AARP Calls for Reform of NYISO and Its Electricity Spot Markets

AARP has called for reform of the NYISO, the wholesale electric utility that operates the New York grid and 'organized" electricity spot markets. AARP Calls for Accountability, Oversight and Transparency in New York State Electricity Markets, AARP Press Release, Dec. 15, 2009.

AARP also issued a report identifying areas for specific reform:

• Accountability – The State Legislature should pass reforms requiring the Governor and the Legislature to appoint NYISO’s board of directors.
• Transparency – Require the bids, bidders, and computer computations in NYISO’s wholesale electricity market auctions to be public after no longer than two days.
• Oversight – Require the New York Public Service Commission to review the NYISO budget and approve the fee charged to consumers for NYISO’s operations. The NYISO should also be required to follow New York’s open meeting law.

Recommendations for Reforming NYISO to Lower Consumers’ Electricity Bills, AARP, Dec. 17, 2009.

The New York PSC and privately owned utilities began their experimentation with deregulation of power generation a decade ago, with the selloff of power plants and subsequent dependence upon wholesale purchases in functionally deregulated electricity markets. See Disconnected Policymakers. New York's electric rates are among the nation's highest. No state has followed the New York and its pied pipers of deregulation since the demise of Enron, and in recent years eight states suspended their plans to restructure, according to EIA.

According to the AARP Report and the Energy Information Agency, New York's electric rates are among the nation's highest.

Recently the New York Assembly committees that oversee energy utilities, corporations, authorities and commissions held joint hearings on the NYISO. See Assembly Committees Hold Hearing to Discuss NYISO Practices and High Electric Prices. The hearings revealed the existence of high bidding that seemed unlikely to be based on sellers' marginal production costs, as spot market and competition advocates theorize would aoccur in a truly competitive market. See McCullough Research, “New York Independent System Operators Market-Clearing Price Auction Is Too Expensive for New York”, and New Yorkers Lost $2.2 Billion Because of NYISO Practices: The Debate Continues.

NYISO refused to provide information requested by the legislative committees regarding the identity and anomalous bids of sellers in its electricity spot markets. The NYISO claims its internal rules, which have been approved by FERC, require secrecy about recent bids and complete "masking" of the identity of who, for example, regularly submits bids at the market maximum of $1,000/MWH, or who submitted more than 585,000 bids above $900/MWH from September 2007 to August 2008. See Data Discredits NYISO and PSC Defense of Spot Market Rate Demands; 12% of Bids Exceed $900, PULP Network March 31, 2009; and More Questions for the NYISO, PULP Network, April 9, 2009.

The current NYISO private governance structure allows power producers and traders to block internal reforms or change its market rules, which are filed with FERC. See NYISO Governance, PULP Network, June 18, 2008. Those rules do not bar anomalous bidding, and so refunds are not an option when sellers game the rules and overcharge. NYISO Admits its "Market Problem" Allows "100% Or More" Overcharges Due to "An Abuse of Market Power," Proposes Rule Change, No Refunds, PULP Network, September 5, 2009.

When questions are raised about the results of the NYISO markets and its high cost of operations, NYISO claims it is regulated. See Larry Rulison, NYISO tighter control urged – AARP says system's policies inflate electric prices, hurt consumers, Times Union, Dec. 17, 2009.

But FERC, the federal agency traditionally charged to regulate wholesale electric rates, has itself become a proponent of deregulated market rates. FERC liberally grants permission to sellers to dispense with filing all their rates and contracts publicly for review, lets them demand and charge "market-based rates," and then suggests market nostrums, such as "demand response," as a remedy for high and spiking charges, rather than fixing unreasonable charges and investigating market gaming and ordering refunds when sellers game the markets. See No Evil: FERC Refuses to Examine Gaming of RTO/ISO Electricity Spot Markets, PULP Network, April 22, 2008; FERC's Advice: Avoid Our Deregulated ISO/RTO Spot Markets, PULP Network, June 24, 2009

Tiffany Mews Tenants Respond to Landlord's Defense of Submetering

Tenants at Tiffany Mews in Brooklyn filed a petition with the PSC asking the Commission to halt submetering. Tiffany Mews Tenants Ask PSC to Halt Submetering with No Proper Order and No Filed Tariff or Contracts Approved by the PSC, PULP Network, July 31, 2009.

The Petition was shunted instead to the Department of Public Service Office of Consumer Services, to be handled as a complaint.

On behalf of the Tiffany Mews Tenants' Council, PULP filed a Reply to the Response of Related Tiffany, the owner of Tiffany Mews on December 15, 2009.

In the reply, the tenants argue that a prior PSC order allowing submetering for a condo project that was aborted did not authorize submetreing to low income tenants because condo owners agree to submetering when they agree to the Offering Plan when they buy their units. Under PSC submetering orders for rental properties, valid tenant consent to submetering must be obtained in lease agreements containing the PSC-approved rates, terms and conditions of service.

The owner, however, did not obtain a new or revised PSC order allowing submetering to tenants, did not obtain valid tenant consents, and circumvented the Home Energy Fair Practices Act, for example, by not giving notice of the availability of PSC complaint determination procedures, and by seeking to evict tenants based on nonpayment of charges for electricity.

The owner, through its agent AMPS, also subjected tenants to real time pricing experiments without their consent, which Related Tiffany says was not authorized. See Landlord Discloses Submetering Company "AMPS" Conducted Unauthorized Time of Use Pricing Experiments on Tiffany Mews Tenants, PULP Network, November 12, 2009.

The tenants also clarify that although the premises have a central heat system, the heat is distributed through motors and fixtures that add to their electric bills, that the owner has not installed energy efficient appliances except when old ones break down, the premises are not energy efficient, and submetering is causing them hardship.

See PULP's web page on submetering for more information.

New FCC Telephone Subscribership Statistics Reveal Shortcomings in New York

This week, the FCC released the latest of its three-times-a-year Telephone Subscribership in the United States report. It contains data from July 2009 and shows that the percentage of households with a telephone in New York stands at 95.4%. While this is a slight increase from the last set of figures in March 2009 (94.7%), it still lags the national average and those of neighboring states. Subscribership increases to levels higher than New York's were in

• the national average (from 95.6% to 95.7%)
  
• Connecticut (97.6% to 98.5%),
  
• Massachusetts (97.9% to 98.2%),
  
• Pennsylvania (97.6% to 97.9%), and
• Vermont (97.1% to 98.2%).
  

While New Jersey also saw a slight increase during this time period, from 94.8% to 95.1%, it now has fallen behind New York.

When conducting its survey, residents are asked by the FCC “Does this house, apartment, or mobile home have telephone service from which you can both make and receive calls? Please include cell phones, regular phones, and any other type of telephone.”

Using 2008 numbers, the US Census Bureau estimates that there are nearly eight million households in New York State. If 4.6% lack telephone service, that translates to about 368,000 New York households lacking telephones. By comparison, if New York achieved the 98.5% penetration rate of Connecticut, 248,000 more New York households would have telephones than have them today.

This is an unacceptably large number of households that can not reach emergency services or inquire about job openings or be reached by schools, businesses, and others.

With more than 1.3 million New York State households eligible for Lifeline discount telephone service (according to the Office for Temporary and Disability Assistance, OTDA, September 2009 Food Stamps report) and only about 300,000 participating in the Lifeline program , the problem is easily identified. However, resolving the problem requires a higher level of commitment from the New York State Public Service Commission (“PSC”) and OTDA than we have seen to date. See, Assistance Only For Some – Twenty-Four Years of New York State’s Lifeline Discount Telephone Program and Lifeline Awareness Week Coming in September; Will it Make a Difference?

Specifically, the PSC and OTDA must:

1. Fix the automatic enrollment process between OTDA and the Lifeline providers,
2. Break down policy barriers that inhibit the provision of the assistance to those whose phone service is provided by a cable company, and
3. Eliminate tariff barriers which bar Lifeline to customers whose local phone service is included in a bundled package of local and long distance service.
   

Successful implementation of these proposals will greatly increase the percentage of New Yorkers with telephone service.

Lou Manuta

PSC Modifies Final Disconnect Notice Requirements for Verizon’s Customers

Deep within the New York State Public Service Commission’s (“PSC”) regulations regarding telephone consumer protections is language which is required to be included in all final suspension and termination notices. This required language includes the phrase: PLEASE BRING THIS NOTICE TO THE ATTENTION OF THE TELEPHONE CORPORATION WHEN PAYING THIS BILL.

