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As Retail Market Reset Ordering Clauses Vacated, NY PSC Says: "Make No Mistake", We're Ending Harmful ESCO Practices

Court Vacates Orders For Guaranteed Savings, Minimum Renewable Content on Procedural Grounds, But Says PSC Has Jurisdiction Over ESCO Rates

July 26, 2016

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Copyright 2010-16 EnergyChoiceMatters.com
Reporting by Paul Ring • ring@energychoicematters.com

"Make no mistake, we are putting an end to deceptive ESCO practices that harm electric and gas customers," New York PSC Public Information Officer James Denn said as a New York court vacated Ordering Clauses #1-3 of the PSC's February retail market reset order, but affirmed the PSC's jurisdiction over ESCO "rates."

As first reported by EnergyChoiceMatters.com yesterday (click here), the Supreme Court for the County of Albany vacated Ordering Clauses #1-3 upon finding that ESCOs were denied due process, and finding that the PSC's order was, "irrational, arbitrary and capricious." Ordering Clauses #1-3 (reproduced below) generally included the limitation on mass market ESCO sales except where the product contained guaranteed savings versus the utility or 30% renewable electricity.

However, the Court broadly affirmed the PSC's jurisdiction over ESCOs, including ESCO "rates."

"The court's affirmation that the PSC has legal jurisdiction over ESCOs is an important win for the PSC and millions of consumers in New York. The procedural flaws highlighted by the court have been addressed, or will be, as we continue to move forward with Governor Cuomo's far-reaching plan to protect customers from unscrupulous ESCOs. Make no mistake, we are putting an end to deceptive ESCO practices that harm electric and gas customers," Denn said

Specifically, the court found that, "As an initial matter, the Court finds that it is counterintuitive to claim that the PSC lacks jurisdiction over the retail energy market. To say that once it was established by the PSC, with a set of guidelines for its regulation and connectivity to public utilities -- the UBP which allows the Commission to oversee virtually every aspect of the market, from eligibility, to marketing and contracts, and policing abuses as they affect its customers -- that the PSC cannot regulate these entities with consumer pricing requirements surely defies logic."

The Court further noted that, "PSL 53 clearly provides that Article 2 of the PSL applies to 'any entity that, in any manner, sells or facilitates the sale or furnishing of gas or electricity to residential customers.'"

"PSL 5 refers to the Commission's broad statutory grant of authority over the sale of natural gas and electricity," the Court added

"Clearly, the Public Service Commission has the authority to establish public utility rates," the Court said, further noting that PSL Art. 4, 65.1 provides in pertinent part that, "All charges made or demanded by any such gas corporation, electric corporation or municipality for gas, electricity or any service rendered or to be rendered, shall be just and reasonable and not more than that allowed by law or order of the commission."

While not explicit as to defining ESCOs as encompassed by the term "public utility" or "electric/gas corporation," the Court excerpted the PSL statutes above in discussing its finding that the PSC, "has jurisdiction over rates charged by retail energy companies."

While the court found that the PSC, "has jurisdiction over rates charged by retail energy companies," the Court found that the Reset Order, "must be vacated for two reasons."

"First and foremost, the petitioners were simply denied their procedural due process rights," the Court said

The Court said that a SAPA notice cited by the PSC could not be used as justification for the reset order, as such notice did not give petitioners, "any inkling of the type of change which resulted from the Reset order."

The Court also said that the Reset Order appears to be, "irrational, arbitrary and capricious."

"The Court also agrees with petitioners that the Reset Order is arbitrary and irrational in that it imposes the unexplained and harsh ten day implementation period for the Order, which amounts to a major restructuring of the retail energy market — or even its collapse," the Court said

"Given the very sweeping and comprehensive changes to the UBP, meant to improve the retail energy market, and the recommendation by the majority of commentators that further study be given to energy-related value added services, the Reset Order appears to be irrational, arbitrary and capricious. Also arbitrary and capricious is the 'immediate transition' -- the ten day period by which the Reset Order was to be implemented," the Court said

The now-vacated Ordering Clauses #1-3, the entirety of the ordering clauses appealed by ESCOs, from the PSC's February 23 order were as follows:

1. Consistent with the body of the Order and subject to the exceptions described therein, effective ten calendar days from the date of this Order, energy service companies (ESCOs) shall only enroll new residential or small non-residential customers (mass market customers) or renew existing mass market customers in gas or electric service if at least one of the following two conditions is met: (1) enrollment where the contract guarantees that the customer will pay no more than were the customer a full-service customer of the utility; or (2) enrollment based on a contract for an electricity product derived from at least 30% renewable sources.

