Major Job Losses and Rise in Poverty Rate Forecast

The Center on Budget and Policy Priorities issued a report November 24 finding that the recession could push millions into deep poverty:

Because this recession is likely to be deep and the government safety net for very poor families who lack jobs has weakened significantly in recent years, increases in deep poverty in this recession are likely to be severe. * * * * Goldman Sachs projects that the unemployment rate will rise to 9 percent by the fourth quarter of 2009 (the firm has increased its forecast for the unemployment rate a couple of times in the last month). If this holds true and the increase in poverty relative to the increase in unemployment is within the range of the last three recessions, the number of poor Americans will rise by 7.5-10.3 million, the number of poor children will rise by 2.6-3.3 million, and the number of children in deep poverty will climb by 1.5-2.0 million.

Meanwhile, on the same day, New York State Controller Thomas DiNapoli issued a report on the impact of the current financial industry crisis on the state's economy. He stated that the financial crisis could cost New York State $6.5 billion in securities industry-related tax revenue over the next two years, and will have a major impact on private sector job losses:

The Office of the State Comptroller estimates that the financial services sector in New York State will lose 55,000 jobs during the two-year period beginning in October 2007 (when employment in the sector peaked), including 40,000 in the securities industry. Of these losses, New York City could lose 48,000 jobs in the financial services sector, including 38,000 in the securities industry. Total private sector job losses during this two-year period could reach 225,000 in New York State, including 175,000 in New York City. Job losses could be even greater if the downturn is longer and deeper than currently forecast.

The Securities Industry in New York City, p. 12. The Controller's report concerned the impact of the New York City financial industry cutbacks, and did not address broader recessionary impacts.

This underscores the need for the New York State Public Service Commission to focus more attention to affordability and continuity of service to low income customers when it sets utility rates. See PSC Expresses Concern for Utility Welfare; PSC Policies Foster Increase in Utility Service Terminations as a Collection Tactic; Candle Fires: A Symptom of "Rolling Blackouts" Affecting Low-Income Households.

PULP Challenges PSC’s ESCO Orders

On October 27th, the Commission released two Orders regarding competition in the electric and natural gas markets. The first Order added marketing standards to the PSC-promulgated Uniform Business Practices (“UBP”) for Energy Service Companies (ESCOs) to follow when soliciting new customers and the second Order Determining Future of Retail Access Programs addressed the broader retail access market and whether to continue utility ratepayer funded programs to promote ESCO competition. An active party in both proceedings, PULP has serious concerns with the resulting decisions. We filed motions for Reconsideration and Clarification today.

ESCO Marketing
PULP sought reconsideration of three major points in the UBP ESCO Order: enforcement, early termination fees, and customer complaint information.

First, we argued that the practice of placing the “rules” (the UBP) which govern ESCO activities in the tariffs of the distribution utilities must come to an end. Short of requiring ESCOs to file tariffs – as competitive telecom utilities in the state must do – PULP had argued that guidelines should be adopted which would be enforceable through a Commission order. This was accomplished twice on the telecom side, with Migration Guidelines and Mass Migration Guidelines crafted through industry collaboratives and approved by the Commission in separate Orders to which the Guidelines were attached. We questioned how the agency could enforce any provision in the UBP, much less the new marketing standards, if there are no provisions in the statute, rules, or a Commission order. While PULP raised this issue in its comments, it was not addressed by the Commission.

PULP also challenged the imposition of early termination fees (“ETF”) to ESCO customers who seek to end their contract early and switch back to the utility or to another ESCO. PULP argued that ETFs are an unlawful requirement for gas service and questioned why ESCOs should be the only type of utility regulated by the PSC to be able to charge ETFs. There is no record regarding the need for the ETFs, it was just presumed that they are necessary for ESCO survival. Also, ESCO contracts typically permit the ESCO to cancel the contract early, on short notice, without penalty, with no reciprocal provision for the customers. PULP called for an on-the-record review of the need for ETFs and for further Commission investigation of why so many customers are trying to terminate ESCO service contracts.

PULP also maintained that the ESCO information on the Commission’s web page must include each ESCO’s complaint rate. Knowing the number of complaints filed against an ESCO in a given month has very little value unless it is also known how many customers the ESCO has.

Ratepayer-Funded Retail Access Programs
PULP challenged the Commission’s Retail Access order on a single ground – price transparency.

PULP urged that the Commission require distribution utilities to include on their delivery service bills to ESCO customers a statement or shadow bill of what the charges would be for full bundled service, so ESCO customers could see whether they are saving or losing money. When combined with ETFs, not knowing the commodity prices unfairly results in customers being locked into long term contracts. The Commission has misinterpreted the fact that many distribution utility customers who switch to an ESCO stay for two years not because they are receiving the best service or price, but, rather, to avoid paying an onerous ETF. This is not the robust competitive market that the Commission believes to exist. Unless customers are aware of the actual price (and not just for the first two months under some introductory rates), true competition will never come to the energy markets.

Lou Manuta

Obama Picks Transition Team for DOE, FERC

President-elect Obama has named Dr. Susan Tierney and Rose McKinney-James to his transition team for the U.S. Department of Energy (DOE) and the Federal Energy Regulatory Commission (FERC), which is organizationally within DOE. Both appointees, former state utility commissioners of Massachusetts and Nevada, respectively, have a record of supporting electricity industry deregulation, or, as it is euphemistically named, "restructuring."

Restructuring
Thirty five states did not restructure, no state has restructured since 2000, and several states halted plans to adopt it when they saw its results in states like California and New York.

The "restructuring" model strips the power generation function away from state-regulated utilities under the premise that the generation function can be deregulated if it is structured to be competitive. An implicit assumption of restructuring, which we reject, is that if the market price of a utility service is "competitive" it will then necessarily satisfy the legal requirement of being "just and reasonable." This regulatory fad peaked in the last decade of the last century when it was lavishly promoted by Enron's Ken Lay, embraced by some state regulators, accepted by both the Clinton and Bush administrations, and pushed by FERC. FERC's regime now lacks consumer support and confidence. See Pennsylvania Utility Regulator Holds Hearings on Flaws in Wholesale Power Markets.

To bring about functionally deregulated wholesale electricity markets without statutory authorization, FERC administratively morphed the Federal Power Act system of filed rate regulation into one of unfiled, unreviewable, and unrefundable wholesale market rates. The FERC system is now built upon "organized" spot markets for wholesale electricity such as those run by the NYISO and other Regional Transmission Organizations (RTOs), where energy is sold by sellers with "market-based rates." The FERC system has its greatest impact in restructured states that allowed utilities to sell off power plants whose output had been priced based on the cost of production, requiring most electricity to be bought at wholesale "market-based rates" eventually passed through to retail customers.

Mathematical game theory, economics lab simulations, and experience demonstrate that the wholesale electricity spot markets that are at the heart of restructuring can be gamed and manipulated to drive prices well above competitive levels beyond the capacity or will of FERC to correct. See

• FERC, NYISO and PSC Watched While NYISO Gamers Looted Consumers;
• See No Evil: FERC Refuses to Examine Gaming of RTO/ISO Electricity Spot Markets;
• Public Power, Industrial and Residential Consumer Groups Demand FERC Review of Organized Spot Markets.

Even for those who would conflate the notions of competitiveness and reasonableness, the generation function is increasingly dominated by fewer large companies as the industry consolidates, undercutting the notion that many sellers will someday make electricity a buyer's market and preclude the need for rate regulation. According to Duke Power CEO James Rogers, in light of the recent financial market developments, "I think within 18 months you'll see either consolidation or acquisition of all of [the major independent power producers]." "The case for consolidation in our industry is more compelling today than it's been in my 20-year career as CEO because of what's going on in capital markets, because of the economy we're in and no growth...."

Although most consumer groups are disappointed by the results of restructuring, major utility holding companies formed as a result of restructuring and the repeal of PUHCA, investment banking institutions, energy producers and wholesale traders, deregulated retail sellers, and the energy derivatives industry still push hard for preservation and expansion of the restructuring model.

Proponents of deregulation such as EPSA and the NYISO occasionally announce reports or studies purporting to show advantages of deregulation. Typically, these reports and studies have loopy methodologies, fail to address how the ISO/RTO markets actually affect consumer prices, and fail to pass any reasonable test of academic rigor. See The Flaws in the Primary Methodologies Used to Assess Electricity Restructuring prepared byJohn Kwoka, Northeastern University, finding there is no "reliable and convincing evidence that consumers are better off as a result of the restructuring of the U.S. electric power industry."

There is mounting evidence that electricity prices rose faster in the restructured states than they did in the states that retained conventional regulation of the generation function:

Click to enlarge the above chart, from PPINet.

