Friday, September 26, 2008

Where's the 911 Service? Wireless Phone Bill Surcharges Diverted to Other Purposes

Take a look at your most recent cell phone bill. There should be a line item which reads something like “911 Service Fee,” and while the actual fee varies by county, you’re paying at least $1.20 every month for each cell phone you have. Some counties have been authorized to tack on another 30 cents, bringing the total to $1.50.

That’s a lot of money, especially considering there are over 16 million cellular subscribers in New York, but if it provides location information to an emergency dispatcher -- as E-911 works from your home phone -- then it sounds like money well spent. Now, what if I tell you that the network to make wireless E-911 work in New York is not completely operable even though the surcharge has been collected for over 15 years and the vast majority of the money raised through the surcharge is diverted for other, completely unrelated projects.

Let’s just hope you don’t need to reach the 911 operator from your cell phone any time soon.

The topic of the monthly 911 surcharge on cell phone bills was brought to life again as a result of an article in the September 21st Syracuse Post-Standard.

According to research conducted by the paper, only six cents of the $1.20 or $1.50 monthly fee ends up at the 911 call center. The rest of the money has been diverted for a variety of purposes, including sun block for state park workers, dry cleaning at the Department of Corrections, and new boots for the State Police. Keep in mind that the purpose of the fee is to upgrade wireless 911 technology so dispatchers can find you when you dial 911. While pinpointing your location may be important when calling 911 from home in situations where you are unable to speak, identifying the caller’s location in a wireless situation is especially critical because often times the caller may not know exactly where he or she is.

Sometimes the fund diversion is even more pronounced, such as when Governor Paterson opted to take $40 million out of the fund on August 20th to help balance the overall state budget. This money was already earmarked from the wireless 911 fund for a statewide wireless network, a $2 billion system intended to connect state police with all emergency officials. After several years, the statewide wireless network remains unbuilt due to problems with the prime contractor, M/A-COM, Inc. The state agency overseeing that project, the Office for Technology, announced on August 29th that it had issued a letter of default to M/A-COM, Inc. for failure to perform. Under the contract awarded to the company to construct the network, M/A-COM has 45 days to remediate remaining problems with the system and recertify the system as ready for use.

Wireless E-911 is a vital service which is in place in several states. A significant amount of money is raised every month for building the network, but not only is it not complete, money is being siphoned off for unrelated purposes and to fix the state budget. What will it take to end this fiasco and provide emergency location access for all wireless New Yorkers?

Lou Manuta

Governor Paterson Vetoes LIPA Rate Regulation Bill

Grasping a fresh pen full of ink, Governor Paterson vetoed 49 separate bills on September 5th. While some of these bills may have had questionable merit in these difficult economic times (such as the creation of an “I Love NY Baseball” program and the appointment of a dog control officer in Salamanca), one veto victim was unnecessarily sacrificed. Among the legislation that won passage overwhelmingly in both houses of the New York State Legislature and made it to the Governor’s desk was a law to require Public Service Commission approval of major Long Island Power Authority (“LIPA”) electric rate increases.

Assemblyman Robert Sweeney (D-Lindenhurst) and Senator Kenneth LaValle (R-Port Jefferson) teamed up as sponsors to have A.6164/S.3410 approved in each house. Simply put, the bill required any attempt by LIPA to increase customer rates by more than two and a half percent in any 12 month period to be approved by the PSC prior to implementation. This is the same standard that has applied to investor owned and other municipal utilities for decades if not a century. PULP couldn’t have agreed more with the need for this legislation.

Governor Paterson’s Veto Message on September 9th stated several reasons for the veto.

Impairment of Bonds?
First, the Veto Statement stated that PSC approval requirements could “unconstitutionally impair and diminish the value of financial covenants and other commitments that LIPA made to bondholders in resolutions under which LIPA’s bonds have been issued. . . .” The Veto Message, however, gives no citation to any actual language in a LIPA bond covenant that would be violated by the new law. Even if a bond did have such language, LIPA had no power to promise its bondholders that the Legislature would not act in the future to provide for a review of its retail rates.

Fixing utility rates at a level sufficient to provide coverage of bond payments and to maintain efficient access to capital markets is standard regulatory practice. Yet the Governor argued that the bill is “ambiguous,” adding “[c]onsequently, enactment of this bill could cause uncertainty about LIPA's ability to timely and effectively recover costs and comply with its bond covenants, diminish LIPA's ability to market new debt, and cause the ratings assigned to LIPA's bonds to be lowered, thereby increasing LIPA's borrowing costs. This, in turn, could make larger rate increases for LIPA customers more likely than might otherwise be the case.”

