PSC Signals Shift in Landlord Subsidies to Implement Submetering

Background
Pressure from tenants led the PSC in 1950 to ban residential submetering, see Resale of Power in City Is Curbed. It was reintroduced in 1978 for cooperatives and condominiums whose owners request submetering, and was expanded to rental housing in 1979. Little submetering of rental housing occurred until the Pataki administration years, when conversion to submetering was promoted through coordinated action of several agencies.

• NYSERDA subsidies paid for submeters, installation, and landlord consultants,
  
• DHCR rent reduction formulas were tilted to benefit landlords financially when they submeter,
  
• PSC approved utility rate structures that encourage submetering, and
  
• scores of building-specific PSC orders waived the prohibition against submetering and winked at landlord efforts to circumvent HEFPA and the PSC role in deciding customer disputes
  

While giving routine lip service to consumer protection in its submetering orders, the PSC actually allowed submetering landlords, in practice,

• to avoid providing the safeguards of the Home Energy Fair Practices Act,
  
• to deem electric charges to be rent and to evict tenants for unpaid utility charges,
• to ignore complaints or divert them away from the PSC administrative complaint determination process,
• to avoid compliance with rate calculation requirements,
  
• to violate price caps, and
  
• to provide service without tariffs and without tenant agreement to terms and conditions of service consistent with PSC orders.

Last year, PSC staff testified in favor of extending submetering further, to more than 600,000 additional tenants in Con Edison territory.

Previously we noted how System Benefit Charge (SBC) revenue collected under PSC orders from electric customers to promote energy efficiency is being used, in the name of helping low income customers, to subsidize landlords, cause economic hardship to tenants, and foster displacement of low-income households from subsidized and rent stabilized apartments. See, e.g.,

• PSC and NYSERDA Spend Millions for Submetering Projects Violating Residential Tenants' Rights,
  
• Submetering Challenged at Claremont Gardens in Ossining,
  
• PSC Order Allowed Landlord to Shift Million Dollar Electric Bill to Low Income Tenants;
• Submetering Slowed at Roosevelt Island.

The PSC is key to submetering, because no submetering occurs without a PSC order allowing it, and because the PSC (not the Legislature) effectively appropriates how NYSERDA spends hundreds of millions of SBC dollars.

The EEPS Proceeding
A marathon, multi-track generic proceeding is underway at the PSC which affects how NYSERDA should spend SBC funds known as the Energy Efficiency Portfolio Standard (EEPS) proceeding. Due to its limited resources, PULP has not been participating actively in the proceeding, which entails extensive and time-consuming conferences, collaborative work groups, and comment processes.

A recent order in the EEPS case suggests that the PSC is beginning to modify its policies.

NYSERDA's Initial Proposal for More Subsidies to Landlords who Install Submeters
The Commission issued an Order on June 24 signalling a slight shift in its promotion of residential submetering. It recounts how NYSERDA initially proposed to increase subsidies to landlords to underwrite the cost of installing submeters, and master meters that will facilitate implementation of real time electric pricing passed through to captive tenants by landlords acting in the role of a monopoly utility.

The submeter rebate would be $500 for low income units and $250 for market rate units. The advanced master meter rebate would be $2,000 for low income buildings and $1,000 for market-rate buildings.

This "advanced metering" and submetering scenario creates the technical capability to introduce "real time" pricing, exposing retail customers to volatile and unpredictably spiking prices of the NYISO. This amounts to reckless human experimentation when it involves households lacking the savings or income to buffer the price spikes. See Not so Smart? High Tech Metering May Harm Low Income Electricity Customers; New York Residential Real Time Pricing Experiments Must be Voluntary. Widespread deployment of "smart meters" has been challenged as not being cost effective. See AARP Opposes PEPCO Plan for Spending on "Smart Meters".

NYSERDA's Modified Proposal for Submetering
Earlier this year, the PSC issued stays of submetering implementation in buildings where landlords were shifting costs for electric heating to tenants. Also, tenants in other buildings petitioned to vacate PSC orders allowing submetering, some involving electricity for heat, see Submetering Slowed at Roosevelt Island, and Yonkers Tenants Ask PSC to Halt Submetering at Riverview Towers, and others involve non heat related electricity, see Parker Towers Residents Petition PSC to Vacate Prior Submetering Order, and Hazel Towers Tenants Ask PSC to Act on Submetering Complaints.

According to the PSC Order, NYSERDA modified its proposal last month:

On May 19, 2009, NYSERDA filed an update to its original proposal. The update places more emphasis on market rate buildings, including condominiums and cooperatives. NYSERDA now proposes that electrically-heated, low-income buildings that are rent stabilized, rent controlled, or regulated by state or local agencies, might require the installation of two submeters in each dwelling unit – one for electric needs and another for heat. The installation of two separate meters would allow the low-income resident to continue to have their heat included in the rent, while the tenants would assume responsibility for their individual non-heating electricity usage.

This would still allow NYSERDA to subsidize submetering of electric heat in buildings with market rate tenants.

The two-meter situation, i.e., not submetering the heat, is the model implemented by Starrett Corporation at Claremont Gardens, in Ossining. This system still causes major hardship and displacement of Section 8 tenants whose utility allowances were insufficient to meet the new cost of electricity added to their rent. See Submetering Challenged at Claremont Gardens in Ossining, which contains a link to the tenant's petition. Tenant leaders say that many Section 8 tenants were driven out since submetering began. Once a subsidized tenant is evicted at Claremont Gardens, the unregulated premises can be rented at higher market rate rents.