The Obama Transition Team
Susan Tierney
Dr. Tierney, a consultant with the Analysis Group, has also been mentioned in the trade press as a possible candidate for FERC Chairman. With Cornell degrees in regional planning, she has a long, extensive and varied background in energy issues, including work for the Department of Energy in the Clinton administration. Her bio indicates that in recent years a significant part of her consulting work has been on behalf of electric utilities and industry stakeholders in defense of electric industry deregulation or "restructuring." These include reports for the Electric Power Supply Association (EPSA) and a white paper for the New York Independent System Operator (NYISO) assessing its costs and benefits.

The NYISO Cost Benefit Paper

Dr. Tierney's paper for the NYISO attributes some reductions in power production costs to the advent of the NYISO, but does not discuss whether the benefit of any power production cost reductions has been passed on to consumers:

Given these benefits, then who has experienced them: consumers? owners of power plants? others? This question is not easy to answer, and our report has not attempted to determine in detail how these benefits have been allocated among various entities in New York and elsewhere.

It is telling that the NYISO, a seller/trader dominated institution, see NYISO Governance, did not inquire whether its markets benefit consumers. See NYISO Costs Skyrocket, Benefits Questioned. The impact of FERC-approved "organized" spot markets on prices paid by consumers is graphically illustrated in testimony from PJM Industrial Customers Coalition at the recent legislative hearings in Pennsylvania (Pennsylvania Utility Regulator Holds Hearings on Flaws in Wholesale Power Markets), showing how electricity from the same power plant costs far more when it is purchased in a restructured state influenced by wholesale market-based rates than when it purchased in a state with traditional cost of service regulation. Under restructuring and the FERC organized market pricing system which pays the same price to all sellers, the value of lower cost generation shifts from consumers to sellers. See It was the [NYISO] Market.

Reliance on Discredited Studies

In her report for the NYISO, which did not assess the impact on consumer prices, Dr. Tierney cited two other studies purporting to show consumer benefits from the NYISO: a report authored by anonymous NY PSC staff, and a consultant's report. The PSC staff report cherrypicked data (excluding years when prices were lower before the advent of the NYISO, and excluding recent periods when prices uncreased), excluded the effects of NYISO prices on LIPA, which serves all of Long Island and whose prices have spiked since the advent of the NYISO in 2000, and averaged together residential prices of upstate utilities -- which were temporarily frozen in their rate plans -- with much higher prices of utilities which had begun to flow through the impact of NYISO prices. As stated in Professor Kwoka's analysis of the NY PSC staff report:

the intention of this staff report of the New York State Department of Public Service seems not to be a careful or balanced assessment of the issues. Rather, it is at best an update on changes in the electricity (and gas) markets in New York and in state policies affecting these markets. Even as an update, however, it pays inadequate attention to causation and precision in its evidence and claims.

The consultant's report from LECG, funded by PJM, LLC., the utility operating of the largest wholesale electricity spot market in the country, attempts to compare prices paid by customers of publicly owned municipal utilities in Florida with prices paid by customers of municipal utilities in New York. It finds that the prices of Florida munis rose faster than those of New York munis, and attributes the slower rate of price increase in New York to the benefits of the NYISO. Omitted is the fact that Florida munis are far more dependent on natural gas-fired generation, the price of which rose during the study period, while New York munis in the sample receive allocations of cheap (less than 1 cent/kwh) hydropower from the New York State Power Authority, thereby greatly diluting the impact of the NYISO prices. Also omitted are the soaring prices of LIPA, the large publicly owned utility on Long Island whose prices skyrocketed after the advent of the NYISO. The effect of the NYISO markets on downstate New York rates, including LIPA, beginning in 2000, can be readily seen at PSC Typical Electric Bills Show Trend of Higher Prices and Volatility. As Professor Kwoka has said regarding the LECG report,

the study makes errors in its understanding of municipal and cooperative utilities, errors in excluding data points and relying on others, errors in model specification, errors in its estimation procedure, and errors in extrapolating its results to utilities and customers that clearly differ.
For all these reasons, the LECG study does not employ sound empirical methodology and its conclusions should not be relied upon in evaluating the restructuring of electricity markets.

Percentage Rather than Price Increase Comparisons

In a 2008 presentation for EPSA, Dr. Tierney included a slide purporting to compare percentage price increases of electricity in restructured and unrestructured states.
But an examination of the actual prices paid by customers shows that prices are rising faster in the restructured states. Click to enlarge the chart below from Electricity Price Trends Deregulated vs Regulated States, by Marilyn Showalter
The deceptive nature of percentage comparisons such as those put forward by Dr. Tierney for EPSA is explained by Marilyn Showalter in her comparisons of prices paid by customers:

[D]eregulation enthusiasts argue that some deregulated and regulated states have experienced comparable percentage increases in rates. They would argue that the price increase in Washington (eighth from the bottom in Figure 9) is “the same” as the price increase in Connecticut (second from the top in Figure 9) because both experienced about a 57-60% increase since 1999. But no business or consumer would agree that Connecticut’s increase from 10 to 16 cents/kwh is the same as Washington’s increase from 4.1 to 6.4 cents/kwh—among the lowest rates in the country.

Apologists for restructuring often claim that the price increases in restructured states are simply due to rising fuel costs. A report by McCullough Research, however, demonstrates that the rate increases are higher in restructured states even when rising fuel costs are factored out.

Rose McKinney-James
According to the website of President-elect Obama, another transition team member, apparently overseeing the FERC appointments, is Rose McKinney-James:

Rose McKinney-James is the Managing Principal of Energy Works Consulting. Previously she served as the President and CEO of the Corporation for Solar Technology and Renewable Resources (CSTRR) and Chair of the Nevada Renewable Energy Task Force. Past positions also include Commissioner with the Nevada Public Service Commission, Director of the Nevada Department of Business and Industry, Chief of Staff for the City of Las Vegas and Project Manager for the Nevada Economic Development Corporation. McKinney-James serves on the Board of Directors of MGM-Mirage, Employers Insurance Group, Toyota Financial Savings Bank, the Energy Foundation, the American Council for an Energy Efficient Economy (ACEEE), and the Nature Conservancy. She is the Board Chair for Nevada Partners.

According to Politico,

Rose McKinney-James single-handedly will lead the review on Federal Regulation and Oversight of Energy. She has a strong background in renewable energy and is currently the managing principal of Energy Works Consulting. She previously served as president and CEO of the Corporation for Solar Technology and Renewable Resources.

James was formerly a Nevada utility regulator. After the Western states experienced the results of market manipulation, she, along with numerous former state utility commissioners from restructured states, signed onto a 2003 "Declaration of Consumer Benefits from Wholesale Power Markets, a statement indicating support for the restructuring model, (Alliance for Retail Choice document listed at the EPSA website with a deactivated link).

Since then, however, James appears not to have been actively involved in the continued promotion of restructuring. For example, she has not joined with the former state utility regulators -- many of whom consult for beneficiaries of restructuring -- in signing onto further missives of the "COMPETE Coalition". She reportedly has a keen interest in renewable energy. See Obama Appointment Offers Another Green Signal.

Despite the exhortations of COMPETE and restructuring enthusiasts such as EPSA, the NYISO and RTOs, and Dr. Tierney, EIA's Electricity Restructuring Report by States shows that in recent years, eight states have drawn back from restructuring, including the State of Nevada, which suspended its restructuring plans in 2003.

Also, the appointment of Lawrence Summers to head the National Economic Council in the new administration does not lend confidence in this area of the economy. See Harvard Lightning Rod Seeks Renewal as Obama Adviser. As recently pointed out by Paul Krugman in California Energy Memories, when Summers was Treasury Secretary in the Clinton administration he was blinded by deregulation ideology to evidence of gross electricity market manipulation in California that led to price spikes and outages. Perhaps his infatuation with the idea of self-policing free markets unfettered by government regulation was just a genetic "guy thing" he has now overcome with the benefit of time, experience, and greater maturity.

Conclusion
We would certainly be more hopeful of change in the interests of consumers if the DOE/FERC transition team more reflected the judgment of most states not to restructure, and better realized the experience of consumers in the states that did. Nevertheless, it cannot be assumed that Obama transition team members will recommend candidates for key positions who would continue the relentless restructuring efforts of past administrations without reflection upon the results to date and without heeding consumer concerns. See Will President Obama Repurpose FERC?

Perhaps it is a hopeful sign of change that the latest rumored candidate for a FERC position is John H. Norris, Chairman of the Iowa Utilities Board. Iowa, a state that once considered but did not adopt restructuring.

Update, December 4, 2008
The Longview Washington Daily News, in a story about the controversial Bradwood LNG terminal project for the Columbia River, states:

Obama also could reshape FERC itself.

