| Matter of Retail Energy Supply Assn. v Public Serv. Commn. of theState of N.Y. |
| 2017 NY Slip Op 05908 [152 AD3d 1133] |
[*1]
| In the Matter of Retail Energy Supply Association et al.,Appellants-Respondents, v Public Service Commission of the State of New York et al.,Respondents-Appellants. (And Two Other Related Proceedings.) |
Barclay Damon, LLP, Syracuse (David G. Burch of counsel), forappellants-respondents.
Paul Agresta, Public Service Commission, Albany (Jonathan D. Feinberg of counsel), forrespondents-appellants.
Eric T. Schneiderman, Attorney General, New York City (Andrew Rhys Davies of counsel),for Office of the Attorney General and Utility Intervention Unit of the Department of State, amicicuriae.
Lynch, J. Cross appeal from a judgment of the Supreme Court (Zwack, J.), entered July 26,2016 in Albany County, which, among other things, partially granted petitioners' application, in acombined proceeding pursuant to CPLR article 78 and action for declaratory judgment, to reviewa determination of respondent Public Service Commission resetting retail energy markets andestablishing further process.
On February 23, 2016, respondent Public Service Commission (hereinafter the PSC) issued"Order Resetting Retail Energy Markets and Establishing Further Process" (hereinafter the ResetOrder), which, among other things, required that new and renewal contracts between [*2]energy service companies (hereinafter ESCOs) and mass marketcustomers[FN1] "guaranteesavings in comparison to what the customer would have paid as a full service utility customer orprovide at least 30% renewable electricity." For any new or renewal contracts, ESCOs would berequired to provide the PSC with notice—within 10 days of the effective date of the ResetOrder—certifying their compliance with the new provisions. Additionally, "ESCOs mustreceive affirmative consent from a mass market customer prior to renewing that customer from afixed rate or guaranteed savings contract into a contract that provides renewable energy but doesnot guarantee savings." The Reset Order explained that these new requirements were in responseto "a large number of complaints from ESCO customers about unexpectedly high bills," adetermination that mass market customers had not received comparable benefits to thosereceived by large commercial and industrial customers, and the necessity for "an immediatetransition" in light of prior remedial attempts. In further response to the determination that "retailenergy markets [were] not providing sufficient competition or innovation to properly serve massmarket customers," the Reset Order also required ESCOs to comply with new disclosure andmarketing rules and procedures. The Reset Order cited Public Service Law§§ 5 and 53 for the proposition that the PSC "has broad legal authority tooversee ESCOs," and Public Service Law § 66 (5) for the proposition that "the[PSC] has authority over the tariffed rules and regulations of electric and gas distributionutilities."
By way of background, in the 1980s, the Legislature authorized the PSC to open up the retailenergy market by requiring utilities to transport gas commodities owned by other companies(see Public Service Law § 66-d; Rochester Gas & Elec. Corp. vPublic Serv. Commn. of State of N.Y., 71 NY2d 313, 320-322 [1988]). The measure, in part,was designed to increase competition within the natural gas industry. In 1996, the PSCrestructured the electric service provider industry in light "of the need to lower rates for allcustomers in order to spur economic development in the [s]tate and to avoid jeopardizing safeand reliable electric service" (1996 NY PSC Op No. 96-12 at 1; see Matter of Energy Assn. ofN.Y. State v Public Serv. Commn. of State of N.Y., 169 Misc 2d 924 [1996], affd onother grounds 273 AD2d 708 [2000], lv denied 95 NY2d 765 [2000]). Thesemeasures allowed ESCOs access to the energy market by selling energy as a commodity usingthe utilities infrastructure. As a result, there are two components to supplying energy: the deliveryof energy through the infrastructure owned and maintained by utilities; and the sale and supply ofthe commodity, i.e., gas or electric, by either a utility company or an ESCO.
