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Schumer Calls for FTC Investigation into Utilities Bills

Press Releases

Utilities Blame Natural Gas Shortages and the Low Temperatures This Winter for the Extremely High Bills – But Prices Have Gone Up In Excess Of ...

Washington, DC - April 2, 2014 - U.S. Senator Charles E. Schumer today, on a press conference call, urged the Federal Trade Commission (FTC) to immediately investigate the mind-boggling increase in electric prices that residents across Upstate New York have been forced to pay over the course of this winter – and that they will continue to pay for several more months. Schumer is calling for an investigation by the FTC, which works to promote consumer protection and eliminate anti-competitive business practices, in light of the fact that electric bills have risen to extremely high rates this winter – including bills that came close to doubling in some parts of Upstate New York. Schumer noted the example of a Syracuse-area National Grid customer who was charged $67.68 in February 2013 and $65.02 in March 2013, and then charged $84.58 in February 2014 and $106.80 in March 2014 – despite using substantially less electricity than last year over the same period.
 
Utilities throughout the state have attributed the increase to record-low temperatures and high demand for natural gas, but Schumer said that the size of the rate increases were so high that he is concerned it outpaced the actual increase in wholesale energy costs for utilities. Therefore, he is asking the FTC, in conjunction with the Federal Energy Regulatory Commission (FERC) and the Department of Justice (DOJ), should it become necessary, to investigate the entire wholesale electric and natural gas markets to ensure that these markets were on the level, and that customers were not being improperly overcharged. Schumer explained that there are multiple ways utilities or natural gas providers could artificially inflate electric bills – including withholding natural gas from the market or overcharging ratepayers – and asked the FTC to look into all possible angles as part of its investigation. The NYS Public Service Commission (PSC) has similar concerns, and also petitioned FERC to investigate.
 
“As the thermostat went down this winter, electric bills shot up. It is typical for electric bills to go up during the winter months, but this year’s sky-high increases are more than what would be expected,” said Schumer. “These bills have gone up so much that we need to take a good, hard look at what is really going on here; and that is why I am calling on the Federal Trade Commission – the authority when it comes to consumer protection and anticompetitive business practices - to launch an investigation into these exorbitant price hikes. We need to make sure that customers are not being overcharged, and we need to make sure this same situation does not happen again in the high-usage months of summer.”
 
Over the course of this winter, electric bills across Upstate New York have skyrocketed to rates that are substantially higher than what customers have paid in past years. In addition, rates have climbed exponentially from month-to-month over the course of this winter, and consumers could still be paying sky-high bills into the spring due to the fact that bills reflect consumption from months earlier.
 
According to an AARP Report “David v. Goliath; Why consumers are losing New York’s utility game,” New York’s investor-owned utilities and the Long Island Power Authority charge some of the highest rates in the country. In September 2013, New York’s residential customers paid 19.57 cents/kwh, which is 56% higher than the national average and the second most expensive after Hawaii. And, prices rose from September 2012.
 
According to media reports, data collected from actual customers for each utility, and other sources, electric rates at the major utilities have skyrocketed this winter:
  • National Grid – on average, about 60-75% increase this winter
  • NYSEG – on average, about 10-15% increase this winter
  • RG&E – on average, about 15% increase this winter
  • Con Ed – on average, about 20-25% increase this winter
  • Central Hudson –  on average, about 35% increase this winter
  • Long Island (PSEG) – on average, about 25% increase this winter
In addition, these numbers are only averages and many individual ratepayers have faced even higher rate increases. Schumer provided several examples of real electricity bills in Upstate New York. A Syracuse-area National Grid customer was charged $67.68 in February 2013 and $65.02 in March 2013, while the individual was charged $84.58 in February 2014 and $106.80 in March 2014 – despite using less electricity than last year over the same period. A National Grid customer in Erie County saw their March bill go up 49%, from $278 to $413 from February. A Central Hudson Gas & Electric customer in Dutchess County saw their bill go up 63% in February over the previous bill. A PSEG customer in Suffolk County is reported to have had their bill more than doubled from December to January and a National Grid customer in Erie County saw an 80% increase in the electric bill for his entire apartment complex from January to February.
 
According to major utilities that service Upstate New York, these rate increases are due to record-low temperatures that have driven up demand across the country for natural gas – a key component in providing electricity and heating homes. Schumer argued, however, that even given the increased demand for natural gas, the prices that consumers are paying far outpace what would be expected. This concern has prompted him to ask the FTC for an in-depth investigation into the electric market to determine whether utilities and natural gas providers are playing by the rules and charging consumers what they should be. The FTC has done similar investigations in the past, and is the leading authority regarding concerns of anticompetitive business practices.
 
Schumer explained that electric rates are based on the price to have electricity delivered – a rate that is capped by the PSC – and the cost of producing that electricity, which utilities have to pay and is then passed on to the consumer. In New York, many of the power plants that produce electricity are powered by natural gas, which, given the high demand and high prices for natural gas this winter, has led to increased costs for utilities. According to utilities, this increase in costs is the main reason that rates are going up. Schumer mentioned, however, that there are a number of other potential factors for the increases that should be investigated, including the possibility that utilities are passing on more of the cost of natural gas to consumers than they should be, or that natural gas providers are withholding some of their supply in order to drive prices through the roof and create more profit for themselves down the road.  
 
