Moreland Commission Created to Investigate Utilities, Agencies

Governor Cuomo announced appointment today of a Moreland Commission co-chaired by former New York State Attorney General Robert Abrams and Benjamin Lawsky, Superintendent of the Department of Financial Services, to investigate the utility service outages that followed hurricane Sandy.  The charge given to the Commission by the Executive Order is to

(A) study, examine, investigate and review:

(i) the emergency preparedness and response of utilities during and following emergency weather events, including the performance of the utilities during and following emergency weather events;

(ii) the adequacy of present laws, rules, regulations, practices and procedures with respect to utilities’ emergency preparedness and response;

(iii) the adequacy of existing oversight and enforcement mechanisms;

(iv) the structure, organization, ownership, financing, control, management and practices of the utilities as they affect emergency preparedness and response; and

(v) the provision of utility services to New York State under the existing legal regulatory framework, including but not limited to the jurisdiction, responsibilities and missions of the New York Power Authority, the Long Island Power Authority, the New York State Energy and Research Development Authority, as well as the Public Service Commission;

(B) report and make recommendations for legislative, policy and regulatory changes, as well as reforms as deemed appropriate in utility structure, management and practices, to best protect and serve the public’s interest with respect to emergency preparedness and response, and the provision of safe, reliable, responsive utility services; and

(C) review any other matters or activities which may affect the issues herein before specified;

Members of the Commisison are

Co-Chair Robert Abrams, former Attorney General of New York State
Co-Chair Benjamin Lawsky, Superintendent of the Department of Financial Services
Peter Bradford, former Chair of the Public Service Commission
Tony Collins, President of Clarkson University
John Dyson, former Chairman of the New York Power Authority
Rev. Floyd Flake, Senior Pastor of Greater Allen African Methodist Episcopal Cathedral
Mark Green, former New York City Public Advocate
Joanie Mahoney, Onondaga County Executive
Kathleen Rice, Nassau County District Attorney
Dan Tishman, Vice Chairman at AECOM Technology Corporation, and Chairman and CEO of Tishman Construction Corporation

A Moreland Commission has broad investigatory powers, including subpoena power.

After past major outages the Public Service Commission has also initiated investigations.  The Moreland Commission will have power to review matters outside the normal jurisdiction of the Public Service Commission, and is empowered to review the role and performance of the Commission and other state entities.

A root cause analysis might explore the PSC's regulatory style as a contributing factor, as the Commission itself recognized in the aftermath of a pedestrian's electrocution in the streets of New York City, when it issued an order requiring utilities to do more safety inspections of their facilities.  The Commission acknowledged unintended consequences of its deregulatory "performance based"approach:

Over the past 10 to 15 years, we and other regulatory commissions across the nation have moved from traditional one-year litigated rate cases to multi-year performance-based rate plans. The purpose of these plans is to allow for rate stability while allowing the utilities greater flexibility in managing their operations. Staff's investigation into this matter suggests that the utilities may not have been placing enough attention and emphasis on safety matters.

This "performance based" approach typically includes 'metrics" which count the number and duration of outages, and establish benchmarks which, if not met, will have adverse financial consequences.  The scope of potential sanctions for service interruptions is typically agreed upon by the utilities in their multi-year rate case settlements approved by the PSC.  

As stated by the New York State Assembly Task Force Report on the 2006 Queens Outage,

In recent years, the PSC preference has been to set utility rates for service several years at a time, using a "macro" approach based on settlements that are the outcome of confidential negotiations and does not specifically review details of utility spending plans. The intent is to focus on "performance" and results, as a perceived alternative to "micro management" of utility decisions. Utilities, including Con Edison, have been given great flexibility by the PSC to allocate resources during long multi-year rate plans.
As a result, performance-based ratemaking creates strong incentives for the utility to reduce expenditures during the term of the rate plan because any cost savings may be retained by the utility as profit.
****
Still another consequence of "deregulation" has been reduced regulatory scrutiny. The Commission no longer reviews the specific details of utility spending plans, certainly not with the same degree of scrutiny that had characterized its review in adjudicated rate cases. Annual rate cases have been largely replaced by multi-year performance-based rate plans. While this approach may have the advantage of providing utility management with more flexibility, not necessarily a bad idea, it has come with a price. As noted above, the Commission itself has acknowledged that on at least one occasion, coincidentally an incident also involving Con Edison, performance-based regulation may have compromised public safety.

This Task Force is concerned that performance-based regulation as conducted by the PSC might also be contributing to a reduction in the overall reliability of Con Edison's distribution system. The nature of the Queens blackout does not appear to have been an isolated, "once-in-a-lifetime" event, certainly not within the Con Edison service territory. Only seven years ago, hundreds of thousands of people in New York City and Westchester County also lost their power during a summer heat wave with the most widespread blackout occurring in the Washington Heights-Inwood area of Manhattan. That blackout was not caused by a failure either in the power supply or in the transmission of that power to Con Edison's distribution system. The 1999 blackout and its associated outages were caused by failures of equipment within Con Edison's electricity distribution system. As a result of the several investigations underway and the information available at this time, it appears that the physical causes of the Queens' blackout were also operational failures and failures of equipment in Con Edison's electricity distribution system. The timing and nature of these outages might only be only coincidental, but a reasonable person might ask whether these outages could have been prevented had the Commission not relaxed its regulatory scrutiny of Con Edison as a result of its changed approach to utility regulation.

The Commission must reassert its mission as "a Tribune of the people" committed to its responsibility for assuring adequate electric service at reasonable rates. Under the best of circumstances, this is a formidable challenge.