When originally implemented in 1984, it was thought this phrase was essential because there was a lag in the phone company’s billing system between when a customer's payment was made and the posting of that payment to the customer’s account. At that time, the only ways a bill could be paid were through the mail and by making a payment in person at the phone company or through an authorized agent. It made sense to have the customer remind the company that a payment was made to make sure it was timely posted. Now that payments can be posted in real time, Verizon requested that the PSC waive this requirement for its customers as it is no longer needed.

The company argued in its waiver petition that “its customers now have more choices in making bill payments consisting of use of the Company’s automated telephone system, the Company’s website, on-line payments through the customer's bank, or through use of a debit or credit card. All of these payment options allow instantaneous posting of the payment to the customer’s account.” Verizon added that customers will continue to be protected because the rules also require non-payment situations to be verified prior to suspension or termination of service (section 609.4(f)) and for payments to be rapidly posted in response to suspension or termination notices (section 609.4(g)).

In its December 16th decision on Verizon’s request , the PSC agreed with Verizon that the company’s efforts to avoid loss of service after a payment is made “diminish the likelihood that a residential customer, who is willing [] either to pay or make payment arrangements to pay, will not have service terminated.” Accordingly, Verizon’s waiver request regarding application of this specific language was approved. This provision will continue to apply to termination notices of all other local telephone providers in the state.

Will the loss of this provision for Verizon’s customers have a negative impact on those trying to make a payment to avoid termination? It appears that technological advances may have made this requirement unnecessary. Since the language remains in the regulation, should problems arise, the waiver can be withdrawn.

See PULP's Law manual chapter on telephone consumer protections under the PSC's "Telephone Fair Practices Act" regulations for further information.

Lou Manuta

GAO Report: Nowhere to Turn -- FCC Not Protecting Wireless Consumers, While New York PSC Abstains

On December 10th, the federal Government Accountability Office (“GAO”) issued a stinging analysis of the FCC’s inability to resolve consumer complaints about wireless service. Compounding matters was the realization that the states, including New York, lack the authority to enforce consumer protections for wireless users. FCC Needs to Improve Oversight over Wireless Phone Service.

The GAO survey indicated that most wireless users (84%) are at least “somewhat satisfied” with their service many customers have experienced problems with billing, early termination fees, contract terms, and customer service. While the percentage of dissatisfied users may be downplayed in the statistics, they represent millions of wireless consumers. According to the Cellular Telecommunications Industry Association (“CTIA”) there were over 276 million subscribers nationwide in June 2009. If 16% are not at least “somewhat satisfied,” that represents over 44 million customers.

On top of that, the GAO reported that the FCC "processes tens of thousands of wireless consumer complaints each year but has conducted little additional oversight of services provided by wireless phone service carriers because the agency has focused on promoting competition." The FCC "processes" the customer complaints but does not actually decide them!

The regulatory agency simply forwards customer complaints to the wireless companies for a response, and closes the case if the company simply addresses the issue raised, basically allowing the utility to decide the complaint:

Once FCC receives a response from the carrier, the agency reviews the response, and if it determines the response has addressed the consumer’s complaint, it marks the complaint as closed.

Thus, after punting customer complaints to be decided by the utilities themselves, the FCC tells customers that they can, if dissatisfied with this deregulatory approach, file a real complaint:

When FCC considers a complaint to be closed, it sends another letter to the consumer, which states that the consumer can call FCC with further questions or, if not satisfied with the carrier’s response, can file a formal complaint.

The GAO doesn't mention this in its report, but according to the FCC, "The current fee for filing a formal complaint is $200.00."

So if you complain to a wireless carrier about an unreasonable charge or error, and the wireless company decides not to adjust the charge, and you complain to the FCC, the FCC refers the matter to the wireless utility, and if the utility decides not to change its position, you will have to pay $200 to ask the FCC to decide the issue

The FCC conducts little oversight of wireless company practices because “the agency has focused on promoting competition.” In addition, the survey found that most wireless consumers who have issues with their provider do not complain to the FCC and may not know where they can complain. Since the FCC “lacks goals and measures that clearly identify the intended outcomes of its complaint processing efforts,” the FCC is unable to “demonstrate the effectiveness of its efforts to process complaints.” By not analyzing consumer complaints, the GAO found that the “FCC may not be aware of emerging trends in consumer problems, if specific rules are being violated, or if additional rules are needed to protect consumers. FCC has rules regarding billing, but has conducted no enforcement of these rules as they apply to wireless carriers.” Ouch.

As a result of its findings, the GAO made the following recommendations to the FCC Chair to improve the effectiveness and accountability of the FCC’s efforts to oversee wireless phone service. According to the GAO, the FCC should:

1. Clearly inform consumers that they may complain to the FCC about problems with their wireless phone service and what they can expect as potential outcomes from this process, as well as expand the FCC’s outreach to consumers about these efforts;

2. Develop goals and related measures for the FCC’s informal complaint-handing efforts that clearly outline intended outcomes and address important “dimensions of performance;” and

3. Develop and implement policies and procedures for monitoring and analyzing consumer complaints in order to help the FCC identify trends and emerging issues regarding wireless service and determine whether carriers are complying with existing rules or whether new rules may be needed to protect consumers.

Further, the FCC was also directed to:

1. Develop and issue guidelines which delineate federal and state authority to regulate wireless phone service, including addressing the issues of truth-in-billing and early termination fees, and, if needed, seek statutory authority from Congress; and

2. Develop and implement policies and procedures for communicating with states about wireless service oversight.

CTIA claims 89% of the US population has a cell phone and over 20% (55 million) have cut the cord and rely on wireless exclusively for their voice communications. States like New York have regulations and other requirements in place to protect wireline telephone customers. While PULP believes that more can be done to enforce these telephone fair practices rules, they do not do anything to protect wireless customers who may be saddled with poor service quality, long term contracts, and early termination fees in the hundreds of dollars.

New York is not among the 21 states that have taken some steps to create and to enforce consumer protections for wireless users. The relevant federal law leaves ample room for state regulation to protect consumers, as noted by GAO:

Federal law provides that while a state may not regulate a wireless carrier’s rates or entry, it may regulate the other terms and conditions of wireless phone service. Section 332(c)(3)(A) of title 47 of the U.S. Code does not define what constitutes rate and entry regulation or what comprises other terms and conditions of wireless phone service. This has left it up to FCC and courts to further define which specific aspects of service fall within the scope of these respective terms.

The New York legislature has given the PSC the power to exercise jurisdiction over terms and conditions of wireless phone service if the PSC finds that to be in the public interest. Yes, the FCC should take a long, hard look at itself and how its hands-off approach to wireless protects consumers, especially now that wireless is developing into a major platform for voice communications. But, the states also need to recognize that the telephone consumer protections they have in place do not apply to wireless – or the voice services offered by the cable companies for that matter – and that they are “protecting” an ever diminishing pool of citizens as they migrate to other technologies but still require the same protections and dispute resolution services. In New York, more than half of the population of telephone users are no longer covered by the state’s consumer protections or service quality requirements.

Now that the non-partisan GAO has recognized that wireless customers have nowhere to turn regarding their service complaints, let’s see the New York State Public Service Commission (“PSC”) take the initiative to apply its telephone consumer protections to wireless and cable voice services. If legislative intervention is necessary, the PSC should be advocating for this change.

Lou Manuta

New York City Approves Plan for More Submetering

The New York City Council adopted a new law that adds to the landlord impetus to shift rising electricity bills to tenants through submetering. The new law encompasses large commercial tenants, such as street-level businesses in residential apartment buildings. The new City legislation defines its coverage as follows:

COVERED BUILDING. As it appears in the records of the department of finance:(i) a building that exceeds 50,000 gross square feet (4645 m 2 ), (ii) two or more buildings on the same tax lot that together exceed 100,000 gross square feet (9290 m 2 ), or (iii)two or more buildings held in the condominium form of ownership that are governed by the same board of managers and that together exceed 100,000 gross square feet (9290 m2).

Most large New York City apartment buildings would exceed the 50,000 gross square foot threshold in the law.

The only specific exemption from the "covered" buildings in the law is for real property classified as "class one pursuant to subdivision one of section 1802 of the real property tax law." That law defines "class one" as one, two and three-family residential real property.

