Thursday, February 26, 2015

THE EMPEROR HAS NO CLOTHES (Why the push for Commercial Solar Makes No Sense)

SPower, the entity seeking to construct a 9.5 MW solar electrical generating facility on a 60 acre portion of the Delalio sod farm in Shoreham, along Route 25A, recently sent a brochure to the community touting the environmental benefits of the project, its ability to eliminate fluctuating prices for electricity during peak usage, its benefits for the environment, and why a buffer of trees around the facility will “protect the local viewshed and maintain the rural character of the area.” How can anyone be against this project and doesn’t opposing it make you “anti-environment”? Opposition to this project is based on there being a better solar alternative that won’t eliminate altogether 60 acres of open space, the existing viewshed, and the existing agricultural use which the Brookhaven Town Code’s Planned Conservation Overlay District expressly states must be preserved. Putting solar panels on roof tops (“distributed solar power”) can provide the same benefits to the environment, without the adverse impacts caused by huge commercial projects, at a fraction of the cost to LIPA and its ratepayers. Supporting distributed solar power is most assuredly a pro-environment position.

PSEG-LI recently concluded that the reliability of LIPA’s electrical system can be maintained without additional power sources until 2024. Why then are LIPA and PSEG-LI moving full speed ahead with negotiating 11 Power Purchase Agreements (“PPAs”) for 122.1 MW of commercial solar power at significantly inflated cost compared to purchasing power on the open market, and say they will soon release a new Request for Proposals for another 160 MW of commercial solar power? These PPAs will require LIPA to purchase all the power from these commercial facilities for 20 years at a fixed cost of approximately $0.17 per kWh, more than twice the cost of power on the open market. After 20 years, LIPA and its ratepayers will pay approximately $360,000,000 more for the commercial solar power than they would for open market power. The proposed 9.5 MW solar facility proposed by SPower in Shoreham is even worse – LIPA has guaranteed it will pay SPower $0.22 per kWh generated for the next 20 years, almost three times the cost of power on the open market.

The State has set a goal of having 20% of power from renewable sources by 2025. But why rush into commercial solar contracts at high prices now when that goal may be able to be achieved by 2025 with rooftop solar systems at a fraction of the cost to LIPA, and without any of the negative aspects of commercial solar systems such as high energy cost, and loss of large tracts of open space? LIPA expects to eliminate rebate incentives for rooftop solar systems altogether within two years because the cost will be low enough so that incentives no longer will be needed to encourage rooftop systems to be installed. LIPA will then receive all the power from these rooftop solar systems at virtually no cost to LIPA. Nevertheless, LIPA prefers the long term high priced contracts because it wants to avoid the loss of revenues suffered when power from solar systems installed on roofs is credited to the system owner.

Dare I say anything negative about solar? It is crazy to rush into overpriced 20 year contracts for commercial solar power when no more power is needed for at least ten years. If enough people install solar systems on their roofs in the next few years, the length of time until more power is needed by LIPA to maintain reliability will be further extended, and the power from the commercial solar systems may no longer be needed. Regardless, ratepayers will pay the inflated cost for commercial solar for twenty years if these 20-year contracts are signed.

Whether LIPA likes it or not, the ever declining cost of rooftop solar systems and the increasing efficiency of lighting and appliances will cause LIPA to lose more revenue every year. Whatever the solution to this problem may be, the answer cannot be to enter into 20 year fixed contracts at inflated prices for solar power that may never be needed. Indeed, if you examine your monthly LIPA bill, and divide the monthly charge by the number of kWhs you used, you will see that you are paying about $0.22 per kWh to LIPA to cover all of its monthly costs for power, transmission lines, maintenance, taxes, and revenue lost from renewable energy and energy efficiency. Only a fraction of what you pay goes to pay for electricity. By agreeing to pay SPower $0.22 per kWh for all the solar power it generates for the next 20 years, however, LIPA will then have to find the funds to cover all the other costs it has for expenses other than acquisition of electricity. At the end of the day, the ratepayers will have to pay for this shortfall.

In addition, when LIPA agrees to purchase solar power from huge commercial developers like SPower, the money spent goes out of State. When local companies install roof-top systems, the money goes to local companies, and the money saved by the owners of roof-top systems by reason of their monthly LIPA charges being significantly reduced gets spent right here, in our communities.

One of the arguments made in the lawsuit challenging LIPA’s and PSEG-LI’s approval of a PPA for SPower’s 9.5 MW commercial solar system is that the approval occurred without any environmental review at all. If a Draft Environmental Impact Statement had been prepared, alternatives, such as distributed rooftop solar systems, would have had to be considered in depth. No such review took place.

LIPA and PSEG-LI have the luxury of time. The commercial solar projects and their long term inflated costs can wait; proper planning must come first. Slow down – and get it right.

Wednesday, January 7, 2015



By: Frederick Eisenbud, Esq.
Law Office of Frederick Eisenbud
THE Environmental Law FirmSM
6165 Jericho Turnpike Commack, New York 11725
(631) 493-9800

I am a firm advocate for more solar power. The benefits are indisputable and can be read about elsewhere. New York has the potential to produce 11 times as much electricity from solar power as the state consumes each year. (“Star Power: The Growing Role of Solar Energy in New York”, Environment New York Research & Policy Center at 4 [November, 2014]). In little more than five years, improvements in battery storage may well enable the excess electricity from solar to be stored for use when electricity is not being generated by solar systems, at night and during cloudy or inclement weather. (Stephen Lacy, “Storage Is the New Solar: Will Batteries and PV Create an Unstoppable Hybrid Force?” [GreenTech Media 2014]). Even before the battery storage problem is resolved, it is likely that the cost of generating power from photovoltaic (“PV”) systems will be equal to or less than the cost of power from traditional power plants that run on carbon based fuels. It has been projected that over half the states could have electricity that is from rooftop solar that is as cheap as local electricity prices by 2017, and New York is projected to achieve this so-called “grid-parity” not long after that. (Mike Jacobs, “How Much Does Rooftop Solar Power Cost? Grid Parity Here or Coming in More Than Half of U.S. States”, Union of Concerned Scientists 2014).

The question which must be discussed and answered by LIPA and PSEG-LI is whether the goal of increasing renewables should cause the utility to focus on commercial large scale solar energy systems that will provide energy pursuant to 20-year, fixed cost inflated contracts, or whether more attention should be given to encouraging building owners to place solar systems on their roofs for their own use? Because I am most familiar with residential solar systems, I will leave it to others to discuss the enormous benefits of having large, well-positioned solar systems on flat commercial building roofs.

Here is the immediate problem. In August of last year, PSEG-LI revealed that LIPA has for decades used a reliability standard that assures that power will be out no more than one day every thousand years. The rest of the State uses a different test – no more than one day of outage every ten years. As a result, LIPA has made long term contractual agreements which have resulted in LIPA paying for 400 MW to 1,000 MW a year of power more than it would need if it followed the same test used by every other utility in the State. This resulted in approximately $641 million dollars in unnecessary costs over 9 years. (Newsday, August 18, 2014). LIPA promptly terminated discussions for the 750 MW Caithness II project, and five peaker plants that would provide power only when power is needed most. The savings to ratepayers from these wise decisions is enormous.

PSEG-LI concluded that a “delay of 12-18 months of LIPA’s current resource plan presents no demonstrable risk to Long Island reliability.” This was in part based on PSEG-LI’s finding that LIPA would not have any resource needs until 2020 based on the NYISO standard used by the rest of the State. Pending its completion of a full Integrated Resource Plan at the end of 2015, PSEG-LI recommended delaying commitments on “all current RFPs excepting those with … immediate needs.” (PSEG Long Island, “Resource Planning Criteria Review”, August 2014 at pp. 26, 27, 28).

