Wednesday, December 31, 2008

PSC Touts "Arrearage Reduction" Proposals Favoring Utilities, Nothing New for Customers

Perhaps in an effort to face reality, the New York State Public Service Commission ("Commission") launched a new proceeding on December 16th to examine the growing difficulty of electric and natural gas customers being able to pay their utility bills and the resulting unpaid arrearages at the state's utilities.

Unfortunately, the Commission Order commencing the case did not focus on the inability of low income customers to afford to keep their homes warm (even though the same document reported that natural gas prices are expected to be 7.9 percent higher and electricity costs are expected to be 12.5 percent higher than last winter), but, rather, on the financial impact that uncollected bills will have on the utilities. The Albany Times Union reported in its December 30th edition that over one million utility customers in New York State are more than 60 days behind on their bills. It is certainly the appropriate time to examine the issue, but is the Commission looking in the right place?

According to the December 16th Order, Commission Staff met, ex parte, with representatives of the utilities on September 29th to discuss the impact of fuel costs and the weakening economy on vulnerable customers. At that meeting, the major energy utilities agreed to certain "voluntary operational practices" for the cold weather period (November 1st through April 15th) which should ease the burden. These "temporary" changes include:
(1) Accepting all Home Energy Assistance Program ("HEAP") payments and offering "fair and reasonable payment agreements" to customers in financial need;

(2) Extending additional protections to elderly, blind, and disabled customers;

(3) Refraining from service terminations during periods of extreme cold weather;

(4) Expanding bill payment options and elevating as a priority consumer outreach and education about programs and services available to assist consumers.
Feeling as if something of real substance had been negotiated that day, the Order proudly states: "[t]hese additional utility actions have the potential to alter revenue arrearages, utility cash flow and uncollectible expense." It then went on to discuss ways of improving the utilities' bottom line.

Either due to a lack of knowledge of the laws and regulations entrusted to the Commission or to a complete lack of negotiating skill, what Commission Staff so proudly marked as a breakthrough are already requirements on the utilities or long-standing commitments made by the companies. Let's take a look.

Acceptance of HEAP Payments
Under the Uniform Vendor Agreements signed by the various utilities and the state Office of Temporary and Disability Assistance, the utilities have already pledged to accept all HEAP payments. Paragraph 6 of the 2007 - 2008 agreement states: "The home energy supplier agrees to accept all regular and emergency HEAP benefits authorized on behalf of residential customers and current residential customers without imposing any conditions precedent. . . . The home energy supplier also agrees to continue or establish service for thirty (30) calendar days for each regular HEAP benefit authorized on behalf of residential customers and current residential customers and agrees to continue or establish service for thirty (30) calendar days for each emergency HEAP benefit authorized on behalf of residential customers and current residential customers."

On top of that, the text of the Home Energy Fair Practices Act ("HEFPA") already requires the utilities to offer "fair and reasonable" deferred payment agreements to customers in arrears. HEFPA Section 37(a) states that "all deferred payment agreements authorized by this article be fair and equitable, considering the customer's financial circumstances" and the Commission's implementing regulations for HEFPA state at Section 11.10(a)(1)(i) "[a] utility must negotiate in good faith with any customer or applicant with whom it has contact so as to achieve an agreement that is fair and equitable considering the customer's financial circumstances."

Why would the Commission consider these long-standing requirements to be "voluntary" and "temporary"?

Protection of Elderly, Blind and Disabled customers.
HEFPA already provides significant protections to elderly, blind, and disabled customers. HEFPA Section 32(3)(b) and Section 11.5(b) of the Commission's rules, for example, require that utilities can not terminate, disconnect, suspend, or refuse to restore service where a residential customer is known to or identified to the utility to be blind, disabled, or 62 years of age or older, and all the remaining residents of the household are 62 years of age or older, 18 years of age or under, or blind or disabled, without making "a diligent effort to contact by telephone, or in person if telephone contact is unsuccessful, an adult resident at the customer's premises at least 72 hours prior to termination, disconnection or suspension of service for the purpose of devising a plan that would preclude termination, disconnection or suspension and arrange for payment of bills."