Thus, large apartment buildings are "covered" by the new law. A further provision, however, gives a reprieve to residential tenants in covered apartment buildings, because the law goes on to exempt residential tenants who reside in buildings that are "covered" by the new law:

COVERED TENANT SPACE. (i) A tenant space larger than 10,000 gross square feet (929 m 2 ) on one or more floors of a covered building let or sublet to the same person, or (ii) a floor of a covered buildinglarger than 10,000 gross square feet (929 m 2 ) consistingof tenant spaces let or sublet to two or more different persons.

Exception: The term “covered tenant space” shall not include dwelling units classified in occupancy group R-2 or R-3.

Under the New York City Housing Code, occupancy groups R-2 and R-3 include residential tenants living in apartment buildings so they are not required to be submetered by the new law.

When we initially looked at the new law, we saw that apartment buildings are "covered" buildings, but did not immediately notice the further exemption of residential tenant space within "covered" apartment buildings.

Thus, contrary to an earlier version of this post, residential tenants are not required to be submetered under the new law.

Commercial tenants in "covered" buildings with more than 10,000 square feet of space will eventually have to deal with their landlords for measured electric service in the future under the new law. If their experience proves to be anything similar to that of residential tenants, they may wish they had direct utility service from Con Edison.

Green Illusion?
With the cost of inefficient structures and HVAC systems growing as electricity prices rise, and with growing public concern about the environment, submetering is promoted as a "green" policy, and even better, a private market solution requiring no direct public expenditures.

an initiative to submeter apartments and commercial spaces would make everyone aware of their energy use and accountable for it directly, thereby encouraging behavioral energy conservation.

Betty Cremmins, Building Sustainability for PlaNYC, Carnegie Council, Dec. 8, 2009.

NRDC published an article urging passage of the new City legislation saying that "Sub-metering will ensure that tenants have the information and incentive to be more efficient in their energy usage." New York City's Buildings About to Get Greener, NRDC Dec. 7, 2009. The "information" of course, is a bill from the landlord for electric service that once was included in the rent. A letter to the New York Times from proponents of the new law enthusiastically joined in the chorus to embrace landlord resale of electricity to tenants through submetering on this "green" rationale:

And the addition of a new submetering requirement will lead to the end of the kinds of commercial leases where tenants pay a flat rate for energy and thus have no incentive to be efficient. This is a major step and one that will lead to efficiency gains almost as large as the capital upgrades would have been.

Rohit Aggarwala and James Gennaro, In New York City, a Bill to Enhance Energy Efficiency, New York Times, Dec. 7, 2009.

With the new data that will be generated by these [submetered electric] bills, a building’s performance will be exposed. This will allow sustainability measures to be defined and subsequently assigned value. Once they are assigned value, sustainability and energy efficiency will move from nebulous concepts that people talk about to concrete solutions that people will act on – either in the form of investment decisions, or by altering their energy usage.

Eldad Gothelf, Will Energy Usage Data Lead to Different Behavior and Alter Investment?, Zone, Dec. 11, 2009. Mayor Bloomberg is quoted as saying submeters

will give tenants who currently pay energy costs at a flat rate the ability to see how much they're actually consuming. And if they consume less, they'll save money.

Mayor to tell U.N. climate conference about greening of NYC, Staten Island Advance, Dec. 13, 2009.

Undoubtedly there is some degree of "behavioral energy conservation" after tenants begin to see bills for their own usage. But there is a serious lack of impartial, peer reviewed research on the issue. It may be difficult to isolate reductions due to submetering from other factors, such as those due to simultaneous installation of energy efficiency measures, or the normal impact on consumption from rising Con Edison prices, or cost variations due to a coincidence of less severe weather conditions after submetering was installed. Reports citing large and unrealistic post submetering energy savings due to tenant behavior changes relied on by New York state agencies such as the PSC, DHCR, and NYSERDA, are not peer reviewed studies, but are typically authored by consultants to landlords -- who profit substantially from submetering conversion.

Submetering is clearly preferred by landlords, whose Con Edison bills have become unpredictable due to deregulation, with large month to month variations in bills and price spikes that hit cash flow and cannot be recovered promptly through rent increases.

Submetering is also preferred by other entities that seek to bundle properties and securitize their cash flow from rents, because submetering shifts erratic electricity prices to tenants, stabilizing the rent revenue stream to investors. See Why is Submetering Attractive to Apartment Owners?, PULP Network, July 10, 2009.

What submetering really can do is allow landlords to shed the burden of their energy inefficiency and volatile, rising electricity prices to tenants. This is recognized in the article quoted above extolling the new legislation:

For true change to occur, several other policies must be implemented along with the green building program. First, an initiative to submeter apartments and commercial spaces would make everyone aware of their energy use and accountable for it directly, thereby encouraging behavioral energy conservation. For spaces that are already submetered, an overhaul of the lease structure is needed to allow for "green leases." These leases include riders that encourage owners to implement upgrades that ultimately lower the utility bills for renters by promoting cost-benefit-sharing.

Betty Cremmins, Building Sustainability for PlaNYC, Carnegie Council, Dec. 8, 2009. The "green" dream, apparently, is that landlords and tenants will bargain over tradeoffs between rent and investment in energy cost reductions.

After submetering is accomplished, however, it could take a lot to "encourage owners to implement upgrades that ultimately lower the utility bills for renters," as this may not rank high on landlord priorities. For example, the capital cost of replacing inefficient HVAC systems, fixures and appliances or windows or improving a structure's thermal efficiency might be equal to an owner's down payment on his next building, or some other investment that would reap more than the savings from investing in efficiency measures.

Significantly, many landlords have chosen not to make investments in efficiency measures without subsidies, even though the cost savings would redound to them. Is it more likely that they will invest in efficiency measures after they have shifted the electric bills to tenants? Is it likely or realistic that tenants will finance investments in energy efficiency improvements to the landlord's structure and fixtures, the payoff period for which (when the initial cost of the measure is finally offset by energy bill savings) is longer than the tenant's lease?

The problem for tenants is that they have a short term interest in the premises and they neither own nor control the landlord's inefficient structure and fixtures.

The facile marketizer answer is that the rental market will take that into account. But the cost of moving to more efficient premises is very high, the cost to prior tenants of electric usage may not be transparent when rental decisions are made, attractiveness of location or other facilities may outweigh energy cost considerations, and so many tenants are likely to become saddled with the costs of their landlord's inefficiency, with no real remedy, particularly in areas where location is paramount for tenants.

Procedure for Commercial Submetering
In upstate areas, commercial property owners must apply for and receive an order of the PSC waiving the general prohibition against submetering on a building by building basis. In the Con Edison utility territory, howver, the PSC allows commercial submetering without PSC review. Apparently this reflects the interests of the New York City real estate industry, which dominated the PSC policy on submetering for much of the last century, with the exception of a 25 year period after World War II when residential submetering was completely forbidden and commercial submetering was slowed.

Statewide, orders of the PSC are required before any residential building is submetered. In a pending proceeding at the PSC, however, landlords are currently seeking further relaxation of regulatory requirements for residential submetering, which is generally illegal unless allowed by specific PSC orders. Their proposals amount to a call for complete deregulation. See Submetering Landlords Clamor for More PSC Deregulation of Electric Service, PULP Network, March 13, 2009.

The Residential Submetering Experience
Any notion that residential tenants would save with submetering is inaccurate, because rents do not go down enough when electric bills are shifted to tenants. See N.Y. Times Perpetuates Myth Supporting Unjust New York PSC-DHCR-NYSERDA Submetering Regime, PULP Network, August 28, 2009.

Also, landlords have been allowed by to dodge meaningful enforcement of utility consumer protections for submetered residential tenants due to the Public Service Commission's deregulatory tilt and minimalist approach to violation of provisions in its orders, which on their face appear to protect tenants, but which are regularly breached with impunity by landlords. See PSC Asked to Rehear Decision Retroactively Approving Four Years of Submetering without an Order Waiving the Prohibition against Resale of Electricity, PULP Network, March 25, 2009; Lax PSC Enforcement of Submetering Orders Allows Landlords to Overcharge for Electricity Sold to Tenants and to Circumvent HEFPA Protections, PULP Network, November 6, 2008.