In 2002, the PSC adopted the Uniform Business Practices (hereinafter UBP) to govern ESCObilling practices (see Matter of Customer Billing Arrangements, 2002 WL 1776907, 2002NY PUC LEXIS 106 [ Nos. 99-M-0631, 98-M-1343, Mar. 14, 2002]). In a February 2014 order,the PSC raised concerns about prices that ESCOs charged to residential customers and the lackof energy-related value-added services being offered. Thereafter, in a February 2015 order, thePSC, among other things, set conditions upon ESCOs with respect to low income assistanceprogram utility customers—specifically, ESCOs "must guarantee such customers savingsin comparison with what the customer would have paid the utility, or must include energy-relatedvalue-added services that may reduce a customer's overall energy bill" (Proceeding on Motionof the Commission to Assess Certain Aspects of the Residential and Small Non-ResidentialRetail Energy Markets in New York State, 2015 WL 574186, *2, 2015 NY PUC LEXIS 38,*4 [No. 12-M-0476, Feb. 6, 2015]). A "Report of the Collaborative Regarding Protections forLow Income Customers of [*3]Energy Services Companies"followed in November 2015, which addressed implementation of the February 2015 order and, inpart, discussed proposals by consumer advocates to extend the protections for low-incomecustomers to all residential customers. As is relevant here, the PSC expanded this approach viathe Reset Order by setting conditions on ESCOs with regard to rate savings and energy servicesfor contracts to a broader customer base—specifically, mass market customers.
On March 3, 2016, petitioners, which include a national trade association for retail energysuppliers and several ESCOs, commenced this combined CPLR article 78 proceeding and actionfor declaratory judgment seeking a declaration that the Reset Order was void and a staypreventing the PSC from enforcing the Reset Order because, as is relevant here, "the Legislaturehas not granted the PSC the authority to regulate ESCO prices" and, therefore, "the priceregulation contained in the [Reset Order] was in excess of the [PSC]'s jurisdiction." Petitionersalso alleged that the Reset Order's issuance was arbitrary and capricious and violated petitioners'federal and state due process rights. In March 2016, Supreme Court (O'Connor, J.) issued atemporary restraining order staying the Reset Order from taking effect. Following joinder ofissue, Supreme Court (Zwack, J.) determined that the PSC had authority to impose the ResetOrder limitations on ESCOs, but vacated the first three provisions of the Reset Order outlinedabove because the PSC failed to provide petitioners with notice and an opportunity to beheard.[FN2] This crossappeal ensued.
The paramount issue presented is whether the PSC has the authority to impose therate-making limitations on ESCOs set forth in the Reset Order. "The [PSC] possesses only thosepowers expressly delegated to it by the Legislature, or incidental to its expressed powers,together with those required by necessary implication to enable the [PSC] to fulfill its statutorymandate. Among the powers delegated to the [PSC] is the authority to establish the rates chargedby a utility for gas and electric service. Indeed, it has been recognized that when it comes tosetting rates for such service[,] the [PSC] has been granted the very broadest of powers, theLegislature mandating only that the rates fixed be just and reasonable" (Matter of NiagaraMohawk Power Corp. v Public Serv. Commn. of State of N.Y., 69 NY2d 365, 368-369[1987] [internal quotation marks and citations omitted]).