Another item for possible Moreland Commission scrutiny may be the operation of Con Edison's "revenue decoupling" rate adjustment mechanism.  Adopted in the name of environmental concern to limit incentives for utilities to spur their customers' utility usage (even though it is customers who ultimately make the usage decisions, not the utilities) rate adjustments are made in an effort to make the utility indifferent to whether customers use more or less electricity. This is also thought to encourage utilities to help customers reduce usage through utility-sponsored energy efficiency programs, without reducing the utility's revenues. Normally, a utility with thousands of customers out of service would have a strong incentive to restore service to get the meters turning again.  But if they make the same amount of revenue per customer, perhaps they are less incented to spend the extra money needed to restore service quickly.  The workings of the revenue decoupling mechanisms should be reviewed to see that they do not compensate utilities as if they were providing service when they did not.

*****************

Follow PULP on Twitter

Utilities Face Scrutiny and Legal Battles Due to Long Electric Service Restoration Times After Hurricane Sandy

When electric service lost due to Hurricane Sandy is restored, there will probably be a major investigation by the Public Service Commission into pre-storm preparation, communications during the outages, the timeliness of repairs, and other issues

With customers lacking electric service for ten days now, and no end in sight for some, lawsuits seeking damages for customers are also on the way.  See Nik Bonopartis, Tarrytown lawyer sues Con Edison over storm troubles, Newsday, Nov. 8, 2012.

Utility tariffs approved by the Public Service Commission generally exculpate the utility for damages proximately caused by ordinary negligence in the provision of service.  For example, Con Edison tariffs provide:

The Company will endeavor at all times to provide a regular and uninterrupted supply of service, but in case the supply of service shall be interrupted or irregular or defective or fail from causes beyond its control or through ordinary negligence of employees, servants or agents the Company will not be liable therefor.The Company may, without liability therefor, interrupt service to any Customer or Customers in the event of emergency threatening the integrity of its system, if, in its sole judgment, such action will prevent or alleviate the emergency condition.

As discussed below, Con Edison tariffs do allow for some compensation to customers for spoiled food and medicine due to power outages, but the utility is interpreting its tariff so as to deny reimbursement.

On the other hand, even though insulated from ordinary negligence liability, utilities may face potential liability if "gross negligence" of the utility causes damage to customers.

After the 1977 New York City blackout, a jury found Con Edison liable for damages caused by an outage that occurred as a result of the utility's gross negligence, and the verdict was upheld by the state's highest court in  Food Pageant v. Consolidated Edison .  In that case, the state Court of Appeals  found support in the record upon which the jury could find gross negligence when Con Edison had not shed load at a critical point when the system was vulnerable due to a lightning strike that had put out transmission lines and due to the lack of emergency power available. The court held that the question of whether gross negligence existed was one for the jury to determine, and expert evidence was not required.  Also, the City of New York won damages in Koch v. Consolidated Edison . Although gross negligence requires proof of more than ordinary negligence, a lesson of these cases may be that juries and courts expect a utility to exercise a very high level of care in the operation of its system.

When an outage is "attributable" to a malfunction of Con Edison lines or cables, customers may be able recover some losses without suing the utility and without the need to prove gross negligence.  Compensation for food and medicine spoiled due to the lack of refrigeration due to the outage, is also available under current Con Edison tariiffs which provide for customer compensation. Residential Con Edison customers may file a claim, up to a maximum of $450, for actual losses of food spoiled due to lack of refrigeration, and for the actual cost of medicines spoiled by lack of refrigeration. Commercial Con Edison customers such as food stores may claim up to $9,000 in compensation for food spoiled due to lack of refrigeration due to an outage.

Con Edison, however, is taking the position that its tariff allowing compensation due to outages does not apply to those related to hurricane Sandy.  This interpretation of the tariff has not been ruled on by the New York Public Service Commission.

Customers who apply for reimbursement are likely to be denied.  A denial is reviewable by the PSC under its complaint handling rules. In such matters, the burden of proof is on the utility to show that its denial of reimbursement was proper.

Claim information is here.
Residential claim forms are here.
Commercial claim forms are here.
PSC Complaint Handling Procedure is here.********************************
Update

Mark Harrington, Class Action Suit Filed Against LIPA, Newsday, Nov. 13, 2012 ("The suit, filed Tuesday [Nov. 12, 2012] in State Supreme Court in Mineola, charges LIPA and National Grid "grossly neglected vital maintenance," failed to fortify its substations, delayed replacing its outage management system, provided false information to ratepayers, and ignored a 2006 study that identified problems and could have minimized outages.").


Follow PULP on Twitter

Central Hudson Service Interruptions to Collect Bills On the Rise

These are hard times for many of Central Hudson's customers.  Many of them lose service when they fall behind in paying their bills for electric and gas utility service and service is terminated as a bill collection measure:

Central Hudson has about 240,000 residential electric customers, according to monthly collection activity reports filed by the utility with the PSC, so termination of  12,704 of them amounts to approximately 5.29% shut off in 2011.  The wide monthly variations in the number terminated indicates the discretionary nature of decisions to terminate service to collect bills.

The number of customers shut off is a small fraction of the number of customers with arrears more than 60 days:

About 23,000 to more than 25,000 customers were more than 60 days in arrears in every month of 2011.  This amounts to 9.5% to 10.4% of Central Hudson's electric customers.

Central Hudson customers more than 60 days late in paying their bills owe large amounts to the utility:

Customers more than 60 days in arrears owed Central Hudson more than $12 million in every month in 2011.  In May and June, they owed more than $14 million.

The average amount owed by a customer with more than 60 days of arrears was between $500 and $575.

The relatively small monthly variation in the amounts owed by customers more than 60 days in arrears stands in contrast to the much more variable number of monthly terminations and numbers of final termination notices.

Final Termination Notices (FTNs) are sent to customers, threatening interruption of service if payments, or satisfactory deferred payment arrangements, are not made. Apparently, many customers receive more than one FTN in a year, because in 2011, Central Hudson sent 290,720 FTNs -- more than the total number of its residential customers:

The number of FTNs sent to customers by Central Hudson was more than 22,000 in all months of 2011, or about 9% of all customers in each month.  FTNs were sent to 25,000, or about 10.4% of all customers, in two months.  The spike in October FTNs is revealing.   The decision to send FTNs is not linearly related to the amount owed by customers.  Even though the number of customers in arrears is greater in other months, and the amounts owed by customers in October are less than in other months, October is the month  with the largest number of FTNs. The most FTNs were issued in October 2011, but the total amount owed by customers receiving FTNs is greater in four other months, February, March, April, and May.

