Wednesday, December 31, 2008

Submetering Technical Conference Postponed to January

The Public Service Commission Technical Conference on Submetering was postponed from December, and is now scheduled for January 20, 2009 at the PSC's New York City office. See our prior post, PSC to Hold Technical Conference on Electricity Submetering Issues.

At the Technical Conference, the Active Parties will consider the Commission's proposed amendments to existing submetering regulations. The proposed regulations streamline the submetering approval process for building owners. More than half of the Active Party list for the conference is comprised of property managers, owners, developers, and their trade associations; submetering companies and their trade associations, electrical apparatus manufacturers and sellers; and consulting engineers and energy management service companies.

The existing submetering regulations include a rate cap, which prohibits tenants in residential submetered buildings from being charged more for electricity than they would pay if they were direct customers of the utility. The proposed regulations would eliminate the rate cap, if tenants "agree" to be charged time-of-use (TOU) rates. Effectively, this change could result in tenants being forced to move out of their apartments to avoid being charged higher TOU rates as current leases expire. The proposed regulations would also eliminate the rate cap entirely, in cooperative and condominium units.

Like the existing regulations, the proposed regulations have no enforcement mechanism or monitoring provisions. Once landlords have received PSC approval to submeter, the PSC does not actively monitor their compliance with the Home Energy Fair Practices Act, nor does it track and compile information on complaints against submeterers as it does with utilities and ESCOs.

In the pending Con Edison rate case, PSC Staff proposed that all multi-tenanted buildings buildings currently served by Con Edison's SC-8 and SC-12 bulk rates for multiple dwellings be submetered within four years. Buildings that failed to meet the submetering deadline would be charged the higher, SC-1 rate for residential customers. Staff argues that submetered buildings are more energy efficient because tenants monitor and reduce energy consumption. See Staff Brief at pp. 276-280.

Con Edison opposes Staff's proposal, noting that there is no evidence to support Staff's assumption that tenants' access to usage information will change their consumption behavior. In fact, Con Edison says, where extensive rewiring is required to accommodate submetering, the rewiring would effectively increase the building's electrical load, because tenants would be permitted additional appliances and electronics. Con Edison Initial Brief at pp. 461-63

The PSC is single-mindedly focused on submetering, and NYSERDA is doling out funds to building owners eager to pass on to tenants the cost of their energy efficient buildings and equipment, accompanied by a rent reduction that is nowhere near the new electricity charges. For example, the PSC recently denied New York University's request for a rate class waiver, which would allow the university to remove individual meters from a dormitory building and to master meter the building. NYU pays for students' electricity consumption, but the master metered rate is lower. The PSC refused the request, reciting its undocumented "submetering mantra": "Individual metering provides price signaling to consumers regarding their consumption of electricity, thereby encouraging the conscientious and efficient use of energy in their residences." See the Commission Order in Case No. 07-E-0820.

In the pending Con Ed rate case, Consumer Power Advocates called for an exemption from submetering for buildings operated for temporary housing, such as student dormitories, because in these buildings, it is in the owner's interest to reduce energy costs over the long term, whereas individual tenants only benefit from savings for a limited time. Also, the owner controls much of the energy infrastructure of a building, the windows, the insulation. Submetering allows landlords to shift all energy costs to consumers who have no power to improve thermal efficiency of the structure. Also, landlords may control the upgrading of energy consuming major appliances in a tenants apartment, such as refrigerators and through-wall air conditioners.

These recent events foretell the PSC's headlong rush toward submetering multiple dwellings throughout New York. Yet simple complaints alleging violations of the Home Energy Fair Practices Act (HEFPA) by existing submeterers languish at the PSC Office of Consumer Services without any action for months and months. Complaints filed by PULP on behalf of aggrieved submetered tenants as far back as April 2008 remain unresolved. In fact, the PSC has even refused to enforce its own complaint process regulations, by allowing one submeterer to ignore a customer's complaint that was filed in June 2008. See Lax PSC Enforcement of Submetering Orders Allows Landlords to Overcharge for Electricity Sold to Tenants and to Circumvent HEFPA Protections.

Residential submetering is a complex issue. Adequate customer protection requires more than a technical conference catering largely to building owner interests who stand to reap sizeable grants from NYSERDA and a pass-through of their costs to tenants, likely to be followed by PSC easing of its already ill-enforced rules. Legislation is needed to protect tenant interests and to prevent landlords from offloading responsibility for energy efficiency of their structures and fixtures.

PSC Touts "Arrearage Reduction" Proposals Favoring Utilities, Nothing New for Customers

Perhaps in an effort to face reality, the New York State Public Service Commission ("Commission") launched a new proceeding on December 16th to examine the growing difficulty of electric and natural gas customers being able to pay their utility bills and the resulting unpaid arrearages at the state's utilities.

Unfortunately, the Commission Order commencing the case did not focus on the inability of low income customers to afford to keep their homes warm (even though the same document reported that natural gas prices are expected to be 7.9 percent higher and electricity costs are expected to be 12.5 percent higher than last winter), but, rather, on the financial impact that uncollected bills will have on the utilities. The Albany Times Union reported in its December 30th edition that over one million utility customers in New York State are more than 60 days behind on their bills. It is certainly the appropriate time to examine the issue, but is the Commission looking in the right place?

According to the December 16th Order, Commission Staff met, ex parte, with representatives of the utilities on September 29th to discuss the impact of fuel costs and the weakening economy on vulnerable customers. At that meeting, the major energy utilities agreed to certain "voluntary operational practices" for the cold weather period (November 1st through April 15th) which should ease the burden. These "temporary" changes include:
(1) Accepting all Home Energy Assistance Program ("HEAP") payments and offering "fair and reasonable payment agreements" to customers in financial need;

(2) Extending additional protections to elderly, blind, and disabled customers;

(3) Refraining from service terminations during periods of extreme cold weather;

(4) Expanding bill payment options and elevating as a priority consumer outreach and education about programs and services available to assist consumers.
Feeling as if something of real substance had been negotiated that day, the Order proudly states: "[t]hese additional utility actions have the potential to alter revenue arrearages, utility cash flow and uncollectible expense." It then went on to discuss ways of improving the utilities' bottom line.

Either due to a lack of knowledge of the laws and regulations entrusted to the Commission or to a complete lack of negotiating skill, what Commission Staff so proudly marked as a breakthrough are already requirements on the utilities or long-standing commitments made by the companies. Let's take a look.

Acceptance of HEAP Payments
Under the Uniform Vendor Agreements signed by the various utilities and the state Office of Temporary and Disability Assistance, the utilities have already pledged to accept all HEAP payments. Paragraph 6 of the 2007 - 2008 agreement states: "The home energy supplier agrees to accept all regular and emergency HEAP benefits authorized on behalf of residential customers and current residential customers without imposing any conditions precedent. . . . The home energy supplier also agrees to continue or establish service for thirty (30) calendar days for each regular HEAP benefit authorized on behalf of residential customers and current residential customers and agrees to continue or establish service for thirty (30) calendar days for each emergency HEAP benefit authorized on behalf of residential customers and current residential customers."

On top of that, the text of the Home Energy Fair Practices Act ("HEFPA") already requires the utilities to offer "fair and reasonable" deferred payment agreements to customers in arrears. HEFPA Section 37(a) states that "all deferred payment agreements authorized by this article be fair and equitable, considering the customer's financial circumstances" and the Commission's implementing regulations for HEFPA state at Section 11.10(a)(1)(i) "[a] utility must negotiate in good faith with any customer or applicant with whom it has contact so as to achieve an agreement that is fair and equitable considering the customer's financial circumstances."

Why would the Commission consider these long-standing requirements to be "voluntary" and "temporary"?

Protection of Elderly, Blind and Disabled customers.
HEFPA already provides significant protections to elderly, blind, and disabled customers. HEFPA Section 32(3)(b) and Section 11.5(b) of the Commission's rules, for example, require that utilities can not terminate, disconnect, suspend, or refuse to restore service where a residential customer is known to or identified to the utility to be blind, disabled, or 62 years of age or older, and all the remaining residents of the household are 62 years of age or older, 18 years of age or under, or blind or disabled, without making "a diligent effort to contact by telephone, or in person if telephone contact is unsuccessful, an adult resident at the customer's premises at least 72 hours prior to termination, disconnection or suspension of service for the purpose of devising a plan that would preclude termination, disconnection or suspension and arrange for payment of bills."

