Early Termination Fees

The virtues of deregulation, free markets, customer sovereignty, and choice of provider are constantly extolled by advocates of utility competition. Yet it seems that one of the first things these new industry entrants do is try to "lock up" customers and deter their switching to another provider for better prices or service. And, they try to enlist the help of regulators to provide regulation friendly to them and hostile to consumer interests.

This effort of the utility industry to obtain friendly regulation is not new, and is not really surprising. The nature of the competitive utility service is pretty much the same, no matter who provides it. In a really competitive commodity market with undifferentiated products, when there is surplus capacity, prices tend to drop down toward marginal cost, reducing profits. To prevent that, these "competitive" companies may

• conduct huge advertising campaigns to "brand" their service in order to attract customers based on non-price factors,
  
• use ever-changing and confusing pricing plans that make apples-to-apples price comparisons difficult if not impossible to make,
  
• merge, reducing supply options and the number of major providers to less than a handful, increasing the opportunities for oligopolistic pricing and gaming behavior so that without overt collusion, all major providers arrive at similar prices and practices that benefit them, and
  
• try to retain customers by imposing financial penalties if they switch providers.
  

A favorite tool used to deter switching is the early termination fee (ETF), often foisted upon consumers in the take-it-or-leave-it boilerplate long term contracts of competitive energy and telecom service providers. Another is the automatic renewal clause, by which a customer must affirmatively cancel service within a short time frame. If the window of opportunity to stop the service is missed, the customer again finds herself in a long term contract for another year or more.

Consumer groups are resisting ETFs. For example, in California class action litigation, plaintiffs are challenging the rationales offered by wireless phone providers for their ETFs:

[I]n the first of a series of class-action lawsuits in California state court against national cellular carriers, plaintiffs suing Sprint Nextel Corp. are attempting to undercut industry's long-held argument that ETFs levied on subscribers who break contracts early are necessary to recoup costs associated with subsidized handsets.

In his opening statement in the trial of the class-action lawsuit against Sprint Nextel, plaintiffs' lawyer Scott Bursor outlined to the jury how he intended to show that ETFs have another purpose altogether.

"We will prove that the early termination fee was marketing based, marketing created, and marketing driven," said Bursor, according to a court transcript. "We will prove that the ETF had nothing to do with the cost of any phone. We will prove that the ETF had nothing to do with the cost of any promotions. We will prove that the ETF had nothing to do with the cost of acquiring new customers. We will prove that the ETF had nothing do with any cost at all."

Bursor then proceeded to say plaintiffs would show the ETF was embraced as an arbitrary penalty "just to try to stop people from leaving. We will prove that Sprint never expected that it would be able to collect these terminations fees."

Bursor and other plaintiffs' lawyers will likely press the same line of argument in pending class actions against Verizon Wireless (which could have to shell out nearly $1 billion in ETF refunds), AT&T Mobility and T-Mobile USA Inc. in the Alameda County Superior Court. At least one other major ETF lawsuit is said to be advancing in the New York court system.

This should be an interesting case!

In litigation brought by NASUCA, the National Association of State Utility Consumer Advocates, of which PULP is a member, telecom companies and the FCC lost their bid to preclude states from exercising their statutory powers to exercise jurisdiction over "other terms and conditions" of telecom services such as wireless and interstate long distance, rates for which are under FCC jurisdiction. See the 1996 opinion of the Court of Appeals for the Eleventh Circuit in NASUCA v FCC. Although New York could exercise jurisdiction over non-rate terms and conditions of wireless telecom providers, it has not yet done so. See PULP's web page on wireless issues.

What is the response of the devotees of deregulation and competition to the growing pressure from states and consumers to curb ETFS and other overreaching by the new telecom and energy utilities?

They demand utility-friendly regulation!

These advocates of deregulation and free markets are now asking regulators to fix rates for ETFs -- without addressing reasonableness of any other terms, conditions or rates.

Such single-issue ratemaking, it were allowed, would shield ETF rules from judicial scrutiny under the "filed rate doctrine," which limits court review when rates have been approved by regulators. For example, Verizon Wireless recently asked the FCC to approve ETF rates in an apparent effort to preempt any state regulation of ETFs and to head off court action. See Consumer Groups Fight Verizon Early Termination Plan.

Similarly, in a case pending at the New York PSC, the PSC recently proposed to set rates for ETFs in ESCO contracts, suggesting @200, and asked parties to comment on this question:

3. Should early termination fees for residential
customers be limited to: (a) a flat amount (e.g.
$200); (b) an amount based upon a set fee per
month multiplied by the number of months
remaining on the contract (e.g. $8 x 20 months =
$160); or (c) some other variation?

See March 8, 2008 PSC Notice Inviting Comment, and ESCO Marketing Practices Subject of New PSC Proceeding.

PULP opposed this proposal to give ESCOs a filed rate ETF "club" without any evidentiary hearing on costs or reasonableness of the ETF charges, and without regard to reasonableness of rates and other terms and conditions of ESCO service. See PULP Files Reply Comments on the PSC’s Proposed ESCO Marketing Standards.

Home Heating Oil Prices Remain High

After winter demand for heating oil slackens and before peak summertime demand for gasoline, home heating oil dealers typically lock in prices for the next heating season. According to a recent AP news report, prices for home heating oil were double in May 2008 what they were in 2007.

This is not a good sign for New Yorkers who heat their homes with oil.

Last winter, customers may have benefited if they filled their tanks with lower cost oil before the full impact of price increases hit, or they may have had a contract that locked in a price or capped the maximum price. If oil prices stay high through the summer, prices during the 2008 - 2009 winter season might even be worse, creating more problems for low income households whose incomes have not kept pace with rising prices.

PULP Files Reply Comments on the PSC’s Proposed ESCO Marketing Standards

PULP has submitted reply comments in the PSC proceeding regarding new standards applicable to Energy Service Companies ("ESCOs") operating in the state. In the comments, PULP rebutted arguments and claims of ESCOs

• that early termination fees should be permitted when customers switch back to the distribution utility or to another ESCO for service
  
• that ESCOs should be exempt from regulatory assessments
  
• that ESCOs should be allowed to switch a customer's account from a utility or other ESCO based on their having obtained a request from a third party non-account holder without the express consent of the customer, and
• that ESCO complaint statistics issued publicly by the PSC should not disclose categories of complaints regarding any particular ESCO.

For further information, see ESCO Marketing Practices Subject of New PSC Proceeding and PULP's Initial Comments.

High Natural Gas Prices Signal Trouble Next Winter for Low Income Customers

Since January 2008, natural gas prices have continued to rise. Here is a chart from Apache Corp., a major independent producer of natural gas and oil, showing the price rise at Henry Hub in Louisiana. Click on the chart to enlarge it.



New York prices are even higher, due to transportation costs. This signals trouble for electricity customers this summer (see NY City Wholesale Electricity Prices May Rise 89% Due to Market Design and Higher Natural Gas Prices), and more trouble next winter for customers who heat with natural gas.

There are indications that the recent runup of natural gas prices, 57% thus far in 2008, may not recede. See Global Demand Squeezing Natural Gas Supply. Many natural gas customers are on the edge now, with large unpaid account balances built up during last winter or even previous winters that have not been paid off. If they are hit with high bills they cannot afford, and break a written payment agreement with their utility, they are subject to termination of service.

Incomes of low income households in New York have not kept pace with rising costs in recent years. See Pulling Apart in New York: An Analysis of Income Trends in New York State. The current surge in energy prices is making their energy burdens, already high, unaffordable. See The Economics of Low Income Energy Assistance in New York: No Wonder They Call Economics the "Dismal" Science.

National Grid recently filed new rates that would, if approved by the PSC, increase delivery rates by 33%, That, coupled with expected price increases for the gas, will increase energy burdens for the poor. The company proposes to reduce rates $5 per month for about 50,000 customers who receive HEAP, beginning a year from now, obviously insufficient.

