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.

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FERC Threatens to Revoke JP Morgan's Permission to Trade Electricity at Market Based Rates

Today in a Press Release FERC indicated it may revoke JP Morgan's permission to trade wholesale electricity at unfiled market-based rates

FERC Initiates Proceeding into Actions by JP Morgan
The Federal Energy Regulatory Commission (FERC) today initiated a proceeding into whether J.P. Morgan Ventures Energy Corp. submitted misleading information and omitted material facts in communications with the Commission, the California Independent System Operator (CAISO) and the ISO’s Department of Market Monitoring (DMM).
Today’s order directs JP Morgan to show why it should not be found to have violated Commission regulations, and why its authorization to sell electric energy, capacity and ancillary services at market-based rates should not be suspended.
The integrity of FERC’s ability to ensure that market-based transactions produce just and reasonable rates relies on the honesty of market participants’ communications with the Commission and other jurisdictional entities, the order says. In granting market-based rate authority, FERC expects that a company’s behavior will not involve fraud, deception or misrepresentation.
Today’s order preliminarily finds JP Morgan may have omitted material information or submitted misleading information in communications with the Commission, CAISO and the DMM. It says four statements by the company, including statements made in a non-public appeal (Docket No. IN11-08-000) of a CAISO penalty for JP Morgan’s failing to comply with a data request in a timely manner, and a related complaint (Docket No. EL12-70-000), subsequently withdrawn by JP Morgan, may have violated FERC regulations under the Federal Power Act.
JP Morgan must respond within 21 days of the show-cause order being published in the Federal Register.

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Report Questions Need for New NYISO Capacity Market for Electricity

Capacity additions to the electric power grid in New York are from time to time needed to maintain reliability as demand grows or as old power plants are retired for various reasons.  Deregulation enthusiasts have proposed that the New York Independent System Operator (NYISO) create a mandatory long term forward capacity market mechanism to foster new power plant additions that would be similar to mandatory capacity markets in PJM and ISO-New England.  These have drawn  criticism from consumer groups due to the added cost paid by consumers for capacity charges, with no assurance that plants will be built when and where they are needed.  See PULP Network, Wholesale Electricity Capacity Market Results Attacked by PA, MD, DE and NJ Utility Commissions and Utility Consumer Advocates, June 5, 2008.

A new report questions the need for such a new market mechanism.  The report, New York State Capacity Market Review finds that the existing framework in New York is working.

Generation investment in New York is driven by both non-market standards and by market  incentives. The non-market standards, many of which are set by non-NYISO institutions, include obligations to serve, reliability standards, renewable portfolio standards, and environmental regulations. Market incentives are provided by the revenues that can be gained or the costs that can be avoided: a) in NYISO-administered short-term markets for energy, ancillary services, and capacity; b) through long-term bilateral transactions; and (c) through self-supply or ownership of generation. Thus, the NYISO-administered markets are only one part of the overall framework for providing generation capacity and assuring reliability.
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there is no need to fix what is not broken. The existing capacity market structure has provided generation capacity where it is most highly valued, using diverse fuels and meeting a variety of renewable resources and environmental policy goals. This success has been achieved without resorting to a mandatory forward market such as those used by PJM and ISO-New England. The current design does not require replacement by a mandatory forward centralized capacity market.

The report was prepared for the American Public Power Association (APPA), the National Rural Electric Cooperative Association, (NRECA) and New York Association of Public Power (NYAPP),  by Laurence D. Kirsch and Mathew J. Morey, Christensen Associates Energy Consulting LLC.  NYAPP  is an association of municipal utilities and rural electric cooperatives serving approximately 450,000 customers / members across New York State.

The Press Release for the Report is here.

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

The FERC ALJ who will make the initial FERC determination on allocation of a $104 million fund for the benefit of electric consumers has set dates for parties to comment on state recommendations, and for oral argument regarding inconsistent state agency recommendations from the PJM area.  In an Order issued September 14, 2012, FERC Deputy Chief ALJ Bobbie J. McCartney set September 26 as the date for all parties in the case to file comments on recommendation of state agencies, and October 4 for oral argument regarding recommendations for use of funds in the PJM regional footprint.

Illinois agencies were not able to agree on their recommendations by the September 11 filing deadline and was granted additional time, until after her decision following oral argument, "as the disposition of those issues [at oral argument] may have a substantive impact on their continuing discussions."

The fund is part of the profits disgorged by alleged manipulators of the markets of the New York Independent System Operator (NYISO).

For background, see

PULP Network, States File Recommendations with FERC for Use of Funds Disgorged by Alleged Wholesale Electric Market Manipulator, September 10, 2012.

PULP Network, FERC Urged to Use Portion of Funds Disgorged by Alleged Wholesale Electricity Market Manipulator to Bolster Utility Consumer Advocacy, July 11, 2012.