However, on December 17, 2014, without any demonstration of “immediate need”, LIPA’s trustees authorized staff to negotiate eleven 20-year fixed cost power purchase agreements (“PPAs”) for a total of 122.1 MW of installed solar power. Shortly thereafter, on January 1, 2015, PSEG-LI assumed virtually all of LIPA’s planning functions. Did PSEG-LI promptly announce that no PPAs for 20 year fixed cost commercial solar facilities would be signed until it completed its needs study? No – its president, David Daily, told Newsday that “Some recent decisions are ‘hard-wired’ into the plan, … including LIPA's approval of 122.1 megawatts of power from large solar energy facilities in Suffolk County.” (Newsday, January 1, 2015). Then,

Then, on January 6, 2015, Daly said that updated forecasts have led PSEG-LI to conclude that no new power source will be required until 2024. (Newsday, January 7, 2014). Again, according to Newsday, and without explanation, Daly told those at a session of the Long Island Regional Planning Council that, “Despite the excess, PSEG is pushing ahead with LIPA plans to add scores of renewable and other power sources well before 2020. This year, it will follow through on LIPA’s plan to add 120 megawatts for solar arrays on large tracts in Suffolk County,…” In addition, later this year, PSEG will put out a new bid request for 160 MW of renewable energy. (Newsday, January 7, 2015).

If no new energy resources will be needed until 2024, it is fair to ask why LIPA and PSEG-LI are plowing ahead with long term fixed cost inflated contracts before PSEG-LI’s needs study is completed. On January 1, 2015 when PSEG-LI took over LIPA’s planning functions, Mr. Daly told Newsday that “decision making under PSEG will have a ‘very strong focus on transparency’”. If that is true, no PPAs should be signed until all the issues are thoroughly aired.

The average cost per kWh of power from the proposed commercial solar facilities is approximately $0.17, compared to approximately $0.075 per kWh on the open market as of October, 2013. If LIPA and PSEG-LI go ahead with the 11 proposed contracts, the rate payers within LIPA’s territory will be legally obligated to pay this inflated rate for the next 20 years.

Incentives provided to individual owners of residential and commercial buildings by LIPA to place PV systems on their roofs have been reduced by more than 50% since June 2013, and will end altogether by the end of 2016. The rationale for this reduction is that the cost of solar systems is going down so that soon incentives will not be needed at all to persuade building owners to contract for PV systems on their roofs. Indeed, solar PV capacity in New York increased at a rate of 63% per year from 2010 to 2013. If solar PV installations continue to increase at a rate of 47% annually until 2025, New York will have enough solar energy to generate 20 percent of its electricity. (“Star Power: The Growing Role of Solar Energy in New York”, Environment New York Research & Policy Center at 2 [November, 2014]).

In June, 2013, I contracted to put a 20.88 kW PV system on the roof of my house. LIPA’s incentive rebate then was $0.76 per watt. Today, the incentives are down to $0.30 per watt, and all or most of that money is provided by NYSERDA. In June, 2013, LIPA paid for a little less than 23% of the overall cost of my rooftop PV system. When incentives end, all of the PV power generated by rooftop systems will come to LIPA at no cost. Why then would LIPA and PSEG-LI want to enter into long term fixed cost Power Purchase Agreements with commercial developers of solar power at inflated prices well above what it would cost for the same amount of electricity on the open market, especially when it can get this power virtually for free by encouraging building owners to construct their own systems on their roofs?

LIPA has given three reasons for promoting solar power obtained by means of a “Feed-in Tariff” (i.e., purchasing 100% of the electricity generated by commercial solar facilities and then selling the power back to its customers): (1) the costs are spread out over 20 years, as the benefits are received, whereas incentive rebates for rooftop solar systems are all paid upfront; (2) LIPA only pays for what is actually produced, whereas there is a risk that rooftop systems will underperform or fail altogether after the incentive rebate is paid; and (3) there is no loss of revenue under the Feed-in Tariff proposal, whereas retail customers with solar generation avoid LIPA’s full retail rates for every kWh of generation they produce. None of these arguments seem to justify the enormous expense of commercial solar power purchased at inflated costs for twenty years.

LIPA’s concern that it must absorb all the incentive rebates upfront rings hollow because it intends to eliminate these incentives altogether in a few short years. Assuming, however, that LIPA can be persuaded to actually increase incentives for rooftop systems rather than eliminate them, it can spread the cost of those incentives out by bonding the upfront cost over 20 years. Recently, LIPA was able to obtain bonding at an interest rate of approximately a 3 ½ %. The June 2013 incentive of $0.76 per watt represented only 23% of the cost of the solar systems installed on residential roofs (the rest was paid for by federal and state tax credits [about 31% of the cost], and by the homeowner, about 47%). LIPA pays for 100% of the cost of electricity at inflated rates when purchasing solar power from commercial developers, but only a fraction of the actual cost of producing power from rooftop systems when it offers incentive rebates.

The reliability argument also is weak. Solar systems on roofs typically come with 25 year warranties and there is no basis for assuming that building owners who have paid for half or more of the cost of installing the system will not enforce his or her contractual rights if there is a problem.

The third argument, that there is “no loss of revenue under the Feed-in Tariff proposal”, is not strictly accurate. It is true that net meters used by individual solar systems on roofs run backwards if more power is generated than is being used. Because many components of residential LIPA (PSEG-LI) bills are based on kWhs used during the billing period, many of the charges are avoided altogether by the ratepayer with solar on the roof. However, LIPA does not actually “lose” revenue as a result because it recoups any losses through its “Efficiency & Renewable Charge” on its bills. This charge generally is about $0.006 per kWh. Thus a typical LIPA customer who uses 10,000 kWhs a year is already paying about $60 a year to cover revenues lost due to renewable energy.

Nevertheless, it is fair to examine how those who generate electrical power by means of their own rooftop solar PV systems on their roofs impact other ratepayers, and to compare that impact to the impact of buying power from commercial solar systems at a fixed price over 20 years.

A rate of inflation of 2% a year for the cost of electricity on the open market is assumed. It can be argued that this assumption is too conservative because 1/2 of 1% is a figure frequently used when projecting electrical price increases. Further, with the plunge in oil costs, we may see a period where the cost of generating electricity goes down for a period of time. For purposes of discussion, however, we will assume the cost of electricity goes up 2% a year. Here is what my calculations show.

At least as of October, 2013, LIPA could purchase electricity on the open market at an approximate price of $0.075 per kWh. Based on this figure, and the assumed rate of inflation, LIPA ratepayers will pay approximately $360,000,000 more over 20 years for the commercial solar power than they would pay if LIPA purchased the same amount of electricity on the open market.

By comparison, if incentives at the same level as June 2013 are paid to induce sufficient building owners to buy rooftop solar systems that will generate the same amount of kWhs as can be expected from 122.1 MW of commercial rated solar systems, and the incentives are bonded at 5% over twenty years, ratepayers will save approximately $147,000,000 over 20 years for the same amount of power purchased on the open market. If the incentive is assumed to be what it is today ($0.30 per watt rather than $0.76 per watt) and the upfront cost of sufficient incentives needed to get distributed solar systems built that will generate the same power as the commercial solar facilities that are contemplated, and the one-time incentive rebate is bonded, the savings over the cost of open market electricity jumps to $235,000,000 over 20 years. And if LIPA is correct, and no incentive at all will be needed in a couple of years in order for residential homeowners to have solar systems installed on their roofs, then LIPA will obtain electricity from these rooftop systems at no cost to it or its ratepayers. When compared to the cost of purchasing the same amount of power on the open market, over 20 years, LIPA ratepayers would then save more than $350,000,000.

