income customers that are enrolled in the CARE program receive a 20 percent discount on their electric and natural gas bills and are not billed in higher rate tiers that were created for Southern California Edison (Edison), Pacific Gas and Electric Company (PG&E) and San Diego Gas and Electric Company (SDG&E). CARE is funded through a rate surcharge paid by all other utility customers.

California's utilities vigorously promote CARE and other low income programs, and encourage eligible customers to apply. See Southern California Edison's website for the discount rate program, which contains information and a way to sign up for the reduced rates on line.

In contrast, Con Edison's low income rate appears to be a well kept secret, unindexed and buried in tariffs of hundreds of pages. The majority of customers who receive it have been automatically enrolled, but the automatic enrollment procedure does not identify all eligible customers. Since it was first announced in a press release in 2000, the low income rate has not been publicized by Con Edison. For example, it is not mentioned at Con Edison's web page for special services. It is not unusual for customers who call Con Edison to ask for the reduced rate to be denied by Con Edison employees who do not know of it.

Visit PULP's web page on Con Edison's low income programs for more information on the programs and how eligible customers can receive the reduced rate, including a sample letter for a low income customer requesting a change to the lower rate.

Senate Committee Begins Consideration of FERC Nominee, Raising Consumer and Environmental Issues

On May 10, 2007 the Senate Energy and Natural Resources Committee held a hearing to consider President Bush's nomination of current FERC Chairman Joseph T. Kelliher for a new term of five years. He was initially appointed to fill a vacancy in 2003 and became Chairman of FERC in 2005.

Several Senators expressed dissatisfaction on issues related to

• FERC's market rate regime [See The Failure of Electricity Deregulation, May the FERC Rely on Markets to Set ELectric Rates?, and Disconnected Policymakers]
• Consumer protection [See Industrial and Residential Customers Agree: Proposed FERC Rules for Electricity Market Rates are Flawed]
• Privatized "market monitoring" by private utility organizations, and FERC reliance on private utility "market monitors" who lack independence
  
• Siting of transmission lines and LNG facilities. [See FERC Adopts Electricity Transmission Siting Rules: Says it Can Reverse State Denials, and DOE Designates "National Interest Electric Transmission Corridor...."]
• Natural Gas Market Manipulation, [See New Concerns Raised About Manipulation of Natural Gas Prices, and Did Hedge Fund Attempt to Corner the Natural Gas Market for March 2007?]
  

Following are some highlights of the first confirmation hearing, which was webcast.

Senator Tester (D Montana) asked Kelliherabout FERC's allowing market rates for PPL in Montana despite the fact that they were so high. [Montana Power Co. sold all its power plants to PPL, and is now buying energy from the new owners of divested plants at FERC-allowed market rates. Montana consumers, who once had some of the nation's lowest cost power, faced major rate increases due to the ability of low cost producers to achieve high market prices with FERC-approved market rates. Montana's Consumer Counsel complained to FERC that PPL had market power to drive prices up, but FERC approved PPL's market rate authorization). Tester repeatedly asked when FERC would act on Montana's rehearing petition, and said that new contracts were coming up that would be strongly affected by whether or not FERC acted. He asked FERC to get back to him about when the rehearing order might issue. Kelliher promised to "look seriously" at the Montana commission's arguments.

Tester asked Kelliher about FERC's market power tests used to decide whether to allow "market based rates." Kelliher said FERC's market rate authorizations, which allow sellers to avoid publicly filing advance notice of all rate changes subject to review and revision by FERC, are a "privilege." He admitted that under the "hub and spoke" test nearly every seller won market rates. Then he mentioned FERC's new market power screens. Tester asked him if they were in place when FERC determined that there was no market power in Montana. Kelliiher said yes, but that they were looking at the regional market.

Tester said "whether I vote for you or not, I appreciate your public service."

Senator Burr (R NC) was full of praise for the nominee.

Senator Menendez (D NJ) gave Chairman Kelliher a hard time about PJM Market Monitor Joseph Bowring's recent testimony alleging PJM management interference with his independence. Sen. Menendez criticized FERC for not investigating, and instead allowing PJM - a private utility - to conduct the investigation, referring to the fox guarding the chicken coop. Kelliher maintained this was raised in complaints before FERC and so he couldn't answer.

Sen. Menendez asked whether PJM was the "cop on the beat," and Kelliher said "no," PJM had no enforcement authority, and Menendez said, well they could at least file crime reports! Kelliher said it is FERC's job to enforce, and they can't delegate it to an RTO.

