New York ESCO Says Pass-Through Of ICAP Charges, Credits Under Change-in-Law Clause Complied With Terms Of Service, UBPs
ESCO Reveals Customer Complaints Were Prompted By A Single Broker, With Whom ESCO Was In Discussions To Purchase Broker's Gas Business
DPS Staff Have Alleged Underlying Issue Represents An "Anticipated Market Fluctuation" Not Eligible As Change-in-Law
April 23, 2020 Email This Story Copyright 2010-20 EnergyChoiceMatters.com
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In response to a show cause order from the New York PSC, which had cited an 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, Marathon Power LLC d/b/a Marathon Energy said that, "at all times Marathon fully complied with the UBP and the terms and conditions of its customer agreements," and that Marathon, "fully complied with the UBP and the terms of its agreements with customers in passing through ICAP charges and credits to customers."
As further discussed below, Marathon said that Con Edison’s modification of the peak hours ConEd uses to calculate a customer’s installed capacity (ICAP) tag, "was a change in a rule that impacted a term, condition, or provision in Marathon’s customer agreements, specifically as to price." Therefore, pursuant to the language of Marathon’s customer agreements, the customer price could be changed, with Marathon noting that Marathon’s agreement expressly informs customers that their agreements are subject to modification, including price, if there are any changes "in law, rule, regulation, tariff, or regulatory structure that impacts any term, condition, or provision of the Agreement, including, but not limited to price."
As previously reported, the PSC, in describing the matter at issue, said in the show cause order that, "The Company [Marathon] 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."
As a result of this ConEd change, in its show cause order the PSC had alleged, "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."
In its show cause order the PSC had 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 show cause order the PSC had 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 response, Marathon said, "Staff’s assertion that because the change in peak hours is the result of 'a well-known and predictable annual review process,' the change 'should not be considered a modification to a rule, regulation, or tariff,' is, respectfully, erroneous."
Providing more background on the issue, Marathon said, "As explained in more detail below, after Consolidated Edison Company of New York, Inc. ('Con Edison') issued revised guidelines impacting customers’ installed capacity ('ICAP') tags in April 2019, Marathon sent notices to a number of customers that it would be modifying their rates consistent with the terms of their agreements with Marathon. Thereafter, one broker, on behalf of several of his commercial clients, complained to Marathon about the rate changes and threatened to file customer complaints with the Commission. In response, Marathon explained that it was acting in accordance with the customers’ terms and conditions and well within its rights to pass through the impacts of the ICAP costs. The broker ultimately advised his clients to file customer complaints with the Commission."
Marathon further alleged that, "It is worth noting that the broker was actively negotiating with Marathon to sell its natural gas business."
"Just prior to filing the complaints, however, negotiations were breaking down and Marathon was preparing not to proceed with the purchase. Marathon asserts that the timing and nature of the complaints demonstrate that the broker was attempting to use the customer complaints as a means of leverage against Marathon in the ongoing negotiations. Marathon ultimately did not purchase the broker’s natural gas business," Marathon said
Marathon said, "Notably, of the more than 2,800 Marathon customers who received notice that their fixed rates would be modified as a result of the rule change, only these 5 customers expressed any concern."
Marathon said, "Marathon’s fixed-rate customer agreements at issue in the Order include a provision for 'Regulatory Changes.' This section states that '[i]f at some future date there is a change in any law, rule, regulation, tariff, or regulatory structure (‘Regulatory Change’) that impacts any term, condition or provision of this Agreement including but not limited to price, Marathon shall have the right to modify this Agreement to reflect such Regulatory Change by providing 30 days’ written notice of such modification to Customer.' In addition, on the first page of Marathon’s
agreement, the 'Customer Disclosure Statement' includes a standalone box titled 'Regulatory Changes' setting forth this same language. These provisions clearly indicated to customers that their fixed-rate was not absolute and could be modified at a later date due to a Regulatory Change that impacted Marathon’s costs to continue serving the customer."
Marathon said, "As relevant here, in March 2019, Con Edison modified its 'Capacity and Energy Reconciliation Guidelines' to change the peak hours utilized in calculating customer’s ICAP tags from 6 p.m. to 5 p.m. Con Edison memorialized this rule change by issuing revised 'Capacity and Energy Reconciliation Guidelines' to all retail suppliers on April 12, 2019. These changes significantly impacted customer usage costs within Zone J of Con Edison’s service territory. As a result, shortly thereafter, Marathon notified customers that their rates would be modified consistent with the Regulatory Change section in their agreements to reflect Con Edison’s rule change and the resulting changed ICAP charges and benefits."
