Federal Court Invalidates AT&T “Class Action Waiver” in Wireless Contract Boilerplate

Several people joined together to bring a class action suit against AT&T Wireless following its merger with Cingular in 2004. The complainants, AT&T Wireless customers, alleged that after Cingular merged with AT&T Wireless in October of 2004, Cingular deliberately degraded AT&T Wireless’ network in order to induce AT&T Wireless customers to transfer their plans to Cingular plans, which they alleged are generally more expensive and less favorable to customers. AT&T, in defense, alleged that the sole relief available would be for the customers to pursue their dispute in either individual arbitration cases or small claims court. In other words, AT&T maintained that class action suits are prohibited by a purported waiver of the right to bring a class action suit that was contained in the "boilerplate" of the standard customer agreements. The US District Court for the Western District of Washington found in favor of the complainants on May 22nd in Coneff v. AT&T Corp. (Case No. C06-944).

Complainants alleged that Cingular’s goal was to encourage AT&T Wireless customers to “upgrade” to Cingular’s network. These “upgrades” required customers to do one or more of the following: (1) pay an $18 transfer fee to Cingular; (2) purchase one or more new phones from Cingular; (3) pay $18 for a SIM chip to operate their current phone; and/or (4) enter into a new service contract with Cingular. They alleged that AT&T Wireless customers who did not agree to such an “upgrade” were left with a choice to either fulfill their contract term with a “degraded” AT&T Wireless service, or pay a $175 early termination fee to cancel service.

As a condition for approval of the merger, the FCC required Cingular to keep AT&T Wireless’ network in place until February of 2008. It was alleged that in July 2006, Cingular began imposing a mandatory $4.99 monthly fee to any AT&T Wireless customer still using the old AT&T network. Complainants also noted that major publications reported that Cingular had “been spending next to nothing to maintain the AT&T Wireless network, leaving customers who don’t upgrade to the Cingular network in the lurch.” As a result of this conduct, Complainants initiated the class action against AT&T Wireless in July 2006, requesting a declaratory judgment that an arbitration provision contained in their contracts with AT&T was unconscionable and therefore unenforceable.

Judge Ricardo Martinez found that Washington State law “has a strong public policy of refusing to enforce exculpatory class action bans,” and prohibiting the right of a plaintiff to initiate a class action suit violates the state’s consumer protection laws. Further, the Court noted that “the Washington Supreme Court has recently held that a class action waiver provision in an arbitration agreement is substantively unconscionable.” Accordingly, while there is no absolute ban on a class action waiver provision, where, as here, the damages are relatively small (generally between $4.99 and $175) and the “the cost of pursuit outweighs the potential amount of recovery,” the clause can be found unconscionable.

As a result, the Court determined that the

class waiver provisions in the instant case are unconscionable. Defendants are effectively exculpated from any liability as a result of the provisions contained in their [Wireless Service Agreements]. This conduct contravenes Washington’s fundamental public policy favoring the availability of class actions as a mechanism for enforcing a consumer’s rights.

While this decision has no direct bearing on New York wireless consumers and PULP is unaware of any New York decisions regarding arbitration clauses in telecommunications contracts, mandatory arbitration clauses in credit agreements have been invalidated in New York State as being unconscionable.

Lou Manuta

PULP Analyzes DHCR Submetering Rent Adjustments in Rent Stabilized Housing

The New York State Department of Housing and Community Renewal ("DHCR") oversees rent regulated residential housing. When a rent-regulated landlord is allowed by the PSC to submeter electricity, and begins to charge tenants separately for the electric service based on usage measured by a submeter, the landlord must simultaneously lower the rent, which previously included electricity as a service included without extra charge in the rental agreement ("rent inclusion" of electricity).

When tenants are notified that submetering permission is being sought by the landlord, the standard information given them typically suggests that only a tenant who wastes electricity will pay more than before. But in reality, the rent reductions in the DHCR schedules are far less than typical bills for reasonable electricity usage. See Top Ten Submetering Myths.

As a result of the too-small rent reductions, when electric service is unbundled from rent, tenants are likely to pay significantly more for total rent and electric charges than they did with rent inclusion of the electricity. Only after the submetering is implemented do tenants realize that the amount of rent saved by the rent reduction will not come close to covering the new cost of electric service provided by the landlord.

For many tenants living living on fixed incomes this comes as more than a rude surprise - it may cause financial hardship or even lead to their displacement or eviction. See Submetering Challenged at Claremont Gardens in Ossining.

The current DHCR schedule of rent reductions for submetered tenants in New York City lowers the rent by $29.81 for a one room apartment, and up $60.20 for a six-room apartment. Schedules for other locations around the state are lower. The current schedules are in a 2008 Update Number 1 to DHCR Operational Bulletin No. 2003-1.

PULP prepared a review of the history and methodology underlying the DHCR schedules for rent reductions when rent stabilized apartments are submetered, basically finding that the critical assumptions regarding electric usage and price used to generate the low rent reduction schedule understate normal usage and actual prices, are highly unreliable, and were made to defend a predetermined low schedule that favors landlords.

Submetering Summit

On Saturday, May 16 tenant leaders, legislators, state agency representatives (from the PSC, DHCR, and NYSERDA) and PULP met for nearly five hours to discuss electricity submetering issues and problems. Present at the Submetering Summit were tenant association leaders from buildings with a total of more than 25,000 tenants.

Elected officials who attended and spoke included New York State Assemblymen Micah Kellner, Brian Kavanagh, New York State senator Thomas Duane, Manhattan Borough President Scott Stringer, and New York City Council representatives Daniel Garodnik, Jessica Lappin, and David Yassky.

PULP presented an overview of submetering, and reviewed ten common "submetering myths" fostered by submetering proponents, landlords and state agencies.

The Waterside Plaza Tenants Association presented infrared photographs which illustrate the poor thermal efficiency of the windows, walls, roofs and vents in their buildings where the PSC allowed submetering of electric heat, and related the difficulties of tenants who find it hard to heat their apartments due to drafts or who must pay hundreds of dollars a month in winter to run their heat pumps to keep warm.

During the meeting, tenants from other buildings related their experience in receiving DHCR rent reductions of only $39 while their electric bills were multiples of that, and their experience in not getting action from the PSC on their complaints for more than a year.

Assembly members Kellner and Kavanagh participated as a panel discussing pending state legislation that has been introduced to address submetering issues. An online audio recording of their presentation is available.

Representatives of the PSC discussed the process for landlords to obtain PSC submetering orders and the opportunities for tenants to comment to the PSC when it considers a submetering application from a landlord. Tenants criticized the comment process, stating that the information given tenants when submetering is proposed is often incomplete or untimely, and the real impact of submetering is not known until too late, after the PSC order is issued, when the landlord's electric bills are issued.

The PSC representatives also discussed HEFPA rights and the HEFPA complaint process for handling disputes over submetered electric service when they arise after submetering is implemented. A PSC representative indicated that complaints can take a year to decide, that the PSC has only one person in its New York City office who checks meters for accuracy, and that when overcharges are discovered, they are remedied only for individual customers who complain, and not for all tenants in a building. Tenants indicated they had never been notified of their HEFPA rights and had not been aware that the PSC decides disputes over the submetered electric service.

A DHCR representative indicated that once a building is submetered, and when rents are reduced according to its schedule for rent reductions in rent stabilized housing, DHCR has no further involvement. (Thus, an overcharge of electricity is not an overcharge of rent, which is subject to treble damages under the rent regulation laws). He indicated that DHCR would never allow submetering of electric heat in rent stabilized housing. In contrast, the PSC has issued numerous orders allowing submetering of electric heat in situations involving subsidized housing projects for low and middle income households, e.g., former Mitchell-Lama projects. See PSC Order Allowed Landlord to Shift Million Dollar Electric Bill to Low Income Tenants; Submetering Slowed at Roosevelt Island.

A NYSERDA representative indicated that NYSERDA now assumes submetering saves 8% of the electricity used in a building, rather than the 18% - 26% stated in its submetering publications. (The higher figures were relied upon by DHCR when it lowered its rent reduction formula and by PSC staff in its proposal to submeter every master metered building). The representative indicated that NYSERDA provides financial assistance to landlords to enable them to submeter as part of a package of energy reduction measures in the NYSERDA "Multifamily Building Performance Program" but that its role is that of a grant maker, and it does not affect buildings submetered without NYSERDA assistance. NYSERDA does not assist tenants or tenant associations in buildings previously submetered with NYSERDA assistance who are now burdened with inefficient appliances, fixtures, controls, and leaky windows and poorly insulated walls.

