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ESCO Under Marketing Suspension Says Enrollments Cited In New York PSC Show Cause Order Were Permissible Winbacks

Says UBPs Allow Winback Process For Customers Dropping To Default Service, Contrary To Order's Interpretation

Says "Specific" -- Not "Verifiable" -- Authorization Is Required For Winbacks


August 21, 2019

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Copyright 2010-19 EnergyChoiceMatters.com
Reporting by Paul Ring • ring@energychoicematters.com

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Atlantic Power & Gas (APG) has filed a response to a show cause order recently issued by the New York PSC, stating that the enrollments at issue were permissible reinstatements, and were not in violation of a prior marketing suspension

As previously reported by EnergyChoiceMatters.com, the show cause order had alleged that, after a prior marketing suspension had been placed on APG, APG's total number of customers appeared to have increased during various months in 2017, 2018, and 2019.

"Further, additional information from Con Edison and National Grid showed that [Atlantic Power & Gas, LLC] continued to enroll new customers, contrary to the terms of the Suspension Order," the show cause order had said

In response to a notice of apparent failure prior to the show cause order, APG had said that the enrollments were permissible reinstatements. However, the show cause order noted that various reinstatements related to customers who had requested a return to default service, with the show cause order stating, "an ESCO cannot override such a customer’s request."

For APG reinstatements for customers who had sought to leave for another ESCO, the show cause alleged that APG had not produced "verifiable" customer authorizations, which the show cause order said is required under UBP §§5.D.6 and 5.K.3

In its response, APG alleged there has been "significant confusion and errors regarding implementation of the suspension order and reinstatement procedures."

In its response, APG alleged, "Importantly, since the issuance of the Suspension Order, there has been considerable confusion and conflicting interpretations among the utilities regarding the prohibition required by the order, its applicability to reinstatements/winbacks, as well as the proper procedure for such reinstatements /winbacks. For example, on or about February 27, 2019, representative Eric Heaton, a Senior Specialist at Con Ed, confirmed to APG’s Michael Xirinachs in a telephone conversation that Con Ed did not place restrictions on APG’s enrollment of customers as required by the Suspension Order, and that Con Ed’s system was known to incorrectly display 'reinstatements' as 'enrollments.' Further, upon information and belief, certain of the above-referenced reinstatements for which Mr. Xirinachs obtained specific authorization were incorrectly coded in the Electronic Data Interchange ('EDI') system as new 'enrollments' when in fact they were reinstatements. In the midst of this confusion, Con Ed unilaterally dropped certain APG accounts as a result of the utility’s misunderstanding and misapplication of the Suspension Order. (Affidavit of Michael Xirinachs, sworn to August 19, 2019 ('Xirinachs Aff.'), at ¶¶ 10-11)."

In its response, APG alleged, "This was an unfortunate data entry error but does not reflect marketing to or enrollment of new or additional customers. To the extent that Con Ed failed to comply with the terms of the Suspension Order -- as it was supposed to be enforced by the Secretary -- these reinstatements of existing customers were processed without APG knowing that: (1) they may have been coded incorrectly; and (2) without knowledge that Con Ed could not be relied on to block any improperly processed 'enrollments.' (Id. at ¶ 13)."

In its response, APG alleged, "Similarly, there was confusion on the part of National Grid as well. Initially, National Grid refused to process APG’s requests for reinstatements. As a result, APG’s legal counsel sent a letter to National Grid’s counsel explaining that the Suspension Order did not prohibit reinstatements/winbacks of existing customers. (Id. at ¶ 14 & Exh. C thereto (Legal letter from APG to National Grid, dated Oct. 17, 2017))."

In its response, APG alleged, "Subsequently, APG received correspondence from National Grid noting that: (1) it was waiting for a response from Department Staff regarding the issue of reinstatements; and (2) confirming reinstatement of two accounts. (Id. & Exh. D thereto (E-mail correspondence, dated Oct. 20, 2017, in which National Grid responds to a reinstatement status inquiry, stating that '[w]e are waiting for a response from the PSC in regards to this issue.'; and E-mail correspondence, dated Oct. 31, 2017, in which National Grid confirms status of two reinstated accounts as 'in your pool'))."