However, when revenues lost are factored in, the cost of purchasing power from the commercial solar generators when compared to the cost on the open market is less than the loss of revenues to LIPA from the same power on rooftops. Depending on the amount of the incentive rebate paid for rooftop systems, the average ratepayer who uses 10,000 kWhs per year may have to pay somewhere between $0.75 and $1.38 per month to cover LIPA’s shortfall if the desired amount of solar power is obtained from rooftop systems rather than from commercial solar providers who have long term contracts.

There are many reasons why this nominal difference between the cost of purchasing commercial solar power and the loss of revenues when power is obtained from individual rooftop systems should not cause LIPA to favor the commercial systems.

First, LIPA can’t stop the loss of revenues. As the cost of solar systems for rooftops comes down, more and more building owners will realize the financial benefit of generating their own power, in whole or part. This will occur even if LIPA contracts with the eleven selected companies to obtain power from systems with a total rating of 122.1 MW. If, as PSEG-LI has found, LIPA today has enough power to maintain reliability into 2020, then why lock into higher prices for twenty years now?

Second, the loss of revenues will continue due to improvements in efficiency. PSEG-LI recognizes the benefit of incentivizing residences and businesses to install more efficient machinery, lighting and appliances. It’s October 6, 2014 “Utility 2.0 Long Range Plan Update Document” describes its decision to expand overall Plan investment from $215 million over four years with the goal of reducing demand by 185 MW to investing $345 million over four years with the goal of reducing demand by 250 MW. Reduced electrical demand necessarily will result in lost revenues. PSEG-LI intends to discuss how it will recover the costs of its program expenditures in the upcoming rate case to be filed in February, 2015. Care must be taken to assure that cost recovery plans do not diminish the individual economic benefits of placing solar power on roof tops.

Third, ratepayers are already paying for revenues lost to LIPA from renewable energy and reductions in demand caused by increased efficiency, so LIPA is not really losing revenues when solar systems are installed on roofs. Residential bills contain a charge each month for “Efficiency & Renewable Charge” which is generally about $0.006 per kWh. Thus a typical LIPA customer who uses 10,000 kWhs a year already is paying about $60 a year to cover these lost revenues.

Fourth, commercial large scale solar projects place increased demand on the transmission system, and upgrades to transmission lines and substations may be required, whereas rooftop solar systems, distributed throughout the system, generally do not require upgrades. While it is true that the Power Purchase Agreements place the burden of having to upgrade the transmission system on the commercial solar energy provider, it is also true that these costs come back to the ratepayer indirectly because the price per kWh bid by these commercial providers is increased to cover such costs.

Fifth, using more distributed (rooftop) solar systems will result in a more efficient electric grid. It has been estimated that five to eight percent of the electricity transmitted over long-distance transmission lines is lost between its production and final consumption. Distributed solar energy avoids these losses by generating electricity at or near the location where it is used. (“Star Power: The Growing Role of Solar Energy in New York”, Environment New York Research & Policy Center at 18 [November, 2014]).

Sixth, commercial solar projects require large areas of open space which are lost as a result. For example, one of the projects among the eleven LIPA accepted for negotiation of PPAs on December 17, 2014 is a 24.99 MW project to be built where the Tall Grass Golf Course in Shoreham now stands. This public recreational facility will be lost in order to allow an out-of-state commercial company to generate solar power which will not be needed until at least 2020. Rooftop solar systems create no loss of open space. In addition, the high cost of land on Long Island contributes to the high cost of power obtained from commercial solar generators. By comparison, in other parts of the country, these projects seem to make sense. “The price of electricity sold to utilities under long term contracts from large-scale solar power projects has fallen by more than 70% since 2008, to just $50/MWh [i.e., $0.05/kWh] on average within a sample of contracts signed in 2013 and 2014 and concentrated among projects located in the southwestern United States.” (Allan Chen, “New Studies Find Significant declines in Price of Rooftop and Utility-Scale Solar” (News Center September 17, 2014).

Seventh, most of the commercial scale solar providers are out-of-state companies. Of the 11 accepted for approval by LIPA on December 17th, 9 are out of state companies. The one New York Company accepted to provide two solar facilities in Kings Park will provide only 4 MW of the anticipated 122.1 MW of solar power. As a result, approximately $31,000,000 each year for 20 years will be taken out of the Long Island economy to pay for the solar power generated by these out of state companies. By contrast, if the same power that can be generated from commercial solar systems with a combined capacity of 122.1 MW is obtained from distributed rooftop solar systems, approximately $41,000,000 each year will be saved by LIPA customers with solar systems on their roofs. This money can be expected to be spent on Long Island, or saved in banks and made available for loans. Applying a conservative multiplier effect of 3, the electric fees saved by those with solar systems on their roofs will add over $120,000,000 to the Long Island economy each year.

Eighth, most of the distributed rooftop solar systems are installed by small businesses. New York State’s solar energy industry employed 5,000 people in 2013, and 41% of all solar systems in the State are on Long Island. On December 14, 2014, NYSERDA announced the installation of the 10,000th solar photovoltaic system on Long Island, and it projects that the 15,000th system could be installed during 2015. Encouraging distributed rooftop solar systems to be installed will increase employment.


It is increasingly apparent that LIPA and PSEG-LI are making major decisions without taking into consideration the impact those decisions will have. Two large commercial solar projects have been tentatively approved for residentially zoned areas in Shoreham, one on a 60 acre sod farm (9.5 MW),[1] and another, adjacent to that project, on a 200 acre public golf course (24.99 MW). Another project approved for negotiation of a PPA is in the core area of the Pine Barrens. LIPA’s and PSEG-LI’s attitude appears to be, let the Towns figure out if the locations selected or proposed are appropriate, and we will just consider if we want the power.

This head-in-the-sand approach to planning must change. LIPA and PSEG-LI are subject to the strict procedural requirements of the State Environmental Quality Review Act (“SEQRA”), which requires that a draft Environmental Impact Statement be prepared whenever a discretionary action (such as approving a contract for construction of a power plant) “may” have a significant impact on the environment. Unquestionably, many impacts caused by traditional base load power plants (such as those from air emissions, noise, and water usage) are absent when power will be generated from solar panels. But a non-residential project or action that involves “the physical alteration of 10 acres” is a Type I Action under SEQRA which is “more likely to require the preparation of an EIS than Unlisted actions.” Among the factors LIPA and PSEG-LI are required to consider are “the removal or destruction of large quantities of vegetation or fauna”; “the creation of a material conflict with a community's current plans or goals as officially approved or adopted”; “the impairment of the character or quality of important historical, archeological, architectural, or aesthetic resources or of existing community or neighborhood character”; “a substantial change in the use, or intensity of use, of land including agricultural, open space or recreational resources, or in its capacity to support existing uses.” In addition, the lead agency must “consider reasonably related long-term, short-term, direct, indirect and cumulative impacts”, and “The significance of a likely consequence (i.e., whether it is material, substantial, large or important) should be assessed in connection with: (i) its setting (e.g., urban or rural); (ii) its probability of occurrence; (iii) its duration; (iv) its irreversibility; (v) its geographic scope; (vi) its magnitude; and (vii) the number of people affected.”

Newsday reported on January 6, 2015 (p. A20) that the Town of Brookhaven is going to put off its review of its zoning code as it relates to solar installations. This is because Suffolk County officials are “crafting their own guidelines for the controversial power facilities” and “it makes more sense for the county, rather than the town, to develop guidelines.” The County apparently will attempt to craft a model zoning code that Towns can adopt who wish to regulate solar projects. The County should be applauded for this effort, but any effort to establish uniform guidelines should include input from PSEG-LI.

