National Energy Marketers Ass'n v. New York State Public Service Commission

OPINION OF THE COURT

In the two proceedings pending before the court is an order to show cause (OTSC), supported by verified petitions/complaints filed by National Energy Marketers Association, BlueRock Energy, Inc., Residents Energy, LLC and Verde Energy USA New York, LLC (collectively NEMA) and Retail Energy Supply Association (RESA), seeking a temporary restraining order and a permanent injunction. The parties seek nullification of what has come to be known as the “Low-Income Moratorium,” first issued by the Public Service Commission (PSC) on July 15, 2016 and reissued on September 15, 2016 as an “Emergency Order.” In response to both petitions, the September 28, 2016 OTSC by the court (O’Connor, J.) included a temporary restraining order (TRO) preventing the implementation of any of the provisions of the moratorium until further order of this court. The petitioners also moved for “emergency discovery,” which Judge O’Connor reserved upon and which remains pending before this court.

Also pending is an order to show cause dated February 9, 2017 seeking contempt for what petitioners describe as the PSC’s “blatant disregard of the temporary restraining order.” The OTSC alleges that the PSC’s issuance on December 16,

Petitioners argue that the October notice, which doubled as both support for the Commission’s emergency rule making of September 15, 2016 and “A Notice of Proposed Rule Making,” also failed to comply with the State Administrative Procedure Act, as did the subsequent determination made by the PSC on December 16, 2016—the Order Adopting a Prohibition on Service to Low-Income Customers by Energy Service Companies. Thereafter, NEMA filed its first amended petition and complaint, renewing its arguments regarding the State Administrative Procedure Act deficiencies in the first two moratoriums, and adding that the prohibition suffered from the same faulty procedure. Petitioners assert that the October notice provided 45 days for public comment, but did not comply with the requirement that a public hearing be scheduled. Petitioners assert that there was no meaningful process to cure the substantive and procedural deficiencies underlying its prior attempts to enact the moratorium—such as a hearing or collaborative—that no true emergency justified the use of the emergency powers under the State Administrative Procedure Act, and that the PSC’s determination was unreasonable, arbitrary and capricious. While continuing to contest noncompliance with the State Administrative Procedure Act, petitioners also cited the PSC’s reliance on a deficient evidentiary record void of verifiable data such as ESCO rates, utility rates and different products offered; its violations of customer privacy rights; its constitutional violations; and the arbitrary and capricious manner in which the PSC sought to implement the moratorium.

Concluding that the ESCOs overcharged customers by $819 million between January 2014 and June 2016, with low-income ESCO customers paying $96 million more over the same period, the PSC adopted the Order Adopting a Prohibition on the Service to Low-Income Customers By Energy Service Compa

Turning first to respondents’ objection that the proper procedural vehicle for the relief petitioners seek is an article 78, and that this is not a hybrid action, the court agrees. Challenges to a legislative act—having general applicability, indefinite duration and formal adoption—can only be made in a declaratory action (Matter of Frontier Ins. Co. v Town Bd. of Town of Thompson, 252 AD2d 928 [3d Dept 1998]). Challenges to the procedures in which an act is adopted, such as administrative determinations, are the proper subject of article 78 proceedings (Consolidated Edison Co. of N.Y. v Town of Red Hook, 60 NY2d 99 [1983]). These proceedings challenge the administrative action of the PSC, and while the actions are alleged to have constitutional implications, this does not make it a hybrid proceeding.