Reform of the utility, public assistance, and HEAP systems for dealing with low income utility customers is necessary. To list just a few steps that should be taken

• Utilities need to adopt better low income rate programs.
• The PSC must vigilantly enforce consumer rights under HEFPA. For example, see PSC Nullifies National Grid's $1,000 "Grand Plan" Requirement for Utility Service.
• The PSC should establish performance standards that would discourage termination of service as a collection tactic. See Candle Fires: A Symptom of "Rolling Blackouts" Affecting Low-Income Households.
• The PSC should strive to set more stable and predictable rates because fragile low income household budgets cannot withstand unexpected retail price surges of the type encouraged in recent years to promote competition
  
• Additional funding for HEAP and reform of its benefit structure is needed. See PULP Urges HEAP Program Reforms.
• OTDA should update public assistance heating allowances which have not been reset since 1988
• Administrative restrictions created by OTDA for the emergency utility assistance program should be eliminated.

NY City Wholesale Electricity Prices May Rise 89% Due to Market Design and Higher Natural Gas Prices

In a May 15 2008 Summer Market and Reliability Assessment report by FERC staff, FERC Commissioners were advised (slide 6) that this summer wholesale market prices for electricity in New York City may exceed last summer's prices by 89%. Driving this increase is the major increase in the price of natural gas (slides 7 - 8). The effect of the natural gas price increase is amplified by the design of NYISO wholesale electricity markets promoted by the New York Public Service Commission and FERC which pay all sellers the same price even if, as in the case of electricity produced from wind, water, uranium and coal, the cost of production has not risen in tandem with natural gas prices.

At a May 21 webcast meeting of the New York Public Service Commission, New York PSC staff indicated that, based on recent NYMEX data,

the electric market energy prices this summer could be 55 to 66 percent higher compared to last summer's actual electric market energy prices. Therefore, the trend is for higher electric market energy prices for the 2008 summer period compared to last summer.

See webcast minute 54 - 58, transcript p. 40. The lower New York PSC estimate may reflect different data sources used by FERC, an averaging of expected New York City price increases with upstate New York, or other factors.

The effect on retail rates will depend on a number of factors, including the utility, features of its retail rate plan, and its energy purchasing and hedging practices which are considered trade secrets. In addition, the impact may depend on the customer's rate classification (e.g., industrial, commercial, residential) and whether the customer has fixed or variable rates.

In general, to effectuate its 1996 "vision" of a deregulated power generation sector, the PSC promoted the eventual flow through of functionally deregulated NYISO prices to all customers, starting with larger industrial and commercial customers first, and with a more gradual introduction of such pricing to small commercial and residential customers. See Disconnected Policymakers. [Other states that restructured are encouraging utilities to retain or build power plants under state cost of service regulation [to avoid purchases from sellers with market-based rates allowed by FERC], and to make necessary purchases using a diverse portfolio of energy supply sources, with a mixture of long term contracts, that relies as little as possible on the volatile spot market prices].

The effect on retail residential rates of these large wholesale spot market price increases will depend on several factors. Some utilities like Con Edison and Orange & Rockland have been allowed by the PSC to buy much of their power at NYISO spot market prices, perhaps 40%. Also, some of their long term contracts may be indexed to NYISO spot market prices or fuel price indexes. As a result, prices of some of their off-spot market purchases may also increase significantly. These utilities most closely implemented the PSC and Enron-promoted restructuring model, and soon after the advent of the NYISO spot markets were allowed by the PSC to change their rates every month to pass through the effects of their recent wholesale energy purchases. This shifted market risk in the flawed electricity markets to consumers. See Consumers in Peril, Why RTO-Run Electricity Markets Fail to Produce Just and Reasonable Electric Rates, APPA, 2008.

Con Edison has indicated that this summer its residential customers may see increases of "only" 13%. Summer Juice Bill to Give Jolt. Con Edison residential rates spiked significantly in July 2007, so the large expected price increase for the summer of 2008 might be on top of a prior record spike. See Excelsior! Con Edison Residential Rates Spike (Again), PULP Network, September 6, 2007.

Upstate residential utility customers will not face the increases likely to affect customers of Con Edison and Orange & Rockland. RG&E maintained the benefit of low cost power generation by not selling some its power plants, and offers a fixed price so customers who chose that rate option will see no increase this summer. NYSEG residential customers who chose a fixed rate plan will see no increase. National Grid is in a long term rate plan that stabilized rates for residential customers.

Large customers, however, are likely to see increases that will reflect more directly any increases in NYISO spot market prices.

Why do electricity prices go up so much when natural gas-fired generation accounts for only about a quarter of the electricity used in the state? According to a NYSERDA report, there is a diverse mix of fuels for the state's electricity sector:

By fuel type:
Nuclear . . . . . . . . . . . . (26%)
Natural Gas . . . . . . . . . . (25%)
Hydro . . . . . . . . . . . . . . . (18%)
Coal . . . . . . . . . . . . . . . . (13%)
Net Imported Electricity (12%)
Petroleum . . . . . . . . . . . . (4%)
Biofuels . . . . . . . . . . . . . (2%)
Wind. . . . . . . . . . . . . . . . (0.3%)

NYSERDA, Patterns and Trends 1992 - 2006, Jan. 2008. Recently, there has been an increase in the amount of wind generation. In the NYISO markets, all sellers -- even those with much lower cost electricity -- are paid the same price paid to the seller whose output clears the market, which in the New York City market is almost always a natural gas peaking unit during periods of heavy usage.

Natural gas prices have soared since this system was adopted, and recent trends indicate the possibility of sustained higher prices. See Global Demand Squeezing Natural Gas Supply, NY Times, 5/29/09. The value to consumers of a fleet of power plants with diverse fuels was lost when, with encouragement by the PSC, New York's utilities sold their power plants to new owners. Now electricity for customers must be bought at market rates based on the price demanded for the most expensive output at any time. The value of lower cost generation is now reaped by the wholesale market sellers.

In other states, where utilities still hold power plants under full state regulation, their price increases have been less than New York's, which are now second only to Connecticut (another "restructured" state) in the continental states. See Total Average Delivered Retail Electricity Price, New York vs. Regulated States, 1991 - 2007 (PPI) showing that the electricity price gap between New York and other states has increased since the advent of "restructuring" and greater reliance on deregulated wholesale market prices. See also, Decade of Deregulation Felt in Climbing Bills, describing the Maryland experience. No state has adopted a regime similar to New York's since the demise of Enron in 2001. Some, like New Mexico and Virginia, changed their direction and retained ownership of power plants by state regulated utilities, thus avoiding purchases affected by the high federal market prices. Other states, like Connecticut, have reauthorized their utilities to build new power plants that would be under state cost of service regulation.

Bill Would Require PSC to More Closely Scrutinize Telephone Area Code Changes

State Assembly members have filed a bill, A11082, that would require the Public Service Commission to more closely scrutinize the need for telephone area code changes, and to investigate in a public evidentiary process the possibility of avoiding the cost and inconvenience of unnecessary area code changes by reclaiming existing numbers that are unused and thus stranded in sparsely populated areas. The memorandum in support of the bill indicates that it would apply to the pending consideration of a new area code in the current 315 area code region in central New York.

An identical bill was introduced in the Senate, S08506

There are more than 5 million unused numbers currently in the 315 area, but in recent years many local exchange codes with blocks of 10,000 numbers each were allocated to sparsely populated localities in rural areas that would appear to have no need for them. The PSC last month decided to go ahead with plans to create a new area code in the 315 region, denying a request by PULP for an on the record proceeding to examine necessity of the action and the possibility of freeing up redundant blocks of 10,000 numbers now stranded in areas where there is no need for them. See PSC Denies Request for Open Inquiry and Continues with 315 Area Code Changes.

In late 2007 the PSC finally halted its practice of giving out numbers 10,000 at a time in rural areas of 315, and implemented a 1,000 number at a time system. In the brief period since implementation of that reform

• the rate of NXX codes issued for the 315 area has fallen drastically, with only one net new NXX assigned in the first quarter of 2008
• some unused NXX codes have been returned by telephone companies and made available to meet needs anywhere in the 315 area
• the number of available NXX codes for use anywhere within the 315 area has risen to 100 from a low of 93 in mid-2007
  
• NANPA extended a projected number exhaustion date, and
  
• an April 2008 NANPA website report does not indicate that the 315 area code is in "jeopardy" of exhausting its numbers.
  