The statements coming from PSEG-LI appear contradictory. LIPA is criticized repeatedly for all of its long term contracts because new sources of power are not needed for another ten years. On the other hand, PSEG wants to see PPAs signed for the 122.1 MW of solar power authorized on December 17, 2014, and will release a request for proposals for another 160 MW of renewable power later this year. At least until PSEG-LI completes its needs study, the fact that the power will come from solar panels does not make the power necessary. Distributed power on rooftops can continue to be installed, and it appears that the State’s goal of obtaining 20% of our energy from renewable sources by 2025 can be met without the long term commercial contracts.

While the County and Towns are working on uniform guidelines, LIPA and PSEG-LI should put any further Power Purchase Agreements for electrical power plants on hold, at least until PSEG-LI has finished its needs study. Rather than reduce incentive rebates for distributed solar power on rooftops, they should be increased so the momentum and growth now seen in the solar industry will not be lost.

PSEG-LI has made it clear from its “Utility 2.0 Long Range Plan” that it is actively considering a broad range of proposals, many of which are cutting edge and imaginative, to help assure that it will “invest in more customer-oriented solutions that reduce peak demand for electricity, and improve the efficiency and resiliency of the grid at an affordable cost.” Whether commercial solar projects make sense in Suffolk County in light of the availability of distributed rooftop solar systems should be discussed openly. Having determined that no new power sources are needed until 2024, LIPA and PSEG-LI have the luxury of time. The commercial solar projects and their long term inflated costs can wait; proper planning must come first. Slow down – and get it right.

[1] By way of full disclosure, this firm represents a community group whose members reside around the 60 acre sod farm who have filed a lawsuit challenging the Town of Brookhaven Planning Board and Zoning Board of Appeals approvals of the 9.5 MW project. The opinions in this Blog are strictly those of the author.

Tuesday, October 8, 2013

LIPA Must Come Clean About It’s Time-of-Use Residential Billing Rates So Consumers Can Make an Informed Decision Whether to Return to Standard Rates

Go to for an easy-to-use rate comparison calculator so you can find out for yourself whether you are paying too much.

By Frederick Eisenbud

In an earlier blog, published on September 26, 2013 (LIPA Residential Time-of-Use Customers Beware – Your Efforts to Shift Usage to Off – Peak Hours Is Probably Costing You Money Compared to Regular Residential Rate Payers Who Are Billed the Same Rate Regardless of Time-of-Use”), we urged LIPA residential rate payers who switched from standard 180 rates to one of two principal LIPA time-of-use billing programs to take a hard look at their bills because they likely were spending more, not less, for electricity.  The 184 time-of-use billing program is for consumers who expect to use 39,000 kWhs a year or more than 12,600 kWhs during the summer months (June – September), and believe they can shift some of their usage from peak hours (10 AM – 8 PM) to off-peak hours (8 PM – 10 AM and weekends).  The 188 program is for consumers who do not meet the criteria for 184 billing, but believe they can shift usage to off-peak hours.  I analyzed a full year of my LIPA bills, determined that 67% of my usage was during off-peak hours, and yet I paid more under the 184 program than I would have had I never switched from standard 180 billing.  I ran my actual usage through the 184 and 188 rates, and then assumed that my usage was much higher (39,000 kWhs per year rather than 23,000) and determined that I would have saved money under any reasonable scenario had I never switched from standard billing rates.

Why did I pay more each month despite shifting so much of our electrical usage to off-peak hours (e.g., by only washing and drying clothes and washing dishes at night and on weekends)?  In the case of 184 billing, it turns out, LIPA imposes a daily “Service Charge” of $1.65 per day, regardless of how much electricity is consumed, compared to only $0.36 per day for standard 180 rate payers.  Thus, 184 rate payers pay LIPA approximately $470 a year more for the Service Charge. The only way they can save money by being in the 184 rate category is if the charges for electricity more than off-set the excess Service Charge.  While the electrical rates, which are designed to encourage shifting of usage to off-peak hours by charging much more for usage during peak hours (particularly during summer months) than during off-peak hours, in fact resulted in my paying $245 less for the year than I would have been billed as a standard rate payer, my total charges for the year were $225 higher under the 184 rate because of the much higher Service Charge.  Despite the fact that 67% of my electrical usage was during off-peak hours, I could not off-set the huge Service Charge differential.

188 rate payers, whose usage does not qualify them for 184 billing, pay the same $0.36 per day Service Charge that standard 180 rate payers must pay.  However, LIPA added a $0.10 a day meter charge to 188 rate payers’ bills.  No meter charge is imposed on 184 or 180 rate payers.  In addition, 188 rate payers pay more for electricity during peak summer month hours than either 180 or 184 rate payers.  After the first 250 kWhs during summer months, standard 180 rate payers are charged $.0975 per kWh (regardless of the time of day); 184 rate payers are charged $0.2364 per kWh during peak hours, and 188 rate payers are charged $0.2735 a kWh for every kWh used during summer peak hours.

I performed this analysis because I needed to determine whether it made financial sense for me to stay on 184 billing after a Solar Photovoltaic system installed on the roof of my home went active on August 21st, a system large enough to cover all or most of the electrical needs of my family (I am happy to report that the first bill I received for the first 26 days was for a little more than $10, compared to around $550 for the same period the year before).   When I asked LIPA if it would run my usage through the 180 and 184 billing to see which one was better for me based on my actual usage, I was told that LIPA could not do so.  Putting the question to Mike Bailis of Sunation, the company that installed our Solar Photovoltaic system, Mike informed me of the huge Service Charge I had been paying compared to most ratepayers who were not shifting electrical usage to off-peak hours.  I then took the time to do the analysis myself, and learned for the first time that, rather than save money by shifting so much of our usage to off-peak hours, it was costing me more than $200 a year because of differences between the Service Charge imposed on 184 ratepayers compared to standard 180 customers.   

It was then that I realized for the first time that there might be thousands of rate payers, like myself, who shifted to residential time-of-use billing because they mistakenly believed they would save money, while helping LIPA by reducing consumption during peak hours over the summer.  I repeatedly brought my analysis to the attention of LIPA’s COO, CFO, and Director of Regulatory, Rates and Pricing, urging them to go to the LIPA Trustees and change the 184 and 188 rate schedules so they would provide an actual benefit, instead of a penalty, for those who shifted electrical usage from peak to off-peak hours.  The only response I received was a letter suggesting that my unusually low usage during non-summer months may be the problem, but that did not mean others did not benefit from the time-of-use rates.

On October 4, 2013, Claude Solnik, writing in the Long Island Business News (“LIPA Tinkering With Fluctuating Rate System”), described a five year experiment adopted by LIPA in May, 2013 (please see our  previous Blog which describes this program).  The five year experiment LIPA is undertaking for a limited number of customers reduces peak hours from 10 to 5, and increases peak billing rates from the 188 rate of $0.2735 per kWh to more than 40 cents a kWh.  The article then states:  “LIPA board member Matthew Cordaro said the point of the program is to save money for customers, while Little said that having fewer peak hours has become an industrial trend.”  The reference is to John little, LIPA’s Director of Regulatory, Rates and Pricing, and to LIPA Trustee Matthew Cordaro, a Senior Vice President with LILCO when he resigned after 22 years with the company).

In the article, Mr. Solnik briefly mentioned my concern that there may be numerous rate payers who shifted to time-of-use billing in the belief they were saving money, without ever being told that they would be billed so much more than standard rate payers for daily rates, or that, as a result, they likely were spending more, despite shifting use to off-peak hours.

If LIPA wants customers to save money, instead of putting off the problems created for current residential time-of-use customers for five years, it should change those rate schedules now so that they provide an incentive – not disincentive – for customers to shift usage to off-peak hours.  In fact, it is questionable whether saving its customers money is LIPA’s goal.  In a report presented to the Trustees on May 23, 2013, available on LIPA’s website, the following statement is found:  “In addition to creating a greater incentive for participants to reduce their energy consumption during the more expensive peak hours, the proposed higher energy charge will make the experimental rate more revenue neutral with LIPA’s standard non-time-differentiated residential rate.”

