RESA Seeks Rehearing Of PUC Order That Prohibits Retail Suppliers From Discontinuing Service To Non-Paying Customers (Transferring To Default Service) During COVID-19 State Of Emergency

RESA Warns Of "Dire Financial Consequences" To Retail Suppliers From Order

April 29, 2020

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The Retail Energy Supply Association sought rehearing of a New Hampshire PUC order that applied, to competitive electric and natural gas suppliers, an earlier order which prohibits providers of electric and gas service from disconnecting or, as relevant here, discontinuing service for non-payment for the duration of the Governor's state of emergency declared based on the novel coronavirus.

RESA noted that, "On March 13, 2020, the Governor issued Executive Order 2020-04 declaring a state of emergency ('State of Emergency') due to the novel coronavirus known as COVID-19 ('COVID-19'). On March 17, pursuant to Executive Order 2020-04, the Governor issued Emergency Order #3. Emergency Order #3 prohibits all providers of electric, gas, water, telephone, cable, VOIP, internet, and deliverable fuels service in the State of New Hampshire from disconnecting or discontinuing service for non-payment for the duration of the State of Emergency. Emergency Order #3 also directed the Commission to 'provide assistance and guidance to the public utilities in implementing the provisions of this order.'"

RESA further noted that, "On March 31, the Commission issued Order No. 26,343 prohibiting public utilities, including the electric and natural gas utilities, from disconnecting or discontinuing service for non-payment for the duration of the State of Emergency."

"On that same day, the Commission also issued Order No. 26,344. In that order, the Commission concluded that Emergency Order #3 also applies to competitive electric power suppliers ('CEPSs') and competitive natural gas suppliers ('CNGSs') (together with CEPSs, 'competitive suppliers') as providers of electric and gas service, respectively," RESA said

Specifically, in Order No. 26,344, the PUC stated, "The Commission issues this order to confirm that Emergency Order #3 applies to competitive electric power suppliers (CEPS) and competitive natural gas suppliers (CNGS), as they are, respectively, 'providers of electric, [and] gas ... service.' The Commission has regulatory and enforcement authority over CEPS under RSA 374-F:7 and the Commission’s Puc 2000 rules. N.H. Admin. R., Puc Ch. 2000."

The PUC warned that, "The Commission will deem any violations by a CEPS of the prohibitions and restrictions imposed under Emergency Order #3 to be 'Sanctionable Event[s],' as 'unfair or deceptive acts or practices in the marketing, sale, or solicitation of electricity supply or related services.' Puc 2002.20(3). Any such 'Sanctionable Event' will be subject to the Commission’s enforcement authority under Puc 2005, which includes the potential assessment of fines, prospective suspension of marketing and sales activities, and suspension or revocation of the CEPS’s registration."

The PUC adopted similar language with respect to competitive gas suppliers

RESA requested that the Commission grant rehearing of Order No. 26,344, warning of dire financial consequences to retail suppliers if suppliers cannot cease service to customers who do not meet their contractual obligations. RESA noted that a supplier discontinuing service to a customer does not deny an essential service to such customer, since the customer will be served under default service. Moreover, RESA noted that, to the extent suppliers are required to continue service to non-paying customers, with no recourse for future recovery of bad debt (unlike regulated utilities), the financial strain may force some suppliers to default on various ISO or credit agreements, resulting in a transfer of all of the supplier's customers to default service -- the same service a customer would receive if the competitive supplier was permitted to de-enroll customers for non-payment

"RESA understands the impact COVID-19 is having on consumers and businesses across the United States. Everyone, including RESA member companies, is facing unprecedented challenges. RESA supports the development and implementation of effective and prudent policies to respond to these challenges. However, particular care must be taken to ensure that decisions implementing these policies do not have unintended, negative consequences," RESA said

"Because the Commission issued Order No. 26,344 sua sponte and without the benefit of stakeholder input, it did not have the opportunity to consider evidence of the impact of that order on competitive suppliers. Moreover, the Commission’s conclusions concerning the applicability of the order to competitive suppliers were 'mistakenly conceived.' Order No. 26,344 is also unlawful and unreasonable because application of Emergency Order #3 to competitive suppliers could violate the Contracts Clause and constitute a regulatory taking. Thus, for the reasons discussed more fully below, good cause exists for the Commission to grant rehearing to reconsider Order No. 26,344," RESA said

"Fundamentally, Emergency Order #3 is intended to ensure that residents and business in the State of New Hampshire continue to have access to '[c]ertain essential services' 'necessary for the safety and protection of the public.' Consequently, it applies only to those providers of electric, gas, water, telephone, cable, VOIP, internet, and deliverable fuels service that are actually capable of denying customers access to such essential services by disconnecting or discontinuing customers’ service," RESA said

"Electric, gas, telephone, and water utilities are able, and, subject to regulation, authorized, to disconnect service to customers. Once these public utilities do this, customers may have no further access to electric, gas, telephone, or water service. Similarly, cable, VOIP, and internet service providers are all capable of preventing customers from accessing those services by disconnecting or discontinuing service. Comparably, deliverable fuels service providers can also prevent customers from receiving essential services by discontinuing delivery of fuels. In stark contrast, however, because of the way in which the retail energy supply market is designed, competitive suppliers are simply incapable of denying customers access to essential services," RESA said

"As the Commission is aware, even if a competitive supplier de-enrolls a customer, the customer will continue to receive service from the utility. In fact, the customer will receive utility service automatically if it is no longer receiving service from a competitive supplier (unless the customer choses [sic] another competitive supplier). Thus, competitive suppliers are unlike every other entity subject to Emergency Order #3 because they cannot deny customers access to essential services. Consequently, the Commission 'mistakenly conceived' Emergency Order #3 as applying to competitive suppliers," RESA said

