Welcome to Part 1 of “Resetting the NYPSC’s Reset Order”; an examination of the effects of the recent judicial ruling on the New York Public Service Commission’s February 23 Resetting Order, and its potential consequences on the New York retail energy market:

• Part One will give a ‘barebones’ overview of the ruling vacating the Resetting Order and the Resetting Order itself.
• Part Two will dig deeper into the Vacating Order and what we’re likely to see in the near future.
• Part Three will discuss important next steps as well as potential opportunities for the retail energy industry.

Resetting the NYPSC’s Reset Order: Part One

On Friday, July 22nd, a New York Supreme Court judge vacated most of New York Public Service Commission’s (“NYPSC” or “Commission”) contentious February 23 ‘Resetting Order.[1] The Judge held that the NYPSC’s actions were ‘arbitrary and capricious’ because the Commission did not give sufficient notice to market participants, nor did it allow them sufficient opportunity to respond to the changes proposed in the order. However, Judge Zwack also found that the NYPSC, counter to claims made by the petitioners (and, on occasion, even the NYPSC itself) does have clear authority to engage in ratemaking for both public utilities and retail energy suppliers.

The Resetting Order sent shockwaves through New York and national energy markets. It limited energy suppliers (or ‘ESCOs’) to two energy products: electric suppliers could either guarantee a price match with the utilities or 30% renewable energy, while gas suppliers could only offer guaranteed pricing. The Resetting Order also established a ‘one strike and you’re out’ policy for non-compliance, and gave ESCOs ten (10) days to comply.

Several energy associations filed suit in state court to block the Resetting Order from going into effect. A judge granted a temporary restraining order (TRO) in early March, and parties submitted briefings arguing their relative positions in the months following. The NYPSC argued it had given sufficient notice of these changes in its many ongoing dockets, including Case No. 12-M-0476.[2]The retail energy associations in turn argued that the NYPSC – although it made clear that it was looking to tighten certain regulations – was never explicit about applying those restrictions to the entire market. Equally significant, they also argued that the NYPSC did not have ratemaking authority, and even if it did, its requirement that ESCOs match utility pricing was unclear and unworkable.

In what might be considered a ‘Zwack-down’ – Judge Zwack ruled that the Resetting Order “appears to be irrational, arbitrary, and capricious,’ and vacated its limitations on the energy products offered by ESCOs.[3] Judge Zwack agreed with the petitioners that the NYPSC had not been clear that it planned to take such drastic measures, nor given the retail energy community sufficient chance to respond: “certainly none of the comments received as part of the August 12, 2015 Notice would give petitioners any inkling of the type of change which resulted from the Reset order.”[4] He also disagreed with the PSC that the other, related proceedings were sufficient ‘hints’ as to the PSC’s next steps.

However, Judge Zwack also ruled that the PSC does have the “authority to establish public utility rates, in fact, it has been “recognized as the very broadest of powers”; an authority the PSC itself was not always sure it had.[5] This means that the PSC may issue new rate-making regulations, as long as it gives market participants sufficient notice and a chance to respond – which is likely to have far-reaching consequences for the industry.

While this ruling seems to confirm the idea that the New York energy industry is undergoing a regulatory ‘sea-change,’ it does give ESCOs some breathing room to revise their internal operational strategies, and has the effect of ‘resetting’ the Resetting Order and sending the PSC back to the drawing board.

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[1] Notice Seeking Comments on Resetting Retail Energy Markets for Mass Market Customers (issued Feb. 24, 2016) Case 15-M-0127, et al. at 21.

[2] On July 14, 2016, the PSC issued a moratorium on providing retail service to low-income customers. Order Regarding the Provision of Service to Low-Income Customers by Energy Service Companies (issued July 14, 2016) Case 12-M-0476, et al.

[3] Retail Energy Supply Association et al v Public Service Commission et al, (issued July 22, 2016) Index Nos. 868-16, 870-16, 874-16), at 20.

[4] Retail Energy Supply Association et al v Public Service Commission et al, (issued July 22, 2016) Index Nos. 868-16, 870-16, 874-16), at 17.

[5] Order Adopting ESCO Price Reporting Requirements and Enforcement Mechanisms, Case No. 06-M-0647 (Nov. 8, 2006).