John Little’s statement in the LIBN article that “having fewer peak hours has become an industrial trend” makes it seem that this has occurred without any incentives being provided by the industry.  LIPA’s purported need for time-of-use billing to be “revenue neutral” appears to be the reason that time-of-use rate payers  are charged so much more for daily Service Charges and are charged ever- higher peak rates.  Thus what LIPA is saying is that, while its charges for electrical usage might save time-of-use ratepayers money, LIPA must take those savings back through other charges.  This most definitely is not the right approach to getting rate payers to shift usage to off-peak hours.

The Public Service Commission requires utilities to have available during peak hours sufficient electricity to meet more than anticipated peak loads.  While it is my personal belief that it is in everyone’s interest to shift their usage to off-peak times, because doing so will help reduce the number of new power sources LIPA must induce to be built with promises of long term power purchase agreements, it is doubtful that this is sufficient incentive to get ratepayers to shift usage.   While doing laundry and washing dishes at night and weekends has become second nature to my family after twenty years, there is no question that it would be more convenient to launder clothes or wash dishes any time we want.  If LIPA wants to persuade the public to shift usage to off-peak hours, it must provide a financial incentive for the public to do so.  The fewer power sources that must be constructed, the better it is for all rate payers who ultimately pay for those new sources.

The LIBN article indicates that there are approximately 12,000 residential rate payers in one of the time-of-use billing programs, a small percentage of LIPA’s one million customers.  In my last Blog, I suggested that LIPA eliminate 188 time-of-use rates, along with its $0.10 per day charge for the meter (a charge not imposed on 180 or 184 ratepayers), and make the Service Charge billed 184 ratepayers the same as everyone else is charged - $0.36 per day rather than $1.65.  Under such a rate schedule, I would have saved $245 compared to what I would have been billed under 180, instead of paying $225 more to LIPA.  LIPA estimated in 2008 that the average residential home on Long Island uses 9,548 kWhs a year, an increase of 1,811 kWhs since 1997.  (See “Long Island Power Authority Summary:  Recent Trends In Residential Electrical Use.”).  Projecting this increase forward, the average residential home on Long Island today should consume about 10,290 kWhs per year.  Thus, the average residential ratepayer on Long Island consumes about 43.4% of the electricity that my family consumed.  If I would have saved $245 under the amended 184 rate schedule I proposed, the average rate payer, whose off-peak usage equaled 67% of total usage (as was the case with my family’s usage), would be expected to save $106 a year.  Multiplying that by the 12,000 time-of-use customers, LIPA would receive $1,272,000 less than it would have had these ratepayers been in the 180 standard rate category.  Since all rate payers benefit from the reduced capacity LIPA must have on hand during peak hours, because their rates will go up less quickly, those ratepayers who decline to participate in time-of-use billing programs could be billed approximately $1.27 a year to cover the lost revenue from the incentives offered to time-of-use ratepayers, a rather insubstantial amount.

Next in the LIBN article, we are told that “Little said LIPA suggests customers ask for rate comparisons, including meter costs, before signing up. In most cases, the time of use plan works out for the customer, Cordaro said.”

Considering LIPA’s rejection of my express request for a rate comparison, I question whether Mr. Little is correct.  Further, it is difficult to see how LIPA could do the comparison which it purportedly recommends.  People on the 180 billing rate schedule (the standard rate) receive a bill that tells them their total kWhs consumed during the billing period.  Without a different meter installed for time-of-use customers, how will LIPA know what percentage of the customer’s usage is during peak hours and what percentage is during off-peak?  Without that knowledge, it is not possible to compare what a 180 ratepayer would have been billed had 184 or 188 rates been applied.

As for Mr. Cordaro’s assertion that, “In most cases, the time of use plan works out for the customer,” I do not believe he has any basis for his statement.

My son assisted me by creating an Excel program that permits existing 184 and 188 time-of-use LIPA customers to input their actual annual usage, and learn what they would have been billed under 180, 184, and 188 rates.  Anyone interested in performing such analysis to determine if they should switch back to standard 180 rates can find this program on my website ( along with instructions for its use.

The beauty of the program created by my son is that, once actual kWhs for the year are known, and the percentage of total kWhs that are used during summer and non-summer months, and the percentages of peak versus off-peak usage during summer months and non-summer months are determined, the total cost of 180, 184 and 188 billing is automatically calculated (just electrical charges, Service Charges, and, for 188 customers, meter charges, are calculated because every other charge on the LIPA bill is the same for everyone, so cannot effect the bottom line as to which billing rate will be best for a customer based on actual usage).

To examine whether Mr. Cordero’s assertion that most customers benefit from time-of-use plans is correct, I ran a number of different scenarios through the program.  First, I determined whether my actual usage (23,712 kWhs for the year; 47% during non-summer months and 53% during summer months; 71% off-peak during non-summer months and 63% off-peak during summer months) which resulted in my paying higher sums to LIPA whether billed under 184 or 188 when compared to 180 rates, would create savings if the same percentages were applied to lower or higher annual usage.  Starting with a presumed annual consumption of 10,290 kWhs, the approximate average residential usage on Long Island in 2013, right up to 50,000 kWhs per year, the conclusion was the same:  ratepayers pay less if they are in the standard 180 rate rather than 184 or 188.  Finally, at 60,000 kWh per year, the 184 ratepayer would save money when compared to the 180 ratepayer:  $4.00!  If the average home on Long Island consumes 10,290 kWhs a year, how many homes can there possibly be that consume 60,000 kWhs a year?  Whatever the answer, and I suspect it is close to zero, the conclusion does not support Mr. Cordero’s claim that “In most cases, the time of use plan works out for the customer”.

Keeping in mind that Mr. Little had suggested to me that the 184 rates might not have worked for me because my family consumed such an unusually low amount of power during non-summer months (11,145 kWhs for the months of October through May; 12,567 kWhs for the summer months of June – September), I ran a different assumption through the program.  I assumed that usage was flat throughout the year such that each month, the same amount of energy is consumed.  This assumption would cause 67% of usage to occur during non-summer months, rather than the 47% my family’s bills showed to be the case.  Based on this assumption, everything from the average 2013 residential usage of 10,290 kWhs, up to 20,000 kWhs per year, led to the same conclusion:  180 rates produced lower bills than would 184 or 188 rates.  However, at the actual usage my family had, 23,712 kWhs, 188 billing created a savings when compared to 180 rates:  we would have saved ten cents ($0.10)!  At 30,000 kWhs, both 184 rates and 188 rates produced a savings compared to standard 180 rates ($66 cheaper for 184; $9 for 188).  That said, keep in mind that these results occur only if usage each month throughout the year is the same.  It is difficult to imagine how anyone with air conditioning in the summer and, perhaps, a pool pump, could ever have flat usage each month.  If the point at which there is any savings at all is at roughly 23,000 kWhs a year, it is reasonable to assume that anyone consuming that much energy (which is more than twice what the average residential home uses) has air conditioners in use during the summer months.  The  amount the average home uses does not produce a savings for those in the time-of-use billing category, so how many people exist that use 23,000 kWhs a year and consume the same amount of electricity each year?  Whatever the answer, it provides no support for Mr. Cordero’s assertion as to the benefits of time-of-use billing plans.


The final quote from LIPA Trustee Cordero in the LIBN October 4th article is as follows:  “’The bottom line should be less,’ Cordero said.  ‘If not, you should get off those rates.’”

What Mr. Cordero and others at LIPA ignore is that the typical LIPA customer does not have the time to summarize a year’s worth of bills and to run them through a program like the one on my website (and how many would even be aware that a Rate Calculator exists on my website, or, for that matter, that I have a website).  How are these customers to know if they are paying more, rather than less, by reason of being on a time-of-use plan?

