Power Outage Mystery

On June 27, 2007, one of the hottest days of the year, residents and businesses on the upper east side of Manhattan in New York City were affected by a Con Edison power outage. According to an AP story, "Consolidated Edison said the blackout affected 136,700 customers in all, or more than 500,000 people." This incident raises a number of questions regarding reliability and operation of New York's power plants and electric system.

Con Edison Restarts after Finding No Failure of Its Equipment
On the day the power went off, the AP quoted a Con Edison spokesman saying there had been a "transmission disturbance." Xinhua reported that

Con Edison Chairman and CEO Kevin Burke said Wednesday night that the blackout was caused when breakers opened at an Astoria substation and cut off power to stations servicing Yorkville and parts of the Bronx.

Why the breakers opened remains under investigation, but increased power demand due to the hot weather was not a factor, he said.

A June 28 Con Edison press release attributed the cause of the blackout to a "transmission disturbance."

Another, more detailed, explanation from Con Edison emerged in a June 29 New York Times story, It Was Lightning, Con Ed Says, That Caused the Lights to Go Out:

The utility’s managers have concluded that a bolt of lightning must have struck a small component of its network at or near its transmission substation in Astoria.... Although the lightning did not spark a fire, explosion or any damage, it caused the power system to respond as though there had been a significant mishap****

"It's a very low-probability event," said [Con Edison's senior vice president for electric operations] who has worked for Con Ed for 26 years. "I can't remember an event like this one that had this affect on transmission."

Local power failures caused by thunderstorms like the one that moved across the city on Wednesday usually result from wind and trees knocking down power lines.... This failure was unusual because after electricity was restored, no repairs were needed. ****

The best guess of the utility’s managers was that lightning struck a relay, a component that helps the system monitor how power is flowing through its lines. The high-voltage shock tricked the system into sensing a surge in power and reacting by shutting down some segments to protect others....

Within a fraction of a second, circuit breakers began cutting the flow of electricity to more than 135,000 customers on the Upper East Side and in the Bronx.... Each of those areas is supplied by one of two substations that sit across the street from each other in the southwest Bronx.

The substations shut down at 3:41 p.m. and did not start sending electricity to homes, stores and hospitals again until about 4:30, he said. In the meantime, Con Ed engineers searched for signs of damage but found no equipment that had been burned or blown up....

On June 30, a Newsday story similarly reported

A lightning strike near a Queens substation caused Wednesday's power outage that hit the Upper East Side and the Bronx, Con Edison said Friday.

Real-time lightning tracking data showed that detection instruments measured a lightning strike around the Astoria substation at 3:42 p.m. Wednesday, precisely at the time of the power loss, Con Ed said in a news release. The strike momentarily affected communication equipment that prompted circuit breakers on multiple transmission feeders to open, causing the service interruption, the utility said.

In sum, the public was informed about substations, equipment, relays, breakers, transmission lines, feeders, etc. involved in the shut down of service. But the Con Edison press release and the major news accounts do not directly mention that the incident depriving a half million people of electric service may also have involved the unscheduled shutdown of one or more power plants near the Astoria substation.

Did the Outage Also Involve the Sudden Shutdown of a Power Generation Plant?
Power plant shutdowns played a role in the California energy crisis, creating shortages that led to spot market price spikes. In July 2006, two power plants tripped shortly before the Queens outage events began, accompanied by a major price spike. New York outages and price spikes have been associated with power plant shutdowns or unusual grid events. For example, on August 2, 2006, the hottest day of the summer in New York City, NYISO operator messages indicate there were nine "large event reserve pickups," a possible indicator of abrupt power plant shutdowns, and a need to call on emergency resources, accompanied by spot market price spikes exceeding $1,800/MW . See Heat Pushes Power Prices Above Caps.

The NYISO has issued no public explanation regarding the state of the grid on June 27, 2007 event or the extreme price spike accompanying it. A NYISO Operator message indicates that on June 27, 2007 at15:43:31, "NYISO has initiated reserve pick-up." According to a NYISO Technical Bulletin, a "reserve pickup" may be needed after a generator has tripped off line:

The NYISO will initiate ten-minute operating reserve pickup if load exceeds current energy dispatch opportunities. This condition may be due to the loss of a generator**** The NYISO will terminate reserve pickup or maximum generation pickup when a sufficient level of energy has been reached.

In addition, the NYISO records indicate that three minutes after calling for spinning reserves to be used, additional electricity from the 1,160 MW Gilboa pumped storage plant was requested :

15:46:38 ISO REQUESTS GILBOA___3 OUT OF MERIT. COMMITED FOR ISO RELIABILITY AT START TIME 06/27/2007 15:00 FOR loss of con ed generation.

One of the features of the New York State Power Authority's Gilboa station is that it can increase production rapidly:

it stores water for emergency power production. If necessary, this project can be up and running within two minutes. It can "pinch hit" if another plant or line suddenly goes out of service.

The "reserve pickup" and request for Gilboa power suggests an outage of a large power plant or plants. Nothing in the NYISO operator messages mentions any "transmission disturbance" such as indicated in the Con Edison press release and news stories reporting Con Edison's explanation of a lightning strike that shut down transmission lines.

NYISO market data also indicate major anomalies during the June 27, 2007 outage. For example, real time spot market prices for wholesale electricity in the New York City zone soared from $276/MWH to $1,710/MWH from 3:50 to 3:55. The regular 5 minute report for 3:45 is missing. and instead there is a report at the exact moment the reserve pickup was initiated.

This huge price spike suggests there was an urgent need on the part of the NYISO grid managers to acquire a large amount of additional generation supply. If a large area of Manhattan were shut off due simply to a "transmission disturbance," however, the disconnection of customers would reduce electrical load temporarily and it is unlikely that there would be an urgent need for more power at far higher prices unless a significant generator that had been supplying power tripped off line.

The North American Electric Reliability Corporation (NERC) issued a press release on the day of the outage indicating

[t]he event involved the loss of generation, the loss of transmission lines over 100 kV, and the loss of service to customers.

This clearly indicates that one or more power generation plants tripped off line in the incident. The sequence of events is not known. For example, did a power plant outage precede or follow the tripping of Con Edison transmission lines? Did a power plant go off line unnecessarily after a relatively minor disturbance that should ordinarily result in just a flicker or momentary loss of service to customers?

NYISO Secrecy Rules Prevent Con Edison from Discussing Power Plant Tripping
Ostensibly, the NYISO is responsible for operation of the high voltage grid, but in practice Con Edison actually performs many functions in management of grid operations in the New York City area. If the power outage affecting consumers involved the loss of a power generation plant for any period of time, one might think Con Edison would say so. But Con Edison considers itself prohibited by NYISO rules from telling the public about unscheduled outages at merchant power plants.

For example, in a case involving the July 2007 Queens outages, Con Edison takes the position that it is prohibited from divulging information about tripped power plants, under NYISO tariffs approved by FERC. Only after PULP moved to compel disclosure, and being required to answer, did Con Edison reveal that there were two power plant outages approximately one-half hour before the unexplained secondary system fire considered to have begun the Queens event. Con Edison in its answer to PULP's discovery motion said it

cannot provide more detailed information on the generators that tripped. . . the Company is prohibited from disclosing generator outage information acquired as a transmission owner, to the extent such information is not made public by the NYISO.

The identities of the plants that tripped just before the 2006 Queens outage were not divulged, although Con Edison said one of them was "connected to the Astoria East substation...."

A History of Mystery
To conform with the PSC's restructuring vision, Con Edison sold most of its New York City area power plants to merchant power companies. (Con Edison was allowed to form a holding company, which now operates its own merchant power plants in other states, through an affiliate, Con Edison Development). In New York, Con Edison must now buy power from the merchant power companies for resale to retail customers. When power is scarce, for example, when a power plant is offline during periods of heavy load, the essentially deregulated market rates allowed by FERC may spike dramatically, even if costs to produce electricity do not go up.

Blackouts in New York since 2002 raise questions about merchant power plants tripping offline. These blackout incidents include:

1.The 2002 Reliant/Astoria Incident
A PSC Order considering reliability incentives mentions a 2002 incident where Con Edison and a merchant power generator, Reliant, traded accusations of misoperation:

On July 29, 2002, 9,251 Con Edison customers receiving power from the Queens radial system lost power up to five and one-half hours. The customer interruptions were attributed by Con Edison to an incident with a step-up transformer and its associated circuit breaker in the Reliant Energy’s Astoria Generating Station, and related impacts on Con Edison’s transmission and distribution systems (Reliant-Astoria incident).
****
Reliant, owner and operator of the Astoria Generating facility, acknowledges that its step-up transformer and associated circuit breaker (G5EN) failed. Reliant, however, argues that subsequent events, including the trip of Astoria Generating Units 2, 3, and 4, and the resulting customer outages in Queens, "were caused by Con Edison controlled relays, misoperations and the repeated closing of Astoria East breaker 4E into the G5EN."
****
Con Edison contends that it is not at fault for the outages associated with the Reliant-Astoria incident because it was Reliant’s equipment that caused two severe and simultaneous faults that exceeded the company’s design criteria for the electric distribution system.