Residential submetering, generally prohibited since 1951, was allowed on a case-by-case basis by the PSC for coops and condos in 1978, and for rental housing in 1979. The growth of submetering in rental housing was slow, and did not accelerate until after 2002. when DHCR changed its rules for reducing rents to make submetering more financially attractive to landlords. NYSERDA also boosted submetering with cash grants and incentives to landlords to encourage them to convert to submeters, and the PSC liberally granted landlords' applications to submeter.

Approximately 28,000 tenants now have electric service provided by their landlords. Permission has been granted for additional buildings where submetering has not yet been implemented. PSC staff, in testimony in the last Con Edison rate case, proposed to require all master-metered buildings, where electric service is included in rent and not individually metered, to convert to submetering. This would affect an additional 600,000 tenants in Con Edison territory.

For further information, see PULP's web page on submetering.

All NY Phone Customers Lose Big $$ Due to PSC Lifeline Policies

You’ve seen the numbers: Lifeline discount telephone service subscribership in New York State has plummeted from a peak of over 756,000 in 1996 to about 300,000 today. Meanwhile the number of households receiving Supplemental Nutrition Assistance Program benefits (Food Stamps) across the state – one of several categorical eligibility qualifications for Lifeline – now exceeds 1.1 million

Why are these two statistics charting in opposite directions? What is the impact on New Yorkers?

Background
Lifeline is intended to promote the universal service goal of a phone in every home at a cost that does not create hardship. It can be a lifesaver for needy families. Every household which either participates in or is eligible for any of numerous need-based assistance programs is automatically qualified for Lifeline. In New York, these programs include:

• Supplemental Nutrition Assistance Program ("SNAP") Benefits (formerly Food Stamps)
• Low Income Home Energy Assistance Program ("LIHEAP")
• Medicaid
• Safety Net Assistance
• Supplemental Security Income ("SSI")
• Temporary Assistance for Needy Families ("TANF")
• Veterans Disability Pension
• Veterans Surviving Spouse Pension
  

In addition, customers are eligible for Lifeline in New York if they earn up to 135 percent of the Federal Poverty Guidelines.

Verizon offers two flavors of Lifeline. Basic Lifeline costs $1 a month (plus sales taxes) and every local call costs about 10 cents. Flat Rate Lifeline costs between $12 and $14 a month (plus sales taxes) and includes unlimited local calls. The savings can be significant over non-Lifeline rates, especially considering most taxes and surcharges do not apply to Lifeline service, including the $6.50 Subscriber Line Charge. As a result, Lifeline customers can save as much as $20 a month with Lifeline.

Between federal and state matching programs, Lifeline providers are reimbursed for virtually the entire difference between what a Lifeline customer pays and the regular tariffed costs of service. With the significant benefits for Lifeline customers – combined with the telephone companies being made whole – Lifeline looks like (and should be) a win-win situation.

So, why are the numbers down? What is really being lost when so many eligible customers are not receiving Lifeline benefits?

It appears that the primary culprit is the New York State Public Service Commission (“PSC”).

Over the years the PSC has passed up many opportunities to expand Lifeline eligibility criteria, advocate for increased participation to keep federal universal service dollars from leaving New York for other states, and to work with the providers and the Office of Temporary and Disability Assistance to make automatic enrollment work better, but has chosen to sit on the sidelines. As a result, everyone loses.

The Impact on All New Yorkers
Lifeline is supported in two ways: All telephone customers pay a federal Universal Service Fund (“USF”) charge on their long distance service and this money is pooled together to support a variety of universal service issues, including Lifeline. The federally collected funds are managed by the Universal Service Administrative Company, under direction of the FCC. New York has its own state fund, known as the Targeted Accessibility Fund, which is paid for by the telephone companies out of their intrastate revenues, under direction of the PSC. According to the FCC’s most recent Universal Service Monitoring Report (with 2007 data), New Yorkers contributed $445,600,000 into the federal USF in 2007, but New York telephone companies only received $248,838,000 in return ($36 million for Lifeline). The difference – nearly half of what is contributed – goes off to help fund programs in other states, most notably Alaska, Kansas, Louisiana, Mississippi, and Oklahoma. With an increase in the number of Lifeline customers in New York, more of this money would stay in New York, with little (if any) impact on the contribution level.

The Impact on Low Income Families
A savings of $15 to $20 a month for a low income family is a significant amount. This can help pay other utility bills, medical expenses, and even the rent. The policies of the PSC which have let the number of Lifeline customers drop are unnecessarily costing low income families an additional $180 to $240 each year for their phone service.

Eligibility Criteria
The limits on Lifeline eligibility have been a concern for PULP since at least as far back as 2002. That year, in the PSC Order establishing Verizon’s incentive plan, the Commission succinctly summarized PULP’s concerns about Lifeline eligibility and the need for its expansion

PULP expresses concern about the Joint Proposal's failure to address difficulties now being experienced in the telephone Lifeline program. PULP explains that although the New York telephone Lifeline program is "robust" in comparison to those in other states, enrollment has declined precipitously over the last five years. PULP attributes the decline to the fact that Lifeline enrollment is tied to eligibility for other low-income assistance programs and that as eligibility for those programs declines, so does access to Lifeline. To respond to the problem, PULP proposes that three programs be added to the list of those creating telephone Lifeline eligibility: The National Free/Reduced School Lunch Program, The State Earned Income Tax Credit Program, and the Child Health Plus Program.

PULP suggests that each of these programs encompasses the same income levels as the existing programs and that they are unlikely to see significant shifts in enrollment resulting from welfare reform. PULP asserts as well that if these additional customers were able to access the telephone Lifeline program, virtually all of the increased cost would be paid by the federal government through the Federal Universal Service Fund and the State Targeted Assistance Fund. As a result of those arrangements, any revenue gain to Verizon associated with the customer moving from Lifeline to non-Lifeline basic service would be offset by revenue losses resulting from reduced federal or state support money.

In its Order, the PSC opted to do nothing:

The Federal-State Joint Board on Universal Service is currently conducting a proceeding to determine what, if any, changes should be made in the federal low-income program eligibility. We will await the outcome of that review before addressing whether additional changes to the New York State program are advisable.

Now, seven years later, even though the National School Lunch Program’s Free Lunch Program has been added to the FCC’s program eligibility list (which applies to states which have not chosen to set their own criteria), the PSC has refused to act. Not surprisingly, subscribership in New York continues to plummet.

PULP brought up the need to boost Lifeline enrollment again in 2005 during the PSC’s “Comp III” proceeding which looked at streamlining regulatory requirements for telephone companies in light of increasing competition for new providers, such as wireless and Voice over Internet Protocol. Once again, PULP proposed expansion of the eligibility criteria – especially in light of welfare reform which removed thousands of names from the TANF rolls -- but the PSC was unmoved again. The Commission wrote in its 2006 Comp III Policy Statement that:

While we would certainly share PULP's concern if the magnitude of such a decline could be confirmed and its cause identified, we question whether the decline cited actually reflects a change in New Yorkers' access to telephone services, a change in the method by which the data were collected, or some other data anomaly.

The inability of the PSC to add to the eligibility criteria has brought the Legislature to act. A bill, A4967, is currently pending and would do what the PSC could have done all along – codify the eligibility criteria noted above and add the National School Lunch Program, the State Earned Income Tax Credit, and Child Health Plus. The bill passed the Assembly on May 6th and is awaiting action in the state Senate.

Action in Other States
Interestingly enough, the same year that the PSC decided to wait on expanding Lifeline eligibility, 2002, California’s Commission made it a goal to place 100 percent of eligible Lifeline customers on the service. So, now, while New York’s numbers continue to decline, California has 2.7 million Lifeline customers (this, despite the fact that California has slightly fewer SNAP households than New York and includes the National School Lunch Program and Public Housing Assistance as eligible programs. Coincidence?

We could look for details on Lifeline and LinkUp assistance at the New York PSC’s Lifeline webpage -- but there isn’t one.

