Coop Village challenges $380,000 penalty for unauthorized use of gas

A $380,000 penalty from Con Ed earlier this year is being challenged by Coop Village management with the NYS Public Service Commission, the agency tasked with regulating public utilities. The penalty was the result of a boiler room incident on January 8, 2015 that led the coop to use natural gas for heat and hot water during two days when it was required by Con Ed to burn oil instead. General manager Harold Jacob argues that the penalty was unnecessarily punitive and excessive.

How did we end up with such a huge fine? A little history: Our boiler room used to burn No. 6 oil, an expensive, dirty fuel. The conversion completed in 2013 switched to a dual-fuel system — the boiler room runs primarily on natural gas delivered by Con Ed, but can also switch to burning No. 2 oil stored on site.

east-river-boiler-5As a “dual-fuel interruptible gas customer,” the coop receives a discount on natural gas with the agreement that, when Con Ed calls for a “gas interruptible event” we are required to switch to No. 2 oil within hours. This happens when Con Ed is concerned about its gas supply during a cold spell. If we don’t comply, huge penalties are imposed — nine times the market cost of the gas we consume — and if we are in violation of the agreement twice, Con Ed can automatically revoke our natural gas discount for the rest of the winter plus one additional year. (Con Ed has an online primer for dual-fuel interruptible gas customers here, in case you’re interested in all the contractual nitty-gritty.)

So, back to January, when Con Ed called a gas interruptible event for Wednesday, January 7 at 10:00 a.m. The boiler room switched over as required. The next morning, before dawn, with temperatures in the single digits for the second day in a row, the entire boiler room shut down without warning.

Board president Gary Altman’s memo distributed later that day presented the heroic details: shutdown triggered at 4:15 a.m.; defective emergency shut-off switch replaced by 6:00 a.m.; the slow, careful restart process while frantic calls came in from cold cooperators; heat reached all four East River buildings by 8:50 a.m.; hot water restored shortly thereafter.

But since the system was restarted and kept on gas, and Con Ed’s gas interruptible event was still ongoing, the boiler room used gas for two days that was not permitted under our contract, hence the massive penalty.

Mr. Jacob says he made the decision to stick with gas because the shutdown occurred while the system was running on oil and the precise cause of the shutdown was still not known. He wanted to ensure that the heat would stay on during such extreme cold weather, so keeping the system on gas eliminated a variable that may have been related to the shutdown.

He told me that even if he knew at the time that the penalty would be such a high cost he would have made the same decision, because there was no sense risking another shutdown with the temperature so low. But he’s making an argument with the Public Service Commission that no penalty should be imposed on the coop based on its adherence to all other gas interruptible events in the past three years.

After winter was over, the emergency shut-off switches around the whole boiler room (there is one at each exit, as required by law) were upgraded with better insulation to keep any moisture from accumulating and freezing, as apparently happened back in January. The heating season has just begun again.

UPDATE: East River’s petition and complaint to the Public Service Commission is available online here.