Wednesday, April 30, 2008

PSC Denies Request for Open Inquiry and Continues with 315 Area Code Changes

The PSC rejected PULP's motion for further inquiry and development of a record on the need for a new area code in central New York. How and when the 315 area code will be changed is still to be decided.

In an April 25, 2008 Order, the New York State Public Service Commission (PSC) formally denied PULP’s Motion for Interlocutory Relief in its proceeding to consider numbering relief options in the 315 area code region (i.e., the addition of a new area code within the current 315 area). PULP had submitted its Motion because it questioned how there could be an impending telephone number shortage in one of the least populated regions of the state. See PULP Asks PSC to Investigate Need for New Telephone Area Codes in the 315 Region.

With the April 25th Order, the Commission will now look to find the best method to add a new area code. A Staff white paper proposes one of three geographic split options, with one half keeping 315, or having the new code “overlay” the current 315 code. Comments on the white paper are now due May 23 under a new scheduling order. The PSC also scheduled “public statement” hearings for May 1 - 14 throughout the area to gauge the preferences of residents.

When the Commission first proposed the need for area code “relief” in 315, PULP noticed that 78 rate centers which historically had only one exchange code (that is, communities assigned just one 10,000 telephone number central office code) had obtained multiple central office codes in recent years. What would a town of, say, 1,000 people do with 40,000 new telephone numbers, PULP wondered. And, if unneeded numbers and exchange codes could be returned, no area code relief would be necessary at this time.

The answer to this question comes down to timing. Today, all local telephone companies which request telephone numbers are required to request them in blocks of 1,000. Instead of receiving all 10,000 telephone numbers between 315-555-0000 and 315-555-9999, for example, one company receives the 555-1000 numbers and the next company receives the 555-2000 numbers. By allocating telephone numbers 1,000 at a time as opposed to 10,000 at a time, numbering conservation can truly occur and the burden and inconvenience of requiring new area codes can be averted or delayed.

When were telephone companies required to get numbers in thousands blocks? While thousands block pooling (as it is known) was kicked off in New York State in 2001, rural areas were not included by the Commission until fall 2007. However, some carriers, like Verizon, voluntarily pooled the numbers in their rural communities much earlier than that.

The bottom line, according to the Commission, is that assigning multiple sets of 10,000 blocks of telephone numbers in 315’s rural areas was permissible until last fall. As a result, the Commission found nothing unusual in how the telephone numbers were allocated.

This conclusion does not explain another important aspect of allocating telephone numbers -- that they must be used in the rate center or community in which they are designated. In several of these formerly single exchange rate centers, the competitive telephone companies which have received their own 10,000 blocks of numbers to serve these areas may provide the numbers to cable companies offering voice service who are prohibited from receiving numbers on their own. PULP finds it hard to believe that all of those telephone numbers (say, 30,000) are truly being used by customers in the designated rate centers (with, say, a population of 1,500). And if they are not, what a great waste of a limited resource, one that leads to over one million people in 18 mostly rural counties being subjected to a yet-to-be-determined area code change.

Lou Manuta

Friday, April 25, 2008

Parties Propose Resolution of Con Edison Queens Outage Prudence Proceeding

Active parties in the Con Edison Queens outage prudence proceeding have entered into a Joint Proposal for its resolution. This proposal, if approved by the Public Service Commission, will prevent Con Edison from recovering, through electric rates paid by its electric customers, $46 million related to capital costs of new equipment that was installed to replace Con Edison facilities damaged during the July 2006 extended outage. PULP is an active participant in the case. For further background, see Queens Outage Update: ALJ Requires Con Edison to File Testimony on Prudence and Negligence Issues.

Proposed Settlement
Under the Joint Proposal, Con Edison, at shareholder expense, would also provide $17 million to benefit customers and residents of the areas affected by the prolonged outage. Part of that will be used to provide $100 bill credits to more than 70,000 residential customers who previously received credits for food spoilage due to the outage.

PULP vigorously supports the proposal and will be submitting a statement in support of it. Other parties supporting the proposal include Con Edison, Department of Public Service Staff, the Consumer Protection Board, the City of New York, Western Queens Power for the People, and Assemblyman Richard L. Brodsky.

Clearly, remedies under the filed Con Edison utility tariffs were inadequate. One effect of the Joint Proposal for resolution of the prudence case would be to provide additional $100 bill credits to residential customers. For customers with low incomes, who often live from check to check without savings, and for whom energy costs are an increasing burden, a utility bill credit of $100 can have very significant impact on their monthly budgets and their well-being. Thus, PULP does not agree with some who scoff at the amount of additional payments. Because of the narrow scope of remedies available in a prudence review case, and because customers already had obtained the limited compensation allowable under the filed tariffs, the ex gratia bill credits might not have been won in further litigation of the prudence issue.