Once again, an existing requirement is considered to be a victory these days if the utility "voluntarily" agrees to comply on a "temporary" basis.Customers unable to pay should be able to receive HEAP or public assistance payments and the utilities should help them claim benefits instead of shutting off service.

Cold Weather Terminations
In addition to the two-week moratorium on service terminations around Christmas and New Years Day (Commission Rule Section 11.4(d)(2)), the utilities have traditionally met with Commission Staff every year to discuss termination policies during cold weather periods, such as whether it is permissible to terminate service when the temperature is below 32 degrees.

Somehow, this long-standing practice has become something to cheer about this year. Also, the emphasis should be on helping customers reduce energy costs and to obtain aid if they cannot afford it, instead of termination. The PSC is essentially green-lighting harsh and dangerous termination practices when it is 33 degrees, contrary to the statutory goal of continuous residential service. See Candle Fires: A Symptom of "Rolling Blackouts" Affecting Low-Income Households.

The PSC has no performance measures in place to disincent utilities from reducing customer service costs needed to work with customers and relying instead on interruption of service as a collection tactic.

PULP supports the concept of prioritizing outreach efforts regarding assistance programs and expanding bill payment options, but has yet to see any changes this year.

Rather than exacting concessions from the utilities on ways to significantly minimize (or eliminate) cold weather terminations, in this time of dual crises (higher energy costs and an economic meltdown) the Commission mainly has gotten the utilities to agree to do things they already should have been doing. Where is the Commission's commitment to customers and affordable service to the poor?

The remainder of the Order addressed means to best ensure that the utilities' bottom lines are met. The Commission is seeking Comments on how it could address the financial impacts on the utilities from the burdens of increasing arrears amounts and uncollectible expenses. One possible solution proposed would be rate mechanisms that could be instituted to provide relief to utilities, including (1) quantifying and deferring the return that may be required on utilities' increased working capital needs due to higher than normal 2008 - 2009 arrearages and uncollectible expense and (2) ways utilities might defer uncollectible expenses in excess of the level reflected in current rates. It did add that "[a]ny proposals regarding the recovery of amounts deferred should recognize the need to minimize bill impacts and, as such, should consider spreading cost recovery over more than one year."

In other words, any potential solution will protect utilities from the downturn and inability of customers to pay, and result in higher rates for all customers, and will not ease the burdens of low income customers. For those who have the most difficulty in paying, the Commission failure to adopt effective low income rates is likely to worsen the situation.

The Comments are due by January 15th. Once the Commission has considered the Comments, it will invite specific proposals from the utilities to address any adverse affects of abnormally high arrearages and uncollectible charges. The Commission will look at whether the proposals received from the utilities demonstrate that:
(1) The company is taking all required and voluntary actions to minimize service terminations while continuing to pursue reasonable actions to minimize uncollectible expense;

(2) The company's current rate plan mechanisms do not adequately address current working capital and uncollectible expense and that any recovery of costs provided as a result of this proceeding does not duplicate the current treatment of these costs;

(3) Any proposed additional mechanisms are appropriate and warranted given the terms and risks undertaken in its current rate plan;

(4) The company is not in an overearnings position after any proposed deferral or additional relief;

(5) The additional amount to be recovered and the amount deferred should represent approximately five percent or more of net income on an after-tax basis.
The arrearage amounts owed to the utilities are significant and growing. However, instead of calculating a formula for the utilities to use to make up for these uncollectibles from their customers in higher rates, the Commission should look at ways for reducing the energy burdens of consumers. "Forcing" the utilities to "voluntarily" comply on a temporary basis with existing laws and regulations intended to protect customers does not move the process any closer to resolution.

Lou Manuta

Governor Paterson's Financial Request to Obama Administration Weak and Vague on Low Income, Energy and Telecom Proposals

In a December 29 Press Release, Governor Paterson announced he had sent a letter to President-elect Barack Obama asking for federal funding of a wide range of state programs and projects. See Governor Paterson Presents Economic Recovery Agenda to President-elect Obama: Joins Governors Asking Federal Government to Provide Direct Aid to States and Critical Funding for Infrastructure Projects – Paterson: "States and Working Families Need an Ambitious Economic Recovery Package as We Face This Uncertain Economic Climate

It makes good sense for the federal government, as part of its economic stimulus and anti deflation policies, to assist states so that they can contribute to solution of the nation's financial and economic problems. Without such aid, states will need to retrench by cutting jobs and services, or increase taxes, or both, worsening the national economic picture and diluting the effect of other federal stimulus efforts. The states run many programs and have on the boards many "shovel ready" infrastructure projects primed and ready to start promptly if federal funds are made available.

But when one looks at the details of Governor Paterson's proposals, they are weak and vague when it comes to issues affecting low income households and energy and telecom consumers.

Low-Income Weatherization Short-Changed in the Governor's Energy Requests
Governor Paterson lists a variety of energy programs he would fund with new federal aid:
* New York Power Authority (NYPA) Energy Services Program - $188 million
* N.Y.S. Energy Research and Development Authority (NYSERDA) - $168 million
* New York State Renewable Energy Programs - $650 million
* Advanced Metering Infrastructure Projects (AMI) - $286 million.
Except for the NYSERDA programs, some of which aid landlords of multiple dwellings in becoming more energy efficient, these programs do not reduce home energy costs and do not leave more discretionary income in the pockets of low income families who are most likely to spend it in the retail economy. The Governor asked for no specific amount for the low income weatherization program, basically saying the state could do more with more money:
Division of Housing and Community Renewal's Weatherization Assistance Program: DHCR is responsible for the supervision, maintenance, and development of affordable low- and moderate-income housing in New York. As part of this effort, DHCR administers the Weatherization Assistance Program (WAP), a federally-funded program that provides residential energy conservation services to lower-income households. In 2007, DHCR installed energy efficiency measures in 13,987 units. There are 1 million households eligible for this program in New York, and DHCR could significantly expand the reach of the program with additional federal funding.
A New York Times article written by energy reporter Matthew Wald recently underscored the importance and effectiveness of home energy efficiency through weatherization, and the inadequate level of support:
Government aid for weatherization has been modest.

Energy technology research competes for federal aid, said a spokeswoman for the Energy Department. Some states contribute their own money or divert federal money intended to help the poor pay their energy bills.

But utilities that furnish electricity, natural gas and home heating oil have lobbied strongly for programs that provide money to help pay bills.

Although Congress added $250 million to the original $227 million budget for weatherization in the current fiscal year, the number of people receiving weatherization aid is dwarfed by those receiving assistance in paying their energy bills.

"You have six million families a year getting energy assistance, possibly eight million this year, and 150,000 getting weatherization," said Mark Wolfe, executive director of the National Energy Assistance Directors' Association, an organization of state officials.
See Focus on Weatherization Is Shift on Energy Costs, N.Y Times December 29, 2008.

The Governor's energy proposals neglect to set any goal for weatherization in New York state, and instead look more like a wish list of government agencies, businesses, and utilities. How can the Governor not set a goal for weatherization, and not propose to raise welfare grants, yet ask for $286 million in federal aid, along with $25 million in state funds, for unproven AMI meters, which could actually harm low income consumers if used as some propose (to inflict unreasonable. gamed, and possibly manipulated NYISO spot market prices upon people too poor to afford service when they need it most)? See Not so Smart? High Tech Metering May Harm Low Income Electricity Customers.

No Proposal for Affordable Broadband
The Governor's request for federal aid includes a request for infrastructure funds to build out internet access in areas where the cable and telephone duopolies failed to make capital investments necessary to extend broadband service:
Broadband Infrastructure
In this information age, universal access to broadband is essential to our nation's ability to maintain its global competitiveness. In New York, we have 17 broadband projects, totaling $88.6 million, which will help New York reach its long-term goal of ensuring every New Yorker has access to affordable high-speed broadband. Of these projects, nine, totaling $8.5 million, can be completed in 180 days. These include projects to light up dark fiber across the State and county-level private/public partnership projects.
But apart from this "lemon socialism" proposal to do with public funds what is less profitable for the broadband providers, there is no meaningful proposal to address the problem that many households with low and fixed incomes cannot afford the monthly cost of broadband. Neither the Governor nor the Public Service Commission have called upon the federal government, through the FCC or otherwise, to make broadband service affordable to the poor. See Broadband Lifeline for Low Income Households: Why Is the New York PSC Silent?

