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.