V & M Management Co., Inc. June 9, 1993 Attorney General Scott Harshbarger Commonwealth of Massachusetts Office of the Attorney General One Ashburton Place Boston, Massachusetts 02108 Governor William Weld Commonwealth of Massachusetts Office of the Governor State House Boston, Massachusetts 02108 Robert A. Cerasoli Inspector General Commonwealth of Massachusetts One Ashburton Place Boston, Massachusetts 02108 John J. Connors Deputy Inspector General U.S. Department of Housing and Urban Development 451 Seventh Street, S.W. Washington, D.C. 20410-8000 Dear Messers Harshbarger, Weld, Cerasoli and Connors: I am the President of V & M Management Co., Inc., owner of a two hundred seventy-six unit, low-income housing development in lower Roxbury, Massachusetts and I have been involved in providing low-income housing to Black and Hispanic neighborhoods for the past twenty-five years. My company has recently concluded an important piece of research which has far-reaching implications for all citizens. V & M has expended over $100,000.000 in legal, accounting and consulting fees in this effort, and I look forward to your respective responses to the insidious, systemic abuse of Massachusetts consumers who are taken advantage by the unfair billing practices of legislatively sanctioned, monopolistic utility companies. I am confident that this public issue is one cries out for attention and action from those in the position to change policy. The attached Affidavit of lan Goodman, an expert-witness retained by V & M Management in its litigation with the Boston Edison and Boston Gas Companies, is the culmination of years of research and litigation by V & M Management. The Affidavit recites a litany of unfair and outrageous billing practices perpetrated by Boston Edison Company which have not only threatened the homes of 1,500 low income. Black and Hispanic tenants at the Mandela Development, but ultimately affect all consumers, particularly in light of current, difficult economic conditions. To place the Goodman Group's research in context, a brief history of the relevant transaction is required. As a result of being charged interest-on interest of 44% and 71% percent on its Boston Gas and Boston Edison accounts respectively, V & M Management Co., Inc. filed suit in Massachusetts' Suffolk Superior Court for injunctive relief against the Department of Public Utilities ("D.P.U.") for failing to respond to a long standing administrative challenge to prior decisions allowing public utilities to compound charges on unpaid bills, leaving commercial accounts with effective interest rates exceeding 100% on unpaid balances. The complaint challenged: 1) utility company policy of categorizing Section 8 "affordable housing" as a commercial vs. residential account, thereby subjecting it to a higher billing rate; 2) whether utility companies can charge 18 % interest on unpaid bills when the prime rate is only 6%; and 3) whether utility companies can charge "pyramid" or charge interest these already outrageous interest charges. Since the D.P.U. failed to respond in the nine (9) months since the complaint was filed, V & M Management filed a complaint in the Massachusetts Superior Court to compel the D.P.U, to carry out its responsibilities. As a result of the D.P.U.'s inaction, and in retaliation for my efforts to stop these unfair practices, the Boston Edison Company has responded with a motion for the Mandela Development to be placed into receivership and an attempt to seize funds from the United States Department of Housing and Urban Development ("HUD") earmarked for the operation and maintenance of Mandela's 276 units and its 1,500 tenants. This action currently threatens the homes and welfare of 1,500 low-income Black and Hispanic tenants who reside at the Mandela Development. Boston Edison cited nonpayment of arrearage in justification of their action; however, V & M had paid all of the Boston Edison usage charges. Most of the claimed due amount was the challenged interest and interest-on-interest. In support of the foregoing, a review of Edison's billing practices by both the Goodman Group, a Boston-based energy consulting firm, and by Certified Public Accountant Robert F. Munro (see attached Report and Affidavit) reveals that between December, 1988 and 1993, V & M Management paid more than 100% of its usage charges - indeed, it overpaid but was under-credited by $34,000; amazingly, however, compounded interest charges that accrued during this period equalled 80.1%. Furthermore, the analysis reveals various sources of error and questionable billing practices, including estimation and meter reading errors, billing errors, and statements which were confusing or difficult to understand. The estimated electric use and demand charges are upwardly biased, in some cases, more than three times greater than the highest actual reading. These over-estimates increase the interest charges above