Monday, October 29, 2012

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 caseThe 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.


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