Prior issues of Mission Critical, including the January/February 2014 issue, make it clear that energy efficiency and conservation and other energy topics in data centers involving cooling are hot. From my perspective as an attorney who has been involved in hundreds of energy conservation projects, projects are primarily approached from a technical and engineering viewpoint, but it is worthwhile to keep in mind that each project involves legal considerations and tasks.

Data centers and other mission critical facilities purchase large amounts of energy commodities from electric and gas distribution utilities. Inaccurate high metering or an inappropriate service classification can significantly increase a facility’s costs. Complaining to the utility and, if necessary, to a state agency for relief, however, can be a long and difficult process.

Various circumstances can give rise to billing disputes with distribution utilities. There are several key elements to most billing disputes, regardless of their origins, of which commercial, industrial, institutional, and multi-family customers should be aware in order to successfully analyze and seek to resolve a distribution utility dispute.

Regulatory relief. Distribution utilities are principally regulated by state agencies, such as public service commissions, and they are also subject to certain federal and local regulation. If you dispute a utility bill, state regulation is both good and bad news. The good news is that the commission’s regulations will generally include a complaint process. The bad news is that customers are likely to be legally required to use that process under the doctrine of primary jurisdiction, meaning that jurisdiction over claims involving utility matters rests with the commission, not a court, until all levels of review or appeal within the commission have been exhausted. In other words, a customer is prohibited from suing the utility in court in the first instance.

While the commission’s complaint process may provide relief, if it does not, the customer’s rights are very restricted. And, it is the state regulators that will be making a determination, which will be given high credibility by the appellate court to which the customer is required to appeal an adverse administrative agency determination. The “bar” is set high on an appeal by a customer — the commission’s decision will be upheld unless it is determined to be “arbitrary or capricious” and not based on the record as a whole, a hard standard to meet.

Home court advantage. The unfortunate reality is that the utility typically has a “home court” advantage in a regulatory commission. The distribution utility interfaces with the commission daily in many different ways and, of course, has done so for many years. The utility’s employees and representatives have long-standing relationships with the commission staff, which will be reviewing and determining the outcome of this dispute. It should also be borne in mind that the commission broadly regulates the utility and its rates. Although, a utility should have the burden of proving that it is billing the customer correctly, regulators familiar with the utility may give undue deference to the utility’s assertions in a dispute. This imposes a heavy burden upon the customer to prove the utility has billed it incorrectly.

Utility tariff. The utility’s tariff is, in effect, the contract between the utility and its customers. It reflects the requirements of the state’s statutes and regulations and includes provisions specific to that utility reflecting its geographic location, typical equipment, and rates. Tariffs are created over time — individual tariff sheets are updated and submitted periodically by the utility for approval to the commission. Tariffs are typically lengthy and rarely written in a user-friendly manner. They can be misinterpreted by utility employees or customers — which can give rise to disputes. In any dispute, it is essential to carefully analyze the tariff together with the related regulations and statutes and the customer may well require legal assistance from an attorney familiar with utility matters. The customer may also require the help of a knowledgeable billing consultant and/or a consulting engineer who is familiar with utility installations and metering.

Factual considerations. In any dispute, it is essential to keep good records, gather and consider all pertinent facts, and present these in an organized fashion. No one should assume that ordinary logic and common sense will prevail. There are long-standing utility and regulatory conventions that may outweigh the merits of a particular dispute. When one of the authors was in the U.S. Army, he recalls a saying: “There is the right way, the wrong way, and the Army way.” At times that saying appears to apply to utilities and utility regulation.

TYPES OF DISPUTES

Three common forms of dispute include: 1) metering accuracy; 2) inappropriate service classification; and 3) failure to switch upon notice to an alternative fuel when on an interruptible gas rate.

Inaccurate meter. You believe that your gas or electric meter is reading incorrectly. Your facility manager has compared your meter to usage by other, similar facilities it manages or to prior usage in your facility and concluded that you are being billed far more than you should be. If you are a gas customer, a gas meter itself is sometimes not the only piece of equipment utilized in the gas billing process. There may be a “multiplier” attached to the meter that adjusts for temperature and pressure. The multiplier multiplies the meter readings to achieve what the utility believes is the appropriate price for gas usage.

You face a challenge: A utility may zealously “defend” the accuracy of its meters and reject claims that similar facilities are being billed less based upon the argument that the utility is not responsible for what occurs on “the other side of the meter.” Regulators may be expected to support the utility’s argument.

