Category: Uncategorized

By Scott Middleton, Esq.

In addition to being an attorney here on Long Island, I’m an avid CrossFit Athlete and have been participating in CrossFit for over 18 months now. The benefits from this type of fitness regime have had a tremendous impact on me: overall better fitness and nutrition, coupled with a sense of camaraderie among fellow CrossFitters and especially in one’s own gym. It has helped me both personally and professionally.

With the rising popularity of CrossFit here on Long Island and across the country it’s important to understand the risks to gyms and fitness centers that host these high intensity exercises. As a business owner or operator it is imperative to know how to protect yourself. Therefore, the question becomes how a CrossFit business can protect itself and its employees from potential lawsuits.

In New York, General Obligations Law §5 – 326 was enacted to prevent amusement parks and recreational facilities from enforcing exculpatory clauses printed on admission tickets or membership applications.

The cases that followed the enactment of §5 – 326 have focused on several factors to determine whether a facility is instructional or recreational, including: the organization’s name, its certificate of incorporation, its statement of purpose and whether the money charged is tuition or a fee for use of the facility. If training sessions are instructional in nature but are ancillary to the recreational activities offered by the facility, GOL §5 – 326 will apply in the waiver/release will be unenforceable as it will be considered to be against public policy.

Anyone who participates in a CrossFit, at a reputable facility knows that most offer rather strenuous but free introductory class. These are generally small and under the instruction of the coach/trainer. This is followed by the “on-ramp” where would be cross-fitters are introduced to many of the basic exercises, under the supervision and close instructional scrutiny of a trainer. Once you “graduate” from the “on-ramp” you’re ready (or maybe not) for regular CrossFit classes. During the short but grueling workouts, coaches are present to instruct on both basic and complex exercises. They continuously critique and teach.

The common thread here is that instruction is present throughout all aspects of CrossFit. The level of involvement of the coaches/trainers in continually correcting movements during the workout creates an atmosphere that is instructional and cannot be considered to be recreational or an ancillary service of a recreational facility. Thus, New York’s General Obligations Law §5 – 326 would not apply to CrossFit facilities and the waiver is completely enforceable. This affords CrossFit gyms a level of protection not present in “big box” gyms.

As a courtesy, I’d happily review your waivers to avoid making unnecessary mistakes in their enforceability.

Effective April 1, 2014, private sector New York City employers with five or more employees must provide paid sick time to all employees who work at least 80 hours in a calendar year.1

Accrual and Use
Mayor Bill de Blasio signed the City Council’s expanded sick leave bill earlier this year. The New York City Earned Sick Time Act (the “Act”) provides that these private sector employees will now earn up to 40 hours of paid sick time per year, accruing at a rate of one hour for every 30 hours worked. The Act covers both full-time and parttime workers.

Employees may use sick time for three purposes:

1. The employee’s mental or physical illness, injury or health condition or need for medical diagnosis, care or treatment of a mental or physical illness, injury or health condition or need for preventive medical care; and/or
2. Care of a family member2 who needs medical diagnosis, care or treatment of a mental or physical illness, injury or health condition or who needs preventive medical care; and/or
3. Closure of the employee’s place of business by order of a public official due to a public health emergency or such employee’s need to care for a child whose school or childcare provider has been closed by order of a public official due to a public health emergency.

Employees will begin accruing sick time at the start of employment or on April 1, 2014, whichever is later, but cannot begin using the sick time until July 30, 2014 or 120 days after the start of employment, whichever is later.

Unused sick time carries over to the following year, but the Act does not require employers to offer more than 40 hours of paid sick time to an employee per year. The Act does not require any payment to employees for accrued but unused sick time.

Notice and Documentation by Employees
An employer may require reasonable notice from the employee of the need to use sick time. When the need to use sick time is foreseeable, an employee may be required to provide notice of up to seven days; when the need is unforeseeable, an employee may be required to provide notice to the employer as soon as is practicable. An employer may require documentation signed by a licensed health care provider, but only for absences of three or more consecutive work days. The Act restricts employers from seeking information about the nature of the illness or absence.