Utility prudence litigation is rather limited in the scope of what can be achieved, because it generally addresses a question whether a utility can recover disputed expenses from its customers, through the ratemaking process. As mentioned above, under the proposed settlement, the value of $40 million worth of newly installed facilities, and $6 million in related carrying charges on the capital invested, will not be recoverable from customers.

Other Litigation: Twenty Cases Pending
Customers who suffer provable injury and damages as a result of a power outage stemming from a utility's gross negligence can, in theory, recover damages in court, including lost profits. The state's highest court, the Court of Appeals, affirmed a jury finding of gross negligence and damages award in Food Pageant v. Con Edison, a case arising from the 1977 Con Edison blackout. Also, the City of New York recovered damages from that blackout in Koch v Con Edison. According to Con Edison's Annual Financial Report for 2007, issued in 2008:
From July 2006 through December 31, 2007, Con Edison of New York had paid $14 million, $5 million of which was reimbursed by insurers, to compensate customers for spoilage of food and other perishables resulting from the Queens outage, incurred estimated operating costs of $40 million, $1 million of which was reimbursed by insurers, invested $50 million in capital assets and retirements in the Long Island City network after the Queens outage, and reduced revenues under its 2005 Electric Rate Agreement by $18 million relating to customer outages. Twenty lawsuits have been filed against the company in connection with the Queens outage seeking generally unspecified compensatory and, in some cases, punitive damages, for personal injury, property damage and business interruption.
Resolution of the PSC prudence case does not affect potential court remedies for customers whose damages exceed what has been provided under Con Edison tariffs and what would be provided under the proposed settlement. As indicated above, Commission approval of the prudence case would also bar Con Edison from recovering from its ratepayers $46 million for capital asset investments related to the outage.

Other Reforms
Reforms that could provide better redress to customers in the future include:
  • PSC improvement of the tariffed compensation to customers for loss of service
  • easing the gross negligence standard for recovery of damages due to outages
  • easing litigation barriers under New York's class action law, which has been narrowly interpreted by the courts in ways that tend to limit class certification, deny attorneys fees to successful plaintiffs, and prevent class-wide recoveries when there are minor factual differences within a plaintiff class.
Of course, prevention of outages in the first place must be a paramount priority, because of the high societal and personal value we place on continuous electric service, and because losses due to power outages are so difficult to quantify and remedy.

Many actions have been and will be taken by the utility and its regulator, the PSC, in order to reduce the chance of future recurrence of such large failures and costly consequences. It is to be hoped that the Queens outage was a wakeup call for both Con Edison and the PSC. Yesterday, Con Edison issued another apology to customers who went without adequate service.

The Administrative Law Judge has set a schedule for submission of comments and hearings regarding the proposal.

Wednesday, April 23, 2008

Is There a Need for a "Broadband" Universal Service Fund?

In many places around the country, there are actually more broadband Internet subscribers than dial-up customers, and as slow dial-up users migrate to any one of several broadband offerings, that trend should accelerate everywhere that the Internet is available. Unfortunately, broadband is not yet available everywhere and, in low population density areas, especially, there is little or no financial incentive for providers to offer service.

The future economic development of New York State hinges, in large part, on the availability and affordability of broadband service to every citizen, regardless of their location. New York has instituted its own public-private forum known as the Council for Universal Broadband, the goal of which is to develop strategies to help ensure that every New Yorker has access to affordable, high-speed Internet service. The challenge is not in agreeing that this is a worthwhile goal, but how the cost of achieving the goal will be paid for. PULP participates on the Digital Literary and Community Outreach Action Team of the Council for Universal Broadband.

One option for making broadband truly universal is the creation of a federal universal service fund for broadband. The federal USF exists today and has provided funding for basic telephone service in high cost and rural areas, as well as for Lifeline discount telephone service and funding for schools, libraries, and rural health care providers, for several years. Also, the Targeted Accessibility Fund of New York administers state universal service funds for telephone service, at the direction of the New York State Public Service Commission (PSC) . But, should a new USF, which would be funded -- directly or indirectly -- by users, be created to bring broadband to unserved areas?

On November 20, 2007, the Federal-State Joint Board on Universal Service issued its Recommended Decision regarding comprehensive reform of universal service, and its recommendations included creation of a new broadband fund to stimulate greater access to affordable broadband service. On January 29, 2008 the FCC sought public comments on the Joint Board's proposal.