The PSC decided that case without resolving the issue whether Con Edison or Reliant was responsible for the customer service outages.

2. The August 14, 2003 Blackout
The Joint U.S. - Canada Task Force Final Report on the widespread Northeast blackout of August 14, 2003 indicates at page 94 that in New York, some of the power plants sold off to new owners during the "restructuring" orchestrated by the New York Public Service Commission were set so they unnecessarily tripped at low disturbance levels, exacerbating the cascading outage:

In particular, it appears that some generators tripped to protect the units from conditions that did not justify their protection, and many others were set to trip in ways that were not coordinated with the region’s under-frequency load-shedding, rendering that UFLS scheme less effective. Both factors compromised successful islanding and precipitated the blackouts in Ontario and New York.

The Task Force Report at page 96 noted its frustration with information provided by the power generators:

Unfortunately, 40% of the generators that went off-line during or after the cascade did not provide useful information on the cause of tripping in their response to the NERC investigation data request. While the responses available offer significant and valid information, the investigation team will never be able to fully analyze and explain why so many generators tripped off-line so early in the cascade, contributing to the speed and extent of the blackout.

The Times said, "[a]ccording to the report, some were set to trip much sooner than protecting the generator required." The Task Force Recommendation for rigorous investigation into the relationship of industry restructuring and reliability was not fully heeded. Conferences were held, with numerous participants agreeing that restructuring had reduced cooperation and increased the risks of blackouts, but no agency made specific findings and recommendations. See What Happened to the "Independent Study" of the Effects of Electric Industry Restructuring on Reliability?

3. The July 17, 2006 Queens Outage
Just five days before the July 17, 2006 Queens outage, Federal and NYISO grid officials had warned that with major Con Edison transmission lines out of service, New York City was at risk of load shedding in the event of hot weather or further outages. See The Queens Blackout and Queens Power Outage Update. The hot weather came, and, as discussed above, further outages did too, including a power plant at the Astoria East substation, accompanied by a spot market price spike that roughly quadrupled prices for Long Island and New York City zones. Con Edison maintains that the power plants that tripped just prior to the beginning of the 2006 Queens outage are not related to the outage.

4. The June 27, 2007 Outage
Whether power plant tripping was involved in the June 27, 2007 New York City outage is not known. There are indications, however, that one or more power plants may have tripped off line in connection with this particular incident. These indications include

• Con Edison reports no damage to any of its equipment
• Con Edison mentions a power surge or disturbance
• NYISO operator messages indicate a reserve pickup and loss of Con Edison generation
  
• NYISO real time spot market prices spiked dramatically during the customer outages
  
• NERC's press release mentions a loss of generation

More Scrutiny of Power Plant Operations Needed
In addition to the above incidents, minutes of the New York State Reliability Council reveal that in the month of July, 2006 “Indian Pt. 3 and Astoria Energy East each tripped twice at near full load.” Obviously, the tripping of merchant power plants at times of heavy load should be fully investigated by the PSC and other entities that may have jurisdiction regarding either reliability, reasonability of rates, or market conditions. The Joint U.S. - Canada Task Force report on the 2003 blackout indicated that power plants in New York tripped unnecessarily at low disturbance levels.

Additional scrutiny is particularly important because the NYISO market rules allow sellers of electricity to reap vary large financial rewards at times of scarcity. Such scarcity can be created by a power plant tripping off at times when demand for electricity is high.

Although the New York PSC has adopted a policy of "lightened regulation" over new electric companies that purchased power plants from the old utilities, the PSC retains supervisory authority with respect to matters such as enforcement, investigation, safety, reliability, and system improvement, and has the power to see that all electric companies, including the merchant power generation companies and the NYISO, perform their public service duties. As stated by the New York State Court of Appeals in Matter of Astoria Gas Turbine Power, LLC v. Tax Commission of City of New York, :

the PSC maintains "light regulation" over AGTP covering "matters such as enforcement, investigation, safety, reliability and system improvement . . . . This light regulation also gives the PSC authority to limit AGTP's power in the market and any actions in contravention of the public interest.

The reliable operation of all electric companies in the state is a very major matter affecting the public interest, requiring continued vigilant PSC supervision. This duty cannot simply be "divested" by the PSC and left to NERC or FERC, the utilities, or other entities with whom they may have contracted to actually operate the power plants.

Non Utility Operation and Management of Power Plants
There is a recent trend for an owner of a merchant power plant to be a Limited Liability Corporations (LLC) formed by financial investors, the main asset of which is the power plant. The LLC then contracts with a third party company for services, such as actual operation of the plants, fuel purchasing, and possibly marketing of the output. In some cases, the actual operator of the plant is not a utility company regulated by either the New York PSC or FERC.

For example, an Astoria merchant power plant built to supply energy to Con Edison customers is not actually operated by the lightly regulated utility owner, but by an independent third party company, North American Energy Services Company. Notwithstanding a name suggesting the local hemisphere, North American Energy Services Company is actually owned by a large Japanese corporation, according to a June 16, 2006 press release:

North American Energy Services Company (NAES), a broad-based provider of services to the power generation industry, announces that it assumed full responsibility for the operations and maintenance (O&M) of the Astoria Energy Facility (Astoria) on May 21, 2006. * * * * NAES is owned by ITOCHU International Inc., the U.S. affiliate of ITOCHU Corporation. With operations in over 80 countries covering a broad range of industries, ITOCHU is among the world's largest corporations.

ITOCHU Corporation describes NAES as "the world’s largest independent power plant operation and maintenance firm." In November 2006, ITOCHU bought a U.S. company that sells natural gas -- the fuel used for the Astoria power plant -- and announced that "we intend to expand the sales territory to include the U.S. East Coast, which constitutes an immense demand." Hypothetically, if sales of the affiliate were expanded to the New York area, NAES could be in a position to purchase natural gas for the power plant from its affiliate, possibly affecting the cost of electricity to Con Edison customers if the contract between Con Edison and the power plant owner provides for fuel cost adjustments. The affiliated gas marketer, though subject to FERC regulation, would be dealing with NAES, not a utility affiliate, and so might not be subject to any of FERC's rules regarding affiliate transactions.

In its recent Order 697 adopting regulations for market rate sales of wholesale electricity, FERC considered criteria for deciding if an energy manager of a power plant has become a utility subject to the agency's oversight and jurisdiction. NASUCA reply comments urged FERC to "adopt a rule that at a minimum encompasses the exercise of control over prices, bids, or output, including the ability to affect the cost of fuel and other inputs to generation." The NYISO made a similar argument for broad inclusion of the new energy asset managers as utilities. FERC, however, decided not to issue firm guidelines on the degree of control sufficient to deem that third party asset managers are utilities subject to FERC oversight, instead leaving the determination to a case by case assessment. As a result, it is possible that some third party operators of power plants may not be utilities subject to direct jurisdiction of either the PSC or FERC.

July 12, 2007 Update: Three Astoria Power Plants Tripped
The United States Department of Energy (DOE) requires electric utilities to file reports of major distubances immediately, including incidents that affect service to large numbers of customers and outages of major power plants. The DOE website publishes summaries after a three-month lag. The reports filed with DOE by Con Edison and NYISO clearly state that the June 27, 2007 outage events involved power plants that tripped off line, and identify the power plants that tripped.

The Con Edison report to DOE of the June 27 incident states the event began at 15:41. In addition to substation breakers tripping, "the generator units Astoria Unit 3, Astoria Unit 4, and the NYPA CC1/2 plant, which were all connected to the Astoria West yard, tripped offline:

Con Edison is examining data and equipment to help determine what caused the outage. Engineers are examining possible links between the outage and lightning strikes in the area. It appears that there were several strikes near a transmission substation in Queens at, or near, the time of the event.

The Astoria power plants that tripped are very "near" to the Astoria substation.

The NYISO report states the event began at 15:42. NYISO states that "Consolidated Edison is the appropriate party for the DOE to obtain additional analysis of this local area event."

The detailed sequence of grid disturbance events (typically recorded in thousanths of a second) is not contained in the NYISO and Con Edison reports.

A detailed timeline of events could reveal if one of the power plants tripped off before the Con Edison substation breakers tripped, or if the breakers tripped first, followed by tripping of the power plants.

