Opponents of Central Hudson Takeover File Petitions for Rehearing, Rate Investigation, and Temporary Rates

On July 26, 2013 Citizens for Local Power, Assemblyman Kevin A. Cahill, and PULP filed petitions with the Public Service Commission for rehearing of the June 26, 2013 PSC Order that approved a non unanimous settlement agreement for the acquisition of Central Hudson Gas and Electric Company by a Canadian holding company, Fortis, Inc.  Central Hudson is the utility serving approximately 300,000 electric and about 75,000 natural gas customers in eight counties of New York State's Mid-Hudson River Valley, and delivering electricity and natural gas in a 2,600 square-mile service territory that extends from the suburbs of metropolitan New York City north to the capital district at Albany.

The petitions present procedural and substantive reasons why the Commission erred in approving the takeover and extending, with modification, the rate plan.

The petitions assert that the State Administrative Procedure Act (SAPA) Notice never included notice that the Commission would set future rates in the merger case.  Further, no Revised SAPA notice was filed regarding the "Joint Proposal" of the settling parties, in which the Commission adopted a substantially modified merger proposal, different from the one originally filed by Central Hudson and Fortis, Inc.  Also, no Revised SAPA notice was filed regarding a Letter to Commissioners from Central Hudson and Fortis proposing extension and modification of the rate plan for another year, after all the parties had submitted their briefs to the Commission regarding a Recommended Decision that had recommended disapproval of the merger.  As a consequence there was no SAPA notice or opportunity to comment or scrutinize the revised proposal to modify and set rates for another year.

Citizens for Local Power and Assemblyman Cahill objected to the lack of evidentiary hearings, which had been scheduled but were cancelled by the Commission after some of the parties, including Department of Public Service Staff and Central Hudson and Fortis, Inc., reached their agreement. Citizens for Local Power objected to the refusal to consider evidence regarding the fitness of Fortis, based on its track record in other areas.  Their petition rebuts the Commission's assertion that there was substantial support for the merger, showing that overwhelming majority of public commenters and groups were against it.  They demonstrated that much of the claimed public support was traceable to Central Hudson's campaign aimed to get letters from its employees and non profit groups to which it gives money. The petitions also faulted the merger plan for not providing Central Hudson customers adequate protection from possible future voluntary bankruptcy of the utility under a Fortis-controlled board of directors.

The petitions said the rate plan allowing a 10% Return on Equity (ROE), when standard Commission methodology calls for 8.9%, is unreasonable, and amounts to a potential difference of more than $17 million in excess allowed earnings through June 30, 2015. Demonstrating that Central Hudson has achieved actual ROEs greater than 8.9% for the trailing four quarters in in ten out of eleven past quarters, the petitions asked for an investigation of the reasonableness of Central Hudson's current rates, terms and conditions.  PULP also asked for investigation of Central Hudson's low income rates and practices regarding the interruption of service for bill collection purposes, submitting data showing that shutoffs have risen from 4,688 in 2005 to 13,687 in 2012. Also, the percentage of customers shut off has risen from 1.89% in 2005 to 5.99% in 2012, and  Central Hudson provides fewer deferred payment plans, as a percentage of customers, than any of the major investor owned utilities in the state.

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Utility Law Project Asks Time Warner For Information Regarding Petition to Relax PSC Regulations on Snips and Allocation Priority of Part Payments

Time Warner Cable Information Services ("TSWCIS") has petitioned the PSC for relaxation of regulations governing its telephone service provided to residential customers through its Voice Over Internet Protocol ("VOIP") technology, which uses cable lines to deliver phone service, broad band service, and TV service. See Time Warner Asks PSC to Greenlight Friday Afternoon and Saturday Phone Shutoffs for Collection Purposes, and to Relax Other Consumer Protections, June 20, 2013.

TWCIS also seeks waiver of the obligation to provide directories, and to limit its service quality obligations to a narrowed definition of "core" customers.

