Friday, June 27, 2008

Legislature Passes Bill Requiring PSC to Review LIPA Rates

PSC to Review LIPA Rates
When the Long Island Power Authority (LIPA), a public authority, took over the Long Island Lighting Company (LILCO), there was an immediate reduction in rates because of the cheaper public financing of the legacy costs of a nuclear plant that was licensed but did not operate, and because there was no need to pay LIPA an investor's return on investment. Since then, LIPA customer bills have risen, particularly since 2000 when the advent of the NYISO markets began to influence electric rates. See PULP's chart of typical bills showing that LIPA bills are second highest in the state, after Con Edison.

LIPA raised its rates significantly, through surcharges analogous to the mechanisms Con Edison uses to pass through the cost of power purchases in the wholesale markets. Court actions and petitions to the Public Service Commission (PSC) were unsuccessful in obtaining independent PSC review of the reasonableness of the new and increasingly higher LIPA rates.

When LIPA was created, it was generally exempted from most provisions of the Public Service Law (and hence exempt from PSC rate regulation), subject to several exceptions which do not include PSC rate review.

In response to consumer concerns, on June 18, 2008 both houses of the Legislature passed a bill (A 6164/S 3410) that would make LIPA subject to PSC rate review. It awaits approval by the Governor. Assuming the bill is approved by the Governor, it would then take effect in 180 days.

A Neglected Issue: Customer Protection
As the PSC gears up for regulation of LIPA rates, it should also begin to pay attention to the complaints and Hotline calls from LIPA consumers. Under current practice, the PSC simply refuses to assist LIPA customers with complaints and calls to obtain or preserve service, and denies them the benefits of its complaint handling procedures and toll-free emergency Hotline (1-800-342-3355) in situations involving imminent or recent shutoff of utility service.

Sectioon 1020-cc of the existing Public Authorities Law, however, required LIPA to adopt regulations to provide "its residential gas, electric and steam utility customers those rights and protections provided in article two," which is the Home Energy Fair Practices Act (HEFPA). HEFPA, in turn, requires the PSC to provide hotline and complaint adjudication services to customers. LIPA, however, does not provide customers with notice of their rights under HEFPA, e.g., PSL Section 43, to obtain independent PSC review of LIPA decisions affecting their bills and service.

The PSC routinely denies Hotline assistance and complaint adjudication to LIPA customers, and thus, LIPA is being allowed to decide customer complaints against itself without PSC review.

PSC Approves Grid "Affordability" Program in Which HEAP Payments Do Not Reduce Current Winter Bills

The PSC approved National Grid’s proposed modifications to its AffordAbility Program in a June 23, 2008, Order, dismissing concerns raised by PULP regarding the application of federal Home Energy Assistance Program (“HEAP”) payments to old arrears. The AffordAbility Program provides assistance to a small number of low income residential consumers with arrears owed to the company who enter into a payment plan to make current payments and retire arrears. It is not a substitute for a broad based low income rate, which National Grid does not have. PULP has been part of a team reviewing the proposals, along with the Department of Public Service Staff and the NYS Consumer Protection Board (“CPB”). See National Grid Misses Point with its Low Income Program.

Under the original program, a low income customer with arrears was placed on a 12 month payment agreement. Under the terms of the agreement, the customer was responsible for paying a percentage of their total average monthly bill (95 percent for electric-only customers and 92.5 percent electric and gas customers). The remaining incremental bill amounts were deferred -- and added -- to the customer’s total arrears. Customers completing 12 monthly payments and who received a Regular HEAP grant, which was applied to their National Grid arrears, received forgiveness of 50 percent of their total arrears, up to $250.

Due to a 50 percent default rate, changes were needed. National Grid proposed that the program provide a monthly, instead of an annual, $20 arrears forgiveness credit, eliminate the portion of the deferral to participants’ arrears balances attributable to energy efficiency measures, and limit participation in the program to 24 months. All were approved as means to improve the benefits provided to low income consumers.

Other than the fact that successful participants in the program will see a $10 annual reduction in arrears forgiveness (from $250 to $240), the changes should improve the AffordAbility Program because of the monthly, rather than annual, arrears forgiveness benefits. That said, PULP raised concerns in its comments regarding the forced application of Regular HEAP benefit payments to a participant’s arrears that are the subject of the installment payment plan. The intent of the federal HEAP program is primarily to assist eligible households in meeting current household energy needs, not to retire a portion of arrears that may have accrued from past years and which are not immediately due.

The Commission disagreed stating:

it is the longstanding policy of the Commission that partial payments should be applied first towards arrears, and then to current charges. This policy was most recently revisited in the context of its order establishing the payment application method for consolidated bills.
Apparently, the Commission considers Regular HEAP benefits simply as “partial payments” with no special purpose. However, the case cited by the Commission in reaching this determination does not make this connection. In fact, the cited case involves Energy Service Company (“ESCO”) billing issues and found:

As we previously discussed regarding DPAs [deferred payment agreements], partial payments from customers receiving a single bill shall be credited by the ESCO and the distribution utility such that the customer’s risk of loss of service is minimized. As a general matter that will require payments to be first applied to past due amounts, including payments required under a DPA, and then to current charges. . . .(emphasis added)

The Commission provides no justification to connect this decision from 2003 and the current case. How can the application of a Regular HEAP payment to old arrears that are the subject of an installment payment plan minimize the customer’s risk of service loss if the customer has been making those payments and the only amount due is for current service plus the installment? In contrast, applying Regular HEAP payment to the current bill would provide immediate assistance in meeting energy needs for the current winter season, and would reduce the risk of nonpayment and termination of service.

It makes no sense for a utility to be allowed to apply a Regular HEAP benefit intended to keep a household warm this winter to charges for seasons past that are being gradually paid off through a payment plan.

When the Regular HEAP benefit has been used for old arrears, the customer's current need has not gone away. Customers are not granted additional payments unless they stop paying their bills and then qualify for Emergency HEAP -- under more stringent eligibility requirements -- to avert a termination or restore service after termination. See Needy Households Must Stop Paying Energy Provider to Obtain Supplemental HEAP Benefits.

Prices for energy are likely to be much higher in the coming winter season. See High Natural Gas Prices Signal Trouble Next Winter for Low Income Customers. Regular HEAP payments should play a role in reducing the added energy burden. For participants in the Grid "Affordability Program," their Regular HEAP payments will do nothing to defray higher bills for heat in the coming season.

The Commission did grant a request by CPB, whereby National Grid will now be required to provide quarterly reports to the PSC and interested parties, identifying the number of "Affordability Program" participants, the total amount of arrears forgiveness, and the default rate. This may prove to be a more exacting means of measuring whether the program is effective.

In all likelihood there will be a high default rate as "Affordability Program" participants fail to meet the higher bills, again stop paying them, and must resort to Emergency HEAP assistance, if eligible. Whatever the program default rate, it might be lower if the PSC had required Grid to apply Regular HEAP payments to defray bills for the current winter season.

Lou Manuta

Summer NYISO Electricity Prices 123% Higher

A FERC report in May signaled a likely NYISO price spike this summer, in the range of 89% higher than last year. See NY City Wholesale Electricity Prices May Rise 89% Due to Market Design and Higher Natural Gas Prices.