Sen. Menendez invoked global warming, claiming FERC was encouraging tranmission lines to bring high pollution coal-fired power into New Jersey, and criticized Kelliher about FERC's approval of the Exelon merger (which eventually failed after state opposition in New Jersey).

Sen. Menendez finally said to Chairman Kelliher: "I'm not satisifed with your comments. We look to you and when you don't do [your job]... we're not sure the consumer is protected." "Right now--I'm not convinced."

He said that he would have further questions.

Senator Wyden of Oregon asked Kelliher about a controversial proposed LNG plant in Oregon. Sen. Wyden said he would have more questions

They Committee did not vote on the Kelliher nomination, and appears to have embarked on a more thorough review.

HEFPA - Utility Deposit Issues Resurface

The General Rule : No Deposits
The Home Energy Fair Practices Act (HEFPA) is New York’s landmark bill of rights for New York utility consumers. The legislative purpose is to advance the advance the state policy of continuous service by eliminating unreasonable utility service qualifications or delays in order to advance the public interest and preserve the general health and welfare. With the passage in 1981 of HEFPA, utility deposit requirements as a condition of service for New York consumers were generally abolished for most current customers and new applicants for electric and natural gas service. Customers of large private water utilities were subsequently given HEFPA protection in 1986.

The exceptions to the general rule that deposits are not required are quite narrow. Nevertheless, utilities from time to time attempt to broaden the scope of the exceptions. PULP successfully opposed major Niagara Mohawk d/b/a/ National Grid efforts to broaden deposit requirements in 2003 - 2004.

The“Delinquent” Customer Exception
HEFPA allows a utility to demand a deposit from a “delinquent” customer, which PSC regulations define to include a current customer (i) who “accumulates two consecutive months of arrears without making reasonable payment” as defined by the PSC, or (ii) whose service was terminated within the past six months for nonpayment.

In contrast, a new applicant with old arrears from a prior account in his or her name must be provided service if the arrears are paid or if the applicant signs a deferred payment agreement to pay back the arrears over time along with payment of bills for current service, with terms of the agreement negotiable based on the customer’s financial circumstances.

The Seasonal and Short Term Customer Exception
A utility can require a deposit as a condition of residential service if the applicant for service is a “seasonal” or “short-term” customer. PSC regulations define a seasonal customer as one who “applies for and receives utility service periodically each year, intermittently during the year, or at other irregular intervals.” A short-term customer is “a person who requires service for a specified period of time that does not exceed one year."

PULP recently learned from a local advocate that a utility may be demanding deposits from new customer applicants if, during the application process, applicants cannot state specifically how long they will live at the premises where they are seeking service. Apparently, the utility was deeming such applicants to be seeking only short term service.

Not being able to answer with certainty how long one will reside in a place, however, is far different from the HEFPA standard, which allows deposits when the customer is seeking service for a specified period of time that does not exceed one year.

The PSC Emergency Hotline Provides a Remedy : 1-800-342-3355
Disputes arise continually which affect the provision and continuation of essential utility service. A denial or termination of service can have deadly consequences. See Candle Fires: A Symptom of "Rolling Blackouts" Affecting Low-Income Households.

Recognizing the importance of utility service and the risk of erroneous utility actions, the legislature, when it enacted HEFPA, required the PSC to provide Emergency Hotline Service to residential customers:

The commission shall establish a toll free number, to be attended from nine o`clock a.m. to nine o`clock p.m. each business day, which a residential customer may use to contact a commission designee authorized to order the reconnection, continuation or initiation of residential gas or electric service whenever a reasonable question regarding the circumstances of a termination or refusal of service exists or whenever the health and safety of a person is involved.

PSC regulation 11.21 establishes Emergency Hotline hours from 7:30 AM to 7:30 PM.

In each of the cases mentioned above, when the PSC Emergency Hotline was called for assistance, the hotline directed the utility immediately to provide service without a deposit.

The PSC Emergency Hotline number is 1-800-342-3355. Note that the PSC Emergency Hotline number is not the PSC Complaint Line. The Complaint Line receives, investigates, and adjudicates customer complaints regarding a wide range of utility service and billing disputes through its formal and informal complaint handling procedures. Complaints may be made in person, by mail, by telephone to 1-800-342-3377 or by email through the PSC website complaint page.

Please visit PULP's website Help Center or contact PULP if you have questions.