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New York PSC Orders ESCO To Drop Customers To Default Service, Denying ESCO's Mass Market Eligibility Application
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On remand, the New York PSC denied the application of SmartEnergy Holdings, LLC (SmartEnergy) to continue serving mass market customers, and ordered SmartEnergy to drop any mass market customers that SmartEnergy is currently serving to default service
SmartEnergy Holdings, LLC provided the following statement concerning the matter:
"SmartEnergy respectfully disagrees with the NY PSC's decision to deny our re-application for serving mass market customers in New York.
"We began selling in New York in January 2021. Since then, we have enrolled and served over 10,000 New York customers without ever receiving a single customer complaint or report of regulatory violations over the past four years. The sole exception was a staff-initiated complaint, which the Commission later reversed for further proceedings, ruling in favor of our petition.
"While we are disappointed with this latest ruling of the NY PSC, the proceedings are not over and we are exploring our legal options, including the right to file an administrative appeal in court.
"We believe our record of compliance in New York speaks for itself. We remain committed to maintaining the highest standards of regulatory adherence and customer service."
--- Statement from SmartEnergy Holdings, LLC
The PSC was addressing SmartEnergy's application to continue serving mass market customers as a result of the PSC's retail market reset proceedings and the attendant requirement that all existing ESCOs serving mass market customers had to, in 2020, re-seek eligibility to continue mass market service
The PSC's review of SmartEnergy's application had been subject to a prior order, rehearing, and remand back to Department of Public Service Staff, with SmartEnergy permitted to continue service to its mass market customers in the interim. See more background here
The primary question in SmartEnergy's mass market eligibility review concerned the ability of the PSC to consider an ESCO's complaint and compliance history in other states, and, if so, whether settlements with other state regulators, in which no adverse finding is made against the ESCO, may be considered as demonstrating a history of non-compliance
There were no allegations that SmartEnergy had violated any New York laws or rules or had any complaints in New York
In brief, the PSC held that it is empowered to consider a retail supplier's (and affiliates') record in other states as part of determining a supplier's eligibility, and that the PSC may consider settlements in other states in determining whether a pattern of bad behavior exists, though the PSC stressed that, with respect to SmartEnergy, the PSC's denial of mass market eligibility was made based on Maryland court findings against SmartEnergy, as the PSC said that the denial was not based on settlements between SmartEnergy and state regulators in other states (Illinois and Ohio)
Among other things, SmartEnergy argued that New York General Business Law Section 349-d(11) constrains the PSC from denying an ESCO application due to behavior outside of New York
General Business Law Section 349-d(11) states: "Nothing in this section shall be deemed to limit any authority of the public service commission or the Long Island power authority, which existed before the effective date of this section, to limit, suspend or revoke the eligibility of an energy services company to sell or offer for sale any energy services for violation of any provision of law, rule, regulation or policy enforceable by such commission or authority."
SmartEnergy cited that phrase, "enforceable by such commission or authority [i.e., the PSC]," as preventing the PSC from denying ESCO eligibility based on actions not enforceable by the PSC, such as out-of-state actions
The PSC disagreed with SmartEnergy's interpretation of General Business Law Section 349-d(11)
The PSC said, "The Legislature expressly provided that this section is not a limitation on the existing authority of the Commission."
The PSC said, "The phrase 'enforceable by [the Commission]' does not exclude consideration of out-of-state ESCO conduct. It means only what it says -- that the Legislature sought to preserve existing Commission authority to limit, suspend, or revoke the eligibility of an ESCO to sell energy services for violation of Commission-enforceable rules. There is no indication that the Legislature sought to compel the Commission to admit all ESCO applicants to the New York market. Moreover, the Commission’s ability to ask ESCOs about out-of-state conduct, an ability acknowledged by SmartEnergy,
would be rendered useless without the power to act on that information."