APG said that it did not violate the suspension order, nor the UBP by reinstating customers that were properly enrolled prior to the suspension order

APG said, "The Suspension Order prohibits APG from 'marketing to and enrolling new or additional residential and non-residential customers until the Commission orders otherwise.' Suspension Order, Ordering Clause 1. It also directed the Secretary 'to provide notification' to each gas and electric utility in whose service territory APG operates, 'so that each such company does not enroll any customers' with APG. Id. at Ordering Clause 2. The Suspension Order does not prohibit APG from continuing to serve its existing customers, nor does it prohibit APG from reinstating existing, duly enrolled customer accounts."

APG said that it obtained "specific authorization" from each customer prior to reinstating each customer with APG

"While the Suspension Order prohibited APG from enrolling customers, it did not prohibit APG from reinstating existing customers pursuant to UBP Section 5.D.6, which allows an ESCO, upon notification from a utility that the ESCO’s customer has decided to switch providers, to obtain 'specific customer authorization' to cancel that pending switch and reinstate that customer with the incumbent ESCO. This is informally known as a 'winback' and is a commonly recognized and permitted action in the retail market," APG said

Citing the UBPs, APG said, "The type of customer authorization required to effectuate a winback is 'specific authorization.' The term 'specific authorization' is in contrast to numerous other types of authorization referenced in the UBP, such as 'verifiable authorization' -- which is required for original enrollments and sales agreements, or 'Third Party Verification' -- which an ESCO must obtain for certain types of customer enrollments. In the case of a winback, only 'specific authorization' is required because at that point in time, such customer has already completed the full, verifiable enrollment authorization at the time of initial enrollment, well prior to the winback procedure. The UBP does not require a customer to reengage in the original enrollment process to merely continue the pre-existing relationship with the incumbent ESCO. This practice is standard and typical across many industries, not just the retail energy market, where terms and conditions and pre-existing agreements are routinely extended or modified without starting over from scratch."

"DPS Staff has not provided any evidence suggesting that APG reinstated a customer against his or her will, nor has DPS Staff provided any evidence suggesting that a reinstated customer filed a complaint to any regulatory authority whatsoever about APG’s reinstatement conduct.6 APG obtained specific authorization, provided ample confirmatory documentation of that specific authorization, and no customers complained or were harmed. The evidence does not suggest a violation of the Suspension Order, nor UBP Section 5.D.6, nor of any bad intent," APG said

APG said that, "The Show Cause Order states that, with respect to customers who sought to enroll with another ESCO but were reinstated by APG prior to the new enrollment being processed, APG 'failed to provide the verifiable customer authorizations'. Show Cause Order, at 5. As described above, this is not the standard of authorization required by the UBP for reinstatements."

The show cause order specifically raised the issue of reinstatements of customers who had requested to return to "full distribution utility service" (default service), with the show cause stating that reinstatements are not permitted in such cases (with reinstatements limited to switches to another ESCO)

APG said that it did not violate the UBP by requesting reinstatement of customers that requested to drop to the utility

APG said, "The Show Cause Order notes that four APG customers requested a return to full distribution utility service (the 'Utility Customers'). Show Cause Order, at 4. It also states that, '[w]hile the UBPs allow an ESCO to attempt to reinstate a customer who enrolls with another ESCO while that enrollment is pending, reinstatement is not allowed if the customer requests to return to full distribution utility service.' Id. at 6."

APG said, "Section 5.D.6 is not a model of clarity. There are at least two ways to interpret the provision in a manner that does not render APG non-complaint with regard to alleged utility reinstatements. First, while the language of Section 5.D.6 specifically discusses 'winback' of a customer during a switch to a pending ESCO, it does not address utility winback procedures. Importantly, it does not expressly prohibit utility winbacks either. The Department’s interpretation that utility winbacks are prohibited is not the only interpretive conclusion that can be drawn from the omission of specific language. Instead, it could be interpreted to allow utility winbacks using roughly the same procedure, with the Commission simply intending such winbacks to be permissible on the same terms. Importantly, since the UBP seeks to restrict free-market ESCOs ability to contract with their customers in derogation of the common law, the provision should be strictly construed. Artibee v. Home Place Corporation, 28 N.Y.3d 739, 748 (2017) (holding that 'a statute in derogation of the common law . . . must be strictly construed')."