Schumer also called attention to the disturbing fact that utility companies have been using ratepayer money to push the PSC to allow them to charge higher rates, a trend that could get even worse as rates climb. The aforementioned AARP report also details that utilities charge their ratepayers more than $10 million a year to cover the cost of experts who argue for higher rates before the PSC. National Grid, National Fuel Gas and New York State Electric & Gas (NYSEG) are three utilities that engage in this practice, passing $4.5 million, $1 million and $370,000 respectively on to consumers each year in order to employ lawyers to push for higher rates. According to the PSC, electric utilities pay an average of $310 million per year for these regulatory expenses, compared to $145 million by gas utilities, the second highest.
 
In addition to Schumer’s call for an FTC investigation into the sky-high electric bills, the New York State Public Service Commission (PSC) – a state utility regulator – and the New York Independent System Operator (NYISO) – the state’s high-voltage transmission network operator – have both written to Federal Energy Regulatory Commission (FERC) Chair Cheryl LaFleur asking FERC to investigate whether there were any uncompetitive practices in natural gas and electricity markets this winter. NYISO also encouraged FERC to coordinate any such review with other federal agencies responsible for regulatory oversight of natural gas markets, and Schumer is urging the FTC to conduct its investigation in conjunction with FERC’s. Schumer is also asking the FTC to coordinate with DOJ, which oversees rate manipulation issues.
 
A copy of Schumer’s letter to the FTC appears below:
 
Dear Chairwoman Ramirez,
 
I write to urge that the FTC directly support ongoing investigative efforts led by the Federal Energy Regulatory Commission (FERC) to determine whether any wrongful conduct or uncompetitive practices took place this winter as record cold temperatures drove up natural gas and electric prices to record levels. I respectfully ask that you commit investigative resources to ensure that electricity and natural gas markets performed in a manner consistent with consumer protection, competition statutes and regulatory oversight. It is imperative for the protection of consumers to verify that these substantial increases in residential and commercial electricity rates are attributed exclusively to market factors such as increases in demand and supply constraints and not by uncompetitive practices or wrongful conduct.
 
As you are aware, this period of record cold temperatures has led to record increases in the wholesale prices of electricity and natural gas, which has translated into tremendous rate shocks for consumers across the country, particularly in New York State. The wholesale cost of electricity on the NYISO hub began at 4.1 cents per kilowatt-hour at the beginning of January and more than tripled to a peak of 15 cents per kilowatt-hour in February. Statistics from the U.S. Energy Information Administration show that the price of natural gas was $6.00 per thousand cubic feet in December 2013 and doubled in just one month to $12.00 per thousand cubic feet in January 2014. Natural gas prices in futures markets opened the year at $4.23 per thousand cubic feet and increased to a more than six year high of $6.49 on February 24th. These considerable jumps in prices have led to major rate shocks for consumers across the country, especially in New York State. Utility bills for ratepayers have gone up by unpredictably high amounts and these sharp increases have posed financial challenges for many. Further highlighting the importance of these price shocks and the impact they have on the well-being of the consumer is that they follow a year of record increases in natural gas and electricity prices in New York markets in 2013 as compared to 2012. According to FERC’s recently released “State of the Markets” for 2013, electricity prices in the NYISO hub were up 30% from 2012 and the average spot price of natural gas in the TRANSCO NY hub increased 58% compared to 2012.
 
The New York Public Service Commission (PSC) and the New York Independent System Operator (NYISO) have both written to FERC requesting a review and investigation of whether markets were operating in a competitive manner during these brutally cold winter months. In a letter dated February 20, 2014, the President and CEO of NYISO, Stephen G. Whitley, stated the following to Acting FERC Chairman Cheryl LaFleur: “..the NYISO respectfully asks your office to direct FERC’s Office of Enforcement to conduct a review of natural gas markets performance during these periods. Such a review will enhance confidence that markets are performing in an open competitive manner consistent with robust regulatory oversight.” In a separate letter, the PSC wrote FERC requesting an investigation into the matter and specifically asked whether gas pipeline capacity had been fully utilized during the cold winter months, which may raise questions of potential uncompetitive practices.
 
In response, FERC held a hearing on April 1st examining the impact of recent cold weather events and confirmed that the Commission’s Office of Enforcement has continuously conducted its oversight and surveillance activities with respect to regions impacted by extremely cold weather and will take appropriate action in the event any wrongful conduct is uncovered.
 
I urge the FTC to join and support the FERC’s Office of Enforcement’s investigation and examine whether any uncompetitive practices occurred, both in wholesale and retail electricity markets. Though there is no question this winter has put a significant strain on the power system, the FTC must ensure that these exorbitant increases in the price of natural gas and electricity, especially when it comes to ratepayers bills, are consistent with competitive practices and not driven by any wrongful conduct. It is imperative for regulators to verify that these rate hikes impacting the pocketbooks of millions of ratepayers are fully justifiable.
 
Sincerely,
Charles E. Schumer
U.S. Senator
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