PULP has asked the PSC to reconsider its action and to hold a public hearing to determine if redundant NXX codes allocated in recent years to sparsely populated areas, which may be only slightly used, can be "decontaminated" and reclaimed for use where there is a real need, preventing cost and inconvenience to millions of telephone customers. See PULP Asks PSC to Reconsider Refusal to Investigate Alternative to New Area Code in 315.

Assembly Passes Bill to Expand Low-Income Telephone Lifeline Assistance

Background
Telephone Lifeline and Linkup assistance can provide meaningful reductions in the cost of telephone service for low-income persons. For example, the monthly bills of a low-income Verizon Lifeline customer are reduced by approximately $13.50. Linkup can reduce the Verizon charge for a premises visit to install phone service from approximately $91 to $5.

All states were required to provide Lifeline assistance in the federal Telecommunications Act of 1996. Under that statue, the FCC adopted regulations which establish minimum federal Lifeline and Linkup benefits and which give states incentives to supplement the federal. States are allowed to devise their own list of categories of eligible customers. The New York PSC oversees the state Lifeline and Linkup program. The PSC fostered creation of the Targeted Accessibility Fund of New York, Incorporated (TAF) in 1998 to administer the collection and distribution of the state portion of certain universal service programs, including Lifeline, emergency services E911, Public Interest Pay Phones, and the Relay System.

Eligibility for Lifeline and Linkup is based upon the customer's income or receipt of benefits in a list of programs that have an income test. For New York Verizon customers, the assistance programs that currently trigger eligibility for Lifeline and Linkup are:

• Supplemental Security Income (SSI)
• Home Energy Assistance Program (HEAP)
  
• Food Stamps
• Medicaid
• Veteran's Disability or Surviving Spouse Pension
• Family Assistance (TANF)
• Safety Net Assistance
  

PSC Inattention
In contrast to other states, the New York PSC has issued no official regulations defining Lifeline eligibility. Over the course of many years, the PSC has issued several orders regarding the Lifeline and Linkup programs and approved Lifeline and Linkup tariffs of the various telephone companies as they arose in rate cases. As a result, there are different Lifeline eligibility standards and different price reductions for telephone customers in New York state, depending on their telephone company. The Universal Service Administrative Company (USAC) has a web page where one can look up the Lifeline program details of each New York Telephone Company.,

The New York PSC issues no regular reports on universal service issues and Lifeline program enrollment.

New York Lifeline Enrollment Plunging
As a result of changes in the state public assistance laws and the absence of any adjustment of public assistance levels in the past eighteen years, many people are no longer eligible for assistance in programs such as TANF, which confer Lifeline eligibility. It appears that this -- coupled with other important factors -- contributes to the plunging enrollment in New York's Lifeline program. Low-income New York telephone customers are missing out on important Lifeline and Linkup benefits, as demonstrated by the chart below: [Click on Chart to enlarge]

At its peak in 1999, the Lifeline program assisted approximately 746,000 New York customers, not even half of the number of persons financially eligible then. In recent years, the number of Lifeline customers has been shrinking, to about 310,000 at the end of 2007. As a result of the shrinkage since 1999, we estimate that low income telephone customers in New York who once received Lifeline assistance are now paying $60,000,000 per year more than they would if Lifeline enrollment had not declined.

Other major factors affecting the enrollment downturn may be Verizon's refusal to provide Lifeline assistance to eligible customers who purchase their local telephone service as part of packages that also include long distance or other services, and the migration of customers to cable telephone service providers who do not now provide Lifeline rate reductions. See Verizon Re-Launches Automatic Enrollment for Lifeline. Also, some customers eligible for Lifeline may have migrated to certain wireless service providers, such as Verizon Wireless, who do not offer any Lifeline rate reduction. See Reduced Rate Wireless Lifeline Service Now Available in New York.

PULP estimates that less than 15% of the telephone customers in New York state who are financially eligible for Lifeline actually receive the benefit today .

Adding Eligibility Categories
One solution to reaching more low income households with assistance to make their telephone service affordable is to increase the eligibility-conferring categories that qualify a customer for the reduced rates. In a 2004 order, the FCC increased categorical eligibility for Lifeline assistance to include recipients of HUD Section 8 housing assistance and the National Free School Lunch Program.

The New York PSC, however, did not follow suit.

Legislative Action
The New York Assembly on May 14, 2008 passed a bill, A02533 designed to address, in part, the severe shrinkage in the number of customers receiving reduced price telephone service.The new bill would establish Lifeline and Linkup eligibility for customers who receive benefits in the following additional categories:

• National School Lunch Program
• New York State Earned Income Tax Credit
• Child Health Plus, Family Health Plus, or other similar health insurance programs
• Additional programs designated by the PSC
  

In an era of rising costs and stagnating incomes for lower income households, the New York PSC, apart from costly but ineffective advertising campaigns, has made no real progress toward making telephone service more affordable to customers eligible for, but not receiving Lifeline assistance. Indeed, the state is losing ground. New York state needs to reverse the downward trend in the number of customers receiving Lifeline assistance, and to establish a goal of providing the benefit of reduced Lifeline rates to all eligible customers. Improving the program will enable households to afford telephone service without hardship.

Should Telecom Customer Migration Rules be Extended to New Carriers?

A request by Time Warner (TW) Telecom to have the PSC’s End User Migration Guidelines extended to new providers, including Voice over Internet Protocol (“VoIP”) and cable companies offering voice service, may open the door to a fresh regulatory landscape in New York.

The End User Migration Guidelines were originally implemented in New York in January 2001 and were greatly expanded in June 2002. The objective of the Guidelines is to ensure that customers can migrate from one competitive local service provider (a “CLEC”) to another and from a CLEC to the incumbent (“ILEC”) without encountering delays, service problems, slamming, or cramming. The Guidelines established general business rules and privacy protocols as well. In fact, the Guidelines have been a major success in aiding customer migration between local carriers and have since been adopted in other states, oftentimes in their entirety.

New types of players providing local telecom services have joined the marketplace since adoption of the Guidelines in 2002. TW Telecom says in its Petition that it is time to consider expanding the applicability of the Guidelines. While the company’s Petition was just filed this week and the Commission has not yet had an opportunity to respond, this could be a helpful step for all consumers since the same uniform set of rules would apply as customers switch from provider to provider regardless of the technology used. Most customers don’t distinguish between switched and IP technologies when selecting a telecom provider and are already permitted to keep their telephone number when they go, for example, from Verizon to Cablevision. Shouldn’t the same migration rules apply as well?

Currently, residential customers seeking to change service providers from the incumbent to a VoIP provider would not be protected by the Migration Guidelines. Unnecessary delays could occur and service could be temporarily lost, without any defined recourse. However, because voice services offered by cable television companies and VoIP services in general are not regulated by the Commission, could they even be brought under the Migration Guidelines’ banner without state legislative authorization or FCC approval? And, if so, could this regulatory change be extended to other areas, such as requiring these new providers to be certificated as CLECs and offer discounted Lifeline service with compensation through the existing federal and state pools?

Regulatory extension of the Migration Guidelines to VoIP and cable voice customers would provide benefits to these new providers because it would add a level of certainty for their potential customers. Once this occurs, however, and a precedent has been set, should the Commission venture further and make the differences between old and new service providers virtually indistinguishable? Permitting reimbursement through the state Targeted Accessibility Fund and the Federal Universal Service Fund for offering Lifeline could be yet another positive development.

Lou Manuta

NY PSC Asks FERC Not to Limit Access to NYISO Market Data

The New York Public Service Commission (PSC) recently filed comments with the Federal Energy Regulatory Commission (FERC) warning that a proposed new FERC rule could limit access to information and market data from the New York Independent System Operator (NYISO) needed by the PSC for its oversight. The NYISO operates private markets for determining wholesale electric rates, set by sellers given "market rate authorization" by FERC, which have been criticized for their high prices and failure to assure adequate future supply. See, e.g., Cornell Professor Gives Low Marks to NYISO Electricity Markets.