Even under SmartEnergy's reading, which the PSC does not accept, the PSC noted that GBL 349-d(11) addresses the PSC's ability to "suspend or revoke" an ESCO's eligibility. The PSC said that, here, the PSC is addressing an application from SmartEnergy for mass market eligibility, required under the PSC's reset orders, as the PSC said that the PSC's denial of an application is not a suspension or revocation
"[T]he Commission possesses broad authority to regulate the ESCO market and the eligibility of ESCOs to access utility distribution infrastructure," the PSC said
The PSC said, "In the somewhat analogous context of licensing, 'the general, long-settled law is that a licensing official has implicit discretion to pass upon the fitness of an applicant ... . [sic] Prior violations of law have often been viewed as relevant on the issue of a license applicant’s fitness.' Moving to the ESCO context, the Commission seeks to protect the retail market, which includes policing which ESCOs may enter that market, access utility-owned distribution infrastructure, and interact with energy customers. In other words, the Commission may consider such circumstances as are not forbidden to it by law in deciding whether to grant an application for eligibility, including the applicant’s record of compliance in other states."
Turning to the PSC's decision on the merits of SmartEnergy's application, the PSC said that its denial is based on SmartEnergy's compliance history in Maryland
SmartEnergy had stated during the New York eligibility review that, "Since commencing its services in New York, SmartEnergy has exemplified upstanding
standards of conduct with its customers. SmartEnergy has never been subject to a Commission
investigation or imposition of regulatory penalties in its operation as an ESCO in New York, and
Staff has not cited to one iota of alleged misconduct occurring in New York."
The PSC acknowledged that SmartEnergy has not had any complaints in New York
However, the PSC said that it must "balance" this record with SmartEnergy's conduct in Maryland
SmartEnergy had stated during the New York proceeding that, "Despite exhaustive research of case law and administrative agency decisions, we are
unable to find any public service commission ever denying licensing, entitlements or other rights
to a company predicated entirely on out-of-state conduct. Neither has Staff cited to a single legal
authority for this proposition. Rather, case law and other state commission orders have
consistently acknowledged the limited jurisdiction that state commissions have related to out-of-state conduct."
As previously reported (details here), the Maryland Supreme Court found that SmartEnergy's Maryland telephonic enrollments, even though the call was inbound from a customer, were still subject to the wet signature requirement of the Maryland Telephone Solicitations Act (MTSA), and that SmartEnergy did not obtain such signature, nor did SmartEnergy's marketing qualify for an exemption under the MTSA.
However, in addition to MTSA violations, the Maryland PSC, among other things, found that the underlying SmartEnergy postcards at issue in the Maryland complaint were "deceptive and misleading".
The New York PSC emphasized this latter finding, rejecting SmartEnergy's arguments that the Maryland matter mostly amounted to a "novel" interpretation of the MTSA by the Maryland PSC and courts
The NY PSC stated, "With regard to the [Maryland] postcards SmartEnergy sent to prospective customers, the Supreme Court of Maryland found that the record contained substantial evidence to support the MPSC’s finding that 'SmartEnergy designed [its] postcards to misleadingly appear to have been sent by the customers' utility.'"
The NY PSC further stated, "the Supreme Court of Maryland held that 'there is substantial evidence in the record to support the Commission’s finding that [a] portion of the [SmartEnergy sales] script had the capacity or tendency to mislead customers into believing that the purpose of the recording was solely for quality or training purposes, rather than for purposes of verifying the caller’s 'yes' or 'no' response to SmartEnergy’s two-question confirmation questionnaire.'"
The NY PSC said, "Several of the violations found by the MPSC would be violations of the UBP were they to occur in New York."
The NY PSC said, "The Supreme Court of Maryland specifically noted that substantial evidence in the record supported the conclusion that SmartEnergy’s postcards could and, in some cases, did lead customers to believe that the offer came from the utility and that SmartEnergy’s sales representatives further obscured the relationship between SmartEnergy and the local utility."
The NY PSC said, "That would be a clear violation of the UBP provisions forbidding such conduct were they to occur in New York and such conduct has given rise to Commission orders against other ESCOs."