FERC Staff made a new report in June indicating that NYISO forward prices for July -August are now 123% higher than last year.

Because Con Edison buys a lot of power at NYISO spot market rates, or at rates indexed to spot market prices, it is likely that customers will see much higher prices this summer. In June, prices jumped by more e than 3 cents/kWh above a projected price for residential customers filed in April. See Con Edison Electricity Rates for Energy Spike 21% in June.

Customer impacts will vary, based on the amount of market risk the PSC allows utilities to pass through to customers.

The increase is due to rising natural gas prices that affect NYISO clearing prices. Although New York State has diverse sources of lower cost non-gas generation (nuclear, hydro, coal, wind, for example) all sellers receive the same price under the NYISO pricing system.

Thursday, June 26, 2008

Supreme Court Leaves Fundamental Questions About FERC Market Rate Scheme Unanswered

Legality of FERC's Market-Based Rates Unresolved
Today's Supreme Court decision in Morgan Stanley Capital Group v. Public Util. Dist. No. 1 of Snohomish Co. left unanswered fundamental questions regarding FERC's scheme of unfiled and largely unregulated wholesale market rates for electricity. The Court said
We have not hitherto approved, and express no opinion today, on the lawfulness of the market-based-tariff system, which is not one of the issues before us. It suffices for the present cases to recognize that when a seller files a market-based tariff, purchasers no longer have the option of buying electricity at a rate set by tariff and contracts no longer need to be filed with FERC (and subjected to its investigatory power) before going into effect.
* * * *
We reiterate that we do not address the lawfulness of FERC’s market-based-rates scheme, which assuredly has its critics. But any needed revision in that scheme is properly addressed in a challenge to the scheme itself, not through a disfigurement of the venerable Mobile-Sierra doctrine. We hold only that FERC may abrogate a valid contract only if it harms the public interest.
The Supreme Court's allusion to issues regarding FERC's unfiled market rate regime may encourage others to challenge market rates.

In a recently concluded proceeding, FERC finally adopted official regulations to implement its market-based rate system, which had been constructed through a series of orders that never seriously grappled with the legal issues of market rates. See Market-Based Rates For Wholesale Sales Of Electric Energy, Capacity And Ancillary Services By Public Utilities, Order No. 697, 72 Fed. Reg. 39904 (2007). In that case, for the first time, FERC discussed -- in detail, in 100 paragraphs -- legal issues concerning its effort to jettison longstanding consumer protection provisions of the Federal Power Act. See "Nonregulated" Sellers of Electricity Become "Market-Regulated" Under New FERC Rule. A new judicial review proceeding brought by consumer groups to challenge the FERC market rate rules was recently filed in the D.C. Circuit Court of Appeals and another challenge is pending in the Ninth Circuit.

Contract Rates Presumed Reasonable
Very expensive long term wholesale electricity contracts were signed in an effort to avoid spiking prices and rampant market manipulation in the California and Western electricity spot markets. Later the municipal utility from Snohomish County asked FERC to modify the contracts and fix reasonable rates in an effort to protect their customers. FERC refused, citing the "Mobile - Sierra doctrine" which favors repose for contract rates. The Ninth Circuit reversed, saying that market rate contracts could be revised by FERC if the unfiled contract rates were unreasonable because markets were dysfunctional when the contracts were formed. Before FERC decided the issue on remand, the sellers - Morgan Stanley Capital Group and others - sought and obtained Supreme Court review of the legal standard used by the Ninth Circuit. At oral argument on February 19, 2008, members of the Court expressed deep skepticism, if not hostility, toward that rationale. The decision still requires FERC to review the rates, but under a different legal standard.

In its amicus brief, PULP urged the Court not to adopt the narrow standard of contract review contained in the "Mobile-Sierra doctrine" pointing out that in the Mobile and Sierra cases the sellers had filed their contracts publicly in advance, providing market transparency intended by Congress and an opportunity for intervention by interested parties and FERC before they took effect. It was only after compliance with the filing requirement that the contracts were given deference. Previously, there was no special standard of review if contracts were unfiled, and they could be revised even after they had been performed, if they had not been filed. See U.S. Supreme Court to Decide Electricity Market Rate Refund Case, and PULP Files Supreme Court Amicus Brief in Electricity Market Rate Case.

The Supreme Court, however, skirted the rate filing issue in this case, which had not been pressed by the buyers, and erected a new presumption that could make it more difficult to revise a contract rate on the ground that it is not just and reasonable. Now, FERC "must presume that the rate set out in a freely negotiated contract meets the "just and reasonable" requirement imposed by law" and this "presumption may be overcome only if . . . the contract seriously harms the public interest." The Supreme Court sent the case back to FERC to reconsider reasonableness of the disputed contract rates under the new standard. Although it is not altogether clear because the Court steered away from filing issues, sellers with market rate permission from FERC probably will invoke the presumption of reasonableness whether or not their contracts are publicly filed under Section 205 of the Federal Power Act .

Even if it is rational to presume that parties to a wholesale electricity contract have negotiated prices that are reasonable for them in light of their interests, the prices may not be reasonable from the perspective of the consumers to whom the cost will be passed. This is because there is not always an identity of interest between the purchasing utilities and the consumers.

Retail utilities may have little or no incentive to challenge unreasonable or manipulated wholesale rates they pay for the energy they resell to their customers. The buyer in the Supreme Court case was a feisty small publicly owned municipal utility whose management ultimately was accountable to local voters. In contrast, we do not see the likes of Consolidated Edison fighting hard to correct abuses and reduce rates in the wholesale markets to benefit consumers, because they have been allowed by the New York PSC simply to pass through to customers the wholesale prices they pay with no consequence to the utility. See Con Edison Electricity Rates for Energy Spike 21% in June. Also, Con Edison, like many other utilities, has holding company affiliates that may benefit from high wholesale prices and weak standards of FERC rate review.

