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N.Y. Mayors Urge PSC To Help Identify ESCOs Operating Within Municipal Boundaries To Determine ESCOs Responsible for Remitting Gross Receipts Tax

September 3, 2015

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Copyright 2010-15 EnergyChoiceMatters.com
Reporting by Karen Abbott • kabbott@energychoicematters.com

Several New York municipalities have asked the New York PSC for assistance in allowing municipalities to identify ESCOs operating within a municipality's boundary, so that the municipality can know which ESCOs should be remitting Gross Receipts Tax amounts to the municipality

"The first obstacle to determining compliance with local municipal GRT laws is the identification of telephone and utility companies that are conducting business within individual municipal borders. In particular, this problem is most prevalent when it comes to competitive local exchange telephone companies (CLECs) and energy services companies (ESCOs) that sell electric and/or natural gas supply. Although these companies must receive Commission approval prior to conducting business within the State, there do not appear to be any current statewide reporting requirements that would allow local municipalities to determine whether any given company has customers within their borders, let alone requirements regarding the reporting of local revenue," the New York State Conference of Mayors and Municipal Officials (NYCOM) said in a recent letter to the PSC

"Although the statewide list of approved companies is finite, it is also lengthy. Even comprehensive efforts to determine which companies have customers within local municipal borders are not necessarily fruitful. One municipality has reported sending 200 letters of inquiry to CLECs and ESCOs without receiving a single response," NYCOM said.

"Therefore, the first issue we would ask the Commission to assist with would be in the area of identification of CLECs and ESCOs that have customers within individual municipal borders ... With respect to ESCOs, this information is currently in the possession of the utility company responsible for delivering gas and electric service. These local distribution companies (LDCs) have established relationships with every ESCO doing business within their service territory, providing usage information required for ESCO billing purposes and often offering combined billing to customers. To date, all requests to these LDCs for assistance with the identification of ESCOs with customers in a given municipality have been denied. We understand that this information is not static, customers change energy suppliers every day. However, even a requirement to share a snapshot of this information on an annual basis would be helpful to local municipalities. Again, municipalities are not looking for customer specific information, just the basic information necessary to identify all ESCOs with local revenue in order to insure compliance with local GRT laws, which could include the aggregated revenue each ESCO received from each municipality," NYCOM said

"The next issue that has become apparent is the disparity between the large number of ESCOs approved to do business in New York State and the relatively small number of ESCOs that actually pay local GRT," NYCOM said.

NYCOM asserted that, "On June 29, 2009, the New York State Department of Taxation and Finance issued an Advisory Opinion (enclosed) addressing the issue of whether unbundled sales of energy commodities are subject to local GRT. The Department concluded that both the sale of the commodity and the sale of the delivery of the commodity are subject to local GRT, regardless of whether the commodity and the sale of the commodity are sold by different parties."

The relevant statute concerning the GRT uses the term, "utility." Such statute defines "utility" as including, "every person subject to the supervision of the state department of public service," and, "every person (whether or not such person is subject to such supervision) who sells gas, electricity, steam, water or refrigeration, telephony or telegraphy, delivered through mains, pipes or wires, or furnishes gas, electric, steam, water, refrigerator, telephone or telegraph service, by means of mains, pipes, or wires; regardless of whether such activities are the main business of such person or are only incidental thereto."

Though licensed, it is arguable whether ESCOs are subject to the "supervision" of the DPS. It is also arguable (despite the Department of Taxation's finding below) that ESCOs sell commodities, "delivered through mains, pipes or wires."

While the statutory definition of utility requires that the commodity be, "delivered through mains pipes or wires," the Department of Taxation said that such language is merely descriptive, "it does not require that the person selling the commodity also deliver the commodity."

Therefore, the Department of Taxation said the term utility includes, "persons who sell only the commodity (e.g., gas, electricity, etc.) and those who sell both the commodity and the transportation, transmission, and distribution of the commodity."

The Department of Taxation noted that, "[r]esponsibility for interpreting and applying these [GRT] taxes rests with the cities and villages that impose them," and it was therefore unclear what weight the Advisory opinion carries. Furthermore, although municipalities may be responsible for administering the local GRTs, it is not clear (despite the Department of Taxation's observation) if municipalities can unilaterally choose how to define "utility" under the statutory language.

While a state tax on commodity sales was eliminated with restructuring, the Department of Taxation said the municipalities' authority to collect their GRT was unaffected by this.

"While we understand the Commission is not directly involved in determining tax matters, you [the PSC] do have authority in both approving and monitoring ESCOs. Strengthening the Uniform Business Practices by requiring ESCO compliance with local tax laws would be a helpful step forward," NYCOM said.

The Town of Union wrote in support of NYCOM's petition that, "The ability to be able to identify Competitive Local Exchange Telephone Companies (CLECs) and Energy Service Companies (ESCOs) that are conducting business within their municipal boundaries would provide Cities and Villages with the tools to carry out their fiduciary responsibilities and know, rather than guess or not know, which CLECs and ESCOs actually should be remitting GRT funds to their respective City or Village. Please help with this mystery!"

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