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.

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