How 12,000 LIPA customers came to switch from 180 billing to 184 or 188 is not known.  It seems likely that they were not told that higher daily Service Charges or higher peak hour billing would lead to their paying more for their electricity, regardless of how much usage they could switch to off-peak hours. I have been asking numerous people if they are aware they are charged a daily Service Charge regardless of use.  Most of those I have spoken with are not aware that they pay a fixed daily charge, regardless of use, even though the bill is on their bills, and none could believe that every customer is not charged the same Service Charge.  LIPA’s bills merely list the Service Charge for that customer, so the bill provides no hint that others pay a different Service Charge.

If LIPA has the means of running its 12,000 customers through a program like the one on my website, which compares actual costs based on each 184 and 188 customer’s actual usage under 180, 184 and 188 billing, it should do so.  The results should be sent to each time-of-use customer so each can make an informed decision whether to stay on time-of-use billing or switch back to standard flat billing rates.  There is no question that LIPA and its consumers benefit when consumers shift usage to off-peak times.  However, without a financial incentive to change long held habits, it is not likely that many will alter their conduct.  As soon as possible, the LIPA Trustees should change the time-of-use rates, so those who shift usage to off-peak hours are rewarded with lower bills, and those who do not, will see their bills go up.  The proposal set out above and in my last Blog should accomplish this.  If neutral net revenue is necessary, the 180 rates should be adjusted so that those not participating in time-of-use plans will make up the difference.  This should not cause 180 ratepayer bills to go up by much more than $1.00 a year.

If LIPA does not act quickly to notify existing customers in time-of-use plans whether they are in fact saving or losing money by reason of their switching from the standard 180 rate plan, or, at least, does not change the 184 and 188 rates so that those shifting usage to off-peak hours will not pay more than those in the 180 standard rate plans, the Attorney General should be asked to intervene in support of LIPA’s rate payers.

For experienced and knowledgeable environmental law and litigation counsel, call us today at 631-493-9800 or contact us online to schedule your consultation.

Law Office of Frederick Eisenbud
6165 Jericho Turnpike
Commack, NY 11725-2803

The Law Office of Frederick Eisenbud’s Blog is published solely for friends and clients of the Firm and members of the community with an interest in staying current with regard to environmental issues, pertinent laws and regulations, and case law developments. The contents of this Blog should in no way be relied upon or construed as legal advice. For specific information on recent developments or particular factual situations, the opinion of legal counsel should be sought. These materials may be considered ATTORNEY ADVERTISING in some jurisdictions.

Thursday, September 26, 2013

LIPA Residential Time-of-Use Rates Are Unfair

LIPA Residential Time-of-Use Customers Beware – Your Efforts to Shift Usage to Off – Peak Hours Is Probably Costing You Money Compared to Regular Residential Rate Payers Who Are Billed the Same Rate Regardless of Time-of-Use.

Have you switched your residential LIPA billing rates from the standard 180 rates to 184 or 188 rates (the “Time of Use” rates, designed to encourage residential consumers to shift as much electrical usage from peak hours to off-peak)?  Did you do so because you believed that doing so would save you money?  If so, chances are, you are mistaken, and you have actually been paying more to LIPA than you would have had you remained in the standard 180 billing category.  Put another way, all those dish washer runs and laundry loads you put off to nights and weekends could have been done during the day, and you would have saved money.

The purpose of having different billing rates for usage during peak hours versus off-peak hours is to drive usage into off-peak times.  The peak charges for energy, particularly during the summer months, are significantly higher than the charges for energy during off-peak times.  As explained by LIPA on its website, “These rates could work for you if you can shift a high percentage of your electric usage to ‘off-peak’ hours.”  The benefit to LIPA is that the more customers shift usage to off-peak times, the easier it is for LIPA to meet Public Service Commission requirements that they have sufficient power available to meet anticipated peak usage available at all time.

Based on Fred’s analysis of his own LIPA bills, his household used 23,712 kWhs between April 2012 and March 2013, approximately 67% of which was during off-peak times.  Surely, he was saving money, right?  Wrong.  All residential rate payers pay a daily Service Charge, regardless of amount of use, and these rates are not equal.  Amazingly, 184 Time-of-Use rate payers, who strive to shift use to off-peak hours, which benefits LIPA, pay $1.65 per day, while standard 180 rate payers, who are changed the same amount for electricity regardless of when they use electricity, pay only $0.36 per day.  Thus, 184 rate payers are billed $470.85 every year more than they would have been billed had they remained in the regular 180 rate category.

While the cost to 184 Time-of-Use ratepayers who shift a majority of their usage to off-peak hours is less than the charge to standard 180 rate payers for the same overall amount of electricity, the question is, do the reduced charges for electricity offset the greater daily charge imposed by LIPA?  At least in Fred’s case, the answer is “no”.  Based on his actual energy usage for the period April 2012 through March 2013, his family paid $225.00 more than they would have had they never switched to the 184 Time-of-Use billing rate.

Perhaps the problem is that his family’s usage is not appropriate for the 184 billing rate.  LIPA’s summary of its residential rates, published in 2012, and available on LIPA’s website, states that “Time-of-Use rates require a special meter that records usage during peak and off-peak hours.  These rates are available as an option to customers who use, or are expected to use:  more than 39,000 kilowatt hours (kWh) annually or 12,600 kWh for the months of June through September.”  When Fred first switched to the 184 billing rate twenty years ago (when LILCO provided our electricity), his family consumed 33,660 kWh during the year before he switched rates, of which more than 19,000 kWhs was used June through September (the summer months).  Clearly, his household fell within the guidelines for who would be eligible for 184 billing rates.

Now, however, Fred’s annual usage has fallen to 23,712 kWh (by doing most of the things recommended to reduce electrical consumption), but 12,564 kWhs was consumed by his household from June to September.  Thus, his summer usage was high enough so that the 184 rates should still have been appropriate.  To make certain that the reason the 184 rates produced a greater total cost to Fred compared to what he would have been charged under standard180 rates was not due to his family’s overall usage being too low, we ran the 180 and 184 billing rates against a hypothetical usage of 39,000 kWhs for twelve months.  Percentages based on Fred’s actual usage were applied to the 39,000 kWhs assumed usage to arrive at total kWhs during peak and off-peak times, and during summer months and the rest of the year.  Again, after applying this hypothetical usage against LIPA’s published 184 rates, the result was that the Time-of-Use rate category would have cost Fred $134.21 more than what he would have been billed under the standard 180 rate.

Perhaps there is another Time-of-Use billing schedule that would be more appropriate.  LIPA also offers Rate 188, which, it states in its 2012 summary of Residential Rates, is “An optional ‘off-peak pricing’ rate for customers whose usage does not qualify for Rate 184.”  While the fixed daily Service Charge for Rate 188 is the same as for 180, $0.36 per day, a $0.10 meter charge per day is added on.  Still, the total fixed daily charge of $0.46 is far less than the daily charge under Rate 184, $1.65 a day. However, the peak charge for electricity during the summer months under Rate 188 is even higher than that charged under the 184 rate ($0.2364 per kWh under 184, and $0.2735 per kWh under 188).  Running Fred’s household’s actual usage through the Rate 188 schedule led to the conclusion that he would  have paid even more under the 188 schedule than he was  billed under the 184 rate, $273.80 more than what he would have been billed under the standard 180 rate schedule.  Assuming he used 39,000 kWhs instead of what his family actually used only made things worse  – they would have paid $461.74 more by being in the 188 Rate category than they would have had they been in the standard 180 category.