In fact, about all the consumer information you’ll find by searching the NY PSC website is an “Options for Telephone Consumers” page, which offers a one sentence description of Lifeline.

Meanwhile, California not only has detailed information about its Lifeline program on its website it has a “Lifeline Administrator” on staff dedicated to providing Lifeline assistance to all who qualify.

It is a fair comparison to look at New York and California’s records on Lifeline enrollment, even though California has a much larger population base. First of all, the percentage of population at 135 percent of the federal poverty level (one of the criteria for Lifeline enrollment) is virtually identical between the states. As mentioned, the number of households on Food Stamps is similar as well. Why, then, according to the FCC’s annual Universal Service Monitoring Report (Table 1.12) did New York Lifeline service providers receive just over $36 million in 2007 from the federal USF while California providers received over $272 million? New York did receive over $54 million in 2003, but this number has dropped every year since then along with the number of Lifeline subscribers.

Meanwhile, Texas, which has a similar population to New York and also a similar poverty level , has seen its Lifeline subscribership steadily grow during the same time period (from 193,444 in 1997 to 777,059 in 2007). In addition, the amount of money going to its Lifeline providers has jumped from $45.6 million in 2002 to $89.4 million in 2007. Also, the differential between what Texas pays out to its Lifeline providers and what it receives from subscribers in the state is actually positive – more money (about $35 million) flowed into the state in 2007, the same year New York saw nearly $197 million of universal service charges flow out. The Texas Public Utilities Commission web site also includes much more detailed information on Lifeline than New York . In addition, Texas has expanded its eligibility criteria to include Child Health Plus and Public Housing assistance. Yet another coincidence.?

Automatic Enrollment
There is an automatic Lifeline enrollment process in place for customers in Verizon’s service territory, which is a confidential computerized matching program to enroll and verify eligibility of households . However, hundreds of thousands of eligible households have still fallen through the cracks and are not on Lifeline. There are several reasons why someone on Food Stamps, for example, would not be enrolled in Lifeline: There may be bugs in the computer system which does the matching and the Food Stamp recipient may not know about Lifeline. The customer may want to subscribe to a service (including toll calls and voice mail, caller ID, etc.), but Verizon does not permit Lifeline customers to subscribe to service packages. They may already subscribe to cable TV and find the bundled savings with voice service to be sufficient when compared to the non-discounted Verizon service. Keep in mind that cable television companies do not offer Lifeline and, at the moment, do not contribute to TAF. The PSC has an obligation to work with telephone companies and other agencies to ensure the automatic enrollment process – a program that it endorses – works properly and efficiently to enroll eligible customers in the Lifeline assistance programs.

No matter how you look at it, all New Yorkers are spending money unnecessarily to support universal service in other states even as fewer New Yorkers receive this important benefit. This costs low income households money that they don’t have or that they need to spend on other essentials. Why is this happening? Because the PSC is letting it happen and has been for many years.

Lou Manuta

"Cap and Trade" Market System for CO2 Reduction Likely to Raise New York Electricity Prices

Congress is nearing action on a proposed "cap and trade" market system intended to lower carbon dioxide emissions from power plants. Basically, a "cap" on emissions is set, and certificates equaling the amount of the "cap" to emit CO2 are given away or sold at auction by the government, and are also traded in unregulated secondary markets after their initial purchase.

Consumer issues include

• whether certificates to emit CO2 should initially be given away or sold,
  
• how to use the sale proceeds if they are sold,
  
• the price impacts when the cost of CO2 allowances is factored into wholesale electric prices,
• the price impacts of unregulated secondary trading markets, and
  
• whether a carbon tax would be preferable.

Sale or Gift of Allowances
In Europe, CO2 allowances were given away to existing power plants. These allowances had value, and were soon trading in secondary markets, and that price is included in the price of wholesale electricity. The lesson is that if a "cap and trade" system is begun, the certificates which allow injection of CO2 into the air, a public or common good, should be sold with the proceeds going to the public. Current federal legislative proposals would allow the gift of a portion of the allowances to power companies with coal-burning plants.
State utility regulators and consumer advocates are urging Congress to eliminate a provision in the pending climate-change bill that gives free emission allowances to certain companies that burn coal to make electricity.

The Waxman-Markey bill, which cleared a key House committee Thursday, would give as much as 5% of initial credits to merchant coal generators and 30% to electric utilities when a cap-and-trade program is scheduled to begin in 2012. Unlike utilities, whose prices are controlled, merchant coal generators sell electricity to other companies at market prices.

Utilities are expected to use their credits to cover their own emissions, or sell the credits and use the money to hold down consumer energy costs, which are expected to rise as a result of the legislation. But there's no guarantee unregulated coal generators would use their credits to reduce electricity prices, which would ultimately benefit consumers. They could take the credits and not reduce their prices.

Under a cap-and-trade program, companies that produce greenhouse gases would be given credits covering a portion of their emissions. If some companies produce less than their "cap," they could "trade" their credits with others.

In the past few days, state regulators have urged bill authors Reps. Henry Waxman (D., Calif.) and Edward Markey (D., Mass.) to redirect to utilities all of the credits earmarked for merchant coal generators. The National Association of Regulatory Utility Commissioners, in a letter, wrote the congressmen that giving credits to the coal generators "will only lead to windfall profits for a particular sector of the electricity industry at the expense of end-use customers."

Other groups, including those that represent consumer advocates and public-power utilities, also oppose the allocation method laid out in the House bill, HB 2454. "Our concern is that market prices will rise anyway, and consumers won't get the benefit of the allowances given coal generators," said David Springe, consumer counsel of the Citizens' Utility Ratepayer Board in Topeka, Kan., and president of the National Association of State Utility Consumer Advocates.

Wall Street Journal, May 23, 2009, Coal Generators Face Opposition on Credits.

New York participates in the RGGI program, a regional "cap and trade" system spawned in the Northeast during the Bush administration when it refused to regulate CO2 emissions. RGGI allowances are sold by NYSERDA, a state authority, and the proceeds spent as determined by NYSERDA. New York, in a concession to power plant owners, has decided to give some allowances away, outside the auction system. See Did Court Challenge to Legislatively Unauthorized Greenhouse Gas Allowance Scheme Prompt Governor's Concession to Power Plant Owners?

How to Use Proceeds from the Sale of Allowances
A cap and trade system will raise the price of electricity adding to the energy burdens of the poor, who often have the least energy efficient homes and appliances. PULP has argued in its comments to NYSERDA that the CO2 emission allowance sale proceeds from the RGGI program should be used for energy efficiency purposes with a substantial amount targeted to reduce energy burdens of low income customers. See PULP Urges NYSERDA to Use RGGI Auction Revenue to Support Low Income Energy Efficiency Programs.

NYSERDA did not adopt PULPs recommendation.

Price Impacts of Cap and Trade
The price impact of a federal cap and trade program has been estimated to be one cent per kWh or more in New York, so a customer using 500 kwh/month might see a $5 monthly increase. This adds to the burdens of New York's low income customers, 330,000 of whom were shut off in 2008 for nonpayment of bills, which are close to the highest in the nation. Also, raising the price of electricity does not address the other major sources of CO2 emissions such as cars and trucks and fuels for home heating.

Secondary Trading Markets
The cap and trade system is heavily backed by energy traders, who would trade allowances after their initial sale - or gift- by the government in unregulated markets. Reliance on the "invisible hand" to accomplish CO2 reduction has many skeptics. As stated by one environmentalist:

Cap-and-trade could too easily be manipulated or gamed. In an age of global financial turmoil, much of it brought on by dubious financial creations such as credit default swaps and subprime mortgage derivatives, these folks didn’t trust the market makers (or regulators) to properly manage the process. They weren’t buying the argument that financial trading markets are always elegant and efficient. Instead, they see cap-and-trade as being rife with potential mismanagement and corruption. Equally important, they didn’t believe that a cap-and-trade system could be transparent or open enough to guarantee critical safeguards and to provide a fair and accurate pricing mechanism.

Changing Climate: Carbon Tax Gaining Momentum over Cap-and-Trade? Renewable Energy World, May 19, 2009. It is conceivable that the price of allowances could be driven much higher through a combination of secondary market price spices in the organized electricity spot markets such as those of the NYISO, and that the market system simply will not work.

