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New York PSC Orders ESCO To Re-Rate Fixed Price Customers

PSC Finds That ICAP Peak Hour Change Not A Permissible Trigger For Change In Law Clause Relied On By ESCO In Changing Fixed Rate

June 12, 2020

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Copyright 2010-20
Reporting by Paul Ring •

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The New York PSC ordered Marathon Power LLC d/b/a Marathon Energy to re-rate fixed price customers who experienced an increased rate when Marathon changed rates as a result of a change in the peak hour used to calculate a customer's ICAP tag, as the PSC found that such a rate change did not qualify for treatment under a regulatory change clause, and therefore violated the Uniform Business Practices (UBP)

As previously reported by, the issue concerns a change in the peak hours ConEd uses to calculate a customer’s installed capacity (ICAP) tag. See prior story for background

Marathon has argued that such peak hour change, "was a change in a rule that impacted a term, condition, or provision in Marathon’s customer agreements, specifically as to price." Marathon has argued that, 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."

The PSC, however, ruled that the peak hour change did not constitute a "rule" change, and thus the change in law clause could not invoked.

Marathon Energy provided the following statement to concerning the matter:

"Since the Public Service Commission issued its order to show cause, Marathon has steadfastly maintained that its actions are legally and contractually justified. Marathon is reviewing the Commission’s order to determine next steps."

--- Statement from Marathon Energy

The PSC, in summarizing Marathon's position, said, "Marathon argues that it abided by the UBPs because it acted according to an express exception to the fixed-rate guarantee that its contracts provided. In support of this contention, Marathon relies on the provision for 'Regulatory Changes,' which states that 'if 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.'"

The PSC said, "Abandoning the argument that it had made to its customers to justify its alteration of rates -- that Con Edison had modified its own tariff -- the Company now argues that the modification of Con Edison’s ICAP tags was a change in a rule that impacted a term, condition, or provision in Marathon’s customer agreements, specifically as to price. More specifically, Marathon argues that Con Edison changed a 'rule' as contemplated by the 'Regulatory Changes' provisions because Con Edison described the change in a document it labeled as a 'guideline.' Marathon reasons that one definition of 'guideline' is 'a rule or instruction that shows or tells how something should be done,' and that, therefore, 'Marathon was justified in applying its Regulatory Change provision.'"

"We find Marathon’s interpretation unpersuasive for multiple reasons. To begin with, Marathon contends, without any support from the terms of its agreements, that the exceptions to the fixed rate commitment depends on the label a utility places on documents it produces (specifically here, Con Edison’s decision to title a document as guidelines). According to Marathon’s logic, if a utility titled a document 'law,' the document could be a change in 'law' for the purposes of the relevant exception to fixed rates in Marathon’s contracts. As no reasonable person would interpret 'law, rule, regulation, tariff, or regulatory structure' as referring to a utility’s subjective label, rather than objective reality, we reject Marathon’s argument that Con Edison’s use of the term guideline is relevant to the meaning of the contract term 'rule,'" the PSC said

"More generally, Marathon contends that the term 'rule' in its contracts should be broadly interpreted to mean 'show[ing] or tell[ing] how something should be done.' That construction, however, is so broad as to render meaningless the paramount purpose of the contract for customers: to provide rate certainty absent noted exceptional circumstances. For example of behavior that would fit Marathon’s broad definition, if Marathon unilaterally chose to charge its customers higher prices -- for no other reason than its desire to increase its profits -- Marathon could accurately say that it was imposing a rule change by 'tell[ing]' its customers that they 'should' pay more for Marathon’s services. This result shows that Marathon’s proposed definition of 'rule' is an untenable description of the parties’ intentions in entering fixed rate contracts," the PSC said

"Moreover, Marathon’s unduly broad construction of 'rule' ignores the context within that term is used in the 'Regulatory Changes' provision. A plain understanding of 'rule,' in context, is that the agreement refers to a change in a regulatory rule. This plain reading forecloses Marathon’s argument that Con Edison, a utility, can change a rule; Con Edison is a regulated entity, and it is not an '[a]gency' that can adopt or alter a '[r]ule' that has the force and effect of law. State Administrative Procedure Act (SAPA) §102(1) (defining 'Agency'), (2)(a) (defining 'Rule')," the PSC said

