Oversight Of ESCOs' Compliance With UBPs Necessarily Means New York PSC Authorized To Interpret ESCO Contractual Provisions, Appellate Court Affirms

October 28, 2022

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Copyright 2010-21 EnergyChoiceMatters.com
Reporting by Paul Ring • ring@energychoicematters.com

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The State of New York Supreme Court, Appellate Division, Third Judicial Department, has affirmed a decision from the Supreme Court, Albany County, which had found that the New York PSC's authorized oversight of ESCOs necessarily means that the PSC is authorized to interpret ESCO contractual provisions

At issue is a 2020 PSC order which required 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. In such order, 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)

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."

In 2020, at the time of the PSC's order, Marathon Energy had stated, "Since the Public Service Commission issued its order to show cause, Marathon has steadfastly maintained that its actions are legally and contractually justified."

See prior story for background

Marathon (Petitioner) appealed a ruling from the Supreme Court, Albany County which had affirmed the PSC's order

Most notable from Appellate Court's decision is that it affirms that the PSC may interpret ESCO contracts as part of its oversight of Uniform Business Practice compliance

The Appellate Court noted that Petitioner contends that, as summarized by the Court, "the PSC's regulatory power does not extend to resolving what it characterizes as a contractual dispute between it and its customers."

"We disagree," the Appellate Court said

"The record reflects that petitioner changed the rates for its fixed-rate customers based upon a change made by Con Ed. The PSC then investigated petitioner as to whether such rate change violated the UBP. Petitioner justified its decision to change the fixed rates based upon provisions in the sales agreements with the affected customers. Accordingly, and as Supreme Court noted, the determination of whether petitioner complied with the sales agreement and, in turn, complied with the UBP, required the PSC to interpret the provisions at issue in the sales agreement," the Appellate Court said

"As such, the PSC did not act in excess of its jurisdiction," the Appellate Court said

Regarding the merits of the PSC's determination that a change in the peak hour used to calculate a customer's ICAP tag did not constitute a change in rule, the Appellate Court agreed with the PSC, noting that, "the dispute centers on the interpretation of 'rule' as used in the regulatory changes section of the sales agreement. One provision relied upon by petitioner stated that petitioner can modify the sales agreement '[i]f at some future date[,] 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.' Petitioner relies on a similar provision stating that a modification is allowed '[i]f at some future date[,] there is a change in any law, rule, regulation, tariff, or regulatory structure . . . that impacts any term, condition or provision of this [a]greement[,] including but not limited to price.'"

"That said, petitioner contends that Con Ed's amendment of its capacity and energy reconciliation guidelines changing peak hours for the determination of installed capacity tags constituted a change in 'rule' within the meaning of the regulatory changes provisions in the sales agreement. Although 'rule' was not explicitly defined in the sales agreement, the PSC rejected petitioner's interpretation. The PSC instead concluded that a 'rule' meant 'a condition imposed by a body that has legislatively delegated authority to impose requirements that has the force and effect of law.' In reaching this conclusion, the PSC noted that the term at issue – 'rule' – was used in the regulatory changes section and, relying upon State Administrative Procedure Act § 102, found that an agency – and not a regulated entity such as Con Ed – was empowered to adopt or alter rules with the force and effect of law. As Supreme Court also reasoned, the PSC's interpretation of 'rule' in the regulatory changes section was supported due to its use with similar legislative-making terms – i.e., 'law,' 'regulation,' 'tariff' and 'regulatory structure.' The PSC also looked to other contexts where 'rule' was used in the sales agreement and found that those contexts similarly involved formal agency-enacted rules," the Appellate Court said

"In view of the foregoing, the PSC's interpretation of 'rule' in the regulatory changes section in the sales agreement was neither irrational nor arbitrary and capricious. As such, the PSC's determination that Con Ed's amendment of its guidelines was not a change in rule within the meaning of the regulatory changes section in the sales agreement likewise was neither irrational nor arbitrary and capricious. It follows that petitioner's reliance on Con Ed's amendment to justify the rate change was improper and that the PSC did not err in determining that petitioner violated the UBP by breaching the sales agreement with its customers," the Appellate Court said

"Finally, because the penalty of directing petitioner to rerate the affected customers does not shock the judicial conscience, it will not be disturbed," the Appellate Court said

Docket 534236

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