No Welfare Increase in 2009
As we recently reported, Governor Paterson in his proposed budget provides for no increase in welfare grants in 2009. See Governor Paterson's 2009 Message to New York's Poorest: Let them Eat Pheasant. Increased costs, such as those due to higher utility rates allowed by the Public Service Commission without adequate low income rate assistance, are grinding the state's neediest households deeper into poverty and reducing their already diminished buying power in the state's retail economy. In his request for federal aid, the governor asks for generic federal "block grant" funding for public assistance programs. According to Governor Paterson's letter to President-elect Obama:
The Temporary Assistance for Needy Families (TANF) program provides valuable safety-net assistance by allowing families to meet their most basic needs. In the face of increased need, at least an additional $5 billion in block grant funding should be made available to those states that provide families with basic assistance. In addition, the TANF contingency fund should be increased by $2 billion to ensure that states have adequate ability to meet the emergency needs of families and children.
The Governor's "block grant" proposal makes no assurance that new federal aid would not be used simply to reduce the state share of existing program costs, and there is no promise to use any new federal funds to adjust upwards the TANF grant levels, which have not been changed for 18 years.

Vague on Education Aid
Governor Paterson asks for funds to support $966 million in school construction projects and a vague national boost to federal funding for education through a "flexible block grant":
Flexible Education Block Grants - $250 Billion. The current economic climate is forcing states to consider significant cuts to P-16 education funding. Substantial federal investment in education will be needed to stem this tide. A flexible education block grant of at least $250 billion would provide governors with much needed fiscal relief, and mitigate the need for cuts to vital education programs.
In contrast, Governor Corzine of New Jersey is specifically seeking funding to bolster special education and No Child Left Behind programs, both of which substantially affect low income children:
States need the federal government to begin fully funding its obligations for programs like No Child Left Behind and special education funding. For special education, the federal government only pays 17 percent of total costs, when it’s supposed to be covering 40 percent. Since the inception of NCLB, the federal government has underfunded the program by $1.2 billion in New Jersey alone.
Governor Paterson's generic proposal for more federal funding for school construction projects and for "block grant" funding lends no assurance that it would not simply displace state funding. As stated in a recent New York Times Op Ed:
Local control of schooling - which means local financing of schools - is an injustice, masked as a virtue, so deeply ingrained in the American mind that no politician in either party dare challenge it. But America's obsession with local finance, which made perfect sense in the 19th century, is now sinking us morally and economically.

**** Since World War II, however, we have segregated ourselves into a multitude of tiny tax enclaves. The last important official to look hard at the consequences was Richard Nixon. His commission on school finance, headed by the chairman of Procter & Gamble, issued a report in 1972 that urged states to equalize financing disparities, and proposed spending a little federal cash to help.
See Nixon's the One - to Imitate for Education. Governor Paterson's vague proposals for construction aid and for "block grant" funding lend no assurance that it will not perpetuate instead of alleviate education inequities that have arisen in New York's antiquated structure of local school financing, which has resulted in vast disparities among school districts. Indeed, Governor Paterson's proposed budget for 2009-10 would slash education funding, an agenda that has drawn the opposition of the New York State Board of Regents.

* * * *

In sum, the Governor is on the right track to seek federal aid for New York, but his proposals need to be refined so that any infusion of new federal economic stimulus aid will not "trickle down" to the poor, but, rather, "percolate up." This can be done by bolstering disposable incomes and jobs of low income consumers through weatherization, welfare increases, restoration of telephone Lifeline aid to reach the more than 600,000 eligible households not now receiving it, broadband assistance, and better targeting of increased education aid to low income communities.

Update 1/3/09 -- See Governors Seek $1 Trillion in Federal Aid Over 2 Years ("The money would finance schools, public works projects, social services and tax cuts for the middle class, according to an economic stimulus plan presented by the governors").

Wednesday, December 24, 2008

Governor Paterson's 2009 Message to New York’s Poorest: Let them Eat Pheasant

When we first saw the Governor’s press release headline proclaiming “GOVERNOR PATERSON PROPOSES FIRST INCREASE TO WELFARE GRANT IN 18 YEARS - Children Represent Largest Portion of Recipients,” our reaction was, its about time, and a good thing that at last we have a Governor with courage to do the right thing for a politically weak and unpopular segment of our citizenry, whose ranks are growing in this time of recession. Also, funnelling more to these families will bring some federal reimbursement and will tend to stimulate the local retail economies.

Those more cynical might quickly have pointed out that the headline of Governor Paterson’s press release, announced along with other budget messages, uses the word “proposes” for the welfare increase in contrast to other press releases which emphatically announce his initiatives in a way almost suggesting they are a fait accompli, viz., “GOVERNOR PATERSON'S EXECUTIVE BUDGET ELIMINATES LARGEST DEFICIT IN STATE HISTORY, REINS IN SPENDING,” when of course all measures in his budget must be acted upon by the Legislature.

Those interested in the details would, upon reading further, learn that the Governor’s budget proposal for welfare increases would not add one nickel to the budgets of needy families in 2009:
The basic monthly grant has remained at $291 for a family of three ($3,492 per year) since 1990. Since that time, inflation has increased by more than 65 percent.

For the average size public assistance household comprised of a mother and two children, the maximum monthly basic allowance when the increase is fully implemented in 2012 will be $387 ($4,644 annually), a monthly increase of $96 or 33 percent from the current maximum allowance of $291.

Approximately 200,000 households will benefit from this increase, which would take place in three phases: a 10 percent increase, from $291 to $320 in January 2010; a second 10 percent increase to $352 in January 2011; and a final 10 percent increase to $387 in January 2012.
Thus the Governor's proposal after 18 years of no welfare increases is to make it 19 years.

Incomes for the poorest in the state stagnated even during years of comparative good economic times. As a result, about 200,000 New York households with about 510,000 members living at the public assistance level have been ground deeper into poverty, exacerbating their problems and creating chronic energy crises. See The Economics of Low Income Energy Assistance in New York: No Wonder They Call Economics the “Dismal” Science. As utility bills have gone up over the years, more and more is deducted from the welfare grants and paid directly by local social services departments to the utilities. Vouchered public assistance households never have utility emergencies, and so they are not eligible for HEAP crisis assistance payments made to households with higher incomes. As a result, public assistance households have more and more taken out of their allowances, and have less and less to deal with other rising costs, including rent, which is typically above the inadequate welfare rent allowance levels.

The state’s failure to update the welfare income eligibility levels also throws many low income households into an emergency utility assistance category meant for those above the welfare level, exposing them to very harsh restrictions imposed by OTDA. See OTDA Must Relax Its Administrative Restriction on Utility Assistance Loans for Persons with Incomes Above the Public Assistance Level; OTDA Eases, but Continues, its Administrative Restriction on Assistance to Utility Customers with Incomes Above the Public Assistance Level. The resulting inability to resolve energy crises as the Legislature intended when it simultaneously adopted HEFPA and the emergency utility assistance program in 1981 frustrates the goals of protecting the poor, the utilities, and the public interest in providing continuous service to residential customers.

* * * * * * *
A few days before touting a welfare increase proposal for 2010 (and no increase in 2009), the Governor issued a press release indicating he proposes to close a state-run pheasant breeding farm intended to support the pheasant population, the hunting pastime, and the attendant economic development benefits that accrue when New Yorkers hunt at home instead of South Dakota where there are 8.56 pheasants per mile. As a result 8,000 New York ringnecks will be slaughtered.

These state-slaughtered birds will be donated to food pantries for New York's poor. See “GOVERNOR PATERSON ANNOUNCES DONATION OF THOUSANDS OF PHEASANTS TO LOCAL FOOD BANKS, SOUP KITCHENS, AND FOOD PANTRIES - Says Closure of State-Operated Pheasant Farm Will Save Nearly $750,000.”

Reminiscent of the words attributed to Marie Antoinette upon learning the poor had no bread to eat, Governor Paterson's message appears to be:

"Let them eat pheasant."

Update January 23, 3009
The Governor announced that the game farm will not be closed, and so the necks of the ringnecks will not be wrung for the food pantries. See Pheasant Reprieve.

Tuesday, December 23, 2008

300,000 Homes Without Power - Was Inadequate Tree Trimming a Factor?