The new regulations were proposed as part of a FERC initiative to address four narrow issues involving the "organized" markets it has fostered, viz,

• demand response and market pricing during operating reserve shortages;
• long-term power contracting;
  
• market-monitoring policies; and
  
• the responsiveness of Regional Transmission Organizations (“RTOs”) and Independent System Operators (“ISOs”) to their stakeholders and customers

The "organized markets" such as the NYISO "day-ahead" and "real time" markets operate under FERC-approved tariffs. They essentially match production with demand and, like a cartel, set the same price for all sellers. In the 15 states that "restructured" their electric utilities a decade ago, and allowed power plants owned by state regulated utilities, these markets now play a major role in determining retail prices, which are no longer based on cost of energy production, and instead are based on the market price.

In an earlier phase of the case, more than forty consumer groups concerned about rising RTO and ISO rates and market manipulation asked FERC to broaden its inquiry to examine whether reliance on the private ISO and RTO utilities and the "organized markets" they operate to set is resulting in the "just and reasonable" wholesale rates for electricity required by law under the Federal Power Act. See Public Power, Industrial and Residential Consumer Groups Demand FERC Review of Organized Spot Markets.

FERC rebuffed the consumer groups in a Notice of Proposed Rulemaking issued on February 22, 2008. FERC refused to widen its inquiry, saying consumers should raise their concerns whether FERC is effectuating the "just and reasonable rate" requirements of the Federal Power Act within the industry-dominated "stakeholder" committee structures of the private ISO and RTO utilities. The ISO and RTO rules tend to marginalize and minimize the weight of consumer interests.

In response to FERC's Notice, the New York PSC filed comments objecting to language in the new rules which could be read to inhibit the flow of information from the NYISO to the PSC except in "enforcement" matters. This could sharply limit information routinely needed by the PSC to investigate and assess, for example, whether sellers are engaging in tactics that drive prices up, prior to any enforcement action. As a result, the ability to get data and information for "enforcement" purposes only could be useless if the PSC could not get access to data for routine analysis and investigation prior to any enforcement decision. The PSC stated:

Federal and state governments should be working in partnership to ensure that markets are working effectively. By refusing to allow state commissions access to this information, the cloud of suspicion by consumers and politicians of the competitive market may continue to grow. In some states, like New York, there have been calls by legislative leaders for the reversal of the competitive market. Consequently, it is vital that state commissions be able to demonstrate that the presence of a competitive market does not disable the state from protecting retail ratepayers and that the state commission is capable of carrying out its statutory obligations in a competitive market.

Even though FERC has jurisdiction to set the wholesale electric rates and rates for bulk transmission, the PSC has jurisdiction and a role to play to enforce the NYISO's state law duty, as a New York electric corporation, to operate and function in the public interest. As part of that function, the PSC can now demand data from the NYISO to ascertain if, for example, market power is being exercised, in a pre-enforcement context. See, e.g., NY Department of Public Service Interim Pricing Report on New York State's Independent System Operator. The PSC rightly objected to any new anti-consumer and anti-state rules that might be read by FERC so as to limit future PSC access to market data and information from the NYISO and its internal market monitoring unit.

Parties File Statements Supporting Proposed Settlement of Con Edison Queens Outage Prudence Proceeding

The New York State Public Service Commission (PSC) is considering a Joint Proposal for ending the PSC proceeding to review prudence of costs associated with the extended Con Edison outage in Queens beginning July 17, 2006. See Parties Propose Resolution of Con Edison Queens Outage Prudence Proceeding. The signatories to the proposal have filed their statements in support:

• Con Edison

• Department of Public Service Staff

• Consumer Protection Board

• Western Queens Power for the People

• PULP

• Assemblyman Richard L. Brodsky
  

The PSC has established a schedule for further comments and will receive public comment at informational forums and public statement hearings on May 27 and 28 in Queens.

AMPS, a Submetering Company, Withdraws Request for Court Injunction to Shut off Tenant's Electricity

In an apparently unprecedented move, American Metering and Planning Services (AMPS), a company that provides billing and metering service to apartment building owners who submeter electricity to tenants, commenced a lawsuit to collect unpaid charges from a tenant, claiming that AMPS is “entitled to a mandatory injunction requiring . . . access to the subject apartment for the purpose of terminating and disconnecting electrical service thereto.”

AMPS obtained an ex parte Order from a judge of the New York Supreme Court, Bronx County, requiring the tenant to appear in court to show cause why the requested injunction should not be issued. The court papers filed by AMPS did not reveal the existence of a Public Service Commission (PSC) submetering Order, which had granted submetering authority to the tenant's landlord, not AMPS. That order recites a representation of the landlord that “[i]n no case will electricity be shut down in an apartment for a failure to pay electricity.” The order also requires that in no event will the submeterer charge more for service than Con Edison would charge the tenants if they were separately metered residential customers of the utility.

The tenant contacted PULP for assistance. PULP filed a complaint on the tenant’s behalf with the PSC Office of Consumer Services, seeking to resolve disputes over the amount of the bills and to enforce HEFPA. To PULP’s knowledge, the tenant’s complaint to the Office of Consumer Services is the first to ask the PSC to enforce the price cap and HEFPA protections contained in orders routinely issued to grant submetering authority. PULP issued discovery questions to AMPS under the PSC discovery rules.

PULP appeared in court, opposing the requested injunction for access to the tenant's apartment to shut off the electricity, and filed a cross motion to dismiss and a brief, making the following points:

• The submetering company has no capacity to sue, because only companies authorized by the PSC can sell electricity, and the PSC authorized the building owner, not the submetering company, to sell electricity to residential customers at the building;
• The complaint failed to allege that Home Energy Fair Practices Act (HEFPA), contained in Article 2 of the Public Service Law and Part 11 of the PSC’s implementing regulations which prescribe numerous conditions that must be met before a utility can terminate service were satisfied. For example, the notice of termination on its face was defective, failed to proffer a deferred payment agreement (DPA) along with the termination notice; and failed to inform the tenant of the availability of PSC complaint procedures to resolve disputed bills;
• There is no provision in HEFPA that allows a typically unrepresented residential customer to be ordered to appear in New York State Supreme Court to shut off service;
• PSL Section 75 bars any recovery because the complaint seeks to recover charges that have not been fixed by order of the PSC;
  
• The doctrine of “unclean hands” bars equitable relief because the plaintiff failed to disclose to the court that the PSC Order governing submetering in the building was issued on the premise that electric service would not be terminated for nonpayment;
• Because Public Service Law 43.2 provides for a Commission determination of the defendant’s complaint regarding the bills claimed to be due, and the HEFPA violations, the PSC has primary jurisdiction

Before the date for hearing the tenant's cross motion to dismiss, AMPs discontinued the action.

For further information about submetering see PULP's Help Center and web page on submetering.

PULP Asks PSC to Reconsider Refusal to Investigate Alternative to New Area Code in 315

The PSC is proceeding with plans either to split the 315 area code region in Central New York into two codes, requiring many customers with 315 area codes to change their numbers, or to create an "overlay" area code for new numbers as they are added that will require callers to dial 10 digits for every call, even for a local call across the street. 315 Options Present Problems: Public Hearings Might Help PSC Determine the Best Area-code Alternative.

In recent years, the PSC allowed competitive telephone companies more than 1.25 million numbers in more than 125 new exchanges in sparsely populated rural areas of the 315 and 518 area codes. See PSC Considering "Area Code Relief" For 315 -- Where Did All The Numbers Go?

PULP requested an investigation whether reclamation and reallocation of telephone numbers and exchanges now stranded in rural areas with an oversupply can obviate the need to create a new area code in the 315 area . See PULP Asks PSC to Investigate Need for New Telephone Area Codes in the 315 Region.

PULP's motion was denied by the PSC in an April 25, 2008 Order. See PSC Denies Request for Open Inquiry and Continues with 315 Area Code Changes.

