Friday, April 19, 2013

PSC Warns Landlords to Follow Submetering Orders Allowing Sale of Electric Service to Residential Tenants

Landlord submetering of utility service to residential customers can rob end users of their consumer sovereignty by controlling the energy sources they need to sustain themselves.  Historically, in response to landlord abuses in tying their tenants to landlord designated suppliers of essential services, the legislature prohibited landlords from requiring tenants to buy fuel, ice or food exclusively through the landlord or his designated suppliers.    Submetering of electricity to residential tenants, however, was not subject to the ban against tied fuel services, and was allowed in the first half of the twentieth century. This led to overcharges, rampant abuses and chronic problems for tenants which surfaced prominently in the 1920's, 1930's, and 1940's.   
These problems culminated in the PSC’s eventual prohibition of submetering to residential tenants in 1951.   The courts upheld that ban in Campo v. Feinberg.   

The PSC, however, in the 1970’s revisited the issue out of environmental concern that tenant users were not directly financially responsible for electric usage.  Over the opposition of its staff, which preferred direct utility metering and predicted the recurrence of chronic landlord tenant disputes at the PSC over submetered electric service charges, the Commission  allowed landlords to petition for relaxation of its submetering ban, on a building by building basis. 

Commission regulations on the subject mainly prescribe the content of landlord petitions to waive the ban on submetering.  They impose few substantive requirements, other than a requirement that owners not charge more than the utility would charge a direct metered customer (the "rate cap").   In 2002, the Home Energy Fair Practices Act was amended to clarify that all electric service to residential customers, whether provided by traditional utilities, ESCOs, or by submetering landlords, must be provided in accordance with the consumer protections and complaint adjudication procedures of HEFPA.

In a recent  PSC decision resolving the complaint of the Hazel Towers Tenants Association, in which the landlord had failed to comply fully with a 2001 Submetering Order, the PSC sent a clear warning to submetering landlords that they may incur civil liability for HEFPA violations or for failing to adhere to promises in their petitions, in the form of stiff penalties.  The Hazel Towers ruling emphasizes that landlords who have overcharged who then provide a retroactive refund to tenants for any improper billings will not necessarily avoid liability:
Notwithstanding that tenants have been, or will be, provided with refunds to which the record before us shows them to be entitled, the owner’s failure to comply properly and in a timely manner with the 2001 Submetering Order is a serious matter. Such failure, like the failure to timely comply with any provision of a submetering order, could subject the submeterer to a penalty pursuant to PSL §25.
The PSC explains that landlords carry the burden to accurately assess the rate cap, which bars any charges which are more than what the utility would charge its direct service residential customer for the same usage:
an owner is required to ascertain the rate cap correctly for each residential occupant’s bill and to properly reduce the occasional bill, whenever there is one, that exceeds the correctly-calculated rate cap.
The rate cap is an essential component of the submetering regime, which may thwart the tenant's normal right to service upon demand from the utility: if the submetering rate cap is observed, claims of economic injury from landlord-provided service are avoided.  The PSC further stated that landlords have an affirmative duty to work with the utility in verifying that tenants are not being charged any more than they would if they had been directly billed by the utility:
However, a submetered customer is entitled to no less than an electric bill calculated with the same accuracy as would be provided had the occupant been directly metered by Con Edison. Moreover, these failures indicate a problem that should be addressed in the first instance by submeterers and by Con Edison.
In earlier phases of the PSC complaint proceeding, refunds of over $35,000 were made to the complaining tenants.  In the final decision, the PSC found additional, small overcharges had not been corrected.  The decision stressed that even seemingly small or innocuous violations can subject the landlord to strict civil liability.
This owner and other submeterers, should be aware that, in the future, even a violation of a submetering order which causes no financial harm or penalty to tenants or which is based on a failure to timely comply and is subsequently addressed by a later, untimely action, may, in appropriate circumstances, be the basis of a penalty action against the submeterer pursuant to PSL §25.

Pursuant to PSL §25 landlords knowingly failing to or neglecting to obey or comply with the rules and regulations or orders of the Public Service Commission may result in fines up to $100,000. The fines increase to up to $250,000 when human safety is compromised and jumps to $500,000 if the overall reliability and continuity of electric service is constrained. In the case of a continuing violation, each day shall be deemed a separate and distinct offense, thus massive fines can accrue quickly.

Landlords engaging in submetering should as a precaution be very mindful of the PSPC requirements in the orders and regulations, take all necessary steps to comply with them, and to work with the utility company to ensure that price caps are being adhered to before billing tenants.  PULP has urged the PSC to require utilities to provide bill calculators on their websites, so that submetered tenants could compare the bills they receive from landlords with what the utility would charge for the same usage in the same period of time.

Major submetering problem areas remain.  For example, landlords often do not provide personal service of their petitions upon tenants of the pendency of the PSC proceeding in which their leases will be affected, so most orders are issued without any tenant participation.   DHCR rent reduction guidelines give smaller rent reductions to tenants when an owner is allowed to convert from master metering to submetering, compared with the reductions when a conversion is to direct utility metering.  This discrepancy is based on DHCR's questionable methodology which assumes that the bulk rates for the master metered service are 20% less than utility rates for individual direct service to residential customers.  Subsequent changes in electric rates since the DHCR methodology was adopted may have rendered obsolete the assumption that submetering bills are always significantly lower than direct service.  Also, since there is no routine outside audit of landlord charges, when bulk metering charges are less than what the utility would charge its residential customers, there is no way for tenants to know whether instead of passing through the bulk metering costs (plus a $4 billing charge) without profit or markup, as PSC orders require, a landlord is marking up costs while staying under the maximum rate, which in theory can be independently checked by comparison with Con Edison charges.  The DHCR rent reduction methodology also assumed, without independent research to back it, that customers use 20% less electricity after conversion to metering. More realistic assumptions are in the area of 0 to 7%. As a consequence, landlords do not need to reduce the rent as much and receive a windfall when they shift responsibility for electric bills to tenants.


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