Wednesday, January 16, 2008

NFG Directed by PSC to Eliminate Late Charges on Deferred Payment Agreements

The Public Service Commission (PSC) recently ordered National Fuel Gas Distribution Company (NFG) to drop the 1.5% per month interest fees that it charges its residential customers on deferred payment agreement balances. In a December 2007 rate case order the PSC directed NFG to “eliminate . . . assessment of late payment charges on balances recovered through a residential deferred payment agreement.”

Public Service Law § 37 requires utilities to offer written deferred payment agreements (DPA) to all residential customers who are threatened with service termination. DPAs allow customers to pay outstanding utility charges over a period of time and service will not be terminated if customers stay current with their monthly bills and make incremental payments on their arrears as provided for in the DPA. Section 42.2 of the Public Service Law prohibits any late payment charge on a deferred payment agreement. Under Section 42.1, utilities may assess a late fee if a customer fails to timely pay DPA installments, but they may not charge interest or late fees on the original amount covered by the DPA.

Despite a PSC order issued almost a decade ago, finding that “application of late payment charges to amounts covered by a DPA is prohibited by statute,” NFG continued to assess these charges. In documents submitted to the PSC in the course of its rate case, NFG estimated it would collect over $6.8 million dollars in interest charges on DPA balances in 2008 alone. Much of this would have been collected from low-income consumers.

In its order establishing new rates for NFG’s gas service, the PSC rejected the utility’s argument that late payment fees on DPA balances were lawful, and it ordered NFG to file tariff amendments eliminating these charges and to remove the amount of its projected collections from its 2008 revenue forecasts.

The late payment charge controversy began in 1982, when the PSC promulgated rules to implement the Home Energy Fair Practices Act (“HEFPA”), but failed to specifically preclude late payment charges on DPA balances in the language of its regulations. By 1998 when the PSC initiated a proceeding to resolve the issue, the only utilities that continued to impose these charges on their customers were NFG and New York State Electric & Gas Corp. (NYSEG). NYSEG discontinued the practice after it was sued in 2005 by a customer represented by PULP.

In a generic companion order issued by the PSC on the same day as its decision in the NFG’s rate case, applicable to all electric and natural gas utilities and large water companies in the state, the PSC again held late payment charges may not be assessed on DPA balances. The PSC identified NFG as “the sole major utility to assess [late payment charges] on DPAs. . . .” The PSC concluded, however, that there is no basis for refunds to NFG customers of the unlawful charges, because they were levied pursuant to a filed NFG tariff. Under the “filed rate” doctrine, retroactive changes in tariffs are not possible.

In the generic order, the PSC cites its 1982 case in which HEFPA regulations were adopted to implement the statute, and mentions the position of “a party” who contended then that the Public Service Law did not permit late payment charges to be imposed on DPA balances, and urged the Commission to prohibit this. That “party” was PULP. The PSC finally resolved this issue in 2007, after the matter languished for 25 years, permitting some utilities to collect scores of millions of dollars from customers who could least afford to pay.

By Geraldine Gauthier
Staff Attorney

Monday, January 14, 2008

PULP and Other Consumer Groups File Supreme Court Amicus Briefs in Electricity Market Rate Case

Nearly all the electricity used by New York consumers must be purchased in wholesale markets because many of the state's electric utilities sold most of their power plants in recent years. Previously, local utilities generated much of the power used by their customers, at cost, and purchased from others when it was available at lower cost. Now they must buy electricity at market prices demanded by sellers in poorly regulated wholesale markets under Federal Energy Regulatory Commission (FERC) jurisdiction. A major issue has arise regarding FERC's failure to assure that all contracts for the sale of wholesale electricity are reasonable, as required by the Federal Power Act. See Energy Contracts Spark High-Stakes Supreme Court Case, and U.S. Supreme Court to Decide Electricity Market Rate Refund Case.

The Morgan Stanley Case

On January 14, 2008 PULP filed an amicus brief in a case to be argued in the United States Supreme Court regarding the review by FERC of contract charges for wholesale electricity. FERC assumes that any prices set by sellers are reasonable if they lack "market power." The contracts were formed during a period of rampant market manipulation, were not filed, and were never reviewed by FERC for reasonableness. The issue in the case is whether a Ninth Circuit ruling, which basically required FERC to review contract rates for reasonableness, is in conflict with longstanding Supreme Court decisions in United Gas Pipe Line Co. v. Mobile Gas Service Corp., 350 U.S. 332 (1956), and Federal Power Commission v. Sierra Pacific Power Co., 350 U.S. 348 (1956), together known as the Mobile-Sierra cases. Those cases made it very difficult for sellers to revise upward the prices they previously agreed to charge in contracts.

