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NEM: NY Court Ignored "Fatal" Fact In Reaching Erroneous Conclusion (In Dicta) That PSC Has Authority Over ESCO Rates

Says Courts Have Rejected "Carte Blanche" Rationale Of State Agencies Engaging In Legislative Functions Through Broad General Authority

Cites Court's Strike Of NYC Soda Ban As Precedent Preventing Agencies From Using Broad General Authority For Legislative Purposes

December 23, 2016

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

A New York Supreme Court judge erred when the judge said that the New York PSC has jurisdiction over the "rates" charged by ESCOs, the National Energy Marketers Association and several ESCOs said in a brief appealing the judge's decision.

As was first reported by EnergyChoiceMatters.com, while the judge for the Supreme Court for the County of Albany (motion court) vacated the New York PSC's February 2016 retail market "reset" order (which prohibited mass market sales except for certain compliant products such as a guaranteed savings product), the judge in such decision said that the PSC, "has jurisdiction over rates charged by retail energy companies."

Click here for more background on the judge's decision

While NEM said that the judge's statements regarding the PSC's jurisdiction over ESCO rates amounted to dicta, which is neither binding nor appealable, NEM filed the appeal due to a separate recent court order, "which creates ambiguity as to whether a prevailing party should nevertheless file an appeal on an adverse statement in an otherwise favorable decision."

"In light of the gravity of the issue on which the Supreme Court opined – which is of industry-wide and state-wide importance – and the remand to the PSC, Appellants filed this appeal to ensure that this Court decides the critical issue of the scope of the PSC’s jurisdiction, either by deciding this appeal on the merits, or by confirming that the Supreme Court’s statements on this issue are dicta and do not have any precedential effect," NEM said.

The specific question presented on appeal to the Appellate Division is: "Whether the motion court erred by concluding that the Legislature has authorized the Commission to set ESCOs’ rates in the New York retail energy market, where that conclusion contradicts the PSL’s [Public Service Law] plain language, is inconsistent with the Commission’s and the Legislature’s historical conclusions regarding the Commission’s jurisdictional limits under the PSL, and no other statutory basis for any such authority exists."

NEM noted that the motion court, "[u]nable to identify any particular statutory provision that imparted to the PSC jurisdiction over ESCO rates," instead inferred the PSC' ratemaking authority with respect to ESCOs from general references to (i) PSL Art. 1 § 5; (ii) PSL Art. 2 § 53; (iii) PSL Art. 4 §§ 65(1), 66(12)(f); (iv) GBL § 349-d(11)-(12); and (v) the UBP.

NEM said that, "In reaching that conclusion, moreover, the Supreme Court did not even address the plain language of the relevant statutes, the legislative history, or the facts that:

• "The PSL by its terms applies only to public utilities that have ownership and control over utility-related infrastructure (which ESCOs do not have);
• "The PSL was created with the primary purpose of protecting consumers from public utilities’ monopoly control over the market and decades before ESCOs even existed;
• "The PSC has repeatedly pronounced that ESCOs are not "electric corporations" or "gas corporations," to which the PSL applies;
• "The PSC has repeatedly pronounced that it has no ratemaking authority over ESCOs; and
• "The Legislature made clear that the PSC did not have authority over ESCOs insofar as they are neither "electric corporations" nor "gas corporations" as those terms are defined in the PSL and in amending Article 2, to give the PSC limited jurisdiction over ESCOs, the Legislature made clear that it was not making a similar amendment to the ratemaking article (Article 4), providing that the amendment was being made "for purposes of this Article [2]" only."

NEM's brief presented arguments that none of the provisions cited by the motion court grant the PSC with authority over ESCO rates.

Regarding the assertion that the PSC has "plenary" authority over ESCO rates under Article 1 of the PSL, NEM argued the "plain language" of Article 1 of the PSL, "confirms that its [the PSC's] jurisdictional scope does not reach ESCOs because they are not "electric corporation[s]" and "gas corporation[s]" as defined by Article 1 §§ 2(11), (13). Under those sections, a "gas corporation" or "electric corporation" is a company "owning, operating or managing any" gas or electric plant, with NEM stating that plant is further defined as real estate, fixtures and personal property used for delivery of such commodity.

"ESCOs do none of those things," NEM said

"Despite the Legislature’s and the PSC’s own conclusions to the contrary, the PSC nevertheless now pretends that ESCOs are electric and gas corporations under Article 1 on the theory that they purportedly 'operate' gas and electric plants by merely 'sell[ing] or facilitat[ing]' the sale of those commodities. That contorted reading is flatly inconsistent with Article 1’s definitions of 'electric corporation' and 'gas corporation' because it ignores their express requirements that such companies actually 'own[], operat[e], or manag[e]' the 'real estate, fixtures and personal property' that physically deliver commodity (i.e., a 'gas plant' or 'electric plant'). PSL Art. 1 §§ 2(10)-(14)," NEM said

Moreover, NEM said that the legislature's landmark amendment to HEFPA is "fatal" to assertions that ratemaking authority over ESCOs is contained in Article 1 of the PSL, as such legislative amendments would be moot if Article 1 had given the PSC authority of ESCO rates.