APG said, "Alternatively, Section 5.D.6 could be interpreted to mean that the utilities involved in the four utility winbacks violated the UBP, rather than APG."

UBP Section 5.D.6 states, in full: "Upon acceptance of an enrollment request, the distribution utility shall contemporaneously send a notice to the incumbent ESCO that the customer's service with that ESCO will be terminated on the effective date of the new enrollment. In the event that the distribution utility receives notice from the pending ESCO, the incumbent ESCO (with specific customer authorization for each cancellation), or the customer, prior to the effective date that a pending enrollment is cancelled, the distribution utility shall transmit a request to reinstate service to the incumbent ESCO, unless the incumbent ESCO previously terminated service to the customer or the customer requests a return to full utility service"

APG said that, "Broken into its individual steps, the process essentially works as follows: (1) the utility is notified that a customer seeks to switch providers; (2) the utility sends notice to that customer’s incumbent ESCO that their customer’s ESCO service is going to terminate on an effective date; (3) either the pending ESCO, incumbent ESCO, or the customer themselves, can send a notice to the utility prior to that effective date notifying the utility that the pending enrollment should be canceled; and (4) if the utility receives such cancelation notice, then the utility must reinstate the customer to the incumbent ESCO. The final clause of UBP Section 5.D.6 prohibits the distribution utility from canceling a pending enrollment if, in step one above, the customer’s initial request was to switch to full utility service."

APG said that, "The onus is on the distribution utility to accept or cancel an enrollment request. If a customer were to request to return to full utility service, and then changed her mind and, of her own will, provided notice to the utility that she has decided to return to her incumbent ESCO, she would be prohibited from doing so -- as a reinstatement -- but, of course, she could always re-enroll with that incumbent ESCO. That nuance would likely go unnoticed, unless that incumbent ESCO, like APG, was suspended from enrolling customers. In that scenario, once the customer requests to return to full utility service, she is locked into her decision. There is no mechanism of returning that customer to her incumbent ESCO, even if the customer were to so choose. The customer can call or notify the utility and make such a request―no one would argue that such conduct violates any law, rule or regulation―but such request would be denied, as the onus is on the distribution utility to accept or cancel an enrollment request in accordance with the UBP. In the same vein, APG received specific authorization to reinstate certain customers and subsequently made a request to the distribution utility that certain customers be 'reinstated' with APG. Some of those customers had requested to switch to another ESCO, and were thus properly reinstated. Other customers had requested to switch to utility service, and were thus locked into their decision and could not be reinstated to APG. The mere act of obtaining specific authorization and requesting reinstatement of a customer that, due to a nuanced reading of the UBP, cannot be 'reinstated' per se, is not a violation of the UBP. No such violation on APG’s part could occur, as the distribution utility serves as the decision-making gatekeeper. Further, to the extent that a 'reinstatement' was processed as a 'reenrollment,' such action appears be a result of the utility’s violation of the Suspension Order, as a result of not being properly notified, or failing to implement that notice, or simply an innocent clerical error."

Nevertheless, APG said that, consistent with Department Staff’s request, "APG promptly returned the relevant customers to their respective incumbent utility companies," and thus any violation was cured

Moreover, APG said no customers were harmed. APG credited those customers for the difference between the cost of utility supply versus APG supply during the relevant time period. No customer was harmed, and no customer has complained to any regulatory agency or to APG in regards to this situation, APG said

In its response, APG stated that, "there is no rational basis or need for the Commission to revoke APG’s eligibility to operate as an ESCO or impose other consequences under these circumstances. If permitted to continue operating in New York, APG is committed to furthering the Commission’s goal of enhancing the retail energy marketplace by using its unique business model that provides a value proposition for its customers and community and which is in alignment with the Commission’s goals and policies for the retail energy marketplace."

James Denn, Public Information Officer for the PSC, issued the following statement concerning APG's filing: "New York’s Uniform Business Practices rules for ESCOs were developed to protect New York customers, and the staff of the Department of Public Service seek to ensure energy companies comply with those practices."