According to a news story, Blackout Boosted Power Price 900%, a NYISO spokesman said that the price spike on June 27 would be "unnoticeable" to consumers and the ISO does not believe the spike resulted from price fixing - which has been suspected recently in New York's electricity system."

Overt price fixing to rig the wholesale electricity markets was made a federal crime by Congress in 2005. FERC then issued regulations interpreting the law to require "scienter" or specific intent to sustain any penalty. If New York generators independently decided to allow their plants to trip more easily, as suggested by the U.S./Canada Task Force on the2003 blackout, and if they engage in FERC-approved hockey-stick bidding strategies, plants could trip unpredictably requiring emergency power at very rewarding rates that are not directly manipulated, as defined by FERC.

Medical Emergencies - Electricity Required for Insulin Refrigeration

New York's Home Energy Fair Practices Act protects residential utility consumers from service termination for non payment of bills in life threatening situations or where a serious medical condition would be aggravated by termination of service. Despite enactment of this law in 1981, we are reminded daily that it is not self enforcing, and that vigilant advocacy and action is needed to assure that the benefits of the law intended by the Legislature are effectuated by the utilities and the Public Service Commission (PSC).

Today, a 90-plus degree summer day, we received a call from a Con Edison customer with diabetes and a heart condition whose electric service was shut off for non payment. The customer reports that when he sought public assistance,

• He brought along a letter from his doctor stating that continued service was needed for refrigeration of insulin needed to treat his diabetes
  
• Although arrangements were being made for the bulk of the arrears to be paid with public assistance, the company increased the amount of its demand for a payment on arrears necessary to restore service and refused to turn on service
  
• The utility was advised that the customer had a doctor's letter saying he needed electricity to refrigerate his insulin
• The company representative said the customer could just keep his insulin on ice.
  

The American Diabetes Association warns that insulin must be kept at proper temperatures, and that it can be ruined if it is kept at temperatures below 36 degrees Fahrenheit. Icing it is obviously not appropriate.

PSC Medical Emergency regulations regulations require a utility to continue service to a "seriously ill" person, notwithstanding any unpaid bills, when the utility receives an appropriate letter from a doctor documenting that the illness would be aggravated by the absence of utility service:

Any certification of medical emergency shall be submitted on stationery of the medical doctor or local board of health, shall be signed by the medical doctor or an official of the local board of health qualified to make a medical judgment and shall state the name and address of the certifying medical doctor or local board of health, the doctor's State registration number, the name and address of the seriously ill person, the nature of the serious illness or medical condition and an affirmation that the illness or condition exists or will be aggravated by the absence of utility service. 16 NYCRR § 11.5

The regulations, which have the force of law, do not allow utility collection employees to override the judgment of a physician.

PULP referred the customer to the PSC Emergency Hotline, 1-800-342-3355 for action by the PSC. The PSC Hotline regulations empower agency staff to order a utility to restore service. The PSC Hotline is open from 7:30 A.M. to 7:30 PM.

For further information, see PULP's Help Center web page on medical emergency situations. It has a sample doctor's letter documenting a medical emergency situation due to the need for continued electric service to refrigerate insulin.

"Nonregulated" Sellers of Electricity Become "Market-Regulated" Under New FERC Rule

In 2006 FERC proposed to codify new regulations and "streamline" its market rate policies, currently contained in a number of lengthy orders. FERC claimed to be issuing the new regulations under Federal Power Act Section 205, although that section makes no reference at all to market rates.

FERC's "streamlining" of existing policies included modifications that would accellerate the agency's deregulation agenda. For example, market power assessments would no longer be required for sellers with less than 500 MW, contracts between a retail utility and an affiliate would not be publicly filed subject to protest and review if the retail customers have retail choice, and sellers who possess market power would be able to set their own rates for sales less than a year's duration. No bona fide consumer organization supported further relaxation of regulation over wholesale electricity rates. See Industrial and Residential Customers Agree: Proposed FERC Rules for Electricity Market Rates are Flawed. This consumer skepticism of FERC's policies is informed by FERC's unwillingness to protect consumers from egregiously unreasonable market rates, FERC's opposition to granting refund remedies for unreasonable market rates in the Enron case and others, and inaction despite evidence of continued electricity market manipulation in the post-Enron era. See Consumer Groups Question FERC Market Rates, and the affidavit of the PJM Market Monitor recounting instances of market power exercise tolerated in the FERC-approved markets.

In the draft rules, FERC had referred to certain wholesale electricity sellers as "non-regulated."

Proposed § 35.36(a)(6) defined “non-regulated power sales affiliate” as “any non-traditional power seller affiliate, including a power marketer, exempt wholesale generator, qualifying facility or other power seller affiliate, whose power sales are not regulated on a cost basis under the FPA.

Perhaps the use of the term "non-regulated" was a Freudian slip because, although all wholesale electric rates are required by the FPA to be regulated, there is little evidence of meaningful FERC regulation of these entities' rates. The "non-regulated" sellers include holding company affiliates of traditional retail utilities, such as Con Edison Solutions, Con Edison Energy, and Con Edison Development. In some states, retail utilities are buying energy from such "non-regulated" entities, and passing the costs on to retail consumers. NASUCA objected to the use of the term "non-regulated" in its comments, pointing out that there is "no basis in the language of the FPA for the Commission to make any of these distinctions."

In Order 697, FERC adopted final rules. Perhaps in recognition that calling the wholesale power marketers "non-regulated" conveys the impression that customers are not being protected, FERC relabelled them: the "non-regulated" sellers are now deemed to be "market-regulated." The new term "market-regulated" appears 75 times in Order 697.

Although Federal Power Act and the courts give wide latitude to FERC's expertise in how the agency sets rates, the Supreme Court has said that the regulatory agency cannot simply let go and rely on markets exclusively to satisfy the statutory requirement that all rates must be just and reasonable.

we should also stress that in our view the prevailing price in the marketplace cannot be the final measure of "just and reasonable" rates ****Congress could not have assumed that "just and reasonable" rates could conclusively be determined by reference to market price. ****Congress rejected the identity between the "true" [just and reasonable] and the "actual" market price.

The new "market-regulated" label may not save FERC's market rate regime. Traditionally, the "bond" of the Federal Power Act is that no rate will be charged that has not been subject to review for reasonableness. FERC is quick to claim that it is not relying exclusively on markets, but the reality is that FERC allows unreasonable market rates to be charged and collected with no prior public filing or possibility of review, no objective standard for determining when market rates are excessive, and no way for customers to receive refunds because FERC invokes the "filed rate" doctrine to protect from revision market rates that were changed, charged, but never filed by the sellers.

The Court of Appeals for the Ninth Circuit has required FERC to consider market rate refunds after FERC refused to do so, based on a theory that rates determined in malfunctioning markets can be revised. Public Utility District No. 1 of Snohomish County, Washington v. FERC, 471 F.3d 1053 (9th Cir. 2006). The court seems to be saying, if FERC can invent a market rate system with unfiled rates, then the court can invent a refund remedy to protect consumers when markets malfunction and rates are unreasonable. In Order 697, however, FERC signalled that it is reading court cases allowing for refunds of excessive market rates very narrowly:

The Commission recognizes that several recent court decisions by the United States Court of Appeals for the Ninth Circuit have created some uncertainty for sellers transacting pursuant to our market-based rate program. The cases raise issues with respect to the circumstances under which sellers’ pre-authorized market-based rate sales may be subject to retroactive refunds and the circumstances under which buyers might be able to invalidate or modify contracts based on the argument that the contracts were entered into at a time when markets were dysfunctional. The Commission’s first and foremost duty is to protect customers from unjust and unreasonable rates; however, we recognize that uncertainties regarding rate stability and contract sanctity can have a chilling effect on investments and a seller’s willingness to enter into long-term contracts and this, in turn, can harm customers in the long run. The Commission recently provided guidance in this regard, noting that these Ninth Circuit decisions addressed a unique set of facts and a market-based rate program that has undergone substantial improvement since 2001, and reiterating that an ex ante finding of the absence of market power, coupled with the EQR filing and effective regulatory oversight qualifies as sufficient prior review for market-based rate contracts to satisfy the notice and filing requirements of FPA section 205.5 Through this Final Rule, the Commission is clarifying and further improving its market-based rate program. Moreover, the Commission will explore ways to continue to improve its market-based rate program and processes to assure appropriate customer protections but at the same time provide greater regulatory and market certainty for sellers in light of the above court opinions

Given FERC's history of refusing consumer remedies for manipulated market rates until ordered to do so by courts, and its continued solicitude to sellers who do not want to refund unreasonable, unfiled market rates, it appears that FERC is more likely to continue to uphold unreviewed rates in the name of regulatory certainty and contract sanctity than to protect consumers from unreasonable rates. For example, in an incident of apparent capacity market withholding and possible market manipulation in New York in 2006, FERC simply closed the case in which market participants and the New York PSC had complained of market malfunction, and commenced no proceeding to consider refund remedies, despite evidence of a malfunctioning market that, under the Ninth Circuit standards, might result in consumer refunds. See, Did Electricity Market Manipulation Cost New York Consumers $157 Million in the Summer of 2006?

