Background: The PSC-Imposed System Benefit Charge
In 1998, implementing its “vision” to restructure New York’s electric utilities, the Public Service Commission eliminated utility-funded demand side management programs and established a new third-party system for delivering energy efficiency measures funded at a reduced level by a “system benefits charge” (SBC). The SBC is an additional amount billed to each utility customer, “to ensure that certain public-benefit programs formerly provided by regulated monopoly utilities would continue in a partially deregulated environment.” See, Order Continuing the System Benefits Charge (SBC) And the SBC-Funded Benefit Programs, In the Matter of the System Benefits Charge III, Case 05-M-00090 (Issued and Effective December 21, 2005) at p. 5. .
When the SBC was established in 1998, the charge to ratepayers ranged from 0.85 mill to 1.0 mill per kWh. See, SBC History 1996-1999. A “mill” is 1/1000 of a dollar, or 1/10th of 1¢. Typical electric bills of the major utilities bills posted on the Commission’s website reflect a current monthly SBC charge for residential customers ranging from 31¢ to 90¢ per month, for customers consuming 500 kWh, depending on which utility serves the customer.
Between 1998 and 2005, the SBC raised $150 million dollars per year. The current SBC has and will raise $175 million dollars annually from 2006 through 2011.
PSC orders direct that revenue collected by utilities through the SBC be transferred to the New York State Energy Research & Development Authority (“NYSERDA”) on a quarterly basis. See, Order Continuing the System Benefits Charge (SBC) and the SBC-Funded Benefit Programs, In the Matter of the System Benefits Charge III, Case 05-M-00090 (Issued and Effective December 21, 2005) at p. 28, 30.
From the SBC’s inception through mid-2006, $1.87 billion dollars was funneled by the utilities to NYSERDA as required by the PSC orders. Final Report, New York Energy $mart Program Evaluation and Status Report to the System Benefits Charge Advisory Group for the Year Ending December 31, 2007 (March 2008), at p. ES-1.
Where Does the SBC Money Go?
NYSERDA reports that 38% of the money is devoted to providing financial incentives to Commercial/Industrial utility consumers; 23% is used for Research & Development; 19% goes to financial incentives for Residential applications, and 19% to Low Income programs. Id., at p. ES-2.
Among the dollars earmarked for “residential” programs, are financial incentive bonanzas, handed out to private owners of multi-family, residential rental properties who seek to submeter electricity to tenants in their buildings. These private owners, including some of the state’s largest real estate moguls, are relieved from paying for electricity previously included in rent, by shifting the electricity costs directly to their tenants.
The Push to Submeter Multi-Family Buildings to Help Landlords Resell Electricity to Tenants
Under the Public Service Commission’s lead, and the terms and conditions of a Memorandum of Understanding between the PSC and NYSERDA executed in March 1998, NYSERDA’s submetering initiative began under a program named “Residential Comprehensive Energy Management (CEM).” New York Energy $mart Program Evaluation and Status Report to the System Benefits Charge Advisory Group, Final Report Volume 2 (May 2004), at p. 7-74 et seq. The goal of CEM was to “promote the acquisition and installation of sophisticated energy management and advanced metering systems in residential applications”; to submeter 15,000 multifamily dwellings; and to assist building owners to take advantage of “retail competition,” i.e., ESCO service. Id.
Elusive Energy Savings?
The energy savings from submetering under the CEM program are unclear. The cumulative savings of electricity from the program’s inception through the end of 2003 was estimated to be 2.1 GWh. Id. at p. 7.77. Estimates for the ensuing years brought even more meager savings raised the cumulative total to 3.0 GWh by the end of 2004; Final Report, New York Energy $mart Program Evaluation and Status Report to the System Benefits Charge Advisory Group, May 2005, at p. 6-5, available at and to 3.5 GWh at the end of 2005. Final Report, New York Energy $mart Program Evaluation and Status Report to the System Benefits Charge Advisory Group, May 2006, at p. 5-6.
NYSERDA has since stopped reporting estimated CEM program electricity savings. In the subsequent annual report, energy savings from two other programs The Low-income Assisted Home Performance Program and the Assisted Multi-Family Program.were added to the CEM estimates, which allowed NYSERDA to report a more than ten-fold increase in savings – 38.2 GWh – as of the end of 2006. Final Report, New York Energy $mart Program Evaluation and Status Report to the System Benefits Charge Advisory Group, March 2007, at p. 4-5. (That cumulative figure somehow declined to 37.4 as of the end of 2007.) Final Report, New York Energy $mart Program Evaluation and Status Report to the System Benefits Charge Advisory Group for the Year Ending December 31, 2007 (March 2008), at p. 4.5.
