Marathon Power LLC v. Pub. Serv. Comm'n of N.Y.

72 Misc.3d 563

149 N.Y.S.3d 786

MARATHON POWER LLC d/b/a Marathon Energy, Petitioner, for a Judgment Pursuant to Article 78 of the Civil Practice Law and Rules

v.PUBLIC SERVICE COMMISSION of the State of New York, John B. Rhodes, in his official capacity as Chair of the Public Service Commission of the State of New York, Diane X. Burman, James S. Alesi, Tracey A. Edwards, and John B. Howard, in their official capacities as Commissioners of the Public Service Commission of the State of New York, and Michelle L. Phillips, in her official capacity as Secretary of the Public Service Commission of the State of New York, Respondents.

907436-20

Supreme Court, Albany County, New York.

Decided on May 5, 2021

John T. McManus, Esq., Svetlana K. Ivy, Esq., Harris Beach PLLC, Attorneys for Petitioner, 99 Garnsey Road, Pittsford, New York 14534.

Robert Rosenthal. General Counsel, Lucas C. McNamara, Esq., Assistant Counsel, Of Counsel, Public Service Commission of the State of New York, Attorneys for Respondents, Three Empire State Plaza, Albany, New York 12223-1350.

James H. Ferreira, J. Petitioner is an approved energy service company (hereinafter ESCO) and provides residential and non-residential customers with natural gas and electricity supply services in utility territories across New York. In this CPLR article 78 proceeding, petitioner seeks review of, among other things, an Order Imposing Consequences issued by respondent Public Service Commission of the State of New York (hereinafter PSC). The matter is fully submitted and the Court heard oral argument with respect to the proceeding on February 19, 2021.

Background/Facts

The PSC has statutory jurisdiction and supervisory power over, among other things, the sale of "gas (natural or manufactured or mixture of both) and electricity for light, heat or power" ( Public Service Law § 5 [1][b] ). Historically, the energy industry in New York was made up of regulated public utility monopolies. In the 1990s, the PSC issued a series of orders designed to transition the industry to a competitive market. The resulting scheme "allowed ESCOs access to the energy market by selling energy as a commodity using the utilities infrastructure. As a result, there are two components to supplying energy: the delivery of energy through the infrastructure owned and maintained by utilities; and the sale and supply of the commodity, i.e., gas or electric, by either a utility company or an ESCO" ( Matter of Retail Energy Supply Assn. v. Public Serv. Commn. of the State of N.Y. , 152 A.D.3d 1133, 1135, 59 N.Y.S.3d 590 [3d Dept. 2017] affd as modified 33 N.Y.3d 336, 103 N.Y.S.3d 1, 126 N.E.3d 1041 [2019] ). The PSC has the authority to regulate an ESCO's eligibility to access public utilities’ infrastructure (see Matter of National Energy Marketers Assn. v. New York State Pub. Serv. Commn. , 33 N.Y.3d 336, 351, 103 N.Y.S.3d 1, 126 N.E.3d 1041 [2019] ; General Business Law § 349-d [11] ). In 2002, the PSC adopted the Uniform Business Practices (hereinafter UBP) to regulate ESCO business and marketing practices. The UBP sets forth requirements for an ESCO to follow in order to maintain eligibility and also authorizes the PSC to determine and impose appropriate consequences for non-compliance with the UBP.

Petitioner received approval from the PSC to operate as an ESCO in 2011. Petitioner serves customers in the service territory of Consolidated Edison Company of New York, Inc. (hereinafter Con Edison), among other service territories. Petitioner's standard customer agreements provide for a fixed price option under which the customer is billed at the fixed price indicated in the agreement except in specified circumstances. The customer agreements provide, in relevant part: "If 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] shall have the right to modify the Agreement. See section 17 - Regulatory Change for more information" (Petition, Exhibit C). In turn, Section 17 of the contract, entitled "Regulatory Changes," states:

"This Agreement is subject to present and future legislation, orders, rules, regulations or decisions of a duly constituted governmental authority having jurisdiction over this Agreement or the services to be provided hereunder. 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, [petitioner] shall have the right to modify this Agreement to reflect such Regulatory Change by providing 30 days’ written notice of such modification to the Customer" (id. ).