It is possible that the utility will test the meter or be ordered by the commission to do so. Typically, such tests find the contested meter to be accurate. Generally, such tests are very difficult to challenge. However, if, for example, a gas meter is oversized for its location, the utility may replace the existing meter and test the removed meter off-site. The testing will utilize a protocol for large meters but may not accurately demonstrate the meter’s ability to measure gas usage in your facility. Worse, if the over-reading is caused by an incorrectly set multiplier, as opposed to an inappropriately sized gas meter, it is possible the testing may not include a test for the specific setting by the utility of the “multiplier” that caused the overbilling.

At this point, the customer has a serious problem which may well require hiring a consulting engineer to perform tests and may also require the installation of a separate “check” meter to check the readings of the primary meter. Even if the check meter shows substantial overbilling, the utility may take the position all that check metering results required it to do is to test its meter off-site using test parameters for that particular meter and that once the utility has done so, the check meter’s results are irrelevant. In one instance, utility grade check meters showed that an oversized turbine meter was over-billing a gas customer by several hundred percent. Yet, when the utility performed tests, it found the meter to be generally accurate — but the tests did not include tests duplicating the flow levels present in the building nor did they include a test of the multiplier that had been set by the utility. In that case, a new replacement rotary gas meter was finally installed and this showed an immediate and substantial reduction in gas usage.

Notwithstanding substantial evidence to the contrary, this utility refused to acknowledge that the customer had been overbilled and claimed it was entitled to keep all overcharges. The utility was upheld in earlier levels of the regulatory compliant process and the matter is on appeal within a commission. Even if that commission determines that the customer was overbilled, the customer will have undergone significant expense and time to achieve correction of a situation that could have been readily corrected by the utility installing an accurate meter at an earlier stage. If the commission sides with the utility (which can happen more often than not) the customer may never recoup his losses. The take-away is that a customer challenging the accuracy of a meter should prepare for a fight.

Wrong service rate. A customer claiming that it is being charged an inappropriate tariff service rate and paying more than it should has a better chance of success than one challenging the accuracy of a utility meter. A typical example would be a large or growing commercial customer (for example, a data center that has expanded), which has outsourced to a billing company the responsibility to check and handle its utility accounts. Following a review, the billing company determines that the customer is on an incorrect billing rate — and has been for some time. In that event, even though the utility may defend its selection of that rate, the customer can expect that the commission will be more sympathetic to such a situation than in the case of an inaccurate meter. The commission may not only order the utility to put the customer on an appropriate rate, but may also order the utility to go back in time and re-calculate its historical billings and order a refund based upon those recalculations.

Interruptible gas: failure to switch fuels. Gas customers receive gas either on a firm or interruptible basis. If gas is received on a firm basis, the customer is assured that it will get gas at all times and is not subject to the requirement that it switch to another fuel upon notice from the utility. If gas is received on an interruptible basis, customers are required to switch to another fuel, such as oil, upon notice.

Customers take gas on an interruptible basis primarily for two reasons: 1) interruptible gas is available at favorable rates compared to firm gas and the customer is able to switch to an alternative fuel such as oil upon notice from the utility; or 2) the customer wishes to receive gas but the utility does not have sufficient pipeline capacity to provide gas service to that customer on a firm basis. In either case, the customer is required by the utility tariff to switch to the alternative fuel upon notice or, in some cases, when the temperature drops below a set degree level. In some cases, the utility installs an automatic fuel switch device. Customers who fail to switch upon utility notice or whose oil firing burner fails to start when signaled by the switching device, are faced with substantial penalties  — such as being charged nine times the normal market price of gas for all gas used during curtailment periods when the customer should be using fuel oil.

The severity of these penalties can cause customers to complain to utilities and to commissions. A typical complaint might claim that notice was not received or that there was an excusable equipment malfunction. It is unlikely that all such excuses will succeed in avoiding the penalties — the best way to avoid distribution utility penalties is to make sure that procedures are set up so that your facility will be aware of any utility notice and to make sure that the alternative fuel heating equipment is functioning properly. The authors have only seen one successful defense, and that was when a building had been purchased immediately prior to the event. The new owners were not yet even listed with the utility as the owner so that the notice to switch went to the prior owner.

CONCLUSION

The bottom line is that, in a utility dispute, you may expect the utility to have significant influence with the commission and the customer has very little. However, if the problem is big enough, if it is costing the customer enough money, and if the customer has the ability to get legal, consulting, and/or engineering help, the customer may be able to succeed in correcting an overbilling. It is also possible that in a case of genuine overbilling, the commission will carefully review and order the utility to redress the situation.

Disclaimer: The author notes that there are differences among the laws and agencies that regulate utilities in different states. This column is not intended to be legal advice and readers should consult with an experienced attorney in the event such advice is needed.