STATE OF PUBLIC SERVICE COMMISSION

CASE 99-E-0930 – Proceeding on Motion of the Commission to Investigate the July 6, 1999 Power Outage of Consolidated Edison Company of New York Inc.’s Washington Heights Network.

NOTICE SOLICITING COMMENTS

(Issued September 22, 2000)

By letter-filing dated August 18, 2000 (see attached), Consolidated Edison Company of New York, Inc. filed proposed tariff revisions concerning its liability limitations for the spoilage of food and loss of perishable merchandise during certain distribution system outages. Con Edison’s proposal was submitted in response to the Commission’s June 22, 2000 Order Approving Tariff Amendments in this proceeding. TAKE NOTICE that persons wishing to comment on Con Edison’s proposal should file six copies of their comments with the Honorable Janet Hand Deixler, Secretary, Public Service Commission, Three Empire State Plaza, Albany, New York, 12223- 1350 and serve a copy on the persons on the attached service list not later than October 9, 2000. Reply comments may be filed and served in the same manner no later than October 19, 2000.

JANET HAND DEIXLER Secretary

Attachments (2) . .

Law Depart men t con Consolidated Edison Company of New York. Inc mson 4 lrvlng Place. New York. N.Y. 10003 August 18. 2000

Hon. Janet Hand Deixler Secretary New York State Department of Public Service Three Empire State Plaza Albany, New York 12223

Re: Case 99-E-0930 - Proceeding on Motion of the Commission to Investigate the July 6, 1999 Power Outage of Con Edison’s Washington Heights Network

Dear Secretary Deixler:

The Commission’s June 22, 2000 Order Approvina Tariff Amendments in the referenced proceeding directed Consolidated Edison Company of New York, Inc. (“Con Edison” or “the Company”) to file a proposal designed to address the administrative and practical difficulties involved in compensating consumers for spoilage of food and perishable merchandise resulting from a power outage as defined in the Company’s tariff. The purpose of the proposal is to suggest an alternative to the temporary plan, established by tariff leaves filed on June 14. 2000, which sets the maximum compensation available to residential customers at $350 and to commercial customers at $7,000.

After exhaustive analysis and research, Con Edison has determined that the following proposal will best achieve the goal of compensating customers for actual losses, while alleviating some of the practical difficulties in administering the claims process: Con Edison proposes to increase the compensation to residential users for actual losses up to $350 and to commercial users for actual losses up to $7,000 on a permanent basis. In addition, Con Edison will increase the ceiling on total payments to $10 million per occurrence, as directed by the Commission.’ A major issue has been verification of customer claims, since

’ If an outage occurs that will invoke the tariff spoilage provisions. the Company will immediatei!, endeavor to estimate the potential total maxlmum payment responsibilit?.. When there IS reasonable assurance that the SIO million total occurrence cap will not be reached. claims will be processed for payment on an as received basis. When the SIO million cap is likely to be exceeded. the Company will want until after the 30 day period for submmm g claims to determme if prorating IS required. verification can be a time-consuming and burdensome process, but a necessary one. Under the new framework, the Company will pay residential claims up to $125 upon receipt of an itemization of actual losses, and the Company will pay residential claims over $125, up to $350, upon receipt of an itemization and proof of actual losses. The Company will pay non-residential claims up to $7,000 upon receipt of an itemization and proof of actual losses. All claims will be subject to reasonable verification.

Backsround

The Commission’s March 15, 2000 Order in this proceeding directed Con Edison to show cause why the compensation levels for perishable merchandise set forth in its electric tariff should not be increased from $100 to $350 for residential users and from $2,000 to $7,000 for non-residential users. Con Edison filed a response on April 17, 2000, which urged the Commission to adopt lower compensation levels. The Company asked the Commission to reconsider the $350 cap for food spoilage claims because it far exceeds the actual potential spoilage loss that would be experienced by residential customers as a result of a power outage. Moreover, the Company expressed a concern that, based on its experience, many claimants view the maximum reimbursement cap as an entitlement for the general inconvenience occasioned by the outage, rather than reimbursement for actual food spoilage incurred. As a result, many claimants file claims for the maximum amount available, whether or not they have experienced food spoilage losses in that amount. At the same time, it is difficult to require rigorous proof for actual losses.

