Friday, March 22, 2013

Proposed PSC Storm Outage Remedies Would Allow Utilities Three Days to Restore Power Before Reducing Delivery Revenue

Today, the New York Public Service Commission opened a new generic case and issued a Notice Soliciting Comments on several proposals to address storm outage related policies.  The Commission order recounts that after "Superstorm Sandy" it had approved, on an ad hoc basis, the waiver of current utility tariffs in order to give prorated refunds of monthly customer charges for the period when service was off during extended outages, and that it had allowed forbearance of late payment charges and other collection measures.  The Commission now proposes to adopt generic policies that would be applicable in the future to all major gas and electric companies under its jurisdiction, stating:
the recurrence of lengthy service outages has caused the Commission to consider, inter alia, whether it should formally adopt a policy requiring utilities to offer similar waivers of tariff charges automatically in the future under a defined set of circumstances. At the Commission session, the Commission also considered whether it should further direct utilities to modify their ‘business as usual’ collection and termination practices during such times.
Late Payment Charges and Collection Forbearance.  The Commission proposes various measures intended to ease customer burdens at times when their household budgets may be suffering from the consequences of major storm losses and expenses.  Late payment charges would be excused, and normal service terminations for nonpayment would be suspended during the period of outage and for a period after the outage equal to the duration of the outage.  

As a realistic matter, utility crews that work on field terminations for collection purposes probably would be doing other things of greater importance during and shortly after a major storm outage, so this measure may involves no major readjustment of utility work priorities.  

There is no discussion regarding rate treatment of any lost revenues due to these proposals.  To the extent that storm damage increases household budget burdens and causes late payments which then trigger extra utility charges, the utility may receive higher late payment charge revenue than anticipated.

Customer charge/minimum charge credits.  When a customer is not provided electric or gas service for three days or more, the PSC proposes that the utility would refund a prorated portion of the monthly customer charge for electric service (or the "minimum charge" for gas service).  For example,
customers out of service for six days would receive a credit in the amount of 6/30ths of the customer charge for that service classification) and applied to customer bills within 60 days of the outage.
For Con Edison customers, the electric customer charge is $15.76 per month, or about 53 cents per day.  For a customer suffering a six-day outage, the proposed credit would be $3.18.

That's not much.  

Some customers of Con Edison lost power for about two weeks.  The refund to them of $7.42 would not begin to address the hardship, personal, and societal losses flowing from the lack of continuous service. 

Recovery of lost delivery charges and reduced customer charges.  Under traditional utility regulation, utilities have a strong incentive to avoid outages and to restore power quickly:  if the meters are not registering service, the utility does not receive revenue.  That incentive has been eroded by the recent PSC rate plans which include so-called "Revenue Decoupling Mechanisms" (RDMs).  These ostensibly reduce the utility incentive to promote usage (never mind that it is customers who turn the switches on) and to insulate utility revenues from reduction when energy efficiency measures are installed. 

These RDM mechanisms work to true up and stabilize revenues received by the utility to a level predetermined in the rate case. As a consequence utility revenue is not affected at all when customers use less, whether due to conservation, or installation of efficiency measures, economic recession -- or extended storm outages.  

The PSC seeks comment on two options under consideration:
Option 1.  One of the options proposed by the PSC is to exclude from the RDM revenue true-ups the "lost revenues" due to service being off after three days.  Also it is proposed that customer charges refunded due to service being off would not be trued up in the RDM and collected from all customers in the future.  Under this proposal, utilities would still recover full revenue from customers -- as if service was on -- even though no service is provided, for the first three days of an outage.
Option 2. The other option under consideration is worse.  It continues the current plans, in which shortfalls in revenue due to the lack of service provided during outages is trued up later under the RDMs.  The customer charge refunds to customers who go without service for more that three days would still be given, but the lost revenue from that would eventually be trued up and essentially paid by all customers under the RDM, with no loss of revenue at all to the utility when service is off.
Conclusion.  The credit and collection measures are benign.  The other proposals only address outages of three days or more.  They essentially tolerate without remedy outages up to three days.

Under one option, the utility has no risk of reduced revenue for outages less than three days, under the other option, there is no risk of reduced revenue, period.

The PSC proposals do nothing to alter its "performance regulation" plans that 
  • do not measure or penalize storm related outages of more than 24 hours,  
  • allow utilities full discretion to cut expenses for tree trimming and maintenance and keep the savings as profit, and 
  • allow utilities full recovery of 100% of storm cost recovery costs.
AARP/PULP Report.  AARP and PULP recently issued a report calling for more meaningful reform of New York utility regulation.  The recommendations include:

  • Protecting Consumers from "pass-through" of storm recovery costs: AARP and PULP state that storm-related rate hike proposals, such as the $400 million one being proposed by Con-Edison, must be scrutinized to ensure consumers don't get hit with the costs, while the utility company bears no risk.
  • Reviewing Utility Performance Regulations:  The New York Public Service Commission ("PSC") "Performance Regulation" ratemaking approach should be reviewed and revised or eliminated. It currently allows utilities to set multi-year rates, and then cut costs while keeping savings during the term of the rate plans so long as they satisfy minimum performance standards --  which exclude any standards for major storm outage prevention and restoration.  The plans allow recovery of 100% of storm related costs from customers without regard to adequacy of preventive measures..  The  incentives to cut costs for tree trimming and other preventive measures like replacement of weak poles may have exacerbated the damage from Superstorm Sandy. Further, the, PSC-approved rate plans give utilities the same revenue whether or not meters are spinning after major storm, eroding the normal economic incentive of a utility  to get power back on quickly,
  • Funding an Independent Utility Consumer Advocate: An independent consumer advocate is essential to the strengthening of oversight of the state's utilities by giving consumers a seat at the table in complicated rate hike and regulatory hearings and level the playing field.  A recent AARP survey found the move is supported by nearly 77% of 50+ consumers in the NYC and Long Island areas. Forty other states in the country already have an independent utility consumer advocate office. 
  • Establishing Protection for Long Island Power Authority (LIPA) customers: The Moreland Commission recommends re-privatizing LIPA. AARP and PULP believe the costs, benefits, and rate impacts concerning utility consumers on Long Island must be examined when proposing to re-privatize LIPA as well in comparison with continued public ownership.
Case File and Comments.  The case file with all documents is here.  Public comments can be posted electronically to the public case file here

The Commission Notice Soliciting Comments also states that
"Interested parties may submit comments on the draft policy and any additional information pertinent to implementing uniform policy electronically by e-filing through the Department’s Document Matter and Management System (DMM)2. . . .Those unable to submit electronically may mail or deliver their comments to the Hon. Jeffrey C. Cohen, Acting Secretary, Three Empire State Plaza, Albany, New York 12223-1350. Initial comments are requested no later than May 15, 2013. Reply comments will be accepted through May 28, 2013. All comments submitted to the Secretary will be posted on the Commission’s website and become part of the official case record."
Larry Rulison, Rule would force utilities to issue outage credits, Times Union, March 28, 2013


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