2. ESCOs must receive affirmative consent from a mass market customer prior to renewing that customer from a fixed rate or guaranteed savings contract into a contract that provides renewable energy but does not guarantee savings.

3. For each ESCO that intends to enroll new mass market customers or renew existing mass market customers once Ordering Clause No. 1 has gone into effect, the Chief Executive Officer (CEO) or equivalent corporate officer of the ESCO must make a filing by 4:00pm on the tenth calendar days after the date of this Order certifying that any enrollments will comply with the conditions of this Order.

The Court also denied the PSC's request for an "undertaking" from ESCOs, which is essentially a promise to provide security. The PSC had said that a $98.6 million undertaking was required to compensate customers who continued to be served by ESCOs during a temporary restraining order (TRO) preventing enforcement of the PSC's order (click here for story)

National Energy Marketers Association President Craig Goodman said that he expected the Court to vacate the ordering clauses.

"After practicing in administrative law for many years, I did not see any way that this order could stand as written. I'm delighted to see that the judge in Albany did an excellent job in analyzing each of the deficiencies that rendered the February 23 order invalid," Goodman said

"Our members have been working hard to bring new value-added products and services to the marketplace, and the New York market is so hyper-competitive, it's hard to believe that anyone fairly looking at that market could consider it not competitive," Goodman said

"We're pleased that our members can continue to provide value-added services so that consumers can receive all of the benefits envisioned by the PSC when it originally found competition to be the best path for consumer savings and services," Goodman said.

Natara Feller, Managing Member of Feller Energy Law Group and counsel to the Impacted ESCO Coalition, noted that the Court's decision was a mixed bag due to its finding that the PSC has jurisdiction over ESCO rates

"The decision by Judge Zwack confirms the positions taken by ESCOs that the Resetting Order was fraught with undefined terms, and retail marketers had no proper notice from the PSC, making the 2/23 Order entirely unworkable. After many months of uncertainty, ESCOs have some breathing room; ESCO owners, investors and executives have lost sleep, concerned about their ability to survive if the TRO was lifted, and if the rate restrictions ordered under the Resetting Order went into effect overnight," Feller said

"The order is somewhat of a mixed bag however, as Judge Zwack found the, 'PSC has jurisdiction over rates charged by retail energy companies[,]' concluding, 'that the PSC cannot regulate these entities with consumer pricing requirements surely defies logic,'" Feller added

"The decision to find that the PSC has rate-making authority means the NY retail energy market is likely to continue experiencing regulatory seachange; making it more important than ever for ESCOs to make their voice heard and actively participate in all PSC proceedings that impact the retail energy market in New York State," Feller added

The Retail Energy Supply Association said that it, "is gratified that the court vacated the New York Public Service Commission's February market-reset order, finding the PSC action to be 'irrational, arbitrary and capricious' and failed to offer ESCOs 'an opportunity to be heard in a meaningful manner and at a meaningful time.'"

"The court found that ESCOs were 'stripped of any meaningful opportunity to participate in the promulgation of the reset order,'" RESA noted

Three suits had been filed against the PSC order. Plaintiffs were:

• National Energy Marketers Association; Bluerock Energy, Inc.; Bounce Energy NY, LLC; Direct Energy Business Marketing, LLC; Direct Energy Business, LLC; Direct Energy Services LLC; Energetix, Inc.; Gateway Energy Services Corp.; North American Power & Gas, LLC; NYSEG Solutions, Inc.; Residents Energy, LLC; and Verde Energy USA New York, LLC.

• Retail Energy Supply Association, Interstate Gas Supply

• Family Energy Inc., Major Energy Services, LLC

Index No. 868-16 et. al.

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