Once again, an existing requirement is considered to be a victory these days if the utility "voluntarily" agrees to comply on a "temporary" basis.Customers unable to pay should be able to receive HEAP or public assistance payments and the utilities should help them claim benefits instead of shutting off service.

Cold Weather Terminations
In addition to the two-week moratorium on service terminations around Christmas and New Years Day (Commission Rule Section 11.4(d)(2)), the utilities have traditionally met with Commission Staff every year to discuss termination policies during cold weather periods, such as whether it is permissible to terminate service when the temperature is below 32 degrees.

Somehow, this long-standing practice has become something to cheer about this year. Also, the emphasis should be on helping customers reduce energy costs and to obtain aid if they cannot afford it, instead of termination. The PSC is essentially green-lighting harsh and dangerous termination practices when it is 33 degrees, contrary to the statutory goal of continuous residential service. See Candle Fires: A Symptom of "Rolling Blackouts" Affecting Low-Income Households.

The PSC has no performance measures in place to disincent utilities from reducing customer service costs needed to work with customers and relying instead on interruption of service as a collection tactic.

PULP supports the concept of prioritizing outreach efforts regarding assistance programs and expanding bill payment options, but has yet to see any changes this year.

Rather than exacting concessions from the utilities on ways to significantly minimize (or eliminate) cold weather terminations, in this time of dual crises (higher energy costs and an economic meltdown) the Commission mainly has gotten the utilities to agree to do things they already should have been doing. Where is the Commission's commitment to customers and affordable service to the poor?

The remainder of the Order addressed means to best ensure that the utilities' bottom lines are met. The Commission is seeking Comments on how it could address the financial impacts on the utilities from the burdens of increasing arrears amounts and uncollectible expenses. One possible solution proposed would be rate mechanisms that could be instituted to provide relief to utilities, including (1) quantifying and deferring the return that may be required on utilities' increased working capital needs due to higher than normal 2008 - 2009 arrearages and uncollectible expense and (2) ways utilities might defer uncollectible expenses in excess of the level reflected in current rates. It did add that "[a]ny proposals regarding the recovery of amounts deferred should recognize the need to minimize bill impacts and, as such, should consider spreading cost recovery over more than one year."

In other words, any potential solution will protect utilities from the downturn and inability of customers to pay, and result in higher rates for all customers, and will not ease the burdens of low income customers. For those who have the most difficulty in paying, the Commission failure to adopt effective low income rates is likely to worsen the situation.

The Comments are due by January 15th. Once the Commission has considered the Comments, it will invite specific proposals from the utilities to address any adverse affects of abnormally high arrearages and uncollectible charges. The Commission will look at whether the proposals received from the utilities demonstrate that:
(1) The company is taking all required and voluntary actions to minimize service terminations while continuing to pursue reasonable actions to minimize uncollectible expense;

(2) The company's current rate plan mechanisms do not adequately address current working capital and uncollectible expense and that any recovery of costs provided as a result of this proceeding does not duplicate the current treatment of these costs;

(3) Any proposed additional mechanisms are appropriate and warranted given the terms and risks undertaken in its current rate plan;

(4) The company is not in an overearnings position after any proposed deferral or additional relief;

(5) The additional amount to be recovered and the amount deferred should represent approximately five percent or more of net income on an after-tax basis.
The arrearage amounts owed to the utilities are significant and growing. However, instead of calculating a formula for the utilities to use to make up for these uncollectibles from their customers in higher rates, the Commission should look at ways for reducing the energy burdens of consumers. "Forcing" the utilities to "voluntarily" comply on a temporary basis with existing laws and regulations intended to protect customers does not move the process any closer to resolution.

Lou Manuta

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