Retail rates and contracts of many municipal utilities are already subject to PSC review, and the New York State Power Authority is subject to FERC jurisdiction over reasonableness of its rates. There is no evidence that regulatory scrutiny to protect consumers has impaired their credit ratings or bond payments.

The notion that the PSC would set rates so low that LIPA would be at risk of defaulting on bond payments, or impair its credit ratings, is a major stretch. It is unclear to PULP how this parade of horrors, premised on an implicit assumption of irresponsible PSC action to lower bond ratings or risk default, could be a showstopper.

Cost of Regulation?
The Governor’s veto message indicates that he was concerned that the “laudable” aspects of the bill could actually raise costs for LIPA’s customers. It is true that the cost of PSC regulation is added to customer bills. That cost, however, is capped by Section 18-a of the Public Service Law at one third of one percent of utility revenue. Applied to a customer’s bill of one hundred dollars, the maximum cost of PSC regulation would be one third of one cent on that bill. Thus, even if the PSC scrutiny of a proposed rate increase led to no reduction of the rates adopted, the added cost of the state agency regulation would be minimal.

Power to Modify Rates?
The Veto Message went on to state that the bill did not include the ability to “modify, condition, monitor or enforce an increase.” The greater power to approve or deny a rate increase implicitly carries with it the power to approve or deny it in part or otherwise to modify it. If there were any serious doubt, the commission and the courts could resolve the issue in a declaratory ruling, and the legislature could pass a corrective amendment. Instead, the entire benefit of the law was scuttled.

Burden on Customers of Other Utilities?
The PSC apparently advised the Governor that the cost to provide “effective regulatory oversight over LIPA” would exceed $5 million a year. The Veto Message claims that the PSC does not have the authority to assess LIPA now and so any costs incurred to oversee it would need to be recovered from assessments of other utilities and ultimately their customers.

There was no reason to address the LIPA regulatory assessment in the bill, however, because Public Service Law Section 18-a, on the books for decades, clearly states that any corporation or person subject to the Commission’s regulation can be assessed by the PSC. The new law would now make LIPA “subject to the Commission’s regulation” with respect to major rate increases, and so LIPA could be assessed. Thus there is no lack of power to fairly assess LIPA the cost of the new PSC oversight.

Why was the Bill to Protect LIPA Customers Vetoed?
So, why was this bill vetoed? Was it because it would provide the protection of independent PSC review of major rate increases, putting LIPA’s customers on the same plane as other utility customers in the state? Was the PSC opposed? Was there a disinformation campaign that caused this important bill to fail?

Hopefully it can be re-introduced in the next session so that Long Island utility customers can finally enjoy the same rights and protections as the rest of New Yorkers already do.

Lou Manuta.

State Utility Assistance is Not a "One-Shot Deal"

State Emergency Utility Assistance for Customers Who Cannot Pay Utility Bills.
Last week, PULP received a call from a Con Edison customer living in the Bronx. Her electric service had been terminated the week before for nonpayment of spiking electricity bills. The customer, a multiply disabled recipient of SSI assistance, had no defense to the termination of service, and simply lacked funds to pay the charges.

The food in her refrigerator had spoiled, she was unable to cook, and she was using candles to light her apartment

She applied for emergency utility assistance from New York City Human Resources Administration (HRA) for a grant to restore her utility service. Under Section 131-s of the New York Social Services Law, local social services districts are required to make a payment to a utility when necessary to preserve or restore utility service to a recipient of public assistance. She filled out an application, but was denied.

The So-Called "One-Shot" Deal
The HRA worker told the customer she was ineligible because she had received a grant eight months previously and utility assistance could not be provided more than once a year -- it was a “one-shot deal.”

The SSI recipient was not given a written denial notice stating the factual or legal basis for the denial and was not advised of her right to appeal to the state OTDA through its “Fair Hearing” process.

In fact, there is no “one-shot deal” in the Section 131-s utility assistance program.

The SSI recipient was clearly eligible for a grant from HRA under Social Services Law Section 131-s. We surmise that the HRA worker may have been confused about programs in which federal reimbursement had been limited to one emergency per year. The availability of federal or state reimbursement, however, has no bearing at all on the statutory duty placed on local officials by Section 131-s to resolve a utility shutoff emergency with a payment to the utility of an amount equal to the most recent four months bills.

