N.Y. Times Perpetuates Myth Supporting Unjust New York PSC-DHCR-NYSERDA Submetering Regime

A myth fostered by property owners and electric submetering proponents is that because New York tenants in rent stabilized apartments will receive an offsetting reduction in rent (due to the shift to tenants of bills for electric service previously included in rent), only tenants who are wasteful in their energy use will pay more when they get the owner’s bills for electric service. See Top Ten Submetering Myths. PULP Network, July 7, 2009.

This misconception diverts attention from the state agencies (PSC and DHCR), and the state authority (NYSERDA) that adopted measures in the Pataki years to make submetering a windfall trifecta for owners — with the PSC allowing landlords to provide de facto deregulated monopoly electric service, DHCR providing small rent reductions when separate charges are made for electricity, and NYSERDA providing grants to landlords to pay for the conversion to submetering, often with money that was targeted to benefit low income users of electricity. It suggests instead that the responsibility for higher monthly costs and hardship caused by submetering belongs to tenants who waste electricity. This myth was reinforced in a New York Times real estate blog column today, which quotes an attorney who states

Rent-stabilized tenants who use relatively little electricity may reap a slight windfall from submetering if their use is less than the average, while those who use a lot of electricity may have their combined housing and electric costs increase, he said.

Jay Romano, When a Co-op Installs Electric Submeters, Real Estate Q & A, Expert Advice for Owners and Renters, N.Y. Times, August 28, 2009.

Actually, most tenants who do not use a “lot of electricity” are likely to pay significantly more to their landlords after submetering. Tenants with average electricity usage will pay more because the rent reductions required by DHCR do not come close to offsetting the landlord’s new charges for electric service. The result is a windfall to owners, often further subsidized by NYSERDA grants to defray the cost of conversion to submetering. See PSC and NYSERDA Spend Millions for Submetering Projects Violating Residential Tenants’ Rights, PULP Network, January 16, 2009.

Let’s look at the numbers to see what happens in a conversion from master metering. First, assume the apartment is to be directly metered for Con Edison service.

In that situation, the rent reduction schedule in DHCR Update Number 1 to Operational Bulletin No. 2003-1 says that when there is a change from master metering to direct metering of a four room apartment, the rent is reduced by $60.00. If we assume typical 350 kwh per month in July, as Con Edison does in a recent press release, the Con Edison charge for July 2009, calculated using PULP’s Con Edision bill estimator, would be $93. Average consumption is considerably higher than the amount of consumption covered by the rent reduction. The $60 allowed as a rent reduction would only buy 205 kwh.

Thus, a “typical” customer would pay $33 more for total rent and electric service with the conversion to direct Con Edison service. Keep in mind that this summer’s electricity prices were lower; the situation has been much worse in recent years, and is likely to get worse again if the economy and electric usage pick up again. For example, in July 2008, a Con Edison customer would have paid $105 for 350 kwh usage, and the gap for the typical customer would have been at least $45. Also, we used a low figure for typical consumption; average year-round Con Edison residential customer usage is in the range of 400 kwh per month, and higher summer usage tends to occur when prices are higher. These factors would increase the gap between a tenant’s electric bill and the amount of the DHCR rent reduction.

Next, lets look at a situation discussed in today’s Times article, where the owner sells electricity to the tenant through submetering, as opposed to hooking the customer up to Con Edison direct service.

In this case, the DHCR rent reduction schedule requires a rent reduction of only $46.99. If we assume (as DHCR did to justify skewing the rent reduction schedules to favor landlords), that the charges for submetering are $20% less than direct SC-1 residential service from Con Edison, then the submetered service would cost $18.60 less than the $93 cost of Con Edison service, or $74.40, and the difference between the charges for 350 kwh electricity usage and the rent reduction of $46.99 would be $26.60 per month.

Thus a newly submetered tenant with typical usage would pay $26.60 per month more than the amount of the rent reduction. Moreover, we have used a DHCR assumption, made to justify the low rent reduction amounts, that the landlord could always get service to the tenant 20% cheaper than Con Edison direct service. That is simply not correct. The bulk rate paid by submeterers is not always 20% cheaper than the Con Edison direct service rates. The bulk rate for Con Edison SC-8 service to large submetered apartment buildings is linked to the NYISO wholesale short term spot market prices. In contrast, Con Edison direct service customers have the benefit of a portfolio of long term contracts and hedging to limit price volatility. Indeed, some landlords have charged submetered tenants significantly more for electric service than Con Edison would charge to a direct customer. See Hazel Towers Tenants to Receive $20,000 Credits of Landlord’s Overcharges for Submetered Electric Service, PULP Network, August 26, 2009.

For further information on how DHCR adopted a submetering rent reduction schedule deliberately designed to make it more profitable for owners, and how the submetering regime harms tenants and favors landlords, see PULP Analyzes DHCR Submetering Rent Adjustments, PULP Network, May 27, 2009, and PSC Order Allowed Landlord to Shift Million Dollar Electric Bill to Low Income Tenants, PULP Network, May 6, 2009.