On further consideration, the Commission directed the Company to file tariff revisions increasing the levels as initially directed or, alternatively, to request a hearing. By letters dated June 2 and June 5,2000, Con Edison indicated it would file conforming tariff leaves, but expressed a desire to explore ways to address the practical and important issue of administering a claims program in a way that made sense for customers, regulators, and the Company. The tariff leaves were filed on June 14, 2000 with an effective period of June 23, 2000 through December 1,200O.

The Commission’s June 22, 2000 Order Approvinq Tariff Amendments accepted the Company’s recommendation that the compensation system be further examined and directed the Company to file by August l&2000, a proposal addressing its concerns. The Commission also accepted that the tariff revisions be effective only through December 1, 2000 and stated that, following its review of Con Edison’s proposal, it would consider adoption of suitable tariff revisions or continuation of the increased compensation levels. Con Edison’s Proposal

Con Edison continues in its view that a $350 cap on residential claims is excessive 2 and creates the erroneous expectation that the “cap” amount is something customers may be entitled to irrespective of actual losses experienced. The cost of excessive payments is one that is not only unfair to the general body of ratepayers, but especially unfair to the claimants who adhere to the Commission’s intent of providing compensation for actual losses experienced. For example, while a large percentage of claims made last summer were on forms requesting a pre-printed $100 payment, many claims listed specific items of damage on hand-written notes and sought compensation for much lower amounts. Con Edison has thus developed a proposal for providing compensation for spoilage that would address these concerns to at least a limited extent. Con Edison also considered other factors in developing the plan. The compensation system should continue to provide claimants with compensation for actual spoilage losses. The claims process should be simple for claimants to follow and easy for the Company to administer. In addition, to promote the integrity of the claims process, claims should be subject to reasonable verification.

The concept of verification, which is necessarily a key concern in developing any claims process, is certainly not a new one; the Commission’s discussion of the claims process made clear that the intent of the tariff is that claims should be subject to reasonable verification requirements. The real task is to develop a reasonable way to balance the significant practical problem of verifying large numbers of claims and the need to insure the integrity of the claims procedure; we believe the framework we have developed balances these interests in an acceptable fashion.

Con Edison is proposing a compensation program that will provide reimbursement to residential users for actual spoilage up to $350. Claimants

2 Staff tived at its proposed $350 cap by escalating the $100 cap established in 1973. Food-industry experts are in agreement that the application of inflation to the expected value of the perishable contents of a 1973 refrigerator or to the $100 cap is a severely flawed methodology. The consumers approach to meals - shopping, eating and preparing - has changed so dramatically that to simply look at the value of the perishable food in the 1970s and increase it by the appropriate CPI is meaningless and inappropriate for reflecting the value of perishable food in 2000 and beyond.

These experts also question the validity of the $100 value assigned in 1973. In connection with this, it is noteworthy that in 1973 the Commission originally proposed the $100 cap to reimburse claims for both food spoilage and appliance damage. The Commission later eliminated reimbursement for appliance damages but maintained the $100 limit without adjustment. (See Op. No. 73-20, Opinion and Order Directing the Filing of Tariff Provisions bv Consolidated Edison Comoanv of New York. Inc. to Provide Comoensation for Losses Due to Distribution Svstem Interruutions, issued July 10, 1973, p. 9.). Even assuming that the Commission intended to set an amount that would cover anticipated inflation, it is patently erroneous to use that amount ($100) as the appropriate 1973 value for escalation to the year 2000.

3 itemizing losses will receive up to $125 without providing proof of 10~s.~ Claimants who provide proof of loss will receive reimbursement for their actual losses up to $350, after reasonable verification. In the event a claim in an amount in excess of $125 does not have supporting documentation, or if the documentation provided is deemed insufficient, the Company will advise the claimant of the additionalinformation required.

Reasonableness

Over the last two months, Con Edison conducted an intensive study of the compensation level needed to reimburse residential users for actual food losses. Con Edison retained the NPD Group, a nationally known statistical research firm, to prepare a statistical analysis of and Westchester consumer food purchases to determine the compensation level needed to fully reimburse consumers for food spoilage. Using extremely conservative calculations in separate analyses of food-purchase patterns in 43 zip-code areas, representing a diverse demographic cross-section of Con Edison’s territory, NPD determined that a payment of up to $125.33 would provide full compensation for loss of the entire refrigerated and frozen food stock of 99 percent of the households in Con Edison’s service area.