Waiting for HEAP is Dangerous
It seems that every year, at this time of year, we hear of cases where desperate utility customers are denied emergency benefits to maintain or restore service without adequate notice for bogus and palpably wrong reasons. Are local welfare departments trying to defer assistance to resolve energy emergencies until after November 3, when the HEAP program -- which has full federal reimbursement -- begins? If so, they are
  • disregarding statutory duties adopted in 1981 to coordinate the state utility assistance program with the Home Energy Fair Practices Act
  • frustrating the state’s policy that residential utility service should be provided continuously to promote the public health and welfare, and
  • playing with fire.
See Candle Fires: A Symptom of "Rolling Blackouts" Affecting Low-Income Households.

The "Fair Hearing" Remedy
Normally, if adequate denial notices are provided, applicants denied utility assistance can access the state OTDA informal “Fair Hearing” process and obtain a review of the assistance denial, without a lawyer. Even though it may take time to get a hearing and decision afterwards, simply requesting a state hearing can trigger a supervisory review at the local welfare office, and this can result in correction of a mistake even before the hearing is scheduled, when the agency cannot defend its action or inaction.

In this case, where the state hearing process had been circumvented by the failure to provide adequate and timely notice of the assistance denial, PULP notified an official of the state OTDA who intervened swiftly to ask HRA to review the situation. HRA reversed the denial of assistance, notified Con Edison that a grant would be provided, and Con Edison promptly restored service, as it is required to do under Public Service Law 65-b. HRA also provided a restaurant allowance to the customer to defray the added costs due to the loss of electric service and food spoilage.

Systemic Problems
Beyond the mistaken denial of aid that was corrected on an individual basis, this case illustrates problems that need to be addressed by the PSC and OTDA:
  • The New York PSC has established electric rates that simply are not affordable to many SSI recipient customers. Con Edison's PSC-approved rates allow only a meager $5.92 per month discount to low income customers, in contrast to the 20% reduction in rates that California has for its low income utility customers. See A Well Kept Secret: Con Edison's Low Income Rate.
  • The PSC encouraged Con Edison to introduce volatile electricity prices that create hardship for the poor. Customers living on tight budgets need to be able to predict their expenses. The lack savings to absorb price shocks and their incomes do not fluctuate with the NYISO spot market prices, which Con Edison pays for too large a portion of its energy supply. See Excelsior! Excelsior! Con Edison Rates Peak Again: Bills Up 30% Since May.
  • The PSC should revise utility incentives that favor disconnection of service as a bill collection tactic. Con Edison's disconnection and reconnection of the SSI recipient in this case, who was entitled to utility assistance to prevent a termination, imposed many costs that could have been avoided with a wiser and safer approach. Just as the PSC sets targets and imposes sanctions when there are too many outages due to equipment failures, etc., the PSC should set targets for Con Edison and other utilities to reduce the number of deliberate service terminations. This can be achieved through more enlightened customer service and customer education, and would further the policy of safe, continuous service. See The Gas Company as Social Worker; Brooklyn Utility Tries Softer Approach to Pursue Unpaid Bills.
  • Local social services offices need more OTDA oversight. Mistakes of the sort illustrated by this case are far too frequent. Simply correcting individual errors when brought to light is not a substitute for stronger supervision and administration of the state's utility assistance programs.
With even greater energy burdens anticipated in the coming winter, it is time for the PSC and OTDA to take action to protect New York's vulnerable low-income utility and energy consumers.

Thursday, September 25, 2008

Winter Heating Assistance Available for Households Using Oil and Other Non-Utility Heating Fuels

Households heating with oil are facing huge increases in their bills this year due to high prices. On November 3 the HEAP program will open to new applicants, and benefits will be available for eligible households. HEAP financial eligibility guidelines are online at the OTDA website.

It is likely that there will be many households that will face energy emergencies whose incomes are slightly above the HEAP guidelines, which are set at 60% of the state's median income.

The local departments of social service administer New York's Temporary Assistance (TA) program. Applicants for TA can receive a grant to resolve a non-utility home heating emergency during the winter months, even if their incomes are above the standard of need and payment for recurring monthly TA assistance grants. According to an OTDA directive to local social services districts:
For applicants facing non-utility heating emergencies (oil, kerosene, wood, propane) who have no alternative means of meeting their energy emergency, including HEAP, or when alternative housing is not available, the energy emergency must be met by a TA payment to secure a fuel delivery. (emphasis added).
Similar grants are available to utility customers who apply for aid but are over the income guidelines for HEAP and for monthly public assistance grants, although they are required to sign a repayment agreement as a condition of assistance, and are subject to a harsh administrative disqualification if they have not repaid prior assistance. See OTDA Must Relax Its Administrative Restriction on Utility Assistance Loans for Persons with Incomes Above the Public Assistance Level.