In its response, APG also alleged that the Department’s actions have prejudiced APG’s ability to respond to the show cause order

The show cause order identified the nature of the potential violations that the company needed to respond to, and an earlier Notice of Apparent Failure also identified the potential violations. However, APG said that such documents did not contain the studies, reports or analyses, and supporting data on which their conclusions were based.

In its response, APG alleged, "APG has not been provided with the predicate information and evidence upon which the show cause order is based, severely hindering the company’s ability to provide a full and complete response to the commission’s directives."

In its response, APG alleged, "APG has exhausted numerous formal and informal channels for obtaining the 'Department’s evidence' so that it may prepare and provide a response to the specific directive of the Show Cause Order to 'provide specific evidence that . . . the Department’s evidence . . . is incorrect.' The Company’s efforts have been met with clear and sustained refusals to provide that evidence. This peculiar agency action severely limits the Company’s ability to comply with the Commission’s directives, thwarts its due process rights, and is antithetical to the customary notions of fair play and the open government decision-making process that underlies the Commission’s statutory authority."

In its response, APG alleged, "On July 3, 2019, APG requested a thirty (30) day extension3 to provide its initial response to Ordering Clauses One and Two of the Show Cause Order (the 'First Extension Request'), stating that it required additional time to gather data and information referenced in the Show Cause Order that is not in APG’s possession but instead is held by the Department of Public Service Staff and/or certain utilities, and that an extension would aid in the fair and orderly resolution of this matter without any negative customer impact so that APG could fairly prepare and provide a full and complete response to the Commission’s directives. This information appears to include data, reports, analyses, studies, and similar material, including 'migration data' and 'additional information' exchanged between National Grid, Consolidated Edison, and Central Hudson (the 'Utilities') and DPS Staff which is referenced as the 'Department’s evidence' upon which the Show Cause Order was based (collectively, the 'Predicate Information') ... On July 10, 2019, the Secretary granted APG’s First Extension Request until August 13, 2019 for APG to comply with the directives set forth in the Show Cause Order."

In its response, APG alleged, "Having previously informally requested but not received copies of the Predicate Information from the Department, on July 26, 2019, APG sent interrogatories (the 'IRs') to National Grid, Consolidated Edison, and Central Hudson (the 'Utilities') and separately to DPS Staff requesting the Predicate Information and other information. True and accurate copies of the IRs are attached hereto as Attachment 3. In July and August, APG’s counsel further reached out to Department Staff and the Utilities requesting cooperation to obtain copies of the Predicate Information and other information. On August 2, 2019, the Secretary sent APG a letter stating that '[DPS] Staff will not be providing responses to [APG’s] IRs,' such that none of the Predicate Information or other information was provided (the 'Secretary’s IR Denial'). A true and accurate copy of the Secretary’s IR Denial is attached hereto as Attachment 4. On August 7 and 8, 2019 the Utilities similarly refused to respond to the IRs (the 'Utility IR Denials'), and therefore, did not provide the Predicate Information or other information requested. True and accurate copies of the Utility IR Denials are attached as Attachment 5."

In its response, APG alleged, "On August 5, 2018, APG sent a letter to the Secretary pursuant to SAPA Section 104(1) requesting studies, reports, analyses, and supporting data that form the basis for any currently proposed, or to-be proposed rule in this case, including the Predicate Information (the 'SAPA Request'). A true and accurate copy of the SAPA Request is attached hereto as Attachment 6. Importantly, the purpose of SAPA 104(1), as described in the original legislation’s Introducer’s Memorandum, is '[t]o better protect the public’s right to know by clearly providing a mechanism under which citizens may seek access to studies and data, which are relied upon by state agencies in the promulgation, amendment or repeal of rules, regulations, ordinances or guidelines.' See Introducer’s Memorandum in Support, L. 1999, Ch. 647. Somewhat surprisingly, on August 9, 2019, the Secretary issued a letter stating 'there are no documents' responsive to the SAPA Request (the 'SAPA Denial'). A true and accurate copy of the SAPA Denial is attached hereto as Attachment 7."

