Background. In a FERC enforcement proceeding begun in March last year, Constellation Energy Services Group settled charges that it had manipulated the NYISO wholesale electricity market, agreeing to pay fines and to disgorge profits for the benefit of electricity consumers. New York’s earmark from the disgorged profits proceeds is $78 million. For further background, see
- New York Formulating Plans to Use $78 Million Disgorged by Energy Trader for the Benefit of Electricity Consumers, June 16, 2012;
- FERC Urged to Use Portion of Funds Disgorged by Alleged Wholesale Electricity Market Manipulator to Bolster Utility Consumer Advocacy, July 11, 2012;
- States File Recommendations with FERC for Use of Funds Disgorged by Alleged Wholesale Electric Market Manipulator, Sept. 10, 2012;
- Comments Filed with FERC on State Recommendations for Use of $104 Million Disgorged by Alleged NYISO Market Manipulator, Sept. 26, 2012
New York has not Asked for Its $78 Million to Benefit Electricity Consumers.
Since October 2012, all or nearly all of the 16 or so states that received Constellation disgorgement fund awards have asked FERC to pay out the money. New York, however, the largest recipient, has not yet requested its $78 million.
New York’s Proposed Use of the $78 Million, the NYSERDA Conduit, and the ALJ Ruling.
The three New York state agencies deemed “eligible” to make recommendations to FERC (the PSC, the Department of State, and the Attorney General) proposed in their filing to allocate the money for three purposes:
- Direct customer bill credits through the utility companies ($48 million);
- Unspecified NYSERDA transmission technology improvement projects ($20 million); and
- Utility consumer advocacy by the Department of State UIU to support “comprehensive” customer advocacy at the NYISO and at FERC. ($10 million, $1 million/year for 10 years).
Comments to FERC on the state’s proposals suggested ways to better focus the $48 million benefit, (which would amount to little when spread out on a per-customer basis), and sought more details on the vague NYSERDA transmission technology projects. Concerns were also raised about the complicated structure proposed by New York for consumer advocacy, and in particular whether consumer advocacy funds will go to an entity with independence over its staff, operations, workplans and budget, having authority to question NYISO tariffs or FERC rulings in court and power to advocate for alternatives or modifications to utility and regulatory agency decisions.
Since the abolition last year of the Consumer Protection Board there is no separate state office for utility consumer representation which has the requisite independence and authority. Thus there is no state entity to which the FERC grant could be directly made for the consumer advocacy purpose. The convoluted proposal to funnel money via NYSERDA, an unnamed trustee, and to operate the program under PSC oversight, is complicated.
The PSC defended how the process will work for distribution of the $1 million per year of consumer advocacy funds to the Utility Intervention Unit, which is within the staff of the New York State Department of State:
The funding may at first appear intricate, but in reality the steps are relatively simple and provide additional assurance that the money is spent wisely. The funding, if approved, will be given to the New York State Energy Research and Development Authority (\\NYSERDA”). Either NYSERDA will act as trustee, or another entity will be named. The New York Department of State’s Utility Intervention unit will then hire and work with an entity to staff the consumer advocacy project. To strengthen this framework, the Department of Public Service (\\DPS”) would have authority to review the UIU’s consumer advocacy budget. The purpose of the system is to provide oversight so the funding is used as effectively as possible. This proposal maintains the independence of the advocate from the NYISO; having a funding source outside the NYISO prevents any conflict between advocate and market operator. NYPSC’s plan, as presented, balances oversight with independence.
If we have this right, the New York state agencies eligible to ask for the money asked FERC not to give it to them but to an authority, NYSERDA. NYSERDA will then hold and disburse money as a “trustee” (or another entity will be named trustee). Apparently money from the trustee will then flow back to the state agencies, and the whole project will operate under PSC supervision of the workplan, staffing, hiring, consultants and budget.
