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New York PSC Grants Rehearing Of Broker Regulation Order; Addresses Compensation To Unregistered Brokers

Clarifies Entities Subject To Broker Registration

New Compliance Dates

April 18, 2024

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Copyright 2010-24
Reporting by Paul Ring •

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The New York PSC issued an order addressing rehearing of its June 2023 order implementing registration and regulation of retail energy brokers and consultants, addressing among other things the issue of compensation to entities which are unregistered as brokers/consultants, and issuing several clarifications on activities which do or do not fall within the definition of energy broker or energy consultant

See details on the June 2023 broker regulation order here

Payments To Unregistered Brokers

The PSC on rehearing has narrowly modified its prior finding from June 2023 that, "ESCOs and DER suppliers shall not provide payments to unregistered energy brokers or consultants."

Retail suppliers had raised the issue of instances where a contract, which requires compensation to a broker, was entered into at a time during which the broker was registered with the PSC, but the broker is no longer registered with the PSC at some point during the duration of the contract (non-renewal of the registration, etc.). Retail suppliers had argued that a prohibition on compensation to unregistered brokers interferes with their contractual obligations. Similar concerns were raised about contracts entered into prior to the PSC's adoption of broker regulations, but which extend beyond the broker registration deadline

On rehearing, the PSC on a limited basis clarified that, only for contracts executed prior to the broker registration deadline, and only if the compensation results from prior activities before the registration deadline and the unregistered entity is not being compensated for current activities which fall within the definition of brokering or consulting, then the ESCO is permitted to compensate the broker under such prior agreement executed before the broker registration deadline

The PSC said, "the Commission finds that an unregistered 'energy broker' or 'energy consultant' may continue to receive payments under a contract in connection with covered activities, even after the registration deadline, so long as the payments/compensation are tied to an activity undertaken prior to the deadline."

The PSC stressed, "To be clear, PSL §66-t(2)(c) otherwise prohibits an unregistered broker or consultant (1) from receiving compensation with respect to any contracts that were executed after the effective date of these requirements (i.e., the registration deadline), and (2) from undertaking any covered activities after the registration deadline, even if the contract was executed prior to the deadline."

"For example, if a contract entered into prior to the deadline by an ESCO and broker provided the broker with a form of compensation that continued past the deadline (e.g., the broker receives a portion of the customer’s monthly payment to the ESCO for the duration of the ESCO service), the broker would be allowed to continue to be provided with that compensation after the deadline if he/she failed to register by the deadline. However, the unregistered broker in this example would be prohibited from undertaking any broker-related activities in New York subsequent to the effective date of these requirements," the PSC said

ESCOs may only compensate unregistered brokers under legacy contracts entered into before the broker registration deadline and only for activities conducted prior to the registration deadline, as more fully described above

For any contracts executed after the broker registration deadline, or for any activity after the registration deadline (even under a legacy contract), the PSC is not allowing ESCOs to provide compensation to any entity not registered as a broker/consultant at the time the compensation would be paid,, even if the broker was properly registered at the time of the contract's initial execution

"ESCOs will be prohibited from making payments to unregistered energy brokers or consultants where the act of brokering or consulting is performed after the effective date of the UBP amendments, regardless of when the contract mandating such payments was executed," the PSC said

"The statute is clear that no unregistered person 'shall accept any commission, service fee, brokerage or other valuable consideration for selling, soliciting or negotiating an energy contract in this state,'" the PSC said

Compliance Deadlines

The rehearing order established a new compliance deadline for broker/consultant registration, and provides that brokers and energy consultants must submit their first annual registration package within 60 days of the effective date of the rehearing order.

DPS Staff will be required to complete review of initial registration packages and issue letters notifying applicants of approval or denial by December 2, 2024.

Following the initial broker registration date, the annual compliance year will run from September 1 to August 31, with annual renewals due on August 31 each year.