PULP Network, FERC ALJ Decides Motions of Parties Seeking Role in Proposing to FERC Uses of Disgorged $78 Million NYISO Market Gaming Profits, Clarifies Process, July 11, 2012.

PULP Network, New York Formulating Plans to Use $78 Million Disgorged by Energy Trader for the Benefit of Electricity Consumers, June 16,2012.

Greenberg Traurig, FERC Takes Additional Steps to Enhance Energy Market Oversight in the Wake of Recent Enforcement Actions, May 3, 2012

Papers filed with FERC in Case IN12-7 are here.

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

     On September 10, 2012, "eligible" state agencies who are parties in FERC Case IN12-7 filed recommendations for allocation of a FERC fund disgorged by Constellation Energy Commodities Group (CECG) in settlement of a case investigating whether it had manipulated the wholesale bulk electricity markets, principally those of the New York Independent System Operator (NYISO).  To settle the investigation, CECG agreed to pay a $135 million penalty to the government and also to disgorge $110 million of its profits from the trading gambit, $104 million of which is to be used for the benefit of electric consumers. New York's share is $78 million.

     Consumer groups, including AARP, Consumers Union, and NYPIRG urged the Governor, the Attorney General, and other officials to use some of the $78 million settlement funds to assist New York consumers at risk of electric service termination, to augment energy efficiency programs, and to provide support for independent consumer advocacy in state and federal utility regulation proceedings. See Times Union, A Consumer Energy 'Seat' Wanted, Power settlement Spurs Advocates to Push for an Independent Voice, May 31, 2012. 

     Parties in the FERC proceeding who were not deemed "eligible state agencies" authorized to make recommendations in the first instance to FERC Deputy Chief Administrative Law Judge Bobbie J. McCartney now have 15 days in which to file their comments on the proposed allocations.  Thereafter the ALJ will make her recommendation to FERC.  The Illinois Commerce Commission, Illinois CUB, and Illinois Attorney General have asked for more time to submit their recommendations.  Also, the District of Columbia Public Service Commission asked for an extension of time.

NYISO Region $78 Million
     New York Public Service Commission filed a proposal, which the New York State Department of State and New York Attorney General supported in separate letters.  The PSC proposal states:

FERC ordered that any requests for apportionment from the Constellation Fund may only be made by the appropriate state agency or agencies of the impacted states, for the benefit of electric energy consumers.[...] Deputy Chief Judge McCartney granted the Motion for Determination of Eligibility of NYPSC, the New York Attorney General ("NYAG") and the New York Department of State's Utility Intervention Unit ("NYDOS") (collectively, the "New York Agencies"). Hence, the NYPSC, as one of the named appropriate state agencies, is an authorized participant in the allocation and distribution of the NYISO Constellation Fund. NYAG and NYDOS have worked with NYPSC in the development of this proposal.

The plan of the NYPSC for the use of the NYISO Constellation Fund has three elements.

"A: $48 Million Direct Refund to CustomersThe first element of the proposal is a refund of $48 Million to NYISO consumers. Under the proposal, this amount would be distributed on a volumetric (kWh) usage basis to each of the six investor owned utilities serving NYISO customers, to NYPA and to the Long Island Power Authority ("LIPA"). The funds provided to the investor-owned utilities and LIPA would be passed back to their customers, and a similar distribution would be provided by NYPA to the municipal electric and other customers it serves.

• $1,608,000 to Central Hudson Gas and Electric Corp. ("Central Hudson"), representing a 3.35% allocation, 

• $15,134,400 to Consolidated Edison Company of New York, Inc. ("Con Edison"), representing a 31.53% allocation,

• $4,828,800 to New York State Electric and Gas Corp. ("NYSEG"), representing a 10.06% allocation,

• $10,420,800 to Niagara Mohawk Power Corporation ("Niagara Mohawk"), representing a 21.71% allocation, 

• $1,358,400 to Orange & Rockland Utilities, Inc. ("Orange & Rockland"), representing a 2.83% allocation,

• $2,304,000 to Rochester Gas & Electric Corp. ("Rochester Gas & Electric"), representing a 4.80% allocation,

• $6 / 417 1600 to the Long Island Power Authority ("LIPA")  representing a 13.37% allocation, and

• $5 1928 1000 to the New York Power Authority ("NYPN/ ), representing a 12.35% allocation.

B. Consumer Advocacy Funding The second element of the allocation proposal is to establish a long term funding mechanism (at approximately $1 Million per year for 10 years) to support enhanced and more comprehensive advocacy for end-user interests at the NYISO and at FERC....  This advocacy initiative would be implemented through an Electric Consumer Advocacy Project ... which will be organized and managed by UIU. The scope of this Project and its implementation by UIU will be defined by a Memorandum of Understanding (MOU). 