Ultimately, the CEM program was phased out, and replaced with a new, PSC-sanctioned program called the “Multifamily Building Performance Program for Existing Buildings.” NYSERDA’s most recent annual report showed that the new Multifamily Building program has reached only 3% of its electricity savings goal. Final Report, New York Energy $mart Program Evaluation and Status Report to the System Benefits Charge Advisory Group for the Year Ending December 31, 2007 (March 2008), at p. ES-13, available at: A more stunning admission, particularly in view of the PSC’s headlong rush to submeter multifamily dwellings, see PULP Network article on the upcoming PSC Technical Conference on Submetering, is that NYSERDA has achieved 0% of its goal to save market rate tenants in submetered buildings $250 per year and it has achieved only 6% of its goal to save low-income tenants $195 per year. Id. at p. ES-14
Added Costs and Little Benefits to Tenants
The PSC-sponsored, ratepayer funded, NYSERDA-administered submetering initiative amounts to a sugar plum for real estate developers, building owners, property managers, submetering companies, electrical apparatus sellers, consulting engineers and energy management service companies. Tenants do not fare nearly as well.
Typically, a New York City landlord who submeters to tenants in rent stabilized apartments provides a small rent reduction in accordance with DHCR schedules, and bills the tenants separately for electricity, charging in excess of the rent reduction. For example, a New York City tenant in a rent stabilized three-room apartment would see a rent reduction of $38.99 when the landlord begins to submeter. But the electricity charges of the landlords are typically much higher. There is no requirement for landlords of unregulated premises to reduce rents when the burden of paying electric bills is shifted to tenants under a PSC order.
Owners may have had little incentive to install efficient appliances even when they paid the electric bills. They could recover the cost of appliance upgrades over time by seeking larger rent increases for rent stabilized apartments, but they may have preferred to make other capital investments with greater returns, for example, by buying another building.
The PSC and NYSERDA apparently imagine that submetered tenants will conserve electricity by responding to higher prices, and will make long term conservation investments by purchasing new appliances or reducing their usage. See NYSERDA Residential Electric Submetering Manual, Oct. 2001, p. 7.
As newly submetered tenants attempt to cool poorly insulated apartments with turn-of-the-last century windows and decades-old appliances, in an environment of rising electric rates, their energy costs escalate well beyond the offsetting rent reduction. In many cases owner-supplied appliances such as obsolete through-the-wall air conditioners or refrigerators cannot be replaced without landlord permission and without paying additional rent increases for the landlord’s investment. Many tenants could not afford to replace these appliances even if the landlord allowed them to do it. And, tenants have no control over their buildings’ structural energy efficiency, e.g., insulation, windows or over common areas.
Typically, PSC orders permitting landlords to sell electricity require them to charge actual costs and that in no instance can their charges exceed the charges that would be paid if the customer obtained service as direct customer of the utility. The PSC submetering orders also require notification to tenants of Home Energy Fair Practices Act (“HEFPA”) rights and remedies, including the right to have the PSC decide a bill dispute.
Legislation enacted in 2002 clarified that building owners who submeter are indeed “utilities” under Article 2 of the Public Service Law. Despite the law, the PSC regulations and the PSC orders, however, some landlords appear to be routinely denying submetered tenants the safeguards of HEFPA. For example, some submetering building owners overcharge tenants and fail to give tenants timely and adequate notice of the basic HEFPA protections. The PSC ignores these violations and has consistently refused to act in a timely fashion upon complaints brought to its attention months ago. See Lax PSC Enforcement of Submetering Orders Allows Landlords to Overcharge for Electricity Sold to Tenants and to Circumvent HEFPA Protections.
Millions of dollars of money raised from customer surcharges are being doled out by NYSERDA to pay landlords for the substantial cost of converting from master metered service with electricity included in rent to submetered service separately billed to the tenants. Even though they have accepted NYSERDA financial incentives, sometimes up to 100% of their cost to submeter, landlords are overcharging tenants and violating HEFPA.
Allowing landlords to sell electricity to residential tenants with no meaningful price regulation and without consumer protection is another piece of the PSC’s deregulation agenda. The Commission’s tolerance for submeterers’ disregard of their obligations sends the message to other submeterers that once the PSC has given its approval to submeter and the NYSERDA money has been doled out, the PSC will ignore submeterers’ obligations to customers.
The Public Service Law does not specifically address submetering. Indeed, many years ago, the PSC banned it altogether, calling it “parasitic,” but the practice has gradually re-emerged. Submetering is achieved through PSC regulations and orders, which are far too discretionary, provide no enforcement mechanism, and, as experience has shown, are prone to abuse.
In addition, tenants are getting a raw deal in the PSC/NYSERDA programs. At a minimum, when a building is submetered with NYSERDA grants there should be a comprehensive assessment of the impact on tenants. Many tenants in low and moderate income buildings live on fixed incomes and are unable to absorb the higher costs, or to invest in energy saving measures to cope with the new electricity charges. In addition to (or instead of) giveaways for landlords that pay for the installation of the new meters, NYSERDA should protect tenants, by replacement of inefficient appliances and requiring the landlord to improve thermal efficiency of the building envelope. Given the direction of the current PSC and NYSERDA, their tilt toward landlords and disregard of consumer interests, legislation may be needed to adequately address the growing problems in this field.