Carbon Tax - A Better Alternative to Unregulated CO2 Allowance Markets?
A carbon tax would be aimed only at producers who emit CO2. One of the anomalies of a cap and trade system is that it will raise the price of electricity produced without major CO2 emissions, such as nuclear, hydro, and wind. This is especially true in states like New York where power plants were sold to merchant power owners who can obtain spot market clearing prices set by fossil fueled plants that have incorporated into their price demands the cost of CO2 allowances. The system will create a huge windfall for nuclear power plant owners. And it will do nothing regarding major CO2 sources other than electricity production.

The cap and trade system appears not to be successful in Europe, other than to raise the price of electricity. Yet the infatuation with market solutions lingers, and coupled with the benefits to traders and sellers who will enormously benefit from the system. With endorsement by some environmental groups -- who have never seen an electricity price increase they didn't like -- the policy discussion has moved from a carbon tax, which had been advocated by Al Gore, toward the trendier market system that does not involve a "tax" -- even though its impact is likely to raise electricity prices far more than a carbon tax would to accomplish the same result of raising the price of power from CO2 emitting power plants. Its popularity is political, not practical:

Cap and trade, by contrast [to a carbon tax], is almost perfectly designed for the buying and selling of political support through the granting of valuable emissions permits to favor specific industries and even specific Congressional districts.

See From a Theory to a Consensus on Emissions, NY Times, May 16, 2009. New York City Mayor Bloomberg , in a speech to the National Conference of Mayors in 2007, why he prefers a carbon tax over the can and trade market based system, and using the tax proceeds to reduce federal payroll taxes:

Both cap-and-trade and pollution pricing present their own challenges - but there is an important difference between the two. The primary flaw of cap-and-trade is economic - price uncertainty. While the primary flaw of a pollution fee is political, the difficulty of getting it through Congress. But I've never been one to let short-term politics get in the way of long-term success. The job of an elected official is to lead - not to stick a finger in the wind. It's to stand up and say what we believe - no matter what the polls say is popular or what the pundits say is political suicide.

From where I sit, having spent 15 years on Wall Street and 20 years running my own company, the certainty of a pollution fee - coupled with a tax cut for all Americans - is a much better deal. It would be better for the economy, better for taxpayers and - given the experiences so far in Europe - it would be better for the environment. I think it's time we stopped listening to the skeptics who say, "But for the politics," and start being honest about costs and benefits. Politicians tend to prefer cap-and-trade because it obscures the costs. Some even pretend that it will lower costs in the short run. That's nonsense. The costs will be the same under either plan - and if anything, they will be higher under cap-and-trade, because middlemen will be making money off the trades...

For the money, a direct fee will generate more long-term savings for consumers, and greater carbon reductions for the environment.

See Bloomberg Calls for Carbon Tax on Emissions, N.Y. Times City Room Blog, November 2, 2007

PSC Approves Increase for Niagara Mohawk Gas Customers; Defers Consideration of Affordability for Low-Income Customers

On May 15th, the New York PSC issued an Order adopting the Proposal for settlement of the Niagara Mohawk (National Grid) request to raise its natural gas delivery rates. All of the parties to the proceeding -- including National Grid, Department of Public Service (“DPS”) Staff, Multiple Intervenors, the United States Department of Defense, the Small Customer Marketer Coalition, and Hess Corporation -- agreed to the terms in the Joint Proposal

PULP and the organizations it represented in the case (New York State Community Action Association, the Albany Community Action Partnership, United Tenants of Albany and Syracuse United Neighbors) opposed the proposal. The Consumer Protection Board was also a participant in the proceeding, but took no position.

Charges for the delivery portion of rates in National Grid’s upstate territory had not increased since 1993. Charges for natural gas, as distinguished from the delivery charges, have been quite volatile and generally trended higher, though they have declined recently.

The Joint Proposal called for a $39.43 million delivery rate increase beginning in May 2009 (This amount is a 13.66 percent increase in delivery revenues or 5.17 percent in total revenues, including estimated natural gas charges.) The settling parties presented a two-year rate plan that sought to avoid another major rate case next year by providing for

• a "second stage" increase in May 2010 limited to three items: property taxes; pension and other post-employment benefits, and environmental investigation and site remediation costs;
  
• a financial disincentive if the company files for another rate increase before May 20, 2011; and
• a "sharing" provision if the company earns more than 11.35% on its equity.
  

The parties also compromised their initial positions on “minimum” or per-customer charges. Rather than increase the residential minimum customer charge to $20, as National Grid
proposed, the Joint Proposal supported an increase from $14.71 to $17.45. The minimum customer charge for low income, residential customers will decrease to $9.95. The customer charge for commercial customers in Service Classification 2 will increase from $19.35 to $23.65. The minimum charges include a 65 cent charge that supports the rate discount for low income customers.

In addition to reducing the residential minimum customer charge for low income customers to $9.95, National Grid will enhance its AffordAbility Program and increase the credit for gas customers enrolled in the arrears forgiveness program by $10 a month, bringing the credit to $30 a month. National Grid will also provide a one-time $40 benefit to all elderly, blind, disabled, and life support equipment customers who receive or qualify for Home Energy Assistance Program (“HEAP”) grants.

The May 15th Order noted that at a public statement hearing in Schenectady regarding the proposed rate increase

the CEO of the New York State Community Action Association spoke on behalf of low income families throughout the state. the chief executive officer of the New York State Community Action Association spoke on behalf of low-income families throughout the State. She described the energy programs, heating assistance and weatherization services that non-profit organizations provide and the growing burdens that low-income customers face. She noted that minimum charges are relatively high and delivery charges can have a disproportionately large effect on a low-income family. She also stated that outstanding utility bill balances are growing due to high energy burdens and that customers in arrears are experiencing increased difficulties in obtaining assistance to have their utility service restored. The Association opposes the amount of the proposed rate increase and urges the Commission to establish manageable utility rates for low-income customers and fewer utility service shutoffs.

The PSC said the opposition to the Joint Proposal and its impact on low income households from PULP and the parties it represented was “appreciated and pertinent to this rate proceeding.” However, it determined that the revised low income program is satisfactory: “The minimum charge reduction for designated low income customers will ameliorate the impact of the natural gas delivery rate increase for those customers who can least afford to pay higher rates.”

The Order went on to address concerns about low-income issues, but pushed them off to another day:

As to PULP’s suggestion that we should re-design rates to implement a program to substantially reduce total energy bills for public-assisted customers, we are not prepared in this proceeding to entertain any so substantial a policy change that would have major implications well beyond the scope of the natural gas delivery rates that are at issue here. The policy questions and issues PULP has raised can receive due consideration in other settings and they do not require specific action here. The rate design we are adopting does not disadvantage low income customers on public assistance and we are satisfied that the rate design is proper for purposes of implementing the natural gas delivery rate increase that we find to be warranted.

In their Statement in Opposition to the Joint Proposal, PULP and the community groups advocated for a more meaningful low income rate that would reduce energy burdens for low income customers. They presented an expert witness, Jerrold Oppenheim, who testified in favor of a low income delivery rate about 26 percent below the delivery rate that other customers pay, modeled on a program in use in Massachusetts by an affiliated National Grid utility. We went on to express our opposition to the $.65/month low income surcharge being applied to and collected from low income customers who are themselves the beneficiaries of the programs supported by the surcharge. PULP cited to California where low income customers in its CARE rate are exempt from a similar surcharge.

PULP also stated our concern about National Grid using service terminations as a tool to collect from the unemployed. We called for reductions in the minimum charge and volumetric charges. While we acknowledged that the Joint Proposal contains a $7.50 minimum charge discount for HEAP eligible customers, we advocated for a greater discount like the one provided to National Grid’s customers in the KeySpan service areas on Long Island and in Brooklyn.

PULP stated its support for the use of an incentive mechanism to encourage National Grid to reduce service terminations and believes a collaborative process should consider a performance metric and incentive.

National Grid and DPS Staff disagreed with PULP’s assessment of the low income customer provisions contained in the Joint Proposal and believe that low income customer interests were properly addressed by the Joint Proposal. In fact, DPS Staff found that the low income consumer protections are “rational, lawful, and beneficial” and that they do “not overly burden the body of utility customers.”

The PSC did state that PULP’s insights and analysis were “appreciated and pertinent to this rate proceeding,” but then went on to reject our concerns, believing that enough is being done. When 330,000 utility customers statewide were terminated for non-payment in 2008 and the economy has greatly worsened in the meantime, is enough truly being done? Maybe more can be done to help struggling families after all.