When the issue before the court concerns the exercise of discretion by an administrative agency, it “cannot interfere unless there is no rational basis for the exercise of discretion or the action complained of is arbitrary and capricious” (Matter of Pell v Board of Educ. of Union Free School Dist. No. 1 of Towns of Scarsdale & Mamaroneck, Westchester County, 34 NY2d 222 , 231 [1974] [internal quotation marks omitted]). Here, the court is also mindful when reviewing decisions of the PSC that “[a]dministrative agencies are endowed by experience with greater expertise” (Matter of Estrella v Bradford, 146 Misc 2d 48 , 52 [Sup Ct, Albany County 1989]) and on issues of fact and policy it is appropriate to defer to the agency (Matter of New

The notion that ESCOs, direct offshoots of the PSC’s activity of unbundling rates, and whose conduct is prescribed by the Uniform Business Practices (UBP) adopted by the PSC, have somehow morphed into a separate energy sector with independent rights simply has no basis in law. To the extent that ESCOs believe that their regulation must be minimized because of this also has no basis in law. Just as when the utilities argued that the PSC did not have the authority to direct “retail wheeling of electricity by electric utilities,” the court determined that the Public Service Law “[could] not be restrictively read” (Matter of Energy Assn. of N.Y. State v Public Serv. Commn. of State of N.Y., 169 Misc 2d 924 , 933-934 [Sup Ct, Albany County 1996], citing Matter of New York Tel. Co. v Public Serv. Commn. of State of N.Y., 72 NY2d 419 , 427-428 [1988]).

As for petitioners’ constitutional arguments, the court finds no violations of the Contracts, Due Process or Takings Clause with respect to the implementation of the prohibition. As to the Contracts Clause, the prohibition involves only the making of new contracts with low-income customers, and present contracts clearly remain in place. As to the equal protection claim, the prohibition reasonably reflects the different situation of low-income customers and ratepayer subsidies. The Fifth Amendment’s Takings Clause, applicable to New York through the 14th Amendment, “prohibits . . . government [s] from taking private property for public use without just compensation” and implicit in this definition is that a property interest must actually exist before it can be taken (Palazzolo v Rhode Island, 533 US 606 , 617 [2001]). The “[p]roperty interests are not created by the Constitution, but rather by existing rules or understandings that stem from an independent source such as

Clearly, a utility does not have a property interest in a customer (Matter of Energy Assn., 169 Misc 2d at 935 ). Similarly, “[w]hile customers of utilities are entitled to just and reasonable rates, they do not acquire any interest in the property of the utility” (Matter of Multiple Intervenors v Public Serv. Commn., 95 AD2d 876 , 877 [3d Dept 1983] [citations omitted]; Matter of Kessel v Public Serv. Commn. of State of N.Y., 193 AD2d 339 , 346 [3d Dept 1993]).

Because the PSC retains jurisdiction over the ESCOs to establish reasonable rates, logic dictates that it retains a sufficient amount of control over the retail energy market to prevent the assertion by these companies that they have a “property interest.” Absent an identifiable property interest— and it has already been established that a customer is not a property interest—petitioners cannot successfully assert a violation of the Takings Clause or due process. As to any interference with the petitioners’ contractual relationship with their customers, the prohibition does not require that any existing contracts be breached. Rather, and permissibly, it is only at the conclusion of an existing agreement that the ESCOs are precluded from entering into a new agreement with a low-income customer.

Turning to petitioners’ argument that the PSC is violating the privacy rights of the APPs with the prohibition, on this issue they simply lack standing. Merely because the earlier collaborative expressed a concern about violating the statutory privacy rights of APPs does not in any way prevent the PSC from revising its position, especially in light of the ESCOs repeated failure to address the PSC’s concerns regarding

All said, weighing the issue of total privacy of low-income customers against insuring their right not to overpay for energy services, and the public’s right not to subsidize these energy companies, the provisions in the prohibition which amount to the sharing of the LIHEAP status of customers is well within the authority of the PSC.

Addressing petitioners’ State Administrative Procedure Act arguments, they cannot in good faith argue that they were not given an opportunity to be heard at a meaningful time and in a meaningful manner regarding the PSC’s serious and repeated concerns regarding low-income customers being overcharged for services. Since 2012, the PSC has repeatedly stated its concern for the dilution of assistance benefits provided to low-income customers by ESCOs, and toward that end modifications to the UBP and utility tariffs were first ordered on February 25, 2014. Included among those orders was a direction that ESCOs serving low-income assistance program utility customers must either “guarantee savings over what consumers would pay their utility or provide such consumers with energy related value added services that reduce the consumer’s

