Judge Puts the Brakes on Cuomo’s Major Energy Industry Reforms

After sweeping regulatory reforms were announced last week, New York State’s retail energy industry, long marked by unscrupulous sales tactics and allegations of fraud, has come out swinging against the state’s attempts to rein it in. Today it won a major victory, when a judge in Albany temporarily halted the implementation of the reforms heavily touted by Governor Andrew Cuomo.

Calling the new rules “devastating” and “catastrophic” for their industry, trade groups representing energy services companies — private utilities that sell electricity and gas, commonly called ESCOs — went to court Thursday in an eleventh-hour bid to stop the changes.

They demanded that the Public Service Commission (PSC), the state agency that regulates the companies, back off its reforms, at least for the time being. They sought and won a temporary restraining order, arguing that the PSC had exceeded their regulatory authority.

Justice Kimberly O’Connor granted the utilities’ request for delay, without ruling on the merits of their claims. The rules will remain on hold until the parties come back to court on April 14 to further argue their respective cases.

A PSC spokesman, James Denn, wrote in an email message that the agency would keep fighting.

“This preliminary ruling is merely procedural — it does not address the merits of the PSC’s order,” Denn wrote. “The PSC has the absolute authority to regulate the industry and root out deceptive business practices. We are confident we will prevail in our effort to safeguard consumers against unscrupulous consumer practices, which have cost consumers millions of dollars in overcharges.”

Craig Goodman, president of the National Energy Marketer’s Association (NEMA), a trade group that is one of the parties to the suit, said the PSC’s order threatens the entire industry.

“The impact will be devastating,” Goodman told the Voice. “Just roughly, the members that we’ve spoken to are looking at the potential of losing hundreds of thousands of customers.”

The industry objects to almost the entirety of the order, but its filing this week emphasized the speed with which the PSC instituted the new rules. Issued on February 23, the order was to go into effect just ten days after its announcement. The deadline was set for today, March 4.

The restraining order is the culmination of a week of intense pushback that began almost immediately after the PSC told ESCOs to get their act together. Individually and through trade groups like NEMA, ESCOs filed more than a dozen requests with the PSC seeking an extension of the deadline. Those requests were denied by the PSC on Wednesday, sending the companies into court.

ESCOs were the subject of a Voice investigation in February, which examined widespread abuses in the industry that have been well documented by consumer watchdogs. The state attorney general and the AARP, along with advocacy groups like the Public Utility Law Project (PULP), have long been warning about both the industry’s problems and the heretofore lackluster response of the PSC, the regulatory agency charged with reigning it in.

More than a million households in New York use one ESCO or another, and consumer advocates say the companies’ worst abuses often target seniors and those with limited English fluency; the heaviest burdens fall on low-income New Yorkers. While the PSC’s own reports have described the industry’s problems in blunt terms for years now, the agency has so far meted out only tepid discipline, and only in a handful of cases.

The agency’s order last week, which was touted by Governor Andrew Cuomo, represented a dramatic about-face. When the Voice spoke with the PSC only weeks before the order came down, officials there were still generally defending the industry, and never suggested that dramatic changes were just around the corner.

The regulatory order announced last week was poised to dramatically reign in the ESCO game, and was greeted with enthusiasm by consumer advocates. The most significant change was designed to address widespread overcharging in the industry, by requiring ESCOs to sell contracts that guarantee customers lower rates, as compared with traditional regulated utilities like Con Ed. Any companies that can’t offer that guarantee will have to provide “value added” services, like repair contracts or even airline miles. Alternatively, companies unable or unwilling to offer such plans can guarantee that the power they deliver includes at least 30 percent renewable energy.

Other provisions of the order would make it far easier for the PSC to discipline ESCOs that misbehave, by shortening or eliminating the so called “cure period” for violations; the cure period previously allowed even repeat offenders to simply correct bad behavior, without significant cost or lasting sanctions. As we reported, only a handful of companies have ever been meaningfully disciplined by the PSC.

Mounting evidence shows that residential customers who switch from a traditional, heavily regulated utility to an ESCO generally pay significantly more for their energy. That’s a bit of a problem, because the prime function of ESCOs has always been to reduce costs. The PSC’s order was designed to prevent that situation from perpetuating.

As the industry geared up last week for what was clearly an all-out assault on the PSC’s reforms, advocates were cheering the changes, and urging the PSC to hold fast. In a response to the requests for extension this week, the Public Utility Law Project, which has been pushing for reform in the ESCO industry for years, said the argument for an extension was completely unfounded.

“The ESCOs should have found the reforms…to be foreseeable,” PULP wrote in comments opposing ESCO requests for extension, “on account of the fact that they are the parties that engaged in” the bad behavior being targeted by the PSC.

As we documented in our story — and as PULP has been pointing out for years to the agency and other policy makers — the PSC has long been aware of problems with high prices and misleading tactics. The proposed remedies, PULP argues, were not unforeseen, because the PSC has discussed them in written reports produced by the agency.

More telling, says Richard Berkley, PULP’s executive director, is that the ESCO industry has always said that they were saving customers money. Indeed, the whole idea of a free-market energy industry was to undercut utility prices through “innovation” and the supposed nimbleness of private industry.

“The ESCOs are asserting now that to provide the discount that they’ve been promising to customers for all this time,” Berkley says, “would put them out of business. It makes you think.”

Bill Ferris, legislative director for the AARP in New York, echoed PULP’s position, and said there was no reason to delay the PSC’s changes.

“The commission spoke,” Ferris told the Voice, “they spoke with good research, and there’s no reason to delay the implementation of this rule whatsoever.”

Similarly, the response of the PSC has so far been: We’ve made our decision. They’re not denying that it will be difficult; in announcing the order last month, PSC chair Audrey Zibelman acknowledged that the order would be “disruptive” to the industry, but said dramatic action was called for in the face of consumer complaints.

In comments to the Voice, agency spokesman James Denn acknowledged that some ESCOs, faced with a tighter regulatory climate, may end up leaving the state.

“It’s possible that a few ESCOs will decide to leave the market if they can’t offer customer savings or value-added products, such as green energy,” the spokesman wrote. “But the choice is up to them. At the end of this process, we will be left with ESCOs that will provide products and services that consumers will benefit from.”

In a further challenge to increased regulation, ESCO representatives on Thursday also filed an appeal to a PSC decision that would force them to disclose historical pricing data. The rates ESCOs charge their customers have heretofore been disclosed to the PSC, but shielded from release under the state’s Freedom of Information Law — under the theory that they represent trade secrets — and ESCOs are hoping to keep it that way. Consumer advocates say making that data public is critical if New Yorkers are going to be able to accurately assess pricing plans against their traditional utility.

From every angle, it looks like the industry plans to fight hard for the status quo.

A request for comment from the Cuomo administration had not been answered as of this posting.

2016-03-04 Order to Show Cause (National Energy) (Signed)

MOL Restraining Order