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New York PSC Issues Show Cause Order To ESCO Concerning Use Of Change-in-Law Clause To Adjust Fixed Rate Contracts Due To Utility Tariff Change Resulting From Annual Capacity Process

March 20, 2020

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Copyright 2010-20
Reporting by Paul Ring •

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The New York PSC issued a show cause order to Marathon Power LLC d/b/a Marathon Energy directing the ESCO to show cause why Marathon's alleged modification to fixed price contracts, in response to a utility tariff change concerning the peak hours used to calculate a customer's ICAP tag, did not violate the Uniform Business Practices and why Marathon's ESCO eligibility should not be revoked

The PSC in its order said that, "On May 29, 2019, Department of Public Service Staff (Staff or the Department) sent a Notice of Apparent Failure (NOAF) to Marathon identifying apparent violations of the Contingency Order’s conditions for continued eligibility and the Commission’s UBP, including slamming, failure to honor fixed rate contacts, and to adhere to the policies and procedures described in its sales agreement."

"In this Order, the Commission finds that Staff has identified sufficiently credible evidence to support the issuance of an Order to Show Cause concerning Marathon’s failure to comply with the Contingency Order and the UBP, and directs Marathon to show cause, within 30 days, why Staff’s identification of apparent violations are incorrect and Marathon’s eligibility to provide retail energy services as an Energy Service Company (ESCO) in New York State should not be revoked, or why other consequences as set forth in §2.D.6. of the UBP should not be imposed," the PSC said

Marathon Energy issued the following statement concerning the matter:

"Marathon Energy has operated in New York since 2011, and proudly serves over 30,000 customers in the State. Marathon has a long-standing, demonstrated commitment to complying with Public Service Law and the Public Service Commission’s rules and regulations. Marathon Energy vigorously disputes the allegations in the Commission’s order, and looks forward to the opportunity to formally respond to the Commission in the near future."

--- Marathon Energy statement

In its order the PSC said, "Between April 1, 2019 and May 2, 2019, the Department received 11 complaints against Marathon through the Department’s customer complaint procedures. Most of these complaints allege that the customer was slammed and/or was subject to misleading and/or deceptive marketing practices (breach of fixed rate contracts). In its response to the complaints alleging slamming, Marathon responded that it enrolled all customers in accordance with the UBP. In its response to complaints alleging misleading and/or deceptive marketing - in this case, breach of fixed rate contracts - Marathon represented that it had charged its customers consistent with the terms and conditions of the sales agreements."

In its order the PSC said, "In the Company’s response dated June 10, 2019 regarding complaints alleging slamming, Marathon stated, as it had in its initial responses to Quick Resolution System (QRS) cases, that it enrolled all customers in question in accordance with the UBP. Marathon provided sales agreements, Third Party Verifications, and detailed responses that, from Staff’s perspective, sufficiently addressed the slamming allegations and showed the enrollments were valid and UBP compliant."

In its order the PSC alleged, "In response to the complaints alleging breach of fixed rate contracts, Marathon asserted that the Company had the right to modify such fixed rate agreements pursuant to the language within the contract that states “if there is a change in law, rule, regulation, tariff, or regulatory structure that impacts any term, condition, or provision of the Agreement, including, but not limited to price, Marathon shall have the right to modify the Agreement.” The Company went on to allege that Con Edison recently modified, from 6 p.m. to 5 p.m., the peak hours it uses to calculate a customer’s installed capacity (ICAP) tag and this change significantly impacted customer usage costs. Marathon asserted that in reflecting this change in customer ICAP tags, Con Edison modified its tariff."

In its order the PSC alleged, "On June 26, 2019, Staff requested additional information regarding Marathon’s claim that Con Edison modified its tariff, as well as verification that every customer who experienced a change to their fixed rate contract was notified a full 30 days before the change took place. Marathon provided additional information on July 9, 2019. In this response, Marathon provided a copy of the notice that was sent to its customers regarding the change in the fixed rate contract due to the change in ICAP tags and Con Edison’s revised Capacity and Energy Reconciliation Guidelines (Guidelines), an informational document which explains how Con Edison calculates the ICAP tags. The revised Guidelines, located on Con Edison’s Retail Access Information System (RAIS) website, was available to all the ESCOs for review on April 12, 2019. Marathon used Con Edison’s revised Guidelines as the basis for Marathon’s interpretation of a change in Con Edison’s rules, thereby justifying, in Marathon’s view, modification to the price of Marathon’s customers’ fixed rate contracts. Marathon also provided a list of customers who experienced a change in price because of this modification, as well as the dates the pricing change would go into effect."