Lou Manuta

PULP Comments on PSC Proposals to Implement 2% Utility Assessment

On April 28^th, the New York State Public Service Commission (“PSC”) issued a Notice Requesting Comments following the passage of a state law establishing a Temporary State Energy and Utility Service Conservation Assessment, effective April 1, 2009 to March 31, 2014. The Temporary Assessment is applicable to public utility companies, including municipal gas and electric corporations, Energy Service Companies (“ESCOs”), and the Long Island Power Authority, but excludes telephone corporations and utilities with $500,000 or less gross operating revenues from intrastate utility operations. The Temporary Assessment imposes a charge of two percent of gross intrastate operating revenues, minus the amount of the current assessment on utilities for the PSC’s costs and expenses. The stated purpose of the Temporary Assessment is to encourage conservation of energy and other resources. Thus, it does not apply to telephone companies.

The PSC is considering issues relating to implementation of the Temporary Assessment and raised five broad topics for comment. PULP submitted its comments on May 15^th on two of the topics raised: estimating ESCO intrastate revenues and rate design issues.

The PSC indicated that data on ESCO revenue is not available and so proposed a method to calculate estimated ESCO revenues by having distribution utilities multiply the amount of electric or gas delivered to ESCO customers by the commodity supply price that would be charged by the distribution company for sales to its bundled service customers. PULP raised concerns with the proposed method of estimating ESCO revenues, considering that data regarding ESCO prices and intrastate revenues is or should be readily available to accurately estimate ESCO revenues subject to the Temporary Assessment. In fact, despite the PSC’s assertion, the actual number of megawatt hours of electricity and therms of natural gas sold by ESCOs in New York State, in addition to the average retail price, is readily available for the vast majority of ESCOs.

First of all, the distribution utilities which do the billing and collection work for ESCOs already have ESCO price and revenue data for their own internal billing processes and can readily provide it to the PSC. Many ESCOs use the distribution utility bililng systems and so this data would provide for more accurate estimates.

In situations where ESCOs do direct customer billing and price and revenue data are not available through the distribution utilities, this information is also readily available due to it being reported to the U.S. Department of Energy’s Energy Information Administration (“EIA”). EIA collects price and revenue data on a monthly basis from electric and natural gas ESCOs, so the PSC can either request the data directly from the ESCOs or through EIA. As a result, it should not be a burden for these ESCOs to share commodity prices and sales revenues with the PSC in order for the agency to more accurately estimate the Temporary Assessment because this information is already made available by them to EIA on a monthly basis.
Thus, there is no reason to base the ESCO revenue estimates on distribution company prices when better data is available and is already compiled and reported by the ESCOs to the distribution utilities and/or to the federal government. The Commission should require ESCOs to submit the data already prepared and provided to the distribution utilities and/or EIA to the Commission, at least until the time the Commission develops its own data request forms on ESCO prices and revenues for calculating ESCO revenue for the Temporary Assessment. Only in those situations where price and revenue data are not available through these methods should the Commission base ESCO intrastate revenues on its proposed methodology.

Further, while PULP supports the use of ESCO price and revenue data when it is available, the method selected by the Commission to estimate ESCO sales – multiplying the known amount of electric or gas delivered to ESCO customers by the commodity supply price charged by the distribution company for sales to its bundled service customers – should not be used for another reason: it may significantly underestimate ESCO intrastate revenues. PULP has found on the PSC’s Power to Choose web page that ESCO end user prices often greatly exceed utility prices (usually after a limited “trial” period).

The distribution utility’s commodity supply price for natural gas, for example, may be 20 or 30 cents (or more) per therm lower than the actual ESCO end user rate. By proposing to estimate ESCO revenues as if there are no differences between ESCO revenue per kilowatt hour (or therm) and utility revenue per kilowatt hour (or therm), a portion of the revenues of the high-charging ESCOs would escape the Temporary Assessment.
PULP also noted it is appropriate to collect a full assessment based on the actual ESCO charges and revenues because ESCOs that charge more than the distribution utility also tend to generate a higher level of complaints at the Commission, thus draining more of the Commission’s resources.

In addition, the PSC has proposed to allocate the Temporary Assessment to each customer class based on the class’ contribution to the utility’s total revenues, including delivery and supply charges, as a means to align cost causation with cost recovery. PULP is concerned that under this proposal for the Temporary Assessment, low income customers will be unnecessarily and unfairly burdened. Most distribution utilities have either a rate classification for low income customers or a low income discount program in place. As a result, low income customers do see a reduction in their bills and household energy burdens. These reductions would be significantly diminished or offset if low income customers would be required to pay the additional assessment. The application of the Temporary Assessment would not be just and reasonable for these customers because it would have a significantly negative impact on low income households, diminishing any “benefit” they would otherwise receive from the low income rates or discounts that were intended to ease their energy burdens.

Accordingly, PULP called for a finding that low income customers either be exempt from the new Temporary Assessment or, in the alternative, that the rate cases for those distribution utilities with low income rates or discounts be re-opened to amend their overall rate designs to increase the low income rate discounts by at least the amount of the assessment.

Lou Manuta

New York HEAP Program Closes Today

The New York Low-Income Home Energy Assistance Program ("HEAP") will close today for both Regular HEAP and Emergency HEAP. Unlike some other states, New York does not supplement the HEAP program when federal funds are depleted. Section 97 of the Social Services Law provides that

No person, however, shall be certified as eligible for and entitled to receive said home energy assistance if no federal funds are available for such purpose.

New York does have an emergency utility assistance program under section 131-s of the social services law which can provide assistance in situations where utility service is off or a shutoff is threatened and HEAP is not available. That program has eligibility requirements more stringent than HEAP and recipients whose income is above the welfare level must make a written agreement to repay the local department of social services. OTDA has adopted rules that bar assistance to an applicant who did not repay prior assistance. See OTDA Must Relax Its Administrative Restriction on Utility Assistance Loans for Persons with Incomes Above the Public Assistance Level, and OTDA Eases, but Continues, its Administrative Restriction on Assistance to Utility Customers with Incomes Above the Public Assistance Level.

With the HEAP program closing, the restrictions on state-funded assistance, and rising economic hardship for many families, utility service terminations are likely to increase this year. Last year, utilities shut off service to more than 330,000 New York customers for nonpayment. See PSC Reports on Devastating Termination Statistics.

FCC Acts to Protect VoIP Customers from Providers Going out of Business

Recognizing that consumers increasingly use interconnected Voice over Internet Protocol (“VoIP”) service as a replacement for traditional voice service and that consumers’ expectations for this type of service trend toward their expectations for other telephone services, the FCC acted on May 13th to protect VoIP consumers from the abrupt discontinuance, reduction, or impairment of their service without notice.

Specifically, the FCC Order applies to VoIP service providers the discontinuance obligations that now apply to nondominant telecommunications carriers. As a result, before an interconnected VoIP provider may discontinue service, it must comply with the FCC’s streamlined discontinuance requirements. These include requirements to

• provide written notice to all affected customers,
  
• notify relevant state authorities (including the state commission), and
  
• file an application for authorization of the planned discontinuance with the FCC.
  

These rules will now apply to fixed VoIP services, such as voice services offered by cable television companies, and to nomadic VoIP providers, such as Vonage.

A VoIP provider's service discontinuance application will be automatically granted by the FCC on the 31st day after the FCC releases public notice of the application, unless the FCC notifies the applicant otherwise. “Thus we believe,” concluded the FCC, “that interconnected VoIP providers will be faced with discontinuance requirements that are no more burdensome than the reduced requirements that already apply to competitive carriers, and that their customers will be afforded a reasonable time to make alternative service arrangements in the event of a discontinuance, reduction, or impairment of service.”

Although the FCC continues to resist classifying VoIP service as a telecommunications or information service, this order adds yet another telecommunications-type requirement on VoIP providers, which must already

• contribute to the federal universal service program,
  
• provide access to E-911 and the relay service for the deaf,
  
• participate in local number portability (which enables customers to retain their telephone number when they switch providers), and
  
• provide law enforcement access to wiretaps.
  