FERC Escapes Court Review of Legal Authority for its Electricity Market Rate Regime

A number of state and not for profit utility consumer advocates, including Public Citizen and PULP, are raising in several cases the issue of FERC's legal authority to adopt a market rate regime for electricity that has no objective standard for determining whether a market rate is reasonable and which allows sellers to avoid longstanding rate filing requirements of the Federal Power Act. In a recent decision in one of these cases, Colorado Consumer Counsel, et al v. FERC, the Court of Appeals for the D.C. Circuit affirmed a FERC order that had ignored the legal issues raised by consumer advocates.

After the Enron debacle exposed widespread price manipulation of rates ostensibly regulated by FERC, FERC found all market rates to be unreasonable and illegal, and then adopted a set of limited behavior rules (since repealed) to discourage market manipulation. The Court accepted FERC's defense, that having found only one aspect of market rates to be unjust and unreasonable, and having addressed that aspect with the (since repealed) behavior rules, FERC was not obliged to consider other aspects of alleged illegality raised by the consumer advocates.

A FERC press release immediately hailed the court decision as an endorsement of FERC's market rate policies, claiming "[t]he short decision effectively dismissed arguments that the Commission could not authorize market-based rates. " The decision, however, only upheld FERC's efforts to avoid review in that case, and did not address the merits of the legal issues raised by petitioners, and so these legal issues remain for another day, perhaps to be taken up in the future in the D.C. Circuit or in the Supreme Court. These issues include:

• Whether FERC’s market rate system is out of compliance with the Federal Power Act, which requires advance public filing of all rates and charges, and changes in rates and charges, in order to protect consumers from unreasonable rates and effectuate statutory refund remedies

• Whether FERC, in effect, is relying on market results alone to establish reasonable rates, contrary to Supreme Court guidance in FPC v Texaco
  

• Whether FERC lacks any objective standard or test for determining whether a market rate is reasonable, as required by court decisions that have permitted limited reliance on competition in the rate setting and review process, and fails to oversee whether market results are reasonable, contrary to Appeals Court guidance in the Tejas and Farmers Union cases.
  

Also, the FERC Press Release claims that “[t]he U.S. Supreme Court’s decision earlier this week to leave the Lockyer decision in California undisturbed removed all remaining doubt about our legal authority to authorize market-based rates,” quoting Commission Chairman Joseph T. Kelliher. FERC had claimed in the Lockyer case that the "filed rate" doctrine prevented it from granting refunds -- even though the manipulated rates had never been filed in advance as section 205 of the Federal Power Act stipulates, and even though the sellers had ignored FERC's orders regarding subsequent reporting of rates after they had been charged. The Lockyer decision made it possible to review manipulated and unreasonable market rates (which FERC had refused) based on sellers' failure to follow certain reporting requirements in the tariffs. The Lockyer decision said that FERC could allow market rates, but did not analyze closely whether the market rate system can be squared with statutory filing requirements.

When the refund decision of the Ninth Circuit in Lockyer was being challenged by sellers who sought Supreme Court review, the State of California asked the Supreme Court, if it decided to hear the case, to review rate filing issues similar to those being raised by the consumer advocate petitioners.

The issues raised by California, challenging FERC's market rate regime as an alternative basis to support the refund claims, were not argued or decided because the Supreme Court denied review, leaving stand the Ninth Circuit decision that had directed FERC to consider refunds of illegal, unreasonable rates and charges. This does not preclude future litigation of the issues, as suggested by FERC in its Press Release.

It is basic that a denial of certiorari by the Supreme Court is not a ruling on the merits of any issues decided by the lower courts. A denial "imports no expression of opinion upon the merits of the case, as the bar has been told many times." Missouri v. Jenkins. No Supreme Court precedent is created, and the lower court decision is authoritative only within its area of jurisdiction. Thus, the issue whether FERC's market rate regime can pass legal muster under the Federal Power Act and controlling court opinions remains very much alive.

FERC has begun to address its legal authority to adopt its market rate regime in a pending rulemaking proceeding, in which an effort is being made to codify FERC's market rate rules in regulations. Not surprisingly, in its 600-plus page Order 697 adopting regulations, FERC found that it can dispense with the statutory requirements for advance public filing of rates and rate changes. FERC rests its justification, however, not upon any statutory language of the Federal Power Act, but upon a D.C. Circuit Court opinion that by its terms never reached the issue whether a market rate settlement agreement in a natural gas case could pass muster under filing requirements of the Natural Gas Act. This is a weak basis indeed for the FERC market rate program, because subsequently, the Supreme Court held in MCI v AT&T, in the context of deregulatory initiatives by the FCC, that a federal regulatory agency cannot create alternative systems that ignore a filed rate regulation system created by statute.

PULP Urges Changes in Furnace Replacement Component of State Home Energy Assistance Program

The New York State Office of Temporary and Disability Assistance (OTDA) has issued a draft plan for administration of the state's low income Home Energy Assistance Program (HEAP) in 2007 -2008. Under the federal Low Income Home Energy Assistance Program (LIHEAP), states are given wide latitude in designing programs to meet home energy needs.

Most of New York's HEAP funds are used for cash assistance to eligible households, i.e., "Regular" HEAP and energy crisis assistance, or "Emergency" HEAP. Typically, federal funds for these payments run out in the springtime, and New York's cash energy assistance program closes until reopening in the fall, typically, on November 1. (When the HEAP program is closed, other state and local assistance, with eligibility standards more restrictive than HEAP, may be available to avert utility shutoffs).

The current HEAP plan, and the draft plan for next year’s program, provide for use of a portion of federal HEAP funds for weatherization and to replace inoperative or unsafe furnaces in the homes of eligible households. The furnace replacement program element is important because it can address otherwise intractable household energy crises, prevent hardship and loss of life from inoperable or unsafe equipment, forestall future crises, and lessen future low income household energy burdens. Under the current and proposed HEAP plans, 58 local social services districts (New York City HRA and departments of social services in each county outside New York City) administer the HEAP furnace replacement program in accordance with OTDA guidelines.

The draft state HEAP plan, however, contains no specifications that would require installation of efficient furnaces and heating systems. As a result, there is no assurance that HEAP dollars are being used to install equipment that satisfies any efficiency or quality standards.

The purchase of more efficient Energy Star heating system equipment is being promoted, at considerable state and utility ratepayer expense, by the New York State Energy Research and Development Authority (NYSERDA). PULP has recommended to OTDA that it modify the state HEAP plan to specify that only equipment with Energy Star certification may be installed.

Presumably, local social services districts contract with local heating equipment vendors for installation of new furnaces on a lowest bid basis, with a result that bids to supply the lowest cost units will tend to be selected. While the initial cost of Energy Smart equipment may be higher, a more efficient furnace will consume less fuel and reduce future household energy burdens and provide additional environmental benefits. Due to the lack of any efficiency standard, however, it is possible, if not likely, that furnace replacements purchased on a least initial cost basis with state HEAP program funds will have higher future operating costs and adverse environmental impacts over the life cycle of the system.

An OTDA Energy Star requirement for furnace replacements in the state HEAP plan would be in harmony with the spirit of state Executive Order 111, issued June 10, 2001. That order states:

Procurement of Energy-Efficient Products.
Effective immediately, State agencies and other affected entities shall select ENERGY STAR energy-efficient products when acquiring new energy-using products or replacing existing equipment. NYSERDA shall adopt guidelines designating target energy efficiency levels for those products for which ENERGY STAR labels are not yet available.

PULP believes that with Energy Star home heating system equipment readily available, the state HEAP Plan should not allow state - administered HEAP funds to be used by local districts to purchase non Energy Star equipment that could not be purchased by OTDA if OTDA were buying the equipment directly.

PULP has recommended to OTDA that the draft HEAP plan for 2007 - 2008 be modified to include this requirement:

Local social services districts shall require that all furnace system replacements be Energy Star certified and installed in accordance with the manufacturer’s specifications, best practices, and applicable codes.

Also, the new draft HEAP plan includes a restriction on furnace replacement and repair assistance that would deny aid to households who are buying their home under a contract for deed. This will exclude eligible households who are responsible for the heating systems in their homes but lack funds to repair or replace them. Indeed, some of the neediest households may be those who are buying their home through a contract for deed because they cannot qualify for a mortgage.

