Governor Cuomo announced appointment today of a Moreland Commission co-chaired by former New York State Attorney General Robert Abrams and Benjamin Lawsky, Superintendent of the Department of Financial Services, to investigate the utility service outages that followed hurricane Sandy. The charge given to the Commission by the Executive Order is to
(A) study, examine, investigate and review:
(i) the emergency preparedness and response of utilities during and following emergency weather events, including the performance of the utilities during and following emergency weather events;
(ii) the adequacy of present laws, rules, regulations, practices and procedures with respect to utilities’ emergency preparedness and response;
(iii) the adequacy of existing oversight and enforcement mechanisms;
(iv) the structure, organization, ownership, financing, control, management and practices of the utilities as they affect emergency preparedness and response; and
(v) the provision of utility services to New York State under the existing legal regulatory framework, including but not limited to the jurisdiction, responsibilities and missions of the New York Power Authority, the Long Island Power Authority, the New York State Energy and Research Development Authority, as well as the Public Service Commission;
(B) report and make recommendations for legislative, policy and regulatory changes, as well as reforms as deemed appropriate in utility structure, management and practices, to best protect and serve the public’s interest with respect to emergency preparedness and response, and the provision of safe, reliable, responsive utility services; and
(C) review any other matters or activities which may affect the issues herein before specified;
Co-Chair Robert Abrams, former Attorney General of New York State
Co-Chair Benjamin Lawsky, Superintendent of the Department of Financial Services
Peter Bradford, former Chair of the Public Service Commission
Tony Collins, President of Clarkson University
John Dyson, former Chairman of the New York Power Authority
Rev. Floyd Flake, Senior Pastor of Greater Allen African Methodist Episcopal Cathedral
Mark Green, former New York City Public Advocate
Joanie Mahoney, Onondaga County Executive
Kathleen Rice, Nassau County District Attorney
Dan Tishman, Vice Chairman at AECOM Technology Corporation, and Chairman and CEO of Tishman Construction Corporation
After past major outages the Public Service Commission has also initiated investigations. The Moreland Commission will have power to review matters outside the normal jurisdiction of the Public Service Commission, and is empowered to review the role and performance of the Commission and other state entities.
A root cause analysis might explore the PSC’s regulatory style as a contributing factor, as the Commission itself recognized in the aftermath of a pedestrian’s electrocution in the streets of New York City, when it issued an order requiring utilities to do more safety inspections of their facilities. The Commission acknowledged unintended consequences of its deregulatory “performance based”approach:
Over the past 10 to 15 years, we and other regulatory commissions across the nation have moved from traditional one-year litigated rate cases to multi-year performance-based rate plans. The purpose of these plans is to allow for rate stability while allowing the utilities greater flexibility in managing their operations. Staff’s investigation into this matter suggests that the utilities may not have been placing enough attention and emphasis on safety matters.
This “performance based” approach typically includes ‘metrics” which count the number and duration of outages, and establish benchmarks which, if not met, will have adverse financial consequences. The scope of potential sanctions for service interruptions is typically agreed upon by the utilities in their multi-year rate case settlements approved by the PSC.
In recent years, the PSC preference has been to set utility rates for service several years at a time, using a “macro” approach based on settlements that are the outcome of confidential negotiations and does not specifically review details of utility spending plans. The intent is to focus on “performance” and results, as a perceived alternative to “micro management” of utility decisions. Utilities, including Con Edison, have been given great flexibility by the PSC to allocate resources during long multi-year rate plans.
As a result, performance-based ratemaking creates strong incentives for the utility to reduce expenditures during the term of the rate plan because any cost savings may be retained by the utility as profit.
Still another consequence of “deregulation” has been reduced regulatory scrutiny. The Commission no longer reviews the specific details of utility spending plans, certainly not with the same degree of scrutiny that had characterized its review in adjudicated rate cases. Annual rate cases have been largely replaced by multi-year performance-based rate plans. While this approach may have the advantage of providing utility management with more flexibility, not necessarily a bad idea, it has come with a price. As noted above, the Commission itself has acknowledged that on at least one occasion, coincidentally an incident also involving Con Edison, performance-based regulation may have compromised public safety.
This Task Force is concerned that performance-based regulation as conducted by the PSC might also be contributing to a reduction in the overall reliability of Con Edison’s distribution system. The nature of the Queens blackout does not appear to have been an isolated, “once-in-a-lifetime” event, certainly not within the Con Edison service territory. Only seven years ago, hundreds of thousands of people in New York City and Westchester County also lost their power during a summer heat wave with the most widespread blackout occurring in the Washington Heights-Inwood area of Manhattan. That blackout was not caused by a failure either in the power supply or in the transmission of that power to Con Edison’s distribution system. The 1999 blackout and its associated outages were caused by failures of equipment within Con Edison’s electricity distribution system. As a result of the several investigations underway and the information available at this time, it appears that the physical causes of the Queens’ blackout were also operational failures and failures of equipment in Con Edison’s electricity distribution system. The timing and nature of these outages might only be only coincidental, but a reasonable person might ask whether these outages could have been prevented had the Commission not relaxed its regulatory scrutiny of Con Edison as a result of its changed approach to utility regulation.
The Commission must reassert its mission as “a Tribune of the people” committed to its responsibility for assuring adequate electric service at reasonable rates. Under the best of circumstances, this is a formidable challenge.
Another item for possible Moreland Commission scrutiny may be the operation of Con Edison’s “revenue decoupling” rate adjustment mechanism. Adopted in the name of environmental concern to limit incentives for utilities to spur their customers’ utility usage (even though it is customers who ultimately make the usage decisions, not the utilities) rate adjustments are made in an effort to make the utility indifferent to whether customers use more or less electricity. This is also thought to encourage utilities to help customers reduce usage through utility-sponsored energy efficiency programs, without reducing the utility’s revenues. Normally, a utility with thousands of customers out of service would have a strong incentive to restore service to get the meters turning again. But if they make the same amount of revenue per customer, perhaps they are less incented to spend the extra money needed to restore service quickly. The workings of the revenue decoupling mechanisms should be reviewed to see that they do not compensate utilities as if they were providing service when they did not.