In its response, APG alleged, "On August 5, 2019, APG also sent a letter to the Department’s Records Access Officer (the 'RAO') requesting copies of the Predicate Information and other information through the Freedom of Information Law (the 'August 5 FOIL Request'). A true and accurate copy of the August 5 FOIL Request is attached hereto as Attachment 8. On August 12, 2019, the RAO responded to the August 5 FOIL Request with an acknowledgement letter stating that a response would be provided on or before September 10, 2019 (the 'Aug. 12 Response'), notwithstanding that the deadline to respond to the Show Cause Order was then August 13, 2019. A true and accurate copy of the August 12 Response is attached hereto as Attachment 9."

In its response, APG alleged, "On August 8, 2019, in the absence of receiving the Predicate Information and other information, APG requested a further thirty (30) day extension (the 'Second Extension Request') to provide its initial responses to Ordering Clauses One and Two of the Show Cause Order, again referencing the importance and necessity of having further time to gather the Predicate Information and other information so that APG has a fair opportunity review and respond to the 'Department’s evidence.' A true and accurate copy of the Second Extension Request is attached hereto as Attachment 10. The Secretary eventually responded, on August 12, 2019 granting a brief extension until August 19, 2019 ('Second Extension Ruling'). A true and accurate copy of the Second Extension Ruling is attached hereto as Attachment 11."

In its response, APG alleged, "Thus, to date APG has not received the Predicate Information and likely will not for several more weeks (at the soonest), and yet is required to respond to the Show Cause Order without the benefit of such information. The Predicate Information is relevant, critical, and necessary for APG to prepare and provide a full and complete response to the directives in the Show Cause Order, particularly in light of the explicit directive in Ordering Clause Two that APG 'provide specific evidence that (a) the Department’s evidence . . . is incorrect.' In the absence of having the opportunity to review and respond to the Predicate Information, APG cannot provide an adequate response to the Show Cause Order. For example, it is possible that the Predicate Information does not say what the Department thinks it stands for, that some other error has occurred, or that it conflicts (as it appears is the case) with information that is in APG’s possession."

In its response, APG alleged, "a decision by the Commission to impose consequences based on the Show Cause Order and the Department’s actions that have prejudiced APG’s ability to respond thereto will be procedurally defective, and in violation of APG’s right to due process, as well as arbitrary and capricious."

In its response, APG alleged, "DPS Staff’s evidence does not exist."

In its response, APG alleged, "On March 13, 2017, the Commission issued the Suspension Order directing APG to cease marketing to and enrolling customers unless the Commission authorized the resumption of those activities.4 Since the date of the Suspension Order, APG has not marketed to nor enrolled additional customers. (Orofino Aff. at ¶¶ 27-28). The Show Cause Order alleges—based on undisclosed 'data' and 'additional information'—that APGs 'total number of customers appears to have increased during various months in 2017, 2018, and 2019.' Show Cause Order, at 4. The Show Cause Order thus directs APG to provide 'specific evidence that . . . the Department’s evidence . . . is incorrect.' Show Cause Order, Ordering Clause 2. As outlined above, APG has attempted to obtain the Department’s evidence, through various formal and informal channels. One such channel was the SAPA Request submitted on August 9, 2019 for any 'studies reports, analyses, and supporting data,' pursuant to a statutory authority within the State Administrative Procedure Act specifically for the purpose of providing sunshine on the studies, reports and data on which agency rulemakings are made. On August 9, 2019, the Secretary issued the SAPA Denial stating that 'there are no documents responsive to your request.' This is a legal admission that there is no substantial evidence, in the form of data, studies, or reports, to support the Show Cause Order -- and by extension -- any rulemaking that is based on it will lack substantial evidence as well. To the extent that the 'Department’s evidence' does not exist, APG respectfully requests that this matter be closed immediately."

In its response, APG alleged, "To the extent that the Department’s evidence does exist, APG is unable to comment on its substance without having the opportunity to review it. But nevertheless, the conclusion drawn from the Department’s evidence -- namely, that APG’s 'total number of customers appears to have increased during various months in 2017, 2018, and 2019,' -- is incorrect. Contrary to the Show Cause Order’s unsupported allegations, the Company’s Electronic Data Interchange ('EDI') records indicate that no new customers were enrolled after the Suspension Order." (as more further discussed above)

Case 16-M-0618

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