Substantial rethinking and reform of the PSC submetering regime and its enforcement must occur to prevent more hardship and dislocation of lower income tenants before any additional residential submetering is rolled out under the "green" banner. Submetering is fraught with risks for residential tenants in a system that favors landlords. Rent reductions when submetering is implemented do not come close to the real cost of electricity:

• PULP Analyzes DHCR Submetering Rent Adjustments, PULP Network, May 27, 2009,
  
• and PSC Order Allowed Landlord to Shift Million Dollar Electric Bill to Low Income Tenants, PULP Network, May 6, 2009
• N.Y. Times Perpetuates Myth Supporting Unjust New York PSC-DHCR-NYSERDA Submetering Regime, PULP Network, August 28, 2009.

Indeed, because of the potential hardships and potential displacement of tenants, every "green" residential submetering project should first be required go through a SEQRA environmental assessment of its impacts on the human population, e.g., the resulting economic hardship to tenants, and their potential displacement. This is needed to assure that the submetering is not used by landlords, with the aid of state agency orders and financial assistance from NYSERDA, as another tool to pry lower income tenants from their homes and replace them with tenants who pay higher market rents.

The implementation of submetering projects typically occurs after the four-month time to sue under CPLR Article 78 has expired. The submetering actions are typically the result of multiple state agency actions (PSC, DHCR, and NYSERDA), with no lead agency designated to assess environmental impact, as is required for environmental assessments. This, coupled with long time spans between seeking permission to submeter (accompanied with paper promises to tenants of benign impact and customer protection) and actual implementation sometimes occurring years later, and PSC non enforcement of even the minimal conditions in its orders, is resulting in unaffordability, hardship to tenants, and their eviction or displacement.

See PULP's web page on submetering for more information.

ESCOs Propose "Education" of Central Hudson Customers with $500,000 Postcards Touting Utility Choice

Energy services companies ("ESCOs") are asking Central Hudson to spend approximately $500,000 to bombard its more than 250,000 residential customers with three large postcards exhorting them to choose ESCO service. In addition, they propose more bill stuffers and public relations efforts by Central Hudson to push customers to take ESCO service, including "Public Service Announcements (PSAs), guest appearances on drive-time and talk radio, and letters to the editor/advertorials outlining Central Hudson’s efforts and where consumers can find more information [about switching to ESCOs]." The ESCO proposal was submitted in a "collaborative" proceeding concerning the use of more than $800,000 of unspent customer funds left over from past programs.

PULP opposes the proposal for the following reasons:

1. There is no objective evidence that switching to an ESCO is to the residential customer's long term advantage or that it is cost effective from either a customer or total societal perspective.
Utilities Ask PSC to Keep Data on ESCOs Secret, PULP Network, November 25.

2. ESCO service may actually be less efficient and more costly, sustained by unjustifiable sales tax breaks on delivery service that prop up inefficient competition and erode governmental revenues and essential public services. ESCO Advertises 9.75% Tax Savings on Delivery Service, PULP Network, June 18, 2009.

3. In light of the harsh conditions facing customers during the recession, the Public Service Commission called for more austerity by utilities to hold costs down. See PSC ORDERS UTILITIES TO LOOK AT TIGHTENING BELTS — Utilities Have 30 Days to Develop Austerity Plans in Light of Economic Downturn, PSC Press Release, May 14, 2009. To align with the Commission's goal of cutting expenses, consideration should now be given to using the funds available to ease ratepayer burdens, either by reducing rates generally or augmenting the utility's low income programs.

4. The ESCO sales tax break is currently causing a revenue loss to the state of $150 million, plus losses to many local governments, due to the unjustified delivery service tax break given to ESCO customers. ESCO Tax Subsidies: A Hidden Cost of the New York PSC's "Retail Access" Scheme, PULP Network, January 12, 2009. In light of austerity conditions facing state and local governments, no further encouragement of switching to ESCOs should be made with ratepayer funds. The impact on state and local governments of more ESCO migration should be quantified, local governments should be notified of the revenue loss they will face if all CHG&E customers were to switch to ESCOs, and they should be given an opportunity to comment on the ESCO proposal.

5. Customers who have chosen not to switch to alternative utility service, notwithstanding a decade of entreaties from ESCOs, the PSC, and distribution utilities to do so, should not have to pay for more ESCO marketing malarkey, relabeled deceptively as "utility customer education and outreach."

6. The ESCOs' proposal does not address the need for information about the higher prices, onerous contracts and anti consumer practices of ESCOs. ESCOs Cost More -- A Familiar Experience, PULP Network, March 16, 2009. Real customer education should include the views of non-ESCO third parties, or education about how to check whether the ESCO prices are higher than the utility prices, or how to switch back to utility service. Any real educational materials should address the many problems faced by consumers who switch to ESCOs, the lack of any study demonstrating value provided to consumers by ESCO service (beyond short term promotions and a tax break on delivery service unrelated to any societal value of the ESCO service), and the cost, delay and difficulty customers often face in switching back to full service. The Commission should not approve spending customer money on ESCO outreach and "education" that ESCOs are unwilling or unable to do for themselves with their own funds.

7. The use of ratepayer funds for ESCO service "education" and promotion of deregulated ESCO service should be stopped, if not permanently, at least temporarily, until the economy recovers in the CHG&E service territory, until household incomes in the CHG&E service territory rise enough so that they can afford the added risks, costs and burdens of ESCO service and its promotion, and until economic conditions of state and local government improve enough to afford the further loss of sales tax revenues due to ESCO migration.

Update

12/24/09 - Craig Wolf, Few Central Hudson Customers Take Advantage of Deregulation, Poughkeepsie Journal, Dec. 20, 2009.

California Senate Leader Blocks Reconfirmation of Pro Deregulation Utility Commissioner Supported by Verizon and AT&T

The leader of the California State Senate is blocking the reconfirmation of a sitting California Public Utility Commission member, Rachelle Chong:

Chong, who has been severely criticized by consumer groups, was first appointed in 2006 and had been seeking a term that would have lasted through 2014.

The decision means she will have to leave the commission at the end of the year.

Chong, who functioned informally as the Public Utilities Commission's main telecommunications regulator, had received support from the state's two largest phone companies, AT&T and Verizon, which benefited from her successful push to deregulate most land-line services.

They lobbied for her confirmation, and AT&T solicited support letters from nonprofit groups and government organizations, some of which had received funding from the company. Both phone companies also donated to a nonprofit group affiliated with Steinberg [the California State Senate President Pro Tem].

* * * * Steinberg spokesman Nathan Barankin said the problem was Chong's record, including efforts to deregulate phone services that he said could also raise rates for low-income users in the state's Lifeline program.

"We felt it was important to have a commissioner with a little more enthusiasm for consumer protection," he said.

* * * * Chong supporters say she protected consumers by capping rates during deregulation of land-line phone service and reduced a backlog of more than 25,000 consumer complaints. Consumer groups argue that her protections are coupled with giveaways for utilities, such as unlimited land-line prices after the rate caps end in 2010. They say backlogged complaints have mostly been closed without investigation.

AT&T, the state's largest phone company, had collected and given to the Senate letters of support for Chong to lawmakers from a host of grassroots organizations. Some of the groups have received donations from the company or from a technology program that it helps fund and for which Chong is an advisor.

Murray Bass, head of a small nonprofit in Northern California, wrote to lawmakers saying Chong was a strong voice for low-income seniors. But in an interview, he said he'd endorsed her at the suggestion of executives at AT&T, which has given his group money.

"There's an essential conflict of interest when a regulated -- or supposedly regulated -- entity is intervening on behalf of a regulator that's friendly to them," said Mark Toney, executive director of the Utility Reform Network, a group that opposed Chong.

Michael Rothfeld, PUC Member's Bid for Second Term Rejected, Los Angeles Times, Dec. 9, 2009.

Iberdrola USA Names Former NYISO CEO to be President of NYSEG/RG&E

Over the past decade, NYSEG and RG&E stood out among New York's investor owned utilities by resisting electric industry restructuring dogma in vogue at the PSC, such as divestiture of power plants, reliance on NYISO spot markets to buy electricity for customers at unregulated market rates, and destabilizing residential prices by passing through short term NYISO price spikes, with the goal of "migrating" all retail customers into the arms of unregulated ESCO middlemen. See Disconnected Policymakers.

The largest electric utilities, Niagara Mohawk /dba National Grid and Con Edison, were easily coaxed by their regulator into restructuring, and divesting their power plants, with the candy of holding company structures for which they had yearned for decades, and very favorable multi-year rate deals that allowed the companies to keep savings from cost cutting. The smaller electric utilities were slower to get on board with the PSC program, and some strongly resisted elements of the restructuring, such as the effort to destabilize residential prices and drive customers to ESCOs.