Terms of the four FERC commissioners who voted in favor of the Bradwood project will expire during Obama’s first term, starting in 2009, Tamara Young-Allen, a spokeswoman for the agency, said in an e-mail. The other three commissioners’ terms expire in 2010, 2011 and 2012. (Commissioners serve five-year terms.)

Obama can also appoint a new FERC chairman. That would shift the current chairman, Joseph Kelliher, into a regular commissioner seat. It’s unclear whether Kelliher would finish out his term, which lasts through 2012, if he is removed from the chairman’s position.

When asked about his plans, Young-Allen noted, Kelliher has said, “When I have something to announce, I will tell you.”

VandenHeuvel, of Riverkeeper, speculated that Obama will appoint Jon Wellinghoff as the new chairman. Wellinghoff is a Nevada Democrat who was the only FERC member to oppose the Bradwood terminal in the September vote.

See Will new administration reshape LNG landscape?

Update January 7, 2009
Today Chairman Kelliher announced he is resigning effective Jan. 20. See FERC chief Kelliher to step down; Energy Regulator Resigns; Top Energy Regulator's Exit Is Chance for Obama to Reverse Deregulation Fiasco, Put Families Over Power Company Profits.

Update January 14, 2009
"If history is a guide, the new chairman will come from within the pool of existing commissioners. The last five chairmen have been FERC commissioners at the time of their appointments."
Kelliher's Resignation Foretells Major Changes at FERC.

Update January 21, 2009
Cabinet: Susan Tierney to Become Energy Dept. Number Two
By Al Kamen Jan. 15, 2009, Washington Post

Susan F. Tierney, assistant secretary of energy for policy in the Clinton administration and more recently an energy and economics consultant with Boston-based Analysis Group, is expected to be named deputy secretary of energy, according to Democratic sources.

Tierney, a former Massachusetts public utility commissioner, chairman of the board of the Energy Foundation and member of the National Commission on Energy Policy, an expert on electric and gas industry issues, advises companies, government organizations and non-profits on energy markets, economic and environmental regulation and strategy, according to an Analysis Group biography. She's been on the Obama transition as a team leader for the Department of Energy.

January 20, 2009, 12:51 pm

Update
See Wellinghoff Named Acting FERC Chairman, Jan. 23, 2009.

National Grid’s Grand Plan Continues; Still No Action from PSC

Yes, the “Grand Plan” is still alive and well at National Grid.

Another person denied service by National Grid requested PULP’s assistance this week. She owed a little over $2,000 to National Grid for a prior account in her name for an apartment she had rented three years ago. After living in a situation where she did not need a utility account, she applied for service again at a new address and was denied service unless she pays $1,000, $1,500, or the full amount (depending on which call to National Grid you rely on). The estimated monthly bill is $179.

Under the original design of the “Grand Plan,” applicants who owed the company over $1,000 had been required to make a $1,000 down payment (“One Grand”) in order to have service restored, and those with under $1,000 in arrears were required to pay 100 percent of the debt -- regardless of the statutory limits of HEFPA. Under Public Service Law (“PSL”) §31.1 an applicant who owes for service to a prior account is entitled to service with a payment agreement that does not exceed the lesser of 50% of the amount owed or the estimated cost of three months service. Thus, the most the utility could demand consistent with the statute was approximately $537.

In addition, the deferred payment agreements (“DPAs”) must be fair, equitable and negotiable, based on the customer’s financial situation and subject to Commission oversight. A PSC Ruling from earlier this year rejected much of National Grid’s “Grand Plan,” based on the inflexibility of the 100 percent or $1000 requirements. However, the Commission left the door open to National Grid to devise similar schemes out of compliance with the statute if the applicant had, years ago, broken a deferred payment agreement. There is, however, no exeption in the statute that would bar an applicant with any arrears from the benefit of a DPA within the statutory limits. Accordingly, PULP requested rehearing because the PSC erred as a matter of law, and overlooked evidence of how the "Grand Plan" interferes with the purposes of HEFPA.

While the rehearing request was pending, National Grid began requiring 80 percent of the arrears to be paid as a down payment, with strict instructions not to divulge the arbitrary 80% rule. PULP submitted new evidence of this pattern to illustrate how the Commission was inviting continued evasion of the statutory requirements.

Now, after the 80% rule was exposed by PULP, it appears that a new version of the “Grand Plan” is back in full swing, with large sums being demanded before service can be established the applicant’s name.

PULP is still awaiting Commission action on its Petition to clarify the Grand Plan Order regarding the down payment requirements on applicants who owe arrears from a previous account at a different address. We have added this client to a growing list of aggrieved applicants who joined this proceeding after the Commission’s Order which supposedly put the issue to rest.
To PULP, the response we are waiting for from the Commission is clear – it must announce that the most that any utility can request is 50 percent of the arrears amount or three months average billing, whichever is less. HEFPA gives the Commission no power to do otherwise. It’s been eight months since the Commission rendered its decision and PULP is still waiting for the agency to act on our petition for clarification on this issue.

While the Commission cogitates, more applicants, like PULP’s new client, who are without money to somehow scrape enough together to meet the unlawful down payment demands, are denied service. It is getting awfully cold outside now for applicants to go without heat and the sun is setting awfully early to go without light. When will the Commission act on PULP’s petition and put an end to this unlawful practice, which defies the very premise of HEFPA?

Lou Manuta

State Tells Suffolk County to Handle Energy Emergencies

Suffolk County
In Wednesday's post we noted several examples of problems in the administration of the Home Energy Assistance Program (HEAP), SNAFU in OTDA's Administration of the HEAP Program, including limitation by Suffolk County of the opportunity to apply for HEAP. In response, a state official has told us:

we have contacted Suffolk County and have been assured that no applicants in an energy emergency situation are being turned away and that the emergency cases are their priority.

Our sources indicate that people with emergency situations were turned away after a set number of applicants had been handled in the Riverhead and Deer Park offices of the Suffolk County Department of Social Services. As a result they had to return the following day and were lining up outside before offices opened in the hopes of making their applications. So it is good news if indeed applicants in emergency situations are no longer being turned away.

It is still problematic if application appointments for Regular HEAP are being rationed and if applicants must make multiple visits to local welfare offices to apply. Generally, people who did not receive a HEAP grant last year must apply in person. See the OTDA web page on HEAP Applications.

Action on the Emergency Furnace Repair Case
We also noted on Wednesday a case where action had not been taken to address an October application for Emergency HEAP furnace replacement assistance for an 87 year old blind Albany woman who was living in the cold. According to a state official "the Albany County furnace issue has been resolved. Work to install the new furnace will begin tomorrow (Friday, 11/22)."

The State's HEAP Hotline
Finally, we pointed out problems with the state HEAP Hotline. According to the OTDA website, "Questions regarding the HEAP program should be directed to your County Social Services Office or to the NYS HEAP Hotline at 1-800-342-3009."

Last year, on occasions when we contacted state officials regarding cases where a county or utility seemed not to be following state HEAP program guidelines, we were told in the future to refer people to the Hotline. For example, we had noticed three incidents in which the same utility had not continued service to HEAP recipients for 30 days, as OTDA requires utilities to do by contract in its HEAP vendor agreements. We were told "please have these individuals call our HEAP hotline so we can help them."

We had assumed that a real person answers the State HEAP Hotline and would be available to intercede in such matters. The State is responsible for uniform administration of the HEAP program and for oversight of the 58 local social services districts (New York City and counties outside New York City) that administer the districts. [New York State is one of the few states that still relies on county welfare offices to administer the largely state and federal programs such as HEAP, Food Stamps, and Medicaid].

This year, we have learned, no real person answers the state HEAP Hotline. There is a set of prerecorded messages about the location of local HEAP offices, and eligibility. The voicemail system for finding the nearest office may ask the caller to leave a message. For persons having a problem with a local office, the Hotline has a recorded referral to the OTDA State Fair Hearing office.

Apparently there is no way, short of asking for an OTDA Fair Hearing, a lengthy and time consuming process, for an individual to bring to the attention of OTDA a problem or obvious error in a local social services district's administration of the HEAP program.

The HEAP Fair Hearing Process
The OTDA State Fair Hearing toll-free number is 800-342-3334; if that is busy, try 518-474-8781.

If there is an emergency, an "emergency" Fair Hearing can be requested. Even an "emergency" case will take considerable time. For New York City Emergency Fair Hearings only, call (800) 205-0110.

An OTDA State Fair Hearing can also be requested online at the OTDA website.