In recent years, many households with incomes above the federal limits for HEAP may have scraped by to pay the cost of heating with non-utility fuels. This year, with far higher costs of heating oil, these households simply may not make it without energy assistance through state and local .

Some counties may be reluctant to provide energy assistance, which, unlike HEAP, is not reimbursed fully by the federal government. Persons who apply to a local department of social services for assistance to meet a heating emergency are entitled to prompt action on their requests, written notice stating the factual and legal basis for any denial of aid, and notice of their right to a "fair hearing" review of a local agency denial by the State OTDA, which can be expedited in emergency circumstances.

House Bill Would Increase LIHEAP Funds: Will New York Use them to Reform its HEAP Program?

The federal LIHEAP program funnels federal aid to New York's Home Energy Assistance Program (HEAP). For years LIHEAP appropriations have been in the neighborhood of half the authorized level of $5.1 Billion. At that level the program would provide inflation-adjusted benefits roughly equivalent to the program's 1981 level. This year, with incomes stagnating and home energy prices skyrocketing, President Bush proposed a lower level of funding for LIHEAP. See President Bush Proposes LIHEAP Funding Cut in 2009 Budget.

Congress now appears ready to fund the program at the $5.1 billion level. See House Votes to Nearly Double Federal Home Heating Assistance for this Winter. It is not yet clear how much more would be received by New York State, due to the intricacies of LIHEAP funding formulas. Sen. Schumer, who championed higher appropriations in the Senate, has estimated that New York will receive $476 million. See Schumer: NY Likely to Get Nearly $500m in Heat Aid.

This year's state plan for HEAP was written by OTDA with a substantially lower level of anticipated funding. It remains to be seen how New York will use the additional funds this winter to address the home energy needs of low income households. PULP, in its comments on the HEAP plan, stressed the need for more public input on how to use increased funding.

Even with an infusion of additional federal funds for HEAP, there will be major problems ahead. Benefits have been reaching only about one-third of the households eligible for HEAP, the benefit levels have been low, and the program design needs improvement.

In particular, the duties of utilities when they receive a HEAP payment need to be shored up, to assure that "regular" HEAP benefits are applied primarily to reduce this winter's bills (and not old bills), and to assure that "emergency" HEAP benefits actually resolve emergencies, rather than merely postpone them thirty days. Policies of OTDA and the PSC have been allowing utilities to use "regular" HEAP payments for old bills from prior years that are in abeyance, rather than applying them to charges for the immediate winter season, and to repeatedly shut off customers who receive "emergency" HEAP, for the same arrears. "Regular" HEAP is intended to address immediate home energy needs, and "emergency" HEAP must be designed to "resolve" emergencies.

In addition, there is a significant segment of the population with incomes slightly above the HEAP income eligibility level (which is 60% of the state's median income), that will experience great hardship this winter due to the much higher energy bills. The state Assembly has proposed measures to protect such households.

Thursday, September 18, 2008

Rockefeller Institute Reports First Drop in Welfare Spending in 25 Years

In a Report released on September 15th, the Rockefeller Institute of Government found that for the first time since 1983, state and local governments are spending less on welfare, after adjusting for inflation and need. The Report, entitled “The New Retrenchment: Social Welfare Spending, 1977 - 2006,” stated that the drop in spending in 2006 follows several years of slow growth in welfare expenditures and suggests that the spending may have entered a period of “new retrenchment” after 2002.

Based on 2006 data -- the most recent year for which U.S. Census Bureau figures are available -- and adjusted for inflation and the number of persons living in poverty, the report showed a 3.1 percent reduction in state and local governments’ spending on welfare between 2005 and 2006 on a nationwide basis. This drop in spending followed four years of slowing growth in welfare spending, which includes direct cash assistance, medical assistance, and non-health social services such as subsidies for childcare and energy bills. In New York, for example, the amount of dollars spent on each poor person dropped from 2005 to 2006 by $285 for medical assistance, $83 for cash assistance, and $59 for non-health social services (including home heating), while welfare spending from federal transfers was reduced by $591.

Between 2002 and 2006, nationally spending grew only about one percent a year. In New York, spending dropped from over $2,800 a year from 1996 - 2002 per poor person to about $1,100 from 2002 - 2006. The 2006 reduction was largely due to a drop in medical assistance spending in the wake of the Medicare program taking over Medicaid prescription payments for those patients enrolled in both Medicare and Medicaid. Other types of welfare spending have been falling for years. Cash assistance spending fell in 2006, the 11th year of consecutive annual declines. Social service spending changed little in 2006, following declines in 2003, 2004, and 2005.