In 2001, before the fall of Enron, NYSEG warned:

Since the inception of the New York Independent System Operator (NYISO) operations in November 1999, wholesale electric prices in New York have risen over 100%. Because there is insufficient supply in the state, consumers who are facing market price pass throughs are almost assured of increased total electric prices – demand is growing, generation reserve margins are tightening, and this summer is expected to be warmer than last year’s, which was one of the coolest on record. High and irrationally volatile wholesale electric prices will be inescapable for years to come. Action must be taken now to ensure long-term, reliable energy supply and to restore stable prices. To do otherwise is to expose the state to the power disruptions and extreme price volatility experienced in California; New York will be faced with economic dislocation. We must insist that the right solutions to protect consumers are pursued and become a priority.

Currently, the New York wholesale electric energy market, like a train without brakes, is on a volatile, high priced track leading toward possible derailment.

NYSEG Policy Paper, April, 2001. For years, NYSEG and RG&E resisted efforts of PSC staff and ESCOs to institute default variable rates that change unpredictably every month, like those of Con Edison. RG&E, which held on to much of its power generation available at the cost of production, rather than at wholesale market rates, wound up with the lowest residential prices of any investor owned electric utility in the state. In contrast, the rates and bills of Con Edison and Orange & Rockland, which embraced the PSC restructuring regimen and relied heavily on wholesale purchases influenced by NYISO spot market prices, soared. See PULP's Chart of Typical Residential Electric Bills.

NYSEG/RG&E were still providing hedged residential rates and were talking in 2006 -2007 about building new, cleaner or renewable energy power plants, whose output would be available on a state-regulated cost of service basis, rather than on a deregulated market rate basis influenced by flawed NYISO spot markets.

Along came Iberdrola USA.

Iberdrola USA, an affiliate of a Spanish utility, proposed a merger agreement to take over NYSEG and RG&E. Initially Iberdrola USA also proposed to build a cleaner power plant to replace the RG&E Russell Station. But in the course of proceedings at the PSC, Iberdrola USA satisfied demands of the merchant power industry and PSC staff by agreeing to sell power plants still owned by RG&E, and by not building new power plants through the state-regulated NYSEG/RG&E utilities.

The latest shoe to drop is the naming of a former NYISO President and CEO, Mark Lynch, to be President of NYSEG/RG&E. Lynch is a stalwart defendar of the electric deregulation still in favor at the PSC and with power producers and traders, but rejected by every state to consider it since the demise of Enron. See NYSEG Gets New President, Elmira Star Gazette, December 7, 2009.

This does not augur well for residential NYSEG and RG&E consumers who need lower prices, price predictability and stability.

The former President of NYSEG/RG&E, James Laurito, has been named to be CEO of Central Hudson Gas & Electric. Central Hudson is now the last investor owned electric utility still speaking the truth about the results of the New York PSC's deregulation experiment. See New York Deregulation Failing, Says Central Hudson Executive, PULP Network, November 02, 2009; Central Hudson chief responds in energy deregulation debate, Poughkeepsie Journal, December 6, 2009.

Auburn Tenant Seeks Judgment that Water Termination was Unconstitutional

PULP has filed a brief in support of a motion for partial summary judgment contending that the shutoff and denial of water service by the City of Auburn violated constitutional rights of a tenant. The tenant's landlord, who was in foreclosure proceedings, had stopped paying for water and sewer utility service provided by Auburn. The water was shut off due to the landlord's nonpayment and was denied without notice to the tenant of an opportunity for a hearing, and she had no opportunity to put the account in her name for prospective service. The day after the shutoff, the house was condemned by the City as unfit for human habitation -- due to a lack of water it had shut off.

The City demanded, as a condition of restoration of service that the tenant pay her landlord's arrears for past service to the landlord's account.

When a municipality provides water utility service, it is exempt from PSC regulation under the New York Public Service Law. When the Home Energy Fair Practices Act was expanded to cover water service, municipalities were excluded. Thus, a municipality providing electricity or natural gas service is subject to HEFPA in its dealings with customers, but not with regard to water service. As a consequence, the law applying to municipal water utilities boils down to the City's rules, the common law, and the Constitution. See Municipal Water Companies Exempt from HEFPA Must Still Provide Due Process and Equal Protection to Tenant Users, PULP Network October 3, 2008.

Water was restored only after a motion was made in federal court for a preliminary injunction. See Auburn Restores Water Service After PULP Files Federal Lawsuit and Seeks Preliminary Injunction for Tenant in Property Subject to Foreclosure, PULP Network, October 16, 2008. The case is being pursued for a declaration that the tenant's constitutional rights were denied, and for damages.

Other municipalities have similar harsh practices regarding tenants in properties being foreclosed where the owner has stopped paying for water service. We recently heard of a situation in Troy where a tenant family became homeless after the City shut water off due to the owner's arrears and the City condemned the premises due to the absence of water service.

Post Standard Calls for Openness on Cost of Plans for "Smart Meters" and "Smart Grid" Projects

The editorial board of the Syracuse Post Standard has called for an end to the secrecy regarding Niagara Mohawk dba National Grid's proposals for deployment of "smart meters." Public Deserves to Know Cost of National Grid's 'Smart Grid', Post-Standard Editorial Board, December 02, 2009.

Consumer advocates across the country have begun to question cost effectiveness of proposals for massive deployment of "smart meters" for residential use. See, Niagara Mohawk dba National Grid Seeks Continued Secrecy on Cost of Its "Smart Grid" Proposals, PULP Network, Nov. 25, 2009.

One of the objectives of smart meter/demand response advocates is to create a market based solution (reduced demand) to correct unreasonable high prices in the wholesale electricity spot markets. This is in lieu of effective FERC regulation of unreasonable, gamed or manipulated prices in ISO/RTO markets such as those of the NYISO. Underlying the notion are flawed premises -- if spot market prices are competitive they are therefore just and reasonable and so they should be passed thru to consumers.

Such conflation of competitive prices and reasonable wholesale electric rates is wrong, as a matter of law -- and the Supreme Court has said so. The introduction of smart meters to charge the continually changing ISO/RTO prices would be harmful and costly.

FERC, which is now enthusiastic about smart meter deployment, previously said that retail utilities should not base their prices on spot markets:

A retail rate design that exposes consumers to the volatility of commodity prices would be extraordinary, particularly when consumers do not have the ability to receive or respond to price signals. While the Commission has no authority over retail electricity rates nor authority to rule on the prudence of SDG&E's provision of retail electric service, we would expect any responsible retail supplier to rely on a portfolio of resources and to turn to the spot market only to engage in economy transactions or to meet portions of its load that could not be predicted well in advance or which were not anticipated due to resource outages greater than are covered by prudent reserves.

San Diego Gas & Electric Company, FERC Docket No. EL00-95-000, p. 10 (Aug. 23, 2000).
See PULP Comments to Task Force on Competition.

Earlier this year, FERC rejected efforts of consumer groups to investigate whether ISO/RTO spot markets are yielding reasonable rates, saying in essence that retail utilities can avoid those prices:, stating

While this Commission has jurisdiction over RTOs and ISOs, participation by utilities in these markets is on a a voluntary basis. Federal regulations do not require anyone to make purchases from any RTO or ISO, including PJM. Many entities generate most of their own electricity or purchase it through long-term contracts and make only limited purchases through RTO or ISO spot markets. And, while these organized wholesale markets are subject to this Commission's jurisdiction, state and local regulators have jurisdiction over retail distributor procurement policies. Those policies affect the prices that utility retail customers pay.

FERC's Advice: Avoid Our Deregulated ISO/RTO Spot Markets, June 24, 2009. Giving customers the means to "receive or respond to price signals" (presumably those set in real time by RTO/ISO spot markets with smart meters) is not a reason to abandon the principles of portfolio purchasing, stable and predictable rates to rely on the flawed spot markets and introduce real time pricing for residential consumers, as Enron and other market enthusiasts proposed in the latter part of the last century. FERC rebuffed efforts to conduct a simple inquiry into the gameability and exercise of market power in the spot markets in its RM 04-7 order regarding market rates. See No Evil: FERC Refuses to Examine Gaming of RTO/ISO Electricity Spot Markets, PULP Network, April 22, 2008.