The total amount owed by customers more than 60 days in arrears was roughly the same in September and October 2011, but there were about 4,000 more FTNs issued in October.  Perhaps the surge in October FTNs is timed by the utility to take advantage of the November opening of the Home Energy Assistance Program (HEAP).  HEAP provides emergency assistance grants (payable directly to the utility) on behalf of eligible low income households with heat related utility service, when they have been shut off or have a FTN.

The number of service terminations to collect past due bills has risen dramatically since 2005.

There has been a 171% increase in the number of residential service terminations since 2005.  A comparison of the monthly differences in the number of terminations is below:

In addition to the much larger number of terminations in 2011, the monthly graphs indicate that the October surge in terminations did not exist in 2005.  This is further indication of the discretionary elements in making decisions to terminate service for bill collection purposes.

The general trend shows that Central Hudson is relying more upon service termination to collect its bills:

PULP's testimony in the pending PSC proceeding underway to consider the takeover of Central Hudson by Fortis, which includes a proposal to extend the current rate plan, urges measures to address affordability issues through low income rates and reforms to curb the growing reliance on service termination to collect bills.  The data obtained in that case indicates that service terminations in 2012 are higher than in 2011.
See Proposed Central Hudson/Fortis Merger Offers Little for Consumers; Shutoffs Up 171% Since 2005, PULP Urges Reforms

**********************

Follow PULP on Twitter

Proposed Central Hudson/Fortis Merger Offers Little for Consumers; Shutoffs Up 171% Since 2005, PULP Urges Reforms

New York Public Service Commission (PSC) staff and intervenor parties filed testimony on October 12, 2012 in the Central Hudson/Fortis merger case. The Public Utility Law Project (PULP) warns that this proposed merger offers little more than vague promises in the way of benefits, especially to vulnerable populations such as low-income and elderly households living on fixed incomes, and it poses undue risk to the utility's approximately 250,000 residential customers, if the PSC approves the takeover as proposed.  PSC Policy Staff testimony also expressed skepticism regarding the putative benefits of the takeover by Fortis, and recommended denial of the petition unless a set of 69 modifications is accepted.

As part of the proposed acquisition of Central Hudson by Fortis, a Canadian holding company,  Central Hudson proposes to freeze its rates and extend its current rate plan another year.  The PSC Staff Rates Panel Testimony states that this offer "does not represent any value or benefit to ratepayers."  The proposal regarding future rates potentially puts all of the utility's rates, tariffs, rules, and conditions of service into issue.   One of the issues identified by PULP is the huge increase in Central Hudson's use of service terminations for bill collection purposes: 

•   In 2005, Central Hudson shut off utility service for bill collection purposes to 4,688 residential customers, approximately 1.9%

•   In 2011, that number jumped to 12,704 terminations, approximately 5% of the 250,000 residential customers

•   This represents a 171% increase.

•   Further, the number of terminations in 2012, year to date, is higher than 2011.

This harsh debt collection measure is but the tip of the iceberg threatening major disruption in the lives of many customers, who require utility service for the functions of everyday life. 

In 2011, Central Hudson customers behind in their bill payments received 290,720 final termination notices threatening the shutoff of service.  In response to these notices, and in desperation, many may be driven into destitution, forgoing other basic needs to pay the bills before service is terminated.  Some customers turn to payday lenders who may charge $20 and up per hundred dollars borrowed. A recent study funded by the Ford Foundation found that the number one use by consumers of high interest "payday loans" is to pay utility bills.   See 

Borrowing at High Interest to Pay Unaffordable Utility Bills, October , 2012.

A lack of utility service when it is shut off not only can lead to destitution. Costs of service termination -- negative externalities not borne by the utility -- not only fall on the affected customers, they affect others. Household members, relatives, neighbors living in the same or nearby buildings, and the public at large are at greater risk of harm when the power is cut and customers resort to less safe energy sources that can result in fires or other dangers.  These public costs can include emergency public assistance, increased homelessness, illness or death due to lack of heat or air conditioning needed by vulnerable household members, emergency medical care and ambulance trips to hospitals, and not infrequently, the cost of fire, police, and other first responders when fires occur due to use of less safe energy sources, such as candles or portable heaters. See Candle Fires: A Symptom of "Rolling Blackouts" Affecting Low-Income Households.

In the Home Energy Fair Practices Act (HEFPA) PSL Section 30, which recognized the societal costs of utility service interruptions, the legislature declared that continuous residential service is needed to protect the public welfare and is in the public interest.

Nonetheless, HEFPA only establishes minimum standards such as timely and adequate notice, opportunities for dispute resolution, and offers of payment plans to pay back debt over time while resuming payment in full of current bills.  HEFPA did not address the basic affordability of the service, or low-income rates, or over reliance on the extreme measure of shutoff when discretionary bill collection decisions are made.

A decision by Central Hudson to terminate service rather than accept a partial payment proffered by a customer with arrears that is less than what the company demands as a condition of continuing service involves the exercise of discretion on the part of the utility, particularly in situations where a customer has not been able to keep a prior agreement.  In such situations, where a prior minimum payment agreement has been broken, the PSC allows utilities to demand more than a customer may be able to afford, regardless of the reasons for the breach.  The decision to go ahead with termination rather than resume service with what the customer has to offer may be contributing to the massive increase in residential customer service terminations over a seven year period.

Performance Regulation: Grading Utilities on Continuity and Customer Service

PULP is asking the PSC to more closely examine the use of service termination for bill collection purposes.  Understandably, termination is necessary in some situations, but overuse of such a blunt instrument can erode the legislative goal of continuous gas and electric service for residential customers. 