C. Program Funding to Promote Advanced Technologies to Optimize Transmission System Performance  The third element of the proposal is funding to advance cutting-edge technologies that would increase bulk transmission system reliability and efficiency. Consumers exp~rience high electric costs, in part, because the NYISO bulk power transmission grid is, at times, congested.****  This third element of the proposal will fund a $20 million program focusing on new technologies to address bulk transmission efficiency and reliability. The $20 million will provide sufficient funding to not only identify projects, but also implement technologies that may improve reliability for the benefit of NYISO consumers."It is anticipated that the transmission improvement program would be managed by the New York State Energy Research and Development Authority**** To implement the program NYSERDA would publish a Program Opportunity Notice (PON) and then would choose, from the responses, projects to fund based upon the criteria set forth in the PON

Thus, under the NY PSC proposal, $48 million would be distributed to utilities for their consumers based on kWh usage.  As a result, the majority of the $48 million will go to the largest largest commercial and industrial customers.  As customers taking service at spot market based rates, the large customers may have been incidental beneficiaries of the alleged market manipulation, if spot market based prices they pay were lowered by CECG to make offsetting large profits on derivatives.  Derivatives are often purchased by utilities to hedge small customers against the risk of NYISO spot market volatility, so artificially inflated costs of the derivatives could have been disproportionately borne by the smaller usage customers.

$10 million would go to a trust set up by NYSERDA and an unnamed trustee, and then to a state agency, the Department of State, for work by its Utility Intervention Unit (UIU) on NYISO, FERC, and Reliability Council matters, "to implement [UIU]s responsibilities as the NYISO-designated Statewide Consumer Advocate."

Under the PSC proposal, all UIU work plans and significant decisions would be subject to review and joint decision making by the DPS, which is under the PSC Chairman.  The draft MOU between UIU and the PSC indicates that the money for the advocacy would be held by NYSERDA and an unnamed trustee, and  the work plan of the advocate would be adopted jointly by UIU and the PSC. There is no rationale offered for the existence of the trustee or indication of who the trustee would be or what role the trustee would play, or how a conflict between the PSC and UIU would be resolved.

Although the draft MOU between UIU and the PSC ostensibly gives the UIU the power to participate in civil litigation with the funds, for example, federal cases often arising out of FERC proceedings, the powers of the UIU set out in Section 94-A of the Executive Law, cited in the MOU, only authorize UIU to participate in administrative proceedings of the PSC and federal agencies.   In a similar situation, with a similarly constrained legislative authorization, the predecessor of the UIU, the Consumer Protection Board (CPB), was held to lack any independent power to question orders of the PSC in court:

Authority to commence this proceeding is not in the statutory language establishing the Board, and an administrative agency possesses no inherent legislative power of its own. Section 553 of the Executive Law provides that the executive director shall have the power and duty to appear before Federal, State and local administrative agencies to protect consumers' rights but the Board's authority to commence an article 78 proceeding in Supreme Court is not provided for and the Board possesses only those powers expressly conferred upon it by statute (Matter of Levy v Anderson, 65 Misc. 2d 763). When the Board's petition before the PSC for a rehearing was denied, its authority ended.

Pooler v. PSC, 89 Misc.2d 700, 58 A.D.2d 940, aff'd 43 N.Y.2d 750 (1977). The original deficiency in the CPB powers highlighted in the Pooler case was only fixed partially by the legislature when it subsequently authorized the CPB to challenge PSC utility rate orders in Article 78 proceedings, but it did not authorize federal litigation, as would be needed to seek judicial review of a FERC ruling, for example, in a NYISO tariff cases or in cases involving market manipulation, market rules, or bulk transmission rates.  In any event,the quasi-independent CPB is now dissolved.  The new UIU  is now a subordinate office within an executive agency, the Department of State, lacking express power independently to challenge any utility regulatory decisions in court. Under the draft MOU with the PSC Chairman, work plans and all significant decisions of the UIU would be subject to joint approval of the PSC Chairman.  Separation of the advocacy function from regulators, and independent power to seek review of a regulatory decision in court, are the sine qua non of an independent utility consumer advocate.

PJM Region $6 Million
PJM state consumer advocate agencies filed a recommendation and stipulation in July, agreeing that $1,168,800 of the fund (about 20%) be used to fund a Consumer Advocates of PJM States (“CAPS”) non-profit entity, which would participate and report regarding PJM matters on behalf of the independent state advocates.

In a joint filing of numerous state agencies in the PJM footprint, Pennsylvania, Maryland, Indiana, and New Jersey followed the prior recommendation of their utility consumer advocates to allocate 20% of the total funds available to support improved monitoring of wholesale electricity issues by independent utility consumer advocates. Ohio did not, and proposes to use most of its money to promote retail electric competition.