Accordingly, the vast majority of claimants should have actual losses of $125 or less and under Con Edison’s proposal will be able to obtain reimbursement merely by itemizing their losses. Only a very small minority of people (less than one percent) should have actual losses exceeding $125, and these claimants will be able to obtain full reimbursement up to a maximum of $350 by itemizing and providing proof of these losses.

A balanced approach to claim verification needs to be a central consideration in developing a claim-compensation program. On the one hand, verification of claims is a reasonable requirement that is needed to ensure the integrity of the claims process. On the other hand, it is apparent that most people will sustain some amount of food spoilage during an extended outage and that proof of loss and verification requirements can be burdensome for both claimants to satisfy and the Company to administer. Accordingly, to balance these considerations, we believe it is reasonable to forego proof of loss for the large majority of claims and require itemization and proof of loss only for the very small percentage of claims that are expected to exceed $125.

Con Edison’s experience in handling the claims from the July 1999 outages demonstrated that a substantial segment of customers regarded the former $100 compensation limit as an entitlement for the inconvenience of the outage and did not limit their claims to their actual food losses. Recognizing that the higher compensation limits may be similarly considered to be an entitlement,

’ Even for claims up to $125, the Company reserves the right to generally verify reasonableness, x, a claim seeking reimbursement of S 1 I5 for two quarts of milk would not pass the test of reasonableness.

4 . the Company believes that the integrity of the claims process is best promoted by more rigorous proof of loss and verification requirements for higher dollar claims. At the same time, however, the Company also seeks to provide a higher compensation limit that will be administered in a way that maximizes claimant convenience, promotes reasonable expectations, and minimizes claimant confusion with the process. The Company’s proposal achieves these ends by both paying outright almost all claims, even those at the upper range of expected losses (i.e., $125 per customer), and providing the flexibility to identify claims that are abusive of the process.

Con Edison recognizes that acceptable proof of actual losses can vary in particular circumstances, and, therefore; the Company will be flexible and _ reasonable according to the circumstances. Acceptable proof could include itemized receipts, cash register tapes, credit card receipts, canceled checks, clean identifying price labels or bar codes from merchandise, photographs of discarded food, or an interview of the claimant. The revised claim form will include an affirmation whereby the claimant will state that the claim submitted is true and correct to the best of the claimant’s knowledge.

Attached hereto is the proposed tariff leaf and revised claim forms incorporating the Company’s proposal for administering the spoilage procedures. As discussed below, Con Edison will undertake a customer education effort to make customers aware of the claims process and the limited circumstances when proof of losses will be required.

Communication about the Claims Proqram Con Edison will implement a customer education program to promote awareness and understanding of the claims process and its parameters and requirements. Con Edison will:

l Provide clear, substantive information about the program in a bill insert (such as Customer News) on a semi-annual basis.

l Distribute fact sheets about the program to the media.

l Incorporate program information into community outreach efforts.

l In the event of an outage, provide program information via the voice response unit (“VRU”) of the Company’s Call Center.

Con Edison will revise its claim form to reflect the requirements of its proposal. The form will contain an explanation of the claim process and what claimants need to do to file a claim. To maximize the accessibility of claims forms, Con Edison:

l Has developed a new VRU application that will automatically mail a claim form in response to a customer’s telephone request. I .

l Will make claim forms available in multiple languages.

l will distribute claim forms to community groups and enlist their assistance in claim form dissemination.

l Will make claim. forms available on Con Edison’s web site.

Benefits of Con Edison’s Proposal for Consumers

The claims compensation process contemplated by Con Edison offers important benefits to consumers who sustain spoilage losses during an outage. First and foremost, the reimbursement responsibility is a strict liability scheme without regard to proof of negligence or fault for qualifying distribution outages. As such, it is the only faultless outage compensation plan for spoilage offered by any utility in the country. In addition, the process is easy for claimants to understand and is simple to use. Subject to reasonable verification, claimants who itemize losses up to $125 will receive the full amount of their claims with no further requirements. This amount will provide full compensation for the losses sustained by virtually every claimant. Claimants who itemize losses over $125 will receive whatever actual losses they can demonstrate, up to a maximum of $350. Claim forms, describing the process and the information to be provided, will be readily available.