An inch of ice is dangerous at any time, but when that much ice accumulates on power lines and tree branches near the power lines, devastation can occur. This is what happened in northeastern New York beginning the evening of December 11th through the day on the 12th.

At the peak of the storm's aftermath, 300,000 household in New York State had lost power. What's worse, thousands were in the dark and without heat for a week following the event, with temps in the teens and 20s. It will be something talked about for years - the Ice Storm of 2008.

Cold, tired people compared notes during the aftermath - When did your power come back on? How much water did you get in your basement? Where did you get that generator?

Why was the blackout this widespread and long lasting?

There is no doubt that an inch of ice is a significant, yet not unprecedented, event for this part of New York. So, perhaps some power lines would snap under the weight of the ice. Surprisingly, that may not have been the major cause of the outages. Rather, it was whole trees and lengthy branches near the lines that cracked and fell into the lines, bringing down entire neighborhoods in one fell swoop. Did the utilities affected - National Grid and New York State Electric and Gas ("NYSEG") - do everything within their power to keep their lines clear from limbs and other vegetation? It seems highly unlikely.

According to an unusual press release issued jointly by the Commission and the Consumer Protection Board on December 19th, when the Commission approved the merger of National Grid and KeySpan, it adopted a proposal by National Grid to commit to spending approximately $1.4 billion over a five-year period to improve transmission and distribution reliability, which includes tree-trimming management and environmental maintenance. On the other hand, the press release stated that "evidence has shown that NYSEG has actually decreased its tree-trimming expenditures over the past five years, which is cause for increased scrutiny of performance and overall environmental management by this utility."

The press release went on to remind electric utilities that they are required by the Commission to file with the Commission long-range vegetation management plans "to effectively manage transmission facilities right-of-ways in order to minimize power outages due to encroaching tree limbs or overgrown vegetation at the edge of utility right-of-ways." However, based on the visibly noticeable intertwining of trees and power lines throughout the Capital Region, for example, it is impossible to believe that National Grid and NYSEG are properly managing the vegetation or tree limbs or that the Commission is enforcing its own rules.

According to the joint PSC/CPB press release, CPB (whose utility intervention staff has been allowed wither in recent years) plans to review utility response to concerns relating to tree-trimming and vegetation management procedures and suggest improvements, if necessary. In addition, 60 days after restoration is completed, utilities are required to file a self-assessment of their restoration efforts with the Commission. Commission Staff will also conduct its own assessment of the utilities' restoration efforts and report to the Commission its findings and/or recommendations. With its 500+ employees, most of which are located in the Capital Region, couldn't the Commission have investigated these obvious maintenance violations, taken photographs of the worst hit areas, and checked utility maintenance records to see if the utilities had been prudently trimming, instead of waiting for the utilities’ self assessment and self serving report?

Tree-trimming is, admittedly, a time consuming process which requires much manpower and the expenses related to tree-trimming may be costs that the utilities do not want to incur at times when their rates are set by the PSC at a “macro” level for multiple years without regard to specific expenses, when utilities are encouraged to cut costs and keep the savings, and when under the PSC’s notion of “performance regulation,”consequences of failing to meet reliability standards are agreed to in advance by the utilities. Better to dispense with scheduled trimming, adopt a new algorithm for selective (and cheaper) trimming and blame Acts of God when the overhanging trees harvest the vulnerable lines and poles.

A root cause analysis might identify the PSC's regulatory style as a contributing factor, as the Commission itself recognized in the aftermath of a pedestrian's electrocution in the streets of New York City, when it issued an order requiring utilities to do more safety inspections of their facilities:
Over the past 10 to 15 years, we and other regulatory commissions across the nation have moved from traditional one-year litigated rate cases to multi-year performance-based rate plans. The purpose of these plans is to allow for rate stability while allowing the utilities greater flexibility in managing their operations. Staff's investigation into this matter suggests that the utilities may not have been placing enough attention and emphasis on safety matters. For example, we were surprised and disappointed to learn that three of the major electric utilities have conducted no stray voltage testing and have no plans to do so. **** The utilities are responsible for ensuring that they are maximizing the safety of their electric systems. The fact that some utilities have done nothing regarding stray voltage suggests that the focus of utility management may need realignment.
PULP believes that the results of these inquiries into the latest utility failures will fall into at least one of two categories: that the utilities could have done more trimming on a regular basis to mitigate the extent of the outages or that the Commission dropped the ball by either assuming some utilities would continue past vegetation management practices under multi year ratemaking without explicit requirements, or, if there were requirements for some utilities, by not enforcing the requirements. One wonders if any PSC members lost power at home for an extended period of time from the Ice Storm of 2008, and if so, whether this inconvenience will lead to long overdue enforcement of the utilities' tree-trimming and vegetation management requirements.

Lou Manuta

Pennsylvania Orders Verizon to Offer Discounted Bundles to Lifeline Customers; Where Is New York?

In a decision released on December 18th, the Pennsylvania Public Utility Commission ("PA PUC") issued an Order requiring Verizon to offer discounted bundles to its Lifeline customers. Until now, Verizon's tariffs in Pennsylvania prohibited Lifeline customers from subscribing to service packages which include local, toll, and optional services. In New York, by the way, Verizon's tariffs continue to prohibit Lifeline customers from participating in service bundles.

The PA PUC acted in response to a complaint filed in July 2007 by the Pennsylvania Office of Consumer Advocate, the Pennsylvania Utility Law Project, and AARP Pennsylvania which alleged that Verizon was violating the law because its tariffs prevented Lifeline customers from subscribing to these service bundles. Verizon responded that low income customers could not afford so-called "deluxe" packages, so the complainants proposed that three common discounted packages be made available to Lifeline customers: Local Package (Local and three vertical services at $27.95/month), Regional Essentials (Local, three vertical services, and regional toll at $36.00/month), and Freedom Essentials (Local, three vertical services, regional toll, and long distance at $39.95/month). Verizon argued, among other things, that there is no legal justification to permit Lifeline customers to receive discounts on any services other than local. An Administrative Law Judge ("ALJ") supported the ability of Lifeline customers to subscribe to these three discounted packages.

The PA PUC agreed with the ALJ's rejection of Verizon's claim that the Lifeline credit cannot be provided to customers who purchase local service as part of a package of services. The agency held that "[t]here is no legal basis for Verizon's position that it may deny Lifeline 135 eligible consumers the federally funded discount when they purchase local calling as part of a bundle with other services. Verizon's Lifeline 135 and related tariff restrictions result in forcing Lifeline 135 eligible consumers to pay the federal SLC [subscriber line charge] and miss out on the additional $1.75 Lifeline discount on the dial tone and local usage." (In Pennsylvania, the Lifeline program is referred to as Lifeline 135 since customers are eligible to participate in the program if they earn up to 135 percent of the federal poverty level). Further, the PA Commission found that "[t]he Lifeline discount is a credit that eligible customers are entitled to receive and for which Verizon is made whole by the Federal Universal Service Fund. The Lifeline credit does not reduce Verizon's revenues." It added that "the Lifeline credit is not applied to long distance service, and no company . . . loses revenue as a result of applying the Lifeline credit against the subscriber line charge and a portion of local service."

Verizon was directed to update its tariffs and remove the prohibition within 20 days of the Order.

While this decision is a victory for low income telephone customers in Pennsylvania, it does limit the availability of service packages to the three mentioned, which are far fewer than other (non-low income) customers may be offered. The decision also requires Lifeline customers to pay the full "discounted" price for the package. What Verizon should be required to do is calculate each portion of the discounted package rate (such as local, toll, and long distance) and substitute the Lifeline rate that the low income customer would otherwise pay for the full price local portion of the package. This would make the packages even more attractive (and affordable) to Lifeline customers.

Should these changes prove successful, Lifeline enrollment will increase significantly in Pennsylvania, along with overall subscribership. That is the true purpose of the Lifeline program.

Verizon added a similar restriction on Lifeline customers in its New York tariffs several years ago, which were allowed to take effect by the PSC despite past rulings of the PSC (when it had members more tuned in to such issues) that there should be no restiction of vertical service choices for persons receiving Lifeline assistance for local service.