FERC, represented by the U.S. Solicitor General, agrees with Morgan Stanley Capital Group and other wholesale electricity sellers that the Mobile-Sierra cases make it nearly impossible to revise rates downward. Represented by luminaries of the bar, including three former Solicitors General, energy producers, traders, dealers in financial derivatives, economists and others are asking the Supreme Court to reverse the Ninth Circuit order. They argue that the "sanctity" of contracts is at stake, that the Mobile-Sierra doctrine applies, and that FERC cannot modify contract rates except in extreme circumstances.

PULP's Amicus Brief
PULP's amicus brief points out that the Mobile-Sierra cases both involved situations where the contracts had been filed publicly in advance as required by Section 205(d) of the Federal Power Act. Thus, the contract rates in those cases already had been subject to public scrutiny and review by the regulator for reasonableness before they took effect. Only then did the doctrines favoring repose of contract rates apply.

In contrast, the contract rates in the case now before the Supreme Court are "market-based rates." Under FERC's regime, these contracts were not filed in advance as required by the Federal Power Act, and thus the rates and charges were never subject to public scrutiny or review for reasonableness by FERC before the contract sales began.

PULP urges the Supreme Court to affirm the Ninth Circuit order because unfiled rates and contracts for wholesale electricity have always been subject to subsequent revision by FERC if they are unreasonable, without regard to the Mobile-Sierra doctrine. PULP also rebuts the claim that FERC's determination that a seller lacks market power satisfies the utilities' statutory obligation to file all rates and contracts publicly, in advance. The statute does not give FERC power to grant blanket waiver of the utilities' filing duties. The Supreme Court in MCI v. AT&T in 1994 held that federal regulatory agencies have no power to relax utility filing requirements. The court said filing requirements are utterly central to filed rate regulation schemes similar to that of the Federal Power Act. See May the FERC Rely on Markets to Set Electric Rates?

Public Citizen's Amicus Brief
Public Citizen, the Colorado Office of Consumer Counsel, the New Mexico Attorney General, and the National Consumer Law Center also submitted an amicus brief supporting affirmance of the Ninth Circuit order. It provides an historical perspective on the reasons why the Federal Power Act and the recently repealed Public Utility Holding Company Act were enacted to protect utility customers. A premise of these statutes is that it cannot be assumed -- as FERC now does -- that utilities and energy traders will act in the interest of consumers when they make contracts for the sale and purchase of wholesale electricity. The brief also shows why accepting the extreme position of the sellers would allow all electricity contracts to escape any meaningful review for reasonableness.

Other briefs are available at the ABA website. The case will be argued February 19, 2008.

Friday, January 11, 2008

PSC Requires More Study Before Allowing Major Investment in "Smart Meters"

In 2006 the PSC issued an order requiring the state's electric and natural gas utilities to develop plans for implementation and widespread deployment of "smart meters." See Not so Smart? High Tech Metering May Harm Low Income Electricity Customers, PULP Network, April 16, 2007.

In a decision issued December 19, 2007, the PSC required Con Edison and Orange & Rockland Utilities to file supplemental plans, and required assessment of demonstration projects and cost effectiveness of any plans for broader deployment. The utilities' plans had called for expediture of $712.8 million to deploy smart meters, and projected total benefits of $782.5 million, $224 million of which was calculated to come from changes in customer consumption, i.e., by shifting usage to times of day when prices presumably would be lower.

The Commission said "The $713 million AMI program cost is a significant additional future cost whose potential offsetting benefits are far from clear or certain at this point." As discussed in Not So Smart, calculations about lower market prices from peak shifting by customers with smart meters -- 30% of the projected benefits -- may rely not only upon unproven assumptions regarding the ability of very large numbers of customers to shift their usage in response to spiking prices, but also on rather robust assumptions about the competitiveness of markets, reasonableness of real time prices, and the behavior of sellers in the repetitive auction spot markets. See Cornell Professor Gives Low Marks to NYISO Electricity Markets, PULP Network, December 13, 2007.

