New York state also moves quickly on price gougers

Michael Giberson

The New York Attorney General’s office takes action against 13 gas station owners in the state for price gouging. Like last week’s prompt response by New Jersey, this is unusually quick work for price gouging cases.

A few quotes from the AG’s press release:

NEW YORK – Attorney General Eric T. Schneiderman today announcedthat his office has notified 13 gas station operators of his intent to commence enforcement proceedings against them for violations of the New York State Price Gouging statute. These are the first of what is expected to be a series of actions taken in a wide-ranging investigation launched in the wake of Hurricane Sandy for price gouging after receiving hundreds of complaints from consumers across the state of New York.

“Our office has zero tolerance for price gouging and we are taking action to send a message that ripping off New Yorkers is against the law,” said Attorney General Schneiderman. “Today’s action is the first in a series of steps my office will take as we continue to actively investigate the hundreds of complaints we’ve received from consumers of businesses preying on victims of Hurricane Sandy. We will do everything we can to stop unscrupulous individuals from taking advantage of New Yorkers trying to rebuild their lives.”

Included is some explanation of price gouging law details:

New York’s price gouging law does not specifically define what constitutes an “unconscionably excessive price.” However, the statute provides that a price may be “unconscionably excessive” if: the amount charged represents a gross disparity between the price of the goods or services which were the subject of the transaction and their value measured by the price at which such consumer goods or services were sold or offered for sale by the defendant in the usual course of business immediately prior to the onset of the abnormal disruption of the market.

In other words, a “before-and-after” price analysis can be used as evidence of price gouging. Evidence that a price is unconscionably excessive may also include proof that “the amount charged grossly exceeded the price at which the same or similar goods or services were readily obtainable by other consumers in the trade area.” However, a merchant may counter with evidence that additional costs not within its control were imposed for the goods or services. Notably, the price gouging law does not prohibit any disparity between the price charged before and after there is an abnormal disruption of the market. Rather, the statute prohibits a “gross disparity,” when it is clear that a business is taking unfair advantage of consumers by charging unconscionably excessive prices, and increasing its profits, under severe circumstances that call for shared sacrifices.

Attorney General Schneiderman added, “These thirteen retailers stand out from others in the high prices they have charged and in the size of their price increases.”

Note the phrase “additional costs not within its control.” If a store manager takes actions to increase cost that are within the managers control: paying overtime to an employee, or undertaking extraordinary efforts to stock up on goods that post-emergency consumers might use, it may find that the state does not consider such costs as legitimate grounds for charging higher prices. (Case in point: People v. Chazy Hardware. Expense and risks involved in effort to procure generators after an ice storm not grounds for charging higher price.)

Two gasoline price gouging examples listed in the press release:

Attorney General Schneiderman noted as an example that, in the case of the Mobil station located at 40-40 Crescent Street in Long Island City, the price per gallon was posted at the roadside as $3.89. The line for the station was three city blocks long. When the consumer got to the pump, the price sign noted a cash price of $4.89 for regular gas and a credit card price of $4.99. The consumer paid the $4.99 using his credit card because he was low on cash and needed the gas.

In another example, at the Express mart station located at 1000 Rte 9 in Lindenhurst, a consumer has reported that there were no road signs indicating the gas prices, only a plywood sign next to the road stating they were only accepting cash for gasoline purchases. There was a long line at the gas station. When the consumer pulled up to the pump he was told the gas price was $4.99 a gallon. He paid the $4.99 because he needed the gas.

The 13 gasoline stations are branded: Shell (3), Mobile (4), USA Petroleum (2), Babylon Gas/Express Market, Sonomax, Delta, and Getty. Without looking for any evidence, I’ll hazard the guess that the seven “big name” stations are all franchisees and not vertically integrated companies with refineries and distribution operations and the other six are small local chains or franchisees of regional brands. Compare to the NJ seven listed here.

NYC Brownouts? But why?? I thought they had electric power capacity markets

Michael Giberson

From Reuters: Amid NYC heat wave, Con Edison lowers power voltage

New York energy company Consolidated Edison Inc reduced the power voltage in some Manhattan neighborhoods on Wednesday, in an action known as a brownout, as a brutal heat wave stressed the city’s electric system for a third day.

This was the second voltage reduction during this week’s heat wave, aimed at easing the load on the power grid and allowing workers to fix heat-stressed equipment in the affected neighborhoods. The company had also turned down the voltage in a few Manhattan neighborhoods for several hours on Monday.