the level warranted by timely actual readings. Long intervals exist between actual meter reading, in contravention of Boston Edison's Terms and Conditions, as approved by the D.P.U. There exists an inordinate amount of voided, skipped or estimated readings. Furthermore the "actual" meter readings on several accounts are highly questionable, with values being very "round" (such as 66,000 kilowatthours), or the same "actual" value is reported for two or more months. Additionally there are many uncorrected billing errors, including interest charges on residential accounts. Finally, other ambiguities or irregularities exist, including multiple bills within a given month, unexplained credit of electric charges, convoluted corrections for previous billing errors, and transfers to/from unspecified accounts. In fact, the Goodman report shows that V & M has paid close to 100% of all usage charges, and the dispute and errors pertain to compounded interest (refer to attached exhibits). Despite the damning evidence of unfair and deceptive billing practices, including the Goodman report which revealed that it was doubtful that V & M owed any money to Boston Edison, the D.P.U. only ordered Edison to go back three years and ignored the Goodman Affidavit and my attorney's numerous requests to provide billing history from 1982 to 1990, the period for which Boston Edison claims an outstanding amount due for which it has sought to place the Mandela complex in receivership in satisfaction of that judgment. Nonetheless, the amount due, and interest and penalties thereon which precipitated the default judgment by which Edison seeks to place Mandela into receivership, have likely been calculated in error. In fact, Boston Edison could not provide a computerized printout because of their archaic, outmoded billing system. It took them four months to reconstruct by hand three years of billing history. This is outrageous for such a wealthy company and indicates that their system is similarly victimizing other consumers. After spending thousands of dollars on consultation and accounting fees to restructure V & M's billing history because Boston Edison refused to provide billing history, I understand why Boston Edison cannot afford the liability of public exposure of their accounting and billing practices. After review of the analysis performed by the Goodman Group, I understand Boston Edison's motivation for filing for receivership, since receivership of the Mandela Development would suppress the threat of exposure of Boston Edison's unfair and deceptive billing practices. After an audit, which would undoubtedly yield millions of dollars in rebates to bilked consumers, it would likely be Boston Edison that would be placed in receivership. Neither the Massachusetts Attorney General nor the Massachusetts Legislature have challenged these unfair practices; in fact, various state legislators that I have personally contacted expressly stated that the utility companies' powerful lobbying forces and generous, sustaining political donations make any challenge to policies prohibitive, if not impossible. Therein lies the hidden agenda by which two of the state's most powerful consumer protection forces,the D.P.U. and the Attorney General, will stand idle and allow receivership to displace 1,500 Black and Hispanic tenants - not because utility usage charges were not paid, but because a consumer has instituted a good-faith challenge to usurious interest charges exceeding 80.1% on inaccurate, overestimated balances. I have discussed the preliminary results of the foregoing study with various Massachusetts business owners, who have been shocked at the study's conclusion. More surprising, however is the fact that in the past twenty years, the Department of Public Utilities, charged with overseeing utility company rate setting and billing practices, has failed to undertake similar scrutiny of these practices. Considering current economic conditions, it is difficult to conceive the utility companies' justification for charging interest rates exceeding 18% when the prime rate is 6%, a practice which is particularly inconsistent with the interest rate policies of other business entities. To illustrate, both federal and state interest on overdue income taxes has been dropped from 17% to 10%. Credit card companies and banks have lowered interest rates on all manner of loans to facilitate consumer borrowing in these difficult economic times. One can only wonder why the D.P.U. allows these usurious practices to continue unfettered. After all, who is in need of more funds than the consumer? This grossly inconsistent, anti-consumer policy can only be the result of political pressure from utility lobbyists. In sum, utility companies are legislatively sanctioned monopolies, and consumers have no choice but to accept the terms by which they provide basic necessities of life. Therefore, more than ever, the consumer