Pennsylvania $1,312,200
The Pennsylvania PUC filed a proposal recommending its allocation be distributed as follows:

• $500,000 for retail electric competition campaign on "how to shop smart"
• $308,000 for a confidential PAPUC hotline for reporting electricity market abuse
• $262,440 for the consumer advocate proposal
• $166,670 for PAPUC consultants for complex wholesale electricity and transmission issues
• $25,000 for an appliance recycling research study required by state law
• $25,000 for a energy savings data platform required by state law
• $25,000 for a C&I Lighting program data bank required by state law

North Carolina - $51,600
     North Carolina proposes that all of its funds be "apportioned to all of the North Carolina Load Serving Entities [utilities] within PJM’s region for the benefit of North Carolina’s electric energy consumers...."  presumably

Maryland  $592,800
     Maryland proposed that 20% of its funds be used as recommended by the PJM consumer advocates, i.e., $118,560 and that the remainder be used as follows:

• $237,120 to supplement the Maryland Department of Housing and Community Development’s Weatherization Assistance Program (“WAP”).
• $237,120  to fund low-to-moderate income energy efficiency grants provided through the EmPOWER Clean Energy Communities Low-to-Moderate Income Grant Program administered by the Maryland Energy Administration

New Jersey $713,400
     New Jersey proposed that 20% of its funds be used as recommended by the PJM consumer advocates, i.e., $142,680 and that the remainder be "distributed to a non-lapsing NJBPU fund supporting various NJBPU initiatives for the benefit of the State's electric energy consumers."

Kentucky $49,800
     Kentucky proposed to allocate its entire amount to Community Action Kentucky (“CAK”), a non-profit social services agency for the distribution of LIHEAP funds within Kentucky. The $49,800 will be distributed to LIHEAP eligible households, in amounts up to $200 per household, who are facing termination of electric service for nonpayment, in the 20 county service territory of Kentucky Power, a wholly-owned subsidiary unit of American Electric Power, the only Kentucky utility in PJM during the relevant time period.

Michigan $37,200.
     Michigan proposed that is $37,200 "be distributed so as to benefit Indiana Michigan Power Company’s customers in a manner that the [Michigan Public Service Commission] determines to be just and reasonable."

Indiana $189,000
     Indiana proposes to allocate $37,800 (i.e., 20% of its amount) for the consumer advocates' CAPS proposal, and the remaining $151,200 would add  funding to existing demand side management and energy efficiency (DSM/EE) programs

West Virginia
     West Virginia proposes to use all of the funds for augmenting LIHEAP or other consumer assistance programs as directed by the WV Public Service Commission.

Ohio $700,200
     The Ohio Public Utilities Commission filed a separate proposal, seeking to use all the funds internally for new functions; none would go to support the CAPs proposal or to supplement the work of the independent Ohio utility consumer advocate, the Ohio Office of Consumer Counsel.  It proposes to use the money as follows:

• $620,699 to defray part of a new statewide PUC program to promote retail electric competition
• $79,501 to defray part of the cost of one additional PUC employee devoted to federal wholesale issues

Virginia

     Virginia's eligible agencies asked for more time to make their filing, but indicated that they support the PJM Advocates' CAPS proposal for 20% of their allocation, and that they would allocate the balance for the Virginia Consumer Counsel.  

New England $20 Million

     The states in the NE ISO footprint (Connecticut, Maine, Massachusetts, New Hampshire, Rhode Island, Vermont) filed their joint recommendation to use the entire fund to provide bill credits to customers.

Background

See PULP Network, FERC Urged to Use Portion of Funds Disgorged by Alleged Wholesale Electricity Market Manipulator to Bolster Utility Consumer Advocacy, July 11, 2012

PULP Network, FERC ALJ Decides Motions of Parties Seeking Role in Proposing to FERC Uses of Disgorged $78 Million NYISO Market Gaming Profits, Clarifies Process, July 11, 2012.


PULP Network, New York Formulating Plans to Use $78 Million Disgorged by Energy Trader for the Benefit of Electricity Consumers, June 16,2012


Papers filed with FERC in Case IN12-7 are here.

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UK Electricity Industry Privatisation and Price Cap Regulation, and the Rise of EDF

For an interesting review of UK electricity privatisation and the unanticipated replacement of state-owned utilities by state-owned EDF, and Spanish and German utilities, see James Meek, How We Happened to Sell Off Our Electricity, London Review of Books, September 13, 2012.

The New Electricity Trading Arrangements were designed to bring prices down by making the electricity market fairer and more open.... There is no evidence to suggest that any elected politician has ever understood how it worked (any more than they understood its byzantine predecessor, the ‘Pool’).... Yet there was one important clue to how Neta worked: the electricity companies were all for it.... It was even more opaque than the Pool....

Littlechild seemed reluctant to accept that EDF’s move into Britain undermined the rationale for electricity privatisation ....  

