REMARKS OF THE DIVISION OF THE RATEPAYER ADVOCATE

September 9, 1999

 BOARD INVESTIGATION INTO THE ELECTRIC POWER OUTAGES OF JULY 1999

Good morning. My name is Bud Ubushin, and I am a Deputy Ratepayer Advocate of New Jersey. As many of you here probably know, my office, the Division of the Ratepayer Advocate, represents and protects the interests of all utility customers in the State of New Jersey, including the interests of residential, small business, and industrial customers. This is an unorthodox mix of constituents for a traditional utility consumer advocate, but it reflects the fact that no consumer group is isolated from the economic well-being of the entire community. This is particularly true in the developing competitive electric industry, where consumer interest in lower energy costs are a driving force towards deregulation.

But access to cheaper power should not be at the expense of safe, adequate and reliable service. This leads me to the reason for the hearings today and next week -- to comment on the recent power outages experienced in the service territories of several of the State’s electric utilities.

First, some background. This is the third BPU investigation in as many years into weather-related power outages. In the Summer of 1997, the Board began an investigation of outages in several parts of GPU Energy’s service territory. That investigation culminated in the Board’s December 1997 Order which recommended numerous changes to GPU’s practices, including more frequent tree-trimming, several distribution system maintenance programs, better customer service center performance during outages, and better communications with municipal and emergency service personnel during outages.

Then, in 1998, the Board launched a second investigation on power outages, this time expanding the matter to include all four investor-owned electric utilities. This investigation resulted in a second BPU Report and Order, approved in December 1998. This order incorporated many provisions similar to those in the 1997 GPU outage order, added additional maintenance and reporting requirements, and was applicable to GPU, PSE&G, Atlantic Electric, and Rockland Electric.

The Board’s 1997 and 1998 Orders were generally comprehensive. Given the significant failures of the distribution systems in different areas of the State in early July of this year, it is the utilities’ compliance with and implementation of the Board’s directives that must be scrutinized. Even though Rockland may not have experienced service disruptions as widespread and prolonged as those in GPU’s territory, the Board must ensure that Rockland’s readiness for future high-usage situations is sufficient. As we understand it, the utilities’ compliance with the Board’s 1997 and 1998 Orders is an area of primary focus in the current investigation.

Like the Board, the Ratepayer Advocate is fully committed to New Jersey ratepayers to ensure that proper consumer protection controls are in place to maintain service quality levels during and beyond the transition to competition. My office has received a number of letters and telephone calls of concern from customers concerning outages. This is the third time since 1997 that the Board has investigated weather-related outages in various parts of the State, and, understandably, customers feel that not enough has been done to alleviate the power outage problems. Some residents are also worried that the problems will only get worse as retail competition unfolds in New Jersey.

While it is unlikely that competition will worsen reliability, it is also clear that competition alone will not remedy existing utility service problems. While consumers will shop for a supplier for services based not only on price, but also on service quality and reliability, most outages are the result of the failure of the utility’s distribution system which will continue to be regulated by the Board and not open for competition. Therefore, we need regulatory backstops to ensure safe and reliable service. We must be watchful that with unbundling and deregulation, utilities do not attempt to increase profits on the unregulated side of the business by sacrificing service quality performance on the regulated side of the business. However, even in a competitive market, the Board retains its broad statutory power to ensure that utilities adequately maintain their property and equipment and furnish safe, adequate and reliable service. (See, e.g, N.J.S.A. 48:2-13 and 48:2-23).

Moreover, by all accounts, the July outages were not due to lack of generation capacity, but to failure of the utilities’ distribution systems -- the portion of a utility’s business that is responsible for delivering electricity to customers -- which is still fully regulated. This regulated portion of the utility’s business -- the transmission and distribution utility -- will remain responsible for, among other things, service reliability, including the quality of customer service and the frequency and duration of power outages. The utilities have a statutory responsibility to maintain their distribution systems to provide safe, adequate, and reliable service. The question is whether the utilities have done so -- and that is the main concern of this inquiry and investigation.

I’d like to highlight a few other points with regard to the July outages.