Petitioners’ argument that the prohibition cannot stand because it lacks a rational basis and is arbitrary and capricious is also without merit. The PSC’s findings are well written and exceptionally comprehensive, address all of petitioners’ arguments, and are well supported by the record. The court finds the determination to be rationally and reasonably related to the mission of the PSC—to protect the public interest by insuring that energy remains affordable for all consumers in the state, especially for low-income consumers. The court agrees with the observations noted by the PSC in the prohibition order:

“Given the ESCO community’s resistance and rejection of all efforts to protect the State’s most economically vulnerable energy consumers, and in accordance with its obligation to ensure that rates remain just and reasonable in competitive markets, the Commission took necessary affirmative action in the July and September orders by imposing a temporary moratorium on ESCO enrollments and renewals of APP.”

Underlying its determination was the finding, that was unchallenged by petitioners during the Low-Income Moratorium, that APPs paid more for utility service than utility APP customers, which leads to the decrease in the value of public assistance programs to low-income customers who utilized ESCO services. Clearly the PSC’s determination to adopt first the moratoriums, and then the prohibition, was a rational exercise of its broad authority and technical expertise to set rates (Mat

Concerning the petitioners’ request for discovery, “[u]nder CPLR article 78, a petitioner is not entitled to discovery as of right, but must seek leave of court pursuant to CPLR 408 . . . [and] discovery is granted only where it is demonstrated that there is [a] need for such relief” (Matter of Town of Pleasant Val. v New York State Bd. of Real Prop. Servs., 253 AD2d 8 , 15 [2d Dept 1999]; Matter of Lally v Johnson City Cent. Sch. Dist., 105 AD3d 1129 [3d Dept 2013]). On a motion for discovery in an article 78 proceeding, the court will consider whether providing the proposed discovery would be unduly prejudicial or unduly burdensome, would violate confidentiality, or would delay the case (Matter of Town of Pleasant Val. v New York State Bd. of Real Prop. Servs., 253 AD2d 8 [2d Dept 1999]).

On this record, the petitioners have failed to establish a “demonstrated need” for the further discovery they seek in

Nor is there any merit to the petitioners’ complaint concerning the PSC’s utility methodology—a methodology they embrace every time a bill for their services is sent out—or to their claim that the Alch affidavit contains figures not relied upon by the PSC. However viewed, the Alch affidavit supports the reasonableness of the PSC determination, and does not provide new information that was not before the PSC when it considered the prohibition.

All said, the PSC correctly tagged the petitioners’ motion for discovery as nothing more than a delaying tactic—undertaken only to further delay the implementation of the prohibition— and the request for discovery is denied.

Turning to the petitioners’ application to hold the PSC in contempt for what it describes as its violation of the temporary restraining order, and seek counsel fees, the court is mindful that “[t]he decision of whether to hold in contempt a party who fails to comply with a court order rests within the court’s sound

Implicit in this court’s determination is the opinion that the ESCO market is in need of immediate reform to protect low-income consumers and to avoid the diminution of taxpayer-funded assistance funds. Accordingly, the court would not expect, given the ESCOs’ posture in these proceedings, that the PSC would take no steps in furtherance of its obligation to all utility ratepayers. Short of actually attempting to enforce the Emergency Moratorium order, there has been no contempt, and on this record it would be an abuse of the court’s discretion to so hold.

The court notes that petitioners initially met the requirements for an injunction and were granted a temporary restraining order. However, as discussed above, petitioners have

Accordingly, it is ordered that the first amended verified petition and complaint of National Energy Marketers Association, BlueRock Energy, Inc., Residents Energy, LLC and Verde Energy USA New York, LLC (index No. 5860-16) is denied and dismissed in all respects; and it is further ordered that the verified petition and complaint of Retail Energy Supply Association (index No. 5693-16) is denied and dismissed in all respects; and it is further ordered that the petitioners’ applications for a temporary restraining order, preliminary injunction, expedited discovery and contempt are denied; and it is further ordered that respondents’ cross motion to vacate the temporary restraining order is granted.