In recent years, the PSC lightened its oversight of the details of utility operations, and now embraces the concept of "performance regulation". Rather than scrutinize closely  budgets and staffing for various utility functions, and how the utility meets its public service obligations, the trend for the regulators is only to demand certain levels of performance, leaving it to the utility to figure out how best to meet them.  A desired set of performance levels, or "metrics" is chosen (usually in rate cases settlements agreed upon with the utilities).  The company risks a reduction in its allowed rate of return on its investment if the "metrics" and quantified goals set by the PSC are not achieved.  

Reflecting the importanceof continuous service, the PSC has "service performance metrics" for system malfunctions and power outages, which measure the number and duration of service interruptions.  These are intended to incent the utility to keep service on by taking preventive measures to enhance reliability, and to restore service quickly whenever equipment failure or storms cause service interruptions.  

In contrast, the PSC regulations and orders put no limits on the number of service interruptions that are the result of deliberate Central Hudson decisions to shut essential service off.  The wide month to month variation in the number of customers terminated, and the variable amounts owed by customers whose service is terminated indicates that at times discretion is being exercised to increase shutoffs, and could be exercised, as PULP proposes, to reduce shutoff decisions.

In light of this gap in the PSC performance regulation metrics PULP is asking the PSC to exercise more oversight of Central Hudson, and to put a service performance metric in place to measure terminations that would require Central Hudson to reduce the number of service interruptions for collection purposes.

Low Income Rates 

Large numbers of Central Hudson customers are behind in paying their bills. In 2011, an average of 24,277 customers were threatened each month with service termination due to unaffordable bills. One way to reduce energy burdens on low-income customers is through low-income rates. Initially opposed by utilities, one by one, through constant advocacy of PULP and in settlement agreements with the PSC, all the major utilities now have some form of low-income rates. These vary from utility to utility and need to be improved.

PULP's expert witness, Barbara R. Alexander, reviews in her testimony Central Hudson's existing low-income rates, and proposes they be reformed to expand eligibility and improve affordability. In addition, her testimony identifies the need for improved call center performance, which she finds to be below average. In addition Ms. Alexander recommends that, in line with industry best practice and implemented in other areas of New York, Central Hudson introduce a per-therm rate reduction for low-income natural gas heating customers, coupled with reform in Central Hudson's collection practices.

**********************

Follow PULP on Twitter

Comments to PSC on ESCO Service Due December 27, 2012

In a Notice inviting public comments issued October 19, 2012, the PSC asked for general comments on retail electricity and gas markets and for responses to the following questions:

Information for Current ESCO Customers 

1. What are the benefits and costs of requiring that utilities develop and make available historic bill calculators through utility websites and/or smart phones to enable ESCO customers to compare their actual charges to what they would have paid if they were a full-service utility customer? How should such tools be designed so that they are easy to use, factually oriented, and produce accurate and useful information for ESCO customers?

2. What are the benefits and costs of requiring that utilities include a line item on ESCO customer bills that identifies what the customer would have paid had supply been purchased from the utility? Precisely what information should be published on the bill so that it is most useful to customers?

3. What are the benefits and costs of requiring that utilities explain to payment-troubled ESCO customers contacting the utility, or provide to such customers in a subsequent mailing, what the customer would have paid had the energy supply been purchased from the utility, and the difference between that amount and what they were actually billed for energy supplied by the ESCO? What information should utilities provide to existing low-income and payment-troubled ESCO customers to assist them in making informed decisions and how should utilities provide that information?

Data for Potential Customers 

4. What are the reasons why the Commission should, or should not, collect monthly data on prices charged by ESCOs to residential and small non-residential customers for all or some of their products? How would Commission publication of all or part of this data assist customers and/or impact retail competition? What level of data aggregation would be sufficient to adequately address the need to maintain the confidentiality of customer-specific data.

5. What are the advantages and disadvantages of requiring ESCOs to honor rates and terms posted on the Commission’s “Power to Choose” website? What are the benefits and costs of requiring that ESCOs post all of their offerings on that website? What other enhancements to the site should be considered to increase its usefulness to consumers?

ESCO Referral Programs 

6. What is the basis for continuing the existing ESCO Referral Programs in the service territories of Con Edison, Orange & Rockland, Central Hudson, and National Grid (upstate)? If these programs should continue, should they be modified, and how long should they be maintained?

Low Income Customers 

7. What are the advantages and disadvantages of allowing customers participating in any state or federal energy assistance program, such as the Home Energy Assistance Program, or in any utility-sponsored affordability program, to obtain commodity service from an ESCO? How does the analysis change if the ESCO guarantees a price no higher than that charged by the utility?

Door-to-Door Marketing 

8. What are the legal and policy reasons for permitting or prohibiting door-to-door marketing of electricity and/or natural gas to residential and/or small non-residential customers?

9. What are the reasons why the Commission should continue to permit termination fees in sales contracts made between ESCOs and residential and small non-residential customers through the door-to-door marketing channel? Are there circumstances under which termination fees for such contracts would be appropriate (e.g., fixed-rate contracts), and what should an ESCO be required to demonstrate to be able to include termination fees for door-to-door marketing in its sales contract?

10. Are there other conditions or requirements that should be imposed on door-to-door marketing by ESCOs, such as a requirement that such marketers begin an interaction with a potential customer with a disclosure statement? An example of a possible disclosure statement is: “My name is ____. I represent ____. ___ can provide you with your electricity and/or natural gas. I do not work foror represent your utility.” How should such a requirement be enforced?

11. Should the Commission have the authority to preclude or limit an ESCO’s door-to-door marketing in the future in specific circumstances?

ESCO Contracts 

12. What are the advantages and disadvantages of modifying the Uniform Business Practices to require ESCOs to obtain affirmative consent from customers for contract renewals involving a change in price? What are the advantages and disadvantages of requiring ESCOs to obtain affirmative consent from customers for all contract renewals?