Of the three main sources of Britain’s future electricity supply – gas, wind and nuclear – the first two don’t require such urgent attention as the third, though we can expect any amount of rhetoric from the gas and wind lobbies while the energy bill is debated. The gasbags (of whom Osborne is one) will argue that the worldwide shale gas revolution is going to make gas cheaper and more widely available, that gas-fired power stations don’t need subsidies, and that gas is environmentally friendly because it’s less filthy than coal. The windbags, led by Davey, will argue that improving technology will make offshore wind cheaper, that it’s far cleaner than gas, and that wind energy makes Britain less dependent on imports from risky regimes. It’s an argument that Britain would be having whoever owned our electricity industry and it seems inevitable that the gradual end result will be more gas, more wind, and less coal. New nuclear power stations, however, are not only central to the government’s hopes: the companies who would build them say that the decision to proceed must be made by the end of the year.

The possibility that companies might get part-way through building a set of new nuclear reactors in Britain and have to stop due to cost overruns is less likely than the other variant: that, once begun, the new nukes will be finished whatever the cost. Which is the second problem.  Expensive to build and difficult to dispose of, nuclear reactors aren’t profitable. The only reason nuclear power is on the table is global warming. The only way it can be financed is by government subsidy. By the end of this year, the British government must decide how big a subsidy it is prepared to give EDF and Areva; EDF and Areva, in consultation with their main shareholder, the French government, will have to decide whether that’s enough.

But the subsidy won’t come from general taxation. It will come, as wind farm subsidies already do, from British customers’ electricity bills. It’s a stark illustration of the realities of privatising essential services – that what is being sold is not infrastructure, but bill-paying citizens, and what is being privatised is not electricity, but taxation. Effectively the French government is buying the right to tax British electricity customers through their electricity bills; to use British money and British sites to finance a world showcase for unproven French nuclear technology. And because the hidden taxes in electricity bills take no account of people’s ability to pay, the poorer you are, the bigger contribution you make to the programme....  

Helm’s most devastating point about electricity (and gas) privatisation in Britain is that these are not naturally public industries; nor are they naturally private. ‘It is extraordinary,’ he writes, ‘that anyone could have regarded these as anything other than political industries.’

Electricity privatisation hasn’t been a success in bringing down prices.... a reliable, badly run British electricity system was destroyed, rather than being reformed, only so that a large part of it could be taken over by a foreign version of the original. And it has been a failure in terms of clarity, in the sense that in order to fund investment, governments that boast about not raising taxes, or of taking low-earners out of the tax bracket, permit predominantly foreign-owned electricity companies to collect flat-rate taxes that hit the poor disproportionately....

... a rootless elite that has no concept of duty or service except to itself is busy taxing the poor.... 

If you define the problem as the lights not going out, he said, you misunderstand everything about the way the new world of electricity markets works. The ideal situation for private electricity firms is one where there is only just enough electricity to go round. Then they can charge as much as they like, and people will have to pay. ‘People think insecurity of supply means will the lights go off or not – but that is not the issue,’ he said. ‘It is what happens just before the lights go off.’

More than twenty years after the great electricity experiment was launched, it can be seen that although it was an act of privatisation – of taxation, principally – it was most significantly an act of alienation, lowering an impenetrable barrier of complexity, commercial secrecy and sheer geographical distance between the controlling interests of electricity companies and the customers they serve. It’s easy to switch suppliers. But behind that barrier citizens and small businesses have no way of knowing that they aren’t being fleeced as egregiously by the cheapest provider as they are by the most expensive. 

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

In a Ruling issued September 7, 2012, the Administrative Law Judges (ALJs) presiding over the pending Niagara Mohawk electric and gas rate cases denied the motion of the Retail Energy Supply Association (RESA) which, on several grounds, sought to bar disclosure of information requested by PULP regarding the difference between bills issued by Niagara Mohawk to its customers who subscribe to ESCO service and what the bills would have been had the customers not switched to ESCO service.  RESA supplied its answers to questions posed by the ALJs, and PULP submitted its response to the motion on August 27

As a threshold matter, the ALJs ruled that the information requested from Niagara Mohawk is relevant:

The information provided by the Company in response to PULP IR Nos. 91 and 107 is relevant to these proceedings because the information pertains to issues that are properly before the Commission in these proceedings. The information provided by the Company has the potential to inform the record with respect to several issues, including the design and structure of the Company’s low income, retail access, and education programs. Rate proceedings often include consideration of these programs, as modification or implementation of such programs often have revenue requirement effects that are properly addressed when reviewing and setting utility rates.

The relevance of the Company’s responses to PULP IR Nos. 91 and 107 is further substantiated with the filing of intervenor testimony on August 31, which included UIU and PULP testimony that relied, in part, on the IR responses. Although Staff did not specifically refer to the IR responses in its testimony, Staff filed testimony recommending the development of bill comparison requirements. The IR responses are relevant in evaluating this testimony.

Next, the ALJs rejected RESAs argument that release of the information violatedagreements between ESCOs and Niagara Mohawk for billing services and purchase of receivables .  (Niagara Mohawk purchases receivables from ESCOs at a small discount frmo their face value, and includes charges for the face value of those charges in its bills to customers who bought ESCO service).