A wise man once told me that low income telephone customers are just like everyone else and want to subscribe to other services such as voice mail or call waiting (especially if there are multiple people in the residence), but they can't afford them. As a result, they either pay far more for telephone service than they should in order to get the other services they desire or the low income customer goes to the local cable company in order to receive a package of services, but also pays more than they should because the cable company does not offer Lifeline. The time has come for Lifeline customers in New York to be able to subscribe to discounted packages as well. Unlike Pennsylvania, the Lifeline discount should apply to the local portion of the package. That few extra dollars a month can really make a difference to struggling families, especially in today's economic climate.

Also, if the New York PSC changed its policies to achieve Lifeline phone service cost reductions to all 900,000 Food Stamp households, it could ease their tight budgets and financial burdens significantly. Instead, in recent years New York state's Lifeline enrollment has fallen from over 700,000 to less than 300,000, no doubt due in part to the failure of the PSC to be proactive in requiring or encouraging all phone service providers to offer meaningful Lifeline discounts to low income subscribers.

Lou Manuta

Friday, December 19, 2008

PSC Lets Another One Slip By: Long Distance Provider Changes Hands Without Notifying Commission

According to the Syracuse Post-Standard, Yak America purchased the long distance customers of now-bankrupt USA Datanet without ever seeking approval from (or even notifying) the New York State Public Service Commission. In the December 17th article, the paper reports that the Commission only learned of the transaction when a reporter for the Post-Standard contacted them. Now that they know about the deal, the agency has given Yak until December 23rd to submit the required paperwork for approval. It is too soon to know what penalties (if any) will arise from Yak’s inaction.

The paper reported that Miami-based Yak bought the residential long-distance service of Syracuse-based USA Datanet in July for $4.3 million. The deal was not announced until earlier this month when Yak, which does business as Spot Talk, began sending letters to customers. About 150,000 customers of USA Datanet were affected by the sale. USA Datanet filed for Chapter 11 bankruptcy reorganization in October.

While the PSC does not have jurisdiction over interstate communications, it does regulate intrastate long distance calling. To one extent or another, every state regulates intrastate communications and Yak should have sought authority in every state in which USA Datanet conducted business. How this vital step was missed in New York when the company changed hands is difficult to fathom, especially with USA Datanet formerly holding and Yak currently holding a Certificate of Public Convenience and Necessity issued by the Commission. Yak had not only requested and received a Certificate from the PSC, they went to the agency in 2007 seeking approval of a different ownership change.

Is it possible that Yak’s decision not to notify the agency this time was because of a perceived lack of enforcement or consequences?

As PULP reported in November, the Commission cancelled 271 Certificates of competitive telephone companies for not following the rules and submitting tariffs. While that might sounds like an action by a powerful Commission on top of the entities it regulates, many of these companies had actually been out of compliance for over a decade before the axe (or more aptly, the butter knife) fell. See CLECs Lose Certificates to Offer Service for Not Submitting Tariffs, Why Not ESCOs?

On the electric side, scores of multi-dwelling buildings around the state have been approved for submetering, but there is no real PSC follow-up or compliance requirement for the building owners. As a result, thousands of tenants have no idea that the landlord providing the submetered electric service is not permitted to charge more than the utility would and that the consumer protections in the Home Energy Fair Practices Act apply to them. See Lax PSC Enforcement of Submetering Orders Allows Landlords to Overcharge for Electricity Sold to Tenants and to Circumvent HEFPA Protections. On top of that, the Commission has recently announced a new proceeding to address submetering and, instead of focusing on compliance, the Commission intends to look at ways to streamline the process by eliminating longstanding Commission review and utility tariff requirements. In other words, the failure to follow the rules and protect tenants may be permitted to continue unabated. See PSC to Hold Technical Conference on Electricity Submetering Issues.

Maybe Yak decided to roll the dice, thinking what’s the worst that could happen at a PSC with a laissez faire attitude and a penchant for deregulating utilities? We should find out in the next several weeks whether the Commission will make an example of Yak or whether it will be the next in a long (and growing) list of lax enforcement efforts by a state agency entrusted with protecting the public interest.

Lou Manuta

Broadband Lifeline for Low Income Households: Why Is the New York PSC Silent?

There is an on-going proceeding at the FCC regarding the future of the federal Universal Service Fund (“USF”) and intercarrier compensation for connecting calls from other companies , two concepts long-overdue for an overhaul. Types of local service providers that did not exist or were insignificant when the laws and rules were written, such as wireless carriers and Voice over Internet Protocol (“VoIP”) providers like cable companies offering voice service, are forced to fit into existing schemes, like the proverbial round peg into the square hole.

Likewise, the concept of services to be included in universal service funding mechanisms has changed. As stated by the FCC in its November 5, 2008 order seeking public comment
The communications landscape has undergone many fundamental changes that were scarcely anticipated when the 1996 Act was adopted. The Internet was only briefly mentioned in the 1996 Act, but now has come into widespread use, with broadband Internet access service increasingly viewed as a necessity.
The massive proposal, nearly 500 pages long, included three different versions as to how the USF and intercarrier compensation regimes should be fixed. In somewhat of a surprise, Chairman Kevin Martin, who is expected to step down around Inauguration Day next month, proposed a Lifeline discount program to help low income and rural customers afford broadband and all of the opportunities it offers, in his separate statement.
I view our failure to implement the Joint Board’s recommendations as a tremendous missed opportunity. In particular, I supported the Joint Board’s determination that broadband should be included in the universal service program. As I have said before, to fully appreciate and take advantage of the Internet today, consumers need broadband connections. Without this underlying infrastructure, efforts to implement advances in how we communicate, work, and provide education cannot succeed. **** In addition, I would have created a broadband Lifeline and Link Up program to ensure that low income consumers are not left out of our broadband future.
Specifically, Martin would have made available $300 million each year for the next three years to enable eligible telecommunications carriers (“ETCs”) to support broadband Internet access service and the necessary access devices. In particular, if an ETC provides Lifeline service to an eligible customer, the Pilot Program would support 50 percent of the cost of broadband Internet access installation, including a broadband Internet access device, up to a total amount of $100. In addition, if an ETC provides Lifeline service to an eligible household, the Pilot Program would double, up to an additional $10, the household’s current monthly subsidy to offset the cost of broadband Internet access service.

PULP joined in the filing made by the National Association of State Utility Consumer Advocates (“NASUCA”). While NASUCA’s comments expressed concerns with Chairman Martin’s proposal, ranging from deployment timetables and consumer protections, we certainly support bringing a Lifeline broadband discount to those who need it, although the details need to be further developed.

However, in its comments to the FCC in this proceeding, the New York State Public Service Commission was silent as to the merits of Lifeline for broadband. The PSC's comments touched on a range of issues, but did not even mention broadband. Apparently the PSC had no opinion on the subject it wished to share with the FCC, not to mention New Yorkers who cannot afford monthly charges for broadband service.

This omission is unfortunate, but not surprising. As a yardstick measurement of the pool of eligible Lifeline subscribers statewide, nearly one million households in New York State receive Food Stamps. Yet New York has a greatly diminishing number of telephone customers receiving a Lifeline discount, from over 750,000 Lifeline customers statewide in 1996 to a little over 300,000 today. Further, while broadband has been deployed in virtually all urban and suburban areas of the state as well as in the territories of the independent telephone companies, there has been a significant delay in rolling out broadband in rural parts of Verizon’s territory. In addition, while the cable companies have been unveiling their broadband service on a wider basis, the problem of affording broadband service (regardless of where the customer lives or who the provider is) is a real and growing problem. Has the PSC done all it can to improve Lifeline telephone enrollment to reduce the economic burden of telecom services or to promote broadband availability across the state? Hardly.

Nationally and in New York, deployment and pricing of broadband has been largely left to "the market" with the result that the United States and New York are not world class leaders with respect to physical broadband access, internet speed, price, and penetration. According to the OECD, the United States ranked 15th in 2007 on the number of persons per 100 with broadband service.

Former New York Governor Spitzer announced a Universal Broadband Initiative in December 2007 to bring broadband to the masses throughout the state. Since then, much discussion has taken place at meetings of the New York State Council for Universal Broadband, small grants have been awarded, but not enough attention has been given to the fact that many people with low and fixed incomes simply cannot afford broadband service. Very little action has taken place, period.

For New York to be a real leader on broadband, it must not only create a statewide organization to “look into it,” it must take action. One place to take action would be to arrest the declining subscribership of low income households to phone service and the corresponding decline in telephone Lifeline assistance. It makes little sense to talk of broadband access and broadband affordability if growing numbers of the poor cannot afford voice service.