The cost of repair or replacement of essential heating equipment is often far beyond the means of low income households. The risks to health and safety from unsafe or inoperable equipment are high. Denial of HEAP program assistance could lead to homelessness or other tragedies. Prior state OTDA policy allowed furnace replacements on a case by case basis for households with contracts for deeds. PULP believes there should be no exclusion of households with contracts for deeds, and that the draft plan should be changed to allow more flexible administration of the program.

For further information visit PULP's web page on the HEAP program.

Justice Department Investigating NY Energy Markets

New York's wholesale energy market is being investigated for possible antitrust violations, according to a recent news report. A Newsday story indicates that a subject of the investigation may be possible withholding of capacity from the market, to drive prices up. This revelation has raised further questions regarding the proposed merger of National Grid and Keyspan, which controls significant amounts of generation capacity in the New York City markets.

Wholesale prices for electricity are under FERC jurisdiction. In a recent case at FERC, some market participants and the New York PSC claimed that due to withholding of capacity from the market, prices were inflated by as much as $157 million in 2006. See Did Electricity Market Manipulation Cost New York Consumers $157 Million in the Summer of 2006? That case involved no claim for refunds of unreasonable charges, which were passed through to retail customers by New York CIty area utilities, principally Con Edison. Instead, the parties sought to revise flawed rules of the NYISO to limit the amount of future overcharges. A proposal to that effect was rejected by FERC.

It is unclear whether there is an antitrust remedy that would protect consumers. Indeed, the structure of the private utility markets allowed by FERC to set rates seem to allow sellers to withhold electricity from the market through various techniques and bidding strategies. Sellers accused of price manipulation may invoke FERC's approval of the NYISO market rules that allow price manipulation through withholding tactics and gaming that does not involve overt conspiracy.

The situation illustrates a major weakness of FERC's market rate system. FERC allows wholesale prices to be set in secret auctions; inflated new prices can be charged without the possibility of public scrutiny and regulatory review, and unreasonable charges are passed through to retail consumers, with no refund remedy. The lack of transparency, elimination of regulatory review and elimination of refund remedies, in the view of some utility consumer advocates, including PULP, violates the Federal Power Act. Cases in the D.C. Circuit Court and in the U.S. Supreme Court are now raising the issue whether FERC exceeded its powers in allowing unfiled unreasonable rates and rate changes.

Con Edison Asks PSC for 17% Increase in Residential Electric Rates: Low Income Customers Would Pay Even More

Overview
On May, 4, 2007 Con Edison filed with the New York Public Service Commission (PSC) a plan for new rates for electric service that, according to the Con Edison Press Release would raise residential customer bills by 17%. It is expected that the effective date of new rates will be suspended until April 2008 by the PSC while the agency conducts its review to determine if such a major rate increase would be just and reasonable.

Con Edison filed more than 1,700 pages of testimony and exhibits containing tariffs with new rates for the delivery portion of electric service. The residential customer increase estimated by Con Edison in its press release -- 17% -- differs from the overall increase mentioned in the filing letter -- 11.5% -- and the residential increase mentioned in Appendix E to the filing letter --15.46%. These differences may be based on a heavier allocation of new costs and revenue responsibility to residential customers, assumptions about future costs for the electricity portion of service, or other reasons. In the coming months PULP and other parties will intervene in the PSC rate case proceedings, and will conduct discovery regarding the details of the proposal for increased rates and a plethora of other issues that affect terms and conditions of service.

According to Con Edison, 42% of the rate increase is due to a legacy of prior ratemaking decisions of the PSC:

Overall, the existing rate plan will account for approximately $515 million or forty two percent of the requested increase. Expiring credits represent $250 million, carrying costs on plant added during the existing rate plan represents $195 million, deferred costs represent $80 million, and updating the rate allowance for current pension and property tax costs amounts to $50 million. Partially offsetting these amounts are $60 million of available credits.

The balance of the requested increase is due mainly to new investment:

The balance of approximately $710 million is primarily from carrying costs for new infrastructure investments, new and expanded operating programs, an increase in the allowed return on equity, and proposed changes in depreciation rates, offset in part by sales growth.

Electricity Is Extra
Under the PSC's "restructuring" and "unbundling" initiatives, - an effort to deregulate retail electric service which no state has followed since the failure of Enron in 2001 - customers can buy the electricity portion of their electric service from other companies. See (Disconnected Policymakers). Most residential and small business customers, however, choose to be "full service" customers of Con Edison: that is, they receive both delivery and electricity service from the same electric company. (See Think Twice Before Switching Utilities).

The new rate filing does not propose to set future rates for electricity. The new plan would basically continue Con Edison's policy of unpredictable and volatile rates, which were opposed by PULP and AARP but encouraged and approved by the PSC. Under its current rate plan, Con Edison files projected rates for the electricity portion of service quarterly, and then files monthly adjustments to those. These monthly adjustments in the "Market Supply Charge (MSC)" and "Market Adjustment Charge (MAC)"depend, in significant part, on the level of wholesale market rates established by the volatile NYISO spot markets (See NYISO Costs Skyrocket, Benefits Questioned), with monthly adjustments sometimes exceeding the previously posted price by more than three cents/kWh.

A Rosy Scenario?
The new rate filing contains optimistic projections of a decline in future electricity costs. For example, it assumes that the cost of energy, including fuel, for Con Edison owned steam-electric generation will decline from $113.4/MWH to $97.4/MWH, a 14% reduction. It also assumes that much more energy will be purchased at potentially volatile spot market rates for energy, increasing from 33% of energy sold to customers in 2007 to 49% in 2011, and that the cost of spot market prices for energy and capacity will decline substantially, from $177/MWH to $135/MWH. These assumptions seem to imply substantial reduction in the future cost of natural gas.

If Con Edison's assumptions about declining future costs of producing electricity and purchasing it prove wrong, the portion of customer bills for energy could increase.

Benefits for 245,000 Low Income Rate Customers Would be Reduced
In 2000, at PULP's urging, Con Edison adopted a reduced rate for low income customers to implement a rate case settlement agreement approved by the PSC. At the time, the Chairman of Con Edison stated "We are taking significant steps in this agreement to provide assistance to our low-income customers to help them manage their budgets in this rapidly changing marketplace. . . .” The reduced rate is implemented by a reduction in the customer charge, which is the portion of the bill for delivery service that does not change with usage. The current residential customer charge is $11.78 per month.

Low income customers pay a reduced charge of $6.50 per month under the 2007 tariffs, so their benefit is presently $5.28 per month. Approximately 245,000 customers now receive the benefit of the reduced charge, the value of which during the current three year rate plan ending March 31, 2008 is expected to save low income customers $45.5 million.

If Con Edison's new 2008 residential rate proposal were to be approved by the PSC, the customer charge would increase from $11.78 to $15.21 per month, i.e., $3.43. For customers receiving service at Con Edison's reduced low-income rate,however, the customer charge would increase from $6.50 to $10.96, i.e., an increase of $4.46 per month. Thus, Con Edison would increase the rates of its low income customers by approximately $1 per month more than those of other customers. The benefit would be reduced from $5.28 per month to $4.25 per month, even as overall rates and typical bills increase. Over a three year rate plan, low income customers now receiving the reduced rate would pay approximately $7.7 million more. This, of course, is subject to modification by the Public Service Commission through its major rate increase review procedure.

PULP is concerned that Con Edison rates have been rising while incomes of low income consumers have not. See Utility Ratemaking to Meet the Needs of Low- and Fixed-income New Yorkers. During the PSC rate case proceedings that will be held to consider Con Edison's proposed rates for 2008 and alternatives, PULP will again propose expansion of the low income reduced rate program - by increasing the monthly rate reduction - and expansion of the number of eligible customers receiving the benefit of a lower rate.

A Tale of Two Edisons: A Sharp Contrast with California
Con Edison's low income rate reduction - now only about 5% of a typical bill - provides proportionally smaller benefits and reaches proportionately fewer of the eligible customers than do the low income rate programs of California utilities, such as Southern California Edison, which provide a rate reduction of 20%.

Under the California Alternate Rates for Energy (CARE) program

Low-income customers that are enrolled in the CARE program receive a 20 percent discount on their electric and natural gas bills and are not billed in higher rate tiers that were created for Southern California Edison (Edison), Pacific Gas and Electric Company (PG&E) and San Diego Gas and Electric Company (SDG&E). CARE is funded through a rate surcharge paid by all other utility customers.

California's utilities vigorously promote CARE and other low income programs, and encourage eligible customers to apply. See Southern California Edison's website for the discount rate program, which contains information and a way to sign up for the reduced rates on line.