In 2016, PSC instituted a proceeding against petitioner based upon allegations that petitioner had used deceptive business practices. On March 9, 2017, PSC issued an Order to Continue ESCO Eligibility with Contingencies, effective March 13, 2017 (see PR 327-335).¹ The Order allowed petitioner to continue marketing to and enrolling residential and non-residential customers subject to several contingencies, including that it enroll and re-enroll customers "in a manner that is consistent with" the UBP (PR 334).

In April 2019, Con Edison issued to its retail suppliers revised Capacity and Energy Reconciliation Guidelines. The revisions adjusted the peak hour used in calculating customers’ Installed Capacity (ICAP) tags. Petitioner alleges that all energy customers are assigned an ICAP tag which requires the customer to "essentially purchase a portion of the generation capacity of a power plant in an amount equal to [its] highest anticipated demand for energy" (Petition ¶ 27). Petitioner alleges that the changes "significantly impacted customer usage costs within Zone J of Con Edison's service territory" and, as a result, petitioner "notified customers that their rates would be modified, consistent with the Regulatory Change section in their customer agreements, to reflect Con Edison's rule change" (Petition ¶ 29). Petitioner adjusted approximately 2,800 non-residential customers’ rates in response to the ICAP tag change.²

On May 29, 2019, PSC sent petitioner a Notice of Apparent Failure advising that it was investigating petitioner based upon complaints received from its customers, including complaints that petitioner had breached its fixed rate contracts. On March 19, 2020, PSC issued an Order to Show Cause directing petitioner to show cause why petitioner's eligibility to provide retail energy services as an ESCO should not be revoked, or other consequences imposed, based upon petitioner's alleged violation of its fixed rate contracts (see PR 159-168). The Order to Show Cause advised, among other things, that PSC staff had determined that "the change of the peak hour resulting from a well-known and predictable annual review process ... should not be considered a modification to a rule, regulation or tariff" such that petitioner's unilateral modification of the terms of its fixed rate contracts, absent a change to a rule, regulation or tariff, was a breach of contract and a violation of the UBP, specifically sections 2.D.5.b., 2D.5.c., 2.D.5.m., 2.D.5.n., 10.C.4.b. and 10.C.4.d. (PR 164-165). The Order directed petitioner "explain why, based upon Staff's concerns and allegations described herein, [PSC] should not find that [petitioner] has failed to support its position that variability in the New York Control Area's peak demand hour constitutes a change in rule, regulation, or tariff" (PR 167). Petitioner submitted a response to the Order to Show Cause.

On June 11, 2020, the PSC issued an Order Imposing Consequences. The PSC rejected petitioner's interpretation of Con Edison's modification of ICAP tags as a "regulatory change" within the meaning of petitioner's customer agreements. The PSC interpreted the contract term "rule" as "a condition imposed by a body that has legislatively delegated authority to impose requirements that has the force and effect of law" and noted that Con Edison is a regulated entity and not an agency (PR 55). The PSC found:

"Con Edison altered the NYCA Peak Hour due to the application of existing, unchanged regulatory rules and tariffs against current market conditions. [Petitioner'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 [petitioner] 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 [petitioner] to secure a premium — [petitioner] failed to comply with its contractual obligations" (PR 56-57).

It determined that petitioner is properly subject to consequences because it failed to adhere to the fixed-rate policy in its agreements and also made " ‘false and misleading representations’ regarding its rates when it assured customers [that it] would pay fixed rates in regard to the market fluctuations discussed herein but then altered customers[’] rates in contravention of those representations" (PR 57-58 [quoting UBP § 10.C.4.b.]). The PSC further found that petitioner violated its commitment pursuant to the Contingency Order that it would enroll or re-enroll customers consistent with the UBP. As a consequence for petitioner's non-compliance with the UBP, the PSC ordered that petitioner would be required to re-rate all customers "adversely affected" by their rate alterations (PR 58). The PSC rejected petitioner's contention that it should be permitted to backbill customers who were erroneously underbilled by petitioner.

Petitioner filed a Petition for Rehearing and Reconsideration. The PSC issued an Order Denying Rehearing and Reconsideration on ...