The PSC argues that ESCOs are "gas corporations" and "electric corporations" subject to itsrate-making jurisdiction under Public Service Law article 4 (see Public Service Law§ 66 [5]). The term "gas corporation" speaks to an entity "owning, operating ormanaging any gas plant," with certain exceptions not pertinent here (Public Service Law§ 2 [11] [emphasis added]). The term "gas plant" "includes all real estate,fixtures and personal property operated, owned, used or to be used for or in connection with or tofacilitate the . . . sale or furnishing of gas . . . for light, heat or power,"with an exception not applicable here (Public Service Law § 2 [10] [emphasisadded]). The PSC maintains that ESCOs constitute "gas corporations" essentially because theyutilize personal property, i.e., telephones and computers to sell gas to their customers. The flawin this thesis is that it disregards the operative term, "gas plant." As a noun, the word"plant"—given its plain meaning in our context (see Matter of Albany Law School v New York State Off. of MentalRetardation & Dev. Disabilities, 19 NY3d 106, 120 [2012])—can be definedas "the land, buildings, machinery, apparatus, and fixtures employed in carrying on a [*4]trade or an industrial business" (Merriam-Webster OnlineDictionary, plant [http://www.merriam-webster.com/dictionary/plant]). Comparatively, a "powerplant" is defined as "the total facilities available for production or service" (Merriam-WebsterOnline Dictionary, plant [http://www.merriam-webster.com/dictionary/plant]). The point made isthat the term "plant" speaks to a facility, and its various components as defined in Public ServiceLaw § 2 (10), which include but are not limited to "personal property." As such, wereject the PSC's contention that ESCOs constitute "gas corporations" subject to rate setting underPublic Service Law article 4 (see Public Service Law § 66 [5]). By the sameanalysis, ESCOs are not "electric corporations" under article 4 (see Public Service Law§ 2 [12], [13]).
This conclusion is consistent with the Energy Consumer Protection Act of 2002 (L 2002, ch686, § 1). This legislation added a new section 53 to the Public Service Law that,for the limited purposes of Public Service Law article 2, expanded reference to a gas or electriccorporation and utility company or corporation to also include "any entity that, in any manner,sells or facilitates the sale or furnishing of gas or electricity to residential customers" (PublicService Law § 53). The intent of the amendment was to expressly counteract a 1997order by the PSC that had exempted ESCOs from article 2, commonly known as the HomeEnergy Fair Practices Act (see Budget Report on Bills, Bill Jacket, L 2002, ch 686 at 4;see generally Matter of Public Util. Law Project of N.Y. v New York State Pub. Serv.Commn., 263 AD2d 879, 880 [1999], lv denied 94 NY2d 755 [1999]; Public Util.Law Project of N.Y. v New York State Pub. Serv. Commn., 252 AD2d 55, 56-57 [1998]).Correspondingly, this provision would have been unnecessary if an ESCO constituted either agas or electric corporation (see McKinney's Cons Laws of NY, Book 1, Statutes§§ 193, 240).
We do find, however, that the PSC's broad statutory jurisdiction and authority over the saleof gas and electricity authorized it to impose the limitations set forth in the Reset Order. Pursuantto Public Service Law § 5, "[t]he jurisdiction, supervision, powers and duties of the[PSC] shall extend . . . [t]o the manufacture, conveying, transportation,sale or distribution of gas . . . and electricity . . .to gas plants and to electric plants and to the persons or corporations owning, leasing or operatingthe same" (Public Service Law § 5 [1] [b] [emphasis added]). The emphasizedlanguage speaks to general authority over the sale of gas and electricity, followed by the specificextension of the PSC's jurisdiction over gas and electric plants. Importantly, there is no disputethat the PSC is authorized to set "just and reasonable" tariff rates for gas and electric corporationspursuant to Public Service Law articles 1 and 4 (Public Service Law § 66 [5];see Public Service Law § 5 [1] [b]). In fact, it is the PSC's broad jurisdictionthat enabled it to allow ESCOs access to utility systems in the first place. The PSC essentiallymaintains that this same authority allows it to impose limitations on ESCO rates as a condition tocontinued access. We agree.