First, section 14.7 of the BSA states that no third party rights are conferred by the agreement.... According to RESA, PULP is attempting to exercise such third party rights via its interrogatories to the Company. RESA’s argument is supported neither by the plain language of the contract nor the ample case law regarding attempts by third parties to exercise contractual rights....  In this instance, PULP is attempting to obtain information regarding the delta or difference between monthly ESCO charges and what customers would have paid for utility commodity service. PULP is not seeking to enforce the contract – e.g. the billing arrangement or purchase of receivables – and it is not trying to collect any debts or enforce any contractual obligations. Rather PULP is attempting to obtain the information as part of its efforts to contribute to the record in these proceedings on matters such as the Company’s low income program and its retail access and associated education and outreach programs.

Second, the BSA does not otherwise specifically prohibit the release of the information....
[i]t would be improper for us to expand our reading of the contract beyond the four corners of the agreement....  In addition, even if we determined that such a prohibition existed under the contract, we would still require production of the information. As correctly stated by PULP, parties cannot contract away or preclude the Commission’s exercise of jurisdiction over utility matters....

Finally, the ALJs addressed whether the information could be withheld from public disclosure as a trade secret or confidential commercial information under the Freedom of Information Law, which generally makes all records at a state agency open to the public unless a specific exception applies that would justify confidential treatment of information.

Having found the information relevant to the proceedings and its release not prohibited by the BSA, we now address the issue of whether the information should be withheld from public disclosure pursuant to Public Officers Law §87(2)(d) and 16 NYCRR 6-1.3 of the Commission’s rules. We find that (1) the precedent relied on by RESA is inapplicable to the facts, (2) the information is of a general nature and its disclosure is unlikely to cause competitive harm, and (3) the general retail access policy of the Commission favors public disclosure of this type of information. For these reasons we deny RESA’s request to except the information from public release....

To allow time for possible appeal to the PSC, the information remained confidential and subject to the prior protective order of the ALJs for 15 days.

The unredacted portion of the testimony indicated that Niagara Mohawk customers who bought from ESCOs were sent 377,736 Final Termination Notices arising from non payment of charges in 2011, averaging 31,478 per month.

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Update
The unredacted testimony included the following information about the experience of ESCO customers:


For the 24 months August 2010 through July 2012, the data shows that nearly all bills, 84.3% for electricity and 92.1% for gas, were higher for those customers who had switched to ESCO service.  Only 15.7% of electricity bills and 7.9% of gas bills were lower.

For low-income customers, 91.5% of electricity bills and 93.4% of gas bills were higher for those customers who had switched to ESCO service.  Only 8.5% of electricity bills and 6.6% of gas bills were lower. 
 
For regular (i.e., non low-income customers), 83.2% of electricity bills and 91.8% of gas bills were higher for those customers who had switched to ESCO service.  Only 16.8% of electricity bills and 8.2% of gas bills were lower.

The data also shows that the net extra cost incurred by ESCO customers over what they would be charged by Niagara Mohawk was $101,775,321 for electricity and $27,375,032 for gas.  An estimated 207,842 customers  (84.3%) paid $103,711,214 more for ESCO electricity service while an estimated 107,225 customers (92.1%) paid $27,931,488 more for ESCO gas service.  

Only 38,579 of the total estimated 246,420 ESCO electricity customers (15.7%) paid less using ESCO service (their total savings was $1,935,893).  Only 9,249 of the total estimated 116,474 ESCO gas customers (7.9%) paid less using ESCO service (their total savings was $556,456). 

For low-income ESCO customers, the net extra cost incurred over what they would be charged by Niagara Mohawk was $13,331,134 for electricity and $5,819,450 for gas.  30,195 (91.5%) of a total estimated 33,015 low-income electricity customers paid $13,442,926 more for ESCO service, while 19,473 (93.4%) of a total estimated 20,840 low-income gas customers paid $5,905,789 more for ESCO service.   Only 2,820 (8.5%) of ESCO low-income electricity customers paid less using ESCO service (their total savings was $111,791).  Only 1,367 (6.6%) of ESCO low-income gas customers paid less using ESCO service (their total savings was $86,339).

For regular ESCO customers, the net extra cost incurred over what they would be charged by Niagara Mohawk was $88,444,187 for electricity and $21,555,582 for gas.  177,647 (83.2%) of a total estimated 213,406 regular electricity customers paid $90,268,288 more for ESCO service, while 87,752 (91.8%) of a total estimated 95,634 regular gas customers paid $22,025,699 more for ESCO service. 

Only 35,759 (16.8%) of ESCO regular electricity customers paid less using ESCO service (their total savings was $1,824,101).  Only 7,882 (8.2%) of ESCO regular gas customers paid less using ESCO service (their total savings was $470,117).

The data also shows that, of the ESCO customers who had higher bills, over 24 months the cumulative net average cost above what their bills would have been had they not switched to ESCO service was $413.02 for electricity and $235.03 for gas.  Of those who experienced higher bills, their average extra cost was $498.99 for electricity and $260.49 for gas.  Those with lower bills saved an average of $50.18 for electricity and $60.16 for gas.  