SmartEnergy had argued that it only had 34 complaints in Maryland, and that such number of complaints were not sufficient grounds for denial of its mass market eligibility
However, the PSC said that the absolute number of complaints is not dispositive, and that the PSC may consider whether any complaints establish a "material pattern" of behavior and non-compliance
The PSC said, "while 34 complaints from Maryland consumers formed the beginning of the MPSC investigation, the finding of that investigation was that SmartEnergy engaged in a pattern and practice of violating numerous Maryland regulations."
The PSC further said, "the MPSC and Maryland courts determined that SmartEnergy did not comply with applicable Maryland rules on numerous occasions."
"Based upon the regulatory and judicial determinations concerning SmartEnergy’s conduct in Maryland, the Commission is convinced that SmartEnergy would be unlikely to comply with the UBP were it granted eligibility to operate in New York," the PSC said
"In light of the findings that prompted the December 2019 [retail market reset] Order, the Commission finds that SmartEnergy’s pattern of conduct in Maryland, [sic] is concerning enough to warrant denial of SmartEnergy’s application for [mass market] eligibility. The Commission’s authority to make this finding is explicitly contemplated in the UBP and in the December 2019 Order that prompted this proceeding," the PSC said
During the eligibility review, DPS Staff had noted that SmartEnergy had entered into settlements with relevant authorities in Illinois and Ohio, in which SmartEnergy did not admit any wrongdoing, and in which no findings of violations were made
As noted above, the PSC did not rely on SmartEnergy's record in states other than Maryland in the PSC's decision to deny mass market eligibility, but the PSC did affirm that DPS Staff appropriately raised the non-Md. out-of-state settlements as part of the review.
Moreover, the PSC held that the PSC is empowered to consider settlements and similar instruments in determining ESCO eligibility
SmartEnergy had argued that relying on the out-of-state settlements in the eligibility determination violates res judicata and collateral estoppel, as such settlements extinguish any claims related to the behavior addressed in the settlements
The PSC, however, said that SmartEnergy does not dispute that the PSC was not "in privity" with the settling parties [e.g. a relevant or related party]. Moreover, the PSC said that settlements may be used to demonstrate the existence of a material pattern of complaints
The PSC acknowledged that, in the out-of-state settlements, SmartEnergy did not admit any wrongdoing, nor was any adjudication on the merits ever made.
The PSC cited in support of its power to consider settlements, as part of an ESCO's eligibility review, an ALJ's decision at another New York administrative agency [Department of Environmental Conservation], which had found the consideration of consent decrees to be appropriate
Citing this Department of Environmental Conservation [DEC] ALJ ruling, the PSC quoted, "The existence of a number of consent orders, and multiple consent orders at certain facilities, establishes the likelihood of similar agency engagement in the future. It would not appear to be an abuse of discretion (or arbitrary and capricious) for the commissioner, after assessing his agency’s capabilities (as executive as opposed to legislative or judicial function), to conclude that
the risks and burdens are too great for DEC to assume, and deny approval of the transfer on that basis."
During the proceeding, SmartEnergy alleged that DPS Staff has not demonstrated that SmartEnergy has
ever violated any requirement of the UBP, nor has Staff demonstrated that SmartEnergy failed to adhere to its contract terms, or made repeated false and misleading representations regarding its rates to New York customers. During the case, SmartEnergy called a termination of its ability to serve mass market customers in New York a disproportionate penalty in light of the above, and in view of the fact that the PSC has previously reserved suspension or revocation for findings of severe UBP violations, which are not present here (in those other ESCO cases, behavior had included repeated slamming or deceptive practices, including violation of prior PSC suspensions)
SmartEnergy said, "The Commission and its Staff
cannot seriously contend that an ESCO -- with zero record of customer complaints or UBP
violations in the state -- should be denied eligibility when compared to the factual records in
other Commission orders."
In a prior March 2022 issuance, the PSC had described SmartEnergy as serving 5,000 residential and small commercial customers in New York
The PSC's denial was made in the generic retail market review docket, 15-M-0127 et al.
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December 26, 2024
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Reporting by Paul Ring • ring@energychoicematters.com
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