PSC Upholds Secrecy of “Lightly Regulated” Electric Company Profits

In a final agency determination under its Records Access Rules, the Public Service Commission on August 13, 2014 held that information in Annual Reports required to be filed by all electric companies under Public Service Law § 66(6) may not be released under the Freedom of Information Law with respect to companies “lightly regulated” by the PSC.  The final determination upheld an initial determination of the Records Access Officer and denied the administrative appeal of Assemblyman James Brennan, who is the Chairman of the New York Assembly Committee on Corporations, Authorities, and Commissions.  For more background see CONSUMER GROUPS URGE NEW YORK PSC TO RELEASE ANNUAL REPORTS SHOWING PROFITS OF “LIGHTLY REGULATED” ELECTRIC COMPANIES, Utility Project Blog, August 12, 2014. PSL Section 66.6 states that the Public Service Commission shall:

“Require every person and corporation under its supervision and it shall be the duty of every such person and corporation to file with the commission an annual report, verified by the oath of the president, vice-president, treasurer, secretary, general manager, or receiver, if any, thereof, or by the person required to file the same. *** The report shall show in detail (a) the amount of its authorized capital stock and the amount thereof issued and outstanding; (b) the amount of its authorized bonded indebtedness and the amount of its bonds and other forms of evidence of indebtedness issued and outstanding; (c) its receipts and expenditures during the preceding year; (d) the amount paid as dividends upon its stock and as interest upon its bonds; (e) the names of its officers and the aggregate amount paid as salaries to them and the amount paid as wages to its employees; (f) the location of its plant or plants and system, with a full description of its property and franchises, stating in detail how each franchise stated to be owned was acquired; and (g) such other facts pertaining to the operation and maintenance of the plant and system, and the affairs of such person or corporation as may be required by the commission.”

The PSC requires some electric companies to file reports on forms designed for the “lightly regulated” utilities. The forms filed are heavily redacted and do not divulge the information required by PSL 66.6.  For example, here is the blacked out income statement of one of the “lightly regulated” electric companies,  which is owned by a consortium of investment bank affiliates, Cayman Island Exempt Corporations, and hedge funds.  According to a recent petition for PSC approval of a change in ownership this “lightly regulated” utility “receives energy management and marketing services from Consolidated Edison Energy, Inc. through an Energy Management and Marketing Agreement. Consolidated Edison Energy, Inc., in turn, sells power from the New Athens Facility into the markets administered by the New York Independent System Operator, Inc. (“NYISO”).”  Con Edison Energy is affiliated with Con Edison and is a wholesale power marketer operating mainly under FERC jurisdiction with permission to sell and trade electricity at “market based rates.” Four Entergy Nuclear subsidiaries operating in New York filed a redacted 2013 annual report which includes its balance sheet and income statement, which showed a 2013 operating loss after non cash depreciation expense was taken into account, for its two Indian point reactors and the Fitzpatrick nuclear plant and an operating services company.  In contrast, Constellation, which purchased upstate nuclear plants from other utilities, revealed no financial information at all in its redacted Annual Report. The initial decision, upheld by the Secretary, said that financial information such as was reported by Entergy did not have to be reported by privately held electric companies, such as the owner of the Athens facility described above, but that publicly traded companies had to reveal it because the information was or should be available in reports required by securities regulation.  The Secretary said,

“With respect to financial information, the wholesale generators that were not publicly traded state that none of the information in their annual reports is publicly available. Those companies express particular concern about their income and balance sheets, which could be used to estimate bids to sell electricity to the NYISO. Rivals could also identify improvements to facilities needed to reduce operating costs and thereby obtain insights on bidding strategies. Moreover, competitors would be able to combine disclosed financial information along with publicly available information to estimate the profitability of various generators.”