In addition to serious questions of the cost and the wisdom of introducing price spikes to customers through smart meters, consumer advocates are also questioning the reliability of the new devices, their potential use to accomplish remote shutoffs, use of the data from the meters, and potential cyber security issues. See Will "Smart" Meters Pass The Test of Time?, PULP Network, November 24, 2009.

NYISO Tenth Anniversary Marked by High Prices and High Costs

Today's Albany Times Union sheds some light on the high cost of operating the NYISO. See James Odato, Pay, Perks Hit at Power Grid Operator -- NYISO Policies "Bleeding the Ratepayers," Whistleblower Warns, Times Union, Dec. 2, 2009.

The NYISO is a nonprofit utility created at the request of the New York PSC to replace the grid management functions of the New York Power Pool and to create new spot markets for trading of energy. The NYISO just celebrated its tenth anniversary. The self congratulatory press release from the NYISO does not tell the whole story.

The old NYPP cost less than $20 million a year to run the state's bulk power grid and rationalize production by directing plants to run based on least cost and reliability principles.

The NYISO has grown. In 1998 the NYPP had employed approximately 111 people and had a budget of $14.5 million. Initially, the transformation of the NYPP into the NYISO was estimated to cost less than $5 million per year more than the NYPP. This rosy estimate is reflected in a Report prepared by the State of Georgia indicating at p. 121 that "New York Power Pool estimates an annual budget of $20 million." That, in hindsight, was laughably low, indicative of the wishful thinking of "Disconnected Policymakers" about markets that substituted for analysis of the economic and reliability costs of restructuring.

See NYISO Costs Skyrocket, Benefits Questioned, PULP Network, September 26, 2006.

The budget of the NYISO is now over $150 million a year. The NYISO has not issued its annual report for 2008, a year in which it took belated action to halt some trading practices that took advantage of market rules.

The NYISO has the ability simply to collect its expenses by adding them to the market price of energy in its markets. There is no real scrutiny of NYISO expenses by FERC, the federal regulatory agency which ostensibly regulates wholesale electric rates. FERC is still on a deregulation binge that depends on "organized" spot markets for the sale of electricity at unregulated prices run by the NYISO and other ISOs or Regional Transmission Organizations.

Legislative hearings have focused on the design and possible gaming of the NYISO markets. Recently, NYISO took belated action to address possible gaming of the markets. See NYISO Admits its "Market Problem" Allows "100% Or More" Overcharges Due to "An Abuse of Market Power," Proposes Rule Change, No Refunds, PULP Network, September 5, 2009. "While NYISO did not go so far as to claim that this behavior technically violated any existing rule, it did state that such actions depart from conduct normally expected under competitive market conditions." Troutman Sanders, FERC Allows NYISO to Subject Three Generators to New Market Mitigation Rules, Nov. 16, 2009.

FERC Closes to Save Energy

No, you didn't read it in The Onion.

The Federal Energy Regulatory Commission (FERC) posted a notice saying all its national and regional offices were yesterday, the day after Thanksgiving, "in an effort to conserve energy."

Perhaps when FERC returns to work it will have conserved enough energy to investigate whether its "market-based rate" system is yielding reasonable rates, a task it previously found to be overly burdensome. See No Evil: FERC Refuses to Examine Gaming of RTO/ISO Electricity Spot Markets, PULP Network, April 22, 2008.

Utilities Ask PSC to Keep Data on ESCOs Secret

The PSC issued orders in 1999 and 2000 requiring distribution utilities to report data including the number of customers taking service from each ESCO and the number of customers leaving each ESCO to take full service again from the distribution company. A recent letter filed by NYSEG describes the regularly reported data:

In the Orders, the Commission required the utilities to file interim retail access reports with the OCA on a monthly basis through the year 2000 and quarterly thereafter through 2001. Each report must include data from the reporting month regarding: (i) the number of customers by service classification eligible for retail access, (ii) the number of customers by service classification receiving retail access from each energy service company ("ESCO"), (iii) the amount of kWh by service classification that is eligible for retail access, (iv) the amount of kWh by service classification provided by each ESCO, and (v) the numbers of customers that have returned to jurisdictional service and that have left one ESCO for another ESCO.

This information, of course, would be useful information for customers tantalized by advertising puffery from ESCOs, claims of promotional discount prices or better values, because it would publicly reveal the number of dissatisfied customers who switch back to full utility service, for example, those who belatedly discover they pay more, not less, for ESCO service.

The utilities have requested permanent confidential "trade secret" protection of this information to exempt it from public disclosure. See, e.g.,

Letter from NYSEG to PSC in Case 94-E-0952, Nov. 17, 2009.
Letter from National Grid to PSC in Case 94-E-0952, Nov. 17, 2009.
Letter from Con Edison to PSC in Case 94-E-0952, Nov. 17, 2009.

If the ESCO regime created by the PSC was a success and providing real value to customers, companies would brag about it, not try to keep it secret. See Value of ESCO Service Questioned, PULP Network, Sept. 21, 2009.

Niagara Mohawk dba National Grid Seeks Continued Secrecy on Cost of Its "Smart Grid" Proposals

The New York PSC invited New York investor owned electric utilities to submit "smart meter/smart grid" proposals in 2006. They submitted proposals that would have cost billions of dollars to implement. at customer expense. None of the utilities has proposed to put any of its shareholders' funds at risk to invest in the initiatives, suggesting a possible lack of utility confidence in the claimed increases in efficiency and reduced costs due to the trendy but unproven smart meters.

The PSC then told the utilities not to implement the large expensive projects they had proposed but to resubmit scaled down pilot projects. See PSC Requires More Study Before Allowing Major Investment in "Smart Meters", PULP Network, July 21, 2008.

When federal stimulus money appeared on the horizon, the PSC again asked the utilities to submit large smart meter/smart grid proposals, and promised to match any federal grants with ratepayer money, which would be collected from customers through higher electric rates. See

• National Grid Responds to New York State Public Service Commission Request for Projects Suitable for Federal Stimulus Funding - Potential Projects Bring Smart Grid Technology and Enhanced Reliability to Upstate New York;
• National Grid seeks $240 million in stimulus funds to build advanced grid in, near Syracuse.

Niagara Mohawk dba National Grid submitted a proposal which blacked out the cost of its plan.

• NYSEG/RG&E submitted a proposal totalling $615 million.
• Con Edison/Orange & Rockland's proposals totalled $318 - 328 million, of which $149 - 154 million would be paid by its customers through higher rates.
  

When the Times Union sought the information, the utility obtained New York PSC approval to keep the cost of its proposed "smart grid/smart meter" proposals secret until the federal Department of Energy (DOE) acted on its request to use economic stimulus funds for the project, which the PSC said could be matched with 50% support from customers, through higher rates. See Niagara Mohawk Allowed to Keep Cost of "Smart Grid" Proposal Secret, PULP Network, September 11, 2009.

DOE denied the funding request. Under the PSC secrecy order, the cost data would soon become public.

In a November 23 letter to the PSC, National Grid asked for continuation of the secrecy about the cost of its proposed "smart meter" project, saying it still hopes to begin a possibly scaled down version of the original proposal next year. According to the Times Union, which has been seeking the cost information from the PSC through FOIL requests:

The New York portion of the project -- expected to cost $250 million -- would have taken place in Saratoga County and a small portion of Schenectady County, as well as parts of the Syracuse area. Half the funding would have come from the Department of Energy through the stimulus package, and the other half would have come from utility customers.
However, National Grid was not among the chosen when President Barack Obama announced $3.4 billion in smart grid funding for 100 projects across the country on Oct. 27.

****
National Grid revealed its plans Monday in a letter to the state Public Service Commission. The letter argues that the PSC, which regulates utilities in New York, should keep details of its smart grid plan secret. The Times Union has been seeking to have specifics of the plan made public after large portions were blacked out by the utility.

****

"National Grid is aggressively evaluating a strategy by which it could pursue its proposed New York Smart Grid Program in some shape or fashion... with the desire to establish a proposed revised course of action early in 2010," National Grid attorney Catherine Nesser wrote in a letter to Brilling.

National Grid spokesman Patrick Stella said Tuesday that the utility hasn't decided how a smaller project would be funded or what it would entail in terms of technology.

Larry Rulison, Smart grid is still an option - National Grid tells regulators it may aim for scaled-down plan, Albany Times Union, Nov. 25, 2009.