Employer Obligations
Employers who provide sick leave must provide a Notice to new employees when they begin employment and to existing employees by May 1, 2014. (A copy of the Notice prepared by the New York City Department of Consumer Affairs can be accessed at http://www.nyc.gov/html/dca/downloads/pdf/Mand atoryNotice.pdf.) The Notice describes the accrual and use of sick time, defines the employer’s “calendar year,” and advises employees of their right to be free from retaliation for using sick time and the right to file a complaint with the Department of Consumer Affairs in connection with violations of the Act.  in English and any other primary language spoken by the employee, if the Department has posted a form in that language on its website (the Department plans to provide the Notice in Spanish, Chinese, French-Creole, Italian, Korean, and Russian).

Employers must maintain sick-time compliance records for at least three years.

Next Steps
Employers with New York City locations who already offer paid leave that can be used as sick time should evaluate their existing policies and update them to comply with the Act’s requirements. Those employers whose existing policies do not comply with the Act must draft new policies that meet the minimum requirements of the Act.

Please contact us with questions and for guidance in ensuring your company’s policies comply with the new legislation.

1 The Act does not cover independent contractors, work-study students, government employees, and certain hourly physical, speech, and occupational therapists. In addition, union agreements in certain industries may opt their workers out of the Act. Domestic workers are also subject to different regulations.

2 A “family member” is defined as an employee’s child, spouse, domestic partner, parent, sibling, grandchild or grandparent, or the child or parent of an employee’s spouse or domestic partner.

By Patrick McCormick

There have been several interesting Appellate Court decisions in the past couple of months touching on a variety of issues. Cases discussing actual partial eviction, successor landlord liability and a tenant’s failure to timely cure an alleged default are discussed below.

In Croxton Collaborative Architects, P.C. v. T-C 475 Fifth Avenue, LLC,1 a commercial tenant sued its successor landlord alleging it was damaged because defendant landlord failed to remediate the “derelict” and “war-torn appearance” of the premises, which was caused by renovation work commenced by the prior landlord, in breach of the lease. Plaintiff commenced the action approximately five months after defendant bought the premises and assumed the lease. The Appellate Division reversed the lower court’s denial on landlord’s motion to dismiss the complaint.

The Court noted that lease paragraph 22.01 provided that “in the event of a transfer of title, the lease shall be deemed to run with the land and the transferee agrees to ‘assume’ and ‘carry out any and all such covenants, obligations and liabilities of Landlord hereunder.” Plaintiff apparently relied upon this lease provision to hold the new landlord liable for the conditions caused by the prior landlord. However, the Court relied upon lease paragraph 25.03 which it found “unequivocally provides that ‘under no circumstances shall the [lessor] . . . be (a) liable for any act, omission or default of any prior landlord; or (b) subject to any offsets, claims or defenses which [t]enant might have against the prior landlord.’” In finding that lease section 25.03 “trumps” section 22.01, the Court noted that section 25.03 was prefaced by stating “[a]nything herein contained to the contrary notwithstanding.”

While the Court did not engage in any detailed analysis, the lesson is clear—when representing purchasers, upon review of the existing leases to be assumed by the purchaser, counsel should look for exculpatory language similar to the language used in section 25.03 in this case. If such language does not exist, purchaser should be advised and cautioned that it could be liable for the acts or inaction of prior landlords and that an agreement by the prior landlord to indemnify purchaser for such claims may be warranted.

In a very brief decision in Darwin Management LLC v. Avenue C Food Corp.,2 the Appellate Term reminds tenants of the need to timely cure alleged defaults. In Darwin, landlord served a cure notice alleging tenant defaulted under the terms of the lease by installing an ATM outside the mixed-use premises. Tenant did not cure the alleged default until two weeks after the deadline set in the landlord’s cure notice.