The OTDA website also has a printable form request for a Fair Hearing that can be filled out and faxed to the OTDA Fair Hearing Office FAX number: (518) 473-6735

SNAFU in OTDA's Administration of the HEAP Program

This week, two weeks after opening of the New York State Home Energy Assistance Program (HEAP), we are hearing of significant administrative problems:

• Some Suffolk County Department of Social Services service centers put limits on the number of HEAP applications and turn away applicants when the quota is met. People have been lining up for assistance at 5 AM.
• An 87 year-old blind woman in Albany who needs Emergency HEAP furnace replacement assistance has been cold and sleeping in her clothes for weeks now, with no action taken by Albany County Department of Social Services on her application, despite federal law and state rules requiring prompt action to resolve such an emergency.
• The State's HEAP Hotline (1-800-342-3009) is simply not answering calls. Callers are asked to leave messages, which are not being returned.

The Right to Apply for HEAP and the Right of Eligible Applicants to Prompt Action to Resolve Home Energy Crises.
In the past we have heard of instances similar to what we have heard is happinging in Suffolk County. Other counties (notably Saratoga County and Monroe County) restricted the number of people who could apply for HEAP on any given day. People would form lines to apply, and would be turned away when an arbitrary limit on intake of new applications had been reached.

In a non emergency situation, the local district has 30 days to act on an application. There is no reason not to provide applications and let people file them, instead of lining them up outside the door and turning them away without providing the application forms or without allowing them to file forms they have filled out. Many applicants for HEAP are working people who cannot take time away from low-paying jobs to make repeat visits to the HEAP offices only to stand in line and be turned away.

In emergency situations such as utility shutoffs and empty fuel tanks, assistance to resolve an emergency must be provided to eligible HEAP households within 18 or 48 hours of their application depending on the gravity of the situation. Obviously, if people are not allowed to apply, the time to respond to the emergency never begins, and the protection of the law intended by Congress and the state legislature when they created the HEAP program is lost.

Federal Law
Federal law requires all states receiving LIHEAP assistance to operate a home energy crisis assistance program that receives applications during the state's program period, and which timely resolves emergency situations for eligible households within 18 or 48 hours after applications. The federal LIHEAP statute, 42 U.S.C. 8623, spells out what participating states must do regarding energy crisis assistance:

**** (c) Of the funds available to each State under subsection (a), a reasonable amount based on data from prior years shall be reserved until March 15 of each program year by each State for energy crisis intervention. The program for which funds are reserved by this subsection shall be administered by public or nonprofit entities which have experience in administering energy crisis programs under the Low-Income Energy Assistance Act of 1980 or under this Act, experience in assisting low-income individuals in the area to be served, the capacity to undertake a timely and effective energy crisis intervention program, and the ability to carry out the program in local communities. The program for which funds are reserved under this subsection shall--
(1) not later than 48 hours after a household applies for energy crisis benefits, provide some form of assistance that will resolve the energy crisis if such household is eligible to receive such benefits;
(2) not later than 18 hours after a household applies for crisis benefits, provide some form of assistance that will resolve the energy crisis if such household is eligible to receive such benefits and is in a life-threatening situation; and
(3) require each entity that administers such program--
(A) to accept applications for energy crisis benefits at sites that are geographically accessible to all households in the area to be served by such entity; and
(B) to provide to low-income individuals who are physically infirm the means--
(i) to submit applications for energy crisis benefits without leaving their residences; or
(ii) to travel to the sites at which such applications are accepted by such entity.

A practice of a local social services district, such as closing the window to applications during normal business hours appears to be contrary to (3), above, which requires applications to be accepted, and it frustrates the timely provision of aid to resolve crisis situations of eligible households it they cannot apply.

New York Social Services Law
The New York Social Services Law says very little about the substance of the HEAP program, which is mainly left to the Governor and OTDA, but does include a requirement mandating local social services districts to comply with the plan and regulations, and to implement the program in a manner designed to effectuate its purposes:

Social Services Law Sec. 97.2. Each social services district shall be required, in accordance with the state plan and federal regulations, to participate in the federal low-income home energy assistance program and to assist eligible households found in such districts toobtain low-income home energy assistance.

When counties make it hard for households to apply for assistance by artificially limiting the acceptance of new applications, and by creating the public spectacle of welfare waiting lines, this is contrary to the intent of the Legislature when it directed the State to participate in the federal LIHEAP program.

Official Regulations of the New York State Office of Temporary and Disability Assistance
State regulations require local social services districts to accept applications and to resolve promptly the emergency situations of eligible households:

393.1 (b) Each social services district shall administer HEAP in accordance with applicable Federal and State statutes and regulations, the federally accepted State Plan, the HEAP manual and applicable releases of the New York State Department of Social Services.

Section 393.3 Application.
(a) For purposes of the annual HEAP State Plan, the office will designate a specific period of time during which local districts must receive applications for HEAP benefits. If the office determines that sufficient program and administrative funds are available, the office may extend the period for receiving applications for HEAP benefits beyond the last business day of the specified time period. In the event that the office determines that there are insufficient program and/or administrative funds to continue receiving applications prior to the last business day of the specified time period, the time period for receipt of applications may be correspondingly shortened. Applications for emergency HEAP benefits will be accepted at least until March 15th of each program year. Applications for HEAP benefits must be received and recorded on the State-prescribed form or on a local equivalent form approved by the office. During the designated period of time that local districts receive applications, social services districts must:
(1) assure that no household is denied the opportunity to apply for HEAP;

A county that denies households the opportunity to apply for HEAP during the HEAP program period that began November 3 this year thus is failing to comply with the state regulations that have the force of law. The State OTDA, by looking the other way when program requirements are not satisfied, arbitrarily disregards its own regulations.

A refusal to accept applications frustrates the timely provision of aid in emergency circumstances:

Section 393.5 Decisions, appeal and fair hearing.
(a) Determinations of eligibility on applications for regular benefits must be made within 30 business days after the filing of such application. Determinations of eligibility for emergency benefits must be made expeditiously so as to protect the health and safety of the applicant household. Some form of assistance to resolve the energy crisis must be provided to an eligible household in a life-threatening situation no later than 18 hours after the filing of a completed application or within 48 hours if the household is not in a life threatening situation. The date of filing an application is the date of receipt by a designated county certifier of a signed, completed application on the State-prescribed form. The applicant must be promptly notified of the determination in writing.

When a County bars access of households to the HEAP application process, the right of an eligible household to emergency HEAP assistance that resolves a crisis within the 18 or 48 hour timelines is defeated.

Counties receive a generous allowance from the state for administration of the HEAP program. According to OTDA statistics, Suffolk County received $873,285 last year from the state to handle HEAP applications, and will receive even more this year due to the increased funding for the 2008 - 09 HEAP year that began November 3. One must question how Suffolk County is spending all this money if they are accepting only a small number of applications per day.

Further, we must question the degree of oversight provided by the State. In the State Plan for HEAP submitted by the Governor, and prepared by OTDA, New York answers a question about state fiscal oversight of HEAP administrative costs thusly:

How do you ensure good fiscal accounting and tracking of LlHEAP funds? (Please describe. Include a description ofhow you monitor fiscal activities.)

NYS OTDA utilizes fiscal and fund accounting procedures similar to those utilized by NYS OTDA and local social services districts in the administration of other income-tested assistance programs. Districts are provided with allocations for administration and for district payments, and claims are monitored by OTDA fiscal staff to ensure that allocation levels are not exceeded.

Parsing this, OTDA seems to represent that it makes sure that the local districts do not claim more administrative expenses that allowed by the State. Absent is any representation that the State is monitoring to see that the funds it gives to the local districts are actually spent on the direct administration of the HEAP program. Are counties are using part of their HEAP administrative funding allocation to provide indirect support of activities or expenses they would otherwise support with other local funds, and not assigning enough people to receive applications from households seeking HEAP assistance?

In any event, the spectacle of people lining up in the pre-dawn hours to wait for a limited number of HEAP application slots at local welfare offices must stop.

HEAP Eligibility and Benefit Changes Rumored

Efforts may be underway at the New York State Office of Temporary and Disability Assistance (“OTDA”) to revise significantly the State HEAP Plan and benefits under the federal Low Income Home Energy Assistance Program (“LIHEAP”) for winter 2008 - 09. In October, PULP reported that of the $5.1 billion allocated to HEAP nationwide, New York State is slated to receive $476,376,332, more than $100 million more than last year, and much more than had been anticipated when the State's plan for 2008 - 09 was prepared. By way of comparison, New York received a total of $357.8M in federal LIHEAP funding for the 2007-08 HEAP season. The state HEAP program opened November 3, 2008.

While no formal documentation has yet been released, it is PULP’s understanding that effective December 1st, second emergency HEAP payments would be authorized. Also, applications for both first and second Emergency HEAP payments would be accepted over the telephone, if the correct documentation is submitted. In addition, Regular HEAP heating benefits would be increased by $100 on December 1st. Households who have already received a regular HEAP should see a supplement of $100.