The notice is as follows:

PURSUANT TO THE PROVISIONS OF THE State Administrative Procedure
Act, NOTICE is hereby given of the following proposed rule:

Proposed Action: The Commission is considering a petition of Time
Warner Cable Information Systems (New York), LLC for waivers of
certain Commission regulations under 16 NYCRR.
Statutory authority: Public Service Law, sections 91(1), 94(2), 98
Subject: Partial payments, directory distribution, suspension or termination
of service, service quality reporting requirements.
Purpose: To waive certain sections of 16 NYCRR sections 602, 603, 606,
609.
Substance of proposed rule: The PSC is considering whether to approve,
in whole or in part, a petition by the Time Warner Cable Information
Systems (NY) LLC the waiver of certain sections of 16 NYCRR:
16 NYCRR 602.10(b): to waive the Commission’s rules requiring it to
distribute telephone directories.
19 NYCRR section 609(4)(d): to waive the Commission’s rules pertaining
to the company’s ability to suspend to terminate service to residential
customers for nonpayment of bills between certain weekday or Saturday
hours.
NYCRR Section 606.5: to modify billing categories and the application
of partial payments.
NYCRR Sections 603.3 and 603.4: for the revision of Service Quality
Improvement Plan reporting requirements.

Text of proposed rule and any required statements and analyses may be
obtained by filing a Document Request Form (F-96) located on our
website http://www.dps.ny.gov/f96dir.htm. For questions, contact:
Deborah Swatling, Public Service Commission, 3 Empire State Plaza,
Albany, New York 12223-1350, (518) 486-2659, email:
Deborah.Swatling@dps.ny.gov
Data, views or arguments may be submitted to: Jeffrey C. Cohen, Acting
Secretary, Public Service Commission, 3 Empire State Plaza, Albany,
New York 12223-1350, (518) 408-1978, email: secretary@dps.ny.gov

The SAPA Notice was issued June 19, and the standard 45 day comment period expires August 3, though that could be enlarged or late comments may be accepted after that date.

The Public Utility Law Project of New York has asked for more information in a discovery request to TWCIS.

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Phone Deregulation Bill Slips Through Legislature, Awaits Action by Governor

The Supreme Court has observed that "requirements . . .  that common carriers file their rates ... and charge only the filed rate are the centerpiece of the ... regulatory scheme****Rate filings are, in fact, the essential characteristic of a rate-regulated industry."

In the waning days of the recent legislative session, a telephone deregulation bill slipped through that would allow New York phone companies to change their prices, terms and conditions at will, without filing them at the PSC, for undefined "nonbasic" services.

As a substitute, the bill would require companies to post their service offerings and prices at the phone company website and allow them to change prices, terms and conditions by giving customers 30 days notice of a change.  There is no requirement regarding how conspicuous the notice must be.

The fundamental premise of the bill, that it is needed to level the regulatory playing field between traditional phone companies like Verizon and Frontier and cable companies is plainly wrong.  The memo in support of the bill states that "Today the marketplace is highly-competitive, and most of the providers in the market, including large cable providers that offer telephone services, are not required to file or maintain tariffs....

The bill was filed before Time Warner's Voice Over Internet Protocol (VOIP) phone service was recognized to be a fully regulated telephone service.  See PULP Network, Time Warner Asks PSC to Greenlight Friday Afternoon and Saturday Phone Shutoffs for Collection Purposes, and to Relax Other Consumer Protections, June 20, 2013.

Time Warner acknowledges in its petition to waive certain customer protection regulations that it must provide its VOIP telephone service  "as a fully regulated service...."

Thus, the entire thrust of the bill, to level the regulatory playing field with cable company phone services, has been mooted by this recent development, which occurred in March, 2013, after the bill was filed.  The design of the regulatory paradigm for purportedly competitive services should be left to the PSC which is better able to adjust the degree of regulation with changing industry conditions and changing customer preferences.

If  approved by the Governor, the law would allow phone companies the power  to impose contracts of adhesion without an opportunity for review by the PSC.  There is no potential check against luring customers into subscribing to ever-shifting, slightly different, and difficult to compare repackaged service offerings, and then raising prices.

In essence the bill legalizes what would otherwise constitute illegal "bait and switch" tactics.   It allows companies to tout promotional rates for new service packages in flashy advertising, promising savings, but then, after the customers take the "bait", the seller reneges and "switches" their accounts to higher priced plans.