Ways to Rebut the Presumption: Rate Impact or Market Manipulation by the Seller
The Court stated that on remand FERC could look at whether the contracts, during their lifetime, increased rates to consumers only
If [consumers paid more under the long term contracts than they otherwise would have paid] and if that increase is so great that, even taking into account the desirability of fostering market-established long-term contracts, the rates impose an excessive burden on consumers or otherwise seriously harm the public interest, the rates must be disallowed.
The Court also indicated that
if it is clear that one party to a contract engaged in such extensive unlawful market manipulation as to alter the playing field for contract negotiations, the Commission should not presume that the contract is just and reasonable.
So, now it appears that a contract rate with a seller who has market rates will be deemed reasonable unless it creates an "excessive burden on consumers" or "serious harm" to the public interest, or if a seller's unlawful market manipulation was "extensive" enough to be successful and change the market. This raises many more questions for future litigation, for example:
  • What is an "excessive" burden on consumers?
  • Is the consumer burden "excessive" if it harms only the poor, but has little impact for comfortable judges and regulators who can absorb price increases due to unreasonable rates?
  • If contracts of sellers with "market-based rates" are unfiled and secret, as FERC allows, and if the terms, quantity and price are not known, how could the public know whether the contract will impose an "excessive burden" on consumers over time?
  • Is a little market manipulation by sellers to raise price O.K. so long as it is not "extensive"?
  • What if multiple market participants each manipulate a little in similar ways so that the combined effect of their contract rate demands is enough to raise prices?
  • How could anyone know when rates are manipulated if the contracts are secret and not publicly filed with FERC?
  • When does harm to the public interest reach a level to become "serious"?
In a footnote attempting to rebut the dissenting opinion of Justices Stevens and Souter who protested that the new standard could limit FERC's ability to fix unreasonable contract rates, the Court said
the circumstances identified in Sierra as implicating the public interest refer to something more than a small dent in the consumer's pocket, which is why our subsequent cases have described the standard as a high one.
Actually, the Sierra case involved an attempt of a utility to raise rates previously set in a filed contract, which the Court disallowed, thus protecting customers, saying that even if a particular contract was unprofitable, it could not be revised upward to relieve the utility of its bargain unless the public interest would be harmed:
In such circumstances the sole concern of the Commission would seem to be whether the rate is so low as to adversely affect the public interest - as where it might impair the financial ability of the public utility to continue its service, cast upon other consumers an excessive burden, or be unduly discriminatory.
Thus, Sierra actually stopped the utility and the Commission from making even a "small dent in the consumer's pocket." The Court's revisionist approach to what is reasonable under the Federal Power Act, and new dismissiveness of a "dent" in the consumer's pocket, seems at odds with the Court's previous concern for consumer interests in Texaco v. FPC
Even if the effect of increased . . . prices would make a small dent in the consumer's pocket, when compared with the rates charged by [others], the Act makes unlawful all rates which are not just and reasonable, and does not say a little unlawfulness is permitted. (emphasis added).
What will FERC Do on Remand?
It is doubtful that FERC will interpret the decision and its rubbery standards for review of contract rates in favor of consumers. The agency currently is populated by zealous marketizers, uninterested in probing market flaws or fixing unreasonable rates, who urge consumers to respond in the marketplace to unreasonable rates by using less -- not an option for consumers on fixed incomes who are already minimizing their usage.

As the dissent points out, the new presumption may limit FERC's powers in the future. If FERC were reconstituted in the next administration, with Commissioners less influenced by Enronian ideology and possessing a genuine desire to effectuate the Federal Power Act's primary goal of protecting consumers, they may not be able to revise unreasonable contracts.

Myths Perpetuated
The "Drought"
The Supreme Court perpetuated a myth propounded by Enron and other market defenders as an explanation for the unreasonable market rates that spawned the case. Denying or minimizing the role of manipulation, sellers had claimed the California spot market prices were high because supply was short due to low hydropower resources, which in turn were due to drought. FERC includes the drought excuse as part of a list of causes other than manipulation, which it lists as the last of several causes, ranked lower than the weather. Witnesses for sellers accused of manipulation who testified at FERC joined in an amicus brief pushing the drought theory as an explanation for the high prices.

In its decision, the Supreme Court quoted the FERC litany of causes for the extraordinary prices that put market manipulation at the end of it.
In the summer of 2000, the price of electricity in the CalPX's spot market jumped dramatically—more than fifteen fold. See ibid. The increase was the result of a combination of natural, economic, and regulatory factors: "flawed market rules; inadequate addition of generating facilities in the preceding years; a drop in available hydropower due to drought conditions; a rupture of a major pipeline supplying natural gas into California; strong growth in the economy and in electricity demand; unusually high temperatures; an increase in unplanned outages of extremely old generating facilities; and market manipulation." Californians for Renewable Energy, Inc. v. Sellers of Energy and Ancillary Servs., 119 FERC ¶61,058, pp. 61,243, 61,246 (2007).
The fact is that there was no drought, hydro power was ample, and demand was actually lower at the times of the blackouts and price spikes. The wild market price excursions only ended when it briefly appeared there would be meaningful congressional oversight and when FERC imposed a price cap.

There was no need to cite a FERC opinion from another case restating the FERC litany of excuses for unreasonable rates that minimized the role of manipulation. Sellers have settled claims of manipulation in California for billions.

FERC's Watchful Eye
The Court showed poor scholarship when it repeated a blatant factual error describing how FERC substitutes its market power assessment for the utility's statutory duty to publicly file rates in advance, eliminating any opportunity for FERC to review rates for reasonableness before they take effect. The linchpin of FERC's argument for letting utilities charge what they want is the notion that a market where individual sellers are believed to lack market power will yield a just and reasonable rate (which the Court sarcastically described as somewhat "metaphysical").

There is now a pro forma FERC requirement for sellers seeking market rate permission to file an affidavit claiming they lack the power - individually - to drive prices up. Citing a mistaken Ninth Circuit opinion California ex rel. Lockyer v. FERC, 383 F. 3d 1006, 1013 (CA9 2004), the Supreme Court said that a seller with market rates "must also demonstrate every four months that it still lacks or has adequately mitigated market power."

In fact, under the actual FERC orders and rules, sellers are required to file an updated market power analysis every three years. FERC relaxed that general requirement for power generators and sellers, eliminating the triennial review completely for many, and easing rules for scrutiny of sales between utility affiliates when one of them has retail customers, in Market-Based Rates For Wholesale Sales Of Electric Energy, Capacity And Ancillary Services By Public Utilities, Order No. 697, 72 Fed. Reg. 39904 (2007), of which the Court was surely aware, because it cited Order 697 for other propositions in its decision.

The Supreme Court's reliance on a secondary source -- the description of a four-month market power review contained in the Lockyer case -- and failure to notice FERC's actual orders and rules, was a mistake no new associate in a decent law firm would make.

As a result, the Court repeated a confusion between the meaning of triennial and triannual that could have cost a prospective law student the points needed to gain admittance to a decent law school.

Worse, due to this obvious mistake, the Court perpetuated the myth that FERC is alert to market power issues.

Nothing could be farther from the truth. The FERC market power tests are easily passed. FERC has found it unduly burdensome to investigate whether its markets are gamed. FERC's revocations of market rate permission have been rare, mainly coming after public scandal and bankruptcy of the sellers, such as Enron and Ameranth, when no meaningful refund relief is available to consumers.

The glaring error thus may perpetuate a mistaken notion -- which placates those who would conflate competitive rates with reasonable rates -- that FERC is actually looking out for market abuse, protecting consumers, requiring refund of overcharges, and ensuring reasonable rates, when assuredly it is not.

Thursday, June 19, 2008

Consumer Groups Ask PSC for More Input on Verizon Cable Franchise for New York City

Consumer groups have asked the New York Public Service Commission to issue a notice inviting public comment before acting on a request of Verizon to approve a recently filed cable franchise agreement with New York City. According to Reuters U.K., "Verizon Communications Inc. said on Wednesday it expects the New York Public Service Commission to approve its FiOS video service next month." See Verizon Expects NY Green Light for FiOS Next Month.