According to the Report, a large part of the decline in welfare spending was due to reductions in federal grants to the states. Those reductions led to growing differences in states’ spending on welfare, as wealthy states -- those with high per capita incomes -- compensated for the federal cuts by using their own taxes to fund such programs, while low income states did not. New York is considered to be a wealthy state.

Meanwhile, incomes of low income households have not kept up with rising costs. See Wages of 30% of New Yorkers Do Not Cover Minimum Needs. 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, Home Heating Oil Prices Remain High, and Trouble Ahead: Outlook for Home Heating Costs Worsens.

Lou Manuta

PSC Rejects PULP’s Recommendations to Improve Niagara Mohawk Gas Interim Energy Efficiency Proposals

At its September 17th Meeting, the PSC approved a Joint Proposal crafted in Niagara Mohawk’s gas case regarding the continuation of energy efficiency programs for the next eight months, pending the outcome of the company’s pending rate case. The $4.89 million initiative was approved in the Commission's Order despite the concerns raised by PULP's comments that it was not sufficient and should be expanded to $8 million. See PULP Opposes Niagara Mohawk's Interim Gas Efficiency Program.

The amount included in the Joint Proposal is equivalent to what had been in place last year, including the amount designated for low income customers, despite a steady increase in home heating costs during 2008. PULP contended that the static funding level -- $3.33 million -- allocated for residential low income programs did not match up with the assertions made by PSC Chairman Garry Brown in announcing the decision. Brown stated: “It is critically important to provide customers with cost-effective, energy conservation measures in advance of this winter when the cost of natural gas is expected to be high.” At the meeting announcing the decision, it was admitted that only about 800 households would benefit from the low income energy efficiency program and many of these may not see any benefits until towards the end of the interim period in May 2009, well past the upcoming heating season.

On top of this, it was estimated that the typical residential heating customer will pay about $6.85 more per year for these incentives, in addition to the anticipated increase in the cost of the natural gas itself. PULP had requested that low income customers who receive HEAP or public assistance be excluded from paying the additional fees, as this would greatly decrease any benefit even the lucky few who are able to participate in the program would receive. This proposal was rejected, based on claims that it would be too difficult to ascertain who would not pay the fees. Identifying which customers have received HEAP payment in the past year, has never been an issue with Niagara Mohawk before, and the company itself is proposing a meager $5 per month rate reduction for HEAP customers in the same case. The Commission did decide to include the low income customer exemption requested by PULP as a topic of discussion in its on-going marathon "Energy Efficiency Portfolio Standard" proceeding (Case 07-M-0548).

Now the primary portion of the Niagara Mohawk gas rate case can move forward, which includes the proposed $5 a month rate reduction for low income customers. While PULP supports this aspect of Niagara Mohawk’s proposal, we can not see how giving low income customers a $5 monthly credit helps in light of the existing and added energy burdens they face and when all low income customers are forced to pay more than $6 for a program which only 800 of them will receive any benefit. Much more needs to be done in order to provide real energy affordability for low income families this coming winter. The Commission should know that what they did on a warm September day may make for a nice press release headline, but will actually help slide low income customers even closer to the edge when the weather chills.

Lou Manuta

Thursday, September 11, 2008

Where Are the PSC’s ESCO Marketing Rules?

Back in January, the PSC began to consider ESCO marketing abuses which were brought to its attention by the state Consumer Protection Board (“CPB”) and the New York City Department of Consumer Affairs (“DCA”). See ESCO Marketing Practices Subject of New PSC Proceeding, While the PSC Deliberates, Consumers Continue to be Hurt by ESCOs. At that time, the Commission was looking for input on an array of issues raised by CPB and DCA, such as early termination fees, the PSC complaint process, statements by ESCO representatives that the ESCO is affiliated with the utility, and misinformation about rates. Additional comments were sought in March and again in May.

It is now September and no action has been taken, but the problems have not gone away. In a recent mailing addressed to National Grid natural gas customers, IGS Energy urges people to switch from the utility to IGS and lock into its “reduced rates.” The company brags that either of its two options will save a typical National Grid gas customer on its utility bills. Option One is a one-year plan that locks in the fixed rate of $1.389 per therm through September 2009 while Option Two is a two year plan that slightly reduces the rate to $1.379 per therm for October 2009 through September 2010. By choosing Option Two, for example, IGS claims that the customer will “avoid steep increases” and “guarantee a lower price.” In National Grid’s September 2008 Monthly Cost of Gas Forecast (which covers the time period October 2008 through September 2009), the company predicts that its rates for SC1 residential customers will fluctuate between $1.017 in October 2008 and $1.17039 in February 2009. Even at its highest, National Grid forecasts rates at least 20 cents less per therm that the best rate “guaranteed” by IGS. Granted, National Grid’s SC1 rate was $1.53034 per therm in July 2008, but that was the only month in 2008 where its rates would exceed the incredible bargain being offered by IGS (in fact, for four months in 2008, the National Grid rate never exceeded a dollar per therm). IGS does admit in its letter that the July 2008 rate was up 75 percent from the beginning of the year, but it failed to inform the recipients of its mailing that the July rate had dropped to $1.11995 per therm in August and $0.95723 per therm in September (not to mention the $1.017 forecast for October, $1.08907 in November, and $1.15018 in December).