There was no demonstration of how the financial income statements and balance sheets could be indicative of a sellers “bids to sell electricity to the NYISO.”  The price paid by the ISO is not the price at which a seller offers it, but is the price of the bidder whose offer clears the market.  Income would only be indicative of bids if the same seller always was the one whose bid set the price in every hour of every day of the year. Much of the discussion in the decision centers on usefulness of unit-specific data in the Commission required reports, which the power generators claimed could be used to derive the marginal operating cost of a seller.  The problem with that is the major input into the marginal operating cost, fuel, is a cost that fluctuates a lot, and  a over a year will vary by the number of hours a unit runs, what percent of the unit’s capacity is used when it runs and so forth.  A much better way to estimate marginal cost is to look at the non fuel costs when it was owned by sellers under full regulation, adjust them a bit for inflation and efficiencies.  To adduce the plants main operating cost, the cost of fuel, one could, look at federal agency reports regarding fuel used and electricity actually produced.  A good place to start in that quest is the EIA Form 923, which reveals monthly fuel consumption and output for all significant power plants in the nation including those in New York.  For example, In January 2014, the month of the “polar vortex” when prices skyrocketed, the Athens power plant mentioned above generated only 477,039 MW, followed by 1,093,132, 2,007,339, 2,854,010, and 799,225 in February, March, April, and May, respectively.  In making that electricity, the report shows the amount of natural gas used.  One might then estimate the amount of fuel needed to make a megawatt of power, to estimate the cost of the conversion of fuel to electricity, thereby estimating efficiency or the “heat rate.” By adding other known items such as property taxes, and by looking at labor costs of similar power plants in states that regulate them, or at prior costs before the plants were divested from traditional utilities to the “lightly regulated” ones, it should be possible to estimate the major components of operating costs.  This is far more granular data about power plant efficiency than available in the suppressed Annual Reports, with the possible exception of just one question on page 7 of the annual report form, the “Average Full Load Heat Rate (btu/kWh).”  Since the plants may not always run at full load, however, the EIA Form 923 data showing actual fuel needed to produce actual amounts of electricity might even be more useful than the full load heat rate if plants don’t run full time at full load.  The PSC’s final FOIL determination, however, dwelt on that item and the possibility of undemonstrated “reverse engineering” to justify withholding the basic financial information about annual profit and loss.   Also, in requiring the publicly traded companies to provide that information, but not the privately held ones to do so, there is an implicit conclusion that release of the financial statements is not competitively harmful. The Secretary said that the privately held companies were not under an obligation to reveal the data elsewhere.  However, they are required by PSL 66.6 to give that information to the PSC in their Annual Reports.  Public Service Law (§ 16, subd 1), provides: “All proceedings of the commission and all documents and records in its possession shall be public records.” Under the Freedom of Information Law (FOIL), there are exemptions to disclosure of public records, but these are generally disfavored and are to be strictly limited. TIn sum, the claim for secrecy rests upon a convoluted argument that an electric company’s operating costs and bidding strategies in tomorrow’s daily auction market at the NYISO might be “reverse engineered” from information in prior year annual reports, and misused by other market participants to harm its competitive position.  But there is no convincing demonstration that this actually could be done, or that it would increase the level of market “gaming” in the NYISO markets, or that if attempted, new gaming strategies based on information from prior year reports would work, or that those attempting to game the market would not be noticed for anomalous bids by the NYISO market monitor, and halted by the NYISO utility, its regulator (FERC), or law enforcement responses.  There appear to be better ways, based on known public information about power plant specifications and efficiency and current fuel prices, to estimate what a competitor’s operating costs are without looking at last year’s aggregate costs or total revenues, because the costs were in large part determined by last year’s fuel prices, and the revenues were affected by last year’s hourly NYISO market clearing prices generally set by the bids of other market participants.  Finally, if the full load heat rate of each unit really should be a secret, that field could be redacted, but it is not justification to stifle the entire reports or to maintain secrecy of annual financial information.  It is unacceptable and not in the public interest for the electric industry to demand prices in secret at the NYISO market and then hide revelation of their profits while New York consumers suffer from the highest electric rates in the continental United States.

This is a great but possibly temporary disappointment.  In any court proceeding to review an exemption from disclosure, the PSC will bear the burden or proof:   “[i]n the event that access to any record is denied pursuant to the provisions of subdivision two of section eighty-seven of this article, the agency involved shall have the burden of proving that such record falls within the provisions of such subdivision two.”

Gerald Norlander

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