On October 18, 2012, a FERC ALJ brushed aside concerns and issued a decision approving the New York proposal. With respect for the process of actually disbursing the money, the ALJ stated:
Designated eligible state agencies may now file Requests for Disbursement in this docket. The Parties requesting disbursement are strongly encouraged to make this administrative process as simple as possible to facilitate timely and efficient distribution on the funds. The Request for Disbursement should cite to this order granting approval of the proposed plan, indicate the amount of money to be disbursed, and provide all other necessary information required, with the exception of account wiring instructions, to effect distribution to the designated eligible state agency or agencies that will actually receive the disbursement, or their designee if necessary,[fn] either in the primary filing or under separate cover if appropriate. Parties will have fifteen (15) days from the date of filing the Request for Disbursement to file comments if it becomes necessary to do so.
In a footnote, the ALJ stated:
It is recognized that some state agencies may be prevented from directly receiving funds. However, those state agencies are directed to limit the number of designees to one designee per eligible state agency and to provide the relevant information concerning the designee in the Request for Disbursement.
What is it that might prevent direct receipt of these funds by a New York state agency? Why would the PSC, DOS and the AG ask that the funds for consumer advocacy to be routed through an authority and a trustee and then back to a state agency?
Perhaps the agencies devised this circuitous route of money through an authority, a trustee, and another entity to circumvent the legislature and the court decision in Anderson v. Regan. In that landmark case interpreting the state constitution, the New York Court of Appeals held that the executive branch agencies could not receive and spend money from the federal government — even if it was targeted for specific purposes — without legislative approval and appropriation in the state budget process. In rejecting an effort of the state executive branch to keep federal grant money “off-budget” the court stated:
As the framers of the Constitution astutely observed, oversight by the people’s representatives of the cost of government is an essential component of any democratic system. Under the present system, some one third of the State’s income is spent by the executive branch outside of the normal legislative channels. The absence of accountability in this sector of government is, manifestly, an unacceptable state of affairs in light of the framers’ intention that all of the expenditures of government be subjected to legislative scrutiny…. When the appropriation rule is bypassed, as it presently is in the case of Federal funds, the Legislature is effectively deprived of its right to participate in the spending decisions of the State, and the balance of power is tipped irretrievably in favor of the executive branch.
It appears that the proposed state budget provision for NYSERDA does not mention or include the Constellation disgorgement revenue, i.e., neither the $20 million to NYSERDA for the unspecified transmission enhancement projects nor the $10 million for the consumer advocacy function is mentioned. The DOS program budget for its consumer program is basically unchanged from the 2012 budget to the 2013 budget, with no mention of any federal special revenue, and thus there is no anticipated receipt by that agency of the funds for consumer advocacy.
Although the $10 million amount is not mentioned, the proposed Executive Budget mentions the first year’s installment of $1 million – in the Budget for the Department of Public Service:
Major budget actions include:
$1 million for a wholesale market consumer advocacy initiative, to be operated in conjunction with the Department of State’s Division of Consumer Protection. The initiative, funded from a Federal settlement with a major utility, will provide advocacy on behalf of New York’s electric consumers on utility rate issues.
So now we have it: the money for consumer advocacy is going to the PSC.
Consumer groups are asking the legislature to reform the utility consumer advocacy function in New York by creating and adequately funding a separate office of utility consumer advocate with the independence to fight for utility consumers in all forums. The Constellation disgorgement fund creates a ten year source of funding at a $1 million/year level for a portion of that work: the NYISO and FERC advocacy regarding wholesale electric rates. This could be coupled with increased state appropriations and creation of a new, viable and independent state utility consumer advocate office.
Additional funds are needed to build a really effective consumer advocate office, because the current amounts spent to support DOS and PULP do not support the necessary team of lawyers, economists and experts. One way to find funds for this and other worthy purposes is to end or phase out the tax break favoring ESCO service. That break relieves ESCO customers of state sales taxes on delivery service from utilities when they buy electricity or gas supply from ESCOs. According to the 2013-14 Tax Expenditure Report, p. 93, this amounts to $60 million/year in lost state revenue. The tax break also creates an uneven playing field by allowing economically inefficient ESCOs to win customers by reselling utility service at a slight markup and giving customers a slightly lower bill due to the tax savings. This needlessly subsidizes ESCO service and distorts competition. Ending this tax break, and using just part of the revenue to protect utility customers by creating and funding a new advocate office would be a big step forward.