On top of this, because of the “unique program” offered by IGS, they need to charge a $150 early termination fee to those who cancel before the end of their contract period. Customers can cancel without penalty within three days of signing the contract, but won’t receive their first bill (and corresponding burst blood vessel in the temples upon reading the bill) for at least 30 days. Should someone still be willing to cancel their contract, IGS informs them that they won’t be sent back to the utility for “up to ten (10) weeks” and that the customer remains liable to IGS in the meantime. On the other hand, the boilerplate language in the contract gives IGS an easy "out" to avoid their commitment in circumstances beyond its control.

The IGS contract is just one more example why it is incumbent upon the PSC to protect consumers against deceptive practices and to issue an order in its ESCO Marketing Proceeding. For more information, see PULP's web pages on ESCO Issues and ESCO Contracts.

PULP Attorney Named to North American National Telephone Numbering Council

PULP Senior Attorney Lou Manuta was recently appointed to the North American Numbering Council (“NANC”) as one of its two consumer advocate representatives. NANC is a 25 member Federal Advisory Committee that advises the Federal Communications Commission on telephone numbering issues and makes recommendations that foster efficient and impartial number administration. To date, the NANC has provided recommendations to the Commission on a myriad of issues, including wireline/wireless integration for local number portability, abbreviated dialing arrangements, the neutrality of toll-free database administration, and the feasibility of local number portability for 500/900 numbers. The NANC is currently working on issues such as monitoring wireless and intermodal LNP implementation and the impact of VoIP and Electronic Numbering on the North American Numbering Plan.

Wednesday, September 10, 2008

PULP Update on Public Assistance for Energy and Utility Costs

PULP has issued a revised chapter of its Law Manual for New York utility consumer advocates on Public Assistance for Energy and Utility Costs. The new chapter summarizes the Home Energy and Supplemental Home Energy Allowances (HEA and SHEA) and the Fuel for Heating Program for public assistance recipients. It also covers benefits under the federally funded Home Energy Assistance Program (HEAP), including Regular and Emergency HEAP benefits, and emergency repair/replacement of heating equipment.

Forthcoming chapters will provide more in-depth coverage of the state Emergency Utility Assistance program Weatherization Assistance Program. PULP’s Law Manual chapter on HEAP will be updated soon, when the State Plan for 2008 – 09 is finalized.

Friday, September 05, 2008

While the PSC Deliberates, Consumers Continue to be Hurt by ESCOs

Many ESCOs drum up unsuspecting customers for their utility service through mass mailings, high pressure telemarketing, door-to-door salespeople, and web sites. Now, the hard sell has been pushed up a notch.

An article in Monday’s New York Times (September 1st) regarding multi-level marketing practices engaged in by ESCOs reads like a wake-up call for the NYS Public Service Commission to take action. An Alternative to Con Ed Revs Up Its Sales Force. Ken Belson’s story described a recent meeting at a hotel in Yonkers where a “get-rich-quick” marketing scheme was discussed in great detail. But, instead of the object of the scheme being some tangible widget being sold to unwitting friends, family, and neighbors, this time the “product” is home energy. That’s right, buying and selling electricity and natural gas to power and heat your home has become the latest Ponzi scam to hit New Yorkers.

In recent years, the PSC has been bombarded with complaints against ESCOs, with customers questioning inflated potential savings and contracts terms (especially early termination fees), as well as aggressive marketing tactics towards vulnerable populations, including the elderly and non-English speakers. According to the Times article, "[s]ince January 2007, the state's Public Service Commission has received nearly 3,000 complaints" regarding ESCOs.

When the PSC first initiated its ESCO regime more than a decade ago, it refused to consider complaints against ESCOs, in an effort to deregulate them completely. See Retail Choice: A Race to the Bottom. The legislature rebuked that effort when it enacted the Energy Consumer Protection Act of 2002, which clarified that ESCOs are utilities subject to the Home Energy Fair Practices Act and its administrative complaint adjudication procedures. Despite the high rate of customer complaints against ESCOs, the PSC to our knowledge, in more than a decade, has never issued a formal consumer complaint determination in any case involving a consumer complaint against an ESCO.

