The case was tried, the judge ruled, but the jury’s still out on the future of the New York energy industry: welcome to Part 3 of “Resetting the PSC’s Reset Order”!

• Part One gave a ‘barebones’ overview of the ruling vacating the Reset Order.
• Part Two dug deeper into the Vacating Order and what we’re likely to see in the near future.
• Part Three discusses next steps for the retail energy industry.

As noted in Part 1 and Part 2, the New York Public Service Commission’s (“PSC”) contentious February 23 ‘Reset Order,’[1]  was successfully challenged in court by several retail energy associations. The judge found that it was the PSC’s process that was ‘arbitrary and capricious,’ but agreed with the PSC that it has the legal authority to impose ratemaking regulations on the ESCO market. Thus, the judge’s decision does little to ease the recent turbulence of the New York market or add much clarity to the limitations – or lack thereof – of the PSC’s authority.

It is important to recognize that neither the Order nor the PSC are the sole causes or drivers for the recent changes; Renewing the Energy Vision (REV), New York’s need to reduce transmission congestion and increase transmission capacity, the rise of renewables and distributed energy, and concerns of possible utility ‘death spirals’ all play a role, interacting with each other, and, as with the Reset Order, sometimes leading to unexpected developments. That said, the following (which are discussed in detail below) are likely to be the important trends and takeaways in the near future:

• Increased compliance and entry requirements;
• Increased enforcement of non-compliance;
• Renewables will have a place in the energy market in the future;
• Other states are not necessarily following New York’s lead;
• There are plenty of opportunities to participate in the debate; and,
• REV and emerging technologies represent potential growth areas for ESCOs.

The New York PSC Will Continue to Heighten Compliance/Entry Requirements & Enforcement for Non-Compliance

In its press release following Judge Zwack’s ruling, the PSC made it clear that it considered his decision merely a detour to its ultimate objective: “This injustice will be short-lived. The Court’s decision recognizes the Commission’s authority and firmly sided with the Commission that it is both our right and obligation to protect consumers against price gouging and other abuses. We will and we must use this authority…”

• Make Sure It’s Spelled Compliant, Not Complaint

The legal battle against the Reset Order was also notable for what it did not address: Reset Ordering Paragraph No 4.[2]

This provision was not challenged in court, and is thus still effective. It significantly heightens the PSC’s power to impose sanctions on ESCOs, including a total market ban, if there is a clear pattern of non-compliance – and even if there isn’t.

Especially for third-party suppliers based or operating primarily in New York, it is extremely important to review internal compliance guidelines and risk management procedures – and this goes double for ESCOs offering variable rates or those engaging in door-to-door marketing.

• Low-Income Customers Are No Longer Customers

On July 14, 2016, the New York Public Service Commission approved the Order Regarding the Provision of Service to Low-Income Customers by Energy Service Companies (Case 12-M-0476 et al.) establishing a moratorium on ESCO enrollments and renewals of assistance program participants (i.e. low-income or ‘APP’ customers participating in government assistance programs such as HEAP).[3] A Collaborative, convened by the PSC to address new requirements for enrolling low-income customers, was unable to reach a resolution of the issues identified in the February 2015 Order, but did arrive at the conclusion that few, if any, ESCOs intend to offer a product which guarantees that the customer will pay no more than they would have paid as a full service utility customer. Combined with the PSC’s “fundamental concern” of a decline in quality service provided to low-income customers, this led the Commission to issue a moratorium on ESCO enrollments and renewals of APPs. This moratorium will be effective 60 days after the effective date of the Order.

In practical terms, this will mean that, after 60 days, APP customers currently enrolled by ESCOs will be dropped at the end of the existing agreement. ESCOs will not be provided with customers’ APP status. Instead, the utility shall place a block on all APP accounts preventing future enrollment with an ESCO.

Renewable Requirements Continue to REV Up

With the Reset Order now invalid, ESCOs won’t have to comply with its requirement to offer either utility price-matching or 30% renewables. However, that will have little to no long-term effect on the REV juggernaut, or on the State’s goal of 50% renewable energy by 2030.

• Zero-Emission Credits won’t be Zero Cost for ESCOs

On August 1, 2016, the PSC issued an Order amending its Clean Energy Standard to include a Renewable Energy Standard as well as a brand-new Zero-Emissions Credit Requirement (“ZEC”) program (Cases 15-E-0302 & 16-E-0270). To meet the state’s goal of 50% renewable electricity by 2030, the CES Order added a requirement that ESCOs and all other load serving entities (LSEs) pay a compliance cost associated with administratively determined subsidies provided to “at-risk” renewable generation facilities. It also created a Zero-Emissions Credit Requirement designed to provide financial incentives for struggling nuclear power plants.

Each New York LSE serving retail customers will now have to procure new renewable resources through qualifying RECs according to the following proportions of the total load served by the LSE:

• 2017: 6%
• 2018: 1%
• 2019: 0%
• 2020: 4%
• 2021: 8%

Regarding ZECs, NYSERDA will conduct all procurements of ZECs from nuclear facilities, with prices based on the “social cost of carbon.” The initial price will be $17.48 per MWh, to be adjusted every two years. Beginning April 1, 2017, LSEs that serve end-use customers in New York will be required to purchase the percentage of ZECs purchased by NYSERDA in a year that represents the portion of the electric energy load served by the LSE in relation to the total electric energy load served by all such LSEs. LSEs will purchase ZECs through NYSERDA and will recover costs through commodity charges on ratepayer bills.

As New York Goes, So Goes the Nation…or Not

While regional operators and states are, to some degree, facing similar challenges (upgrading transmission, offlining of older plants) and working to achieve renewable goals, New York’s recent shift away from third party suppliers for mass market customers is not – at least yet – influencing other states to do the same.