While the Board’s 1997 and 1998 outage orders and reports were fairly comprehensive, one item that the Board has not followed through on is the adoption of statewide service quality and reliability performance standards. The Ratepayer Advocate again urges the Board to do so -- to create basic tools which will discourage deteriorations in any electric utility service. After all, as we all unfortunately found out this past July, electric utility service is truly a lifeline service -- and sometimes a matter of life or death.

As early as the Summer of 1997, the Ratepayer Advocate recommended that the Board implement service quality performance standards. In both our oral comments at the Board’s September 8, 1997 public hearing on the GPU outages and our October 17, 1997 written comments, we again urged the Board to commence a proceeding to adopt statewide service quality and reliability standards. Apparently, the Board agreed, for in its December 1997 Order, its recommendation number 16 stated that:

The Board should authorize Staff to initiate an inquiry with the goal of establishing measurable performance and reliability standards, including an evaluation of whether fines, penalties, performance incentives or some combination would be appropriate for the electric companies operating in New Jersey.1

However, for whatever reason, no such proceeding was initiated, and, by the time the Board issued its December 1998 Outage Order and Report, the creation of service performance and reliability standards was not even discussed.

Therefore, the Ratepayer Advocate again recommends that the Board immediately commence a proceeding to adopt statewide customer service and reliability standards, similar to what has been proposed in Maine, Michigan, California, New York, the State of Washington and others. These standards should contain service quality standards with specific, objective customer service and reliability indexes that monitor key attributes of service quality and establish financial penalties for noncompliance. The penalty should be paid in a way that benefits ratepayers, such as a one-time credit on customer bills or in the form of customer rebates. Such a performance-based plan ties customer service and reliability directly to the utility company’s bottom line. Plans such as these are also very common in the area of telecommunications ratemaking. Many States, including California, New York, Colorado and Maine, have established a service quality index with penalties as part of various alternative regulation plans.

While this is not the forum to describe the technical components of a service quality plan, at a minimum, the plan should track categories like (1) random monthly surveys of customer satisfaction; (2) customers service office performance (e.g., response time to customer complaints, emergency telephone response times, adequacy of notification to municipal and emergency response personnel, emergency field response times, percentage of appointments kept;) (3) service reliability (e.g., frequency and duration of outages; accuracy of meter readings); and (4) compliance with other regulatory performance measurements. The plan should set a baseline from which to measure changes in these categories so that penalties may be invoked when the utility fails to meet baseline service levels.

In addition, the funds collected from penalties should be immediately returned to customers via bill credits, to offset, at least in part, financial losses incurred as a result of power outages. At next week's hearing on September 13 concerning the GPU Energy outages, the Ratepayer Advocate will present the testimony of our consultant Barbara Alexander on more specific standards for customer service quality and reliability for all four investor-owned electric utilities. Ms. Alexander is an expert on consumer protection issues in the electric utility industry.

The mere documentation of inadequate service quality or service deterioration without an enforcement mechanism will not be enough of an incentive for utilities to maintain service quality. As mentioned, the enforcement should include penalties. Safe, adequate and proper service can never be abandoned as the basis of utility consumer protection in New Jersey. We laud the Board’s effort to make sure that reliability and safety remain a top priority and we respectfully request that the Board consider adopting standards like the service quality plan we are recommending here today. We will work with the Board and Board Staff and the utilities to craft these standards.

Finally, another issue related to this Summer’s outages that has received some attention recently is the concept of a Summer Service Termination Moratorium. Given that lack of electric service during extremely high temperatures can result in death to the young, elderly, and ill, the Board should consider establishing a Summer Moratorium under terms similar to the existing Winter Termination regulations. Several other states have instituted Summer Moratoria. The Ratepayer Advocate would be happy to work with the Board and utilities to establish appropriate criteria for such a program.

I’d like to thank the Board for the opportunity to participate in today’s hearing and would be happy to answer any questions you may have.

Footnote


1) I/M/O the Petition of GPU Energy, Inc., Inquiry, Order Accepting Staff’s Final Report, December 30, 1997, at page 5. Back