As consumers and regulators in other states learn more about "smart meters" they are beginning to question the cost and benefits of the massive investment being proposed by utilities and market rate enthusiasts. In Maryland, the "smart meter" cost benefit issues are being litigated publicly. See AARP Opposes PEPCO Plan for Spending on "Smart Meters", PULP Network, June 19, 2009.

Secrecy in New York -- by utilities and regulators that in the past saddled consumers with higher rates due to the sale of power plants to functionally deregulated merchant power and trading interests -- does not lend confidence to the smart meter initiative. See Rebecca Smith, Smart Meter, Dumb Idea?, Wall Street Journal, April 27, 2009; Consumer Uprising Against California Smart Meter Program, PULP Network, October 28, 2009; Will "Smart" Meters Pass The Test of Time?, PULP Network, Nov. 24, 2009.

Universal Telephone Service Reform Slowly Begins in New York

In the telephone world, Universal Service means that for every location, telephone service can be had by all at a reasonable rate. In order to accomplish this goal, which dates back to the original Communications Act of 1934, carriers providing service in "high cost areas" (such as rural and remote locations) can receive financial support so that their end user customers pay about what people in urban and suburban areas are charged. In addition, low income customers, regardless of where they are located, can receive assistance to ensure they can afford to pay the "reasonable rates" charged by the phone companies. It is considered to be a national priority that every citizen be able to reach every other citizen and that they themselves can be reached.

Funding mechanisms on both the federal and state levels function to better ensure that these two aspects of Universal Service continue to be a reality. In New York, local exchange carriers providing service in high cost areas are eligible to receive funds from the Transition Fund. When this fund was created in January 2004, the New York State Public Service Commission ("PSC") announced that when it determines that the Transition Fund only has about 18 months worth of funds remaining, a proceeding would be initiated to determine what, if anything, should replace it. That time is now upon us, so the PSC launched a new proceeding to examine Universal Service, including the future of the Targeted Accessibility Fund ("TAF")> , which provides support for, among other things, the Lifeline discount telephone service.

With the advent of wireless and Voice over Internet Protocol ("VoIP") service (primarily offered by the cable television companies), the concept of Universal Service has certainly changed since 1934.

The Administrative Law Judge assigned to develop the record in the case issued a ruling directing Department of Public Service Staff to draft a status report on "the availability and extent of deployment of various platforms, technologies, and opportunities in the telecommunications industry and provision of telecommunications services in New York." The purpose of this request was to ascertain the level of competition in high cost areas as a threshold issue to resolving the future of the Transition Fund. On November 16th, Staff filed a letter listing potential topics stating it will request data on geographic locations where wireless and/or cable modem service is not available. Depending on when the wireless and cable companies provide the requested data, Staff believes the report should be complete by December 31st. Parties to the case were then directed to file comments by November 20th on Staff's recommended topics. Several parties filed comments, including PULP.

PULP's comments question why Staff did not also include the availability of Digital Subscriber Line ("DSL") and fiber optic service (such as Verizon's FiOS) offered by local exchange carriers ("LECs") in its discussions. We believe that identifying DSL deployment is a necessary component of the ALJ's requested analysis. PULP argued that the intermodal competition offered by wireless carriers and cable VoIP providers is undoubtedly important to measure, but a complete picture requires inclusion of "nomadic" VoIP providers, which ride on top of cable modem service or DSL connections, as well as fiber optics deployment. Thus, the entire market can not be adequately analyzed without inclusion of DSL and FiOS.

PULP noted that Phase I of the proceeding as envisioned by the ALJ would only encompass Transition Fund issues and may not be complete until towards the end of 2010. Should this occur, it is not anticipated that a Phase II discussion of TAF would even begin until 2011.

As a member of the TAF Board of Directors, PULP is well aware of the ever increasing dire financial situation facing TAF and the services it supports (Lifeline, E-911 access, and the relay service for the deaf). This information has been shared with the parties to this proceeding via a Department Staff Report released on October 2nd. According to this report, in the past 10 years, the average monthly contributions to TAF have dropped by over $200,000 a month, while the assessment ratio which the companies must pay has doubled from .005% to .01% of their intrastate revenues. Moreover, in 1999, the total assessable revenue was $7.2 billion and in 2008 was $4.5 billion. During this same time period, the demand for TAF resources to support Lifeline (by far, the largest percentage of TAF) has jumped from $19.5 million to $28.5 million a year. This demand is only going to accelerate as carrier rate increases are approved and rates charged to Lifeline customers continue to be frozen. Consideration of how to begin to address these issues regarding TAF's solvency and assessment ratio should not be delayed at all, especially not for a year or more. Further, the population eligible for Lifeline is growing and prompt reforms are needed to ensure that Lifeline assistance will continue to be available to all who are eligible. We requested that consideration of the future of both funds be considered simultaneously and that the discussions begin immediately.

On the other hand, the Cable Television Association of New York argued in its comments that Phase II should be kept separate from Phase I and not be considered until after Phase I.

The small Independent local exchange carriers, which are the recipients of the high cost support from the Transition Fund, stated that the proceeding should not look to the level of intermodal competition in the Independent territories as a measurement about what to do about the Transition Fund, but rather to "the regulatory environment under which the other classes of carriers operate in the State of New York." They believe this is a much more accurate gauge of "the provision of telecommunications services in New York" because of the lack of regulation on wireless and VoIP providers. While they also requested that discussion of TAF be delayed until the future of the Transition Fund is settled, they expressed optimism that the Transition Fund issues can be "resolved quickly," even though they recognize that it is impossible to work for consensus on the issues and prepare for litigation with rival parties all at the same time.

Sprint argued in its comments that the Transition Fund should not be replaced because the high cost companies receive other revenues from their customers via unregulated lines of business.

Finally, Verizon's comments recognized the need for complete and accurate data in determining the level of competition for purposes of the future of the Transition Fund, but what happens if some non-regulated providers (i.e., VoIP and wireless) refuse to submit data?

While the process of updating the Universal Service system in New York State has begun, we are far from a consensus on how to proceed and when to address key issues.

Lou Manuta

State High Court Upholds Decision Denying Refunds in Inmate Phone Rate Case

On November 23rd, the New York State Court of Appeals issued its decision in Walton v. New York State Department of Correctional Services, upholding a ruling of the Appellate Division, Third Department which held that the families of inmates in state prisons could not receive refunds for the "commissions" paid to the prisons through high rates paid by recipients of collect calls made by inmates.

In 1996, the state Department of Correctional Services ("DOCS") created a telephone calling system that allowed inmates to contact family, friends, and legal services providers using coinless pay telephones without operator assistance. The system included security features, such as technology permitting DOCS to monitor and record calls, providing DOCS the capability to restrict access to particular telephone numbers and bar certain users from calling specified numbers, limiting the length of calls, and preventing inmate calls from being forwarded by call recipients. MCI was awarded the contract to provide the inmate calling service in 1996 and in 2001. In exchange for receiving exclusive access to inmates and their call recipients, MCI agreed to pay DOCS a commission on each call.

The payment of commissions is common in inmate calling plans in other states. In New York, while only a small portion of the commissions represented the actual costs DOCS incurred in administering the inmate calling program, the revenues were used for various programs, including free inmate postage. The commissions were set high: in 1998, a 60% per call commission payment was approved by the New York State Public Service Commission ("PSC"), which was reduced to 57.5% in 2001.

In 2003, DOCS and MCI amended their contract to provide for a flat rate (a $3.00 surcharge per call plus 16 cents per minute), but continued the DOCS commissions at 57.5%. When MCI submitted a revised tariff filing with the PSC at that time, the PSC approved the rate change, but concluded that it lacked jurisdiction to assess the propriety of the DOCS commissions. As a result, it only reviewed and approved the "jurisdictional portion" of the rate, the 42.5% retained by MCI. The Court of Appeals noted that this narrow view by the PSC of its jurisdiction was not before the court because the PSC had not been sued.

While the case was pending, then-Governor Spitzer changed executive policy and required DOCS to discontinue the practice of collecting commissions on inmate calls. The Legislature also acted on April 1, 2008 by making it unlawful for DOCS to accept or receive revenue in excess of its reasonable operating costs for administering an inmate calling system. Thus, the commission system in New York State ended in 2008 and the petitioners were able to achieve the primary relief they sought - a change in the inmate calling system, resulting in a significant reduction in costs incurred by call recipients. However, the families of the inmates sought refunds on the grounds that DOCS was precluded from entering into a telephone services arrangement that included a commission.