New York PSC: Go Slow
Not so fast, say some parties that commented last week on the Joint Board's proposal to create a “Broadband Fund.” The PSC stated in its comments that it is premature to consider creating such a fund. It believes that the FCC “should obtain more granular data on the deployment and adoption of broadband services before considering funding broadband services via the high cost support mechanism.” It added that “[i]ncreased access to broadband services will allow rural and low-income Americans to participate more fully in the nation’s economy. It will continue fostering economic productivity and increase quality of life.”

The PSC said that it is looking for additional information on availability, adoption, speeds, and prices in order to correctly determine where to target aid. It referred to state and local mapping projects, like those conducted by California and Kentucky, which identified where investment is needed. It believes that the FCC should review the new broadband deployment data it is considering before creating a Broadband Fund. The PSC concluded its comments by stating that the goal of universal broadband deployment “might better be achieved by a low cost, subsidized loan program than by an award of capital construction monies.”

Verizon, Sprint, and AT&T Question USF for Broadband
Verizon's comments agreed that public-private partnerships are the best way to increase broadband deployment and subscribership and cited the “Connect Kentucky” program as a successful example. The company also questioned whether it would be lawful to support broadband with USF subsidies in the absence of Congressional action specifically stating that broadband should be a supported service.

Other companies active in New York submitted comments to the FCC as well. Sprint's comments, for example,opposed formation of a Broadband Fund until concerns with current USF funding mechanisms are resolved. AT&T's comments proposed the creation of separate funds for fixed broadband networks and for wireless broadband networks in unserved areas.

In contrast to the PSC and telecom companies, the National Association of State Utility Consumer Advocates (“NASUCA”), of which PULP is an active member, expressed in its comments support for the creation of a Broadband Fund, if and when the FCC decides that broadband service is qualified to receive USF funds. NASUCA believes that a Broadband Fund should focus on unserved areas, be limited to wireline broadband service (as opposed to the not-as-yet-well-developed wireless offerings), support much higher speeds than the FCC’s current definition of broadband, and possibly be funded from a separate assessment on broadband service.

Next Steps
A ruling by the FCC may come before the end of the year on the need for a Broadband Fund, as well as other issues related to the future of the federal USF. New York’s Council for Universal Broadband will continue to meet to decide what will work best for the people of our state to bring affordable broadband to all. New York is actually ahead of many states in deploying broadband, especially due to the efforts of Independent telephone companies in rural areas and the availability of cable modem service, but gaps remain. Identifying those geographic areas and determining why so many people with broadband access do not subscribe (cost, lack of knowledge of broadband’s benefits, etc.) can be addressed and acted on by the state as well as the FCC.

Lou Manuta

FCC to Require Improved Reporting of Broadband Deployment and Subscribership

By and large, regulators have allowed communications companies to decide where and when they will deploy the service and what they will charge for it. The lack of accurate information regarding geographic deployment of broadband infrastructure and subscribership within local communities frustrates efforts to assess whether sufficient progress is being made toward achieving affordable, universal broadband access for all.

It is difficult to obtain detailed information regarding broadband infrastructure deployment and subscribership data in areas where broadband service is available. Typically, providers of broadband service have been secretive about where they have built their systems, where they are deploying services, and how many persons in any particular area are actually buying broadband service when it is available. Questions have been raised about "redlining" in broadband deployment which results in lower income areas lacking access to high speed internet service, placing them at a further economic, educational, and informational disadvantage. See Broadband 'Redlining' Issue Raised In Fiber Deployment.

Some states have adopted initiatives to increase access to broadband in areas bypassed by the major providers. For example, California has a $100 million Advanced Services Fund to promote broadband services in unserved areas of California. New York State has a Council for Universal Broadband, a 28 member public/private task force working to develop new state strategies to achieve universal, affordable, high speed internet access.

The FCC recently announced that it will gather more data to measure broadband availability, a vital step which will assist in determining where to focus initiatives to address the “Digital Divide.” Specifically, the FCC will now require broadband service providers to report every six months on the number of broadband users, by census tract, broken down by speed and technology type.

This is a welcome step that may assist New York and other states in assessing what needs to be done next to expand the availability of broadband service in geographic areas where it is not yet deployed, to remove barriers to subscribership, and to improve affordability of broadband service for lower income persons.