In a letter to the PSC Chairman, the consumer groups point to insufficient notice given by New York City for comment and the public hearing on its agreement with Verizon for the proposed franchise, and to importance of franchise conditions for consumers in the coming years. The letter states:
The Verizon-New York City agreement is a first-of-its-kind agreement that will shape the cable marketplace in New York City for many years to come, and is likely to influence future cable franchise agreements in municipalities throughout the state. The magnitude of this agreement, stretching far beyond the reaches of New York City’s five boroughs, demands full public consideration and review at the state level.
During the requested public comment period before the PSC, it would be the intention of the undersigned organizations to offer substantive suggestions regarding Public, Education and Government channels, as well as a range of important consumer protection issues.
The letter also seeks the opportunity for comment on a May 22, 2008 protective order issued by the PSC Chairman restricting public access to portions of Verizon's application. The consumer groups include Common Cause NY, Consumers Union, New York Public Interest Research Group, and People's Production House.

Wednesday, June 18, 2008

NYISO Governance

NYISO: Not Your Ordinary "Nonprofit"
Today's Daily News points out that the head of the Port Authority of New York and New Jersey, who is paid over $286,000 per year for that post, is also a paid member of the Board of Directors of the New York Independent System Operator (NYISO). According to the article, NYISO directors receive compensation in the neighborhood of $100,000 per year for perhaps 12 hours of work per week. See Port Authority Boss Also Earns 100G as Part of Nonprofit's Board.

A 2006 article noted directors were paid as much as $130,000 while declaring they worked for only 12 hours a month, according to the group's tax returns.

The issue of NYISO governance deserves further scrutiny. It is not just a "nonprofit" organization as suggested by the headline.

The NYISO is also a utility, an electric company authorized by the New York Public Service Commission (PSC). It spends about $150 million a year, collected through electric rates. Although structured as a nonprofit organization, it performs no charitable deeds, but its actions do affect the public interest. See
The NYISO took over the grid management function of the New York Power Pool in November 1999, and, to implement the PSC's "vision" of a deregulated power generation sector, now operates day-ahead and "real time" spot markets where energy is bought and sold at market based rates allowed by the Federal Energy Regulatory Commission (FERC). Since the demise of Enron in 2001, no state has followed New York's example.

Under lax FERC regulation, rates set in NYISO markets are essentially deregulated, subject to high upper limits on rates that serve to stem only the most gross attempts at overcharges. New York utilities that sold their power plants now must buy back power in the wholesale markets at prices affected by what sellers can obtain in the NYISO markets. The NYISO markets also encourage "virtual" trading of electricity by traders who neither make nor use the electricity they buy and sell in billions of dollars of virtually unregulated transactions each year.

The NYISO Board and Committee Structure
The NYISO is governed by a Board of Directors, which selects its own replacements when directors leave the board. According to the NYISO bylaws
The ISO Board shall be self-perpetuating. Vacancies on the ISO Board shall be filled by the Directors then in office and new Directors shall be required to meet the same basic qualifications as the nine (9) initial Directors. The ISO Board shall always be comprised of at least three (3) Directors with prior relevant experience in the electric industry. The Management Committee shall assist the ISO Board in the filling of ISO Board vacancies. The Management Committee shall conduct a search for new Directors and provide the ISO Board with a list of at least three (3) qualified candidates for each vacancy. The ISO Board may seek candidates from other sources, including an executive search firm. The ISO Board shall provide the Management Committee with an opportunity to review the qualifications of candidates not forwarded to the ISO Board by the Management Committee and to comment on their qualifications prior to the selection of a new Director.
Most of the current directors are market rate devotees, former executives or consultants with utility and finance backgrounds.

The NYISO has a complex stakeholder committee structure consisting of a "Management Committee", a "Business Issues Committee", and an "Operating Committee." Based on the votes of committee members, the committees recommend policies for consideration by the board, but the Board is not bound by committee recommendations.

Voting Power in NYISO Committees: A Tilt Toward Sellers?
The NYISO "stakeholder" committee voting structure weights the NYISO "stakeholder" sectors as follows:
Generation Owners 21.5%
Other Suppliers 21.5
Transmission Owners 20.0
End Use Consumers
Large Consumers Subsector 9.0
Large Cons. Gov. Agency Subsector 2.0
Small Consumers Subsector 4.5
Gov. State-wide Cons. Advocate Subsector 2.7
Gov. Sm. Cons. & Retail Aggr. Subsector 1.8
Public Power
State Power Authorities Subsector 8.0
Munis & Co-ops Subsector 7.0
Environmental Subsector 2.0
Thus, the NYISO committee voting structure is heavily weighted so as to favor sellers and "other suppliers" (including energy traders), and to limit consideration of interests of ordinary consumers. A 58% majority is needed to take action in a committee, making it possible for sellers - who control 43% of the voting weight - to block action.

The "Transmission Owners" are the retail distribution utilities. They can pass through any wholesale charges under PSC and FERC rules and cannot be relied upon to protect consumer interests. Also, they may have energy trading affiliates who benefit from rules that favor sellers.

The 4.5% voting power of the small end use customer category in the NYISO committee structure is further diluted by the definition of "small" customer. NYISO defines a small customer as one who uses up to 499 Megawatts per year, thus including very significant businesses and large institutions.

How "Small" is the "Small" Customer Role?
The roster of NYISO committee members indicates that the following entities comprise the "small end use customer" sector:
American Sugar Refining, Inc
Association for Energy Affordability, Inc
Beth Israel Health Care System
Fordham University
Memorial Sloan Kettering Cancer Center
Mount Sinai Medical Center
New York Presbyterian Hospital
New York University
As can be seen, the "small" customer sector vote of 4.5% is actually dominated by rather large business and institutional customers.

In sum, despite a claim that "we never forget who our ultimate customers are — the family, the business, the soldier, and the farmer," made in the 2007 NYISO Annual Report, in reality the utility industry, energy traders, and large customer "stakeholders" far outweigh any credible voice of ordinary consumers in determining policy at the NYISO.

The California ISO
In contrast to the New York ISO, which was formed voluntarily by the former Power Pool members to conform with the "vision" of the Public Service Commission, the California Legislature created its state ISO as a public benefit corporation. In reaction to blackouts and electricity market manipulation, the California Legislature attempted to make its ISO more accountable to the public interest by requiring the CAISO Board of Governors to be appointed directly by the Governor.

FERC issued a Governance Order disapproving the Governor's selection of CAISO board members, and ordered CAISO essentially to reinstate a stakeholder process to select new "independent" Board members. FERC wanted a Board Selection Committee, composed of CAISO stakeholders, to select new Board members from a slate of candidates compiled by a private executive search firm, analogous to the stakeholder process used by the NYISO to select its Board replacements.

The Court of Appeals rebuked FERC in a scathing opinion, vacating and remanding the FERC Governance Order, finding that FERC had no authority under the Federal Power Act to require CAISO to replace its Board with a new board whose members are chosen through procedures dictated by FERC.

Subsequently, in compliance with the court decision, FERC issued a new order approving the selection process for the CAISO Board of Governors.

Under the approved process, the CAISO retains a search firm to find at least four qualified candidates for each open position. The search is for candidates who have"(1) electric industry expertise; (2) market expertise;(3) general corporate, legal, and/or financial expertise; and (4) public interest expertise. In addition, candidates must have a reputation for excellence in their areas of expertise." Further, candidates selected by the search firm cannot be employed by, cannot consult for, or hold any direct or indirect financial interest in any person or entity engaged in the generation, transmission, marketing, trading, or distribution of electricity within the United States. Rejecting a request to ease the nationwide conflict of interest standard, FERC stated
In Order No. 888, the Commission stated that “[a]n ISO and its employees should have no financial interest in the economic performance of any power market participant.” Consistent with Order No. 888, we believe that a potential Board member should be independent of any market participant that has economic or commercial interests that could be significantly affected by CAISO’s actions.
The candidates are reviewed by a CAISO nominating committee comprised of its "stakeholder" groups, and then CAISO sends the candidate list, along with the rankings, to the Governor for consideration as possible Board members.