In its order the PSC alleged, "In addition, Marathon states that it modified approximately 2,800 customers’ fixed rate contracts, whether the customers’ price increased or decreased, and that some customers’ rates decreased as a result. Staff’s analysis showed that, even though some customers collectively did benefit by the decrease in price by nearly a half million dollars through the full term of their contracts, Marathon’s increase in revenue, due to an increase in the fixed rate, amounts to one and a half million dollars. In total, Staff has determined that Marathon’s actions to impose this change on its customers with fixed rate contracts resulted in an overall net revenue increase in excess of one million dollars."

In its order the PSC said, "The annual review of, and potential adjustment to, the peak hour is a necessary first step in the determination of the ICAP tag rate. Each April the NYISO poses its Load and Capacity Data “Gold Book” indicating the regular changes in peak hours for the period 1997 through 2018. A copy of Gold Book page 39 is attached as Appendix A. The peak hour, or more specifically, the New York Control Area Adjusted Actual Peak Hour (NYCA Peak Hour), is determined by the peak measured or estimated electric usage from all retail electric meters during any one-hour period. This information is used by the New York Independent System Operator, Inc. (NYISO) to establish the ICAP tag rate to ensure the NYISO can meet its market capacity obligation during peak demand for all customers. Further, the potential yearly fluctuation in NYCA peak hour is specifically provided for as an input to the determination of the ICAP tag rate following the methodology described in Con Edison’s and the NYISO’s current tariffs."

In its order the PSC said, "In Staff’s view, the change of the peak hour resulting from a well-known and predictable annual review process, as codified in the relevant tariffs and which was used to calculate a customer’s ICAP tag, should not be considered a modification to a rule, regulation, or tariff. Since Marathon unilaterally modified the terms of its fixed rate contracts absent a change to a rule, regulation, or tariff, Staff concluded that Marathon’s change to its customers’ fixed rate contracts is a breach of contract and is a violation of the UBP §§2.D.5.b, 2.D.5.c, 2.D.5.m, 2.D.5.n, 10.C.4.b and 10.C.4.d."

In its order the PSC said, "Further, Staff contends that a fixed rate contract is, by definition, specifically designed to protect the customer from commodity price fluctuations described above and the ESCO should consider the risk factors of known potential and periodic ICAP tag rate adjustments when determining a fixed rate. According to Staff, the fact that Marathon did not properly anticipate the volatility in the energy markets and their impacts on the price of commodity is a burden Marathon must carry, and which should not be passed onto its fixed rate product customers, who were promised, by the plain language of their contracts, protection against such volatility. Staff asserts that the change in the NYCA Peak Hour is the type of anticipated market fluctuation that the fixed rate contracts at issue promised protection against."

In its order the PSC said, "The Department’s investigation, which included review of the documents Marathon provided, identified sufficient credible information concerning potential non-compliance with UBP §§2.D.5.b, 2.D.5.c, 2.D.5.m, 2.D.5.n, 10.C.4.b and 10.C.4.d. Marathon asserts that Con Edison’s modification of its Guidelines by changing the peak hour used to calculate a customer’s ICAP tag and because language in Marathon’s customer agreements allows for a change in price if there is a modification to a rule, regulation, or tariff, allows the price changes to customer fixed rate contracts. Based upon Staff’s concerns, more information from Marathon is needed. On its face, the only change that occurred was the shift in customers’ actual peak use hours during the previous years, from 6:00 p.m. to 5:00 p.m., which was then used to calculate customer ICAP tags. Variations in actual energy consumption patterns in relation to the peak hour occur from year to year. Staff asserts that this change is a market fluctuation that is already accounted for by already-existing regulations, rules, and tariffs; it is not a regulatory change that would allow Marathon to alter the fixed rate for which the customer contracted. According to Staff, fixed rate contracts are intended to insulate the customer from just these types of market changes."

"In light of Marathon’s conduct described in this Order, Marathon is directed to show cause, within 30 days of this Order, why its conduct did not violate its fixed rate contracts. Marathon shall explain why, based upon Staff’s concerns and allegations described herein, the Commission should not find that Marathon has failed to support its position that variability in the New York Control Area’s peak demand hour constitutes a change in rule, regulation, or tariff, and further why the Commission should not revoke Marathon’s eligibility to operate as an ESCO in New York, or impose other consequences as described UBP §2.D.6," the PSC said

"In regard to Staff’s allegations of violations of UBP §§2.D.5.b, 2.D.5.c, 2.D.5.m, 2.D.5.n, 10.C.4.b, 10.C.4.d Marathon should specifically explain why it did not violate New York contract law and the Company’s agreements. Marathon should also address whether any contract read in a manner consistent with Marathon’s interpretation would violate the requirement that ESCO service offerings contain information written in plain language that is designed to be understood by the customer," the PSC said

Case 16-M-0434

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