Tuesday, April 22, 2008

See No Evil: FERC Refuses to Examine Gaming of RTO/ISO Electricity Spot Markets

Background: Order 697
The National Association of State Utility Consumer Advocates (NASUCA) and other utility consumer advocates requested rehearing and clarification of FERC Order 697 on market-based rates for the sale of wholesale electricity. No bona fide consumer organization had supported the further relaxation of regulation over wholesale electricity rates embodied in that order, and many had asked for stricter review of market rate outcomes in light of experience. See Industrial and Residential Customers Agree: Proposed FERC Rules for Electricity Market Rates are Flawed.

In its petition for rehearing, NASUCA urged FERC not to relax oversight and to examine whether sellers who pass its easy market share tests for stand alone market power can still manipulate market prices through strategic bidding, without overt collusion. See "Nonregulated" Sellers of Electricity Become "Market-Regulated" Under New FERC Rule. In addition, several utility consumer advocates filed a petition for rehearing raising a number of legal issues, such as whether FERC's new system of private, unfiled ratesetting passes muster under longstanding public rate filing requirements.

The Rehearing Order
On April 21, 2008, FERC rejected all consumer objections to its market-based rate regime, in its Order 697-A decision on rehearing. On the issue of rate manipulation and potential gaming of wholesale spot market prices in RTO/ISO markets, FERC stated:
NASUCA argues that the Commission must investigate whether sellers are able to raise electricity auction market rates to higher non-competitive levels, without collusion, through strategic bidding and gaming behavior in Commission-approved auction markets.... NASUCA states that experience, mathematical game theory analysis, judicial decisions, and laboratory simulations indicate that market participants who pass market power screens nonetheless may be able to elevate prices in Commission-approved auction markets through non-collusive strategic bidding, withholding, and gaming tactics. NASUCA states that the Commission’s market power screens are based on a static analysis of single sellers’ market shares, stating that less than a 20 percent share of the relevant market capacity is sufficient and less than the supply margin on the annual peak day satisfies the “supply margin assessment.” NASUCA concludes that neither of these tools addresses the problem identified in the research that sellers in these specialized markets repeatedly communicate through their bidding behavior....
NASUCA states that, to its knowledge, the Commission has never publicly discussed mathematical game theory analysis in depth in its orders, has not investigated the problem, and has held no technical conference or workshop to invite researchers to present their findings regarding gameability of the wholesale electricity markets.... NASUCA argues that strategic market behavior analysis is needed to assess whether current market designs allow participants, without overt collusion, to elevate market prices to unreasonable and non competitive levels. The purpose of such analysis would be to take corrective action to prevent gaming behavior, by revising market designs or rules. NASUCA asserts that the Commission misunderstood NASUCA’s request in finding that consideration and analysis of such behavior would be burdensome.
NASUCA argues that the “primary purpose” of the FPA and the Commission is protection of utility consumers. NASUCA states that, in order to achieve confidence that rates set in Commission-sanctioned markets are reasonable, the Commission must investigate strategic bidding and market gaming by market participants.... NASUCA therefore requests that, at a minimum, the Commission commence a proceeding to investigate this and begin it by inviting researchers who have identified strategic auction market gaming as a problem in auction markets of the type used for the sale of electricity to present their research at a public technical conference.
FERC responded to this request to examine whether its markets can be gamed as follows:
Commission Determination
We have considered the strategic bidding literature and various theoretical models which demonstrate that market participants who pass market power screens nonetheless may be able to elevate prices in Commission-approved auction markets through “noncollusive strategic bidding, withholding, and gaming tactics.” However, the Commission does not think it is necessary to investigate the possibility of whether sellers or market participants are able to engage in strategic bidding, withholding and gaming tactics to elevate prices in auction markets in order to determine whether to grant market-based rate authority. First, these theoretical or gaming models require consideration of numerous assumptions and hypothetical future behavior that may quickly become invalid because of the changing behavior of market participants, changes in the market or changes in other factors, e.g., supply or demand. Accordingly, the Commission is concerned that they would not be reliable tools in helping assess whether a seller has market power. Second, the type of behavior described by NASUCA may be prohibited by the Commission’s Anti-Manipulation Rule at section 1c.2 of the Commission’s regulations.... Violations of the Anti-Manipulation Rule include behavior constituting a fraud that had the purpose of impairing, obstructing, or defeating a well-functioning market.... The Commission’s Office of Enforcement monitors activity in the electric markets and conducts investigations to determine whether market participants are violating the Anti-Manipulation Rule. To the extent that NASUCA or any other entity has specific allegations of market manipulation, that entity should contact the Commission’s Enforcement Hotline or the Division of Investigations of the Office of Enforcement. Finally, as the Commission stated in Order No. 697, for practical considerations the data gathering and analysis burden imposed on sellers and the Commission to consider all the hypothetical types of behavior would be overly burdensome and impractical....
More states are finding it is "impractical" to rely on FERC to achieve reasonable wholesale rates, and many consumers are finding it "overly burdensome" to pay electricity bills inflated by unreasonable wholesale rates. FERC may someday need to reconsider its disregard of evidence that its RTO/ISO markets are defective.