PULP filed a petition for rehearing today asking the PSC to reconsider its April 25, 2008 order, arguing that even if the oversupply of numbers and exchanges in rural areas had been lawfully allocated, the Commission has ample power to reclaim them in order to avoid the larger inconvenience and cost to consumers of area code changes. Further, PULP points to new evidence indicating that a combination of newly implemented number conservation policies and reclamation of numbers not needed in sparsely populated areas could avert area code changes that will impose cost and inconvenience for many customers.

HEAP Program to Close in May

New York's 2007 - 2008 federally funded Home Energy Assistance Program (HEAP) will close soon. According to the OTDA website

The Regular Benefit component of the 2007-08 HEAP program has been extended to Friday, May 16, 2008 however the Emergency Benefit component has been extended until Friday, May 30, 2008. After May 16th, Applicants must be in an energy emergency situation, which is defined as having less than a 10 day supply of fuel, having utility service terminated, or having utility service scheduled for termination. In addition, applicants must not have enough resources to take care of their emergency themselves.

As of mid-April, the 2007 - 08 HEAP program had provided much needed energy assistance benefits to more than 940,000 New York low-income households this year with its federal funding of approximately $248 million. President Bush has proposed reduced funding for next year's federal LIHEAP program, which provides all the funds for New York's HEAP program. See Bush Proposes LIHEAP Cuts in 2009 Budget.

Next year's HEAP program is likely to begin November 1, 2008. A draft state plan for use of next year's HEAP funding is expected to be released by OTDA for public comment in the next month or so.

When HEAP is not available utility customers who are unable to pay utility bills, whose service has been terminated or is threatened to be terminated, and who have no alternative payment arrangements possible may be eligible for a grant or loan from the local social services department that would cover the most recent four months service. Utilities are required to restore or continue service with the partial payment. For further information see PULP's web page on utility assistance programs. See also the chapter on Public Assistance Allowances for Energy and Utility Costs in PULP's law manual for advocates.

Protection of Customers of Cooperative Utilities Under Power Authority Regulations

Co-op Utilities Are Exempt from Public Service Law Requirements and PSC Oversight
Yesterday we received a question about the rights of customers of Steuben Rural Electric Cooperative. The day before, the utility turned off service to approximately 35 of its customer-members due to unpaid bills. Customers said there had been a printed warning message on a recent bill, but they say they received no separate notice of the actual shutoff. The utility demanded 100% of the amount owed as a condition of restoring service. When customers who could not afford that sought assistance from the local department of social services, a HEAP grant was proffered, but was rejected by the utility, which insisted upon full payment of all arrears.

For most New York utility customers, the Home Energy Fair Practice Act (HEFPA) provides strong procedural and substantive remedies for consumers to protect against abrupt termination of services and harsh collection practices. These protections include advance notice, the right to pay arrears over time under a deferred payment agreement (DPA), the right to contest the correctness of charges through a complaint to the Public Service Commission (PSC), and recourse to the PSC Hotline (800-342-3355), whose staff are empowered to resolve controversies involving termination or denial of service and can direct a utility to provide service or refrain from termination of service.

HEFPA is contained in Article 2 of the Public Service Law. Section 67 of the New York Rural Electric Cooperatives Law provides

Cooperatives . . . . shall be exempt in all respects from the jurisdiction and control of the public service commission of this state and shall not be subject to the provisions of the public service law.

Therefore, HEFPA does not apply to co-op utilities and so PSC complaint and Hotline remedies are not available to co-op utility customers.

Limited Customer Protection Under Regulations of the Power Authority of the State of New York
Are customers of co-op utilities then without any protection from arbitrary shutoffs and harsh practices?

In a word, no.

Cooperatives and small municipal utilities that receive most of their power from the Power Authority of the State of New York (NYPA) are required, under NYPA regulations having the force of law, to provide somewhat weaker protections that resemble those of HEFPA. See 21 NYCRR Parts 451, 452, 457, 459. See also, Lathrop v. Village of Bath, 112 A.D.2d 769 (4th Dept. 1983) (HEFPA deposit limits do not apply to municipal utility receiving its power from the State Power Authority).

The NYPA regulations address termination of service in Part 459:

Any municipality or rural electric cooperative purchasing essentially all of its power requirements from the Power Authority f the State of New York shall incorporate into its service rules and enforce the procedures governing discontinuance of electric service as set forth in sections 459.2 through 459.14 of this Part.

According to NYPA, Steuben Rural Electric Cooperative is one of 47 municipalities and coops that receive a low cost hydropower allocation from NYPA, and has a long term "partnership" arrangement with NYPA for NYPA to provide all its energy requirements. Thus, it appears that the Steuben Rural Electric Cooperative is subject to the NYPA rules and must incorporate them into its own rules.

NYPA Requirements
What do the NYPA rules require regarding the disconnection of service for nonpayment by utilities subject to its rules?

One would never know from searching the NYPA website, which appears to have no ready information regarding protection of residential consumers.

Here are salient features of the NYPA regulations, which are published in volume 21 of the Official Compilation of New York Codes, Rules, and Regulations:

• Section 459.3 requires a separate termination notice and forbids termination “until at least 35 days have elapsed from date payment was due. Additionally, such termination cannot occur until: (1) at least 15 days after written notice has been served personally upon a customer or resident 18 years of age or older; or (2) at least 15 days after the utility mails written notice by a registered or certified letter to the customer at the address at which service is received...."

• Section 459.14 requires the utility to offer DPAs: "Installment plan. No utility shall terminate service unless the utility has first offered a monthly installment plan that is just and equitable. Each utility must offer a just and equitable monthly plan to all customers whose service has been disconnected for nonpayment. To the extent practicable, the monthly installment plan should be based on the customer's ability to pay, past payment history, the amount of indebtedness, and the availability of other resources. The monthly installment plan should require a customer to pay current bills and a portion of past indebtedness and may include a provision for payment of interest on the arrears. Such agreement may provide for a downpayment of the arrears provided that no such downpayment shall exceed one-half of the amount of the arrears or three months average billing, whichever is less. Such agreement may be renegotiated and amended where the customer can demonstrate that there have been significant changes in his or her financial circumstances which have arisen due to conditions beyond the customer's control.

• Section 459.13 requires prompt reconnection of service when the customer pays the bill in full, enters into a DPA, receives a payment from a social services official, or when there is a "direction by the Power Authority of the State of New York.... The direction to reconnect service . . . . will only occur when it reasonably appears, in exceptional circumstances, that there is legitimate dispute about an unpaid portion of the arrears claimed by a utility; where an apparent error in the disconnection of service has occurred, or where a serious impairment to human health or safety seems to exist. . . .

Advance notice alerts the customer of future utility action and the claimed basis for it, which is of constitutional due process significance when a governmentally owned utility, such as the municipal utilities under NYPA regulations. In addition to preparing a defense in the case of error, the notice gives the customer who does owe the utility money time to find resources to pay the bill, negotiate a payment plan, or, if that is not possible, to seek public assistance or HEAP when HEAP is available.

As stated by the Supreme Court in a case requiring notification to customers of their right to appeal decisions to terminate service, “Utility service is a necessity of modern life; indeed, the discontinuance of water or heating for even short periods of time may threaten health and safety. And the risk of an erroneous deprivation, given the necessary reliance on computers, is not insubstantial.”There is no information at the NYPA website regarding how a customer can request intervention by NYPA to correct "an apparent error in the disconnection of service."

Customers of utilities subject to NYPA regulations apparently are not notified of possible recourse with NYPA in the event their utility makes an "apparent error in the disconnection of service...." In at least one instance, it appears that a Steuben co-op customer became homeless as a result of a disconnection without the advance notice required by the NYPA regulations.

There is a strong public interest in minimizing wrongful denials or terminations of utility service, which can have severe repercussions and costs for individuals, families, communities and the general public. Unsafe situations frequently flow from a lack of utility service or use of less safe alternatives. See Candle Fires: A Symptom of "Rolling Blackouts" Affecting Low-Income Households In at least one instance a utility's refusal to accept a HEAP payment may have contributed to the death of a customer. See Lawsuit Involving Death of Velma Fordham Settled by National Fuel.