The provision in the bill regarding notice of rate changes merely says

5.  AT  LEAST THIRTY DAYS PRIOR TO AN INCREASE IN RATE FOR A NON-BASIC SERVICE, A TELEPHONE CORPORATION SHALL NOTIFY ANY AFFECTED  PERSON  THAT SUCH PERSON MAY OPT OUT OF SUCH NON-BASIC SERVICE AT ANY TIME WITHIN THE THIRTY DAYS PRIOR TO THE INCREASE BECOMING EFFECTIVE.

There is no requirement in the bill how this information is to be presented.  There is no requirement that the notice of change that will govern the future price or scope of services be conspicuous, in large type or in plain language. There is nothing to prevent burying notice of price changes or service limits in boilerplate fine print of bills, or put into the fine print bill inserts that often go unread by busy consumers paying their bills. A growing number of utility consumers have chosen automatic payment options offered by the utilities to deduct payments from their checking accounts, so many customers spend little or no time looking at their bills or bill inserts.

Many elderly persons with weak eyesight and non English speaking customers, lured by phone solicitations promising bargain prices, will not get effective notice of the price changes.  More effective notice would require large print, multiple methods (email if the company has the customer's email address), or phone if that is how the customer switched to the service in the first instance.

Even assuming customers are aware of forthcoming price hikes, the notion that abusive bait and switch practices will be deterred by competition -- that informed consumers would bolt to alternative providers when faced with price hikes in the plan to which they subscribed -- is pure fantasy.

There is no real competition in the New York landline phone markets. Rather, these markets are oligopolistic at best.  In most places the market is duopolistic, consisting of the incumbent copper landline phone company (e.g., Verizon) and the local cable provider (e.g., Time Warner).  Game theory teaches that the result will not be competitive prices and service offerings.  Rather, the players will reach Nash equilibria closer to monopolistic pricing.  This leaves customers with little choice but to accept changes in terms and conditions of service, with reduced potential of monitoring by the PSC.

As a substitute for regulation, the bill requires phone companies to publish their rate changes on their websites.  This is not an effective means of information for many New Yorkers because broadband penetration in New York households is woefully far from universal.  According to the State Broadband Office,

An estimated 700,000 New Yorkers (325,000 households) lack access to broadband at home. This is more than the entire population of many States. Many of New York’s gaps in broadband service exist because of the high costs of building networks in areas where population is sparse. For example, in the geographically challenged North Country region of the State, 10% or 43,000 New Yorker’s do not have access high-speed Internet.

Also, many elderly persons do not the internet at all, or only use it for limited purposes such as email.  For those who have broadband, the internet may be an effective way to obtain pricing and service offering information.  But this bill is not needed to accomplish that.The PSC could and should require all utilities to maintain in plain language a description of all service offerings and prices at their websites. This would aid consumers with more transparency regarding prices and terms of competitive offerings, as the PSC  has recently begun with the competitive energy providers (ESCOs).

The bill also is ambiguous because it does not define "nonbasic" service. The PSC regulations, Part 609 define "basic local exchange service" as 

(e) The term basic local exchange service shall include the following charges for residential service:

(1) customer access line, including any usage bundled in this charge;

(2) local measured service;

(3) local measured units;

(4) locality rates;

(5) mileage;

(6) late payment charges on local exchange service;

(7) subscriber line charge;

(8) taxes and surcharges prorated to reflect only the taxes and surcharges associated with local exchange service;

(9) nonpublished service;

(10) touchtone;

(11) local exchange service restoral charge;

(12) NSF check charge for local exchange service or any part of local exchange service;

(13) service order charge for local exchange service;

(14) construction charges for local exchange service; and

(15) intra LATA toll service and interregional calls unless intraLATA prescription is offered and selective intra-

LATA access is available.

Some services are not readily sorted into "basic" and "nonbasic".  The trend in recent years has been to blur the pricing of "basic local exchange service" by combining --"bundling" -- it with long distance, so that the price of the local service is not readily transparent.  Many people now buy flat rate bundled local and long distance services which combine "basic local exchange" service and Intra-LATA and Inter-LATA long distance service at a flat rate, and further bundle that phone service with other services such as DSL or cable broadband, and other services.