PULP believes the New York PSC should require VoIP providers to begin contributing to the state universal service program as well. See The Time Is Now - New York Should Begin Requiring VoIP Providers to Support State Universal Service. The Targeted Accessibility Fund supports several New York state universal service functions, including a matching component to the federal Lifeline discount rate program for low income customers.

Lou Manuta

Submetering Challenged at Claremont Gardens in Ossining

A tenant has filed a petition with the New York PSC seeking to vacate the submetering order for Claremont Gardens, a former Mitchell-Lama housing project in Ossining, N.Y. In September 2006 the PSC issued an order allowing submetering of electricity at Claremont Gardens, granting the petition of a consultant who frequently files petitions on behalf of owners to obtain PSC waivers of the general prohibition against landlord submetering to residential tenants.

The same consultant co-authored a Residential Submetering Manual funded byNYSERDA for owners considering submetering. It suggests owners who submeter electricity can avoid "time-consuming" and "bothersome" requirements of the Home Energy Fair Practices Act by evicting tenants when they fall behind in electricity payments rather than proposing to shut off service. An impending service shutoff triggers numerous HEFPA protections that can prevent actual termination, including the right to a deferred payment plan to repay arrears in affordable installments over time. Also, a threatened utility shutoff may trigger financial assistance through HEAP or public assistance programs. These benefits are not available when a submetering landlord seeks to evict a tenant who falls behind in making the utility payments.

The Claremont Gardens submetering order requires the owner to include in the rental agreement the terms and conditions of submetering. These of the rental agreement become the contract or tariff for utility service. provided by the owner. The PSC Order recites that

"the Applicant certifies that the method of rate calculation, rate cap, complaint procedures, tenant protections, and the enforcement mechanism will be incorporated in plain language in all current and future lease agreements."

The tenant's petition to vacate the submetering order alleges that Claremont Gardens' leases were not modified to comply with the order, and that numerous tenant protections were never implemented. In a pending generic PSC proceeding underway to revise submetering rules, the owner of Claremont Gardens, Starrett Corporation, is asking the PSC to eliminate the current requirement to include terms and conditions for electric service in rental agreements, and to eliminate any limit on what can be charged. See Submetering Landlords Clamor for More PSC Deregulation of Electric Service.

The motion to vacate the Claremont Gardens submetering order alleges it was based on misrepresentation and lack of full disclosure of the nature of the tenancies. The order says "All of the apartments are rent stabilized and are regulated by the New York State Division of Housing and Community Renewal (DHCR) through the Westchester County Department of Planning." The Order further states

The Applicant also indicates that rent reductions to all rent regulated tenants will be calculated in accordance with DHCR regulations.

In fact, there is no "rent stabilization" in Westchester. Localities can adopt a similar system through the Emergency Tenant Protection Act of 1974, but Ossining made the declaration necessary to adopt it. This was a significant misapprehension on the part of the PSC, because allowable rent for rent stabilized apartments is lowered under DHCR rules when electric submetering is adopted, offsetting (at least partially) the new cost being imposed upon tenants. But there was no DHCR rent reduction at Claremont, so tenants simply had to pay more.

The lease has a provision which suggests that if submetering is implemented there will be offsetting changes in rent subsidies. Also, the landlord sent a letter to tenants explaining the introduction of submetering which misstated the economic impact:

This will save all the residents money. Whether we chose submetering or direct
metering, all voucher tenants will receive an energy allowance to offset the expense in accordance with existing HUD regulations.

Some tenants at Claremont Gardens receive housing subsidies from Westchester County through its Section 8 program, but their rent was not reduced, nor were their subsidies changed to offset the new charges when the landlord, enabled by the PSC order, added electricity charges to their monthly bills. The tenant's petition for a stay of submetering alleges that when the Section 8 office was contacted, the Section 8 representative was under the impression utilities were still included in rent and did not know of the submetering order.The lease currently used by Claremont Gardens does not disclose that submetering has already been implemented under PSC order.

Whenever a subsidized unit at Claremont Gardens is vacated, the apartment can be re-rented at an unregulated, higher market rent. Thus, the PSC submetering policy, which adds economic burdens, may be contributing to a loss of affordable housing for lower income households. Numerous low income tenants may have already lost their housing through the eviction process because the Claremont Gardens leases "deem" electric charges to be "rent". The complaining tenant, who had disputed charges for electricity, was served with eviction papers and had to defend in court with an attorney.

Claremont Gardens received a grant of $100,997 from NYSERDA to implement the submetering. These funds are from the PSC-created "System Benefits Charge," a surcharge on utility bills collected from customers and transferred to NYSERDA to spend for its grant programs. See PSC and NYSERDA Spend Millions for Submetering Projects Violating Residential Tenants' Rights.

For further information see PULP's web page on residential submetering.

Campaign for Fair Electric Rates Launches Video Explaining Need for Reform of Wholesale Electric Markets

Why do over 50% of Americans pay electricity rates up to 70% higher than others?

A short informational video at the Campaign for Fair Electric Rates website explains how the Federal Energy Regulatory Commission (FERC) allows electricity producers and traders make billions in profits, in private self-regulated spot markets that influence retail rates.

The purpose of the video is to educate individuals about deregulation of the wholesale electricity markets, and the impact upon electric consumers. The video is also on YouTube.

Audit finds NYISO's Private "Market Monitor" System Lacks Sufficient Independence

The functioning of wholesale electricity markets has taken on huge importance in the 15 states, including New York, that encouraged their utilities to sell their power plants so that most power must be purchased in the functionally deregulated and seriously flawed markets such as those of the NYISO. A recent audit report filed with FERC finds that the NYISO "Market Monitor" system provides insufficient independence. The "Market Monitor" is hired by the NYISO to review whether its spot markets which set the price of wholesale electricity in New York are competitive and not flawed, gamed or manipulated.

The audit faults several features of the private NYISO utility's market monitoring function, including that

• the "independent market monitor" consultant reports to the CEO of the NYISO instead of to its Board of Directors
  
• NYISO failed to consistently notify FERC and market participants on a timely basis when NYISO discovered problems in its markets
  
• the NYISO "market monitor" may be subordinate to other executives involved in market design. Typically the NYISO response to gaming or manipulation has been not to seek price corrections but to change market rules going forward, with the result that no refunds are provided and market rules become so complicated few can understand them
  

Still pursuing its Enron-style deregulation agenda, FERC, instead of requiring all sellers to comply with Federal Power Act requirements to publicly file rates, allows wholesale electric rates to be set and changed privately. There is no public disclosure of prices demanded in the day-ahead and real time markets until months later, and even then, the identity of sellers is masked. As a result the public cannot know, for example, which seller set the market price or which sellers may be engaging in strategic tactics to raise prices, such as "hockey-stick" bidding.

FERC just assumes market prices are "just and reasonable" without public filing or review, and has approved RTO/ISO tariffs that privatize the determination whether markets are competitive. This allows the ISO, a private utility, to itself judge, through its private "market monitor" consultant, whether its markets are working. Seven years ago, the National Association of State Utility Consumer Advocates, NASUCA, adopted a resolution urging more independence of "Market Monitoring Units" ("MMUs") in situations where states had restructured:

The MMU should be an integrated part of the RTO and should be ultimately accountable to the RTO board;The head of the MMU should only be dismissed for cause and with the approval of the independent board of the RTO and the Commission....

After an incident involving independence of the market monitor in the PJM region, FERC, in its Order 719, issued in October 2008, required changes intended to strengthen the independence and role of market monitors along the lines proposed five years earlier by NASUCA. These included making market monitors accountable to and removable by the RTO/ISO Board of Directors, instead of the management of the entity.

After a series of incidents involving delayed action on gaming and failures of the NYISO markets, the new audit report faults the NYISO "Market Monitoring Unit" for a lack of structural and operational independence now required by Order 719.

As stated in the FERC Order accepting the audit report, which covered a period ending January 2009

Several provisions of the NYISO Market Monitoring Plan require the MMU to be responsive to NYISO’s Chief Executive Officer (CEO). Specifically, the Market Monitoring Plan requires the MMU to act at the direction of the CEO. It also subjects the MMU to the management oversight of the CEO in retaining consultants and other experts and in developing and implementing methods, procedures, staffing and other resources for meeting the objectives of its Market Monitoring Plan. The Report notes that while the Market Monitoring Plan calls for the MMU to be responsible to the CEO, the audit revealed that the head of the MMU was reporting to the Vice President of Market Structures. This raises a potential conflict because the Vice President of Market Structures also has responsibility for market design. The Report found that this is inconsistent with the Market Monitoring Plan and Order No. 719, which requires MMUs to report to the Board of Directors, rather than management, to give them the separation needed to foster independence.