Tuesday, April 15, 2008

Supreme Court Refuses to Hear Consumer Advocates' Case Challenging FERC Market Rates

After the California market rate debacle in 2001 FERC issued an order in 2003 declaring all market rates to be illegal, and required certain "market behavior" conditions to be added to all market rate tariffs to discourage market manipulation.

Several utility consumer advocates argued in their 2003 comments that these anti-manipulation conditions were not enough to bring the rates into full compliance with law, including statutory filing requirements. They questioned whether FERC exceeded its powers under the Federal Power Act when it adopted its current market based rate regime for wholesale sales of electricity, principal features of which include price secrecy and elimination of public filing of all rates and contracts before they take effect.

When FERC did not grapple with the advocates' arguments in its initial order, the advocates sought rehearing, and then when FERC denied rehearing in 2004, they sought judicial review of FERC's 2004 final order. See Consumer Challenge to FERC "Market-Based Rate" System Proceeds.

After procedural delays, including a request by FERC for voluntarily remand of the matter for further consideration, which was denied, the Court of Appeals for the District of Columbia eventually said in a 2007 decision that the issues raised by the consumer advocates did not need to be addressed by FERC in this case. See FERC Escapes Court Review of Legal Authority for its Electricity Market Rate Regime. Rehearing was requested, see Consumer Advocates Seek Rehearing of D.C. Circuit Court Decision Allowing FERC to Avoid Consideration of Statutory Filing Requirements.

When the Circuit Court denied rehearing, the advocates filed a petition to the Supreme Court for a writ of certiorari. See Electricity Consumer Advocates Seek Supreme Court Review of FERC Market Rate Orders. Responses were filed by FERC and by Morgan Stanley. The consumer advocates filed a reply brief.

On April 14, 2008 the Supreme Court denied certiorari without opinion. This means only that the Court did not want to take the case and the lower court order stands within its territorial jurisdiction; it does not establish a Supreme Court precedent, does not mean that the Supreme Court endorses the outcome or reasoning of the lower court, and does not mean that the Court would not address the issues in another case.

For more information see PULP's web page on the FERC market behavior case.

Tuesday, April 01, 2008

National Grid Policy of Denying Utility Service to Minors Challenged

National Grid has an informal policy not to provide utility service to the premises of persons who have not attained the age of eighteen. There is no authority in law or in the utility's filed tariffs for withholding service on this basis.

In New York, minors of employable age are able to establish their own domicile. Contracts they make for necessaries, such as utility service, cannot be disavowed on the grounds that they lack capacity.

PULP is representing a seventeen year old who lives with her five month old child and the child's father, who is also seventeen. She has finished her high school education, he is employed full time, and they are self supporting. National Grid refused to provide utility service needed for the apartment they have rented, and provided no notice of the factual and legal basis for the denial. National Grid advised the denied applicant that she could get utility service if it were paid by welfare, and referred her to the local department of social services, which provided no assistance.

The Public Service Commission's Emergency Hotline designee upheld National Grid's denial of service.

PULP has filed an appeal of the Emergency Hotline determination, and requested a ruling of the Commission. PULP argues that National Grid's practices
  • Deny service to applicants who satisfy all statutory and tariff requirements for service;
  • Cause hardship to individuals of employable age who have not attained the age of majority and who require utility service at their premises;
  • Are contrary to the purposes of the Home Energy Fair Practices Act (HEFPA);
  • Create additional qualifications, terms and conditions for utility service not contained in HEFPA, which are to assure continuous residential service to promote and preserve the public health, welfare and the public interest;
  • Create additional conditions and qualifications for service not contained in filed tariffs;
  • Base the decision to provide utility service upon determinations and actions of non utility third parties -- local Departments of Social Services -- in violation of National Grid’s common law duty to provide utility service to the public; and
  • Are unreasonable, discriminatory and prejudicial.
In the papers, PULP cites prior instances in which National Grid adopted restrictive rules that worked to deny service, which had not been publicly filed and approved by the PSC, but which had been greenlighted by agency staff. PULP requested the Public Service Commission to order an immediate reversal of the determination of the Commission’s Emergency Hotline designee, and to issue a ruling that National Grid’s policies to deny service to minors living independently are invalid.