Another place to act would have been in the Public Service Commission’s comments to the FCC, pushing for a robust broadband Lifeline program and offering suggestions as to how to improve Chairman Martin’s proposal. Its silence in this case, especially when combined with the lack of real developments on broadband and other state universal service initiatives, can certainly be interpreted as a lack of interest.

There you have it, the New York PSC’s record on broadband -- a lack of initiative and a lack of leadership. Time for a change.

Lou Manuta

Thursday, December 18, 2008

Governor’s Budget Raises Utility "Assessments," Hurting Low Income Customers, but Gives Break to Cable Telephone Service Providers

Governor Paterson’s proposed budget, released a month early on December 16th, attempts to balance a projected state budget deficit in the state fiscal year beginning April 1, 2009 through a variety of new program initiatives, and “revenue enhancements” (never say "tax"). Among the more controversial, yet very “revenue enhancing,” proposals is to increase utility assessments.

Section 18-a of the Public Service Law authorizes the Public Service Commission (PSC) to levy assessments on utilities in order to pay for "the actual costs and expenses of the department and the commission. " These assessments are considered to be a cost of utility operation when rates are set. As a result, the $83 million cost of the PSC and its 560 employees in 2009 -10 will not by met with state taxe revenues; instead the cost is embedded in utility bills.

Utility assessments for PSC costs have been capped by the statute at one-third of one percent of intrastate utility revenues for at least 25 years. While the concept of an assessment rate adjustment after many years -- and after changes in the structure of New York utilities that allow much revenue to escape assessment -- may have been expected, no one could have anticipated the PSC's assessment rate being tripled, to one percent, on a permanent basis. In addition, the Governor proposes a “temporary state energy and utility service conservation assessment” of an additional one percent through Fiscal Year 2011 - 2012.
According to the Governor's Briefing Book chapter on Revenue Actions:
Increase Utility Assessment. Increases the current regulatory fee on public utilities throughout the state, including electric, gas, water and telephone. This action will pay for state regulatory and management oversight by raising the fee from 1/3 of 1 percent to 1 percent of intrastate revenues, expanding the fee to include energy service companies, and establishing an additional 1 percent state energy and utility service conservation assessment, which will expire on March 31, 2012.
Since the same percentage assessment has always applied to all utilities (primarily telephone, electric, water, and natural gas), it is unclear whether the temporary assessment will apply to telephone utilities. All in all, the increased assessments are expected to produce $651.6 million in revenue for the state, in addition to the Commission’s $83 million requirement for its expenses. Apparently this will be transferred to the state's General Fund and made available for other state purposes. Presumably, the law would be changed to allow the PSC to assess about nine times the amount of its actual expenses and to transfer those funds to the state's General Fund.

Presto! Revenue is increased by $651 million without increasing taxes. Instead, it will increase utility bills.

This new burden will, of course, be paid by rate payers in the form of higher rates. According to an article in the December 17th edition of the Rochester Democrat and Chronicle, Patrick Curran of the state Energy Association, a utility trade group, says that the increased assessments are a new expense sure to be passed on to utility customers. "Any time you raise revenues on what is truly a fundamental necessity, you enact maybe the most regressive form of taxation," he said. "You have to have heat. You have to have electricity," no matter the cost. The increased rates will likely negate the token “low income rates or discounts” offered by several of the state’s utilities. Parenthetically, we note that while utility service taxes or assessments are in the nature of regressive sales tax, when compared to an income tax, they far are more difficult for businesses to avoid than income taxes, because there are no loopholes, and so it is not uncommon to see business organizations bemoaning the impact on the poor.

At the same time, the Governor proposed extending the assessment to include energy service companies (“ESCOs”) for the first time. PULP commends this action, and believes this is long overdue. PULP sought to end the PSC's omission of ESCOs from PSC assessments in the PSC’s ESCO Marketing Proceeding (Cases 98-M-1343, 07-M-1514, and 08-G-0078), where the issue is still under consideration by the PSC. See PSC Issues ESCO Marketing Order. By assessing ESCO revenues from their sale of electricity or natural gas, the playing field between distribution utilities and the ESCOs would be significantly leveled (although more needs to be done, such as require ESCOs to file tariffs revealing their rates, terms and conditions of service). The Commission has long assessed the intrastate telephone service revenues of local exchange carriers and resellers. Telephone resellers are a type of competitive LEC which, like the ESCO, do not own their own facilities, but merely deliver the utility service using the distribution utility’s wires or pipes.

While the decision to assess ESCOs is a wise decision by the Governor, and may finally push the PSC into action regardless of the fate of the proposed budget, PULP believes that the time has come for cable companies to pay assessments on their intrastate revenues for the telephone services they provide, as every other provider offering local telephone service in the state must do. Not only would such a decision help level the playing field, as the decision to include ESCOs would do, but such a step would greatly assist in balancing the state budget. The local exchange carriers in New York like Verizon and Frontier continue to lose tens of thousands of customers every month to the telephone service offerings of cable companies, resulting in significant amounts of lost revenue for the state. The omission of cable company voice services from the PSC assessment process provides an unnecessary (and substantial) break to a well-funded competitor. There is no prohibition on assessing such providers, as the FCC has recognized (in a Brief filed in the Eighth Circuit in April 2008) that requiring Voice over Internet Protocol providers, such as cable companies, to contribute to state universal service funds does not frustrate federal policy. PULP does not believe that assessing cable companies for the PSC's regulatory assessments would frustrate federal policy either.

Competitive parity and the state’s economic condition require such a result.

Lou Manuta

Tuesday, December 16, 2008

In a New York Minute, Governor Paterson Appoints and Senate Confirms James Larocca as New PSC Commissioner

In his last year of office, former Governor Pataki picked three new members of the five member New York State Public Service Commission (PSC) for six year terms, seemingly making it difficult for successive governor(s) to appoint a majority. See Appointments by Pataki Leave a Lasting Stamp. Former Governor Spitzer appointed one commissioner, and only after his first choice did not receive state senate confirmation. See Governor Spitzer Asked to Name Pro-Consumer PSC Chair; Governor Spitzer Nominates NYISO Executive for PSC Post - First Choice for PSC Chairman Withdraws.

As we pointed out last summer, due to a Commissioner's resignation with four years left of her term and term expirations of two other commissioners coming up in February 2009, Governor David Paterson will soon have the opportunity to name a majority of members to the PSC. See Will Governor Paterson Repurpose the Public Service Commission to Protect Consumers?, PULP Network, August 28, 2008.

Similarly, in Connecticut, Governor Jodie Rell has the opportunity to reconstitute a majority of that state's utility regulator, the Connecticut Department of Public Utility Control (CPUC). See Rell Can Put Her Own Stamp on DPUC, New Haven Register, Dec. 15, 2008.

Thus, the two adjacent states with the highest electric rates in the continental United States (20.24 cents/kWh for Connecticut residential customers, 19.42 cents/kWh for New York customers) according to EIA are about to change some of their state utility regulators. Indeed, Governor Rell named two new CPUC commissioners today.

When the New York State Senate convened on December 15th, it was with the announced intention of addressing state budget issues. However, what it did instead was to confirm numerous appointments to state agencies. With no public announcement or press release before or after the appointment, Governor Paterson apparently named Long Island Power Authority Board Chairman James Larocca to fill a vacant Commissioner position at the state Public Service Commission, for a term which runs until February 2012. Larocca was immediately confirmed by the State Senate with no advance public notice. See Deficit Falls off Session Agenda: Special Senate Meeting Accomplishes Little Other than Job Confirmations, Times Union, Dec. 16, 2008.

According to a December 16, 2008 LIPA Press Release, Larocca "was appointed last week by Governor David Paterson and confirmed yesterday by the NYS Senate as a member of the New York State Public Service Commission, effective immediately," but the Governor's press releases last week, which included news about closing a state-run pheasant farm, did not mention the appointment.