13. What are the advantages and disadvantages of requiring ESCOs to provide their rate methodology and related billing calculations to customers with variable rate contracts? What are the advantages and disadvantages of requiring all variable rate methodologies to be based on specified formulas tied to publicly available information, with the formulas varying by ESCO? If this is to be required, when and how should ESCOs provide this information?

Purchase of Receivables 

14. What would be the impact of requiring utilities to purchase receivables with recourse and thereby have ESCOs assume whole or partial responsibility for the uncollectibles of their customers? Should this be a requirement? What would be the impact of discontinuing POR without recourse for some ESCOs and how would those ESCOs be identified?

Other Proposals 

15. What other modifications to existing retail market programs or practices, including modifications to the UBPs, should be considered, and why?

Interested parties may submit initial comments on the above questions no later than December 27, 2012. Reply comments may be submitted no later than January 10, 2013.

The Notice was issued with an accompanying Order setting out reasons why the Commission is seeking more public input on its ESCO policies.

For further background, see

PSC to Look at ESCO Service Issues, October 24, 2012

ALJs Rule that Differences Between ESCO Charges and Niagara Mohawk Charges are Not Trade Secrets Requiring Confidential Treatment, September 7, 2012

PULP Files Testimony in Niagara Mohawk Cases Urging Improved Low Income Rates, Tools to Compare ESCO Bills, September 6, 2012

ESCO Claims Locking in its 28% Higher Rate is "Smart" and "Practical", Feb. 11, 2010

Utilities Ask PSC to Keep Data on ESCOs Secret, September 25, 2009

Value of ESCO Service Questioned, September 21, 2009

ESCO Advertises 9.75% Tax Savings on Delivery Service

ESCOs Cost More -- A Familiar Experience.


PULP Files Comments on Regulation of ESCO Sales Practices, Feb. 4, 2008


SEPTEMBER 28, 2006

Think Twice Before Switching Utilities, Sept. 28, 2006

**********************

Follow PULP on Twitter

PSC to Look at ESCO Service Issues

The New York Public Service Commission (PSC) announced on October 18, 2012 that it will begin an assessment of retail natural gas and electricity markets.  The Commission Press Release noted concerns regarding energy services company (ESCO) value, pricing and customer information, and said it would be inviting public comments on how to improve the situation.

In a pending Niagara Mohawk rate case, the utility, in response to discovery requests by PULP, disclosed that ESCO cstomers had paid approximately $130 million more for deregulated ESCO service than they would have  paid for regulated utility service had they not switched.  See  ALJs Rule that Differences Between ESCO Charges and Niagara Mohawk Charges are Not Trade Secrets Requiring Confidential Treatment.

ESCOs have been allowed to market electricity and natural gas to retail utility customers for approximately 15 years during which it has been heavily promoted by the PSC.  For example, in the early years, customers who switched to ESCOs were given direct subsidies, paid by utility ratepayers, and utilities were given additional ratepayer money - "incentives" - based on how many of their customers "migrated" to ESCO services.  Such direct subsidies at the expense of ratepayers were phased out, but indirect subsidy and promotion continues, for example, through PSC publications urging customers to switch to ESCO s,  PSC-approved "referral" program offering introductory price discounts,  a PSC - funded website, "Power to Choose." Promotion of ESCO service by utilities through their websites, ultimately at the expense of ratepayers, includes advertising for the ESCO Referral Programs, competitive supplier lists and contact information, and the purchase of receivables and provision of billing and collection services to ESCOs.

In the "ESCO referral programs," customers are  encouraged by utilities to switch to ESCO service with "guaranteed" savings.  For example, National Grid urges customers to try its version of a "referral" program, "New Choices":

New Choices®: A Brief Summary
You can receive a guaranteed 7% discount on your gas or electric supply costs for a two-month introductory period.
If you are a dual-service customer (both electricity and gas), you can receive the discount on each service (7% off electric and 7% off gas). You can enroll for both services at the same time, or you can enroll in one service now and one later.
You can choose a supplier yourself or let us randomly choose one for you.
* * * *
Can I drop out of the New Choices® program?
During enrollment: After you receive the sales agreement, you cancel your participation in the program within three days of receiving the sales agreement by contacting us at 1-800-642-4272 or by contacting your supplier directly.
After enrollment: To end participation in New Choices® after you are enrolled, contact us at 1-800-642-4272 or contact your supplier directly.
There are no penalties or fees for cancellation.

The reduced prices in the New Choices program, however, may only last for the two month discount period.  After that, customers receive service under the  terms of ESCO contracts, at prices then in force.  After that, if they do not quit the program promptly, they may face early termination fees if they switch back to Niagara Mohawk for full service later, for example, after discovering they are paying much more for ESCO service.  Although the PSC generally does not set ESCO rates and charges, it issued an order in 2008 approving ESCO charges of up to $150 for early termination.

Also, some ESCO contracts have automatic renewal provisions which give the customer a limited time to switch before a a contract for another term is renewed. At that juncture, for example, near the end of a one or two year contract period, customers may have difficulty comparing what they have been paying for ESCO service with what they would have paid for full service from the utility.

The PSC has a "Power to Choose" website which posts a monthly "snapshot" of ESCO prices.  ESCOs report on the 5th of the month what their prices were on the 1st.  Under a 2008 PSC order, ESCOs are allowed to change prices  without public notice or filing with the Commission.

The PSC press release issued October 18, 2012 states

In the current retail market, ESCOs can compete directly with the utility or can offer options for
consumers that traditional utilities do not offer. These options include products with less price
hedging or certainty than the utility offering, products with more hedging or price certainty than
the utility offering, electricity reflecting a greater percentage of renewable resources than the
utility offering, and value-added services such as home heating equipment repair and
maintenance, airline miles or similar rewards. The Commission does not regulate prices charged
by ESCOs.