Traditionally, the PSC asserts jurisdiction over bills that combine "basic local exchange" service with other offerings, and regulates the allocation priority of payments when customers in arrears make part payments to preserve the more basic communications services. These services may have varying degrees of regulation by different regulators, e.g., the PSC and the FCC, which are in flux.  As a policy matter high speed broadband will eventually be seen as a "basic" telecommunications service too, requiring universal availability, and this is State broadband policy now:

New York State is poised to eliminate the digital divide and ensure every community, business, resident and visitor has the digital resources necessary to live, work and enjoy all that New York has to offer through the Internet.

In sum, the bill would limit future PSC regulation of "nonbasic" service.  What is "basic" and "nonbasic" is not defined in the law.  The degree of regulation over "nonbasic" regulated services is in flux, and may shift over time as state and national policies evolve. The bill unnecessarily adds to ambiguity and may limit future regulatory options.


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AG Moves to Stop VZ Substitution of Wireless VoiceLink for Landline Service in Catskills - AARP Files Comments - PSC Extends Public Comment Time

In an Emergency Petition filed with the PSC June 26, 2013, the Attorney General seeks to halt Verizon's broader substitution of its wireless VoiceLink service for traditional copper landline phone service, which can support DSL and fax applications that the wireless service does not support.  Earlier, the PSC rejected an effort of Verizon to adopt a broad tariff allowing wireless substitution in the aftermath of asserted damage to its landline facilities on western Fire Island after the Sandy storm.  See AG Opposes Verizon Push to Substitute Wireless for Copper Landline Telephone and DSL service. Verizon's Answer says that it is only substituting the wireless service for landline at customer request.  In its Reply filed July 2. 2013, the Attorney General cites instances of customers being pressured to take the wireless substitute and misinformation regarding the purported need to shift from landline to cell service:

It appears from the above incidents that Verizon is not merely offering Voice Link as an alternative to landline service, permitting customers to freely choose between Voice Link and having their landline service repaired. Even when a customer makes a choice not to accept Voice Link, Verizon continues to press for the substitution at every point of contact. Verizon provides false information, such as asserting that storm damage from Sandy rendered the land line network in the Catskills beyond repair. Verizon also fails to provide consumers with a clear description of the telephone-related features, including fax machines, alarm systems, and medical alert services, that cannot be used with Voice Link. This is clearly not optional consumer choice, and it is incumbent on the Commission to take prompt action to protect consumers from such improper practices.

There is suspicion in some quarters that the substitution of the wireless service in the name of storm damage was being used to advance a broader agenda of market division with cable providers, who would be the only remaining landline provider of broadband after Verizon jettisons its unionized copper line and DSL services to focus on its non unionized wireless division:

Given that it no longer faces the threat of integrated cable competitors, Verizon could potentially spin off its remaining Consumer Wireline assets,” along with “large” pension and benefit liabilities, the Goldman analysts said.

Jonathan Browning & Cornelius Rahn, Verizon Fixed-Line Sale Would Enable Vodafone Combination, Goldman Says, Jan 6, 2012, Bloomberg.com.  Verizon is ranked as New York's fifth-largest employer, with 27,000 workers.

The PSC is seeking public comments on Verizon's original tariff filing that would allow greater latitude for the company to substitute wireless for landline service beyone Fire Island, and on June 28 extended the public comment date from July 2, 2013 to September 13, 2013.  To date there have been 290 public comments, including extensive comments of AARP raising concerns over Verizon's actions and proposals.  See Verizon Draws AARP Opposition Over Move to Eliminate Landlines in NY, Assoc. Says Utility Co.'s Post-Sandy Agenda Would Leave NY Consumers in a Lurch, Jeopardizing Public Safety, July 1, 2013.

Online public comments in the case can be filed from here.  Meanwhile NY PSC Staff are conducting discovery to probe Verizon's assertion that it is not cost effective to repair its landline facilities in the storm damaged areas of Fire Island, asking why apparently ample spare facilities are not being used.

Gerald A. Norlander

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