In response to an urgent petition seeking PSC action to address ESCO marketing abuses filed in December 2007 filed by the state Consumer Protection Board (CPB) and the New York City Department of Consumer Affairs (DCA) , the Commission issued a SAPA notice in January. Interested parties responded in February, including PULP, whose comments supported the petition and urged additional measures. PULP urged timely approval of the CPB/DCA request, and pointed out that the ESCOs should be contributing to the running of the Commission (as every other utility does), especially considering the high level of ESCO complaints that are brought by consumers to the agency for adjudication.

On March 19th the PSC solicited additional public input on several issues, including assessment of ESCOs for regulatory costs. See ESCO Marketing Practices Subject of New PSC Proceeding. Additional rounds of initial and reply comments were completed in May. See PULP Files Reply Comments on the PSC's Proposed ESCO Marketing Standards.

Today, more than three months later, no action has been taken by the PSC on the CPB/DCA petition or on any of the other issues in the case.

As a result, ESCOs were able to continue questionable customer recruitment practices promising largely illusory savings during the summer New York City price spikes, see Excelsior! Excelsior! Con Edison Rates Peak Again: Bills Up 30% Since May, there are no rules or orders regarding their marketing practices, and ESCOs continue to be excused from paying any PSC regulatory assessments.

In the absence of timely and effective PSC action, some ESCO complaints have gone to the state Attorney General’s Office. One such complaint involved US Energy Savings, which sold 4 and 5 year “Natural Gas Price Protection Program Agreements” to Western New York and New York City residents door-to-door through independent contractors. According the the Attorney General's press release, while customers were promised immediate savings on utility bills, the price of natural gas actually turned out to be more than the price charged by the local utility. Also, US Energy Savings allowed consumers to cancel service within three business days, but that period expired long before consumers received their first bill, usually between 30 and 60 days. Often times, the early termination fee totaled at least $600.

The Attorney General’s investigation also uncovered multiple untrue claims made by US Energy’s independent contractor sales personnel, including that the company was affiliated with the local utility. Under a settlement agreement reached with the Attorney General’s Office, the ESCO agreed to waive early termination fees for over 300 consumers and allowed them to cancel their agreements. In addition to forgiving these fees and paying $100,000 in costs and $100,000 in penalties, US Energy Savings agreed to:
  • Provide every new customer a letter that clearly states the cancellation period and early termination fee and invites consumers to contact the company with concerns about sales practices;
  • Verify all details and qualifiers of its agreements with consumers either by recorded call or in writing;
  • Obtain background and/or reference checks for all potential sales contractors;
  • Review all consumer complaints and provide a response within 30 days of receipt;
  • Terminate any independent contractor who misleads consumers; and
  • Waive early termination fees for any consumer who cancels an agreement within 60 days of the settlement agreement.
The public cannot wait for the Attorney General to step in one case and one company at a time to correct wrongs such as those perpetrated by US Energy sales agents. It is incumbent upon the Public Service Commission, which has jurisdiction over all retail sales of natural gas and electricity, to issue enforceable rules and orders that prohibit the unreasonable marketing practices of these energy providers, instead of condoning them through a toothless set of unofficial PSC-endorsed "uniform business practices," and should make it possible for consumers, who the PSC exhorts to shop, to measure whether ESCO service is actually worth the trouble of being served by two utilities. See PSC Makes ESCO Service Comparisons Difficult: How Can Customers Compare ESCO Prices?

The PSC took an important first step by finally launching a proceeding to investigate unreasonable ESCO practices in response to the December 2007 CPB/DCA petition. Unless the Commission acts -- and soon -- to protect consumers, it will appear that the Commission is simply continuing to tolerate unjust and unreasonable ESCO sales tactics, leaving many New Yorkers who hoped to reduce their energy costs at the mercy of ESCOs who actually charge them more than the traditional utilities.

Lou Manuta

PULP Manual Update: Rights of Residential Utility Customers Under the Home Energy Fair Practices Act (HEFPA)

PULP has updated the chapter of its Law Manual for New York utility consumer advocates on the Rights of Residential Customers under the Home Energy Fair Practices Act (HEFPA). The update includes revisions dealing with Energy Services Companies (ESCOs) and the Energy Consumer Protection Act of 2002.