• Ohio

Earlier this year the Public Utilities Commission of Ohio ordered that the electric utilities shall conduct RFPs to select a retail electric supplier to serve the load of percentage of income payment plan program (PIPP) customers.[4]

While PIPP electric customers still cannot shop individually, Ohio essentially conducted a retail aggregation of PIPP customers (or slice of PIPP customer load depending on the specific utility’s current default service contract portfolio), as Ohio issued RFPs for a retail supplier to serve PIPP customers, rather than having these customers remain on the utility’s Standard Service Offer. Notably, the RFP was for a certificated retail (not wholesale) supplier, with the price required to be below the Standard Service Offer rate.[5]

• Texas

Earlier this summer, Chairwoman Audrey Zibelman said that the PSC’s adoption of the moratorium is responding to retail market issues being confronted across the country. Specifically, Zibelman made note of recent press reports concerning the Texas market. Though not citing any issues specifically, Zibelman was ostensibly referring to the removal of 1¢/kWh plans from Texas Power to Choose and related issues concerning plans with minimum usage fees or usage-based credits.

“Texas is having problems, and where Texas has been historically held up as where the market is working, even the chairman of the Texas Commission is looking into assertions that are being made that has her concerned,” Zibelman said.

“So I think what we’re seeing in New York is … we will have an opportunity when we vote on these [ESCO] items in the future to really help in the dialogue that’s going on throughout the country,” Zibelman said.[6]

The Public Utility Commission of Texas was quick to disavow Chairwoman Zibelman’s interpretation of recent actions by the Texas Commission. During a public meeting in July, Chairwoman Donna Nelson responded to Zibelman’s comments and reaffirmed Texas’ commitment to the competitive market:

“I want to clarify something. It was brought to my attention that a Commissioner in New York has taken comments I’ve made about our Power to Choose website and construed it as, ‘even Chairman Nelson has a problem with the competitive market…I want to be absolutely clear that I’m probably the biggest cheerleader,’ for choice, outside of her fellow Texas commissioners, Nelson said. “I want to make crystal clear that the review we’re doing is for making improvements to our website, because we all believe fundamentally that a competitive market is the best one, but that customers have to have information to make a choice.”

Nelson noted that New York is, “curtailing choice,” for low-income customers, which prompted Commissioner Kenneth Anderson to note that the New York PSC had sought to go even further, as the PSC was on the road to repealing choice for all mass market customers. “If New York had a real competitive market, it’s doubtful they’d be paying the exorbitant rates they do,” Anderson added.[7]

Based on this exchange, it seems clear that while Texas may concede that improvements to the competitive market place are possible, wholesale dissolution of the ESCO industry is not the answer. New York’s actions are not likely to have much persuasive impact on decisions made by the Texas Commission.

• Pennsylvania

In Pennsylvania, the PUC has directed electric utilities to make Customer Assistance Program (CAP) benefits portable, so that customers may shop for a retail supplier while retaining the CAP benefits

Notably, the Pennsylvania PUC has in recent years issued orders requiring PECO and Duquesne Light to make CAP benefits portable and allow CAP customers to shop (CAP customers may already shop at PPL and the FirstEnergy EDCs). While Pennsylvania is still debating the best design for the CAP program in an era of choice, including pricing or other limits (such as no termination fees) on CAP offers from retail suppliers, there has been no question that CAP customers should retain the ability to shop, although perhaps subject to certain collars.

Chaos Can Be a Ladder

While many have found the recent changes unsettling, it is important to note that the upheaval is not without its opportunities.

• Participate in the Debate

The steps outlined in the Reset Order and related dockets are not yet finalized, and the PSC is actively seeking input and expert advice on how to shape and define key concepts, including ‘energy-related value-added services’ and utility price-matching. Certain REV-related dockets are also very active, and offer ESCOs and other market participants the opportunity to voice their opinion on what the future of the energy market should look like.

• The Grass Really Might Be Greener

More than 30 states have at least partially restructured their electric and natural gas markets, and it is very unlikely that all 30 states are going to dust off their Flux Capacitor and transport the markets back to 1985. Renewable energy and emerging technologies like microgrids and distributed energy make it even more difficult to return to the old models.

Different states approach retail markets from varying perspectives, which, depending on an ESCOs goals or limitations, might offer opportunities for growth, particularly in the face of New York’s changing landscape.

[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] Revisions to the Uniform Business Practices are adopted in accordance with the discussion in the body of this Order [….] a new subsection 2.D.5.m is added reading “failure to comply with any federal, state, or local laws, rules, or regulations related to sales or marketing or ‘No Solicitation’ signage on the premises; or.”  In addition, a subsection 2.D.6.1 is modified to state “Either (a) notify the ESCO in writing of its failure to comply and request that the ESCO take appropriate corrective action or provide remedies within the directed cure period, which will be based on a reasonable amount of time given the nature of the issue to be cured; or (b) order that the ESCO show cause why a consequence should not be imposed.” and subsection 2.D.6.2 is modified to state “The Commission may impose the consequences listed in subparagraph b of this paragraph if (a) ESCO fails to take corrective actions or provide remedies within the cure period; or (b) the Commission determines that the incident or incidents of non-compliance are substantiated and the consequence is appropriate.”

[3] Note- the moratorium does not apply to Community Choice Aggregation.

[4] http://www.energychoicematters.com/stories/20160303b.html

[5] http://www.energychoicematters.com/stories/20160715b.html

[6] http://www.energychoicematters.com/stories/20160715a.html

[7] http://www.energychoicematters.com/stories/20160721b.html