Updated: New York Court Of Appeals Affirms PSC Authority To Cap ESCO Rates

May 9, 2019

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Reporting by Paul Ring • ring@energychoicematters.com

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This story was first published at 10:30 a.m. on May 9, with an alert to subscribers of our free email news alerts. The story has been updated throughout

The State of New York Court of Appeals has affirmed the New York PSC's authority to place a cap on ESCO pricing

"On this appeal, we are asked to determine whether the Public Service Law authorizes the Public Service Commission (PSC) to issue an order that conditions access to public utility infrastructure by energy service companies (ESCOs) upon ESCOs capping their prices such that, on an annual basis, they charge no more for electricity than is charged by public utilities unless 30% of the energy is derived from renewable sources. We conclude that the Public Service Law, in authorizing the PSC to set the conditions under which public utilities will transport consumer-owned electricity and gas, has such authority," the court said

While the Court rejected the PSC’s argument that ESCOs fall within the definitions of 'gas corporations' and 'electric corporations' set forth in Public Service Law § 2 such that they are subject to the PSC’s direct rate-making authority under Public Service Law article 4, the Court nevertheless said that the PSC, pursuant to its authority to regulate the energy market, has authority to impose a price cap on ESCOs as a condition of "eligibility."

The State of New York Court of Appeals is the highest court in the state

"While ESCOs do not fall within the definition of 'gas corporation' and 'electric corporation' – and, therefore, are not subject to the PSC’s direct rate-making authority under Public Service Law article 4 – we nevertheless conclude that, under its authority to regulate utilities’ transportation of ESCOs’ gas and electricity, the PSC may condition access to utility infrastructure upon ESCOs’ compliance with a price cap on gas or electricity," the Court said

"Article 4 provides direct support for the PSC’s authority to regulate utilities’ infrastructure and thus condition ESCO’s access to that infrastructure on compliance with a price cap. Section 65 (1) requires that all utilities provide 'service, instrumentalities and facilities' that are 'in all respects just and reasonable.' Nothing in the language of the relevant statutory provisions limits the PSC’s consideration of what is 'just and reasonable' to ensuring only that utilities receive a fair price for transporting ESCOs’ energy; in fact, section 65 (1) provides that utility service must be just and reasonable 'in all respects' (see also Public Service Law § 66 [5] [directing the PSC to '[e]xamine all . . . corporations . . . under its supervision' to determine whether, among other things, 'the rates, charges or classifications or the acts or regulations of any such . . . corporation . . . are unjust [or] unreasonable']). In authorizing the PSC to ensure that the terms by which utilities provide ESCOs access to public infrastructure remain 'just and reasonable,' sections 65 (1) and 66-d (2) support the PSC’s long-held position that it has the authority to regulate ESCOs’ eligibility to transport energy over public utilities’ infrastructure," the Court said

"Put differently, a necessary corollary of the PSC’s authority to regulate utilities’ delivery of ESCOs’ energy is that the PSC has the authority to determine the terms and conditions under which ESCOs are eligible to purchase delivery services – for both gas and electricity – from utilities. Indeed, petitioners do not dispute that the PSC has properly regulated ESCOs pursuant to the UBP’s eligibility requirements – i.e., the terms by which utilities are required to permit ESCOs access to their infrastructure – since 1999. Petitioners fail to adequately explain why the PSC may set conditions for eligibility to access public utility lines but may not, as one of those conditions, cap the prices charged by ESCOs, viewed cumulatively on an annual basis, to the same amount as those charged by public utilities. It is not enough to simply point to the fact that the PSC has no ratemaking authority over ESCOs under Public Service Law article 4, without distinguishing between setting the rate that must be charged for energy and determining eligibility for access as set forth in the UBP, incorporated into utility tariffs. While 'no utility may charge more or less than the rates established by the PSC' (Cahill, 69 NY2d at 272), ESCOs may charge less," the Court said

"Finally, we observe that the legislature expressly recognized the PSC’s authority to regulate ESCOs’ eligibility to access public utilities’ infrastructure in General Business Law § 349-d (11), which preserves the PSC’s preexisting 'authority . . . to limit, suspend or revoke the eligibility of an energy services company to sell or offer for sale any energy services for violation of any provision of law, rule, regulation or policy enforceable by [the PSC].' The language in section 349-d reserving the PSC’s authority to suspend ESCOs’ eligibility would be meaningless if such authority did not already exist; thus, section 349- d further supports the PSC’s contention that it has authority to condition ESCOs’ eligibility to access utility systems," the Court said

"Because the PSC is empowered to regulate utilities’ transportation of gas and electricity and created the ESCO markets for the benefit of consumers, and because the legislature has delegated to the PSC the authority to condition ESCOs’ eligibility to access utility lines on such terms and conditions that the PSC determines to be just and reasonable, it follows that the PSC has authority to prohibit utilities from distributing overpriced products by conditioning ESCOs’ access on a price cap. That is, the statutory framework permits the PSC, pursuant to its authority to regulate the energy market, to impose a price cap on ESCOs as a condition of eligibility. Therefore, although the PSC has no direct ratemaking authority over ESCOs, it did not exceed its statutory authority in determining that public utility transportation of energy sold by ESCOs is not 'just and reasonable' if ESCOs are charging consumers more than that charged by public utilities. Thus, the courts below should have issued a declaration to the effect that the PSC did not exceed its authority under the Public Service Law or violate petitioners’ constitutional rights in issuing the Reset Order," the Court said today

Addressing other arguments raised by ESCOs on appeal, the Court found that ESCOs' procedural due process argument is moot and their remaining arguments lack merit.

The Court of Appeals directed that the Appellate Division's opinions should be modified consistent with the Court of Appeals's findings discussed above

The Court directed that the ESCO appellants shall pay the PSC's administrative costs related to the appeal.

As noted above, the issue on appeal before the Court of Appeals was the narrow issue of PSC authority over ESCO rates. The substance of the original "reset" order itself, and its policy of prohibiting ESCO mass market service except for rates that do not exceed the default service rate, or for 30% renewable products, was not before the court. As previously reported, after a lower court vacated certain ordering clauses of such "reset" order on procedural (notice) grounds (while finding the PSC did have authority over ESCO rates), the PSC instituted the still-pending mass market review and evidentiary hearing process (see details here)

A spokesperson for the New York Public Service Commission stated concerning the court's decision: "We have known that the PSC has the authority to ensure that ESCOs benefit customers, not hurt them; and the court’s decision reaffirms that authority. Moving forward, the PSC will continue developing policies to ensure ESCOs provide benefits to New York customers."

See the court's order here

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