In addition, the Commission cautioned Con Edison and O&R against the use of new technologies to accomplish remote termination of service, stating:
Finally, we remind the companies that termination of service for nonpayment is subject to Home Energy Fair Practices Act (HEFPA) regardless of whether that disconnection is performed by physical (on site) or electronic (remote) service shut off. No utility may utilize AMI for remote disconnection of service for nonpayment unless it has taken all of the prerequisite steps required by HEFPA, including the requirement of 16 NYCRR §11.4(a)(7) that customers must be afforded the opportunity to make payment to utility personnel at the time of termination. This process requires a site visit, even where a remote device is utilized.
On the same day, in a similar decision rejecting Central Hudson's plan, the Commission reiterated its concern that all HEFPA procedures must be followed:
A concern relates to the use of AMI to accomplish remote disconnection and reconnection of service. While this capability can provide benefits when disconnection and reconnection are implemented pursuant to customer requests or for system safety, Home Energy Fair Practices Act (HEFPA) regulations incorporate a “last knock” policy requiring that terminations for nonpayment be preceded by a customer’s opportunity to pay the bill to utility personnel at the time of termination, and avoid disconnection. Central Hudson is reminded that termination of service for nonpayment is subject to HEFPA regardless of whether that disconnection is accomplished by physical or electronic (remote) service shut off.
The Commission press release in the Con Edison case underscored the need for pilot projects and further assessment of costs and benefits before full deployment, stating:
This sophisticated combination of meters, and other supporting equipment, is clearly the wave of the future. However, before we approve full-scale AMI implementation, we must determine if the investment is justified and whether the meters to be installed contain features and functions that will provide consumer and system benefits, or can be later modified to add new functionality. Pilots can play a very important role in reducing the number of open questions and obtaining better forecasts of costs and benefits.
The proposed expenditure of nearly three quarters of a billion dollars is a major investment by Con Edison and O&R. If this was not better for shareholders than for consumers we doubt we would see such a plan from a utility. "Smart meters" are in vogue, pushed by the electricity deregulation crowd as the solution to unreasonable prices, and by environmentalists as a way to address energy efficiency goals. These formidable voices cheering for "smart meters" (along with the message implicit in the label that if we have an old meter we are "dumb") resonate well with the interest of utilities wanting to make large new capital investments that could allow them to demand and justify higher future earnings and higher rates.

The PSC was not only smart, it was wise to require more analysis of the costs and benefits, particularly because under the Public Service Law, time of use pricing for residential customers is strictly voluntary, and to date has not attracted many adherents.

Monday, January 07, 2008

PULP Urges NYSERDA to Use RGGI Auction Revenue to Support Low Income Energy Efficiency Programs

New York along with nine other northeastern states is creating its own greenhouse gas "cap, auction and trade" system in an effort to reduce carbon dioxide emissions from power plants using fossil fuel. This "Regional Greenhouse Gas Initiative," known as RGGI, was conceived by the states in the absence of any comprehensive national program, carbon tax or national cap and trade system designed to reduce carbon dioxide in the atmosphere.

Sale of CO2 Allowances
Regulations to implement a New York greenhouse gas allowance auction system have been proposed by NYSERDA and the New York State Department of Environmental Conservation, DEC. DEC will require New York utilities emitting carbon dioxide to purchase allowances, and NYSERDA will conduct the auctions.As the amount of allowances is gradually reduced, their cost will increase, and presumably the higher cost of production will induce buyers to purchase from cleaner sources and will induce power producers and sellers to reduce overall emissions in order to avoid or reduce the cost of allowances. Subsequently, after the initial auction, allowances may be bought and sold and traded by non utilities, including energy traders and hedge funds, in largely unregulated secondary markets.

PULP Comments
In December 2007 PULP filed comments on the NYSERDA regulations. The comments point out that the new system is likely to increase the price of all electricity sold in the state, even electricity produced by generators that emit little or no carbon dioxide, such as hydro, nuclear, and wind power plants. This is because the wholesale energy markets are designed to pay all sellers the market clearing price, which is set by fossil fueled power plants.

In addition, there is a possibility that sellers will incorporate prices set in secondary markets for allowances when they make their price demands in in the day-ahead and real time single clearing price spot markets. These secondary markets and the prices of allowances are basically unregulated.

A possible result of the secondary market prices is that even if sellers have allowances purchased in advance from NYSERDA, they may make their price demands for electricity to be sold tomorrow in spot markets as if they are buying allowances today in the secondary markets, at possibly much higher prices. A similar phenomenon has occurred with respect to the pricing of electricity generated with natural gas. Power producers typically make their price demands based on tomorrow's price of natural gas, even if they already have lower cost gas available under a long term contract. Volatile high prices in a secondary market for greenhouse gas allowances may thus enable sellers to ratchet prices much higher than they would be elevated by the price of allowances when they are initially sold by NYSERDA. It is not clear how the contracts for purchase of allowances would be regulated by FERC, but based on FERC's enthusiastic embrace of deregulated wholesale markets, it is probable that FERC would take no action to assure reasonable prices when allowances are bought by sellers with "market based rate" permission and the price is added to wholesale rates.

A possible warning sign is that in Europe greenhouse gas allowances are adding substantially to the cost of electricity. Also, significant results from the cap and trade program, in terms of reduced emissions, seem to be absent so far.

If RGGI has similar results in New York, the cost of electricity could increase substantially. This may be dismissed by cap and trade proponents as only the cost of a few lattes, but it could make a very large difference to low income households who now have difficulty paying today's energy prices and who run out of money for other essentials for their families before the end of the month.

PULP urged NYSERDA to commit 35 - 45 percent of the proceeds of its allowance auctions to increase energy efficiency services for low income households.