Fred brought all of this to the attention of everyone at LIPA who should care, from the COO down to the Director of Regulatory, Rates and Pricing, asking that they go to the LIPA Trustees to change the fixed daily charges and the billing rates in the Time-of-Use billing categories so there would be an actual financial incentive instead of a penalty for those customers who shifted to Time-Of-Use billing.   Thus far, he has received no indication that LIPA is willing to change the rate structures.

On LIPA’s website, however, there is a report adopted by the LIPA Trustees on May 23, 2013 which describes a past experiment designed to encourage residential customers to shift usage to off-peak hours, and which enacts a new tariff for an experimental group to be applied over the next five years. The experiment was conducted between 2009 and 2011.  A relatively small group of volunteers had the 188 billing rates applied to usage, but peak hour billing was applied to a significantly reduced period (peak hours were changed from 10 AM – 8 PM [a ten hour period] to 2 PM – 7 PM [a five hour period]).   The shocking results were that, while 49% of customers in the program reduced their peak usage, 46% increased peak usage.  To remedy this, on May 23, 2013, the LIPA Trustees adopted a new five year experiment which increases the summer peak rate from $0.2735 per kWh to $0.4072 per kWh.  Because much of the increase in electrical usage during summer months is due to air conditioning, it will be interesting to see whether there is any escape for even diligent volunteers who shift as much usage as they can to off-peak hours from having higher rates in light of the very significant increase in rates for the shortened peak summer billing period.

There can be no excuse for the current situation, and current 184 and 188 Time-of-Use ratepayers should not continue to participate voluntarily in billing categories that are likely resulting in higher electrical costs, while LIPA conducts its five year experiment, and continues to reap the benefits of their customers’ efforts to shift usage to off-peak hours.  Even if LIPA can make a case that there are higher administration costs to administer Time-of-Use billing than standard billing (and it is difficult to imagine such costs are significant in this age of computers), the financial benefit to LIPA of shifting usage to off-peak hours is clear and substantial.  If LIPA wants customers to shift their usage, they must provide a proper incentive for them to do so.

One obvious way to do this is to eliminate the 188 Time-of-Use category, leaving the 184 category as the only billing schedule for people who believe they can shift use to off-peak hours.  Further, the fixed daily Service Charge should be made uniform, with everyone in the 184 category paying what 180 ratepayers now pay, $0.36 per day.  Finally, the $0.10 daily meter charge imposed on 188 rate payers (but not on 184 rate payers) should be eliminated.

The 180 rates and 184 rates then would be as follows:

Applying the proposed 184 rate schedule to Fred’s actual annual usage of 23,712 kWhs, instead of paying approximately $225 more per year as a 184 Time-of-Use ratepayer than he would have under the standard rates, he would have saved $245.85.  This would seem an appropriate reward for shifting his usage so that 67% of his family’s usage occurs during off-peak times.  On the other hand, if Fred consumed 23,712 kWh per year, but instead of using 67% of the annual electricity during off-peak hours as his family does now, he did not shift any use (i.e., 50% used during peak and 50% during off-peak times over the course of a year), running those numbers through the proposed table produces a higher payment to LIPA than the 180 rate would have, in the amount of $180.  Since the purpose of 184 is to shift electrical use to non-peak times, this result too seems appropriate.  We leave it to LIPA to devise a fairer rate schedule than now exists, but it can no longer sit back and ignore the unfair results caused by its Time-of-Use rate structure.

What is the bottom line?  Buyer Beware.   If you switched to the 184 or 188 billing categories, thinking you were saving money while helping reduce the amount of new power sources that will have to be constructed on Long Island, you will have to do your own analysis to determine if you are paying more for the privilege of helping LIPA out.  If you analyze your own bills and conclude you are paying more by being a 184 or 188 ratepayer, or even if you are unsure, you may wish to write to LIPA and demand that you be terminated from 184 or 188 billing, and ask to be put back into the standard 180 billing category.  Only then will LIPA be forced to review its residential billing rates, and come up with a true system of incentives to encourage customers to shift their usage to off-peak hours.

For experienced and knowledgeable environmental law and litigation counsel, call us today at 631-493-9800 or contact us online to schedule your consultation.

Law Office of Frederick Eisenbud
6165 Jericho Turnpike
Commack, NY 11725-2803

The Law Office of Frederick Eisenbud’s Blog is published solely for friends and clients of the Firm and members of the community with an interest in staying current with regard to environmental issues, pertinent laws and regulations, and case law developments. The contents of this Blog should in no way be relied upon or construed as legal advice. For specific information on recent developments or particular factual situations, the opinion of legal counsel should be sought. These materials may be considered ATTORNEY ADVERTISING in some jurisdictions.

Tuesday, August 20, 2013

Second Circuit's Okay of NYC's $104 Million Judgment Against ExxonMobil Opens the Door To Future Lawsuits Against Companies That Likely Would Not Have been Sued In the Past

United States Court of Appeals for the Second Circuit Affirms $104.69 Million Judgment in Favor of New York City Against Exxon Mobil for MTBE Contamination Based on Common Law Claims, Opening the Door to Future Litigation That Will Include Companies and Individuals That Likely Never Would Have Been Named in the Past.

Following an eleven week trial presided over by Judge Sheira Scheindlin in the Southern District of New York, the jury awarded New York City judgment in the amount of $104.69 million against Exxon Mobil for Exxon Mobil’s alleged contribution to the contamination of Station Six wells in Jamaica, Queens.  The trial proceeded in three phases.  In Phase I, the City established that it had good faith intent to begin construction of the Station Six facility within the next fifteen years and that it intends to use the Station Six wells within the next fifteen to twenty years as a back-up source of drinking water.  In Phase II, the jury found that MTBE would be in the “capture zone” of the wells when they began operating, and that the concentration of MTBE would peak at a concentration of 10 ppb by 2033.  In Phase III, the City proved by a fair preponderance of the credible evidence that a reasonable water provider in the City’s position would treat the water to reduce the levels or minimize the effect of the MTBE on the combined outflow of the wells in order to use the water as a back-up source of drinking water.   The jury found Exxon Mobil liable to the City based on State tort theories: negligence, trespass, public nuisance and failure to warn.  Finally, the jury found that the City’s total damages arising from the contamination of the Station Six facility was $250.5 million, that this must be reduced by $70 million, reflecting the anticipated cost of remediating pre-existing PCE contamination, and that 42 percent of the remainder of the injury to the City should be attributed to companies other than Exxon Mobil, leaving $104.6 million as Exxon Mobil’s share of the City’s damages.  The jury took into account testimony that, because of mixing of brands prior to distribution, the gasoline sold by every station in Queens likely contained some of Exxon’s gasoline, and that Exxon was responsible for approximately 25 percent of gasoline sold in Queens during the relevant period.  In addition, the jury found that leaks of gasoline occurred regularly at gas stations.

The United States Court of Appeals for the Second Circuit affirmed the verdict in a lengthy decision on July 26, 2013, which provides fodder for numerous law school final exam questions in Civil Procedure and Torts.  The decision, however, may go far beyond its pedagogical implications.  Without resort to strict liability statutes like the Navigation Law, and a damage claim that seemed speculative at best, the Second Circuit Court of Appeals has set out a road map for the State of New York and water purveyors to seek substantial damages against any company that has contributed to groundwater contamination within the area from which groundwater can be expected to eventually migrate to the wells, even if the contaminants are not expected to reach the wells in significant concentrations for many years.

The City purchased the Station Six Wells in 1996 with the goal of using the wells in the future as a back-up for the City’s water supply.  In April 2000, MTBE was first detected in Station Six Wells at readings between 0.73 ppb and 1.5 ppb.  By January, 2003, MTBE levels reached 350 ppb in one of the wells.  However, none of the wells had been used for the drinking water distribution system and construction of the planned treatment system had not yet begun.  In October 2003, the City sued Exxon and twenty-six other petroleum companies, complaining of injuries to the City’s water supply from gasoline containing MTBE.  All defendants settled except Exxon Mobil.