While it is possible that some ESCO customers knowingly choose a more expensive option, it appears that many ESCO customers are having difficulty paying their bills.  Of the approximately 90,000 final notices of termination sent each month to Niagara Mohawk customers who have arrears, approximately 30,000 are ESCO customers.  Also, many low-income customers who are very seriously constrained in their finances are ESCO customers, who are often signed up in door to door solicitations in low-income neighborhoods.

Updates
The PSC issued an Order on October 19 explaining its reasons for considering changes to its rules and policies regarding alternative retail suppliers of electricity and natural gas.  The Order annexed a Notice inviting Public Comments and questions to be addressed by the public and interested parties:

These questions are designed to elicit comments on each of the concerns identified in this Order, namely: (1) Information for Current ESCO Customers; (2) Data for Potential Customers; (3) ESCO Referral Programs; (4) Low Income Customers; (5) Door-to-Door Marketing; (6) ESCO Contracts; (7) Purchase of Receivables; and (8) Other Proposals. The questions also seek comments on actions this Commission could take to improve the operation of the retail energy markets in New York for the benefit of customers. We encourage Staff to engage consumers in order to seek input on these issues and to consider whether additional public input, including through public hearings, is necessary.

The Notice inviting comments requests the filing of initial comments by December 27, 2012, with replies due January 13, 2012.

**********************

Larry Rulison, National Grid bills to get a makeover - Utility plans calculator to help customers with switching suppliers, Times Union, Nov. 7, 2012.


Read more: http://www.timesunion.com/business/article/National-Grid-bills-to-get-a-makeover-4013797.php#ixzz2BbWzypS0

Follow PULP on Twitter

Second Circuit Bars Consumer Antitrust Claims Against NYISO Capacity Market Gamers Under Standing and Filed Rate Doctrines

In Simon v. KeySpan Corp., consumer plaintiffs commenced a private civil antitrust action for damages against Keyspan, then a New York City power producer owning the largest power plant in the City, alleging that it inflated NYISO capacity market prices through strategic bidding facilitated by a financial derivative contract with codefendant Morgan Stanley.  The impact of the scheme was to increase charges to consumers, estimated to be $158 million to several hundred million dollars.  Plaintiffs claimed approximately $360 million in treble damages for violations of the Sherman Antitrust Act, New York’s General Business Law, and common law.

Previously, the Justice Department Antitrust Division had settled public cases against KeySpan and Morgan Stanley involving the same conduct, with no finding of wrongdoing and disgorgement of a small part of their profits from the scheme, and FERC staff had found in a report that the conduct had not violated NYISO tariffs or FERC antimanipulation rules.  See Peter Lattman, Federal Judge Grudgingly Approves Morgan Stanley Price-Fixing Case, N.Y. Times Dealbook blog, Aug. 7, 2012  See also, Morgan Stanley Derivative Accord Wins Approval, Bloomberg, Aug. 7, 2012; US Judge OKs Morgan Stanley Price-fixing Pact Opposed by AARP, Chicago Tribune, Reuters, Aug. 7, 2012; Bill Sanderson, Morgan Stanley to pay $4.8M settlement in alleged $157M price-fix scheme, N.Y. Post, Aug. 7, 2012.

When the defendants moved to dismiss the complaint, the federal district court granted the motion, and an appeal to the Court of Appeals for the Second Circuit followed.

The Second Circuit, in an opinion issued September 20, 2012, affirmed the dismissal, finding that the plaintiff consumer, as an indirect purchaser of retail electric service from Con Edison, which allegedly paid the artificially inflated prices at the wholesale level, lacks standing to assert federal antitrust claims, and the "filed rate doctrine" bars consumer claims even though the allegedly supracompetitive rate was the product of a market-based auction in which rates were not publicly filed in advance under the Federal Power Act.

The decision is significant in several respects:

1.   It extends the shield of the filed rate doctrine to unfiled "market-based rates" when the rates are set in a FERC-approved process, 
2.   It highlights that Con Edison, which did have standing to assert antitrust claims, did not sue to protect its retail customers. 
3.   It rejected arguments of antitrust experts for an exception to the general rule that retail customers cannot assert antitrust claims against wrongful agreements at the wholesale level, 
4.   it found that the individual plaintiff might have avoided the impact of the inflated wholesale capacity costs when they were flowed through to customers at the retail level by Con Edison, by not using electricity, but did not recognize that there was no way for the class of customers to avoid the pass through of inflated wholesale capacity costs, 
5. It underscores that FERC's deregulatory market based rates scheme lacks effective remedies for consumers when excessive charges are imposed, and 
6. It confirms that using financial derivatives to support sellers' strategic bidding schemes in the NYISO markets has little downside economic risk.

In its discussion of the filed rate doctrine, the Court omits any citation to the requirement of the Federal Power Act that all rates be filed,  but states:

Simon urges us to limit the filed rate doctrine to cases where the regulatory agency itself chose or approved the rate. We acknowledge that Simon's approach has some appeal. Because FERC did not directly set the rate at issue here, it did not specifically determine that the rate was reasonable. Moreover, KeySpan's alleged conduct undermined the competitive market scheme FERC and NYISO had created. One could therefore conclude that the rate arrived at was not the one envisioned by FERC.

The protection of the filed rate doctrine was extended to the unfiled auction rates because FERC had approved the NYISO auction process and believed that the results would be competitive.  FERC conflates the goal of competitive market prices with the statutory standard of just and reasonable rates.  As the Supreme Court has stated, "the prevailing price in the marketplace cannot be the final measure of "just and reasonable" rates mandated by the Act **** the Act makes unlawful all rates which are not just and reasonable, and does not say a little unlawfulness is permitted. " FPC v Texaco, 417 U.S. 380 (1974). 