A loss of twenty-six bucks a month for a tenant in rent stabilized housing converting to submetering may not seem significant to most readers of The Times. But many tenants lack the savings and income to absorb such increases in monthly expenses. Even before submetering, they often run out of money the last week of the month, and are living in hardship that will be worsened by higher costs. Those who are homebound or who have respiratory difficulties and must use more electricity for air conditioning than the average customer just to stay alive are doubly aggrieved. In some cases higher, unaffordable costs due to submetering may lead to threats of eviction of tenants who no longer can make ends meet. Landlords have attempted shortcuts to enforce payment of submetered electric bills they “deem”to be “added rent” through eviction proceedings, rather than follow the course charted out in the Home Energy Fair Practices Act, which provides opportunities for customers to catch up on arrears prior to cessation of the electric service.

What is the source of the misperception published by the Times that only tenants who use “a lot of electricity” will pay more with submetering?

One source may be the NYSERDA Residential Electrical Submetering Manual, co-authored by a submetering consultant. This same consultant has petitioned the PSC repeatedly on behalf of landlords to gain approval to submeter more than 23,000 apartments. The NYSERDA Manual claims that

Approximately 60 to 70% of residents benefit from submetering. The only residents who fare worse under submetering than under other means of allocating electric cost are those who use excessive amounts of electricity.

This, of course, is demonstrably false, as discussed above. There is no showing that the average customer uses “excessive” amounts of electricity, and much of a tenant’s usage is determined by the efficiency of the landlord’s structure, fixtures, and appliances.

Such misrepresentations published by a public authority, NYSERDA, are often copied or paraphrased and distributed by building owners to tenants in buildings where a petition for submetering is pending. This may lull tenants into not opposing submetering when applications are pending. Only much later, after the PSC has acted, do they discover the truth, that they must pay more, even if they do not use “excessive amounts of electricity.” NYSERDA itself takes no responsibility for the claims in its Residential Electrical Submetering Manual:

Any opinions expressed in this report do not necessarily reflect those of NYSERDA or the State of New York, and reference to any specific product, service, process or method does not constitute an implied or expressed recommendation or endorsement of it. Further, NYSERDA, the State of New York, and the contractor make no warranties or representations, expressed or implied, as to the … usefulness, completeness, or accuracy of any processes, methods or other information contained, described, disclosed or referred to in this report. NYSERDA, the State of New York, and the contractor make no representation that the use of any … information will not infringe privately owned rights and will assume no liability for any loss, injury, or damage resulting from, or occurring in connection with, the use of information contained, described, disclosed, or referred to in this report.

The Times story does not mention that any submetering must be preceded by an order from the Public Service Commission, and before that is issued, affected tenants must be allowed a chance to comment on the conversion. There are specific rules of the Public Service Commission with added requirements in the situation “[w]here or more nonshareholder tenants refuse to agree” to a plan for submetering of a master metered coop or condo. Con Edison tariffs similarly state

if one or more non-shareholder tenants refuse to agree to the plan proposed by the submeterer, submetering to such tenants shall be permitted only after Public Service Commission approval of an application submitted by the prospective submeterer that satisfies applicable requirements specified in Part 96 of the Public Service Commission’s rules….

Perhaps this step in the submetering process was left out because submeterers have so captured the PSC and its staff that the PSC approval of waivers of the general prohibition against submetering is merely a rubber stamp. The PSC process allows owners to promise in their applications to adopt a few measures that appear to protect the tenants as electric customers, but then the PSC allows submetering to proceed without checking to see if the owner actually implemented the protective measures and without approving tariffs or the actual agreements for electric service foisted upon tenants through lease riders. Some owners have been allowed to short-circuit the PSC comment process by failing to provide adequate notice to tenants of their rights to comment to the PSC on their applications before they are acted upon. See, e.g., Townhouse West Tenants Win Three-Month Reprieve from Submetering Charges, PULP Network, August 26, 2009, describing a situation where the landlord sent incomplete notice of the application to submeter to tenants with only four business days remaining before the expiration of the 45 day SAPA comment period, and those four days were before and after the Christmas weekend. When tenants asked the PSC for a copy of the application, weeks elapsed before it was provided, and it was finally sent to the tenants by the PSC staff the day after the PSC approved the application. The PSC Order allowed this sharp practice of Stellar Management, stating

The comment period expired on December 26, 2006, and no comments were received….. All current residents have been given notice of the submetering plan …Documentation was provided to Staff which certifies that the notification was hand delivered to each tenant on December 19, 2006.

The touted efficiency benefits of submetering, which lend a “green”patina to the unjust shifting of costs to tenants have also been grossly overstated. Tenants are usually powerless to change out inefficient structures, fixtures, and major energy-using appliances, which typically are owned and controlled by their landlords. Due to rent regulation quirks, the changeout of the inefficient appliances can raise their rent permanently, and negate or offset the cost effectiveness of more efficient refrigerators, air conditioners, and other items. The PSC recently slowed the flow of System Benefits Charge funds to landlords, deflated the rosy estimates of energy savings from submetering, and instructed NYSERDA to fund submetering projects only in coops, condos, or unregulated housing. See PSC Signals Shift in Landlord Subsidies to Implement Submetering, PULP Network, June 25, 2009.

The reality – that higher costs from submetering cause hardship to tenants who do not waste energy and who are struggling to live on low and fixed incomes – was recently reflected in a letter from Manhattan Borough President Scott Stringer and numerous federal, state, and local officials expressing concern to the state officials whose agencies have been facilitating submetering. See Elected Officials Voice Concern to PSC and NYSERDA Over Submetering of Former Mitchell Lama Projects, PULP Network, August 21, 2009.

For more information see PULP’s web page on submetering.

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