For more on the NYISO see New York State Assembly Committees to Hold Hearings on NYISO Wholesale Electricity Pricing; Data Discredits NYISO and PSC Defense of Spot Market Rate Demands; 12% of Bids Exceed $900.

State Senate Begins Review of PSC Nominees

The New York State Senate Standing Committee on Energy and Telecommunications, chaired by Senator Darrel J. Aubertine, is scheduled to begin Senate consideration of the nominations of Patricia L. Acampora and Garry Brown to the New York State Public Service Commission at 2:00 PM, Tuesday, May 12, 2009, Room 412 LOB. Both nominees, sitting commissioners whose terms have expired, were nominated for full six-year terms.

For background see

• Governor Paterson Renominates Two PSC Commissioners;
• In a New York Minute, Governor Paterson Appoints and Senate Confirms James Larocca as New PSC Commissioner;
• Public Interest Coalition Urges Transparency in Selection Process for PSC Commissioners;
• Will Governor Paterson Repurpose the Public Service Commission to Protect Consumers?
• More New PSC Commissioners Coming Soon?;
• Governor Spitzer Nominates NYISO Executive for PSC Post.

The Time Is Now – New York Should Begin Requiring VoIP Providers to Support State Universal Service

Back in August 2008, PULP reported on a pending federal court case involving the ability of a state to require interconnected Voice over Internet Protocol (“VoIP”) providers to contribute to a state Universal Service Fund (“USF”). At issue was whether Nebraska was pre-empted by the FCC from assessing “nomadic” VoIP providers, such as Vonage, for its state USF. Nomadic VoIP refers to a service that allows a customer to make telephone calls wherever a broadband connection is available, making the geographic originating point difficult or impossible to determine. By comparison, “fixed” VoIP service originates from a fixed, known geographic location (such as the voice telephone service offered by cable television companies). The Eighth Circuit Court of Appeals issued its decision in Vonage Holdings Corp. v. Nebraska Public Service Commission (No. 08-1764) on May 1st.

By way of background, the federal District Court for the District of Nebraska had blocked the Nebraska Public Service Commission’s (“NPSC”) ability to require nomadic interconnected VoIP providers to collect and remit a surcharge for the state’s USF. On the appeal to the Eighth Circuit, the FCC submitted an amicus brief arguing that the FCC has not pre-empted the states from assessing state USF fees on VoIP providers. The FCC wrote:

The fundamental error in the district court’s preemption analysis is that it fails to consider the critical question of whether preemption is necessary to prevent the state regulation at issue from frustrating a valid federal policy objective. It is not enough to simply conclude that it is impossible to separate the interstate and intrastate aspects of the service – that is a necessary, but not a sufficient, finding to support preemption. A finding that state regulation would conflict with federal regulatory policies is also required. In the Vonage Preemption Order, the FCC found that Minnesota’s entry and tariff regulations of Vonage’s service conflicted with the FCC’s deregulatory policies applicable to the interstate component of Vonage’s service. The FCC did not address, let alone preempt, the state-level universal service obligations of interconnected VoIP providers, which the FCC has distinguished from traditional “economic regulation.” In contrast to the Vonage Preemption Order, the NPSC USF Order does not present a conflict with the FCC’s rules or policies. Rather, the NPSC’s decision to require interconnected VoIP providers to contribute to the state’s universal service fund, and the contribution rules that the NPSC established to implement its decision, are fully consonant with the FCC’s rules and policies and are contemplated by §254(f) of the [Telecommunications] Act. Thus, in these specific circumstances, the rationale of the Vonage Preemption Order provides no basis to conclude that the FCC has preempted Nebraska’s state universal-service contribution requirement. (internal citations omitted)

The FCC went on to argue that a state requiring VoIP providers to contribute to the state's USF fund does not frustrate federal policy and actually promotes the federal policy: “Vonage benefits from the state’s universal-service program because its customers in Nebraska (and elsewhere) undoubtedly value the ability to place calls to and receive calls from those in Nebraska who continue to rely on the PSTN [Public Switched Telephone Network] for their telephony services.” For example, programs like Lifeline and Linkup that help low-income afford to maintain phone service should be supported by all users, no matter which type of telphone service they use.

Further, the FCC argued that the federal USF is supported by contributions from interstate revenues, while the state USF would be supported through intrastate revenues: “If an interconnected VoIP provider relies on the FCC’s safe-harbor and presumes that 64.9 percent of its revenues flow from its interstate operations, under the NPSC USF Order it may use the equivalent presumption that 35.1 percent of its revenues are intrastate in nature. . . . [T]here is no possibility that an interconnected VoIP provider will be forced to pay into Nebraska’s universal-service fund on the basis of the same revenues that the provider uses to calculate its federal universal-service contribution.” Thus, the FCC proclaimed, “the NPSC USF Order is not ‘inconsistent with the Commission’s rules to preserve and advance universal service.’”

Unfortunately, the Eighth Circuit decision affirmed the District Court’s determinations without mentioning the FCC’s brief at all. The Court specifically addressed only state USF obligations of nomadic VoIP providers and found that it would be impossible to have companies like Vonage comply with the state USF requirements because Vonage's nomadic interconnected VoIP service cannot be separated into interstate and intrastate usage. And, the Court continued, even if it were possible to distinguish between intrastate and interstate nomadic VoIP traffic, such a determination must only be made by the FCC.

Of course, these holdings ignore the 64.9 percent interstate/35.1 percent intrastate safe-harbor standard created by the FCC to allocate the state/federal jurisdictional revenues.

On the positive side, the decision only applies to those states within the Eighth Circuit (Arkansas, Iowa, Minnesota, Missouri, Nebraska, North Dakota, and South Dakota) and it does not include fixed VoIP providers. It is most certainly going to be appealed to the United States Supreme Court.

The New York PSC considered the proper regulatory framework for Vonage back in 2004 and determined that a "light" regulatory approach was best. For example, Vonage was required to obtain a state Certificate of Public Convenience and Necessity and to offer 911 connectivity, as does every other competitive provider in the state. Vonage sued, and the PSC decision was stayed by the U.S. District Court for the Southern District of New York, following Vonage’s request for a preliminary injunction. The case has not proceeded.

Today, both nomadic and fixed VoIP providers have become vibrant competitors in New York. The cable companies, primarily Time Warner Cable and Cablevision, are the second and third largest local telephone service providers in the state. However, for every customer they migrate from the incumbent, the state loses regulatory assessment fees (which are used to run the Public Service Commission), gross receipts taxes, and Targeted Accessibility Fund (“TAF”) assessments. TAF is New York’s version of a state Universal Service Fund and supports Lifeline discount telephone service, 911 connectivity, and the relay service for the deaf. Contributions to TAF are dwindling due to migration of customers to unassessed cable telephone or other VoIP service, and the situation has reached the point where consideration of assessing VoIP providers has become not just a question of fairness, but one of necessity.

While the Eighth Circuit decision surely will be invoked by some VoIP industry opponents of state regulatory assessments for universal service functions, the determination has no binding legal force in New York. As the FCC argued in its brief, all providers and their customers benefit when every resident can make and receive calls. The fact that a different technology may be used by VoIP is not a valid means to draw a distinction. People pick up their telephone and dial a series of numbers to place a call – that’s what matters. If a carrier can keep track of which calls remain in the state and which travel into other states, actual calling data is permitted to be used. However, the safe-harbor standard developed by the FCC is usable in all other incidents.
The collection of state USF funds complements the collection of federal USF funds and does not “frustrate” federal policy.

New York has an opportunity to join other states – including Missouri and Nebraska in the Eighth Circuit and New Mexico and Kansas in doing the right thing – assess TAF payments on VoIP providers now, and revitalize the sagging New York Lifeline assistance program.

