A New York Supreme Court recently vacated the New York Public Service Commission’s order that would have significantly altered the structure of the New York retail electric market. Although vacated, the matter has been remanded to the Public Service Commission for further proceedings, and it remains to be seen if the deficiencies the court identified will be remedied.

On July 22, 2016, the Supreme Court for Albany County, New York, vacated certain provisions of the Order Resetting Retail Energy Markets and Establishing Further Process (the “Reset Order”)1 issued by the New York Public Service Commission (“PSC”) earlier this year. Although the court did not consolidate the matters, the Supreme Court’s order (the “Court Order”) addressed three separate petitions filed by various industry groups (the “Petitioners”) making substantially the same arguments and seeking substantially the same relief.2

Background The PSC issued the Reset Order in February 2016, which mandated compliance by the affected market participants within 10 days of its issuance. The Reset Order fundamentally altered the retail electricity market landscape in New York by, among other things, requiring electric service companies (“ESCOs”) to enroll or renew residential or small commercial customers (so-called mass market customers) only if either of the following two conditions are met: (a) the contracts must provide guaranteed savings in comparison with what the customer would have paid as a full service utility customer; or (b) the contracts must provide for service comprising at least 30 percent renewable electricity.3

Along with the two conditions referenced above, the provisions required that (a) ESCOs receive the affirmative consent from existing mass market customers from a fixed price or guaranteed savings contract, to one meeting the alternative, renewable content contract; and (b) ESCOs certify in writing to the PSC that their new enrollments or renewals of mass market customers complied with the Reset Order.4

Further, the PSC issued guidance documents to the market related to the Reset Order’s implementation, and invited comments regarding the Reset Order being submitted (albeit after the Reset Order’s implementation).5 The Petitioners sought and were granted, in early March 2016, a temporary restraining order related to the three Reset Order provisions.6

Arguments The Petitioners argued that they had no notice of the scope and sweeping nature of the Reset Order, let alone the immediate transformation it directed.7 The Reset Order lacked any rational basis, the Petitioners claimed, and was not supported by substantial evidence. It therefore, according to the Petitioners, amounted to arbitrary and capricious action by the PSC.8 Further, and along with arguments based on the New York State and United States Constitutions, Petitioners urged the court to hold that, unlike its authority with public utilities, the PSC does not have authority to set rates for ESCOs.9

For its part, the PSC countered the Petitioners’ arguments by pointing to its broad statutory authority and discretion over the competitive retail electric market.10 It argued that its authority with public utilities (i.e., generation providers and transmission and distribution companies) encompassed the authority to regulate an ESCO’s access to those public utilities.11 At its core, the Reset Order appears to reflect the PSC’s view that, despite various tax breaks, ESCOs are unable to undercut the prices that regulated utilities are able to offer mass market customers, and that ESCOs too frequently utilize underhanded tactics with those customers.12

The Court Order The Court Order upholds the Petitioners’ arguments on virtually all points. As evidence of the arbitrary and capricious nature of the PSC’s action, the Court Order points to the much narrower scope of the hearing at which the Reset Order was considered, and held that the scope that was considered therefore failed to give Petitioners sufficient notice.13 It likewise considered the PSC’s actions after the Reset Order’s implementation as evidence of its arbitrary and capricious nature.14 Among the PSC’s post-implementation actions, the Court Order discusses the PSC’s invitation for comment after the Reset Order’s implementation, and its later attempt to base its action on premises not cited before the hearing.15

In spite of its vacatur of the Reset Order’s three provisions referred to above, the Court Order departed from the Petitioners’ argument in one significant respect. The Court Order seems to diverge from Petitioners’ view as to the scope of the PSC’s authority, stating that it “defies logic” that the PSC would be unable to regulate prices charged by ESCOs.16 The Court Order remands the matter to the PSC for further proceedings consistent with the Court Order.17

Conclusion Whether the PSC will appeal the Court Order, or will instead attempt to correct the deficiencies identified by the Supreme Court, is not yet certain. ESCOs, companies that supply electric power to ESCOs in New York, and other market participants, should carefully review the Court Order and any resulting litigation or rulemaking to properly plan for any ensuing business contingencies. The holding that the PSC can regulate an ESCO’s rates should also be given consideration, as there is not yet a clear picture of the framework with which the PSC would review those rates.