New York Supreme Court Stays Implementation of PSC’s Broker/Consultant Rules

Court Cites Potential Unconstitutional Violation of Separation of Powers

On August 1, 2024, at a special session of the New York State Supreme Court, Albany County, Justice Peter Lynch, JSC, issued a temporary restraining order/stay in the case Diversegy, LLC and Citizens Choice Energy, LLC vs. New York State Public Service Commission, Albany County Index No. 907356-24. The order temporarily stays enforcement of the New York Public Service Commission’s (PSC) energy broker/consultant regulations promulgated pursuant to § 66-t of the Public Service Law (PSL).

As background, the New York Legislature enacted PSL § 66-t in 2022, which defines private entities that facilitate the sale of natural gas or electricity on behalf of a customer or third-party supplier (Energy Service Companies or ESCO) as brokers or consultants.¹ Under § 66-t, brokers and consultants are required to register with the New York State Department of Public Service (DPS), demonstrate financial security through the posting of a bond or some other instrument, and disclose their fee either in broker/consultant contracts with customers or through the associated ESCO’s contracts with customers. ESCOs, for their part, are required to disclose such fees if a sale was facilitated through a broker or consultant and are prohibited from paying any fee to a broker or consultant that is not registered with DPS. These requirements are designed, in part, to obtain regulatory authority over third-party entities facilitating retail energy sales in New York—whose actions were previously not directly regulated by the PSC. To implement the requirements of § 66-t, the PSC issued two orders² (the Orders) laying out the regulatory mandates and updating the Uniform Business Practices for ESCOs and distributed energy resource providers. However, when the PSC issued the Orders, it removed the ability for brokers/consultants to utilize a bond to demonstrate financial security, as specifically permitted under § 66-t; instead requiring brokers and consultants to submit a more difficult-to-obtain letter of credit as part of its application to DPS.

The Orders were set to be effective on July 31, 2024, after the PSC rejected multiple rehearing requests. Diversegy, LLC and Citizens Choice Energy, LLC (Petitioners) filed a legal challenge in the Supreme Court, Albany County. After a hearing on the matter, at which the Petitioners argued that several aspects of the Orders were improper or unlawful, the Supreme Court issued a temporary restraining order/stay against enforcement of the Orders in their entirety. In doing so, Justice Lynch indicated that the PSC’s rejection of the plain language in the PSL § 66-t statute that permitted use of a bond as financial security appeared to be a troubling potential violation of the constitutional requirement of separation of powers (because such rewriting of the statute is solely within the powers of the State Legislature).

What’s Next?

A return date for oral argument on a preliminary injunction and the merits of the litigation is set for late August 2024. The Orders may be upheld or struck down in whole or in part.

What Should Regulated Parties Expect?

All regulated entities under PSL § 66-t—those operating or planning to operate as an energy broker or consultant, as well as ESCOs working with such entities—must be prepared to comply with surviving aspects of the Orders, if any, upon final resolution of the litigation. Until and unless another timeline is provided by the PSC, entities should plan to limit their liability and risk exposure by preparing for compliance on short notice following conclusion of the case.

Additional Assistance

For more information, please contact Thomas Puchner, Adam Herron, or Benjamin Sugarman, any member of our Energy and Renewables Industry Team, or the Phillips Lytle attorney with whom you have a relationship.