Exxon Mobil argued that the case was not “ripe” for adjudication, because it was speculative whether the City would ever use the Station Six Wells, but, if the City’s claims were ripe, they were barred by the applicable statute of limitations.   The Second Circuit held that the City’s claims were ripe because the City did not bring suit until testing showed the presence of MTBE in the wells, “and the question whether the injury was significant enough for the City to prevail on its claims under New York law was a question for the jury.”   That the City might not use the wells for fifteen years did not preclude the finding that the claims are ripe.  The Court further noted that New York’s statute of limitations applicable to toxic torts does not apply to the continuing wrong doctrine.  When an injury to person or property is from exposure to a toxic substance, the person injured must commence suit within three years of when he or she knew or should have known of the injury.  Thus even though the presence of MTBE in the groundwater is continuous, the statute of limitations runs from the first discovery of injury.  For this reason, the Court reasoned, dismissing the City’s claims on ripeness grounds would foreclose the possibility of relief because of the statute of limitations, creating “a hardship and inequity of the highest order.”

Certain holdings of the Second Circuit will be cited frequently in future litigation. For example, in its discussion of negligence, the Court found “Exxon’s timely knowledge of the particular dangers of MTBE, combined with evidence about remedial measures available as early as the 1980’s, was sufficient to allow the jury to determine that Exxon breached the standard of ordinary care.”  Remarkably, the Court then gave as an example of how Exxon could be found to have breached that standard by observing that “Exxon could have installed remediation systems at its stations, which would have permitted station operators to begin the clean-up process as soon [as] they detected a gasoline leak.”

With regard to trespass, the Court rejected Exxon’s argument that the City failed to establish an interference with its water rights because there was no proof that MTBE would exceed the Maximum Contaminant Level (“MCL”) established for MTBE.  Noting that New York courts “have held that a plaintiff may suffer injury from contamination at levels below an applicable regulatory threshold”, the Court agreed with the City that the jury could find that a reasonable water provider would have treated the MTBE contaminated water at Station Six.

In its discussion of public nuisance, the Second Circuit considered the holding in an MTBE case in Nassau County in which the trial court concluded that, to be liable for public nuisance, the defendant’s actions must have taken place on land that was “neighboring or contiguous.”  That standard was not met in the case before the Second Circuit, but it did not deter the Court from affirming the judgment.  The Second Circuit said that the Nassau County case had not been subjected to appellate review, and it believed that, upon further review, New York law will not be found to be so restrictive.  Although the Court said that, under the facts presented, the nuisance claim would be sustained even if the “neighboring or contiguous” standard applied because “Exxon's extensive involvement in the Queens gasoline market belies any claim that its conduct was too geographically remote to sustain liability for public nuisance,” the possibility that the “neighboring or contiguous” requirement may not apply will encourage injured parties to stretch the reach of their nuisance claims.

Finally, the City appealed the lower court’s dismissal of the City’s claim for punitive damages, which “are awarded to punish a defendant for wanton and reckless or malicious acts and to protect society against similar acts."  The Second Circuit agreed with the lower court that "the vast majority of the conduct that produced the City's injury led to persistent levels of MTBE in the capture zone of Station Six that are well below the MCL in place at the time the conduct occurred."  This fact was relevant because, although a reasonable jury could conclude that the City was injured by MTBE levels below the MCL, "punishing [Exxon] for its contribution to this injury would not advance a strong public policy of the State or protect against a severe risk to the public."  Significantly, however, the Second Circuit said that it expressed no view on the applicability of punitive damages “in other MTBE cases before the District Court.”


It is safe to say that the Second Circuit’s decision provides ample incentive for the State and private water purveyors to expand the scope of cost recovery litigation throughout the State of New York.  Although the Second Circuit referred to the “capture zone” of the Station Six wells, because of its affirmance of the finding that some Exxon Mobil gasoline likely was in most of the gasoline delivered to stations within this capture zone, the outer limits of the capture zone or its significance for purposes of cost recovery litigation did not have to be explored.

Future litigation, however, can be expected to focus on the concept of a “capture zone”   by reference to studies done pursuant to the Source Water Assessment Program (“SWAP”). This program was mandated by 1996 amendments to the federal Safe Drinking Water Act.  The New York State Department of Health developed the New York State SWAP, and this resulted in the Long Island SWAP.  The Long Island SWAP was developed by an engineering firm, CDM, under contract with the New York State Department of Health, and the Suffolk and Nassau County Departments of Health Services.  Using computer modeling and geographic information systems, source water assessments were performed for all public water supplies in Nassau and Suffolk Counties.  The resulting source water assessments defined capture zones within which contaminants potentially would reach each Nassau and Suffolk County public supply well within two years, five years, twenty-five years, fifty years, seventy five years, and one hundred years.

The Summary Report for the Long Island Source Water Assessment Program makes clear that the studies are planning tools: “It is important to remember that the source water assessments only indicate the potential for contamination of a supply well, based upon the likelihood of the presence of contaminants above ground in the source water recharge area and upon the possibility that any contaminants present can migrate down through the aquifer to the depth at which water enters the well screen.  In most cases, the susceptibility, or potential, for contamination has not resulted in actual source water contamination.  If contamination of a well source is identified, water suppliers either provide treatment or withdraw the well from service, so that all potable water distributed to residents of Nassau and Suffolk Counties meets all applicable drinking water standards.”

As a result of the Second Circuit’s decision, zone of capture analysis, coupled with the discovery of contaminant concentrations in water below Maximum Contaminant Levels, may suffice to draw huge numbers of companies into litigation that likely never would have been named as defendants in the past.  This in turn will engender defenses based on ripeness and the statute of limitations.  If Company “A” has a record of discharging volatile organic chemicals (“VOCs”) and is in the portion of the capture zone of a public water supplier that suggests contaminants will be drawn into the public supply well within twenty-five years, when is a case against “A” “ripe”, and when does the statute of limitations begin to run?  If the public supply well already has VOCs present at concentrations sufficient to require either shut-down of the well, or treatment before potable water is released to the public, it is safe to say that treatment will continue for many years, in part, due to polluters within twenty-five year capture zones.

Future court decisions will address the level of proof required in order for a distant upgradient polluter that is within a SWAP defined capture zone of a public supply well to be found liable to the water supplier for damages to its supply wells.  Until such clarification is received, the State and public water suppliers may be tempted to add any polluter they can find to their cost recovery lawsuits who are within a Source Water Assessment Program capture zone, regardless of how far away, or the projected time it will take for contaminants to reach the supply well from that polluter’s site.  Given the high cost of defending such lawsuits, all or most such defendants may be expected to enter into settlements rather than incur the cost of a defense.

The ability to mount a vigorous defense in order to assure a reasonable settlement has been diminished by the Second Circuit’s ruling.  While the law is clear that the polluter should pay, the risk that innocent companies and individuals will be drawn into litigation that they cannot afford to defend against has risen dramatically.  We can only hope that the State and water purveyors will exercise their new-found powers judiciously.  If they do not, defendants can be expected to join together to share the cost of motions that will help to clarify the rules for including far away polluters in lawsuits seeking indemnification or contribution for environmental remediation costs.

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Law Office of Frederick Eisenbud
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The Law Office of Frederick Eisenbud’s Blog is published solely for friends and clients of the Firm and members of the community with an interest in staying current with regard to environmental issues, pertinent laws and regulations, and case law developments. The contents of this Blog should in no way be relied upon or construed as legal advice. For specific information on recent developments or particular factual situations, the opinion of legal counsel should be sought. These materials may be considered ATTORNEY ADVERTISING in some jurisdictions.