However, in accordance with state law, the Governor can ignore the CAISO slate of candidates and appoint a Board member of his or her own choosing. CAISO board members are confirmed by the California state senate, and cannot be removed by the Governor, though they can be removed by a 2/3 vote of the Board members, with approval of a state energy oversight authority.

Time for a Change?
The NYISO structure privatizes and make less transparent much of the policy affecting electricity prices paid by New York State consumers, previously set by the state PSC or the FERC, and has marginalized the force of the consumer/voter. It is in this context that one must view FERC's recent decisions refusing to examine strategic bidding and withholding of power in RTO/ISO markets, and its suggestion that consumers should raise concerns in the stakeholder processes at the RTO/ISOs. See No Evil: FERC Refuses to Examine Gaming of RTO/ISO Electricity Spot Markets.

When the next grid or market debacle occurs at the NYISO, it may be time for the New York Legislature to review whether the PSC has been exercising adequate oversight to ensure that it is functioning in the public interest, that it files new rules to reform its markets, and to consider making the institution and its Board of Directors more directly accountable to the people of New York State and the public interest.

Tuesday, June 17, 2008

Con Edison Electricity Rates for Energy Spike 21% in June

FERC and the New York PSC recently issued reports that NYISO wholesale prices for electricity will be much higher this summer. See NY City Wholesale Electricity Prices May Rise 89% Due to Market Design and Higher Natural Gas Prices.

Despite this large runup in wholesale energy costs, Con Edison indicated, however, that this summer its residential customers may see increases of "only" 13%. See Say Watt? Con Ed Bills May Soar a Re'volt'ing 30%, and Summer Juice Bill to Give Jolt.

Rising prices have already outstripped Con Edison's earlier price projections for June 2008. Con Edison had filed rates effective May 1 2008 for its Market Supply Charge (MSC) and Market Adjustment Clause (MAC), forecasting energy charges (as distinguished from "delivery" charges and various surcharges) for each of the next three months, through July 2008. See Con Edison Statement of Market Supply Charge and Monthly Adjustment Clause. This filing projected that June energy rates (the sum of the MSC and MAC) for residential customers would be 14.826 cents/kwh.

When Con Edison filed its monthly rate changes on June 11, 2008, the MSC and MAC were higher than previously filed. Energy rates for residential Con Edison electric customers spiked 21% above the previously filed rates for energy. When total rates are considered, the increase in the amount projected on May 1 for June is in the neighborhood of 13%. See Con Edison Summary of Adjustments - MSC and MAC. The rates for energy now actually being charged in June are 17.9397 cents/kwh.

For a customer using 500 kwh, the difference between what Con Edison projected for June and what is actually being charged is about $15.

The May1 Con Edison rate filing indicated that projected July 2008 rates will be more than two cents/kwh higher than the projected June rates. With June energy rates actually 3 cents higher than Con Edison's projection, and already about 13% higher than May, what will happen in July?

The Public Service Commission allows Con Edison and Orange & Rockland to change their rates every month. See PULP's web page on the Con Edison MSC and MAC adjustments. The monthly fluctuations make it difficult for customers to predict their bills, and to compare Con Edison rates with those of other providers, such as ESCOs or landlords who the PSC has allowed to sell electricity if they charge no more than Con Edison's rates.

NY Assembly Bill Would Use Windfall Recapture Tax on Oil Companies to Supplement HEAP and Weatherization Programs

On June 13, 2008 the New York Assembly introduced a bill, A11590, to impose a windfall recapture tax on oil companies, the proceeds of which would generate up to $550 million to supplement the Home Energy Assistance Program (HEAP) and up to $550 million to create a new state Energy Reinvestment Account, proceeds of which would be used to improve energy efficiency in the state.

The recapture tax is premised on a finding that "capping the motor fuel sales tax has failed to provide the people of the state the savings that should have materialized due to unnecessary price inflation." Oil companies would be prohibited from passing through the windfall recapture taxes to consumers.

The first $550 million generated by the windfall recapture tax would be used to supplement HEAP, half to increase benefits in the existing program, and half to create a new eligibility tier for households with incomes slightly above the current HEAP program guidelines.

After supplementing the HEAP program, up to $550 million would be appropriated by the legislature from the new Energy Reinvestment Fund to augment home weatherization and other energy efficiency programs.

The Assembly bill addresses the reality that rising costs of gasoline, heating oil, natural gas, and electricity are placing heavy energy burdens on low and moderate income New York households. See Wages of 30% of New Yorkers Do Not Cover Minimum Needs. Those burdens may increase further by next winter. See Home Heating Oil Prices Remain High and High Natural Gas Prices Signal Trouble Next Winter for Low Income Customers. It also addresses the need for a major initiative to increase the energy efficiency of New York's housing stock with cost effective investment in energy efficiency measures, and stands in contrast to the lack of action at the federal level to address home energy affordability and efficiency. See Bush Proposes LIHEAP Cuts in 2009 Budget, and Bush Proposes Elimination of Low Income Home Weatherization Program.

The Assembly announced in a June 17 press release and at a press conference that the bill is part of a larger package of energy bills the Assembly expects to act upon soon.

The Assembly Speaker indicated that the Assembly initiatives could be enacted in a subsequent special session if they are not enacted now, as the regular session of the Legislature nears an end. The state Senate previously announced a proposal to provide energy tax credits to homeowners; the Governor has not addressed the issue of rising home energy costs and energy burdens.

Monday, June 16, 2008

HEAP Can Now Help Fund Air Conditioners

Governor Paterson and OTDA have announced that $2.4 million of federal Home Energy Assistance Program (“HEAP”) funds have been made available for the purchase and installation of energy efficient air conditioners to eligible individuals during the summer of 2008. About $1.2 million has been set aside for New York City and an identical amount for the rest of the state.

To be eligible for the program, a household must meet existing HEAP income guidelines and have at least one member that suffers from an acute medical condition that is exacerbated by extreme heat. Written documentation from a physician indicating the need for the air conditioner is required and must be dated within the previous six months.

Local social services districts are targeting outreach to medically needy households that would receive the greatest benefit from cooling services. New York City agencies are working collaboratively to target outreach to the neediest households.

New York City residents are directed to bring their inquiries to the New York City 311 helpline. Outside New York City, inquiries should be directed to the list of local weatherization subgrantees.
Lou Manuta

FCC Expands Broadband Data Collection but Sidesteps Affordability Concerns

Accurate measurement of broadband deployment is needed to ascertain the degree to which the congressional goal of access to advanced telecommunications services at affordable rates is being met. On June 12, 2008, the Federal Communications Commission issued an Order which, it hopes, will increase the “precision and quality” of the broadband subscribership data it collects. Broadband service providers have been submitting data to the FCC every six months for years, but the lack of detail -- such as basing availability on ZIP Codes, considering all speeds at 200 kbps and above as “broadband,” and not gathering price information -- has rendered the resulting reports a poor measure of broadband access, affordability, and quality.