needs the D.P.U. and other relevant governmental entities to protect against unfair practices. Yet, neither the D.P.LJ. nor the Attorney General has audited the practices which the Goodman study has exposed. By allowing the utility companies to retain these outmoded interest rate policies, the D.P.LJ. not only fails to protect the consumer, but allows the utility companies to make more money on charging interest and late penalties than they do by providing utility services. The D.P.U. also provides a concomitant disincentive for the utilities to provide accurate, timely billing vs. overestimating charges and charging interest thereon. The utility companies have equally little incentive to educate the consumer to implement utility-consumption measures, despite regulatory mandate to do so. I hope that this information and accompanying Affidavit and professional research will allow all concerned parties to review this matter and take action to implement change in the D.P.U. policies and not to allow another decade to pass without review of these policies. The DPU should review utility companies economic policies more frequently. Accordingly, I offer the following suggestions to the relevant governmental entities with the hope that a policy change will be enacted for the purpose of protecting consumers: 1. The D.P.LJ. should investigate utility company rate structures, particularly for affordable housing, and ensure that owners of affordable housing are presented with the option of choosing the most economically favorable rate structure for the particular habitat. 2. The Office of the Attorney General should investigate utility company overbilling and excessive interest charges and, if warranted, pursue an action under M.G.L. ch. 93A, the Consumer Protection Act. 3. Governor Weld, concerned with attracting fresh commercial capital to Massachusetts, should ensure that local interest rate policies are competitive with those of neighboring states, i.e., that interest rate policies are indexed to the Prime Rate, consumer price index or equivalent, particularly in light of the fact that such interest rate charges are prohibited in other states and sectors of government. 4. H.LJ.D. routinely fails to scrutinize utility company billing practices. In fact, I have been informed that HLJD routinely pays judgments on foreclosed properties, never questioning interest on interest and erroneous overbilling. They have likely wasted millions and millions of taxpayer dollars. (This savings could have translated into reducing the federal housing deficit). The Office of Housing and Urban Development would benefit from taking the following measures: a. HUD, through its Inspector General, should review utility accounts to determine the extent of overbilling and pyramided interest charges on all of its accounts, and particularly of properties placed in its possession through foreclosures; b. HUD should require that all affordable housing be charged pursuant the least costly rate structure, (i.e., rate 3R in Massachusetts), and should prohibit the pyramiding of interest and late fees; and c. HUD should ensure that local utility service providers abide by Department of Utility regulations, which require that a certain percentage of energy costs remitted by consumers be reinvested proportionately in the community from which they have been received. Despite the regulatory mandate to do so, I can personally attest that Boston Edison has never, in my 12 years of ownership, attempted to implement energy saving measures within the low-income community of the Mandela Development, notwithstanding the presence of these low-income tenants who would benefit greatly from conservation measures. I look forward to the response from your respective offices with the hope that the expense and initiative undertaken by V & M Management will not have been in vain, and that your offices, charged with representing and protecting the public, will put an end to these unfair practices which ultimately threaten all consumers. Very truly yours, Alphonse Mourad, President V &M Management Co, Inc. AM:em cc: Mr. Henry Cisneros, Secretary, U.S. Dept. of Housing and Urban Development, Washington, D.C. William Poole, Esq., U.S. Dept. of Housing and Urban Development, Bost. Reg. Office,Boston, MA William Hartnett, Inspector General, U.S. Dept. of Housing and Urban Development,Boston Regional Office, Boston, MA Ed Brooke, President, Community Action Patrol, Roxbury, Massachusetts Albert B. Sullivan, Director, Office of Multifamily Housing Management, U.S. Department of Housing and Urban Development, Washington, D.C. Michael Kennel, The Boston Herald, Boston, MA Steve Baily, The Boston Globe, Boston, MA Steve LeBlanc, The South End News, Boston, MA Call For Action, WBZ Radio, Boston, MA Joe Bergantino, The Eye Team, WBZ -TV, Boston, MA Hank Phillipi Ryan.WNEV-TV, Boston, MA Paul Lewis,WCVB-TV, Needham, MA Home | Contact Info