In addition, the income eligibility guidelines for Emergency HEAP benefits would be raised to 75 percent of state median income, up from 60 percent in the current State HEAP Plan. As a result, it would be possible for some households to qualify for an Emergency HEAP benefit without qualifying for a Regular HEAP benefit if their income is between 60% and 75% of the state median income. This change would also apply to furnace repair and replacement as they are considered to be part of Emergency HEAP assistance.

No hearings or meetings of the HEAP Block Grant Advisory Committee are planned for this revision of the state plan. OTDA may publish the changes soon as an emergency SAPA rule, perhaps with comments due between November 24th and December 5th.

More details will be provided when the changes are posted.

Lou Manuta

Excelsior! NY Achieves Highest Electric Rates in the Continental United States

Its official. According to the October 28 U.S. Energy Information Administration (EIA) Electric Power Monthly, which provides the official government energy statistics, as of July 2008 New York State's residential and commercial customers paid the highest electric rates in the continental United States (including Alaska). Residential rates were 19.75 cents/kwh, and commercial rates hit 19.52 cents/kwh.

The usual excuse for New York's high and spiking electric rates is rising fuel prices, particularly the price of natural gas. But how can this be in a state bestowed with the bounty of cheap hydropower from Niagara and the Robert Moses St. Lawrence project, and with a fleet of nuclear power plants which, combined, make up a 44% share of the state's power that is produced from sources that are not linked to the cost of natural gas?

The answer is the "restructuring" of New York's electric industry which had the result of turning state-regulated power plants over to new owners who could sell power in the FERC-regulated wholesale markets where inordinate quantities of energy are sold at NYISO spot market prices (or at prices indexed closely to the NYISO price). The NYISO market design pays the same price for all electricity at any given hour, regardless of the cost of production, with the price demanded by the market clearing bidder (who is often a natural gas burning producer) paid to all. See It was the [NYISO] Market; New York Restructuring: It Was About Price.

Rates for New York's industrial customers are not the nation's highest, perhaps reflecting the impact of low cost hydropower allocations for industry, state Power for Jobs rate subsidies, and discounted delivery rates negotiated by companies who threaten not to stay or grow jobs in the state. These breaks help dilute the impact of the NYISO spot markets.

Low Income Central Hudson Customers to Receive $1.9 Million Winter Bill Credits

On November 13th, the PSC issued an order approving Central Hudson's proposal to use $1.9 million in unspent rate plan funds to ease energy burdens of the utility’s low-income customers who receive Home Energy Assistance Program (HEAP) benefits.

The funds originally were committed for Central Hudson's “Enhanced Powerful Opportunity Program,” (“EPOP”), which was intended to give low-income customers a monthly discount on their bill and an arrears forgiveness benefit of 1/24th of their arrears each month, provided the customers paid their current charges in full and on time. Central Hudson reported that the unspent funds accrued partly because many EPOP participants could not pay their monthly budget amount, and therefore they received no arrears forgiveness benefits.

Central Hudson asked the PSC to use the $1.9 million in unspent funds to credit low income HEAP customers’ bills with a one-time credit of either $200 or $300, but the company did not specify whether the credits would be applied to customers’ past arrears or to their current accounts. For example, a customer owing $800 might be paying $10 per month to reduce the arrears plus the bill for current charges.

PULP filed comments in the case in which we pointed out to the PSC:

The Company did not specifically denote exactly how the account credits will be applied. [I]t characterizes the proposed credits as ‘immediate, temporary assistance’ . . . ‘supplemental benefit’; ‘credit be applied to accounts’; ‘credit be applied to assist.’ and finally ‘assistance on their accounts and be in a better position to face this year’s winter heating bills.’ All of these statements sound laudable, but are consistent with application of a credit to reduce arrears from years ago. Nowhere does Central Hudson clarify whether the proposed credits will be used to pay down old arrears or to provide relief from this season’s heating charges. PULP urges that this be clarified.”

PULP also pointed to the EPOP program’s flawed design, which clashed with HEAP requirements for emergency payments. For example, last year, Central Hudson customers who remained in good standing in the EPOP program could not qualify for emergency HEAP benefits totaling up to $1,400. This is because emergency HEAP benefits are only available for “heat related emergencies,” defined as “having utility service terminated, or having utility service scheduled for termination.” To receive emergency HEAP benefits, Central Hudson customers struggling to pay their bills had no choice but to default on their monthly budget payment to the utility -- and thus they were ineligible for the EPOP program arrears forgiveness benefit.

Central Hudson filed a "clarification" letter which still dodged the issue of how it would apply the new bill credit -- to charges for current service, or to old arrears. The PSC Order stated,

PULP[] recommend[ed] that the account credit should be applied to current charges, and not to arrears, to provide the greatest benefit. . . . Therefore, we affirm that account credits will be applied in a manner that helps customers remain current on their account, thereby avoiding service termination and exclusion from the EPOP.

While the order could be clearer, it appears that the Commission expects the Central Hudson payments to be applied to reduce current charges for this winter's service.

This week's order did not mention a similar measure taken by the PSC in 2006 when it issued an order reallocating unspent funds from the "Powerful Opportunities Program" (the precursor of the "Enhanced Powerful Opportunities Program") to provide for one-time bill relief for Central Hudson's HEAP customers. These measures, while helpful and far better than nothing, are not a substitute for Commission policy to assure that all residential utility rates are designed to be affordable for low income consumers. See Testimony in National Grid Natural Gas Rate Case Urges Low Income Rates and Reform of Utility Termination Practices.

CLECs Lose Certificates to Offer Service for Not Submitting Tariffs, Why Not ESCOs?

Last week, the New York Public Service Commission issued an order which effectively cancelled the Certificates of Public Convenience and Necessity for 271 competitive local exchange carriers ("CLECs).

Why did the agency take such an action? Somehow, each and every one of these companies failed to file a tariff with the Commission, publicly setting out their rates, as required by section 92.1 of the Public Service Law. It was long overdue for some of these providers, which may have been certified for 10 years or more without ever submitting a tariff, but the job was done. Enforcement of the statute and regulations should be the very least we expect from the Commission.

Why, then, are Energy Service Companies ("ESCOs") permitted to provide service in New York without ever filing a tariff? ESCOs are the home energy equivalents of telephone service resellers (a type of competitive LEC which also does not own its own facilities, but merely delivers the utility service using the distribution utility's pipes. Why are telephone service resellers required to file tariffs and not ESCOs?

Sure, the simple answer is that the Public Service Law says so, but why is this so? Public tariff filing promotes transparency, discourages rate discrimination, and permits ready comparison of prices, for the same reasons we require gasoline stations and grocery stores to prominently post prices. Another is that under Public Service Law section 75, a seller of electricity and natural gas cannot collect anything from a customer in court if the rates have not been fixed by the Commission, which occurs only when the rate tariffs are filed and allowed to take effect.

A close look at the expensive PSC "Power to Choose" website that purports to facilitate ESCO price comparison shows in its disclaimer that the ESCO price information there is worthless and cannot be relied upon:

"Information contained herein is voluntarily supplied by participating ESCOs. The Department of Public Service and the Public Service Commission do not guarantee the validity of this information."

Thus, the PSC-funded website does not claim to reveal even the once-a-month prices submitted to PSC staff by ESCOs under the PSC's weak price reporting order. That required disclosure of prices once a month can be prices limited to just a few new customers on that day and then prices can be changed the next day with no filing and disclosure at all. See PSC Makes ESCO Service Comparisons Difficult. Perhaps the reason for this lack of transparency is that there is no reliable evidence that ESCO service saves customers money over time.

A quick survey of the Commission's monthly complaint statistics reveals that the lion's share of all complaints submitted to the Commission arise from ESCOs. These entities, at the moment, do not pay regulatory assessments which support the Commission's activities and are required by all other regulated utilities -- including telephone resellers. Instead of filing tariffs, ESCOs are subject to the PSC's so-called "Uniform Business Practices," which are included in the distribution utility's tariff. This places an unnecessary level of extraction between the Commission and these supposedly regulated ESCOs. Sure, they were made subject to HEFPA in 2002, when the Legislature rebuked the Commission's effort to circumvent the statutory consumer protections, but, to date, PULP knows of no instance where complaint against an ESCO was ever actually decided by the Commission.

The time has come to clamp down on ESCOs and the problems that they cause. Oftentimes, ESCO savings are illusory to the customer, customers only realize they are locked into a bad contract after the onerous early termination fees kick in. It is a mystery why the Commission continues to promote the current ESCO regime. See PSC Votes to Continue Retail Access Programs Promoting ESCO Service.

The time has come to stop the PSC's coddling of ESCOs and make ESCOs file tariffs like the regulated utilities they pretend to be and seek to compete with.

Telephone resellers have to file tariffs and so should ESCOs. We now know that the Commission means business when it requires CLECs to submit tariffs. The time has come for ESCOs to take responsibility as well.

