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RESA: "Irrefutable" That New Jersey Retail Supplier May Pass-Through State Mandated Charges On Fixed Contracts

Asks BPU Director To "Withdraw" Cease-and-Desist Letter On Fixed Price Pass-Throughs

February 11, 2019

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Reporting by Paul Ring •

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In a letter dated January 25, the Retail Energy Supply Association said that it was, "irrefutable," that retail suppliers may pass through any, "other state mandated charges," on fixed rate contracts, and asked that the Director of the New Jersey BPU's Division of Energy withdraw a cease-and-desist letter previously sent to all suppliers which had informed suppliers that the use of change-in-law clauses to pass-through costs from new P.L. 2018, c. 17 violated the BPU's adopted rules.

As previously reported by, the Director of the New Jersey BPU's Division of Energy had on January 22 issued a letter to each New Jersey licensed third party supplier (TOS) concerning any action to increase the supplier's fixed rate contracts due to P.L. 2018, c. 17, which modified various provisions of the state's renewable portfolio standard, with the letter informing suppliers that the invocation of a "change in law" material change clause to pass through costs under fixed rate contracts is impermissible under the BPU's adopted rules for costs related to P.L. 2018, c. 17

See details regarding the letter here

As more fully discussed in our prior story, the Director's January 22 letter cited N.J.A.C. 14:4-7.6(l) as prohibiting the pass-throughs, on fixed rate contracts, for costs related to P.L. 2018, c. 17,

In its January 25 response, RESA said that the Director's letter, "overlooks controlling statutory authority that expressly permits RESA members (as well as any and all third party suppliers) to raise prices under the circumstances presented here."

"We respectfully request that you withdraw the letter, and that the Board not take any further actions inconsistent with relevant law," RESA said in its January 25 response to the BPU's Director of the Division of Energy

RESA said in its January 25 response that, "Although the letter correctly quotes N.J.A.C. 14:4-7.6(l), it incorrectly ignores the plain language of the regulation. It also completely ignores the recent statute that specifically authorizes the price change."

RESA noted that N.J.A.C. 14:4-7.6(l) reads: "The contract may not include provisions (sometimes referred to as 'material change notices') that permit the TPS to change material terms of the contract without the customer's affirmative authorization unless the change is required by operation of law. 'Material terms of a contract' include, but are not limited to, terms regarding the price, deliverability, time period of the contract, or ownership of the gas or electricity. 'Non-material' terms include those regarding the address where payments should be sent or the phone number to be used for customer inquiries. Changing the price to reflect a change in the Sales and Use Tax or other State-mandated charge would be permitted as a change required by operation of law." [emphasis by RESA omitted]

RESA said in its January 25 response that, "Thus, under this regulation, while a third party supplier may include a material change provision in its consumer contracts, it is only allowed to pass through changes that are required by 'operation of law.' The letter cites to the last sentence for the proposition that increases to the Sales or Use Tax are the only permitted increases. The regulation states no such thing. The regulation specifically permits a price change to account for any 'other State-mandated charge.' The operative word in the regulation is 'or.' This is an 'A' or 'B' situation. The Sales and Use Tax is 'A.' The 'other State-mandated charge' is 'B."' The regulation permits a price change to account for any change in either 'A' or 'B.'"

RESA then noted that the Director's letter then refers to the "rule making history" of the regulation to provide context, and then states that any third party supplier's reliance on P.L. 2018, c. 17 is misplaced. "That is incorrect," RESA said in its January 25 response "The New Jersey Legislature in P.L. 2018, c. 17 amended and supplemented various statutory provisions and established the solar renewable portfolio standards requirements at issue. In doing so, the Legislature specifically addressed and decided the very issue raised in the letter. Importantly, the Legislature decided this issue exactly contrary to the position provided in the letter," RESA said in its January 25 response

RESA said in its January 25 response that the statute provides: "Notwithstanding any rule or regulation to the contrary, the board shall recognize these new solar purchase obligations as a change required by operation of law and implement the provisions of this subsection in a manner so as to prevent any subsidies between suppliers and providers and to promote competition in the electricity supply industry." [N.J.S.A. 48:3-87(d)(3)(c), emphasis by RESA omitted]

RESA said in its January 25 response that, "Many third party suppliers provide service under contracts with their New Jersey customers, and many of these contracts include the following language (in substantial form) that specifically permits the pass through of any new or increased state-mandated charges: 'You are responsible for paying any new or increased taxes, fees or other state mandated charges imposed on [TPS] or you during the term of this Agreement.'"

RESA said in its January 25 response that, "The logic of RESA's position here is straightforward and irrefutable:

• N.J.A.C. 14:4-7.6(1) provides that a TPS may pass through a 'State-mandated charge' if the charge is 'required by operation of law;'

• N.J.S.A. 48:3-87(d)(3)(c) directs the Board of Public Utilities to recognize the new solar purchase obligations as a 'change required by operation of law;' and

• RESA member contracts allow them to pass through any 'other state mandated charges.'"

RESA said in its January 25 response that, "The conclusion that third party suppliers must 'cease and desist' from passing through those charges is therefore based on flawed reasoning. The BPU regulation, read in context with the applicable legislation and the contracts in question expressly permit third party suppliers to pass through these state-mandated charges. For that reason, RESA members with the appropriate contract provisions will continue to engage in this lawful behavior. Again, we respectfully request that the Board withdraw the "cease and desist" letter and instead issue a letter advising that third party suppliers may lawfully and appropriately pass through these charges when their contracts so provide."

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