In contrast, Con Edison's low income rate appears to be a well kept secret, unindexed and buried in tariffs of hundreds of pages. The majority of customers who receive it have been automatically enrolled, but the automatic enrollment procedure does not identify all eligible customers. Since it was first announced in a press release in 2000, the low income rate has not been publicized by Con Edison. For example, it is not mentioned at Con Edison's web page for special services. It is not unusual for customers who call Con Edison to ask for the reduced rate to be denied by Con Edison employees who do not know of it.

Visit PULP's web page on Con Edison's low income programs for more information on the programs and how eligible customers can receive the reduced rate, including a sample letter for a low income customer requesting a change to the lower rate.

Senate Committee Begins Consideration of FERC Nominee, Raising Consumer and Environmental Issues

On May 10, 2007 the Senate Energy and Natural Resources Committee held a hearing to consider President Bush's nomination of current FERC Chairman Joseph T. Kelliher for a new term of five years. He was initially appointed to fill a vacancy in 2003 and became Chairman of FERC in 2005.

Several Senators expressed dissatisfaction on issues related to

• FERC's market rate regime [See The Failure of Electricity Deregulation, May the FERC Rely on Markets to Set ELectric Rates?, and Disconnected Policymakers]
• Consumer protection [See Industrial and Residential Customers Agree: Proposed FERC Rules for Electricity Market Rates are Flawed]
• Privatized "market monitoring" by private utility organizations, and FERC reliance on private utility "market monitors" who lack independence
  
• Siting of transmission lines and LNG facilities. [See FERC Adopts Electricity Transmission Siting Rules: Says it Can Reverse State Denials, and DOE Designates "National Interest Electric Transmission Corridor...."]
• Natural Gas Market Manipulation, [See New Concerns Raised About Manipulation of Natural Gas Prices, and Did Hedge Fund Attempt to Corner the Natural Gas Market for March 2007?]
  

Following are some highlights of the first confirmation hearing, which was webcast.

Senator Tester (D Montana) asked Kelliherabout FERC's allowing market rates for PPL in Montana despite the fact that they were so high. [Montana Power Co. sold all its power plants to PPL, and is now buying energy from the new owners of divested plants at FERC-allowed market rates. Montana consumers, who once had some of the nation's lowest cost power, faced major rate increases due to the ability of low cost producers to achieve high market prices with FERC-approved market rates. Montana's Consumer Counsel complained to FERC that PPL had market power to drive prices up, but FERC approved PPL's market rate authorization). Tester repeatedly asked when FERC would act on Montana's rehearing petition, and said that new contracts were coming up that would be strongly affected by whether or not FERC acted. He asked FERC to get back to him about when the rehearing order might issue. Kelliher promised to "look seriously" at the Montana commission's arguments.

Tester asked Kelliher about FERC's market power tests used to decide whether to allow "market based rates." Kelliher said FERC's market rate authorizations, which allow sellers to avoid publicly filing advance notice of all rate changes subject to review and revision by FERC, are a "privilege." He admitted that under the "hub and spoke" test nearly every seller won market rates. Then he mentioned FERC's new market power screens. Tester asked him if they were in place when FERC determined that there was no market power in Montana. Kelliiher said yes, but that they were looking at the regional market.

Tester said "whether I vote for you or not, I appreciate your public service."

Senator Burr (R NC) was full of praise for the nominee.

Senator Menendez (D NJ) gave Chairman Kelliher a hard time about PJM Market Monitor Joseph Bowring's recent testimony alleging PJM management interference with his independence. Sen. Menendez criticized FERC for not investigating, and instead allowing PJM - a private utility - to conduct the investigation, referring to the fox guarding the chicken coop. Kelliher maintained this was raised in complaints before FERC and so he couldn't answer.

Sen. Menendez asked whether PJM was the "cop on the beat," and Kelliher said "no," PJM had no enforcement authority, and Menendez said, well they could at least file crime reports! Kelliher said it is FERC's job to enforce, and they can't delegate it to an RTO.

Sen. Menendez invoked global warming, claiming FERC was encouraging tranmission lines to bring high pollution coal-fired power into New Jersey, and criticized Kelliher about FERC's approval of the Exelon merger (which eventually failed after state opposition in New Jersey).

Sen. Menendez finally said to Chairman Kelliher: "I'm not satisifed with your comments. We look to you and when you don't do [your job]... we're not sure the consumer is protected." "Right now--I'm not convinced."

He said that he would have further questions.

Senator Wyden of Oregon asked Kelliher about a controversial proposed LNG plant in Oregon. Sen. Wyden said he would have more questions

They Committee did not vote on the Kelliher nomination, and appears to have embarked on a more thorough review.

HEFPA - Utility Deposit Issues Resurface

The General Rule : No Deposits
The Home Energy Fair Practices Act (HEFPA) is New York’s landmark bill of rights for New York utility consumers. The legislative purpose is to advance the advance the state policy of continuous service by eliminating unreasonable utility service qualifications or delays in order to advance the public interest and preserve the general health and welfare. With the passage in 1981 of HEFPA, utility deposit requirements as a condition of service for New York consumers were generally abolished for most current customers and new applicants for electric and natural gas service. Customers of large private water utilities were subsequently given HEFPA protection in 1986.

The exceptions to the general rule that deposits are not required are quite narrow. Nevertheless, utilities from time to time attempt to broaden the scope of the exceptions. PULP successfully opposed major Niagara Mohawk d/b/a/ National Grid efforts to broaden deposit requirements in 2003 - 2004.

The“Delinquent” Customer Exception
HEFPA allows a utility to demand a deposit from a “delinquent” customer, which PSC regulations define to include a current customer (i) who “accumulates two consecutive months of arrears without making reasonable payment” as defined by the PSC, or (ii) whose service was terminated within the past six months for nonpayment.

In contrast, a new applicant with old arrears from a prior account in his or her name must be provided service if the arrears are paid or if the applicant signs a deferred payment agreement to pay back the arrears over time along with payment of bills for current service, with terms of the agreement negotiable based on the customer’s financial circumstances.

The Seasonal and Short Term Customer Exception
A utility can require a deposit as a condition of residential service if the applicant for service is a “seasonal” or “short-term” customer. PSC regulations define a seasonal customer as one who “applies for and receives utility service periodically each year, intermittently during the year, or at other irregular intervals.” A short-term customer is “a person who requires service for a specified period of time that does not exceed one year."

PULP recently learned from a local advocate that a utility may be demanding deposits from new customer applicants if, during the application process, applicants cannot state specifically how long they will live at the premises where they are seeking service. Apparently, the utility was deeming such applicants to be seeking only short term service.

Not being able to answer with certainty how long one will reside in a place, however, is far different from the HEFPA standard, which allows deposits when the customer is seeking service for a specified period of time that does not exceed one year.

The PSC Emergency Hotline Provides a Remedy : 1-800-342-3355
Disputes arise continually which affect the provision and continuation of essential utility service. A denial or termination of service can have deadly consequences. See Candle Fires: A Symptom of "Rolling Blackouts" Affecting Low-Income Households.

Recognizing the importance of utility service and the risk of erroneous utility actions, the legislature, when it enacted HEFPA, required the PSC to provide Emergency Hotline Service to residential customers:

The commission shall establish a toll free number, to be attended from nine o`clock a.m. to nine o`clock p.m. each business day, which a residential customer may use to contact a commission designee authorized to order the reconnection, continuation or initiation of residential gas or electric service whenever a reasonable question regarding the circumstances of a termination or refusal of service exists or whenever the health and safety of a person is involved.

PSC regulation 11.21 establishes Emergency Hotline hours from 7:30 AM to 7:30 PM.

In each of the cases mentioned above, when the PSC Emergency Hotline was called for assistance, the hotline directed the utility immediately to provide service without a deposit.

The PSC Emergency Hotline number is 1-800-342-3355. Note that the PSC Emergency Hotline number is not the PSC Complaint Line. The Complaint Line receives, investigates, and adjudicates customer complaints regarding a wide range of utility service and billing disputes through its formal and informal complaint handling procedures. Complaints may be made in person, by mail, by telephone to 1-800-342-3377 or by email through the PSC website complaint page.

Please visit PULP's website Help Center or contact PULP if you have questions.

DOE Designates "National Interest Electric Transmission Corridor" in New York After Critical Hearing

The Energy Policy Act of 2005
Under Section 1221 of the Energy Policy Act of 2005, the federal government was given new power to site certain transmission lines, traditionally a state function. New York, for example, has more than 11,000 miles of transmission lines constructed by investor owned utilities and the State Power Authority, under the supervision of the New York State Public Service Commission which reviews proposed transmission projects under Article VII of the New York Public Service Law.