HEFPA is a bulwark of protection against arbitrary and unreasonable utility practices. It declares the New York State policy of continuous residential utility service, and implements that policy with many measures designed to foster prompt provision of service to applicants without unreasonable conditions, and continued service to customers. Enacted in 1981 at the urging of PULP and community groups, HEFPA has saved many lives and prevented serious hardships to consumers.

As we move into a particularly costly winter season for utility customers, better awareness of HEFPA protections, assertion of customer rights, compliance by utilities, and vigilant enforcement by the Public Service Commission will all be needed. See Trouble Ahead, Outlook for Home Heating Costs Worsens.

Thursday, September 04, 2008

Pound Foolish: Governor's PSC Cut Helps Utilities, Not State Budget

In reaction to lower New York state revenue forecasts due to the Wall Street debacle, the Legislature was reconvened for a special session called by the Governor to reduce current year appropriations for a broad range of functions (including small grants for PULP). See State Cuts Grants for PULP.

Governor Paterson also set expenditure reduction targets for state agencies to reduce their 2008 - 2009 spending. See Governor Paterson Issues Agency Savings Targets to Achieve $630 Million in Spending Reductions and Prevent Current-year Shortfall. The Governor included the Public Service Commission (PSC) in its list of agencies he asked to cut their budgets, and set an expenditure reduction target of $2.6 million for the PSC to achieve for the fiscal year ending March 31, 2009.

Cutting the PSC budget did not save a nickel of general state tax revenue

The expenses of the PSC are not funded from the general state budget. Instead, funds for its operations come from utility assessments set by the PSC to cover the agency's budget. This cost of regulatory oversight is then recovered by the utilities from customers, through utility bills based on the regulated rates. Rates are set at a level designed to give the utilities a fair chance (but not a guarantee) to recover all of their reasonable costs -- including the PSC assessment -- and a reasonable return on their invested capital. Rates are set prospectively, and absent special provisions are not adjusted for variations between costs estimated when rates were set and actual results.

Section 18-a of the Public Service Law establishes a PSC assessment cap of 1/3 of one percent of utility revenues. Thus, the PSC assessment can be no more than one third of one cent on a customer's utility bill of a hundred dollars. The PSC assessments this year were set at or very close to the maximum allowed by Section 18-a.

By cutting its budget $2.6 million below the assessed amount, the PSC will simply give utilities refunds of unspent assessments. Utilities will not refund the amounts to consumers because the previously filed rates, based on the prior expectation of assessment costs, continue until changed, and changes are not made retroactively to true up variations between projected expenses and actual expenses.

In the 1980's and early 1990's, part of PULP's state funding which supported our participation on behalf of low income consumers in cases at the PSC was "deemed" by the legislature in the annual budgets to be an expense of the PSC, and so was appropriated from utility assessment special revenues. That halted in 1995 when then Governor Pataki eliminated all funding for PULP from his proposed budgets Since then, funding for PULP has been added by the Legislature each year.

When PULP sought to resume utility special revenue funding last year, the PSC indicated it was assessing utilities at the maximum level, intended to spend it all, and thus there was no "headroom" to resume this partial source of funding for PULP. Now, with the mid-year PSC budget cuts, there is some "headroom" within the existing statutory cap on assessments to provide additional support to PULP. PULP will again be seeking a special revenue appropriation in the 2009-10 state budget, and will ask the legislature, in deeming the appropriation to be expenses of the PSC for purposes of PSL 18-a, to also include language to the effect that it will be disregarded in calculating whether the PSC expense assessments are within the cap.

In reviewing the situation of the PSC budget being close to the statutory cap we noticed several situations that have had the effect of reducing the "base" of revenue that is subject to the assessment. It is time for the PSC and the legislature to reconsider policies that have allowed some utilities to avoid paying any assessment to cover real PSC regulatory expenses, and to rethink ill-considered policies that have deregulated or too lightly regulated some services to the detriment of consumers. These policies artificially reduce the revenue base that is subject to the assessments, causing the PSC to approach the statutory assessment limit at a time when it really does require more funding and resources to fulfill its mission of effective utility regulation. For example,
  • ESCOs selling electric and gas service are not being assessed even though they have a very high rate of complaints being handled by the PSC. See PULP's web page on ESCO issues. The PSC is considering assessment of ESCO revenues in a pending proceeding, where PULP first questioned the exemption of ESCOs from assessments.
  • Customers have migrated to utility services that the PSC has chosen not to regulate, such as terms and conditions of wireless service and telephone service from cable companies.
  • Even though LIPA is required to provide customer protections consistent with HEFPA, the PSC refuses to accept and decide LIPA customer complaints under HEFPA statutes establishing the Public Service Commission complaint adjudication procedures, and does not assess LIPA.