For low-income ESCO customers who had higher bills, over 24 months the cumulative net average cost above what their bills would have been had they not switched to ESCO service was $403.79 for electricity and $279.25 for gas.  Of those who experienced higher bills, their average extra cost was $445.21 for electricity and $303.29 for gas.  Those with lower bills saved an average of $39.64 for electricity and $63.16 for gas.

For regular ESCO customers who had higher bills, over 24 months the cumulative the net average cost above what their bills would have been had they not switched to ESCO service was $414.44 for electricity and $225.40 for gas.  Of those who experienced higher bills, their average extra cost was $508.13 for electricity and $251.00 for gas.  Those with lower bills saved an average of $51.01 for electricity and $59.64 for gas.

The testimony and exhibits made public as a result of the ruling are below.

Unredacted Testimony

Exhibits Cover Page 

 - Exhibit A 

- Exhibit B - (ESCO Regular Two-Year Summary Data) 

-Exhibit B (ESCO Low Income Two-Year Summary Data)

-Exhibit B (Summary Data)

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Larry Rulison, Choice Brings Higher Cost, Times Union, Oct. 3, 2012.

Can ESCOs Save You Money vs. National Grid, The Real Deal, WSYR.com, Sept. 24, 2012

Tim Knauss, AARP urges consumers to be cautious when dealing with energy marketers, Post Standard, Sept. 19, 2012.

Tim Knauss, National Grid households pay extra when they buy energy from outside marketers, Post Standard, Sept. 18, 2012.

Consumer advocates win: Energy price comparison to be made public, Post Standard, Sept. 7, 2012.

Energy Competition: Reveal prices to level playing field for consumers, Post Standard Editorial Board, Sept. 5, 2012.



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State Recommendations Due Soon on How FERC Should Use Funds Disgorged by NYISO Market Gamer for the Benefit of Electric Energy Consumers

State recommendations on how FERC should use funds disgorged by an alleged NYISO market manipulator for the benefit of electric customers are due at FERC by September 8.  Since that is a Saturday, state filings may be expected any time from now through Monday September 10.

FERC will decide how to allocate $6 million within PJM area for the benefit of customers, and $78 million within the New York ISO area.

Consumer advocates have urged that a portion of the funds be used for utility consumer advocacy.

See PULP Network, FERC Urged to Use Portion of Funds Disgorged by Alleged Wholesale Electricity Market Manipulator to Bolster Utility Consumer Advocacy, July 11, 2012

PULP Network, FERC ALJ Decides Motions of Parties Seeking Role in Proposing to FERC Uses of Disgorged $78 Million NYISO Market Gaming Profits, Clarifies Process, July 11, 2012.

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

National Grid d/b/a/ Niagara Mohawk filed new natural gas and electric rates on April 27, 2012, supported by extensive testimony and documentary evidence, available in the PSC case file for Case 12-E-0201.  The changes have been suspended pending New York State Public Service Commission (PSC) review for reasonableness and possible modification, which will take at least 11 months. In a rate case, all of a utility's rates, charges, tariffs, rules, practices and procedures are subject to review, with the utility bearing the burden to show they are just and reasonable.  PULP intervened as an active party in the rate cases, is conducting discovery, and on August 31, 2012, filed testimony urging the PSC to modify Niagara Mohawk's low income rates and programs to make natural gas and electric service more affordable.

PULP's testimony points out the severe hardships faced by low-income customers in the Niagara Mohawk service area, and reviews the current Niagara Mohawk low-income rates and modest improvements made by the utility in its rate filing.  For example, currently, gas customers' bills are reduced, for about 28,000 to 74,000 customers per month, who receive a rate reduction of only $7.50, totaling about $6 million per year.  Niagara Mohawk proposed to raise the monthly minimum gas charge to over $20, and to increase the low-income discount to $10, and no changes in its $5 per month discount for low-income electric customers. 

PULP proposes a monthly $15 minimum charge reduction and usage charge reductions for gas service, changes that would make bills more affordable for more low-income customers, and put Niagara Mohawk's low-income rate structure and programs more in line with other National Grid utilities in Massachusetts and downstate New York.  PULP also urges further changes in the rate structure to reduce charges to low-income electric and gas customers who are eligible for HEAP and other public assistance programs based on household need.

In contrast, the Department of Public Service (DPS) Staff, a party in the rate cases, filed testimony opposing even the modest expansion of low-income gas rates as proposed by Niagara Mohawk, and Staff also proposes no change in the electric rate reduction.

For at least fifteen years, deregulation, retail competition and ESCO service have been touted by the DPS as possible routes for customers to save money on their utility bills:  For example, the DPS website claims:

You could save money by shopping for lower cost power from an ESCO. It is important to compare the prices offered by any supplier who sells electricity and to know what you are signing up for.