MORE ABOUT CAPACITY MARKETS: Capacity markets are economic rules by which consumers collectively pay electric power supply resources to be available to help meet consumer demand, particularly if and when consumer demand is especially high.

See the New York ISO capacity market rules for the details, though the document is not exactly easy to read. Part of the problem is that capacity markets have been difficult to design well, so there has been constant tinkering with the rules. (Notice, for example, that the NYISO capacity market rules document begins with an 18-page “Revision History,” see pages vii-xxiv.)

The NYISO’s “2011 State of the Market Report,” which is more readable than the NYISO capacity market manual, describes the markets as follows (p. 35):

The capacity market is designed to ensure that sufficient capacity is available to reliably meet New York’s planning reserve margins. This market provides economic signals that supplement the signals provided by the NYISO’s energy and operating reserves markets. Currently, the capacity auctions determine clearing prices for three distinct locations: New York City, Long Island, and NYCA. By setting a distinct clearing price in each location, the capacity market facilitates investment in areas where it is most needed.

What reliably “meeting New York’s planning reserve margins” means is that suppliers get paid extra, that is in addition to being paid for supplying electric power and providing transmission support services, they get additional pay for ‘being there’ in order to help assure that consumers can get all of the power they want AND the system still has sufficient extra resources available in case of an emergency. The use of brownouts indicates either that the ISO didn’t plan for enough resources or that some of the resources paid for were unable to deliver when needed.

As mentioned here and here before, currently regulators in Texas are considering whether they should stick with ERCOT’s so-called “energy-only market design” (where generators can get paid through the ERCOT market for supplying electric power and providing reserves and other transmission support services, but nothing more**) or switch to a capacity market, as was recommended by a Brattle Group report.

Mostly the point of my post here is that even with capacity markets, sometimes there isn’t enough power to go around. Part of the problem, as everyone knows, is that no amount of market design or contracts or financial assurance can actually guarantee physical resource adequacy. In plainer English: No matter how much you pay or promise to pay, you can not guarantee there will always be enough power to go around.

Makes you wonder what consumers are paying for in capacity markets.

**Most generators make most of their revenue through contracts with retailers, which could include a payment for capacity in addition to energy supplied. However, ERCOT rules do not require consumers to buy “capacity.”

LATE AMENDMENT: A correspondent points out that the Manhattan brownouts were most likely a distribution system problem, not a resource adequacy problem. NYISO capacity reports indicate adequate reserve margins on July 18 and 19, the days of the brownout. A more careful reading of the article itself supports the distribution system view; notice that the article mentions the brownouts were “aimed at easing the load on the power grid and allowing workers to fix heat-stressed equipment in the affected neighborhoods.” (emphasis added).

 

New York Attorney General proposes to prohibit use of business-related reasoning in gasoline wholesaling

Michael Giberson

It sounds kind of funny to say the New York Attorney General wants to prohibit business-related reasoning in gasoline wholesaling. After all, gasoline wholesaling is a business activity and generally business-related reasoning would be entirely appropriate. It sounds like asking a court not to act on law-related reasoning or asking a politician not to think politically. But read the report put out by the AG’s office, “Report on New York Gasoline Prices,” and see what it says on pages 37-39.

At issue is “zone pricing,” a practice by which wholesalers charge differing prices to retailers in different locations, usually based on an estimate of what the market will bear. A New York state law passed in 2008 tried to ban zone pricing for gasoline, but it didn’t seem to have much effect. The report noted, “Certain areas of the state that had relatively high retail prices before the law took effect in 2008, such as the South Fork of Long Island and northern Westchester, still tend to have relatively high prices.”

The problem, according to the AG’s report, is that the anti-zone pricing law prohibits only arbitrary price differences between different locations. (See New York’s General Business Law § 399-ee at 1 (m): “Zone pricing means the arbitrary price differences within the relevant geographic market.”) The report notes that wholesalers admit charging different prices to retailers in different locations, but say the price differences are not arbitrary because they are “based on business-related market and economic conditions such as operating costs, degree of competition, the specific location of a station, and other factors.”

The report says “the inclusion of the word ‘arbitrary’ in the definition of zone pricing renders the prohibition toothless.” The AG’s solution is to propose deletion of the word from the definition. Where the law now merely prohibits certain arbitrary price differences, the AG wishes to prohibit price differences. If the state legislature agrees, the law would then prohibit the use of all kinds of normal business-related reasoning in New York’s wholesale gasoline business.