Larocca has been prominent in New York State government and industry since the 1970s. He was
  • Deputy Secretary for Federal Affairs and, later, state Commissioner of Energy from 1977 to 1983 under Governor Carey
  • State Commissioner of Transportation from 1983 to 1985 under Governor Cuomo
  • A former partner in the law firm of Cullen and Dykman, a major client of which was Brooklyn Union Gas, the utility that merged with the Long Island Lighting Company to form KeySpan, which has since been acquired by National Grid.
  • A former board member of KeySpan
  • A trustee of the New York Power Authority
  • KeySpan Distinguished Professor of Public Policy at Long Island University (where he taught courses on the environment, coastal resource management, government, and associated fiscal issues and public policy)
  • CEO of the Long Island Association, a business group
  • Chairman of the Long Island chapter of the Nature Conservancy
  • Chairman of and the Long Island Regional Planning Board
  • Chairman of the Board of the Long Island Power Authority until his PSC appointment. "Larocca was confirmed for the PSC post Monday night by a Senate vote, and tendered his resignation at LIPA Tuesday." LIPA Chairman Resigns to Take State Post.
He also ran for Governor in 1998 and was considered for appointment to be State Comptroller in 2006. With his background in public service, knowledge of government administration and business, decades of involvement in energy and utility issues, and obvious ambition, we surmise that Larocca may prove to be a very active commissioner, if not a future Chairman. According to Newsday,
Larocca, in an interview Tuesday, said the PSC post will give him "an opportunity to play a broader role in New York State energy policy."
It is not clear, however, whether he will prove to be a consumer-oriented commissioner who will enforce vigorously the Home Energy Fair Practices Act and the Telephone Fair Practices rules, and act to alleviate the problems many low-income consumers have due to unaffordable utility service. Other states are decades ahead of New York in making service affordable to the poor.
Meanwhile, the New York Commission
Terms of two additional PSC Commissioners expire in February. The process to fill those seats must be more open and not so secretive.

12/17/08 -- Groups Blast Secretive Public Service Commission Appointment Process: Unannounced Lame Duck Senate Confirmation Surprises Environmental, Good Government, Media, and Legal Services Groups.

According to Newsday, "LIPA had known of Larocca's planned departure since before the budget was released in November...." LIPA chairman Larocca resigns; to join PSC.

12/19/08 -- Normally the PSC is quicker than Stalin to put new Commissioners on its letterhead and website. Today, four days after his confirmation, Commissioner Larocca joined the PSC website.

At 3 PM on Fridayin the midst of a major snowstorm, assuring the story will be buried in low readership Saturday papers, the Governor announced the fait accompli of his appointment of Commissioner Larocca and his Senate confirmation on December 15 in a press release "Governor Paterson Announces Administration Appointments".

Tuesday, December 09, 2008

Buffet asks NY PSC to Approve Acquisition of Three New York Nuclear Power Stations; Takeover of Constellation Questioned at FERC

PSC Merger Approval Requested
On October 17, 2008, MidAmerican Energy Holdings Company filed a petition with the PSC seeking a declaratory ruling that the New York PSC has no jurisdiction to review its proposed acquisition of three New York nuclear power stations with capacity totaling 2259 MW. According to NYISO data, in many hours of the year these power stations make more than 10% of the power used in all of New York State.

The power plants are Nine Mile One and Nine Mile Two, nuclear power plants in Oswego that were divested by Niagara Mohawk Power Corporation when it agreed to "restructure" to align with the "1996 vision order" of the New York PSC, and the Ginna nuclear power station on the shore of Lake Ontario near Rocheser, divested for similar reasons by Rochester Gas & Electric. Nine Mile One is one of the two oldest operating nuclear power plants in the country. The Long Island Power Authority (LIPA) owns 18% of Nine Mile Two.

Mid American Energy Holdings Company, a utility holding company in turn controlled by Berkshire Hathaway, an investment holding company, in turn controlled by Warren Buffet, is seeking to acquire the nuclear plants from the current owner, Constellation Energy, a huge utility holding company. The value of Constellation plummeted earlier this fall, apparently due to losses of unregulated energy trading subsidiaries that had dealings with Lehman Brothers. See Do Trading and Power Operations Mix? The Case of Constellation Energy Group 2008, MIT Sloan School of Management, Nov. 7, 2008; Constellation Explosion: Background of a Financial Disaster, EnergyBiz, Nov./Dec/ 2008.

Under its recent precedents, it appears that the New York PSC will need to approve any change in control of the nuclear plants, even though they are styled as ownership changes at the holding company level. Anticipating rejection of its claim that the PSC lacks jurisdiction to review the ownership change, MidAmerican requests "expedited Commission approval, without modification or condition" if the PSC exercises its jurisdiction.

In other words, MidAmerican wants a rubber stamp "OK" from the New York PSC.
A worthwhile goal would be to insist that the output of these plants, for which billions of dollars were paid by ratepayers before they were sold by Niagara Mohawk, be available in long term contracts at reasonable rates, rather than at prices based on what the dysfunctional NYISO spot markets will bear.

MidAmerican also asks the PSC to continue its indulgence of so-called "light regulation" of the power plants. Under its "light regulation " doctrine, the PSC purportedly relieved owners of divested power plants of the traditional and longstanding statutory duty of electric companies to provide retail service at just and reasonable rates subject to PSC review. The PSC instead grants "lightly regulated" status whenever power plant owners simply declare their intention to sell only at wholesale. This has been the fiction that enables them to escape their state law duty to serve the public and state rate regulation so that they fall only under FERC jurisdiction over their wholesale sales.

FERC in turn has a de facto deregulation regime which allows electricity from these plants to be sold at "market-based rates," which are unfiled, and unreviewed for reasonableness. See, See No Evil: FERC Refuses to Examine Gaming of RTO/ISO Electricity Spot Markets. As a result, power from low operating cost nuclear plants can receive stratospheric rates - and profits - for the owners, when the power is sold at prices set in or influenced by the NYISO spot markets. The NYISO market design pays all sellers the price that "clears" the market, normally set in most hours by much more expensive natural gas-fired power plants. See Supreme Court Leaves Fundamental Questions About FERC Market Rate Scheme Unanswered. More than half the power in the state is sold in the NYISO next day and real time spot markets, and much of the remainder is sold at prices indexed to or influenced by these markets. See It was the [NYISO] Market.

The New York PSC has not yet issued any notices inviting public comment and has issued no rulings in the merger case filed by MidAmerican, which is NYPSC Case No. 08-E-1249.

The FERC Merger Proceeding
There is also a pending FERC proceeding to review the acquisition, which involves multiple power plants and utility assets in several other states, including Maryland. The case has been put on an accellerated schedule with no hearings.

Public Citizen has filed a protest in the FERC merger proceeding, tracing the history of the utilty industry since the bankruptcy of 53 utility holding companies in the 1930's Depression. It asks FERC to review of the reasons for Constellation's failure, the role of the affiliates with market rates, and questions whether allowing further concentration of the utility business in the hands of ever-larger holding companies will lead to entities "too big to fail," whose eventual collapse will again require future public bailouts.

Public Citizen also questions the rush to a decision without evidentiary hearings, pointing out the market power risks to consumers of allowing even more utility industry concentration, and asking FERC to review the reasonableness of wholesale electric rates now being charged by Constellation to its affiliated local utility in Maryland, Baltimore Gas & Electric.

Another Buyer in the Wings?
Electricite de France, the giant French utility which operates many nuclear plants and which already owns a significant part of Constellation's stock, is also seeking to acquire it. According to the New York Times
The French utility, which already owns 9.5 percent of Constellation, said it wanted to form a 50-50 venture with Constellation's nuclear power business in the United States.

The offer for half the nuclear unit is almost as much as Mr. Buffett had agreed to pay for the entire company in September.
See French Bid Disrupts Warren Buffett's Offer for U.S. Utility.

The Board Directors of Constellation announced it authorized discussions with EdF on December 8, 2008.

Stay tuned.

PSC to Hold Technical Conference on Electricity Submetering Issues

PULP has noted the lack of enforcement by the PSC of its orders permitting landlords to submeter and sell electricity to their tenants. See Lax PSC Enforcement of Submetering Orders Allows Landlords to Overcharge for Electricity Sold to Tenants and to Circumvent HEFPA Protections .

On November 21, 2008, the PSC issued a notice that it will hold a technical conference on submetering issues.

Rather than investigate the compliance of landlords with past orders, it appears from the notice that the PSC intends to change its regulations in order “to streamline the process by which multi-unit building owners may submeter their premises.” The proposal would eliminate the issuance of orders applicable to submeterers, and so might also lessen the prospect of any meaningful penalties for violation of tenant rights by submetering landlords.

