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Hundreds of small LI businesses and schools trapped in misclassified higher power rates, PSEG says

Doug DiCeglio sits in his office in Lynbrook

Doug DiCeglio sits in his office in Lynbrook on July 10, 2015. DiCeglio won a court case for the village in 2014 over the issue of businesses being overcharged by LIPA. The businesses pay rates that are meant for large electricity users, and LIPA/PSEG, while conceding that the rates are too high, say current rules prevent a fix. Credit: Howard Schnapp

Hundreds of Long Island small businesses, schools and government offices have been incorrectly classified as large commercial customers, according to PSEG Long Island, and watchdog groups say they potentially are owed tens of thousands of dollars each.

Compounding the problem is language in LIPA's official rule book that prevents these customers from changing to a rate class that better fits their usage.

PSEG, in response to Newsday's questions, said last week it had identified about 600 customers that were not using enough electricity to justify their placement in what is known as rate code 285.

PSEG has proposed changing LIPA rules to allow the customers to switch as part of its case before the state Department of Public Service to raise electric rates, but for now there's little the utility says it can do.

"The LIPA Tariff, which was in place before PSEG Long Island taking over operations in 2014, does not include an exit clause for rate code 285," spokesman Jeff Weir said. "We are obligated to follow the approved LIPA Tariff as it stands today."

Summertime energy use

The 285 rate is intended for customers using at least 145 kilowatt-hours of summertime energy during monitored 15-minute periods on special meters that big commercial accounts are assigned.

Complaints about the misclassifications began after LIPA decided in 2011 to increase the daily meter fee for customers in that class, to $10 a day. The fee had been 94 cents a day.

LIPA said in a statement that the 285 billing policies resulted from past management decisions and don't reflect the position of current management. It blamed "escalation of costs largely beyond its control" for the decision to raise the fee to $10 a day, a charge it said the Public Service Department found "reasonable and appropriate" at the time.

In filings with the state Department of Public Service, Nesconset Elementary School and Great Hollow Middle School in the Smithtown school district are fighting the rate classification and seeking a refund for years they were placed in the wrong category. The schools argue that they never reached the 145-kilowatt threshold, and they are seeking at least $25,000 each in repayments.

"We are hopeful that the ultimate decision will work in our favor and the district will be reassigned to the lower rate and receive any appropriate refunds as a result," said James Grossane, Smithtown superintendent.

Sees widespread problem

Doug DiCeglio, a utility consultant working for the schools, said he believes the problem is widespread.

"I think it involves a lot of customers on Long Island, mostly schools and government," said DiCeglio, president of Lynbrook-based Utility Rate Analysis Consultants, which reviews customer bills. He called the situation particularly troubling because many schools and local governments have gone to extra lengths to cut energy use and install green-energy technology to reduce costs.

PSEG is fighting the complaints, despite its proposal to change the LIPA rules, and the state has ruled preliminarily on behalf of the utility in many of the cases.

DiCeglio previously had filed a case on behalf of the Sands Point Golf Club, which had been assigned rate 285 for a small pump house that used a fraction of the 145-kilowatt threshold. In that case, LIPA refunded the golf club $52,628, including more than $28,000 in back interest for overbilling between September 2006 and December 2013.

"If Sands Point is entitled to it, why isn't everybody else?" DiCeglio argued.

Bank seeks refund

Astoria Federal Bank, based in Lake Success, also is seeking a refund for an incorrect classification. According to documents filed with the state DPS, Astoria says it hasn't met the criteria for classification under 285 since at least 2007.

PSEG and the state rejected the bank's request for a refund, primarily on the grounds that LIPA didn't have records showing Astoria's usage before 2007. DPS said it was incumbent on the customer to prove it never met the criteria, and LIPA didn't have those historical records. Astoria declined to comment.

Nonetheless, PSEG has switched Astoria to the proper rate 281, in part on the recommendation of state regulators, Weir said.

In a statement, DPS said it is responding to 30 cases involving the issue.

"DPS is fully aware of this situation and as part of dealing with this particular issue it has approached LIPA regarding potentially amending the tariff in a way that would be ultimately beneficial to the customer and the utility," the statement said. "The discussion is ongoing."

LIPA trustees are scheduled to vote on the rule-book change later this year when the rate-hike case comes up for approval.

If they make the change, PSEG Long Island "will immediately analyze again all of the accounts that are classified under Rate Code 285 and will ensure that every commercial customer account has the opportunity to be placed" in the correct rate classification, Weir said.

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