The new federal power to issue permits for construction of transmission lines and to grant federal eminent domain power to acquire property needed for the lines is limited to situations where

• The Department of Energy (DOE), in consultation with states, identifies "critical" transmission needs in a "congestion" study, and then designates a "National Interest Electric Transmission Corridor" within the area identified as "congested," and
  
• A state has withheld approval of a proposed transmission project in such a corridor for more than one year.

Then, FERC would have power to grant a permit to build the project and to give the developer federal eminent domain power to acquire land rights for that purpose.

"Congestion" Confusion
The concept of transmission "congestion" suggests a physical or reliability issue. This notion was suggested in a recent article discussing the National Corridors which states: "congestion of existing power lines makes the electricity grid unreliable and subject to blackouts.”

Actually, the transmission system is designed to always run within reliability limits consistent with its capabilities. The major blackouts in recent decades were due to misoperation and poor maintenance of the interconnected high voltage grid components. Testimony of a leading power transmission engineer after the 2003 blackout to the New York legislature emphasized that making the alternating current grid ever larger or putting more transmission lines up does not necessarily equate with greater reliability:

Reliability and commercial use of the bulk power transmission system are two entirely different things. Reliability is a function of the reliability standards (or criteria) used, not the amount of wire in the air. A weak system with more stringent standards will be more reliable than a strong system with weak criteria – or any system where even stringent standards are not followed. Adding transmission in and of itself will not improve reliability, if the same reliability standards are used. In fact, it might actually make the system less reliable. That’s because adding transmission makes the bulk power system electrically tighter -– geo-electrically smaller. Thus a severe disturbance is likely to cause a blackout in a much larger area. It isn’t an accident that the 2003 blackout affected a larger area, and far more people, than the 1965 blackout.

Much of the drive to build more transmission lines comes from pressures to enable the physical grid to mirror economic transactions in the selling and trading of electricity. Electricity flows are governed by the laws of physics and do not follow contract paths. One cannot, say, buy electricity from a seller hundreds of miles away, and expect that when the distant power plant generates more power it will correspondingly excite the electrons at the buyer's location. Rather, many adjustments in the grid at numerous locations may be necessary.

In some instances, reliability rules limit transfer capacity to prevent an area from becoming too dependent on a single link in the system. These rules typically require that a sudden unexpected failure of the largest line or generator can be absorbed without destabilizing the alternating current grid; in the downstate New York area, the rules require the system to be run so as to be able to withstand two simultaneous outages. Thus, a desired economic transaction -- even if within the physical capacity of the existing lines -- cannot be scheduled consistent with sound operating principles.

Congestion, according to the DOE definition, is mainly an indicator of economic transactions frustrated by reliability rules:

[Congestion] occurs when actual or scheduled flows of electricity on a transmission line or a related piece of equipment are restricted below desired levels— either by the physical or electrical capacity of the line, or by operational restrictions created and enforced to protect the security and reliability of the grid.

The DOE definition includes situations where, for example, sellers and traders "desire" to "schedule" the sale of coal-fired generation to buyers at a distant location where the price is high but actual transfer capability is limited.

DOE rejected comments of the New York PSC that it should not include such "economic" congestion in its definition. As a result, the DOE map of "critical" congestion areas reflects mainly economic issues, which may shift with time depending on market developments and changes in local generation capacity.

Winners and Losers
There may often appear to be economic "winners" on one end of a transmission line and "losers" on the other. If the cost of electricity in the area of supply becomes more valuable when, due to a new line, it can be sold into a distant, more expensive market area, consumers in the supply area may see higher prices. Conversely, consumers in areas served by a new transmission line are perceived to be winners.

But the notion of "winning" lower cost electricity may prove illusory. In assuming prices will go down with new transmission, it assumes competitiveness in markets noted for their ease of manipulation and withholding strategies to maintain prices. It also assumes that high costs due to local market power concentration might be avoided by purchasing energy from other producers through more long distance transmission -- even as the power industry enters into a phase of increased consolidation through mergers that is sure to reduce the number of producers.

The 2006 DOE Congestion Study
In August 2006 DOE issued a congestion study, designating parts of Maine, New Hampshire, and wide swaths from New York to Virginia as critical congestion areas. According to affected states, DOE did not, however, fulfill the state consultation requirement of the statute before it issued the report. For example, in comments to DOE on the report the Maine Public Utilities Commission stated:

DOE never contacted or met with any Maine regulator or government representative in the process of conducting the study. * * * * In addition to violating the law by not consulting with Maine, the congestion study is an inferior product as a result of the failure. Consultation with the affected state, as required by statute, would have quickly revealed flaws in the DOE’s conclusions.

A number of states are concerned that the DOE designated critical congestion zones are environmentally sensitive areas where transmission lines are not suitable. Also, some are concerned that new federally authorized lines in the national corridors may be disruptive to orderly state and regional energy planning, because comprehensive planning must take into account solutions and priorities other than more transmission lines, such as generation located nearer to load, demand reduction, and increased use of renewable resources such as wind, water and sun.

FERC Asserts Power to Override State Denials of Transmission Lines
FERC issued new rules for issuing permits and granting federal eminent domain authority for transmission projects in DOE designated national corridors in November 2006. See our prior PULP Network article, FERC Adopts Electricity Transmission Siting Rules: Says it Can Override State Denials.

In the order adopting the rules, FERC stated its belief that it now has power to override a state denial of a transmission project in a national corridor, a decision that drew the dissent of FERC Commissioner Kelly. She said the statute gives FERC transmission siting authority only when a state has failed to act on a transmission line application within a year.

The New York Public Service Commission and others have petitioned FERC to grant a rehearing on this issue, stating:

The Commission's interpretation of Section 21 6(b)(l)(C)(i) is improper and an error of law. It allows the Commission to preempt all state authority in the siting of electric transmission facilities when Congress specifically listed the circumstances where FERC could preempt state siting authority and did not include denial of a permit within the listed circumstances.

House Oversight Committee Hearings
NASUCA filed testimony on April 25, 2007 with the House of Representatives Committee on Oversight and Government Reform, Subcommittee on Domestic Policy, identifying situations where DOE failed to consult with affected states before designating areas in which national corridor transmission lines can be built, and supporting Commissioner Kelly's position regarding the limits on FERC's power to grant permits for construction of transmission lines. Other testimony at the hearing, generally opposing the DOE process for identifying critical congestion areas, is available at the House Oversight Committee website.

DOE Designates National Corridors
DOE issued draft designations of two "National Corridors" the day after hearings criticizing the process by which areas for corridors were identified. The mid Atlantic corridor includes areas of New York in which a controversial "NYRI" transmission project has been proposed to run through many communities on an old railroad easement. These designations can be finalized after a 60 day comment period. Then, no matter what the New York Public Service Commission decides on the pending NYRI application, FERC is empowered to issue a permit and grant federal eminent domain power to the developer, under FERC's broad interpretation of its powers described above. For more information see PULP's web page on the NYRI project

Will National Corridors Increase Reliability?
While National Corridors may increase commerce over transmission lines, it is not clear that this will increase reliability. Indeed, the joint U.S. - Canada Task Force on the 2003 blackout recommended an independent study to determine the extent to which deregulatory measures that allow more energy trading had contributed to the root causes of the blackout. DOE held a conference, and received white papers on the topic, but no study was ever performed. See What Happened to the "Independent Study" of the Effects of Electric Industry Restructuring on Reliability?

Not so Smart? High Tech Metering May Harm Low Income Electricity Customers

The idea of "smart" or "advanced" metering (AMI) was given additional push by the Energy Policy Act of 2005. Congress added a new provision (Section 1252) which requires state utility regulators to consider smart metering. Congress did not mandate its universal adoption by state regulators, as utility regulation traditionally has been left to the states. Indeed, a similar requirement in Public Utility Regulatory Policies Act of 1978 (PURPA) barely passed judicial scrutiny in FERC v. Mississippi. Subsequent Tenth Amendment caselaw and changes in the composition of the Supreme Court suggest that the issue whether Congress can compel state utility regulators to consider any list of issues might be decided differently today.

"Smart" metering has been defined in a NYSERDA publication as

a concept embracing two distinct elements: meters that use new technology to capture complex energy use information and communication systems that can capture and transmit energy use information as it happens, or almost as it happens.

"Smart" metering for electricity consumers is being touted by the utility industry as a high tech method of communication between utilities and customers. In the states that "restructured" whose utilities now rely mainly on purchased power (instead of power produced by plants owned by the local utility), the new meters are seen as a way to pass through instantaneously to customers the "real time" price signals from wholesale electricity hourly spot markets, such those run by the NYISO. This assumes those prices are reasonable, and it could cause retail rates to spike severely at times when customers most need electricity.