In reversing the judgment of the lower court entered after a non-jury trial to dismiss the holdover petition, the Appellate Term held simply that “[t]he commercial lease terminated upon tenant’s failure to cure [citation omitted] and the court was without power to revive the terminated lease [citation omitted].” Simply stated, in the face of a default or cure notice, the tenant needs to unequivocally and timely cure the alleged default or timely obtain a Yellowstone injunction to toll the running of the cure period pending a determination of whether the tenant is in fact in default as alleged. The failure to cure or toll the cure period can result in the loss of possession of the demised premises.

Finally, the Appellate Term in Paris Lic Realty, LLC v. Vertex, LLC3 addressed a defense of actual partial eviction asserted by a tenant in a commercial nonpayment proceeding. The lease in question described the demised premises as “approximately 4,000 square feet on the third floor (including areas of the elevator and stairways).” Based on this description, the tenant cleverly argued it was ousted from part of the demised premises because it was not able to use the elevator for “extended periods of time during building construction.” The Appellate Term held that even if the elevator was part of the demised premises, there could be no actual partial eviction because the lease provided that there shall not be “any abatement or diminution of rent because of making repairs, improvements or decoration to the demised premises after the date for the commencement of the term.” If the lease did not contain this abatement provision, would the tenant have prevailed based on the description of the demised premises to include the elevator?

¹ —N.Y.S.2d —, 2014 N.Y. Slip Op. 00279 (1st Dep’t 2014)
² 42 Misc.3d 132(A), 2013 N.Y. Slip Op. 52233(U) (App. Term 1st Dep’t 2013)
³ 41 Misc.3d 145(A), 2013 N.Y. Slip Op. 52074(U) (App. Term 2d Dep’t 2013)

By Patrick McCormick

In a decision dated November 13, 2013, the Appellate Division, Second Department decided a case involving a contractor, Matell Contracting Co., Inc., who performed work for a commercial tenant, attempting to enforce a mechanic’s lien against the owner of property, Fleetwood Park Development Co. 1

Fleetwood leased certain property to a new tenant and, pursuant to an agreement with the new tenant, permitted the tenant to renovate the leased property for use as a supermarket. The tenant retained Matell Contracting as general contractor. The tenant failed to pay $1,800,000 allegedly due for work performed by Matell and Matell filed a mechanic’s lien against the property. Matell then commenced an action to foreclose the mechanic’s lien against, inter alia, Fleetwood Park. Fleetwood asserted several affirmative defenses including that it did not consent to the subject work. Matell moved for summary judgment on the complaint on the ground that Fleetwood consented to the work and to dismiss several affirmative defenses asserted by Fleetwood Park. The Supreme Court denied the motion and Matell appealed.

In affirming that portion of the order denying Matell’s motion for summary judgment on the complaint and to dismiss the affirmative defense relating to consent, the Appellate Division examined the knowledge required of an owner before the owner will be liable for work performed for a tenant. The Appellate Division confirmed that Matell “presented evidence showing that Fleetwood Park had knowledge of, and acquiesced in, the work performed to convert the leased property into a supermarket . . .” But, of primary importance, the Appellate Division determined that Matell nevertheless failed to make a prima facie showing that Fleetwood Park actually affirmatively consented to the subject work. The Court confirmed the distinction between the situation where an owner has simply approved or agreed that the work be performed and where the owner affirmatively gave consent for the specific work directly to the contractor. It is this specific consent by the owner directly to the contractor that is required to be proved by a contractor attempting to hold an owner liable in connection with the foreclosure of a mechanic’s lien.

The second appellate decision comes from the Appellate Term in New World Mall, LLC v. New World Food Court, Inc2. and addresses whether a sublease is subject to a conditional limitation clause contained in a master lease.

