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NY Appellate Division Affirms NY PSC Authority To Prohibit ESCO Service To Low-Income (APP) Customers, Except Where Savings Guaranteed

Nov. 1, 2018

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The State of New York Supreme Court, Appellate Division, Third Judicial Department has affirmed the New York PSC's (respondent) authority and related December 2016 order which prohibited ESCOs from providing service to assistance program participant (APP) customers except where the ESCO guarantees savings.

The Appellate Division's decision affirmed a prior judgment of the Supreme Court entered July 5, 2017 in Albany County

"Respondent's enactment of the December 2016 order was not arbitrary or capricious," the Appellate Division said

"Here, the record contains data demonstrating that ESCOs were generally charging APPs more for gas and electricity than they would have been charged by utilities. Moreover, respondent produced an affidavit by its chief of the retail access and economic development section of the Office of Consumer Services, who explained that this data showed, in the 30 months from January 2014 to June 2016, that APPs statewide paid nearly $96 million more by purchasing energy products through ESCOs than if they had purchased those products from utilities. Comments submitted by NEM pursuant to the October 2016 notice of proposed rulemaking, and supported by the remaining petitioners, specifically addressed the data that petitioners now argue was not part of the administrative record," the Appellate Division said

"It was reasonable for respondent to rely on that data, which provided timely evidence of the price gap between ESCOs and utilities that had been identified by respondent since at least 2014. Specifically, in February 2014, respondent had issued an order concluding, in relevant part, that APPs were more likely to obtain their energy products from ESCOs than customers who do not receive low-income assistance and that ESCO customers in general were charged more than utility company customers for energy, without measurable energy-related value-added services. Likewise, the November 2015 collaborative report, which resulted from a months-long collaborative process involving all stakeholders, identified pricing concerns as well. The report concluded 'that few, if any, ESCOs intend to offer a product which guarantees that the customer will pay no more than would have been paid had energy been purchased from the utility.' Regarding energy-related value-added services or products, the report concluded that, although there were certain products offered by some ESCOs that potentially could save APPs money without diluting the effectiveness of their financial assistance, proposals about how ESCOs could offer fixed prices without ultimately overcharging APPs raised 'complex' questions requiring additional research. Comments received during the comment period indicated that some of the energy-related services that ESCOs offered would be of little practical value to APPs because those services could be obtained by low-income individuals from government agencies for free or at a discount," the Appellate Division said

"The data provided to respondent before the December 2016 decision confirmed and quantified a well-understood problem that had been adduced at the collaborative and referenced in prior orders. Although comments submitted by NEM in response to the October 2016 notice of rulemaking claimed that the data could not be properly scrutinized by ESCOs, petitioners offered no specific evidence that the data was unreliable despite having access to it, or evidence to contradict the previous opinions of respondent or participants of the collaborative. Indeed, the data was originally collected by utilities pursuant to a statute that required the same data to be used to calculate arrears owed by customers seeking to restore their previously terminated ESCO services (see Public Service Law § 32 [5] [d]; 16 NYCRR 11.9 [c] [6]). Considering this backdrop and according respondent due deference to resolve this highly technical issue related directly to utility rates (see Matter of New York Tel. Co. v Public Serv. Commn. of State of N.Y., 95 NY2d at 48; Matter of Home Depot U.S.A., Inc. v State of N.Y. Pub. Serv. Commn., 92 AD3d at 1014), reliance on the data in question was not irrational. Furthermore, the December 2016 order directly addressed the problems identified by respondent inasmuch as it required ESCOs to guarantee that their energy products offered to APPs would not cost more than buying energy from the local utility. Thus, the order was not irrational, arbitrary or capricious," the Appellate Division said

"Respondent lawfully exercised its rule-making power when enacting the December 2016 order," the Appellate Division said

"This Court recently observed that respondent had the statutory authority to require that, in all new and renewal contracts between an ESCO and a residential customer or small nonresidential customer, the ESCO must guarantee 'savings in comparison to what the customer would have paid as a full service utility customer or provide at least 30% renewable electricity,'" the Appellate Division said

Discussing such prior finding, the Appellate Division said, "Citing respondent's 'broad' statutory authority 'to set just and reasonable tariff rates for gas and electric corporations pursuant to Public Service Law articles 1 and 4' and that the same discretion allowed respondent to open the state's energy markets to ESCOs in the first instance, we observed that respondent may 'impose limitations on ESCO rates as a condition to continued access'"

"The moratorium at issue on this appeal is directly responsive to concerns that ESCOs were costing customers, particularly APPs, more money than if they had just used a utility, a result in direct conflict with the original purpose of opening the energy markets to ESCOs," the Appellate Division said

"Because respondent's order involved a cost and benefits analysis grounded in preexisting policy objectives and merely filled in details of a broader policy — namely, ensuring that the competition created by ESCOs in the state's energy market reduced energy prices – the first two Boreali factors favor upholding the order. Regarding the third Boreali factor, petitioners failed to provide any pertinent examples of the Legislature attempting to redress the increase in energy service prices facilitated by ESCOs. Lastly, inasmuch as utility rate setting requires special technical expertise ... the final factor also weighs heavily in respondent's favor. Accordingly, because all four Boreali factors support respondent's position, the order was enacted through lawful rulemaking," the Appellate Division said

"Respondent complied with the State Administrative Procedure Act and procedural due process when enacting the December 2016 order," the Appellate Division said

The Supreme Court properly rejected petitioners' Contract Clause argument, the Appellate Division said

"The December 2016 order is carefully tailored to avoid interference with existing contracts between ESCOs and their customers. The order directs ESCOs to 'de-enroll the identified accounts at the expiration of the existing agreement.' Regarding APPs with month-to-month contracts, the order clarified that 'the expiration of the agreement is at the end of the current billing period.' The order required that any agreements including a 'gift term' -- where the customer receives a gift or period of free service after remaining with the ESCO for a designated period -- be deemed to expire only after the end of the gift term. No ESCO had a contractual right to renewal of any particular contract once it expired. Accordingly, because the order did not affect existing contracts, the Contract Clause was not violated. To the extent that petitioners' argument based on General Business Law § 349-d is properly before us, it similarly must fail because the December 2016 order does not change the terms of any existing contract," the Appellate Division said

The December 2016 order does not violate the Equal Protection Clause because it is rationally related to legitimate government interests, the Appellate Division said

"Assuming, without deciding, that APPs are similarly-situated to other customers and utilities are similarly-situated to ESCOs, respondent had legitimate interests in protecting low-income consumers and preventing the waste of government- and ratepayer-subsidized funds," the Appellate Division said

"[T]he order is rationally related to well-documented concerns that APPs are disproportionately exposed to higher prices at the hands of ESCOs," the Appellate Division said

"Finally, petitioners challenge the December 2016 order on the basis that it violates APPs' privacy rights by requiring utilities to inform ESCOs of which customers are enrolled in low-income assistance programs. Because petitioners have not shown that they will suffer any injury-in-fact by the ESCOs' receipt of such information, they lack standing to raise this challenge," the Appellate Division said

Link to decision

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