Specifically, the June 12th Order will make the following changes in broadband reporting:
  • Expand the number of broadband reporting speed tiers to capture more precise information about upload and download broadband speeds
  • Require broadband providers to report numbers of broadband subscribers by census tract, broken down by speed tier and technology type
  • Improve the accuracy of information the Commission gathers about mobile wireless broadband deployment

The Order seeks further comment on broadband service pricing and availability.

In a separate report released the same day, the FCC somehow claims that broadband services are “currently being deployed to all Americans in a reasonable and timely fashion.” See FCC Claims "Reasonable and Timely" Broadband Deployment.

Separate statements released with the Order by two of the Commissioners eloquently touch on two areas where the lack of adequate data reporting has the longest-lasting effect -- value or affordability of broadband and the need to distinguish between residential and business customers. Commissioner Michael J. Copps wrote:

It has therefore been with great disappointment that I have watched the FCC fail year after year to get serious about gathering high-quality U.S. broadband data. I’m sure my colleagues think I’m a broken record because I bring up this issue so often. But the truth remains that, time and time again, we have failed to heed the call of scholars, industry, consumers, and the Government Accounting Office to improve our data-gathering. It was starting to look like the FCC wanted to be part of the problem rather than part of the solution. This point has not been lost on Congress, which has moved forward recently on a bi-partisan basis with legislation to require the FCC and other branches of government to do what we should have been doing all along. I will spare you all my full broadband data stump speech today, except to say that it is truly shocking that we still rely on an absurdly dated definition of broadband speed and a 5-digit ZIP code methodology that didn’t pass the red face test even when we introduced it many years ago.

* * *

Despite the many strides that today’s Order makes and my approval of many of these initiatives, in two parts I must limit myself to concurrence. First, I believe it is a mistake to defer action on gathering price information to a further notice of proposed rulemaking. Price is essential to understanding the value proposition that is available to American consumers -- our continued unwillingness to gather this critical information reduces the value of our broadband data reports. Value -- the price per bit -- after all, is broadband’s killer application, and if we don’t understand what kind of value broadband is bringing into people’s homes and offices, we can’t really understand where we are and what remains to be done. Second, I think it is a mistake not to require carriers to distinguish between business and residential broadband connections. The fact that many businesses in the Washington D.C. area subscribe to very expensive high-speed connections in the 100 megabit, 1 gigabit or faster range should not be conflated with the often far slower connections available to residential consumers.

Similarly, Commissioner Jonathan S. Adelstein added:

I am disappointed that we fail to take affirmative steps to improve our understanding of broadband affordability. To maintain our productivity edge, we must give our citizens communications tools that are equal or greater than those available to our global competitors. Particularly given the growing evidence that citizens of other countries are getting a much greater broadband value, in terms of price per megabit, it is regrettable that the Commission misses an opportunity to collect useful information about the actual prices available to American consumers. In addition, particularly as availability increases, affordability is likely to be an increasingly important factor influencing broadband adoption. I hope that the Commission can take up these issues, relegated to a Further Notice in this item, in the near future.

While the long-overdue data collection improvements will reap benefits in the long term with regard to understanding where broadband is truly available (and where a contemplated federal broadband universal service fund would be targeted), until the question of affordability by residential customers is addressed and analyzed, the United States will remain mired in the middle of the pack among industrialized nations for broadband deployment. Keep in mind that President Bush predicted in March 2004 that universal broadband deployment would be achieved by 2007. In March 2008, when announcing small State Broadband Council grants for “universal broadband,” New York Governor Paterson stated that “too many communities in New York State still lack sufficient broadband access.” The New York State Council for Universal Broadband is charged with developing strategies to ensure every New Yorker has access to affordable, high-speed Internet service.

Lou Manuta

FCC Claims "Reasonable and Timely" Broadband Deployment

On June 12, 2008, the Federal Communications Commission issued its Fifth Report examining the availability of advanced telecommunications capability to all Americans, as required by §706 of the Telecommunications Act. The Report, as did the Fourth Report in 2004, finds that “advanced telecommunications capability is being deployed to all Americans in a reasonable and timely fashion.”

According to the Fifth Report, the number of high-speed lines in the U.S. has increased from 27.7 million in December 2003 to 100.9 million in June 2007. With regard to residential subscribers, the Commission’s data indicate that the number of high-speed lines increased from 26 million in December 2003 to 65.9 million as of June 2007. The Commission uses the term “high-speed” to describe services with over 200 kbps capability in at least one direction, a speed that is slow in comparison to current broadband technologies. For a discussion of the definition of “broadband” access and the FCC’s methodologies for collecting broadband data, see FCC Expands Broadband Data Collection but Sidesteps Affordability Concerns.

While at first glance these numbers appear to moving in the right direction, the U.S. deployment rate among residential customers, the end user cost, and the “dollar per mbps” value all lag other countries. In his separate dissenting statement to the Report, Commissioner Michael J. Copps had the following insights:

The fact is that your country and mine has never had any cognizable national broadband strategy to get the job done. So while broadband deployment is better than when I came to the FCC -- I would surely hope so! -- and the Commission may separately issue a report today showing improvements in broadband deployment, we’ve been working with one hand tied behind our backs, inhibited by the Commission’s dependence on antiquated methodologies and less than rigorous analysis. I’m happy we’re starting to change our benchmarks, but, my goodness, how late it is!

Just consider the fact that our international competitors deploy 25, 50 and 100 mbps broadband speeds at fractions of what it costs here in the United States. If consumers in Los Angeles or Washington pay $40 per month for a 6 mbps connection while those in London or Tokyo pay multiples less for 50 or 100 mbps, just think of the costs and competition burdens this puts on American consumers and businesses.

Surely broadband has created many good new jobs in the United States. But, you know -- and I haven’t seen any statistics on this -- it wouldn’t surprise me that our lack of a real broadband strategy has helped out-source tens of thousands of jobs, probably more, rather than keeping them right here at home. Again, I don’t know that this is true, but the fact that we can even raise such a question ought to scare us all.

Commissioner Jonathan S. Adelstein added in his separate statement:

Yes, more people have adopted broadband in recent years. But they have adopted broadband faster in other countries with which we compete. Just because a car speeds up doesn’t mean it wins the race, especially if other cars speed up faster. This report fails to admit that while we have improved, other countries have improved at a faster rate, so we are actually falling behind.

* * * *

The report unconvincingly attempts to dismiss the international broadband penetration rankings. The fact is the U.S. has dropped year-after-year. This downward trend and the lack of broadband value illustrate the sobering point that when it comes to giving our citizens affordable access to state-of the-art communications, the U.S. has fallen behind its global competitors. We do not wrestle with the question of broadband value, or price per megabit, for which our citizens pay far more than those in many other countries. According to the ITU, the digital opportunity afforded to U.S. citizens is not even near the top, it is 21st in the world. Recent OECD data show the U.S. ranked 11th in the world in price per megabit. Other reports show U.S. consumers pay nearly twice as much as Japanese customers for connections that are twenty times as slow. This is more than a public relations problem, it’s a major productivity problem.