The modified UBPs, which enshrine the various new obligations for ESCOs and brokers that had been previously adopted in June 2023 and modified on a limited basis as described in this story, shall be effective within 60 days of the effective date of the rehearing order

ESCOs shall update their customer sales agreements within 60 days of the effective date of the rehearing order to include required disclosures regarding energy broker or energy consultant compensation

Compensation Disclosure

The PSC generally denied various rehearing requests from ESCOs and brokers concerning the required disclosure, to customers, of compensation by the ESCO to a broker/consultant

The PSC did offer the following "guidance" on compensation disclosure

"Based on the requests made in the petitions and comments, the Commission finds it necessary to provide additional guidance to ensure that entities subject to the compensation disclosure requirements understand their compliance obligations and do not seek to conceal compensation behind a general disclosure statement. Accordingly, if a broker or consultant receives financial compensation, the disclosure shall include either the dollar amount or, if the dollar amount is not known at the time of disclosure, the disclosure shall include an explanation of the formula that will be used to calculate the financial compensation for the broker or consultant. The same requirements apply to any additional fees that may be applied to that transaction in the future. Thus, if the dollar amount and frequency of future fees is known, that information shall be disclosed, and, if the dollar amount and frequency are not known, the formula that would be used to calculate future payments shall be disclosed. For any non-financial compensation, if the value of such compensation is known then a description of the non-financial compensation and the dollar value of the compensation shall be disclosed. If the dollar value of non-financial compensation is not known at the time of disclosure, then a description of the non-financial compensation will suffice. Disclosures should also identify the entity paying the compensation to the broker or consultant."

Entities Subject To Broker Registration

The PSC offered several clarifications regarding which entities must be registered as a broker and/or consultant

As previously reported, direct "employees" of a broker/consultant are not required to be registered, since they are covered under their employer's registration. ESCO employees are also exempt

The PSC on rehearing declined to generally extend this non-registration provision to independent contractors or individuals working for ESCOs or registered brokers via similar mechanisms (1099's, etc)

The PSC first cited New York case law for determining whether a worker is considered an employee or an independent contractor

The PSC further said, "The Commission cannot base its regulation of brokers and consultants on unsupported and vague claims that contractors work for one entity and receive the same training as employees of the broker or consultant. There may be brokering and consulting businesses that do not require the same training of their contractors as they do with respect to their employees, and there are obviously different legal obligations that a business has with respect to its contractors as compared with its obligations to its employees. As the Commission appropriately found in the June 2023 Order, PSL §66-t is reasonably construed to provide the Commission with regulatory authority over contractors and agents who perform energy broker or energy consultant activities, as defined by PSL §66-t. The Commission determined that employees of registered brokers and consultants are not subject to registration requirements because employers exercise control over the work performed by their employees and consultants."

"By contrast, the Commission determined that non-employee entities that perform work for the registered broker or consultant must be subject to registration requirements because of the lack of control over such entities," the PSC said

The PSC said, "In the event a question arises regarding whether a particular entity is an independent contractor or an employee of a registered energy broker or consultant, or an employee of an exempted entity (i.e., an ESCO), the Commission will consider these factors in evaluating the relationship between the parties."

Addressing whether certain marketing (promotion/advertising) companies are brokers, the PSC said, "As applied here, these [broker/consultant] definitions encompass those entities that directly solicit contracts from customers and not entities that engage solely in mailing advertisements or placing advertisements on the internet."

The Retail Energy Supply Association had asked the PSC to address whether customers participating in a customer referral program must be registered as a broker

The PSC said, "With respect to RESA’s first request for clarification, an end-use gas or electric customer that participates in a customer referral program, and otherwise does not act as an energy broker or consultant, would not be required to register under PSL §66-t. This general clarification, however, should not be interpreted to allow an energy broker or energy consultant to simply sign up with an ESCO or DER supplier as an end-use customer in order to avoid registration by claiming that their services fall within an exempt customer referral program."