Lou Manuta

PSC Refuses to Investigate Utility’s Brazen Violation of HEFPA.

Yesterday PULP received a call from a Bronx multiple dwelling resident who has reasonable grounds to suspect unlawful shared gas and electric meter conditions. The utility, Con Edison, set a date for an investigation, but advised the customer (i) she was responsible for the landlord or its representative’s presence at the investigation, and (ii) she would be charged $25 for the service call if she was unable to arrange for the landlord to be present.

As stated by a former head of the PSC Office of Consumer Services in a letter to the New York Times:

Section 52 of the Public Service Law, as implemented by the New York State Public Service Commission in Sections 11.30 through 11.39 of Title 16 of the New York Codes, Rules and Regulations, states unambiguously that owners are responsible for service measured through a shared meter.

The Public Service Law requires that gas, electric and steam utilities investigate complaints from customers who receive service in rented dwellings that are measured by a shared meter where the meter registers service used in common areas or in other residential dwellings or commercial space.

Public Service Law § 52(4)(a) requires the utility, upon receipt of a shared meter complaint, to notify the building owner in writing that a complaint has been received:

Upon a customer's verbal or written complaint that a shared meter is measuring service to the customer's dwelling and that the customer is responsible for the charges for such service or upon receipt of other information indicating that a shared meter may exist, a utility shall notify the owner in writing of the owner's responsibilities under this section, that a complaint was received or information obtained that a shared meter may exist, and that the utility is required to conduct an investigation.

Under PSL § 52(4)(c), owners who refuse the investigating utility’s reasonable requests, or who do not cooperate with the utility by providing access to common areas in the building, must receive a determination that a shared meter condition exists:

Failure of an owner to provide access to any common area in the building or to cooperate with any reasonable request made by the investigating utility shall result in a determination that the customer's dwelling is served by a shared meter, specifying the owner's action that such utility understood to be a failure to cooperate.

The same statute provides that if access to the premises are under the complainant's control and the complainant does not cooperate in providing access, the consequences are a suspension of the shared meter investigation.

In sum, there is no provision in the Public Service Law, Public Service Commission regulations, or in Con Edison’s tariff requiring the tenant to assure the landlord’s presence or cooperation, at the risk of a $25 charge.

PULP advised the customer to call the PSC to lodge a complaint.

In yet another example of lax PSC enforcement of the laws it is charged to administer, the PSC staff refused to take the complaint and advised the customer to call back after she receives the $25 charge.

It may be that the threatened $25 charge was a bluff or the landlord will cooperate and no charge will be imposed. We question how many shared meter investigations in Con Edison’s territory have been thwarted, because customers are falsely told they will be charged $25 if their landlord refuses to cooperate.

The PSC Office of Consumer Services has a duty to investigate complaints of HEFPA violations. The PSC refusal to investigate this complaint could subject this customer to an unnecessary future billing dispute. But the refusal of the utility to arrange with the owner a time to investigate the shared meter claim is even more egregious, because it implicitly sanctions an unlawful practice apparently being applied by Con Edison’s in its service territory which likely contains a greater density of multiple dwellings (and hence potential shared meter conditions) than any other service territory in New York state.

Close the Energy Sales Tax Loophole Favoring ESCOs

An Underused Budget Tool - Closing Tax Loopholes
The financial industry crisis is causing major budget distress for New York State because its income tax revenue is so reliant on financial industry jobs and bonuses, which are now in sharp decline. Federal aid is urgently needed by New York and other states to sustain and enhance jobs and investment in public infrastructure projects. Instead, the response of the Governor has been to propose state spending cuts for many essential education, health and services to the public, including advocacy for the poor. See PULP, Legal Aid, Homeless Advocacy Groups Targeted by Governor for $2.8 Million Cut. Such cuts would cause a reduction in essential public services and may further exacerbate the recession gripping the state.

A way to help bridge budget gaps without raising tax rates is to examine tax loopholes closely and to close those that have weak rationales or whose original purpose is no longer vital. While not a solution to the entire budget problem, which cries out for federal aid, closure of tax loopholes can be a part of a multi-pronged solution.

The Utility Tax Break for ESCO Customers
One tax loophole that readily comes to mind is the strange tax break received by electricity and natural gas customers when they buy electricity or gas from an ESCO. They continue to pay state sales tax on the electricity and natural gas provided by the ESCO. But they are excused from paying sales tax on the "delivery" service which provided by the traditional utility whether or not the customer takes ESCO service!

Say that again?

I pay sales tax on the whole utility bill - "delivery" service plus "commodity" service when I buy the "commodity" from the utility. When I switch to an ESCO for "commodity", I pay no tax on the utility-provided delivery service.

This is like waiving the state sales tax on new cars if the customer gets oil changes from JiffyLube instead of the car dealer.

For small customers, the tax avoidance saves maybe a couple of bucks a month. It serves as a way for high pressure ESCO touts to show consumers where they "will save money on their utility bill" as an inducement to locking them into contracts for very expensive service. See

For very large industrial and commercial customers, the ESCO can simply sell the same service the customer would get from the utility, a pass through of NYISO spot market prices, and split the tax savings, which might add up for these large customers. As stated in the website advertising of Energetix, (an ESCO owned by Rochester Gas & Electric):

Can I save on my taxes if I switch to Energetix?

Yes! With Energetix as your energy supplier, you are eligible for a sales tax discount. Specifically, state and local sales taxes do not apply to your delivery charges when you take supply service from an ESCO. Additionally, local municipal taxes are not applied to your supply charges. These tax benefits can often be one of the biggest benefits of ESCO supply service. (Emphasis added).

Why Tilt the Retail Energy Competition Playing Field with Tax Breaks?
According to a 2001 PSC Order, "The State has authorized a separate incentive to encourage development of a retail access market." The PSC has switching statistics which show significant kwh and therms are now provided by established competitive suppliers, and so now the tax break is causing a significant unjustified revenue loss. Here are the gas "migration" statistics; here are the electric migration statistics. If the rationale was to "jump-start" or "breathe life" into retail energy markets, the time has come to take off the jumper cables and life support. The PSC has more recently assessed the growth of ESCO markets and observed in an October 2008 order:

if barriers to entry and other obstacles to the growth of competitive markets have been successfully removed, those markets should develop without ratepayer subsidization. With the markets maturing, competitive providers should succeed or fail based on whether they offer energy supply products on terms that consumers find preferable to purchasing commodity from a regulated utility.

Now that the PSC is finally eliminating ratepayer subsidization of ESCOs, which is long overdue, it is now time for the Legislature to end unnecessary taxpayer subsidization of ESCOs and ESCO customers.

Poor Tax Policy
There is no valid tax policy basis to continue the delivery service tax break for customers who buy commodity separately from an ESCO. Levelizing the tax so that customers who switch do not get a tax break on utility delivery service would treat all taxpayers equally.

Poor Economics
The usual rationale given for introducing competition into utility service is to achieve greater economic efficiency. The existing system essentially creates a public tax subsidy of the service provided by "competitive" providers and may be supporting phony, subsidized retail energy competition that is not providing real benefits to customers or to society as a whole.

With the delivery service tax break, a less efficient ESCO can still win the customer by reselling the utility service for a little more, and offsetting his less efficient higher price with the tax break, which gives the customer slight net bill savings -- and a corresponding shift of tax revenue responsibility to others. From a total societal point of view, the cost of introducing such artificial "competition" is higher than without it. True competition on a level tax playing field would reward the ESCO that obtains lower cost energy. The existing system only rewards middlemen who merely arbitrage the tax savings with the customer.

Most ESCOs appear to be passive price takers of NYISO spot market influenced prices. We know of no case in the past decade where an ESCO has challenged at FERC an unreasonable wholesale price it paid. Indeed, many of the retail ESCOs are in the same utility holding company family as production and wholesale trading affiliates who have interests in achieving high prices, viz., Con Edison Solutions and Con Edison Energy. Elimination of the tax break for ESCOs might even work to realign ESCO interests with those of retail customers if, in order to win and keep the customer, the ESCOs actually had to find and provide lower priced energy. As stated by the PSC in its recent order:

Moreover, subsidization is inconsistent with competitive market operations as subsidies distort the functioning of competitive markets. Eliminating subsidies will leave a market where competitors can be judged on the merits of their offers and the quality of their products, without assistance from utilities or ratepayers.

The same rationale for ending PSC regulatory subsidies applies to tax subsidies.

End the ESCO Tax Breaks Now
During this period of financial crisis it is time for the Governor to propose an end to the irrational public tax subsidy of the PSC's retail energy competition scheme, which has already cost utility ratepayers more than $100 million over the past decade. See PSC Votes to Continue Retail Access Programs Promoting ESCO Service. This will bring in added revenue needed during the next few years to help balance state budgets. Down the road, it may be possible to reduce the tax rate -- while still bringing in more revenue than now, because of the equal coverage of all utility delivery service.