As a result, it is more than just a little bit disingenuous to claim that “advanced telecommunications capability is being deployed to all Americans in a reasonable and timely fashion.” Where is the national broadband strategy?

Lou Manuta

Friday, June 13, 2008

Wages of 30% of New Yorkers Do Not Cover Minimum Needs

A recent report of the Fiscal Policy Institute prepared for Gov. David Paterson's "Economic Security Cabinet," which is looking at the plight of low-income families, shows that wages of 30% of New Yorkers in working families do not cover basic household needs.

Those basic needs, of course, include essential home energy and utility services - typically electricity, telecommunications, and natural gas or other heating fuels. These costs are imposing heavy burdens on low income households.

Since the recent closure of the Home Energy Assistance Program (HEAP) in May, PULP is hearing of more instances of utility customers who simply cannot make ends meet, who are facing termination of utility service due to large overdue bills. Utility low income rates and other programs, and state financial assistance programs, provide substantial assistance, but are flawed and need to be strengthened, particularly in light of rising prices. See High Natural Gas Prices Signal Trouble Next Winter for Low Income Customers.

Fortunately, the Governor's "Economic Security Cabinet" includes the Chairman of the Public Service Commission. See Governor Includes Public Service Commission in Economic Security Cabinet. The PSC needs to step up to the plate to help stem the growing affordability gap for low income utility consumers. There is much the PSC could do:
1. Improve utility low income rates of electricity and natural gas, with larger rate reductions and broader participation. See Utility Rate-Making to Meet the Needs of Low and Fixed Income New Yorkers

2. Rejuvenate New York's telephone Lifeline program which has lost more than 400,000 participants in recent years, who no longer receive rate reductions worth about $12 per month. See Assembly Passes Bill to Expand Low-Income Telephone Lifeline Assistance.

3. Expand and improve low income energy efficiency programs. See PULP Urges NYSERDA to Use RGGI Auction Revenue to Support Low Income Energy Efficiency Programs.

4. Vigorously enforce the Home Energy Fair Practices Act to advance the state policy of continuous service without unreasonable qualification.

5. Establish incentives for utilities to reduce service interruption as a collection tactic

For further information about town hall meetings of the Economic Security Cabinet and its other activities, see the New York State Economic Security Forum.

Campaign for Fair Electric Rates Urges Reform of Wholesale Electricity Markets

The Campaign for Fair Electric Rates is a new coalition effort focused on educating the public regarding the failure of the wholesale electricity markets operated by regional transmission organizations (RTOs) and independent system operators (ISOs) to adequately protect consumers. FERC has authorized organized cartel-type spot markets in an effort to simulate a competitive market environment for the sale of wholesale electricity.

Electricity rates in the states like New York, which allowed utilities to sell their power plants so that their rates are no longer under state regulation, have experienced higher prices, as can be seen by this comparison from Power in the Public Interest (Click on graph to enlarge):

In New York, most electric power must now be bought by retail utilities in wholesale markets, where FERC, the federal regulator, relies on markets and market rates to set prices.

The difference between electricity prices in RTO states and others that did not deregulate is increasing, according to McCullough Research, which has examined the contention that the higher prices are due to fuel costs. See Why Are Electricity Prices in RTOs Increasingly Expensive?

Friday, June 06, 2008

White Plains Landlord Submetering Electricity Without PSC Approval

Riverstone Residential Group, by its own account “the nation's largest independently owned real estate management firm,” is charging tenants for natural gas service based on the total amount of gas consumed at the building and the square footage of the tenants' apartments, together with a monthly administrative charge. PULP is representing a White Plains, NY tenant who claims this is in violation of N.Y. Pub. Serv. Law §§ 66 (14) and 65 (6). See Landlords Charging Tenants for Utility Service? The tenant's petition to the PSC is pending.

In the course of PULP’s investigation of the landlord’s resale to tenants of natural gas it was discovered that the landlord has also been submetering electricity to its 311 apartments without Public Service Commission approval. PSC regulations and utility tariffs prohibit submetering of electricity unless a specific order of the PSC has authorized it.

On April 11, 2008, Riverstone Residential filed a petition with the PSC, belatedly seeking approval to continue submetering, conceding that it never received approval to submeter electricity at One City Place. In the petition, Riverstone characterized its reselling of electricity without PSC permission for the past 3 ½ years as an "administrative oversight."PULP assisted the tenant to intervene in the proceeding and to file comments with the PSC on Riverstone Residential’s petition.

The comments note that Riverstone’s failure to obtain submetering approval may have placed Con Edison in the position of violating Commission regulations and its own tariff, which prohibit the utility from supplying electricity for submetering purposes without Commission approval, and exposes both Con Edison and Riverstone Residential to fines under PSL § 25(2).

The tenant-intervenor asked the Commission to follow its February 22, 2008 precedent in Petition of Solow Management Corp, where the Commission approved an “after-the-fact” submetering application only upon the condition that the submeterer refund to its tenants all of the money it had charged them for submetered electricity during the period when it did not have Commission approval to submeter.

National Grid Misses Point with its Low Income Program

National Grid recently proposed modifications to its low income “AffordAbility Program,” which provides assistance to certain residential consumers with arrears owed to the company. PULP reviewed the proposals, along with the Department of Public Service Staff and the NYS Consumer Protection Board, and filed Comments with the Commission on June 2nd expressing our concerns with National Grid’s band-aid approach to helping low income consumers.

The AffordAbility Program
Under the current iteration of the AffordAbility Program, a low income customer with arrears and otherwise subject to termination of service is placed on an initial 12 month payment agreement. Under the terms of the agreement, the customer is responsible to pay a percentage of their total average monthly bill (95 percent for electric-only customers and 92.5 percent electric and gas customers). The remaining incremental bill amounts are deferred -- and added -- to the customer’s total arrears.

Customers completing 12 monthly payments and who receive a federal Home Energy Assistance Program (“HEAP”) grant, which is applied to their National Grid arrears, receive forgiveness of 50 percent of their total arrears, up to $250.

The company also refers all participating customers to NYSERDA’s Empower NY Program for energy saving education tips and energy efficient light bulbs. NYSERDA then works with the customer on weatherization and possible appliance replacement. A second reduction is applied to a customer’s monthly bills for weatherization services and the amount of that reduction is deferred and added to the customer’s total arrears. The Weatherization Deferral is intended to “frontload” the expected energy savings associated with the efficiency services provided by NYSERDA.

National Grid’s Proposals
The Program, which serves about 3,780 customers annually, has about a 50 percent default rate. As a result, National Grid decided it is time to revisit the program design. Generally, the proposed changes would convert the Program’s current annual arrears forgiveness credit to a monthly credit, eliminate the Weatherization Deferral to participants’ arrears balances, and limit participation in the Program to 24 months.

These changes will improve the Program and will provide additional benefits to the company’s low income customers who participate in it. For example, under the proposals, customers would receive $20 in arrears forgiveness for every month they participate in the Program (as opposed to the $250 benefit currently awarded only to participants who are able to make every monthly payment over a 12 month time period). Considering the current high default rate, PULP believes the changes, which would provide benefits contemporaneously with the monthly bills, might encourage or assist some participants to remain with the Program.