Writing for the Court, Judge Graffeo supported the Governor and Legislature's decision to eliminate the commissions, but found that the commissions were expenses incurred by the telephone service provider and not a tax, comparable to other types of operating costs that are encompassed within the tariff filed with the PSC and charged to customers. The commissions were also deemed not to be a tax because the inmates' families were not required to purchase services from MCI and because telephone service is not a government benefit. "Not only were such commissions common in the payphone industry," Judge Graffeo wrote, "but, during the period relevant to this lawsuit, they were often included in other state inmate calling plans where the commission typically ranged from 20% to 63%." Finding that a tax had not been imposed on MCI, the Court was "not persuaded that the commission was transformed into a tax or fee just because MCI passed this cost on to call recipients along with its other reasonable operating expenses."

Further, even if the commissions were deemed to be a tax, the Court found that any claim for refunds would be barred because the petitioners "failed to pay the rate under protest. . . . [P]etitioners were not compelled to pay anything either to DOCS or MCI, nor was their money or other property confiscated by the state." The Court went on to hold that "[t]he acceptance of collect calls was voluntary action and, by taking the calls, petitioners agreed to pay the associated rate. They were in control of the length of the calls and, thus, the costs incurred. Just like any other consumer, petitioners purchased a service from MCI and were billed accordingly."

The Court also rejected the claim that the commissions were an unlawful taking:

Essentially, petitioners' takings claim boils down to the contention that DOCS had a constitutional obligation to ensure that the family members and legal services providers of inmates received telephone services at the lowest possible expense. While this might be a desirable policy decision, it was not an obligation mandated by the New York Constitution.

The Court also rejected the argument that the commissions violated the First Amendment:

[T]o state a viable claim under the free speech and association clause in this context, petitioners must allege that the DOCS commission was so high that it substantially impaired the limited right of inmates to contact and associate with family members or legal services providers and that the commission bore no reasonable relationship to legitimate penological aims. Even assuming their allegations to be true, petitioners do not meet this threshold. . . . [T]he additional expense associated with the DOCS commission on telephone calls did not imperil the right of inmates to communicate with others.

By denying the constitutional claims, the Court did not reach the alternative arguments raised by DOCS, and accepted by the Third Department, that the request for refunds was barred by the Filed Rate Doctrine.

For more information on this case and inmate calling in general, see New York Court of Appeals Revives Suit to Recover Excessive Charges for Inmate Telephone Calls and Governor Spitzer Promises Reform of Prison Inmate Telephone Charges , and PULP's website page on inmate phone service.

Lou Manuta

Will "Smart" Meters Pass The Test of Time?

"Smart" meters are being sold as the best thing since sliced bread, though we remain skeptical. See Not so Smart? High Tech Metering May Harm Low Income Electricity Customers, PULP Network, April 16, 2007. See also

• Consumer Uprising Against California Smart Meter Program, PULP Network, October 28, 2009;
• PSC Requires More Study Before Allowing Major Investment in "Smart Meters", PULP Network, January 11, 2008;
• Pennsylvania Regulators Halt Expensive "Smart Meter" Plan, PULP Network, October 29, 2009;
• Ontario Electricity Board Bans Landlord Submetering of Electricity Without Energy Audits, Transparency, and Specific, Informed Tenant Consent, PULP Network, October 02, 2009.

Until recently, I assumed the new hi-tech "smart" meters and associated software systems worked, and mainly questioned wisdom of a policy to destabilize prices and the cost of ubiquitous deployment.

When Niagara Mohawk/dba/ National Grid's Schlumberger/Itron semi-hi tech AMR meter (which is "pinged" remotely for readings by drive-by meter readers) failed at my house after last year's Albany area ice storm that left us powerless for four days, and when the failure was corrected and the meter replaced only after I protested a $900 bill (the meter apparently failed or rebooted to 99999 incorrectly indicating the use of 7500 kwh), I still assumed the failure was an anomaly.

But the recent fuss in California has raised a number of doubts about the new computer-based meters. See KMPH Fox News 26, State to Investigate Smart Meter Customer Complaints, Nov. 24, 2009. According to the New York Times:

A lawsuit in California claims that the metering system for Pacific Gas and Electric overcharges customers. California State Senator Dean Florez has called for a halt to the smart meter deployment, and the California Utilities Commission is investigating. The utility said the higher bills resulted from a rate increase and a hot summer.

Roy Furchgott, To Build a Smart Grid, Start With Smart Meters, New York Times, Nov. 18, 2009.

The New York PSC establishes standards for testing of meters, and requires testing upon customer complaint as well as in-service testing to assess accuracy of the larger meter population. Over time, the old style analog meters with the little wheels and dials were pretty reliable and lasted decades, and the PSC reduced the routine testing requirements to a minuscule portion of the number of meters in use. Perhaps the old style meters are better able to withstand temperature changes, the surges and flickering power and momentary outages than the new digital equipment. And perhaps more attention needs to be paid to in-service testing of the newer computer-based meters.

If you think about it, the new "smart" meters that communicate customer usage data to the utility's central computer billing system are analogous to using a computer, a digital clock, and a cellphone or modem -- outdoors, 24 hours a day, seven days a week. The customer usage data must then be meshed through software with constantly changing price formulas (for "real time pricing") to calculate charges, and then attributed to particular accounts in complex utility billing systems.

How often do computers, circuit boards, chips, clocks, cellphones, and software fail?

Traditionally, the cost of old-style meters was amortized slowly over decades, with the cost recovered by utilities through depreciation allowances calibrated to the lifetime of the equipment. Some utilities are now urging faster depreciation (a cost of service allowed by regulators when setting rates) for the new "smart" equipment assuming a useful life that is much shorter, perhaps eight to ten years, more in line with the shorter lifetimes of computers and communications equipment. Others are urging more immediate recovery of their "smart meter" costs through surcharges to pay for the meters over shorter periods. The utilities' advocacy of shorter depreciation or cost recovery periods suggests a lack of faith on their part in reliability of the new systems.

According to a company that analyzes the average time between breakdowns of computer equipment, there are already some indications of a much higher rate of failure for the new "advanced metering infrastructure" (AMI) "smart" meters now being hyped:

Failure Rate (MTBF) in months
Electric Meters by Type
Range:
Legacy Meters……………2400 months
“Good” AMI ……………… 1200 months
“Bad” AMI……………………800 months

* * * *

Our experience of computing and communications equipment makes us very concerned that utilities have expectations for reliability that are unfounded. Limited data on AMI meters confirms our concerns. Consider the chart of the first page – legacy meters need repair rarely – so rarely that managers do not even monitor their reliability. Yet new devices based on digital technology with electronic circuit boards, wireless links and many similarities to consumer electronics are widely assumed to be equally durable. We are already monitoring many similar devices and have data showing very poor levels of reliability relative to meters. There is no compelling evidence to believe that the weatherproof versions of computers and communications equipment are going to be more reliable than their interior counterparts.

See TekTrakker Reports, September 10, 2009. It may be that the new meters pass lab bench tests for accuracy, and thus satisfy engineering standards, but other variables could cause them to fail, such as outages, voltage drops, power surges, heat, cold, humidity or other conditions that may not occur in the testing labs. Also, the software and process for linking the transmitted data to individual customer accounts might be faulty.

As "smart" meter pilot projects get underway, it is important for utilities and their regulators to insist upon getting, sharing, and analyzing data about "smart" meter system failures so that research based evidence is obtained on the reliability and life-cycle cost of the "smart" hardware and software products. This is necessary to assess the costs and benefits of the new systems before billions of ratepayer or taxpayer dollars are spent, to permit meaningful comparisons, to establish customer confidence in metering and billing accuracy, and to protect customers.

Update
See the Comments and Reply Comments of NASUCA to U.S. Department of Energy requests for information regarding "Smart Grid" initiatives. In their Reply Comments, NASUCA stated:

"First, the consumers are the ultimate owners of their energy consumption data. The establishment of privacy protections for personal energy information is critical, and the issue must be resolved in favor of the highest degree of consumer protection.

Second, consumers should have the choice to participate in any advanced metering program or in any dynamic pricing schedule that may involve data sharing arrangements.

Third, there are unique differences among electric consumers that must be considered for any Smart Grid deployment.

Fourth, investments made in Smart Grid technologies must be supported by a detailed cost-benefit analysis and subject to evidentiary proceedings and prudence review before costs are passed on to utility consumers."