PULP, Legal Aid, Homeless Advocacy Groups Targeted by Governor for $2.8 Million Cut

Today Governor Paterson issued a list of proposed cuts to the current year's budget for the state fiscal year ending March 31, 2009. It includes funding reductions of more than $2.8 million to providers of civil legal aid and advocacy for homeless people. The list includes PULP.

According to the Executive Summary of the Division of the Budget (DOB), "Governor Paterson is recommending reducing new legislative programs by 50 percent of remaining spending, commensurate with the reduction enacted for new executive programs. " Ostensibly, the cut would apply to funds not yet disbursed as of December 1, 2008 for the fiscal year April 1, 2008 - March 31, 2009.

This characterization, which suggests curtailment of "new" activities, is inaccurate. Many of the service programs slated for cuts have been funded by state appropriations for many years. For example, PULP has received appropriations every year since 1981. Apparently these are "new" appropriations in "DOB-speak" because former Governor Spitzer did not include them in his Executive Budget and so they had to be added by the Legislature in budget negotiations.

The cut of 50% of funds undisbursed as of December 1 masks their draconian nature. If the state agencies processed the contracts in a timely fashion, grantees would have gotten a 25% advance early on and would have billed the state for current expenditures up until now. If they claimed reimbursement of contract expenses through October, the disbursements as of December 1 would amount to seven months' expenses plus three months' advance (25%), leaving unpaid only two months' worth of pro rated grant expenses. So a 50% cut in that would amount to roughly one month's contract expenses, or 8% of the annual grant. That too is is a sizable cut, but that is not what happened. The Governor's proposed cut is far more draconian than that.

The list of cuts shows that DOB anticipates $4.2 million -- the total amount of the original civil legal services appropriation -- still to be on hand on December 1, available for the proposed 50% cut. Obviously, DOB expects not to pay even one cent of the $4.2 million appropriated for civil legal services on April 23, 2008. This is due to deliberate stalling by state agencies in processing funds for programs added by the Legislature. See NYS Continues to Disadvantage Not for Profit Grantees, discussing the slow payment of state funds to non profit organizations. The problem apparently exists in harsher measure for programs added by the Legislature.

Many small nonprofit organizations like PULP lack significant fund reserves. They cannot stop their services, close offices, lay off staff, and stop paying rent and other expenses while waiting for the tardy state contract reimbursement to begin, because, apart from the impracticality of stop and go disruption, in order to receive their funding, they must make expenditures in accordance with their contract budgets. As a result, many must borrow from banks in reliance on receiving state contracts to perform the work supported by the enacted state appropriations.

The contract stalling and the Governor's proposed cutbacks essentially raid and deplete the financially weak nonprofit agency reserves driving them to expensive borrowing or service cutbacks.

As stated by a school superintendent in reaction to the Governor's proposed education cuts, "The governor didn't talk about dipping into his own reserves, but he wants us to dip into ours." Local Reaction to Paterson's Plan.

PULP and other groups advocating on behalf of low income people have now run legislatively funded programs for this year with borrowed money for seven and one half months, (62.5% of the year) without receiving any reimbursement, only to learn that the Governor wants to cut 50% of the annual funding -- with less than 37.5% of the year left.

Do the math. The Governor's "solution" is a recipe for bankruptcy of some organizations and certainly an immediate halt to program operations undertaken in anticipation of reimbursement.

We trust that the Legislature will not accede to the Governor's extreme proposals.
See Reaction to State Cuts: 'Catastrophic,' 'Devastating'; Local Reaction to Paterson's Plan; Paterson's Cuts Run into Resistance; Legislators: Hands off School Funding; Pols Poised to Bust Gov's Budget Chops; Governor Paterson's Proposed Budget Cuts 'Could Blow Up in his Face'; NY Senate Won't Act on Governor's Budget Plan.

Update 11/17/08

Mr. Paterson met with the Senate majority leader, Dean G. Skelos, and the Assembly speaker, Sheldon Silver, in his Midtown Manhattan office on Sunday afternoon. But by the time the meeting ended, after about an hour, it was not clear that the Legislature would even vote on Mr. Paterson's plan to close the state's budget deficit.

Paterson and Top 2 Legislators Fail to Agree on Cuts.

Alternatives to the Governor's proposals are suggested by the statewide Better Choice Budget Campaign and the One New York: Fighting for Fairness Coalition of more than 150 social services providers, at Budget Backfire: Cuts on the Needy Won't Help: a Raft of Painful Funding Reductions Is Not the Best Way out of the State's Budget Crisis.

Pennsylvania Utility Regulator Holds Hearings on Flaws in Wholesale Power Markets

Concerned About Rising Wholesale Electricity Prices, Pennsylvania's State Utility Regulator Holds Hearings
The Pennsylvania Public Utilities Commission (PUC) is holding a series of en banc hearings on the effects of the functionally deregulated wholesale electric power markets. See Wholesale Energy Markets En Banc Hearings. Pennsylvania, along with New York and 13 other states, adopted restructuring schemes that led to the sale by traditional utilities of their all power plants to new owners, who in turn would sell their output at wholesale market rates under FERC jurisdiction.

On October 23, ISO/RTO proponents testified. The largest RTO, PJM Interconnection, claimed in its testimony that "rising wholesale electricity prices are being caused by changes in wholesale market fundamentals, including the rise in the costs of fuel, and not because PJM’s market is dysfunctional or incapable of containing prices to reasonable levels. PJM’s wholesale market is competitive, and the prices established in the market are fair and reasonable." This invocation of fuel price increases is deceptive, perhaps calculated to resonate with everyone's experience with high energy costs. It is a familiar refrain based on wishful market thinking that ignores the real impact of fundamental flaws in market design, flaws in ISO/RTO operations, gaming, market power, and high ISO/RTO costs incurred to run and watch their "organized" spot markets. See It was the [NYISO] Market.

Dominated by producers and sellers, the ISO/RTO could be seen as performing the functions of a legalized cartel, i.e., a combination of independent business organizations formed to regulate production, pricing, and marketing of goods by the members. In these markets, all sellers receive the same price, based on price demands and what the market will bear, rather than cost, regardless of the reasonableness of the charges.

On November 7, critics appeared and testified about the problems of the ISO/RTO markets.

Alcoa
Alcoa Corporation testified that "in many ways, the reality of retail electric deregulation and competition has fallen far short of the vision that we had for this experiment when we embarked upon it a decade or so ago." Alcoa graphically demonstrated that electricity costs at its Lancaster Pennsylvania aluminum plant are soaring far above the cost in other states that did not "restructure" like Pennsylvania and New York, and testified that it closed major industrial operations due to the impact of the FERC-approved spot markets in Maryland and Texas, which have market designs similar to those of the NYISO:

Alcoa has direct, first-hand experience with the havoc wrought by flawed market structures in both PJM and ERCOT. Our aluminum smelter in Frederick, Maryland closed in 2006 when Maryland’s move into the PJM market was completed and we were no longer able to obtain long-term, competitively priced power. Ultimately, this eliminated 700 great jobs and all of the things within that community that went with them. Just a few weeks ago, Alcoa announced that we have been forced to curtail production at our Rockdale, Texas smelter and eliminate 820 jobs because of local power price and supply issues driven by the ERCOT market.

I urge Pennsylvania to join Ohio and other states in the creation and appointment of a dedicated advocate at FERC. This role would be empowered to represent the consumers of the Commonwealth in FERC proceedings and engage with those states to form a coalition to correct the structural defects built into the FERC and “stakeholder” proceedings and bring back needed balance of interests.

Within the Commonwealth, this Commission should encourage and seek to require the electric distribution companies, load serving entities and utilities under its jurisdiction toobtain an increasing share of the power that they need to serve their ratepayers via longer termed contracts. This would reduce and eventually eliminate the impact of the daily and next-day clearing markets on the price paid by consumers for most of the electricity they need, while also lending needed stability and predictability to that pricing. * * * *

Finally, to the degree that forces seek to eliminate industrials from eligibility for stable, predictably priced supply from the utilities, the Commission should resist such forces to its full ability, and at every opportunity.

A recent malfunction of the NYISO markets due to gaming by unnamed market perticipants reportedly cost Alcoa an extra $5 million at its New York plant in the first half of this year. Agency Says Power Costs Inflated: Alcoa's Bill Jumps $5m in First Half of '08; FERC Probes Charges of Manipulation, Watertown Times, August 30, 2008.