Interestingly, the Second Circuit appears to have reserved to itself the flexibility to look closer at "market-based rates' ("MBRs") in other cases in the future:

In affirming the application of the filed rate doctrine in this case, we need not announce a per se rule and, in a case that does not require it, are reluctant to do so. It is not clear to us that the filed rate doctrine, and the rationales underlying it, should preclude all court scrutiny of alleged anti-competitive behavior affecting the setting of MBRs. The Supreme Court's three rationales from [a case where sellers allegedly colluded to set rates]do not apply with equal force to rates set by MBRs when the only involvement by a regulator is creating the process ultimately corrupted by parties in the market. This is so because antitrust remedies become more necessary as markets become increasingly deregulated by the MBR system. Indeed, some of our sister circuits who have held that the filed rate doctrine applies have taken into account factors such as the level of FERC review.* * * *

FERC's auction process was plainly designed to result in a reasonable rate, and we are not willing to say that KeySpan's bid cap, specifically approved by FERC, was not reasonable. We conclude that the filed rate doctrine applies on these facts—where the regulator created a process for setting rates, reviewed the resulting rates, and, after investigation, determined that the anti-competitive behavior did not undermine its process and that the resulting rates were reasonable. There is no need for us to reach the question of whether the filed rate doctrine would apply to all MBRs irrespective of the oversight of the regulator, and we leave that question for another day.

The Simon case underscores that consumers have lost considerable protection with the advent of FERC's "market-based rates".  See Paul Mohler, Has the "Complete and Permanent Bond of Protection" Provided by FERC Refunds Eroded in the Transition to Market-Based Rates? , 33 Energy Law Journal 41 (2012); Jim Rossi, Lowering the Filed Tariff Shield: Judicial Enforcement for a Deregulatory Era, 56 Vand. L. Rev. 1592 (2003).

The Court, in rejecting the antitrust claims of the retail customer, indicated its belief that Con Edison did have standing:

Even if Con Ed increased its rates by exactly the amount it was overcharged for installed capacity, it does not follow that Con Ed's sales and profits were unaffected. In short, Con Ed may have suffered an antitrust injury as a result of the agreement, and therefore under Hanover Shoe and Illinois Brick, it is the only proper plaintiff.

Con Edison, however, did not sue for damages, though it did object to the settlement of the Justice Department in the U.S. v KeySpan public antitrust case.  This may be an area that deserves more scrutiny by the New York Public Service Commission, to assure that interests of utilities and customers are  aligned so that utilities having standing to attack inflated wholesale charges will actually do so for the benefit of customers who lack standing.

The plaintiff is seeking rehearing of the Second Circuit decision.  The American Antitrust Institute has filed an amicus brief in support of a motion for rehearing, which is rarely granted by the Second Circuit.  Still, there is always the possibility of Supreme Court review, so this may not be the last word on the case.  Just last term, the Supreme Court declined to accept a case presenting the issue whether FERC had any authority to relax the statutory filed rate requirements when it created its "market-based rates" system.  See PULP Network, Supreme Court Denies Review of Consumer Groups' Challenge to FERC's "Market-Based Rates" Scheme, Leaving Issue Unresolved, June 29, 2012.  Perhaps the Court will take a greater interest in reviewing FERC's market rate innovations that have put customers in the situation of losing large amounts of money due to excessive rates, with no remedy.

The takeaway from this and other cases appears to be that there is no consumer remedy when NYISO markets are gamed and prices are inflated, if the gaming was not directly prohibited by the constantly evolving market rules.  Also, the use of derivatives to support gaming strategies has not been found to be illegal, and so there is no "scienter", i.e., knowledge that conduct is wrongful, which is required under FERC's stringent standard for finding illegal civil or criminal electricity market manipulation.  The mild disgorgement of 20 - 25% of profits from the KeySPan/Morgan Stanley arrangement, and now the insulation  from  private antitrust actions given by the Simon case, seems to leave the door wide open for more creative gaming and innovative exploitation of NYISO market flaws at the expense of consumers.

 **********************
Follow PULP on Twitter

PSC Urged to Further Revise Proposed Submetering Regulations

The Public Service Commission is considering revisions to its regulations regarding residential submetering.  Generally prohibited since 1950, the PSC through a series of orders beginning in 1976 revived the practice in the name of encouraging efficient use of energy by tenants in older master metered buildings.  The latest version of proposed submetering regulations is here.

The current draft of regulations has been circulated for public comments.  Numerous commenters, including PULP, are urging the Commission to further revise the draft rules.

Submetering, long fraught with landlord/tenant tensions, emerged as a hot issue in recent years, when former Mitchell Lama buildings, some of them electrically heated, were submetered.   During the 1990's, the Division of Homes and Community Renewal adopted rent reduction guidelines based on the assumptions that the cost of submetered electricity would be 20% less than the cost of individual direct service and  that the usage would drop 20% when tenants became directly responsible for usage in their apartments.  Neither assumption is correct, and so a serious mismatch exists between small rent reductions and the new electric bills faced by tenants.  For tenants living on fixed incomes, the difference can be enough to cause hardship or even eventual displacement, when landlords attempt to evict them for nonpayment of utility charges.  The former Mitchell-Lama buildings typically still have commitments, sometimes under HUD rules, to continue Section 8 participation for current tenants, with these obligations dropping off when tenants vacate.  If tenants are displaced through submetering, owners may be able to re-rent their apartments at prevailing market rents.

Many of the buildings being submetered have poor insulation and old appliances provided by landlords which are not energy efficient.  Submetering shifts these costs to tenants who often have little power to address the inefficiencies of poorly insulated and weatherized structures and inefficient older major appliances.

Under the proposed PSC regulations, landlords would be allowed to mark up their bulk rate cost of electricity to the cost of individual direct residential service.  It is unclear how the new regulation would affect old orders which reflect an owner's promise not to mark up the charges for electric service.

The new regulations still do not require landlords to provide timely and adequate prior notice to tenants of the  actual commencement of a proceeding at the PSC considering a shift of a building and its tenants to submetering, which affects the tenants' leases and property interests.  Instead, the PSC draft regulations still allow owners to provide a vague notice of intent to submeter, and a 2 month notice before submetering is actually implemented, with a 5 year gap allowed between the date of an order allowing submetering and  actual implementation.  In prior cases, the PSC has allowed landlords to provide late notice of the intent to submeter, and has not required prior notice to tenants of the actual commencement of the proceeding.