The facts in New World are straightforward. Sublessor alleged that the sublease terminated following its service of a 10-day default notice on subtenant alleging nonpayment of late charges and electric charges. Sublessor alleged that it had the right to terminate the sublease because the sublease incorporated by reference all the terms of the master lease including the conditional limitation clause contained in the master lease. It should be noted that this type of incorporating by reference language is typical in subleases. The master lease required the tenant (sublessor) to pay certain “Minimum Rent” in the amount of $2,500,000 annually commencing on a specified date and “Interim Rent” of $60,000 per month before that specified commencement date. In contract, the sublease provided for the payment of “Basic Rent” of $110,000 per month for the first three years of the sublease plus other charges specifically designated as additional rents. The sublease did not contain a conditional limitation provision for a default in paying the Basic Rent or the additional rents.

The conditional limitation clause contained in the master lease provided that a default occurs: “If Tenant shall fail to pay (a) any Interim Rent or Minimum Rent when the same shall become due and payable, and such failure shall continue for ten (10) days after Landlord shall give notice of the failure to Tenant, or (b) any other charge required to be paid by Tenant hereunder, when the same shall become due and payable, and such failure shall continue for thirty (30) days after Landlord shall give notice of the failure to Tenant.” Despite the fact that the sublease incorporated by reference “the terms, covenants, conditions and other provisions” of the master lease, the Appellate Term determined that the default provision of the master lease “is not subject to incorporation into the sublease . . .”

The Court’s rationale was quite simple: the default clause in the master lease referenced defaults in payment of rent due under the master lease-specifically “Interim Rent” and “Minimum Rent.” The Court held that those terms had no “application” to the amounts due under the sublease “which are defined in other terms.” While somewhat troubling, the remedy is simple-either the terms, definitions and relevant default clauses in a sublease should mirror the same terms, definitions and clauses used in the master lease or, instead of taking the easy way out by simply incorporating the master lease into a sublease by reference, the sublease should contain any relevant or necessary term as if it were a stand-alone document.

1 Matell Contracting Co., Inc., v. Fleetwood Park Development, LLC, 2013 WL 5989744 (2d Dep’t 2013)
2 2013 WL 6098424 (App. Term 2d Dep’t 2013)

By Patrick McCormick

Three recent appellate decisions, each sparse on fact, nevertheless remind us of the relevance of well settled legal principles and confirm the proof required to prevail on each.The first, Tewksbury Management Group, LLC v. Rogers Investments NV LP¹, involves application of the doctrine of res judicata; the second, Bonacasa Realty Company, LLC v. Salvatore², discusses the concept of piercing the corporate veil; and the third, MH Residential 1, LLC MH v. Barrett³, inter alia, discovery.

In Tewksbury, the commercial tenant commenced an action against its landlord claiming landlord breached the lease by failing to obtain a valid certificate of occupancy, remove building violations that allegedly interfered with tenant’s use of the premises, to provide heat and to deliver possession of the entire premises. By order entered April 19, 2012, the Supreme Court granted landlord’s motion to dismiss the complaint.

As it turns out, several years earlier in 2008, landlord commenced a nonpayment proceeding against tenant. That proceeding ended with a consent judgment of possession and judgment for rent arrears. In affirming the dismissal of tenant’s claims upon the doctrine of res judicata, the Appellate Division held that tenant’s claims were “inextricably intertwined with defendant’s claims in the summary proceeding” and could have been raised by tenant in that summary proceeding. Obviously, tenant’s claims, if proved, would have provided a defense to landlord’s claims for possession and rent. Having failed to raise the claims in the summary proceeding and, more importantly, having consented to a judgment for rent arrears and possession, tenant necessarily acknowledged rent was owed, thus precluding its claim that landlord breached the lease. If you represent a tenant and have claims that could provide a defense to a claim of nonpayment and that would also result in an award of damages, the claim must be raised in the summary proceeding or it may be forever lost.