The conference is scheduled for December 16, 2008.

For further information see PULP's webpage on submetering.

PSC Takes its Time (Again) while Telecom Universal Service Programs Sag

There was a time when the New York State Public Service Commission could rightfully consider itself to be a leader. It had a reputation of being the first (or, at the very least, one of the first) state commissions around the country to take initiatives on a variety of topics, such as
  • state matching of federal Lifeline support to reduce bills for low income telephone customers,
  • Lifeline service eligibility broader than the federal program
  • automatic enrollment of Lifeline customers,
  • creation of TAF, the third party administrator for Lifeline, E911, TTY and state universal service programs
  • telephone fair practices rules similar to HEFPA,
  • billing and collection reforms to protect local service from termination,
  • number conservation to avoid unnecessary new area codes,
  • opening telephone service to competition on a level playing field,
  • permitting the state’s Baby Bell (now Verizon) to offer in-region long distance service, and
  • establishing guidelines for the migration of customers between local telephone providers.
It was not uncommon for other states to cite to the actions of the New York Commission when it came to such issues or even to copy its orders word for word. These accolades seem like the distant past when one looks at the PSC these days, with telephone subscribership sagging, Lifeline enrollment plummeting, Lifeline eligibility narrower than the federal standard allows, new telephone service providers exempted from basic consumer protections of TFPA, new telephone service providers allowed to escape contribution to essential universal service programs, and profligate dispensation of numbers requiring a premature area code change in 315.

We’ve discussed how slowly the Commission and its Staff responded to the telephone number resource request crisis perpetrated by new providers in rural parts of the state which have prematurely led to numbering shortages in urban and suburban areas as well (see ALJ Recommends "Overlay" Telephone Area Code Requiring 11-Digit Dialing, Despite Plentiful Numbers and Exchange Codes in Central New York's 315 Area), and the failure to reverse the loss of low-income Lifeline assistance by 400,000 customers (see New York's Household Telephone Penetration and Lifeline Enrollment Falling). But, did you know that on the vital topic of ensuring every New Yorker has access to telephone service and being able to reach 911 emergency services and the relay service for the deaf, our state now lags behind such regulatory heavyweights as Kansas, Maine, Missouri, Nebraska, and New Mexico?

These five states assess Voice over Internet Protocol (VoIP) providers, in addition to traditional telephone companies, to support Lifeline discount telephone service, E-911 access, and the relay service. Generally, all providers are mandated to pay a percentage of their intrastate revenues into the fund to support these worthwhile, vital services or a surcharge is placed on customer bills. New York’s state universal service fund, known as the Targeted Accessibility Fund (TAF), only requires local exchange carriers - i.e., the traditional landline phone companies - to contribute. This, despite the fact that Verizon, for example, loses tens of thousands of its New York State customers every month to cable companies offering VoIP voice service. These companies do not contribute one cent to the New York TAF, which has now resulted in a steep and continuing drop in TAF assessments to support the universal service programs. It does not need to be this way.

The New York Commission is well aware of its ability to assess VoIP telephone service providers to support TAF on an equal footing, but has chosen to do nothing, even though the continued viability of TAF is at stake. In recent comments to the FCC regarding proposed changes to the federal Universal Service Fund and intercarrier compensation, the PSC cited to an amicus brief filed in April 2008 by the FCC in a case in the Eighth Circuit regarding Vonage, a prominent VoIP voice provider, in which the FCC stated that requiring VoIP providers to contribute to state universal service funds “does not frustrate federal policy.” The New York PSC added in its comments that it believes “that providing for competitively neutral contributions from VoIP providers advances both federal and state policy goals.”

The FCC position declared in federal court is correct, and is sufficient to begin the process of assessing VoIP providers. See FCC: VoIP Providers Can be Required to Support State Universal Service Fund: Where is New York? Now, the New York PSC has said it too believes this, and rightfully so. But, has the New York Commission actually taken any steps to assess VoIP providers and resolve the TAF funding crisis, or to insist that they provide the same consumer protections? The answer is no.

Real steps to correct this situation may not even begin for a couple of years, under the Commission as currently constituted. See Will Governor Paterson Repurpose the Public Service Commission to Protect Consumers?

Once again, New York has lost its place as a leader among state commissions, now falling behind other states working more aggressively to ensure universal service goals are met. There is no reason to wait any longer to take a competitively neutral approach and require VoIP providers to aid in resolving our universal service issues.

Lou Manuta

Monday, December 08, 2008

ALJ Recommends “Overlay” Telephone Area Code Requiring 11-Digit Dialing, Despite Plentiful Numbers and Exchange Codes in Central New York’s 315 Area

On November 26th, a New York PSC Administrative Law Judge (ALJ) made a recommendation that the PSC require telephone companies to begin preparing for an “overlay” to the 315 area code in central New York. An overlay is a second area code that follows the same geographic boundaries as the original code. All existing customers would keep their telephone numbers with the 315 area code, but new numbers assigned could bear the new overlay area code.

The catch: all people in both area codes would need to dial at least 11 digits (1-315-NXX-1234 or 1-NEW-NXX-1234), instead of just 7 digits (NXX-1234), to make a local call.

The ALJ's Recommended Decision rejected the other option posed by the PSC Staff -- a geographic split -- which would have divided the 315 territory in two parts. Customers in one part would keep the 315 area code, while customers in the other part would have a new area code and thus would be required to change the area code portion of their telephone numbers. Within each area, people would continue to have seven-digit dialing for local calls.

The ALJ recommended that “[t]he Commission should require Frontier, Verizon, and other incumbent and competing local exchange carriers to begin preparing plans for introducing the new area code on a timely basis.”

The need for a new area code, however, is not nearly as dire as the Judge’s words suggest.

The facts developed in the record by PULP confirm that there is no reason to require the telephone companies providing service in the 315 area code to take immediate steps to implement a new area code now or in the foreseeable future. In the relatively short period of time which has elapsed since this proceeding commenced (December 20, 2007), the North American Numbering Plan Administrator (“NANPA”) has pushed back the exhaust date for the 315 area code three times -- from the third quarter of 2010, to the first quarter of 2011, and to the first quarter of 2012.

In addition, according to the NANPA data, only four exchange codes (the 3-digit number after the area code) were requested in the 315 area code for the first 10 months of 2008, and 97 exchange codes still remain. In contrast, in 2006 and 2007, exchange codes were being utilized (unnecessarily) at a much higher rate. At the current pace, which slowed when the PSC stopped giving numbers out 10,000 at a time in rural areas, it may be more than 20 years before the steps contemplated by the ALJ need to be taken. For further background of the proceeding and the change in the way numbers are used see
To implement either a new area code overlay or a geographic split would require substantial and premature financial and resource commitments by the telephone companies, the cost of which ultimately would be passed on to customers. It would also inconvenience customers by requiring them to begin 11-digit dialing for local calls years, perhaps even decades, before it is actually necessary. The ALJ's Recommended Decision, if approved and adopted by the PSC, would require telephone companies to begin implementation of a new overlay area code. The PSC, however, in its October 17, 2008 Order Denying Public Utility Law Project Petition for Rehearing and Clarification, recognized that
If code demand stays low, we will not have to begin implementation of a new area code until the 315 code is closer to depletion.
The Recommended Decision, however, states that "the Commission should require Frontier, Verizon, and other incumbent and competing local exchange carriers to begin preparing plans for introducing the new area code on a timely basis." This suggests immediate action and expenses when they may not really be needed.

On December 16th, all parties will have the opportunity to file comments in opposition to the ALJ’s Recommended Decision to the Commission. Then, active parties will have until December 31, 2008 to file reply comments. The Commission is expected to take a final decision in the spring of 2009.

In previous decisions regarding area code relief, the Commission has recognized the enormous burden that area code change has on residential customers and businesses, and that it should not be done unless absolutely necessary. The Commission’s previous policies under which telephone numbers were assigned were wasteful, and promoted the premature exhaustion of exchange codes in the 315 area code. After PULP’s criticism of these policies and involvement in this proceeding, legislative action to require evidentiary proceedings on the need for a new area code, and a change in the way new numbers are issued, the rate of requests for exchange codes in the 315 area slowed to a crawl. Now that this has occurred, there is no need for hasty action, especially action that may be needless and which will adversely impact the phone companies, residential customers and businesses.

Lou Manuta