Wednesday, July 25, 2007

PSC Reviewing Increase in Outage Compensation for Con Edison Customers

As a result of the Queens power outage in July 2006 and subsequent investigation by the PSC, Con Edison proposed an upward adjustment in the amount of compensation for residential customers allowable under its tariffs, to a maximum of $450 for itemized loss of perishables.

A proposal to raise the limits to new amounts was initiated by the City of New York, embraced by Con Edison, and incorporated in a new tariff, which took effect in April 2007, pending further review by the PSC.

The residential customer compensation amount was set at $100 in 1973. It was last adjusted in 2001, after the 1999 Washington Heights outage. Then the amount was raised from $100 to $250 and the eligibility was broadened.

On July 10, 2007, the PSC requested additional public comment before July 24 on the new tariff, listing a number of questions. One indicated the Commission's concern for "the proper balance between the interests of consumers in obtaining reimbursement and avoiding undue increases in rates."

Apparently the PSC assumes that rates will be adjusted upward to account for all future outage compensation payouts, with the result that customers, and not Con Edison shareholders, will ultimately pay all the compensation.

The Commission notice singled out the proposed increase in the maximum residential compensation for itemized losses, from $250 to $450, noting that the increase exceeds an adjustment based on the Gross Domestic Product (GDP) deflator from 2000 to 2006, stating:
In comparison to the GDP 15.69% increase, the compensation amounts in the proposed tariff are approximately 30% higher than the current compensation limits and the compensation limit per event in the proposed tariff is 50% higher than the current limit.
The GDP implicit price deflator is designed to capture price changes in the total economy. A more appropriate adjustment factor than the GDP deflator would be the Consumer Price Index (CPI) for New York urban areas, which measures changes in the cost of household expenditures.

A $100 amount in 1973 adjusted by the CPI would be $493 in 2007. Thus, the amount proposed by Con Ed and the City, $450, is 8.7% less in real household purchasing power than the $100 amount when it was first established in 1973. Wages for low income households in New York have not kept pace with CPI increases since 1973.

Thus, compensation by Con Edison for losses suffered by low income households due to outages will be less, in real terms, than the $100 available 34 years ago, and their ability to offset unreimbursed electricity outage losses from other sources is also reduced.

Con Edison's comments argue that it is the only utility that compensates customers for outage related costs. Their expert's affidavit asserts that that increases in compensation and reimbursement to cover damage to customer equipment due to low voltage are an "insurance" function, the cost of which would increase rates. The apparent assumption is that the PSC would allow the company full recovery of all such expenses through higher rates, rather than expose shareholders to a reasonable level of additional risk if it does not provide adequate service to customers.

The City of New York comments support Con Edison regarding the new compensation limits, and further recommend that

the Commission should: (i) ensure that reimbursement levels are adjusted on a
periodic basis going forward to account for inflation, and (ii) extend the reimbursement provisions to electronic equipment, appliance motors and other voltage sensitive propertythat are damaged as a result of a power outage. Moreover, the Commission should require the Company to define what constitutes a power outage.

The comments of the Western Queens Power for the People Campaign asked the PSC to provide more compensation and broader relief, as did the Attorney General. PULP's comments pointed out that the compensation limit, when adjusted by the CPI, is less than it was in 1973, and asked the Commission to ensure equivalent treatment of customers who are served indirectly in master metered and submetered apartment buildings.

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