In Bonacasa, tenant vacated the demised premises prior to the expiration of the lease. Landlord thereafter commenced an action against the corporate tenant for rent due and owing and also asserted claims against the corporation’s principal. Landlord alleged that the corporation was a sham corporation “formed solely for the purpose of leasing the premises” and the individual defendant exercised dominion and control over the corporation and thus sought to pierce the corporate veil. In affirming the dismissal of the claim against the individual defendant, the Appellate Division found the evidence supported the finding that the individual “executed the lease in his corporate capacity as a principal of [the corporate tenant] and that he did not exercise dominion and control over [the corporation] to commit a wrong or injustice against the plaintiff.” The Court further found that “a simple breach of contract, without more, does not constitute a fraud or wrong warranting the piercing of the corporate veil.”

Finally, MH Residential 1, LLC, involved protracted residential holdover proceedings. Tenants filed two motions for leave to conduct various discovery. In affirming the denial of the first motion, the Appellate Term noted that the motion was made eleven months after an unappealed order denied a prior motion for similar relief and tenant had not shown a “material change in circumstances.” As for the second motion, the Court determined movant had not demonstrated “ample need” for the discovery sought. These standards for obtaining discovery are well known, but need to be remembered as litigation progresses.

¹ 2013 WL 5712338, ___N.Y.S.2d___ (1st Dep’t 2013)
² 109 A.D.3d 946, 972 N.Y.S.2d 84 (2d Dep’t 2013)
³ 41 Misc.3d 24,___N.Y.S.2d___(App. Term 1st Dep’t 2013)

December 2, 2015

Tax Update
Presented by Robert Quarté, CPA

As 2015 draws to a close, join us to learn year-end tax tips and strategies that will help you minimize any tax season surprises and start your business off on the right foot for  2016. Robert Quarté of Albrecht, Viggiano, Zureck & Company, P.C. (AVZ) will share strategies on individual, business, and retirement planning, the Affordable Care Act, filing deadlines changes, FBAR’s and college savings plans.  With the new year upon us, now is the perfect time to get your business in order and plan for a successful new year.

EVENT DETAILS:

8:30am – 9:00am
Arrival and Breakfast

9:00am – 9:45am
Presenting Speaker

9:45am – 10:00am
Q&A and Discussion

REGISTRATION: All events are FREE but registration is required. Complimentary breakfast will be served.

LOCATION: CMM’s Ronkonkoma office, 4175 Veterans Memorial Highway, Ronkonkoma.

It is widely understood that communications between an attorney and his/her client are protected from disclosure under the attorney-client privilege. It should be equally understood that the attorney-client privilege is lost or waived if a third party is present for those communications. However, there is an exception to the latter rule: the common-interest doctrine.
The common-interest doctrine holds that a third party may be privy to an attorney-client privileged communication, and the privilege will stay intact, if the communication is made for the purpose of furthering a nearly identical legal interest shared by the client and the third party. Hyatt v. State Franchise Tax Bd., 105 A.D.3d 186, 205 (2d Dep’t 2013). Courts have interpreted the “furthering a nearly identical legal interest” portion of the doctrine to require that the communication be made in pending litigation or in reasonable anticipation of litigation where the client and third party have a common legal interest. Id., Aetna Cas. And Sur. Co. c. Certain Underwriters at Lloyd’s London, 176 Misc.2d 605 (N.Y. Sup. 1998), aff’d, 263 A.D.3d 367 (1stDep’t 1999).

In a recent decision dated October 16, 2013 from the New York County Supreme Court, the Court refused to expand the reach of the common interest doctrine to communications between two parties involved in a merger and one of the parties’ counsel. In Ambac Assur. Corp. v. Countrywide Home Loans, Inc., 2013 NY Slip Op 51673(U), the Court reviewed the determination of a Special Referee following a discovery dispute who decided not to extend attorney-client privilege protection over communications related to a merger between Countrywide Home Loans, Inc. (“Countrywide”), its counsel, and co-defendant Bank of America Corp. (“BOA”). Counsel for BOA sought to have the Special Referee’s determination vacated arguing that the common-interest doctrine should apply to the communications between Countrywide, BOA, and counsel.