Claims of Energy Savings Questioned
In scoring applications for SBC funds, NYSERDA evaluates the cost benefit of energy savings due to investment in energy efficiency measures. A premise of submetering proponents is that huge energy savings would occur if , instead of the landlord, the tenants pay the electric bills. This estimate of savings justifies the installation subsidies, and DHCR bases its schedule of paltry rent reductions upon, inter alia, an assumption of large usage reductions with the advent of submetering. See PULP Analyzes DHCR Submetering Rent Adjustments.

The PSC has finally begun to look beyond the claims of interested submetering applicants to check out the claims of large savings:

NYSERDA’s proposed program (both the original and updated versions) claims an annual energy savings of 20% or more due to behavioral changes alone, based on the installation and implementation of submeters in master metered buildings.
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NYSERDA’s claims of 20% energy savings, strictly as a result of the installation of submetering (in the absence of further steps to reduce energy usage), appear overly optimistic. The Electric Power Research Institute (EPRI) cites studies examining the effect on customer behavior of obtaining better information on their energy usage. These studies show decreases in electric usage of between 5 and 15%. [footnote omitted] For the purpose of modeling expected energy savings, Staff assumed an energy savings rate of 8%, achieved strictly as a result of better information available to customers, and a payment obligation, as to their energy usage as a result of the installation of individual metering.

The PSC said to use an 8% savings estimate pending further evaluation:

In its program evaluation efforts, going forward, NYSERDA needs to establish more detailed requirements and specifications for examining the effects of the introduction of submeters on tenants' energy use than those that were required under the previously offered Comprehensive Energy Management Program (administered by NYSERDA) so that the energy savings relating to behavioral change, in the absence of other factors, can be isolated.

It is evident that there has been no real effort of the PSC or NYSERDA to arrive at an independent research based estimate of energy savings fairly attributable to changed tenant behavior despite a massive rollout of submetering and a decade or more of experience. NYSERDA has already begun using the reduced 8% estimate of savings due to changed tenant behavior. See PULP Analyzes DHCR Submetering Rent Adjustments.

Meanwhile, exaggerated claims of large savings are still relied upon by DHCR in its rent reduction schedules and by PSC staff in advocating even more submetering. Every time a rent stabilized tenant is submetered, and receives a rent reduction of about $30 and an electric bill that is a multiple of that, landlords are enriched and tenants are harmed.

A Submetering Subsidy Slowdown Pending Further Action
The PSC announced that it would not approve SBC funds for submetering subsidies to owners, except in market rate buildings, cooperatives, and condominiums, pending resolution of pending cases which challenge submetering orders and pending the outcome of its generic case considering revision of submetering regulations.

Another factor that will affect the size of the program involves the low-income segment of the multifamily market sector. As a result of our role in approving submetering plans within New York State, we are aware of concerns that have arisen in conjunction with installation of submetering in buildings with low-income residents. At the time of this order, rehearing petitions are pending before the Commission and original orders approving submetering are stayed. The concerns raised are building-specific and will be addressed by the Commission. General concerns raised on the topic of submetering in the low-income sector are being addressed through a collaborative effort to update the Commission’s submetering rules and regulations. Until the pending rehearing petitions are decided and until the collaborative effort to revise the regulations is completed, we will limit participation in the new Master-Metered Multifamily Buildings Program to market-rate rental buildings, cooperatives, and condominiums. These are market segments that could greatly benefit from this program.

The generic case to review and "update" submetering regulations was initiated not to protect tenants but at the behest of submetering proponents for further streamlining" of the requirements and the process for landlords to engage in submetering. The initial draft rules would have eliminated the landlords' need for a PSC order (which carries with it the theoretical potential of fines under Public Service Law section 25 if it is violated) and would eliminate all utility tariff prohibitions on retail resale of utility service. This could allowing landlords to submeter without notifying the utility or the PSC, and perhaps allow resale of electric service even without submeters, by allocating charges based on square footage or apartment size. Landlords sought complete deregulation of the maximum prices they can charge to their captive tenants. See Submetering Landlords Clamor for More PSC Deregulation of Electric Service; PULP Files Comments on PSC Proposal to Relax Submetering Rules; Bronx Tenant Association Objects to PSC Staff Proposal to "Streamline" Electric Submetering Rules.

Conclusion
The PSC submetering policies and practices have begun to draw the attention of the press and the Legislature due to their harsh impact on many tenants. This new attention includes several submetering bills introduced in the Legislature, including ones that would put a moratorium on any new submetering pending a thorough report to the Legislature from the PSC on the submetering that has been allowed to date. See Assembly Bill A. 7814 and the identical Senate Bill S. 5009.

The purpose of these bills is

To require the Public Service Commission to perform an audit regarding submetering orders it has issued in the last five years to determine compliance by building owners of utility price caps and tenant protection provisions, and to determine if submetering has resulted in energy savings in those buildings. The Commission will have twelve months to complete the audit and make a report to the legislature and until that time no new submetering orders may be approved.

The temporary slowdown of the PSC's submetering juggernaut, while welcome news, needs to be seen in this context.