Rejection of HEAP
In the absence of a statutory obligation, the duty of a utility to accept a HEAP payment as sufficient to reinstate service when it does not cover all arrears, for example, by treating it as a downpayment on a new DPA, is governed by a HEAP vendor agreement between the utility and the state agency that oversees HEAP, the Office of Temporary and Disability Assistance (OTDA). OTDA has been allowing utilities not to "acknowledge" a HEAP payment and to refuse to restore service at the utility's option.

PULP has questioned whether the stance of OTDA, which essentially allows utilities to decide which eligible HEAP households will have their crisis resolved, violates the requirement in federal law that a state's crisis assistance plan must actually provide for prompt resolution of emergencies of households eligible for Emergency HEAP. See PULP Urges HEAP Program Reforms.

In addition a utility subject to NYPA regulations may be obligated to restore service or abstain from termination of service when a local social services office proffers a four-month emergency utility assistance grant under Social Services Law 131-s. Section 131-s by its terms applies to "gas corporation, electric corporation or municipality," and does not espressly mention a cooperative. When this law creating the state utility assistance program was enacted as Chapter 895 of the Laws of 1981, it contained a dovetailing provision added to the Public Service Law, PSL § 65-b, which requires utilities (under PSC jurisdiction) to provide service "if the utility corporation or municipality receives, or is entitled to receive, a direct payment or receives a guarantee of payment from a social services district." These payments referred to in PSL § 65-b include those made under Social Services Law § 131-s.

The NYPA regulations, 21 NYCRR Part 459.13 essentially borrow the language of PSL § 65-b, requiring a municipal or cooperative utility to provide service upon "receipt of a commitment of a direct payment or a written guarantee of payment from the local social services commissioner...." So, although there is no explicit reference to Social Services Law 131-s in the NYPA rules, just as there is none in PSL § 65-b, it could be argued that the duty to restore service upon receiving a proffer of a four-month 131-s payment from a social services official should also adheres to utilities subject to the NYPA regulation.

PS, 5/20/08. The Power Authority directed Steuben co-op to restore service to the customer terminated without proper notice, and a court case brought by the customer was settled.

PSC Denies Request for Open Inquiry and Continues with 315 Area Code Changes

The PSC rejected PULP's motion for further inquiry and development of a record on the need for a new area code in central New York. How and when the 315 area code will be changed is still to be decided.

In an April 25, 2008 Order, the New York State Public Service Commission (PSC) formally denied PULP’s Motion for Interlocutory Relief in its proceeding to consider numbering relief options in the 315 area code region (i.e., the addition of a new area code within the current 315 area). PULP had submitted its Motion because it questioned how there could be an impending telephone number shortage in one of the least populated regions of the state. See PULP Asks PSC to Investigate Need for New Telephone Area Codes in the 315 Region.

With the April 25^th Order, the Commission will now look to find the best method to add a new area code. A Staff white paper proposes one of three geographic split options, with one half keeping 315, or having the new code “overlay” the current 315 code. Comments on the white paper are now due May 23 under a new scheduling order. The PSC also scheduled “public statement” hearings for May 1 - 14 throughout the area to gauge the preferences of residents.

When the Commission first proposed the need for area code “relief” in 315, PULP noticed that 78 rate centers which historically had only one exchange code (that is, communities assigned just one 10,000 telephone number central office code) had obtained multiple central office codes in recent years. What would a town of, say, 1,000 people do with 40,000 new telephone numbers, PULP wondered. And, if unneeded numbers and exchange codes could be returned, no area code relief would be necessary at this time.

The answer to this question comes down to timing. Today, all local telephone companies which request telephone numbers are required to request them in blocks of 1,000. Instead of receiving all 10,000 telephone numbers between 315-555-0000 and 315-555-9999, for example, one company receives the 555-1000 numbers and the next company receives the 555-2000 numbers. By allocating telephone numbers 1,000 at a time as opposed to 10,000 at a time, numbering conservation can truly occur and the burden and inconvenience of requiring new area codes can be averted or delayed.

When were telephone companies required to get numbers in thousands blocks? While thousands block pooling (as it is known) was kicked off in New York State in 2001, rural areas were not included by the Commission until fall 2007. However, some carriers, like Verizon, voluntarily pooled the numbers in their rural communities much earlier than that.

The bottom line, according to the Commission, is that assigning multiple sets of 10,000 blocks of telephone numbers in 315’s rural areas was permissible until last fall. As a result, the Commission found nothing unusual in how the telephone numbers were allocated.

This conclusion does not explain another important aspect of allocating telephone numbers -- that they must be used in the rate center or community in which they are designated. In several of these formerly single exchange rate centers, the competitive telephone companies which have received their own 10,000 blocks of numbers to serve these areas may provide the numbers to cable companies offering voice service who are prohibited from receiving numbers on their own. PULP finds it hard to believe that all of those telephone numbers (say, 30,000) are truly being used by customers in the designated rate centers (with, say, a population of 1,500). And if they are not, what a great waste of a limited resource, one that leads to over one million people in 18 mostly rural counties being subjected to a yet-to-be-determined area code change.

Lou Manuta

Parties Propose Resolution of Con Edison Queens Outage Prudence Proceeding

Background
Active parties in the Con Edison Queens outage prudence proceeding have entered into a Joint Proposal for its resolution. This proposal, if approved by the Public Service Commission, will prevent Con Edison from recovering, through electric rates paid by its electric customers, $46 million related to capital costs of new equipment that was installed to replace Con Edison facilities damaged during the July 2006 extended outage. PULP is an active participant in the case. For further background, see Queens Outage Update: ALJ Requires Con Edison to File Testimony on Prudence and Negligence Issues.

Proposed Settlement
Under the Joint Proposal, Con Edison, at shareholder expense, would also provide $17 million to benefit customers and residents of the areas affected by the prolonged outage. Part of that will be used to provide $100 bill credits to more than 70,000 residential customers who previously received credits for food spoilage due to the outage.

PULP vigorously supports the proposal and will be submitting a statement in support of it. Other parties supporting the proposal include Con Edison, Department of Public Service Staff, the Consumer Protection Board, the City of New York, Western Queens Power for the People, and Assemblyman Richard L. Brodsky.

Clearly, remedies under the filed Con Edison utility tariffs were inadequate. One effect of the Joint Proposal for resolution of the prudence case would be to provide additional $100 bill credits to residential customers. For customers with low incomes, who often live from check to check without savings, and for whom energy costs are an increasing burden, a utility bill credit of $100 can have very significant impact on their monthly budgets and their well-being. Thus, PULP does not agree with some who scoff at the amount of additional payments. Because of the narrow scope of remedies available in a prudence review case, and because customers already had obtained the limited compensation allowable under the filed tariffs, the ex gratia bill credits might not have been won in further litigation of the prudence issue.

Utility prudence litigation is rather limited in the scope of what can be achieved, because it generally addresses a question whether a utility can recover disputed expenses from its customers, through the ratemaking process. As mentioned above, under the proposed settlement, the value of $40 million worth of newly installed facilities, and $6 million in related carrying charges on the capital invested, will not be recoverable from customers.

Other Litigation: Twenty Cases Pending
Customers who suffer provable injury and damages as a result of a power outage stemming from a utility's gross negligence can, in theory, recover damages in court, including lost profits. The state's highest court, the Court of Appeals, affirmed a jury finding of gross negligence and damages award in Food Pageant v. Con Edison, a case arising from the 1977 Con Edison blackout. Also, the City of New York recovered damages from that blackout in Koch v Con Edison. According to Con Edison's Annual Financial Report for 2007, issued in 2008:

From July 2006 through December 31, 2007, Con Edison of New York had paid $14 million, $5 million of which was reimbursed by insurers, to compensate customers for spoilage of food and other perishables resulting from the Queens outage, incurred estimated operating costs of $40 million, $1 million of which was reimbursed by insurers, invested $50 million in capital assets and retirements in the Long Island City network after the Queens outage, and reduced revenues under its 2005 Electric Rate Agreement by $18 million relating to customer outages. Twenty lawsuits have been filed against the company in connection with the Queens outage seeking generally unspecified compensatory and, in some cases, punitive damages, for personal injury, property damage and business interruption.