"Staff’s assertion that because the change in peak hours is the result of 'a well-known and predictable annual review process,' the change 'should not be considered a modification to a rule, regulation, or tariff,' is, respectfully, erroneous," Marathon said
"As an initial matter, the purported frequency or known potential for rule changes is irrelevant to the Regulatory Change provision in Marathon’s customer agreements as these qualifiers are simply not included anywhere in the contractual language. Further, it is uncontroverted that Con Edison modified the peak hours utilized to calculate ICAP tags, which rule change was memorialized in revised guidelines issued to all ESCOs. A 'guideline' is commonly defined as 'a rule or instruction that shows or tells how something should be done.' As such, Con Edison’s modification was a change in a rule that impacted a term, condition, or provision in Marathon’s customer agreements, specifically as to price. If in fact no rule change had occurred, Con Edison would not have had to modify its guidelines. Therefore, Marathon was justified in applying its Regulatory Change provision to modify customers’ rates to reflect the additional or reduced costs incurred as a result of the rule change," Marathon said
"Staff’s assertion that Marathon’s actions were not warranted here because customers 'were promised, by the plain language of their contracts, protection against such volatility,' is belied by the relevant agreement’s clear and conspicuous language. Specifically, that the plain language in Marathon’s agreement expressly informs customers that their agreements are subject to modification, including price, if there are any changes 'in law, rule, regulation, tariff, or regulatory structure that impacts any term, condition, or provision of the Agreement, including, but not limited to price.' Indeed, the very first page of Marathon’s customer agreements, in the Customer Disclosure Statement, which is set off from the rest of the terms and conditions, includes a box specifically advising customers that their agreements may be subject to future price changes in circumstances such as those at issue here. Further, inclusion of this provision in customer contracts has been a point of negotiation between Marathon and some of its customers in the past, evidencing that customers understand the impacts of the language and are capable of making informed choices about whether to execute the agreement," Marathon said
Marathon said, "Most importantly, it is telling that out of the roughly 2800 or so customers that were provided notice of the rate changes, only 5 customers argued that Marathon was violating the terms of their customer agreements. If, as Staff argues, customers were unaware of or disagreed with the potential rate changes, Staff and the Commission would have received many more customer complaints that Marathon was acting inappropriately. In fact, since the NOAF (Notice of Apparent Failure) was issued, Marathon has only received four complaints, none dealing with this issue, and all resolved satisfactorily. Further, as evidenced in the customer spreadsheet provided as part of the NOAF, the vast majority of commercial customers continued to receive service from Marathon after imposition of the Regulatory Change provision."
Marathon said, "Marathon has a lower customer turnover ratio compared to its competitors in the marketplace. Indeed, aside from the five complaints at issue in the Order with respect to alleged violations of the terms of its contractual agreements, Marathon has averaged less than one customer complaint a month over the course of the last year."
Marathon noted that Staff's position is that,'a fixed rate contract is, by definition, specifically designed to protect the customer from commodity price fluctuations,' and therefore changes in, as relevant here, ICAP costs should not trigger regulatory change or change in law provisions.
Marathon said, "Staff’s position, however, is wholly inconsistent with its history of approving this very type of contract language for other ESCOs. For example, as recently as this month, Staff approved an agreement allowing an ESCO to modify customers’ fixed rates due to changes in capacity costs."
Citing a contract "approved" by Staff filed by another ESCO, Marathon quoted language from such approved contract as stating, "[t]his Agreement is subject to any federal, state, local, or utility changes in law, which includes changes in legislation, regulatory actions, orders, rules, tariffs, regulations, policies, riders, fees, pricing structures, market structures, capacity charges, and changes in customer load profiles (each, a ‘Change in Law’). If there is a Change in Law which results in an increased cost to the Company or the Company is prevented, prohibited or frustrated from carrying out its intent under this Agreement, Company may terminate this Agreement with notice to you, or adjust your rate based upon such Change in Law. This provision applies to all rate plans, whether fixed, index or variable. Company will provide you with 30 days written notice prior to modifying your Agreement as outlined in this section, except as otherwise permissible by law."
"Indeed, Staff has routinely approved language allowing for rate changes due to changes in ICAP tags and capacity costs," Marathon said
Marathon further noted that, while some customers were charged more as a result of the change in the hours used for the ICAP tag, other customers were charged less due to the change -- "many customers benefited from the rate change," Marathon said
Therefore, Marathon noted that, "Should the Commission impose penalties against Marathon that required customers to be re-rated, Marathon would need to clawback those benefits. Not only would such a result be difficult, if not impossible, but Marathon could be exposed to additional customer complaints from those customers who expected and did in fact receive benefits from the rule change."