The state legislature ought not to accept the AG’s recommendation, but rather ought to toss out the zone pricing ban.

As the AG’s report itself indicates, there is no evidence of any consumer harm from zone pricing. With zone pricing affluent consumers may pay a little higher price for gasoline than lower- and middle-class consumers, but there is no reason to expect consumer prices are higher on average due to zone pricing.  (As I put it back in November 2008, “anti-zone pricing legislation is essentially consumer protection for affluent customers unwilling to spend their time shopping around for lower prices”). The toothless zone pricing ban is apparently causing no harm either, so doing nothing would simply leave an empty law on the books.

On the other hand, prohibiting the charging of reasonable price differences by gasoline wholesalers in New York would serve to screw up the whole state’s wholesale gasoline market in an effort to keep customers in affluent areas from paying a few more pennies per gallon of gasoline. Seems like a too high price to pay.

 

[NOTE: The report also includes the AG’s report on gasoline price movements in the state during 2011 and a discussion of price gouging. These other issues may be discussed here later this week.]

“Energy Storage in the New York Electricity Markets”

Michael Giberson

The New York Independent System Operator has release a report, “Energy Storage in the New York Electricity Markets” (March 2010). The report offers an overview of existing grid-connected energy storage in New York, recent developments, and potential for further changes in the next several years. It is a good basic discussion of energy storage issues as seen from the point of view of the transmission system operator.

What I found most interesting was their discussion of the power market design changes needed to accommodate flywheel and battery-based energy storage systems:

The original NYISO wholesale market was designed when traditional resources, such as pumped storage and fossil fuel generation units, submitted bids for both energy and ancillary services including regulation. In the past few years, new technologies have become available that make energy storage more efficient and economical. This class of devices has an energy capacity limitation that precludes them from taking part in the energy market and thus would not fit into NYISO market model without market design modifications. Consistent with its mission to evolve the markets, the NYISO in collaboration with stakeholders participating in its shared governance process, crafted a market enhancement that will allow Limited Energy Storage Resources to participate in the NYISO Regulation markets.

To provide them access to the market, a new type of Regulation Service provider was defined: a Limited Energy Storage Resource (“LESR”). A LESR is characterized by its ability to provide continuous six-second changes in output coupled with its inability to sustain continuous operation at maximum energy withdrawal or maximum energy injection for an hour. LESRs are limited to providing Regulation Service in the NYISO markets.

Sometimes accommodations made to let new technologies work in the market is pejoratively cast as special treatment or favoritism. The NYISO gets the tone just right: the existing market design was constructed around the then existing set of technologies; new technologies don’t always fit into the existing way of doing things and it is appropriate to change. For example, when the NYISO market was designed all providers of regulation service also were energy market participants and no one worried too much about the way rules for regulation service payments were tied up with energy supply requirements and energy supply payment systems.

While market design changes are an inherent and expected part the system, that doesn’t make them simple or non-controversial. An examination of the development of LESR rules in NYISO might provide an instructive case study of the market design process.

A private right of action on price gouging

Michael Giberson

One bill,, submitted to the New York State Assembly last year (but, so far as I can tell, not passed into law; ADDED: See status note below.), proposes to grant consumers a private right of action when they become victims of price gouging in times of emergency. Currently only the state’s Attorney General has authority to bring legal action against someone accused of violating the state’s price gouging law.

The bill’s sponsor suggests that “the threat of enforcement by the Attorney General is not serving as an adequate deterrent,” and implies allowing private rights of actions would help.  To that end, “the purpose of this bill is to grant citizens who are victims of illegal price gouging in times of emergency the right to directly sue the responsible party.” The proposal would allow a victim to sue to recover up to “actual damages” or $1000, whichever is greater, and give the court discretion to award a prevailing plaintiff up to $5000 and reasonable attorneys’ fees.

The bill does not specify who is considered a “victim” under the law.  I can imagine a few problems that may result.

The existing New York law on price gouging is in Section 396-r of the New York Code.  The law provides that during “any abnormal disruption of the market for consumer goods and services vital and necessary for the health, safety and welfare of consumers, no party within the chain of distribution of such consumer goods or services or both shall sell or offer to sell any such goods or services or both for an amount which represents an unconscionably excessive price.”  The law narrows the description of “abnormal disruption” to events resulting in a state of emergency declared by the governor, and otherwise tries to specify just what the law covers, but on the question of what makes a price too high, the law simply states: “Whether a price is unconscionably excessive is a question of law for the court,” and it offers a bit of guidance.