"The relevant provision’s label, 'Regulatory Changes,' is not the only context that supports our construction of the term 'rule' as meaning a condition imposed by a body that has legislatively delegated authority to impose requirements that has the force and effect of law. Outside of the 'Regulatory Changes' provision, the sample agreement Marathon provided refers to 'rules' in two other instances. In the 'Billing' provision, the agreement generically refers to 'NYPSC rules,' associating the term 'rule' with the Commission, an '[a]gency' pursuant SAPA §102(1) to that is statutorily entitled to enact '[r]ule[s]' pursuant to SAPA §102(2)(a)," the PSC said

"Even more telling, the agreement also uses the term 'rules' in its 'Applicable Law' provision. By its own terms, the agreement 'is subject to all applicable federal, state, and local laws, and the orders, rules, and regulations of the governmental agencies having jurisdiction over the subject matter of this Agreement, including the [New York State Department of Public Service].' Thus, the agreement clearly associates agency rules with 'Applicable Law,' which is consistent with the recognition that properly enacted agency rules have 'the force and effect of law.' This context further supports our conclusion that the fixed rate exception’s references to rules refers to formal, regulatory rule changes," the PSC said

"The agreement, read as a whole, does not support Marathon’s contention that the parties intended for Marathon to be able to revise rates based on a utility describing a market change in a document labeled as guidelines. In contrast, the plain language of the agreement supports our conclusion that the word 'rule' in the 'Regulatory Changes' provision refers to changes in requirements that have the force and effect of law," the PSC said

"With this construction of the term 'rule' in mind, we turn to the relevant facts. Con Edison altered the NYCA Peak Hour due to the application of existing, unchanged regulatory rules and tariffs against current market conditions," the PSC said

The PSC noted that, "The annual review of, and potential adjustment to, the peak hour is a necessary first step in the determination of the ICAP tag rate. . . . 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."

"Marathon’s fixed-rate agreement protects customers rights to their respective negotiated fixed-rates in circumstances such as these, where market changes unrelated to any change in 'law, regulation, rule, tariff, or regulatory structure' led to Marathon facing increased costs for providing its services. After marketing to its customers that it, and not the customer, would absorb the costs of such market fluctuations -- a commitment that likely allowed Marathon to secure a premium -- Marathon failed to comply with its contractual obligations," the PSC said

"Based on the foregoing, Marathon is properly subject to consequences because it 'fail[ed] to adhere' to the fixed-rate 'polic[y] . . . described' in the relevant agreements. We also find that Marathon improperly made 'false and misleading representations' regarding its rates when it assured customers would pay fixed rates in regard to the market fluctuations discussed herein but then altered customers rates in contravention of those representations," the PSC said

"Given the totality of the circumstances surrounding Marathon and its most recent noncompliance, the Commission deems it appropriate, pursuant to UBP Section 2.D.6.b.7., to impose consequences against Marathon by requiring the Company to re-rate all customers adversely affected by Marathon’s rate alterations," the PSC said

As previously reported, Marathon had noted that, in making its rate changes as a result of the peak hour change, it adjusted some customers' rate downward, while other customers' rates increased. Marathon had thus said that, should the Commission impose penalties against Marathon that requires customers to be re-rated, Marathon would need to clawback those benefits provided to customers who received a lower rate. "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," the company had said

The PSC ordered that Marathon shall not re-rate customers who experienced a lower rate from the rate change

"[W]e reject Marathon’s contention that consequences for any misconduct would necessarily entail either ordering or permitting Marathon to backbill customers that Marathon erroneously under-billed due to its improper rate changes. Marathon cites no general legal principle that requires the Commission to require that innocent customers bear the financial costs of Marathon’s misconduct. Moreover, we discern nothing in the relevant agreement terms that would allow Marathon to backbill customers in circumstances such as these. Accordingly, we find that Marathon has no right to backbill those customers who benefited from Marathon’s improper rate alterations," the PSC said

The PSC specifically ordered that Marathon Power LLC d/b/a Marathon Energy shall, within 60 days from the effective date of the order, re-rate all customers adversely impacted by Marathon’s upward adjustment of the rate for commodity services in those customers’ fixed rate contracts as a result of the increase in the customers’ installed capacity tags

Case 16-M-0434

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