For many years, newer buildings have been required to be equipped for direct utility metering of individual tenant dwellings.  If adopted, the latest revision of the proposed regulations would allow submetering in new buildings.

The comments on the regulations are here.

**********************

Follow PULP on Twitter

Borrowing at High Interest to Pay Unaffordable Utility Bills

New York's electric rates are among the highest in the nation.  Hundreds of thousands of New Yorkers  cannot afford to pay their utility bills and many fall behind in making payments.  For example, in March 2011, 271,425 Con Edison residential customers – more than 9% o -- had arrears exceeding 60 days. In May 2011, 247,655 National Grid residential customers -- more than 16%  -- were more than 60 days in arrears.

Every month, New York utilities send Final Termination Notices (FTNs) to many thousands of their customers.  For example, in May 2011, National Grid issued Final Termination Notices (“FTNs”) threatening termination to 98,084 customers -- approximately the number of households in the entire cities of Syracuse  and Albany  combined.  Similarly, in March 2011, Con Edison sent notices threatening shutoff sent to 221,177 customers -- more than the entire number of households on Staten Island  and in the cities of New Rochelle  and White Plains,  combined.

To avoid a utility shutoff, many customers turn in desperation to short term small loans in order to make a payment.  "Payday" loans and other short term small loans typically come at a very high cost, for example,  $20 per $100.

The Center for Financial Services Innovation (CFSI) recently conducted a Ford Foundation supported study to examine high interest small-dollar credit (SDC) loans (payday loans, pawn loans, direct deposit advance loans, auto title loans, and non-bank installment loans), and the reasons why they had borrowed. See A Complex Portrait: An Examination Of Small-Dollar Credit Consumers, CFSI, August, 2012.

The survey also asked respondents to indicate why they used a small loan, and paying utility bills was No. 1 on the list at 36 percent. Rounding out the top three were using the loan for living expenses (34 percent) and rent (18 percent). 

Juan Rodriguez and Aundraya Ruse, Who is using small-dollar loans and why?, Yahoo Finance, Sept. 11, 2012.

Payday loan type credit, which is among the most expensive SDC loans, was used by payday loan borrowers 42% of the time to pay utility bills.

These facts underscore the urgent need for improved low-income utility rates and assistance programs to ease the heavy burdens on New York's low income utility customers.

**********************

Follow PULP on Twitter

AARP Files Comments with FERC on State Recommendations for Use of $104 Million Disgorged by Alleged NYISO Market Manipulator

On September 26, 2012, AARP filed Comments with the Federal Energy Regulatory Commission (FERC) regarding proposals made by state agencies for using a $104 Million fund from profits disgorged by an alleged manipulator of the New York Independent System Operator's (NYISO's) wholesale electricity spot markets.  Because it was impossible to ascertain with precision the harm caused several years ago by the alleged manipulation of spot market and financial derivatives markets by Constellation Energy Commodities Group, FERC invited state utility regulation commissions, state attorneys general, and state utility consumer advocates to suggest possible ways for FERC to apportion the disgorged funds "for the benefit of electric energy consumers."

The AARP Comments urged FERC to apply the following criteria in reviewing proposals:

• The disgorged funds should benefit electric energy consumers, not utilities or other market participants. 
• The proposed use of disgorgement funds should not supplant funding that otherwise would be available to fund a project or activity. 
• The proposal should enhance protection of consumers and therefore help reduce the possibility of future abuse, malfunction, or manipulation of wholesale electricity markets.   
• The proposed allocation should alleviate hardship for consumers likely to have suffered most from higher bills for electric service caused by the manipulation, i.e., low income customers.  
• The proposed use should have lasting or long term beneficial impact for electric energy consumers

AARP's September 26, 2012 comments urged FERC to approve, modify, or reject a variety of specific proposals from 19 states and the District of Columbia, which are within the geographic areas served by the NYISO, PJM, and New England ISO regional transmission utilities.

Updates

Replies to AARP Comments:  On September 28, 2012, FERC Deputy Chief Administrative Law Judge issued an Order granting 15 days for state agencies proposing allocations to reply to comments, including those of AARP.

Delaware: On September 28, 2012, Delaware state agencies (the Delaware Public Service Commission and the Delaware Division of the Public Advocate) filed a joint proposal to support the PJM area consumer advocates' CAPS proposal,  See MOTION OF INDICATED JOINT PJM STATE CONSUMER ADVOCATE AGENCIES TO PROPOSE APPORTIONMENT OF MONIES IN PJM FUND AND PROPOSAL, FERC Case No. IN12-7, filed July 10, 2012.  The Delaware agencies further proposed to use any additional funds for Delaware for energy assistance to low-income electricity customers through the Delaware Energy Assistance Program.  AARP had recommended this in its comments.

Background

WEDNESDAY, SEPTEMBER 19, 2012
FERC ALJ Sets Date for Comments and Oral Argument Regarding Use of $104 Million Fund Disgorged by Alleged NYISO Market Gamers

MONDAY, SEPTEMBER 10, 2012

States File Recommendations with FERC for Use of Funds Disgorged by Alleged Wholesale Electric Market Manipulator

WEDNESDAY, JULY 11, 2012

FERC Urged to Use Portion of Funds Disgorged by Alleged Wholesale Electricity Market Manipulator to Bolster Utility Consumer Advocacy

WEDNESDAY, JULY 11, 2012

FERC ALJ Decides Motions of Parties Seeking Role in Proposing to FERC Uses of Disgorged $78 Million NYISO Market Gaming Profits, Clarifies Process

SATURDAY, JUNE 16, 2012

New York Formulating Plans to Use $78 Million Disgorged by Energy Trader for the Benefit of Electricity Consumers

Papers filed with FERC in  In re Constellation Energy Commodities Group, Inc., Case IN12-7, are here.

**********************

Follow PULP on Twitter