"In addition, Emergency Order #3 makes clear that the Commission’s responsibility and authority in implementing that order is limited to public utilities. Specifically, Emergency Order #3 directed the Commission to provide assistance and guidance to the 'public utilities' in implementing its provisions. However, as the Commission is aware, competitive suppliers are not public utilities. In fact, the Commission itself recognized this by issuing a separate order regarding Emergency Order #3 - Order No. 26,343 - to public utilities. Notably, Emergency Order #3 did not direct the Commission to provide any assistance or guidance to competitive suppliers. As a consequence, the Commission’s application of Emergency Order #3 to competitive suppliers exceeds the authority granted to it by Emergency Order #3," RESA said

RESA said that, "the Commission should have considered the dire financial consequences that application of Emergency Order #3 to competitive suppliers could have."

"Order No. 26,344 prohibits competitive suppliers from discontinuing service for non-payment and from charging late fees. However, because the Commission issued Order No. 26,344 sua sponte and without the benefit of stakeholder input, it did not have the opportunity to consider evidence of the impact of the order on competitive suppliers. While the competitive supply community generally remains financially sound, competitive suppliers are already facing reductions in revenue as a result of declines in energy consumption related to reductions in economic activity and transitions to remote work. If Order No. 26,344 remains in effect, competitive suppliers, including RESA members, will incur even more substantial losses that, unlike the public utilities, they will be unable to recover later," RESA said

"Both Emergency Order #3 and Order No. 26,344 specifically state that they do not relieve customers of the obligations to pay their bills for service received during the State of Emergency. However, even though customers remain obligated to pay their arrearages, there is no guaranty they actually will do so. If customers ultimately are unable to pay the utility charges, the utilities have mechanisms available to recoup those uncollectible amounts from all ratepayers. Competitive suppliers, however, do not have this option. Moreover, the possibility that customers will pay arrearages after the State of Emergency ends does not address the impact the accrual of those arrearages will have on current competitive supplier cashflows," RESA said

"Unlike other states, New Hampshire utilities do not purchase the accounts receivable of competitive suppliers. Thus, if customers are unwilling or unable to pay their bills, the competitive suppliers serving those customers will not receive revenues to which they are entitled under their contracts. Despite this, competitive suppliers will continue to incur considerable costs to serve these customers. However, if Order No. 26,344 remains in effect, competitive suppliers will not be able to reduce those costs by transferring non-paying customers to default service and eliminating their obligations to purchase energy to serve those customers. As a consequence, in order to cover their costs, competitive suppliers may have to enter into additional credit facilities for which they will be required to pay interest. Unlike the utilities, however, competitive suppliers do not have a captive rate base from whom they can recover those additional financing costs. Further, competitive suppliers will not even be able to collect late fees on arrearages accrued during the State of Emergency from customers to help offset those added credit costs," RESA said

RESA said that, "The impacts on competitive supplier cashflows will become increasingly acute as the State of Emergency continues and more and more customers potentially become unable to make timely payments. And, those impacts will continue for at least six months after the State of Emergency has concluded and, likely, significantly longer. For example, when customers make payments to the electric utilities in New Hampshire, those payments are applied in the following order: (1) utility outstanding deposit obligations, (2) any utility current payment arrangement obligations, (3) any utility budget billing arrangement obligations, (4) utility and supplier aged accounts receivables, with a priority for the utility aged receivables, (5) utility and supplier current charges, with a priority for the utility’s current charges, and (6) any miscellaneous nonelectric service product or services."

"Under this payment hierarchy, the arrearages owed to competitive suppliers are fifth priority. Thus, if customers continue to struggle to pay their bills even after the State of Emergency has concluded, there may not [sic] sufficient funds available from the customer payments to pay competitive suppliers their past due balances. Further, even if there are sufficient funds to pay past due balances owed to competitive suppliers, there may not be sufficient funds available to pay the competitive supplier’s current charges which are seventh in priority under the payment hierarchy. As a consequence, the impact of Order No. 26,344 on competitive supplier cashflows will continue long after the State of Emergency has concluded," RESA said

"The effect of Order No. 26,344 on competitive supplier cashflows may make it impossible for some competitive suppliers to be able to satisfy their financial obligations. If this were to occur, competitive suppliers may no longer be able to serve their customers. For instance, if a CEPS is unable to satisfy its ISO New England obligations, it may become unable to continue to serve customers. Notably, if this were to occur, customers would not have their service disconnected or discontinued. Instead, those customers would be transferred to utility default service - the same result that would occur if the competitive supplier was permitted to de-enroll customers for non-payment. Thus, to ensure their financial health and the proper functioning of the restructured market, competitive suppliers must be able to transfer customers to default service that do not pay their bills timely," RESA said

RESA said, "the impairment of prohibiting competitive suppliers from exercising contractual rights to transfer customers to default service who do not choose another competitive supplier or impose late fees if payments are not made timely will be substantial. For some competitive suppliers, it could be catastrophic. Moreover, the application of Emergency Order #3 to competitive suppliers is a drastic departure from the current manner in which the Commission regulates competitive suppliers. New Hampshire law does not empower the Commission to prohibit competitive suppliers from exercising their contractual rights to transfer a customer to default service or impose late fees if payments are not made timely. In fact, Commission regulations actually authorize competitive suppliers to stop serving customers who fail to meet their contractual obligations."

RESA said that application of Emergency Order #3 to competitive suppliers could violate the contracts clauses of both the federal and New Hampshire constitutions

RESA also said that application of Emergency Order #3 to competitive suppliers could constitute a regulatory taking

Docket DE 20-060

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