Resolution of the PSC prudence case does not affect potential court remedies for customers whose damages exceed what has been provided under Con Edison tariffs and what would be provided under the proposed settlement. As indicated above, Commission approval of the prudence case would also bar Con Edison from recovering from its ratepayers $46 million for capital asset investments related to the outage.

Other Reforms
Reforms that could provide better redress to customers in the future include:

• PSC improvement of the tariffed compensation to customers for loss of service
  
• easing the gross negligence standard for recovery of damages due to outages
• easing litigation barriers under New York's class action law, which has been narrowly interpreted by the courts in ways that tend to limit class certification, deny attorneys fees to successful plaintiffs, and prevent class-wide recoveries when there are minor factual differences within a plaintiff class.
  

Of course, prevention of outages in the first place must be a paramount priority, because of the high societal and personal value we place on continuous electric service, and because losses due to power outages are so difficult to quantify and remedy.

Many actions have been and will be taken by the utility and its regulator, the PSC, in order to reduce the chance of future recurrence of such large failures and costly consequences. It is to be hoped that the Queens outage was a wakeup call for both Con Edison and the PSC. Yesterday, Con Edison issued another apology to customers who went without adequate service.

The Administrative Law Judge has set a schedule for submission of comments and hearings regarding the proposal.

Is There a Need for a "Broadband" Universal Service Fund?

Background
In many places around the country, there are actually more broadband Internet subscribers than dial-up customers, and as slow dial-up users migrate to any one of several broadband offerings, that trend should accelerate everywhere that the Internet is available. Unfortunately, broadband is not yet available everywhere and, in low population density areas, especially, there is little or no financial incentive for providers to offer service.

The future economic development of New York State hinges, in large part, on the availability and affordability of broadband service to every citizen, regardless of their location. New York has instituted its own public-private forum known as the Council for Universal Broadband, the goal of which is to develop strategies to help ensure that every New Yorker has access to affordable, high-speed Internet service. The challenge is not in agreeing that this is a worthwhile goal, but how the cost of achieving the goal will be paid for. PULP participates on the Digital Literary and Community Outreach Action Team of the Council for Universal Broadband.

One option for making broadband truly universal is the creation of a federal universal service fund for broadband. The federal USF exists today and has provided funding for basic telephone service in high cost and rural areas, as well as for Lifeline discount telephone service and funding for schools, libraries, and rural health care providers, for several years. Also, the Targeted Accessibility Fund of New York administers state universal service funds for telephone service, at the direction of the New York State Public Service Commission (PSC) . But, should a new USF, which would be funded -- directly or indirectly -- by users, be created to bring broadband to unserved areas?

On November 20, 2007, the Federal-State Joint Board on Universal Service issued its Recommended Decision regarding comprehensive reform of universal service, and its recommendations included creation of a new broadband fund to stimulate greater access to affordable broadband service. On January 29, 2008 the FCC sought public comments on the Joint Board's proposal.

New York PSC: Go Slow
Not so fast, say some parties that commented last week on the Joint Board's proposal to create a “Broadband Fund.” The PSC stated in its comments that it is premature to consider creating such a fund. It believes that the FCC “should obtain more granular data on the deployment and adoption of broadband services before considering funding broadband services via the high cost support mechanism.” It added that “[i]ncreased access to broadband services will allow rural and low-income Americans to participate more fully in the nation’s economy. It will continue fostering economic productivity and increase quality of life.”

The PSC said that it is looking for additional information on availability, adoption, speeds, and prices in order to correctly determine where to target aid. It referred to state and local mapping projects, like those conducted by California and Kentucky, which identified where investment is needed. It believes that the FCC should review the new broadband deployment data it is considering before creating a Broadband Fund. The PSC concluded its comments by stating that the goal of universal broadband deployment “might better be achieved by a low cost, subsidized loan program than by an award of capital construction monies.”

Verizon, Sprint, and AT&T Question USF for Broadband
Verizon's comments agreed that public-private partnerships are the best way to increase broadband deployment and subscribership and cited the “Connect Kentucky” program as a successful example. The company also questioned whether it would be lawful to support broadband with USF subsidies in the absence of Congressional action specifically stating that broadband should be a supported service.

Other companies active in New York submitted comments to the FCC as well. Sprint's comments, for example,opposed formation of a Broadband Fund until concerns with current USF funding mechanisms are resolved. AT&T's comments proposed the creation of separate funds for fixed broadband networks and for wireless broadband networks in unserved areas.

NASUCA
In contrast to the PSC and telecom companies, the National Association of State Utility Consumer Advocates (“NASUCA”), of which PULP is an active member, expressed in its comments support for the creation of a Broadband Fund, if and when the FCC decides that broadband service is qualified to receive USF funds. NASUCA believes that a Broadband Fund should focus on unserved areas, be limited to wireline broadband service (as opposed to the not-as-yet-well-developed wireless offerings), support much higher speeds than the FCC’s current definition of broadband, and possibly be funded from a separate assessment on broadband service.

Next Steps
A ruling by the FCC may come before the end of the year on the need for a Broadband Fund, as well as other issues related to the future of the federal USF. New York’s Council for Universal Broadband will continue to meet to decide what will work best for the people of our state to bring affordable broadband to all. New York is actually ahead of many states in deploying broadband, especially due to the efforts of Independent telephone companies in rural areas and the availability of cable modem service, but gaps remain. Identifying those geographic areas and determining why so many people with broadband access do not subscribe (cost, lack of knowledge of broadband’s benefits, etc.) can be addressed and acted on by the state as well as the FCC.

Lou Manuta

FCC to Require Improved Reporting of Broadband Deployment and Subscribership

By and large, regulators have allowed communications companies to decide where and when they will deploy the service and what they will charge for it. The lack of accurate information regarding geographic deployment of broadband infrastructure and subscribership within local communities frustrates efforts to assess whether sufficient progress is being made toward achieving affordable, universal broadband access for all.

It is difficult to obtain detailed information regarding broadband infrastructure deployment and subscribership data in areas where broadband service is available. Typically, providers of broadband service have been secretive about where they have built their systems, where they are deploying services, and how many persons in any particular area are actually buying broadband service when it is available. Questions have been raised about "redlining" in broadband deployment which results in lower income areas lacking access to high speed internet service, placing them at a further economic, educational, and informational disadvantage. See Broadband 'Redlining' Issue Raised In Fiber Deployment.

Some states have adopted initiatives to increase access to broadband in areas bypassed by the major providers. For example, California has a $100 million Advanced Services Fund to promote broadband services in unserved areas of California. New York State has a Council for Universal Broadband, a 28 member public/private task force working to develop new state strategies to achieve universal, affordable, high speed internet access.

The FCC recently announced that it will gather more data to measure broadband availability, a vital step which will assist in determining where to focus initiatives to address the “Digital Divide.” Specifically, the FCC will now require broadband service providers to report every six months on the number of broadband users, by census tract, broken down by speed and technology type.

This is a welcome step that may assist New York and other states in assessing what needs to be done next to expand the availability of broadband service in geographic areas where it is not yet deployed, to remove barriers to subscribership, and to improve affordability of broadband service for lower income persons.

See No Evil: FERC Refuses to Examine Gaming of RTO/ISO Electricity Spot Markets

Background: Order 697
The National Association of State Utility Consumer Advocates (NASUCA) and other utility consumer advocates requested rehearing and clarification of FERC Order 697 on market-based rates for the sale of wholesale electricity. No bona fide consumer organization had supported the further relaxation of regulation over wholesale electricity rates embodied in that order, and many had asked for stricter review of market rate outcomes in light of experience. See Industrial and Residential Customers Agree: Proposed FERC Rules for Electricity Market Rates are Flawed.

In its petition for rehearing, NASUCA urged FERC not to relax oversight and to examine whether sellers who pass its easy market share tests for stand alone market power can still manipulate market prices through strategic bidding, without overt collusion. See "Nonregulated" Sellers of Electricity Become "Market-Regulated" Under New FERC Rule. In addition, several utility consumer advocates filed a petition for rehearing raising a number of legal issues, such as whether FERC's new system of private, unfiled ratesetting passes muster under longstanding public rate filing requirements.