ELCON
Significantly, the Electricity Consumers Resource Council, ELCON, which along with Enron and many others championed restructuring in the 1990's, testified that the changes it and policymakers in the 15 restructured states had hoped for -- real competition and lower prices -- did not materialize:

ELCON was perhaps the earliest national group to advocate increased competition in the electric utility industry. Our members operate in competitive global markets and appreciate the efficiencies of open competition compared with poorly regulated centralized markets. However, after roughly a decade of experience with restructuring there are clear indications that the ISO and RTO markets are too costly, not truly competitive, and fail to deliver net consumer benefits.

**** Real competition has not been realized, and if it had, it should be self-evident. Restructuring has replaced a state regulatory regime that had at least some end-user focus and rates based on average costs with a costly ISO/RTO federal regulatory regime that has no end-user focus and rates based on the highest accepted bid, which need not be based on marginal cost.

* * * *We originally envisioned a market in which both suppliers and consumers would hedge commodity price volatility with long-term bilateral contracts. Long-term forward markets decrease spot market prices and enhance efficiency. In fact, one of the authors of nodal (LMP) pricing assumed the same. *** The robust, liquid forward market created with those contracts would provide investors with the same or better price security as a traditional utility rate base. It didn’t happen. Instead, for all practical purposes, consumers that need to hedge the commodity price risk simply can’t do so. Their choice is simple. Take the unbundled spot price (the highest bid clearing the market) or take a contract based on estimates of the same spot price bundled with a huge risk premium. That is not a hedge – and it certainly is not the result of a competitive market.

According to ELCON, its "member companies consume nearly six percent of all the electricity used in the United States." Some retail "big box" store chains, who make extremely large sums for coordinating their air conditioning use on hot days, and who may have on-site generation of their own, still support the restructured system, but with the defection of ELCON, it is increasingly rare to find any bona fide consumer proponents of the deregulated electricity markets.

Dr. Kenneth Rose
Kenneth Rose, Ph.D, an economist and researcher who performed annual reviews of the results of restructuring for the Commonwealth of Virginia for many years, testified on the main explanation for high wholesale electricity spot market prices put forward by market proponents, viz., that they are due to rising natural gas prices.

While natural gas cost does appear to be correlated to the electricity energy prices, natural gas only accounted for 7.7 percent of the generation in PJM during 2007. Coal and nuclear sources accounted for almost 90 percent of the generation. *** The typical explanation for this disproportionate impact of natural gas on wholesale power prices is that natural gas is often the marginal fuel. In PJM, as in several other RTOs, the price for the units selected for dispatch is set by the highest offer price from a dispatched unit, or the marginal unit. During peak hours relatively more expensive units are used to meet demand and often these units use natural gas. As a result, the wholesale price can climb quickly and to hundreds of dollars per MWh when these units are dispatched.

However, while natural gas may be on the margin often and during peak times, it is not the fuel that is most often on the margin during the year in PJM – coal is on the margin for more hours. For total hours during the year in 2007, coal was the marginal fuel 70 percent of the hours, while natural gas was for 24 percent, and a mix of several different energy sources was used for the remaining 6 percent. Again, as with percent of generation, natural gas appears to have a disproportionate impact on the price of electricity.

* * * * I am in complete agreement with [PJM Market Monitor] Joe Bowring, when he states that, “Given higher fuel prices, higher electricity prices do not mean that there is something wrong with the wholesale power market.” This is true, you cannot draw conclusions based solely on the fact that prices have gone up, or down for that matter. He continues, “In a perfectly competitive market, changes in input prices will change the price of the final product.”*** This is true as well, however, it is also true that with monopoly or oligopoly, changes in input prices will change the price of the final product. Simply put, electricity price changes and its correlation with fuel costs is not a substitute for careful analysis of market performance.

Dr. Rose called for release of cost data to determine if, in fact, the spot markets are operating as in theory they should, or if sellers are exercising market power.

PJM Industrial Customer Coalition
The PJM ICC testimony showed how wholesale power from the same power plant is priced higher when it is sold in the PJM market, and how the benefits of lower cost power plants have been transferred from consumers to producers due to the wholesale market design in which all plants are paid the price demanded by the last plant needed to clear the market:

Consider the following real-life example. A customer has two plants, with nearly identical operating characteristics, one in an area of Maryland in which customers are directly exposed to PJM market prices and one in West Virginia, where rates are still regulated based on actual costs. Both plants are customers of the same utility – Allegheny Power System (APS). The only difference is that one plant has the good fortune of being located in West Virginia and the other has the burden of being located in Maryland where customers are directly exposed to PJM prices. In 1997, the two plants paid nearly identical prices – just over 3 cents per kWh. However, as of August 2008, a very large rate differential has developed between the 2 plants. The West Virginia plant now pays just under 4 cents per kWh, an increase of less than 33% over the 9-year period. The Maryland plant, in sharp contrast, now pays more than 7 cents per kWh, an increase in excess of 100% over the same 9-year period. When all variables are isolated except for exposure to organized market prices, it becomes clear that customers are not benefitting from the PJM market design and many are being seriously harmed.

* * * *So, we are left with a design that is premised upon a "no generator left behind" pricing policy. Instead of targeting customer payments to the actual revenue requirements of each unit in the fleet, we are now ignoring revenue requirements altogether except for the revenue requirement of the most expensive unit needed to reliably serve load. We then pay all generators as if they, too, carried that most expensive revenue requirement.

In addition to the energy spot market design, PJM ICC and other witnesses were critical of the PJM capacity market intended to induce new resources indirectly. Various capacity market schemes have been created by the ISO/RTOs which have greatly increased prices without achieving much in the way of results. See Cornell Professor Gives Low Marks to NYISO Electricity Markets, quoting Professor Timothy Mount:

the 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.

PJM ICC noted that the Ontarioa Independent Electricity System Operator is "moving away from reliance on single-clearing price markets to accomplish the reliability objectives that single clearing price markets were not designed to cost-effectively accomplish."

APPA
Historically, The American Public Power Association (APPA) fought hard to open up equal access to the bulk electric power transmission grid because its members, many of whom are local municipal utilities, often had difficulty in buying power from sources other than the owner of the transmission lines, or in transmitting power across lines owned by other utilities. APPA testified about how the new ISO/RTO markets had driven up prices for its members that had to rely on wholesale power purchases:

[P]ublic power systems have experienced first hand the difficulties of obtaining reasonably priced and reliable wholesale power supplies. For example, wholesale power costs for the municipal utilities in New Jersey doubled between 1992 and 2007—and then doubled again in 2008. ***Public power systems in Maine have witnessed significant increases as well, including one which experienced a tripling of its power costs within a two-year period. Other public power systems are taking “offensive” action to reduce their reliance on wholesale power markets. American Municipal Power-Ohio, the joint action agency providing wholesale power supplies to 122 public power systems in Ohio and five other states (including 26 public power systems in Pennsylvania), has embarked upon a program to build and own new generation, including both coal-fired generation and run-of-the-river hydro. ***The purpose of these measures is to insulate its member public power systems and their retail customers from the volatile wholesale electric market to the maximum extent possible, by reducing AMP-Ohio’s overall dependency on wholesale market purchases of electricity to meet demand.

In contrast, in New York the PSC is still insisting that utilities get rid of their power plants and buy energy for their customers in the wholesale markets influenced by NYISO spot market prices. See PSC Typical Electric Bills Show Trend of Higher Prices and Volatility.

APPA testified that in contrast to their grid coordination functions, the FERC-approved ISO/RTOs have not succeeded in their market operations:

Supporters of the current market structure, including unregulated generators and their affiliates, characterize RTO-run power supply markets as “competitive.” They strenuously charge that critics of RTO markets are opposed to “competition.” But APPA makes no apology for its EMRI effort, or for its advocacy effort to spotlight problems with RTO-run centralized wholesale power markets. These are highly complex, bureaucratic, centrally administered markets subject only to the lightest-handed regulation, with little true data transparency. Contrary to claims advanced when FERC approved these markets, retail consumers have suffered from the removal of regulatory protections. To quote the popular bumper sticker, “[i]f you are not appalled, you haven’t been paying attention.”

APPA faulted FERC for refusing to examine the workings of the ISO/RTO markets in a recent generic rulemaking case regarding the "organized markets," saying that "in failing to undertake in the rulemaking proceeding a comprehensive review of RTO-run centralized wholesale power markets, and the prices those markets produce, FERC . . . failed to carry out its statutory responsibilities to protect consumers."

Further Hearings
The Pennsylvania PUC is holding further hearings on December 18. Audiocasts and testimony are available at the PAPUC web page for the hearings. These hearings represent a healthy curiosity on the part of a state regulator that handed much of its powers over to federally deregulated markets. New York's PSC, still enthralled by deregulation, remains in the "three monkeys" mode, i.e., "see no evil, hear no evil, speak no evil" about the NYISO markets.