Consultant Seeks New York PSC Ruling That ESCO Pass-Through Of ZEC Costs To Customers Are Void, Unless Disclosure Statement Noted Potential For Change-in-Law Rate Changes

Consultant Says Sales Agreement Clauses Cannot Contradict Customer Disclosure Statement's "Plain Language", Per UBP

May 26, 2020

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UtiliSave, L.L.C. ('UtiliSave') submitted a petition for a declaratory ruling to the New York PSC seeking affirmation the ESCOs may not pass-through ZEC costs to customers on fixed rate contracts unless, among other things, the customer disclosure statement indicated the potential of an exercise of a change-in-law clause that would result in a revised rate

UtiliSave is a utility auditor and rate-consultant representing approximately 650 ratepayer accounts, "all of which UtiliSave believes are or were serviced by an Energy Services Company ('ESCO'), and to whom ESCOs have passed-through charges related to the burden placed upon them by the Zero Emissions Credit Requirement ('ZECR'), despite being served under fixed rate contracts."

UtiliSave submitted a petition seeking the following declaratory rulings:

1. That any ratepayer may utilize the PSC’s complaint review process set forth in 16 NYCRR Part 12 to challenge the basis upon which additional costs are passed through to them as a result of a change in law or regulation (pursuant to so called 'change-in-law' agreement provisions) if such costs appear to violate Uniform Business Practices ('UBP') requirements;

2. That pursuant to the UBP §2(D)(6) the PSC may order an ESCO to refund charges wrongfully passed to ratepayers, inclusive of interest, as a result of UBP violations;

3. That ESCOs were not obligated to pass through costs related to their ZECR obligations to their ratepayer customers; and

4. That where ESCOs chose to pass through the costs of ZECR obligations to their ratepayer customers, such pass-through charges are void unless they complied with existing UBP provisions, including any disclosure requirements then in effect.

UtiliSave noted that the PSC's ZEC order stated that costs, "...will be recovered on a volumetric energy consumption basis from all the LSEs..."

"In short, the burden of the ZECR costs was intended to fall on the LSEs, even if the PSC foresaw a likelihood of such costs ultimately being passed through to the ratepayers," UtiliSave alleged

"Because the order does not directly command ESCOs to pass through the costs of the ZECR to ratepayers, but does require them to bear the costs of the program, the only permissible way, under the UBP, by which ESCOs could recover their costs would be through their sales agreement with the customer. Typically, ESCO contracts include a 'change-in-law' or 'regulatory changes' provision specifically for this circumstance. However, the degree to which such costs could adjust a fixed rate contract vary depending on the terms of these provisions. Where such a provision did not permit for the automatic pass through of ZECR costs, the ESCO would have had to either seek modification of the agreement or absorb the ZECR costs. Nothing in the Commission’s order or regulations, nor in Public Service Law, prohibit ESCOs from fulfilling their ZECR quotas at their own costs, nor permits them to increase their fixed cost contract to cover an additional cost incurred," UtiliSave alleged

"Whether an ESCO was required to pass through the ZECR costs by Commission order, or if an ESCO was given the option of passing through the ZECR costs if its sales agreement permits, is a matter of importance in determining whether the ZECR costs were permitted to be passed through to ratepayers. A Sales Agreement establishes the terms for a customer’s arrangement with the ESCO. See UBP §5(A). The Sales Agreement must include, inter alia a Customer Disclosure Statement in plain language that denotes the price terms. UBP §5(B)(4)(a) and (b). 'In the event that the text in the Statement differs from or is in conflict with a term stated elsewhere in the agreement, the term described by the text in the Statement shall constitute the agreement with the customer notwithstanding a conflicting term expressed elsewhere in the agreement.' Id. (emphasis added [by UtiliSave].) In short, if a Customer Disclosure Statement did not make clear that a ratepayer would be responsible for any changes in law or regulation (i.e. did not clearly state a change in law provision), then changing the price terms to pass through costs resulting from a change in law provision, would have violated the UBP’s disclosure rules. UBP §§2(D)(5)(b) and (f)," UtiliSave alleged

UtiliSave alleged that nothing about the ZECR adoption order altered the terms of the UBP. "For ESCOs with contracts in force on or after August 1, 2016, those sales agreements were still required to conform with the UBP’s disclosure requirements. It cannot be concluded that ZECR costs are automatically recoverable because a change of law provision exists; the terms of the sales agreement and disclosure statements must be scrutinized. Under §5(B)(1)(f), any Sales Agreement must include all charges and fees. While fees for the ZECR costs may not have been foreseeable by ESCOs prior to August 1, 2016, they certainly were from that point forward; and as proven by the inclusion of change in law provisions to sales agreements, many ESCOs foresaw the possibility that a future change in law or regulation could lead to significant cost increases."

UtiliSave alleged, "That additional costs could be passed on as a result of a change in law or regulation, is something that would have been required to be placed in a Disclosure Statement to a customer, like the existence of any other fee or charge. Absent such specific inclusion, the terms stated in the Disclosure Statement and in the sales agreement materially differ, and any conflict is resolved in the terms of the Disclosure Statement. In short, if an ESCO failed to disclose, in at least a general way, to a customer in the Disclosure Statement that they could face additional fees or charges if there was a change in law or regulation, whether that warning appeared later in the sales agreement or not, that ESCO was not permitted to pass through those costs on fixed rate contracts. Transparency and disclosure are key elements of an open and fair marketplace, and the only means by which ratepayers have to protect themselves. For these reasons, the PSC should issue a declaratory ruling that where ESCOs chose to pass through ZECR costs to their consumers, they could only do so if the pass through was still compliant with the UBP."

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