Lou Manuta

20% of Americans Have Cut the Cord, Now Relying Only on Wireless Telephones

On May 6th, the Centers for Disease Control and Prevention released preliminary results from the July - December 2008 National Health Interview Survey (“NHIS”) which indicate that the number of American homes with only wireless telephones continues to grow. More than one of every five American homes (20.2 percent) had only wireless telephones – not landline – during the second half of 2008, an increase of 2.7 percentage points since the first half of 2008. This is the largest six-month increase observed since NHIS began collecting data on wireless-only households in 2003.

In addition, one of every seven American homes (14.5 percent) received all or almost all calls on wireless telephones, despite having a landline telephone in the home. While state specific statistics were not included in the report, the percentage of wireless-only households in the Northeast trails most of the rest of the country, but still grew from 9.8 percent in the previous survey to 11.4 percent. In addition, nationwide, the percentage of households deemed “poor” (below the federal poverty level) or “near poor” (incomes of 100 percent to less than 200 percent of the poverty threshold) which are wireless-only jumped from 26 percent to 30.9 percent and 22.6 percent to 23.8 percent, respectively.

Keep in mind that important consumer protections for telephone customers, such as New York’s Telephone Fair Practices Act, do not apply to wireless users, because PSC jurisdiction over wireless service was conditionally suspended in 1997.

Voluntary wireless consumer protection guidelines have been created by the industry, but they have no teeth and are not enforceable. Utility regulators in other states have begun to exercise jurisdiction over terms and conditions of wireless telephone service as it has evolved from being a luxury extra phone to being the only phone relied upon by more and more customers.

The New York PSC has not made the finding, necessary under section 5.6 of the Public Service Law, that an end to the suspension of its jurisdiction over wireless service is needed "to protect the public interest." For more information on the status of wireless consumer protections in New York, and proposed legislative solutions, please visit PULP’s webpage on wireless telephone service.

Lou Manuta

Verizon Wireless Is Latest Provider to Offer Lifeline Discount Telephone Service in NY

Recently, Verizon Wireless began to offer Lifeline discount telephone service to low-income customers in New York. The company joins all of the incumbent local exchange carriers (including Verizon, Frontier/Citizens, and Windstream), several competitive local exchange carriers (such as AT&T), and two wireless providers (Sprint/Nextel and TracFone) as an FCC-approved "Eligible Telecommunications Carrier" (ETC) providing Lifeline service. Virgin Mobile has also been authorized to offer Lifeline in New York, but has not rolled out the service yet. An ETC receives reimbursement through the federal Universal Service Administrative Company, an arm of the FCC, for the amount of the federal Lifeline discount.

According to a Verizon Wireless brochure, Lifeline customers will pay $25.74 per month for 400 anytime minutes, 1000 local mobile to mobile calling minutes, and unlimited long distance – a savings of $8.25 off the basic monthly service bill. Also, eligible applicants will be able to activate the service for free, saving $30, under the Link-Up program. The application is available here:

PULP has updated its comparison chart of Lifeline offerings in New York to include Verizon Wireless.

While PULP wholeheartedly supports the addition of new Lifeline providers, we are concerned that the Public Service Commission has allowed the number of Lifeline customers in the state to drop from over 750,000 in 1996 to around 300,000 today – despite the fact that the number of households eligible for the service has greatly increased. The monthly savings – amounting to $15 to $20 for landline customers – is significant for a growing segment of our population, particularly as unemployment increases.

The savings for Lifeline customers with landline service are greater than for wireless Lifeline service because the New York PSC, unlike regulators in other states, does not terms and conditions of wireless service, and does not require wireless companies with ETC status to participate in a supplemental state Lifeline assistance program through the PSC-created Targeted Accessibility Fund.

With growing public reliance on wireless service, the time has come for the PSC to exercise its power to oversee terms, conditions, consumer protections and Lifeline assistance for wireless service customers.

Lou Manuta

Hazel Towers Tenants Ask PSC to Act on Submetering Complaints

The Hazel Towers Tenants Association on May 6, 2009 requested the PSC to halt submetering at Hazel Towers, a former Mitchell Lama project in the Bronx. In 2000, the PSC allowed the owner of Hazel Towers to submeter electricity, normally prohibited by regulations and tariffs, on condition that the owner provide certain tenant protections. These protections include a price cap, HEFPA protection, and incorporation of the terms and conditions of service, including the method of rate calculations and complaint procedures, in the leases. The submetering was implemented seven years later, with the aid of NYSERDA grants using PSC-directed System Benefit Charge revenue. See PSC and NYSERDA Spend Millions for Submetering Projects Violating Residential Tenants’ Rights

Individual tenants living in Hazel Towers complained about a year ago to the PSC Office of Consumer Services (OCS) about implementation of the submetering, violation of the conditions of the PSC submetering order, overcharges, erroneous billing, and noncompliance with HEFPA. They also cited a case where the owner's metering agent brought a lawsuit in state supreme court against a tenant who had protested high submetered charges. PULP successfully defended that tenant. See AMPS, a Submetering Company, Withdraws Request for Court Injunction to Shut off Tenant's Electricity. See also, Under HEFPA, the New York PSC Must Decide Complaints of Submetered Customers.

Hazel Towers then retained Harris Beach, the law firm of a former PSC Chairman.

According to notes in the OCS case file obtained by PULP, the former attorney for Hazel Towers said the new law firm would be brought in because one of its partners, former PSC Chairman William Flynn, had greater familiarity with "our inner workings."

At the time Flynn was barred from appearing before the PSC during a two-year period. Another Harris Beach partner, Joseph Amicone, appeared for the owner, in at least one case making an ex parte submission to OCS without providing a copy to PULP (until after PULP learned of it and demanded a copy). Amicone formerly worked as an attorney in the Governor Pataki's Office of Counsel on energy matters while Flynn was PSC Chairman.

Flynn was appointed by former Governor Pataki to head NYSERDA and later was appointed to head the PSC. While Flynn was at NYSERDA, that agency funded a Submetering Manual written by a consultant from the submetering industry which coaches landlords to avoid the "bothersome" requirements of the Home Energy Fair Practices Act (HEFPA) by evicting tenants rather than terminating service for nonpayment. (A notice of service termination triggers many HEFPA protections such as deferred payment plans and may trigger financial assistance for the needy). During the Pataki administration the PSC attempted to deregulate by exempting ESCOs from HEFPA, allowing submeterers to avoid HEFPA complaint resolution procedures and replace them with arbitrators hired by the landlord, the OCS greenlighted harsh practices of National Grid regarding deposits and service applications, and OCS allowed National Grid to train its complaint case handlers. The majority of the PSC, three members, were appointed by former Governor Pataki.

The OCS did not promptly decide the complaints of the individual Hazel Towers tenants or the June 2008 complaint of the tenants association. OCS is headed by Sandra Sloane, an appointee of Flynn who worked for former Governor Pataki when he was a state senator and for other agencies during the Pataki administration. OCS took no action on Hazel Towers' violations of the rent cap, failure to timely implement the required lease provisions regarding HEFPA protection, complaint resolution, and method of rate calculation. See A Year Passes with No PSC Decision on Submetered Tenant Complaints of HEFPA Violations and Overcharges.

The petition filed today alleges that the stasis in handling of the submetering complaints and failure to fully enforce protections for submetered tenants is due to regulatory capture of the OCS. It asks the PSC Commissioners to find that its submetering order has been violated, to refund charges made in violation of the order, to order a halt in submetering at Hazel Towers, to correct any violations and overcharges before any future submetering is allowed, and to consider bringing a penalty proceeding against the owner.

See Hazel Towers Tenants Association’s Petition for Investigation and Remediation of Noncompliance with Prior Order for Vacatur or Modification of Order Establishing Terms and Conditions of Submetered Electric Service at Hazel Towers and for a Stay .

See also, Lax PSC Enforcement of Submetering Orders Allows Landlords to Overcharge for Electricity Sold to Tenants and to Circumvent HEFPA Protections

For further information on submetering see PULP's website page on submetering.

Update
In a July 24, 2009 letter, the Secretary to the PSC, who is its ethics officer, reviewed the history of handling of the Hazel Towers complaint by the Office of Consumer Services (OCS) and concluded that "there was no evidence to suggest that the processing of these complaints was purposely delayed by and OCS manager or staff. ... [T]he delays experienced in the processing of the Hazel Towers complaints is attributable to factors such as the overall case load assigned to individual OCS staff members and the prioritization assigned to, and resources and expertise available for, particular types of cases."