The Rehearing Order
On April 21, 2008, FERC rejected all consumer objections to its market-based rate regime, in its Order 697-A decision on rehearing. On the issue of rate manipulation and potential gaming of wholesale spot market prices in RTO/ISO markets, FERC stated:

NASUCA argues that the Commission must investigate whether sellers are able to raise electricity auction market rates to higher non-competitive levels, without collusion, through strategic bidding and gaming behavior in Commission-approved auction markets.... NASUCA states that experience, mathematical game theory analysis, judicial decisions, and laboratory simulations indicate that market participants who pass market power screens nonetheless may be able to elevate prices in Commission-approved auction markets through non-collusive strategic bidding, withholding, and gaming tactics. NASUCA states that the Commission’s market power screens are based on a static analysis of single sellers’ market shares, stating that less than a 20 percent share of the relevant market capacity is sufficient and less than the supply margin on the annual peak day satisfies the “supply margin assessment.” NASUCA concludes that neither of these tools addresses the problem identified in the research that sellers in these specialized markets repeatedly communicate through their bidding behavior....

NASUCA states that, to its knowledge, the Commission has never publicly discussed mathematical game theory analysis in depth in its orders, has not investigated the problem, and has held no technical conference or workshop to invite researchers to present their findings regarding gameability of the wholesale electricity markets.... NASUCA argues that strategic market behavior analysis is needed to assess whether current market designs allow participants, without overt collusion, to elevate market prices to unreasonable and non competitive levels. The purpose of such analysis would be to take corrective action to prevent gaming behavior, by revising market designs or rules. NASUCA asserts that the Commission misunderstood NASUCA’s request in finding that consideration and analysis of such behavior would be burdensome.

NASUCA argues that the “primary purpose” of the FPA and the Commission is protection of utility consumers. NASUCA states that, in order to achieve confidence that rates set in Commission-sanctioned markets are reasonable, the Commission must investigate strategic bidding and market gaming by market participants.... NASUCA therefore requests that, at a minimum, the Commission commence a proceeding to investigate this and begin it by inviting researchers who have identified strategic auction market gaming as a problem in auction markets of the type used for the sale of electricity to present their research at a public technical conference.

FERC responded to this request to examine whether its markets can be gamed as follows:

Commission Determination
We have considered the strategic bidding literature and various theoretical models which demonstrate that market participants who pass market power screens nonetheless may be able to elevate prices in Commission-approved auction markets through “noncollusive strategic bidding, withholding, and gaming tactics.” However, the Commission does not think it is necessary to investigate the possibility of whether sellers or market participants are able to engage in strategic bidding, withholding and gaming tactics to elevate prices in auction markets in order to determine whether to grant market-based rate authority. First, these theoretical or gaming models require consideration of numerous assumptions and hypothetical future behavior that may quickly become invalid because of the changing behavior of market participants, changes in the market or changes in other factors, e.g., supply or demand. Accordingly, the Commission is concerned that they would not be reliable tools in helping assess whether a seller has market power. Second, the type of behavior described by NASUCA may be prohibited by the Commission’s Anti-Manipulation Rule at section 1c.2 of the Commission’s regulations.... Violations of the Anti-Manipulation Rule include behavior constituting a fraud that had the purpose of impairing, obstructing, or defeating a well-functioning market.... The Commission’s Office of Enforcement monitors activity in the electric markets and conducts investigations to determine whether market participants are violating the Anti-Manipulation Rule. To the extent that NASUCA or any other entity has specific allegations of market manipulation, that entity should contact the Commission’s Enforcement Hotline or the Division of Investigations of the Office of Enforcement. Finally, as the Commission stated in Order No. 697, for practical considerations the data gathering and analysis burden imposed on sellers and the Commission to consider all the hypothetical types of behavior would be overly burdensome and impractical....

More states are finding it is "impractical" to rely on FERC to achieve reasonable wholesale rates, and many consumers are finding it "overly burdensome" to pay electricity bills inflated by unreasonable wholesale rates. FERC may someday need to reconsider its disregard of evidence that its RTO/ISO markets are defective.

Supreme Court Refuses to Hear Consumer Advocates' Case Challenging FERC Market Rates

After the California market rate debacle in 2001 FERC issued an order in 2003 declaring all market rates to be illegal, and required certain "market behavior" conditions to be added to all market rate tariffs to discourage market manipulation.

Several utility consumer advocates argued in their 2003 comments that these anti-manipulation conditions were not enough to bring the rates into full compliance with law, including statutory filing requirements. They questioned whether FERC exceeded its powers under the Federal Power Act when it adopted its current market based rate regime for wholesale sales of electricity, principal features of which include price secrecy and elimination of public filing of all rates and contracts before they take effect.

When FERC did not grapple with the advocates' arguments in its initial order, the advocates sought rehearing, and then when FERC denied rehearing in 2004, they sought judicial review of FERC's 2004 final order. See Consumer Challenge to FERC "Market-Based Rate" System Proceeds.

After procedural delays, including a request by FERC for voluntarily remand of the matter for further consideration, which was denied, the Court of Appeals for the District of Columbia eventually said in a 2007 decision that the issues raised by the consumer advocates did not need to be addressed by FERC in this case. See FERC Escapes Court Review of Legal Authority for its Electricity Market Rate Regime. Rehearing was requested, see Consumer Advocates Seek Rehearing of D.C. Circuit Court Decision Allowing FERC to Avoid Consideration of Statutory Filing Requirements.

When the Circuit Court denied rehearing, the advocates filed a petition to the Supreme Court for a writ of certiorari. See Electricity Consumer Advocates Seek Supreme Court Review of FERC Market Rate Orders. Responses were filed by FERC and by Morgan Stanley. The consumer advocates filed a reply brief.

On April 14, 2008 the Supreme Court denied certiorari without opinion. This means only that the Court did not want to take the case and the lower court order stands within its territorial jurisdiction; it does not establish a Supreme Court precedent, does not mean that the Supreme Court endorses the outcome or reasoning of the lower court, and does not mean that the Court would not address the issues in another case.

For more information see PULP's web page on the FERC market behavior case.

National Grid Policy of Denying Utility Service to Minors Challenged

National Grid has an informal policy not to provide utility service to the premises of persons who have not attained the age of eighteen. There is no authority in law or in the utility's filed tariffs for withholding service on this basis.

In New York, minors of employable age are able to establish their own domicile. Contracts they make for necessaries, such as utility service, cannot be disavowed on the grounds that they lack capacity.

PULP is representing a seventeen year old who lives with her five month old child and the child's father, who is also seventeen. She has finished her high school education, he is employed full time, and they are self supporting. National Grid refused to provide utility service needed for the apartment they have rented, and provided no notice of the factual and legal basis for the denial. National Grid advised the denied applicant that she could get utility service if it were paid by welfare, and referred her to the local department of social services, which provided no assistance.

The Public Service Commission's Emergency Hotline designee upheld National Grid's denial of service.

PULP has filed an appeal of the Emergency Hotline determination, and requested a ruling of the Commission. PULP argues that National Grid's practices

• Deny service to applicants who satisfy all statutory and tariff requirements for service;
• Cause hardship to individuals of employable age who have not attained the age of majority and who require utility service at their premises;
• Are contrary to the purposes of the Home Energy Fair Practices Act (HEFPA);
• Create additional qualifications, terms and conditions for utility service not contained in HEFPA, which are to assure continuous residential service to promote and preserve the public health, welfare and the public interest;
• Create additional conditions and qualifications for service not contained in filed tariffs;
• Base the decision to provide utility service upon determinations and actions of non utility third parties -- local Departments of Social Services -- in violation of National Grid’s common law duty to provide utility service to the public; and
  
• Are unreasonable, discriminatory and prejudicial.
  

In the papers, PULP cites prior instances in which National Grid adopted restrictive rules that worked to deny service, which had not been publicly filed and approved by the PSC, but which had been greenlighted by agency staff. PULP requested the Public Service Commission to order an immediate reversal of the determination of the Commission’s Emergency Hotline designee, and to issue a ruling that National Grid’s policies to deny service to minors living independently are invalid.