So here is one problem: One part of that guidance suggests a price could be unconscionably excessive if “the amount charged grossly exceeded the price at which the same or similar goods or services were readily obtainable by other consumers in the trade area.”  Therefore, the definition seems to apply in cases in which the “victim” incurs the hazard, i.e. could have purchased at other prices but chose to buy from a merchant offering the good or service for a much higher price. Why would a consumer do this? Well, under this proposal the consumer could file a private action by which he might rewarded as much as $1,000 damages plus up to a $5,000 penalty and reasonable attorneys’ fees because the consumer chose to pay the higher price.

More generally, which victims would qualify to seek compensation? While the consumer charged an amount grossly exceeding some reference price is typically seen as a price gouging victim, what about consumers that would have purchased the good or service but for the unconscionably excessive price at which it is offered? Surely they, too, are victims under the logic of price gouging.  Will they also be able to seek private rights of action and obtain a reward?  If not then the law protects consumers willing and able to pay the higher price, but not consumers who find themselves priced out of the market.  If the law permits these victims-without-receipts to file private suits of action, the potential liability of a business charging higher prices after an emergency can become very large and ill-defined.

Supporters of anti-price gouging legislation may say this is all fine.  The first case suggests that consumers may intentionally seek out merchants offering too-high prices with the intent of subsequently filing a price gouging claim, but that just means that more citizens are motivated to help deter price gouging, and that’s the point, right?  The second case, with a large and ill-documented class of consumers who would-have-but-didn’t-buy at the too-high price, by dramatically increasing the potential liability, similarly serves to help deter price gouging.  Again, that’s the point and what could be wrong?

Well, nothing in New York’s anti-price gouging law requires merchants to remain open for business during market disruptions associated with declared emergencies.  And if remaining open might expose the store to large but hard-to-define liabilities, the store’s owner might reasonably just close up shop.  Consumers, then, would be made worse off by the action of this “consumer protection” policy.

UPDATE: As indicated on the bill’s information page, in early February 2010 the Consumer Protection Committee of the State Senate approved the bill on an 8-2 vote and sent it to the Finance Committee.  An identical bill, A278A, passed the State Assembly last year.

New York politicians want to expand zone pricing ban to protect wealthy customers from slightly higher prices

Michael Giberson

From Newsday:

Two Nassau County legislators Thursday called on the State Senate to join the Assembly in extending the ban on zone pricing for gasoline, which they said unfairly charges more in well-to-do communities than in those less so.

For readers not up on their New York geography, Nassau County is the portion of Long Island closest to New York City.  The county ranks 10th in the nation and second in New York in median income, so generally speaking we are dealing with a relatively well-off bunch of consumers.  The Nassau County legislators are supporting the bill for the same reason that state legislators in wealthy Fairfield County in Connecticut support a zone pricing ban: they want gasoline prices in their neighborhoods to be made closer to the gasoline prices in lower-income neighborhoods.

A gas station owner quoted in the Newsday story said the extended ban would “end a discriminatory practice and benefit all members of the community,” but it is easy to see that if the high-end prices get a little lower and the low-end prices get a little higher, the not “all members of the community” are benefited.  Rather, the law may just raise prices to low-income consumers in order to give the pretense of providing “consumer protection” to high-income consumers.

A customer’s view of National Grid’s smart meter roll out

Michael Giberson

From the Wind Power Law Blog in New York, Clifford Rohde takes a break from wind power law to report on his shift to National Grid’s time-of-use rates, a move that required the utility to install a “smart meter.” (He chronicled the first part of this effort in April, shortly after mailing in his request.)

Four months later:

Well it finally happened August 12 … On that date, National Grid appears to have installed a new “smart meter” on my house. (I say “appears” only because no one told me it was going to be installed; I found out only because I received a signed agreement from National Grid in the mail and went and checked the meter.)

… I note that as a consumer I do find it frustrating that I am not aware -yet at least- of any way to obtain usage information other than by going outside my house and looking at the meter. This analog solution to a seemingly digital issue seems a bit archaic.

His time-of-use rate will shift back to a flat “off-season” rate at the end of the month, and then he’ll have a few months to prepare for the winter peak.  Rohde promises updates.