RESA next asked about entities that endorse an ESCO or present that ESCO as its preferred supplier

While the PSC said that RESA's request was unclear since it was unclear from the request whether such entity would be taking any actions to facilitate a contract, the PSC said that, "To the extent RESA’s request relates to an entity that is compensated solely for promoting or advertising an ESCO ... such activities would not require the entity to register."

Addressing another sought clarification from RESA, the PSC said, "With respect to RESA’s final request related to the myriad of basic functions performed apparently by a person handling phone calls on behalf of an ESCO, so long as such person does not receive valuable consideration for soliciting, negotiating, or providing advice related to energy contracts, he/she is not required to register."

The PSC noted that, in their respective comments, RESA and Vistra also requested clarification regarding whether a non-ESCO third party that performs a warranty service that is bundled with commodity offered by an ESCO would be required to register as an energy broker or consultant under the 'other services' clause of the energy broker definition.

The PSC said, "Under the specific facts presented, the non-ESCO third party providing only a warranty service would not be subject to registration requirements even when such service is associated with a bundled commodity sold by an ESCO. The Commission bases this finding on its presumption that the non-ESCO third party would not be assuming the contractual and legal responsibility for the sale of those services to the end-use retail customer, and would not otherwise be soliciting, negotiating, or providing advice with respect to an electric or natural gas contract or acting as an agent in accepting such a contract on behalf of an ESCO."

The PSC further addressed the 'other services' clause of the energy broker definition by stating, "an entity that assumes the contractual or legal responsibility for the sale of energy-related, value-added services bundled with electric and/or gas commodity supply services provided by an ESCO would be required to register as an energy broker."

Safe Harbor

The PSC denied ESCO requests for a safe harbor concerning the broker compensation disclosure

ESCOs had requested that a safe harbor be granted to ESCOs regarding their efforts to comply with compensation disclosure requirements prior to their review by DPS Staff in annual ESCO filings.

"The Commission does not agree that a safe harbor is necessary. ESCOs will be expected to comply with compensation disclosure requirements between the time when the UBP modifications take effect and the annual filings, and will not be granted safe harbor if their statements are found to be noncompliant prior to being reviewed by Staff in ESCO annual filings. The June 2023 Order, as well as this Order, provide adequate guidance with respect to this issue," the PSC said

TPV Changes

In the June 2023 order, the PSC added to the questions required when a TPV or similar verification is used for an enrollment, requiring customer acknowledgment of broker or consultant compensation

ESCOs had noted that the broker compensation disclosure is required on the Customer Disclosure Statement, which, for a telephonic sale, is not required to be provided to the customer until three days after the sale and thus may not be seen by the customer at the time the TPV is conducted and the question concerning the disclosure is asked

The PSC agreed with the concerns raised by ESCOs regarding the timing of the TPV and when a customer would receive the customer disclosure statement that results from a telephone agreement.

"[T]he Commission finds that the inclusion of such a [broker compensation] question in TPV requirements is not essential to the Commission’s enforcement of compensation disclosure requirements and, without context, such a question may not elicit an accurate answer from customers on whether compensation was properly disclosed as customers are unlikely to have knowledge of compensation disclosure requirements."

The PSC removed the broker compensation disclosure question from the TPV requirements.

Further UBP Changes

The rehearing order still contemplates further changes to the UBP, to be developed by DPS Staff, as the June 2023 order had done

The rehearing order provides that DPS Staff shall review the Uniform Business Practices and, "identify modifications intended to improve the overall consistency and clarity of the documents[.]"

DPS Staff shall provide a proposal for Commission consideration within 120 days of the effective date of the rehearing order.

Application To Submetering Providers

The PSC held that the broker registration requirements of PSL §66-t, "do not generally apply to submeterers and submetering service providers; however, submeterers and submetering service providers may undertake activities that fall within the definitions of 'energy broker' and/or 'energy consultant' and thus subject them to the registration requirement under PSL §66-t."

Case 23-M-0106 et al.


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