"In 2002, the Legislature amended one section of the PSL so that it would reach ESCOs (because it did not previously extend to ESCOs) – but did so only with respect to Article 2. The Legislature amended that article’s jurisdictional scope to make it broader than the jurisdictional reach of Articles 1 (general authority) and 4 (ratemaking authority). Specifically, whereas before the amendment Article 2’s references to 'electric corporation[s]' or 'gas corporation[s]' relied on the definitions of those terms in Article 1 (which the PSC found to exclude ESCOs), the Legislature added a new provision to Article 2 that provided broader definitions of those terms," NEM said

Specifically, Article 2 defined, limited to the purposes of Article 2 that, "a reference to a gas corporation, an electric corporation, a utility company, or a utility corporation shall include, but is not limited to, any entity that, in any manner, sells or facilitates the sale or furnishing of gas or electricity to residential customers."

"Recognizing, accordingly, that Article 1’s definitions excluded ESCOs from the PSC’s jurisdiction, the Legislature expanded the jurisdictional scope of Article 2," NEM explained

"The Legislature thus agreed that Article 1’s definitions of gas and electric corporations do not reach ESCOs because they do not operate utility plants," NEM said

The motion court ignored this, "fatal, dispositive fact," NEM said

"Indeed, the PSC’s interpretation [that Article 1 grants authority over ESCOs by including them within the definition of electric/gas corporations] inexplicably would reduce the Legislature’s 2002 amendment of Article 2 to a pointless exercise," NEM said. The PSC's interpretation would contravene the basic principle of statutory construction that statutes cannot be interpreted in ways that make them superfluous or unnecessary, NEM said

NEM further said reliance on the PSC's supposed broad general powers as contained in PSL Article 1 § 5’s general charge to adopt limits on ESCO rates would contravene precedent prohibiting the reliance on such general, broad powers for legislative purposes.

"Agencies cannot engage in policy-making based on a broad authorizing statute, even where (contrary to the case here) the enacted policy falls within that statute’s parameters," NEM said, citing several cases, including Boreali v. Axelrod.

In Boreali, the Court of Appeals struck an anti-smoking regulation adopted by the New York Public Health Council which had been premised upon Section 225(5)(a) of the Public Health Law, which (similar to Article 1 § 5, of the PSL) generally authorizes the Public Health Council to, "deal with any matters affecting . . . the public health."

"The court found that the PHC’s action in this regard was invalid because it amounted to the PHC using its general authority as a purported justification for its legislative policy-making in violation of the New York State’s separation-of-powers doctrine," the Court of Appeals said in Boreali

NEM cited two additional cases where the precedent from Boreali was upheld, including a case from 2014.

In one such case, the Supreme Court held that reliance on general authorizing statute for adoption of regulations would inappropriately result in an agency having, "carte blanche," to further its own objectives (Health Ins. Ass’n of America v. Corcoran)

NEM also cited a case involving a New York City soda "ban" (portion cup rule), in which the soda portion limit was struck on the ground that the New York City Board of Health could not rely on a statute broadly empowering it to enact a health code to implement the soda ban (New York Statewide Coalition of Hispanic Chambers of Commerce v. New York City Dep’t of Health and Mental Hygiene)

In the soda ban case, the Court of Appeals said that Health Dept's actions constituted prohibited legislative policy-making, "because it had chosen between public policy ends by weighing its public health goals against the rule’s economic consequences."

NEM compared the prohibited Health Dept's actions to the PSC's actions here as the PSC has asserted that it weighed its purported consumer protection concerns against the, "desire to preserve and improve the market."

"[T]he PSC, without any guidance from the Legislature, issued its own order to address what it perceived to be problems in the energy market and thus unlawfully engaged in legislative policy-making," NEM said

NEM also said that Article 4 of the PSL does not grant the PSC with authority over ESCO rates, as the same section (at subsection 1) provides that the corporations "under [the PSC’s] supervision" (and thus those that are subject to the PSC’s ratemaking authority) are only those corporations that have authority, "to lay down, erect or maintain wires, pipes conduits, ducts or other fixtures in, over or under the streets, highways and public place of any municipality for the purpose of furnishing or distributing gas or of furnishing or transmitting electricity for light, heat or power, or maintaining underground conduits or ducts for electrical conductors."

"[O]nly public utilities are corporations that have that authority; ESCOs are not, and are therefore not subject to the PSC’s ratemaking authority under § 66(5), as the PSC repeatedly has recognized," NEM said

"For similar reasons, the Supreme Court erred in referencing Article 4 § 65(1) as a basis for the Reset Order’s jurisdictional propriety. (A 19, R. 78.) That section mandates that '[e]very gas corporation, every electric corporation and every municipality shall furnish and provide such service, instrumentalities, and facilities as shall be safe and adequate and in all respects just and reasonable.' Like Section 66(5), however, Section 65(1) applies only to 'gas corporation[s]' and 'electric corporation[s]' as defined in the statute, and ESCOs are neither," NEM said

Note: Direct Energy, which was an original petitioner in the case that resulted in the court's July order, did not join in the appeal and is not participating in the appeal in any manner

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