The process is relatively easy for Con Edison to administer, and as a result, customers will receive compensation for their losses in a reasonable time following the outage. The elimination of proof of loss for the large majority of claims greatly simplifies claims review, allows more claims to be processed in less time, and frees resources to more quickly address the small number of claims that require verification.

Review of Con Edison’s Proposal

If parties are interested in discussing the review that the Company conducted in developing this new framework, Con Edison is prepared to have its consultant, NPD Group, present its study to the parties. Other industry experts can be made available as well.

Associate General Counsel

Cc. All Parties - Service List: PSC Case 99-E-0930 Attorney General of the State of New York Richard King, Esq. ._ . P.S.C. So. 9 - Electricit\ Consolidated Edison Company Fourth Revised Leaf h’o. t$ of New York. Inc. Superseding Third Revised Leaf No. 63

GENERAL INFORMATION - Continued

III. General Rules. Regulations, Terms and Conditions under Which Electric Service Will Be Supplied. Appiicabie to and Made a Part of All Agreements for Electric Service - Continued

14. Liability - Continued

(4 Continuity of Supply - Continued

Notwithstanding other limitations of liability contained in this tariff. the Company will compensate Customers for losses, of the type and to the extent set forth below, which result from power failures attributable to malfunctions in the Company’s local distribution system as set forth below.

The Company will reimburse residential Customers served directly under Service Classification Nos. 1 and 7. and those served indirectly under Service Classification Nos. 8, 12, and 13, for losses actually sustained, not to exceed S&W)50 for any one Customer for any one incident. when such losses consist of the spoilage of food for lack of refirigeration. All claims are subiect to reasonable venfication. Residential claims uo to S125 reauire itemization of suoiled items. Residential claims in excess of S125 require itemization and proof of actual losses.

The Company will reimburse Customers under other Service Classifications for losses actually sustained, not to exceed $&WWJIOJ for any one Customer for any one incident, when such losses consist of the spoilage of perishable merchandise for lack of refrigeration. All claims are subject to reasonable verification. AI1 commercial claims reauire itemization and Droof of actual losses.

The Companvs total liability under this section is limited to $44W#M310.000.000 per incident. In the event the total aggregate amount claimed under this provision exceeds S-1 0.000.000, the approved amounts of individual claims will be adjusted downward on a pro rata basis to the extent required to hold payments to a total of $443QWW10.000.000. All claims under this section must be filed with the Company within 30 days from the date of occurrence.

(General lnfornution -Continued on Leaf No. 63-A)

Date of Issue: XXXS xx. 2000 Date Effective: ?cyxx xx, 2000 I

lssucd by Joon S. Freiiich. Executive Vice President and Chid Financial Omcer 4 Irving Place. New York. N.Y. 10003 . 1 1 RESIDENTIAL CLAIM FOR FOOD SPOILAGE i ; -

If you experienced a power outage that caused food in your household to spoil, you may submit a request for reimbursement for the actual value of the lost food up to a maximum of $350. Claims up to $125 must include an itemized list of spoiled items. Claims over $125 must include an itemized list and proof of loss*. The outage must have resulted from a failure in Con Edison’s local distribution system and must have lasted for more than 12 hours within a 24-hour period. Con Edison’s liability is limited to actual food losses and excludes damage to motors, equipment or appliances. Reimbursement is subject to reasonable verification and is governed by the rules stated in Con Edison’s electric tariff.

Claims must be filed within 30 days of the date of the power outage.

INSTRUCTIONS: Please complete all statements on this form, sign, and return to Con Edison. Print or type all entries. Keep a copy of the completed form for your records. Allow 30 days for review and processing of your claim.

