Tuesday, November 13, 2012

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.  

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.


Friday, November 09, 2012

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.********************************

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