New York City's foray into comprehensive city energy planning (in the absence of transparent comprehensive state energy planning) announced a goal to expand real time pricing, including residential customers. The Energy section of PlaNYC states:

Currently, consumers are able to make informed choices about when to use their cell phones; in peak times, they know that minutes will cost more than off-peak hours and can adjust their behavior accordingly. Although energy prices fluctuate just as much over the course of a day, this information is almost entirely unavailable to the vast majority of New Yorkers.

Apparently the authors of PlaNYC assume that elderly and ill electric customers in sweltering apartments can just shut off their cooling appliances and wait until temperatures cool and skyrocketing spot market prices come down with the same ease that those who can afford cellphones avoid using them during hours with high prices.

It is always hard to be against "smart."

Perhaps the adjective is a tip-off that all is not as it seems. There is very little evidence that large numbers of small customers will embrace real time pricing. Indeed, consumer reaction to mandatory time of use pricing for very high usage customers led the state legislature to amend the New York Public Service Law to make time of use pricing strictly voluntary for residential customers in New York State. Yet the utilities are proposing to invest billions in this effort, even those who recently spent large sums to install automated meter reading (AMR) systems. The AMR systems allow meters to be read remotely, typically from a vehicle driving by the premises.

There are ways to encourage customers to be more efficient that may be more effective than AMI meters. For example,

• dollar meters are being tried in some areas to show customers the cost of consumption each hour, day, or other interval-- without spiking the prices.
  
• inclining block rates can increase prices after a first block of usage designed to cover basic needs.
• seasonal rates can send a predictable price signal regarding higher costs during peak months.

Instead of these lower cost options, utilities still adhere to billing systems that report usage only when it is too late for the customer to do anything about it, and still seek larger customer charges that dampen price signals and decrease energy efficiency investment payoffs, because customer charges must be paid without regard to a customer's usage.

Pricing certainty helps customers make rational choices about conservation and energy efficiency measures, and can prevent hardship to customers who lack savings to absorb unpredictably fluctuating spot market prices. Using AMI to incorporate possibly manipulated or gamed spot market prices into rates for consumers and businesses may also send the wrong price signals, and may have very harmful economic consequences.

Industrial Customer Experience with Real Time Pricing

The New York PSC has made hourly pricing (and hence more advanced metering) mandatory for large customers. This has proved controversial, because of the exposure of these large customers to NYISO spot market pricing from the utility, and the lack of better competitive opportunities.

PULP's comments to the federal task force on electricity competition pointed out that little research exists to show whether real time pricing for very large large customers actually yields desired results. PULP noted that a reference to National Grid's real time pricing program in the task force draft report may have overstated the results:

the National Grid program did not involve residential customers, . . . the participants in the RTP program were very large customers, . . . most of them were not price responsive to RTP day-ahead rates, and . . . price hedging opportunities through alternative retail electric companies were not readily available, even for these large customers.

The introduction of real time prices, however, translated into major price increases for New York's industrial customers since 2002, which rose faster in comparison to rates for other customer classes for whom energy is purchased at other than spot market prices. Other studies indicate that real time metering for just the largest customers may be sufficient to yield cost effective demand response results without the cost of deploying millions of meters for residential customers who may be less able to shift their usage to non peak hours. Nonetheless, "smart" meters are being advanced as a high tech future solution to fundamental, existing problems, such as malfunctioning and gamed wholesale markets encouraged by lax FERC regulation. See, e.g., Wellinghoff and Morenoff, Recognizing the Importance of Demand Response: the Second Half of the Wholesale Electric Market Equation. Rather than fix market manipulation that raises price by strategic bidding to create artificial scarcity now, hope is being placed in technological fixes to enable customers to reduce their usage during the moments of the highest prices demanded by wholesale sellers in the spot markets. Such optimism is not warranted. The "demand response" solution is a hypothetical market based "fix" to unreasonable rates. Theoretically it is a retreat from the legal principle that all unreasonable rates are illegal. It shifts responsibilities to buyers to avoid excessive prices in a complex but gamable spot market, and attempts to relieve sellers and regulators from their duty to demand, charge and fix only reasonable rates. The "demand response" scenarios typically involve simplistic (dare we say "dumb") assumptions that sellers will not alter their withholding and market gaming strategies or take other measures, such as not building new power plants, to maintain conditions of scarcity and opportunistic pricing.

Real Time Pricing and Other Applications of Smart Meters May Adversely Affect Many Residential Customers
There are a number of serious policy issues presented by "smart" metering technology for residential customers. A trenchant paper on "smart metering" by Barbara Alexander points out the lack of evidence to justify widespread residential real time metering, and flags important consumer issues:

The push to install more expensive smart meters (and their associated communication and data storage systems) and consider more “real time” or volatile electricity prices for residential electric customers has the potential for significant harm to many residential customers and particularly to limited income and payment troubled customers. Almost no jurisdiction has acknowledged the potential adverse impacts on these vulnerable customers who must have essential electricity service to assure household health and safety. Nor has any jurisdiction specifically ordered an analysis of proposals for dramatic changes in the pricing of electricity on limited income or payment troubled customers. * * * *

It would be unfair and poor public policy to leap into new metering technology and new methods of pricing essential electricity service to residential customers without a careful analysis and access to factual information on the impacts of such proposals on customer bills and usage patterns. The lack of such information is particularly glaring for low income customers. * * * *

Wholesale market structure and pricing mechanisms are still being vigorously debated and to rely entirely on such immature and potentially “wrong” price signals to customers who rely on essential electricity services for minimum health and safety standards should raise red flags and longer term analysis prior to embarking on expensive new metering and rate design programs.

Fortunately, the New York Public Service Law protects New York's residential customers by making real time pricing and time of use pricing strictly voluntary. There are, however, demonstration projects funded by NYSERDA now underway to implement real time metering in selected subsidized housing projects in New York City where the PSC has allowed the landlords to submeter electricity to their tenants. While submetering is generally not allowed, the PSC has approved it in situations where the landlord agrees to provide HEFPA protections and not to charge more than tariffed service from the utility. These requirements, and the general prohibition of involuntary real time metering may need to be enforced if, as is expected, real time metered customers experience higher bills and have difficulty paying them.

Higher Costs of Smart Meters
The traditional utility rate setting system rewards utilities for investing capital in their systems. For years, the largest utility capital assets typically were central power stations. In the 15 "restructured" states, utilities generally do not invest in power plants. (In New York, after "restructuring," most utilities sold their power plants, although RG&E kept its non nuclear power plants, and Con Edison "repowered" a steam/electric plant to increase output).

After the failure of holding company subsidiaries to succeed using capital previously raised for and invested in local utilities, some utilities may be looking for new ways to increase the rate base of assets upon which the utility investors are given the opportunity, thorough rates set by regulators, to earn a reasonable return. New AMI meters, deployed en masse may be a trendy way to bulk up the "rate base." For example, California utilities that no longer build power plants are now planning to spend billions on the new "smart" meters. Energy East has announced an intention to spend hundreds of millions of dollars for smart meters for residential customers in Maine and New York, including $370 million on smart metering projects in New York over the next few years.

Old meters are cheap and when regulators set rates, their depreciation costs are amortized over decades. In contrast, new meters are expensive and might be written off faster, with depreciation rates reflecting the rapid obsolescence of computerized communications equipment.This is discussed in a report of the utilities' national trade association, the Edison Electric Institute (EEI), Deciding on “Smart” Meters: The Technology Implications of Section 1252 of the Energy Policy Act Of 2005:

The issue of depreciation of new meters takes on a new meaning in the context of AMI systems. Many utilities traditionally depreciate “communications equipment” on a much shorter schedule (perhaps 7 years), than meters (perhaps 30 years). But if we install communications in the meter, which schedule should pertain? The communication and metrology functions are closely integrated in most new solid state meters. It is unlikely that, after 10 years, the meter can be retrieved from the field, the communications section removed and replaced, and the meter sent back to the field. * * * *

Decisions regarding metering strategy are very important because such a large number of meters is involved. That strategy is often shaped by the age and condition of the existing metering, and especially the depreciation status of the existing meter plant. The sudden removal and write-down of meters that may have been in use for 15 years, but were being depreciated over 30 or 50 years, can dramatically impact depreciation reserves, and income statements.

Depreciation costs are allowed as recoverable expenses in utility rate cases. So, in addition to vastly increasing the investment in metering facilities upon which a return of 10-11% a year is contemplated when rates are set, a large capital investment in meters could also increase depreciation expenses above the costs of old meters still being depreciated, requiring even higher utility revenues and rates. Also, the utilities are clamoring for federal tax breaks to write off AMI investments quickly and thus reduce actual taxes below the level of anticipated taxes used to set utility rates. So what may be very smart for utilities and purveyors of metering equipment may, for consumers, be not so smart.