Name:

Address: (INCLUDE COMPLETE MAILING ADDRESS AND APARTMENT NUMBER)

Daytime Phone: () (IF WE HAVE QUESTIONS ABOUT YOUR CLAIM OR NEED MORE INFORMATION. WE WILL CONTACT YOU AT THIS NUMBER )

Con Edison Account Number:- - - - _ (15 DIGIT NUMBER LISTED ON YOUR BILL-NOT APPLICABLE IF YOU DO NOT RECEIVE A CON EDISON B ILL)

Date(s) of Outage: from I-*20_ Time: to I-920- Time: MONTH I DAY I YEAR AM/PM MONTH / DAY / YEAR AMlPM

Itemized list of food(s) spoiled:

I /

0 j3! I I I 4 i

Total Amount of Loss: $ Up to $125 - include itemized list (DOLLARS I CENTS) Over $125 - include itemized list and proof of loss*

l Examples of acceptable proof of loss include cash register tapes, store or credit card receipts, cancelled checks, clean identifying price labels or UPC bar codes from merchandise, and photographs of spoiled items.

All of the information provided on this claim form is true and accurate to the best of my knowledge and represents my actual losses.

(SIGNATURE - UNSIGNED CLAIM FORMS WILL NOT BE PROCESSED) (DATE)

i .\ COMMERCIAL CLAIM FOR PERISHABLE MERCHANDISE

If you experienced a power outage that caused the loss of refrigerated perishable merchandise in your business, you may submit a request for reimbursement for the actual value of the lost merchandise up to a maximum of $7000. The outage must have resulted from a failure in Con Edison’s local distribution system and must have lasted for more than 12 hours within a 24-hour period. Con Edison’s liability is limited to actual losses of refrigerated perishable merchandise (m, food, medicine, and other commodities requiring refrigeration) and excludes damage to motors, equipment or appliances. Reimbursement is subject to reasonable verification and is governed by the rules stated in Con Edison’s electric tariff.

Claims must be filed within 30 days of the date of the power outage.

INSTRUCTIONS: Please complete all statements on this form, sign, and return to Con Edison. Print or type all entries. Keep a copy of the completed form for your records. Allow 30 days for review and processing of your claim.

Business Name:

Business Address: jlNCLUOE COMPLETE MAILING ADDRESS)

Type of Business:

Daytime Phone: () (IF WE HAVE QUESTIONS ABOUT YOUR CLAIM OR NEED MORE INFORMATION. WE WILL CONTACT YOU AT THIS NUMBER.)

_ _ _ Con Edison Commercial Account Number*------(15 DIGIT NUMBER LISTED ON YOUR BILL)

Date(s) of Outage: from I-t20_ Time: to I-*20- Time: MONTH I DAY I YEAR AM/PM MONTH I DAY I YEAR AM/PM

Refrigerator(s) Make: Model# Capacity Freezer? (MANUFACTURER) (IF KNOWN) CUBIC FEET YES I NO (CONTINUE ON A SEPAR.A TE SHEET IF NECESSARY)

Freezer(s) Make: Model# Capacity (MANUFACTURER) (IF KNOWN) CUBIC FEET (CONTINUE ON A SEPARATE SHEET IF NECESSARY)

Please provide an itemized listina of all spoiled refrigerated perishable merchandise (type. quantitv. and cost) includina all available documentation of the amount of the claim (e.a.. receipts. invoices, etc.).

All of the information provided on this claim form is true and accurate to the best of my knowledge and represents the actual losses sustained.

(SIGNATURE - UNSIGNED FORMS WILL NOT BE PROCESSED) (DATE)

Name:

Title/Position:

Address: (INCLUDE COMPLETE MAILING ADDRESS)

SIGN AND RETURN CON EDISON CILDSI FORM TO: CLAIMS DEPARTMENT 4 IRVING PLACE - ROOM 1820 NEW YORK, NY 10003 CASE 99-E-0930 CONSOLIDATED EDISON COMPANY OF NEW YORK, INC. WASHINGTON HEIGHTS NETWORK POWER OUTAGE SERVICE LIST (AS OF 09/22/2000)

RICHARD J. KODA, SENIOR CONSULTANT MARK J. GREEN KODA CONSULTING PUBLIC ADVOCATE 409 MAIN STREET ONE CENTER STREET - 15N RIDGEFIELD CT 06877 MUNICIPAL BUILDING NEW YORK NY 10007

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