PULP’s Concerns with the AffordAbility Program
That said, PULP remains concerned that the Program offers little in the way of real bill reduction and, in order to participate, customers must agree to provide the full amount of every HEAP dollar they receive to National Grid during their time in the Program and for these payments to be used exclusively to pay down arrears.

The intent of the HEAP program is primarily to assist qualifying energy users in meeting current household energy needs, not to retire a portion of arrears that may have accrued from past years. The express purpose of the federal Low Income Home Energy Assistance Act is to assist eligible low income households “primarily in meeting their immediate home energy needs.”

Using HEAP payments for the current heating season is also contemplated in the Vendor Agreements reached between the utilities (including National Grid) and the New York State Office of Temporary and Disability Assistance, which specifically state “HEAP benefits will be credited to the customer’s current account.” PULP urged the Commission to examine more closely the appropriateness of having HEAP payments applied in this manner.

PULP also noted that the price of natural gas is rising and energy burdens for low income National Grid gas customers may increase substantially in the next heating season. See High Natural Gas Prices Signal Trouble Next Winter for Low Income Customers. The design, scope, and scale of the AffordAbility Program and its benefits simply are not adequate to address current energy burdens of National Grid's low-income customers, much less increased burdens.

In future rate proceedings, such as National Grid’s recent request to boost its natural gas delivery rates by 33 percent, National Grid’s low income programs will need to be revised to address more fully the growing energy burdens of its low income customers, to make service affordable, and to avoid additional hardship. The AffordAbility Program, even with the modifications proposed by National Grid, does not even begin to address the larger picture.
Lou Manuta

Thursday, June 05, 2008

Wholesale Electricity Capacity Market Results Attacked by PA, MD, DE and NJ Utility Commissions and Utility Consumer Advocates

Eschewing the traditional filed rate regulation system set up in 1935 by the Federal Power Act, FERC has allowed wholesale sellers of electricity to charge "market-based rates" for energy, capacity, and ancillary services. These rates are set privately either by unfiled contracts or in FERC-approved private markets run by RTO and ISO utilities such as the New York Independent System Operator. The NYISO since November 1999 has run day-ahead and "real time" spot markets for energy, in addition to taking over coordination of physical dispatch and operation of the bulk power grid from the New York Power Pool, and runs capacity markets too.

This experiment was begun when deregulation was the rage in the late 1990's. Electricity "restructuring" was adopted by fifteen states, including New York, and the District of Columbia. A major piece of the model was for the traditional utilities to sell their power plants, which were under state regulation, to new owners who would compete in a wholesale market, under FERC regulation, and for the traditional utilities to form holding companies patterned after Enron, with less regulated ventures such as retail ESCOs, wholesale trading companies, merchant power ventures in other jurisdictions, and telecom companies. Since the demise of Enron in 2001, no state has followed this path, and some, like Virginia and New Mexico, turned back to full state regulation rather than rely on the essentially deregulated federal wholesale markets.

The RTO and ISO Capacity Markets
States and utilities gave up their traditional planning processes, and went for a market substitute -- capacity markets -- the idea of which is to signal the market value of new power plants (or demand side substitutes), by requiring utilities that directly serve customers to pay existing owners of generating plants an amount they demand in an auction for basically just being there, in addition to the price of energy and ancillary services that they received in the spot markets.

Existing owners of low cost generation already reap very large rewards because the cartel-like RTO and ISO markets pay all sellers the same amount, which is the market clearing price, without regard to the cost of producing the energy. On top of that, they receive the capacity payments from load-serving entities that are required to buy capacity in NYISO auctions to meet their expected needs. The notion was that if supply is short and capacity prices go up, someone will decide, based on the price signal of how good it is to be in the power generation business, to meet the need with a new solution, e.g., a new power plant.

NYISO Capacity Markets: Billions Paid, Little Built
The track record of the NYISO capacity markets is that they have added significantly to the cost of electricity without achieving much in the way of meeting future needs. See Cornell Professor Gives Low Marks to NYISO Electricity Markets. According to Professor Timothy Mount,
the [NYISO] LICAP market has been an expensive and an ineffective way to maintain generation adequacy. In 2005 and 2006, customers paid over $1 billion/year in the LICAP market in NYC and merchant investors were still reluctant to commit to specific in-service dates for new generating units that have already received licenses for construction. This amount of money is enough to finance over 12,000 MW of new peaking capacity at a capital cost of $80/kW/Year (from Table A1 in the Appendix), and this amount of additional capacity would more than double the installed generating capacity in NYC. At this point, it is likely that New York City or state agencies will need to be more proactive before it is too late and reliability is sacrificed
A 2007 New York City Bar Committee Report on Electricity Regulation in New York acknowledges the failure of the NYISO capacity markets to induce adequate supplies of power at a time when new power plants are generally considered to be necessary for reliability and reasonable prices, particularly in downstate areas:
the only truly merchant plant built in New York City since 1999 has been KeySpan-Ravenswood’s 250 megawatt (“MW”) project. Orion Power also invested approximately $25 million in restarting a retired unit at the Astoria Generating Station. Otherwise, all major new plants have been either built by the New York Power Authority (“NYPA”) or under long-term contract to the Consolidated Edison Company of New York, Inc. (“Con Edison”) or the Long Island Power Authority. Outside New York City, however, plants have been constructed on a merchant basis.
See City Bar Committee Issues Report on Electricity Regulation in New York. To that, one might add, the owner of the largest merchant power plant constructed outside of New York City went bankrupt, and other merchant power plants have been shut down by owners who deny having any obligation to serve. Over the past decade, the Power Authority of the State of New York became the de facto builder or financier of last resort due to the failed reliance on NYISO capacity markets and the private merchant power sector.

Pennsylvania, New Jersey, Delaware and Maryland Commissions: Fed Up and Can't Take it any More
Fed up with the results of the PJM capacity markets in their area, and impending new capacity payments, state utility regulatory commissions of Pennsylvania, New Jersey, Delaware and Maryland filed a complaint against PJM last week with FERC seeking to prevent huge future capacity payments totalling $12 Billion under market rules previously approved by FERC. See
Electricity Said to Be Too Costly; Consumer Advocates Say Plant Expansion Hasn't Happened.

Joining in the complaint were the Division of Rate Counsel in the New Jersey Office of the Public Advocate, as well as state utility consumer advocates from Maryland, the District of Columbia, Ohio, and Pennsylvania; the Public Power Association of New Jersey; the PJM Industrial Customer Coalition; the Southern Maryland Electric Cooperative Inc, (SMECO); Blue Ridge Power Agency; Allegheny Electric Cooperative; American Forest and Paper Association; Portland Cement Association; Duquesne Light Company; and the United Stated Department of Defense and other affected Executive Agencies.
The 211 page compaint alleges that implementation of flawed auction results is leading to unjust and unreasonable rates in violation of Federal Power Act requirements "because it has produced excessive capacity prices, has failed to prevent suppliers from exercising market power, and has not produced benefits commensurate with its costs," and asks FERC to reset the prices.

FERC has generally refused, short of court order, to review and reset unreasonable rates privately set by sellers to whom it has granted the "privilege" of charging "market-based rates," even when those rates have been affected by price manipulation. See Consumer Groups File Supreme Court Amicus Briefs in Electricity Market Rate Case.