Notably, in 2010, the Legislature enacted General Business Law § 349-destablishing a bill of rights for ESCO customers outlining consumer protection for marketing andbilling practices. The protections are enforceable by the Attorney General of his or her ownaccord or upon referral from the PSC (see General Business Law § 349-d[9]). As the PSC acknowledges, General Business Law § 349-d does not constitutea specific grant of authority to limit ESCO rates. The statute does, however, specify that"[n]othing in this section shall be deemed to limit any authority of the [PSC] . . .which existed before the effective date of this section, to limit, suspend or revoke the eligibilityof an [ESCO] to sell or offer for sale any energy services for violation of any provision of law,rule, regulation or policy enforceable by [the PSC]" (General Business Law § 349-d[11]). The same reservation pertains to the PSC's existing authority "to adopt additionalguidelines, practices, policies, rules or regulations relating to the marketing practices of[ESCOs]" (General Business Law § 349-d [12]). These express legislativereservations effectively acknowledge the PSC's existing authority to impose its policies on [*5]ESCOs—which, in turn, buttresses the PSC's position that itis authorized to condition ESCO access to utility systems by capping ESCO rates at the just andreasonable amount statutorily imposed on utilities (see Public Service Law§ 65 [1]).
As explained in the Reset Order, the PSC discerned that most ESCOs only offeredcommodity resale to their customers in direct competition with utilities. In doing so, ESCOs havehad difficulty competing because the PSC "requires utilities to flow through energy commodityto end-users at cost, without a markup." In consequence, numerous customer complaints havebeen made that ESCOs are charging more than the utilities—a result contrary to the verypurposes of opening up the energy market in the first place, i.e., to promote lower energy costs toconsumers. The rule change was implemented because the PSC determined that "it is not in thepublic interest for ESCOs to provide commodity supply only products for mass marketcustomers." This decision falls within the PSC's broad authority to assure that "just andreasonable rates" are charged for gas and electric sold to the consumer, consistent with itsauthority over utilities (Matter of Energy Assn. of N.Y. State v Public Serv. Commn. of Stateof N.Y., 169 Misc 2d at 936). Accordingly, we agree with Supreme Court that the PSC hadjurisdiction to impose the rate limitations set forth in the Reset Order.
Turning to respondents' cross appeal, the PSC maintains that Supreme Court erred in findingthat petitioners had a property interest entitling them to procedural due process and, in any event,that petitioners were provided due notice and an opportunity to be heard prior to the adoption ofthe Reset Order. We do agree that Supreme Court erred to the extent that it found that ESCOshave a property interest in continued access to utility systems (see Matter of Niagara MohawkPower Corp. v New York State Dept. of Transp., 224 AD2d 767, 767-768 [1996], appealdismissed 87 NY2d 1054 [1996], lv denied 88 NY2d 809 [1996]; Matter ofCampo Corp. v Feinberg, 279 App Div 302, 306-307 [1952]). That said, the determinativepoint is that respondents properly concede in the notice of cross appeal and their brief that thePSC failed to comply with the notice requirements of the State Administrative Procedure Act inadopting the Reset Order[FN3] (see State Administrative Procedure Actart 2, § 202 et seq.; see e.g. Matter of Keyspan Energy Servs. v PublicServ. Commn. of State of N.Y., 295 AD2d 859, 861 [2002]). We are mindful that the PSC'sFebruary 2014 order identified issues within the ESCO retail energy market impacting massmarket customers, but the main discussion keyed into changes impacting low-income customers.Similarly, the November 2015 Collaborative Report included opposition from ESCOs to theprospect of extending consumer protections to all residential customers, but primarily addressedthe implementation of protections for low-income customers. Consequently, we conclude that thejudgment should be affirmed.
Garry, J.P., Egan Jr., Mulvey and Aarons, JJ., concur. Ordered that the judgment is affirmed,without costs.
Footnote 1:The PSC broadly defined massmarket customers to include residential customers and those "small non-residential customer[s]"that are "non-demand metered."
Footnote 2:Supreme Court's decision alsoaddressed another combined action/proceeding that is before this Court (Matter of NationalEnergy Marketers Assn. v New York State Pub. Serv. Commn., 152 AD3d 1122 [2017] [decided herewith]).
Footnote 3:In their brief, respondents haveattached a Notice of Evidentiary and Collaborative Tracks and Deadline for Initial Testimony andExhibits, issued December 2, 2016, that pertains to the eligibility criteria for ESCOs includedwithin the Reset Order.