Energy Choices - The Facts from the PSC  (Emphasis added).   PULP's testimony recommends that the PSC not rely on shopping for ESCO service as a means for customers - particularly low-income customers -  to reduce their utility bills.  Instead, PULP recommends addressing the low-income affordability issues directly, e.g., by reducing bills through low-income rates and programs, plus energy efficiency programs.

In contrast to a regulatory approach to affordability, the DPS exhorts customers seeking to reduce their bills to shop for utility bill savings through ESCO service, through its "Power to Choose" website.  To encourage customers to try ESCO service, the PSC has approved "ESCO Referral Programs" designed to shift customers ESCO service with an initial short term price discount, followed by a transition to undisclosed future rates.  Niagara Mohawk's PSC-approved ESCO referral program, "New Choices," promises "you will save a guaranteed 7% on your energy supply bills for a two-month introductory period."  Customers who want to participate in "New Choices" but who cannot decide on which ESCO to pick can be shifted to an ESCO picked for them at random by Niagara Mohawk. After the introductory period, customers are switched to a different rate, not disclosed when the contract is formed, and they have a short window of time in which to exit the program.  ESCO contracts may then provide for automatic renewal, with a short window near the end of the term for the customer to exit without penalty.  The PSC has allowed ESCO to charge early termination fees if they quit ESCO service before their contracts end, stating in an Order:

ESCOs may also continue to make offers to consumers at prices other than those reported....  Moreover, because reporting is limited to the price snapshots, ESCOs may promptly revise their offers after the snapshots are submitted....

Case 06-M-0647, et. al, In the Matter of Energy Service Company Price Reporting Requirements, Order Adopting ESCO Price Reporting Requirement and Enforcement Mechanisms (issued November 8, 2006).

Niagara Mohawk provides an example of how to compare ESCO charges with its charges for supply service, which illustrates that a customer will receive savings if they switch to ESCO service.  ESCO prices are listed at the PSC Power to Choose website, but these may not be the actual charges.  The PSC Order quoted above only requires ESCOs to file on the 5th of the month what their prices were on the 1st of the month, and the ESCO prices are allowed to be changed without public notice.  Because the ESCOs use the utility's billing and collection services, they file their price changes only privately with Niagara Mohawk, which uses those charges - and not the charges published by the PSC at Power to Choose -  to bill customers.  Thus, it is difficult to know the actual rate being charged to ESCO customers, and hard to compare what one's bill would be if one were to switch, either from full Niagara Mohawk service to ESCO service, or from ESCO service back to full utility service.

According to information provided by Niagara Mohawk in response to PULP's discovery, its customers who bought gas and electricity from ESCOs were sent 377,736 Final Termination Notices arising from non payment of charges in 2011, averaging 31,478 per month, and approximately 5,000 electric customers and 2,000 gas customers switch back from ESCO service to full utility service each month.

 In the event of a service termination for non payment of bills by a customer receiving ESCO service, the HEFPA 2002 amendments require Niagara Mohawk to offer reinstatement of service based on the lesser of charges for ESCO service or the charges it would have made had the customer not switched.  Also, the utility buys ESCO receivables for more than 99% of its residential ESCO customers. Thus,  in the regular course of business, Niagara Mohawk must have a ready comparison of what ESCO customers would have been billed had they not switched.  PULP sought information through the rate case discovery process to ascertain the utility bill impacts of ESCO service, as compared to bills that would have been issued had the customers not switched, for the most recent 24 months.

The Retail Energy Supply Association (RESA) moved to bar release of the information, arguing it is not relevant and that it is a trade secret that must be kept confidential.  RESA is a national proponent of ESCO service and its members include many of the ESCOs selling energy in New York state.  PULP filed papers opposing RESA's motion to suppress the information, pointing out that it did not mention the name or prices of any ESCOs.  The Department of State's Utility Intervention Unit also supported PULP's request and opposed secrecy of the information.  Administrative Law Judges ruled that PULP's information requests are relevant, and directed Niagara Mohawk to provide the information regarding the difference between bills to ESCO charges and what the utility would have charged for its service on a confidential basis.  This enabled parties to obtain and use the information in their testimony, pending a decision on trade secret status of the information.

PULP filed testimony addressing the impact of ESCO service on customer bills.  The redacted public version of the testimony omits the information subject to the pending ruling on its trade secret status.  In addition to urging less dependency on retail utility competition to lower bills and more direct measures to to address the affordability issues, PULP is recommending that the PSC require National Grid d/b/a/ Niagara Mohawk to provide bill calculation tools to better enable people to compare what they are being charged for service (be it ESCO service, service from a landlord, or service from another utility) with what Niagara Mohawk would charge for similar usage over the same time periods. See Utility Choices, Watertown Daily Times, August 30, 2012; Energy Competition: Reveal prices to level playing field for consumers, Syracuse Post Standard, September 6, 2012.

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