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 www.LI-EnviroLaw.com 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 (www.LI-EnviroLaw.com) 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.

CONCLUSION

The final quote from LIPA Trustee Cordero in the LIBN October 4^th 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

www.LI-EnviroLaw.com

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.

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

www.LI-EnviroLaw.com

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.

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.”

Conclusion

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.

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

www.LI-EnviroLaw.com

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.

Tidal Wetlands Permits and the Importance of Maintaining Old Bulkheads in Good Repair

If you own waterfront property and have a functional bulkhead that is at least 100’ long and has been in place since before August 1977, you have a very valuable asset. According to the regulations of the New York State Department of Environmental Conservation (“DEC”), anything landward of such a bulkhead is not subject to the DEC’s wetlands jurisdiction. In contrast, if the property is not bulkheaded or the bulkhead is less than 100’ long or was constructed after August 1977, then any construction in the area within 300 feet landward of the tidal wetland boundary is likely subject to tidal wetlands regulations, and will require a DEC tidal wetlands permit. All too often, people overlook the importance of their pre-August 1977 bulkhead being “functional”, and, through failure to apply routine maintenance, find that the DEC is claiming work done behind the bulkhead should have been done pursuant to a Tidal Wetlands permit. In such situations, it is not uncommon for DEC to require any structure built without a required permit to be removed and to impose substantial penalties on the offender.

What is a “functional bulkhead”? Essentially, it is a bulkhead that functions as designed and is maintained in working order. Factors considered by the DEC in the determination of functionality include: if more than 50% of the footprint of the structure is missing; if the structural integrity is compromised; if the tidal wetland boundary has moved landward of the bulkhead; and, if sections are missing. In practice, the DEC tends to err on the side of caution and often will declare even a slightly damaged bulkhead non-functional if it fails to operate as designed. For example, if the bulkhead does not prevent soil from eroding into the water or the wetlands from moving landward, it may be deemed non-functional and the DEC will assert jurisdiction landward of the bulkhead.

The DEC’s regulations allow ordinary maintenance and repair, not involving expansion or substantial restoration, reconstruction or modification, to be performed without a permit. While this should be done regardless of when the bulkhead was constructed to avoid having to obtain a tidal wetlands permit in order to make substantial repairs, for the reasons set out above, it is critically important that the property owner regularly perform routine maintenance if the bulkhead was built prior to August 1977.

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

www.LI-EnviroLaw.com

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.

New York Navigation Law Update

New York’s Navigation Law deals with oil spills, who must clean them up, and who must pay for the damage. Despite the name, the law applies to discharges of petroleum on land that may adversely impact the “waters of the State,” which include groundwater. Some recent court decisions are of interest.

Benjamin v. Keyspan Corp., 104 A.D.3d 891 (2nd Dept. 2013).

The normal statute of limitations for a claim of damage to property from petroleum contamination is three years from when the property owner knew or should have known of the problem.  In this case, defendant Keyspan showed that the plaintiff had agreed to the installation of monitoring wells on his property, had participated in a survey regarding possible contamination in the area, and was notified of monitoring and testing results in the vicinity of the property at least eight years before the plaintiff filed suit.  Thus, the action was dismissed as time-barred. 

This decision from the Appellate Division, which has jurisdiction over Nassau, Suffolk, Staten Island, Brooklyn, Queens, Westchester, Dutchess, Rockland, Orange and Putnam Counties, underscores the importance of timely action by a property owner who knows or reasonably suspects that his property has been contaminated.

State of New York v. Zurich American Insurance Co., 106 A.D.3d 1222 (3rd Dept., 2013).

The Navigation Law allows any injured party to recover damages, not only from the “discharger”, but also from that person’s insurance company, by suing the insurance company directly. In this case, New York State expended over $124,000 to clean up contamination at a gas station in Northport, Suffolk County.  It then tried to recover its costs by commencing an action against Zurich.  However, Zurich had already obtained a declaratory judgment against its insured, stating that the claim is not covered under the policy.  It argued that this decision meant that it could not be now sued by the State.

The Appellate Division disagreed.  It pointed out that the State had not been a party to the earlier lawsuit and was therefore not bound by that court’s decision.  The State must be given its own opportunity to convince the court that the policy covers the discharge.  Of course, if it cannot, the insurance company will be off the hook. Another possibility is that, to avoid litigation costs, Zurich will agree to pay some of the cleanup costs as part of a settlement agreement. 

Thus, if there is a dispute over policy coverage of a petroleum spill, the insurance carrier should add as a party to any lawsuit the injured party who may have incurred costs as a result of the discharge.  That will create “collateral estoppel”, i.e. be binding on all the participating parties and deter subsequent litigation.  Of course, the downside of including the State in a declaratory judgment action is that doing so will guarantee that the State becomes aware of the potential insurance coverage.

State of New York v. C. J. Burth Services, Inc., 39 Misc. 3d 1221(A) (Sup. Ct. Albany Co. 2013).

Anyone who violated the Navigation Law may be subject to penalties of up to $25,000 per day, with each day of a continuing violation counting as a new offense.  In this case, the State asked the court to impose these penalties on the owners of a gas station, even though the latter claimed that they did not cause any spill and that the contamination had occurred years earlier before they had purchased the property. The State’s rationale was that, once they became aware of the contamination, “defendants failed to take all necessary actions to abate [it]”, by rejecting the Department of Environmental Conservation’s proposed stipulation about the work that had to be done and not doing any cleanup on their own. The court agreed that penalties could be imposed in this instance and set the matter for trial.

The important lesson to be learned from this case is that the net of Navigation Law liability can ensnare not only the person who causes a spill and his/her insurance company, but also a subsequent owner who discovers the contamination and does nothing to address it. To avoid heavy penalties, the innocent owner may consider applying to the Brownfields Program as a “volunteer”.  This status allows the owner to limit the cleanup to the boundaries of the property without requiring him or her to investigate and remediate the off-site contaminant plume. 

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Frederick Eisenbud and Lilia Factor

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

                 www.LI-EnviroLaw.com          

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.