However, the Court in Ambac, citing to Hyatt and various other cases applying New York law, held that the common-interest doctrine extends only to situations where there is, at minimum, a reasonable anticipation of litigation. While the Court observed that the common-interest doctrine would also apply to a situation where there was dual representation– i.e. if Countrywide and BOA were represented by the same counsel – this was not the situation here. In addition, although the Court did note that at least one federal court elsewhere in the country had found that communications made after a merger agreement was signed did fall within the common-interest doctrine, no New York cases had expanded the doctrine to that extent.

Based on this decision, it would certainly be wise for attorneys and clients alike to take extra caution when communicating to make sure that the all-important attorney-client privilege remains in place.

Special Note for Commercial Litigators

The New York State Courts website now allows you to specifically search for decisions from the Commercial Division, whether in an appellate court or one of the lower courts. If you want to search the Commercial Division decision database, simply go to http://iapps.courts.state.ny.us/lawReporting/Search. Once on the site, select Commercial Division at the bottom of the drop down list that appears in the “Search by Court” field of the Advanced Search form. From there, you can type search terms into the “Search Full Text” field (at the bottom of the Advanced Search form) and hit Enter or click Find. This database is a great way to stay on top of recent case law affecting commercial litigators.

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 andconsume 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.

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.

By Joe Campolo, Esq.

August 23, 2013

Few negotiators would argue the value of good listening skills. Listening skills can calm tensions, break stalemates, and help build creative deals. Most people overestimate their ability of this key skill, and lack an accurate understanding of the concept of active listening.

Active listening doesn’t mean sitting patiently whileyour counterpart talks or does it simply entail saying “I understand” and establishing good eye contact. Rather, active listening is a dynamic process and key in any negotiation. Here are some tips to become a skillful active listener.

1. Showing Your Interest: Prove you’re listening by using body language or brief verbal replies that show interest and concern. Simple phrases such as “yes,” “OK” or “I see” effectively show you are paying attention. This encourages the other person to continue talking and relinquish more control of the situation to the negotiator.
2. Paraphrasing: Tell the other person what you heard them say, either quoting them or summarizing what they said.
3. Emotion Labeling: This means attaching a tentative label to the feelings expressed or implied by other person’s words and actions. This shows you are paying attention to the emotional aspects of what other person is conveying. When used effectively, emotion labeling is one of the most powerful skills available to negotiators because it helps identify the issues and feelings driving the other person’s behavior.
4. Mirroring: Repeating the last words or main idea of other person’s message. This indicates interest and understanding. For example, a subject may say, “I’m sick and tired of being pushed around,” to which a negotiator can respond, “Feel pushed, huh?” Mirroring can be especially helpful in the early stages of a crisis, as negotiators attempt to establish a non confrontational presence, gain initial intelligence and build rapport.
5. Open-Ended Questions: Use open-ended questions instead of “why” questions, which could imply interrogation. If you do most of the talking, you decrease the opportunities to learn about other person. Effective open-ended questions include, “Can you tell me more about that?” “I didn’t understand what you just said; could you help me better understand by explaining that further?” and, “Could you tell me more about what happened to you today?”
6. “I” Messages: Negotiators have to avoid being provoking when they express how they feel about certain things the other person says or does. Using “I” statements lets you ostensibly shed the negotiator role and react to the subject as just another person.
7. Effective Pauses: Any good interviewer knows the power of the long, awkward silence. People tend to speak to fill spaces in a conversation. Therefore, you should, on occasion, consciously create a space or void that will encourage the other person to speak and, in the process, provide additional information.

Adapted from the article “Crisis Intervention: Using Active Listening Skills in Negotiations” by Gary W. Noesner and Mike Webster, published in the 1997 issue of the Law Enforcement Bulletin.