UNITED STATES OF AMERICA
FEDERAL ENERGY REGULATORY COMMISSION
Before Commissioners: Neil Chatterjee, Chairman;
Cheryl A. LaFleur, Richard Glick,
and Bernard L. McNamee.
Light Power & Gas of NY LLCDocket No. EL19-39-000
v.
New York Independent System Operator, Inc.
ORDER DENYING COMPLAINT
(Issued June 20, 2019)
On January 29, 2019, pursuant to sections 206 and 306 of the Federal Power
Act (FPA),1 and Rule 206 of the Commission’s Rules of Practice and Procedure,2
Light Power & Gas of NY LLC (LPGNY) filed a complaint (Complaint) against
New York Independent System Operator, Inc. (NYISO). LPGNY alleges that NYISO
violated its Open Access Transmission Tariff (OATT) by attributing to LPGNY the
outstanding debts of North Energy Power LLC (North Energy), a bankrupt former
NYISO market participant, for purposes of considering LPGNY’s application for
registration in NYISO’s markets. For the reasons discussed below, we deny LPGNY’s
Complaint.
I.Background
A.LPGNY and North Energy
LPGNY states that it is a New York limited liability company that was formed on
or about February 28, 2014, as part of a larger “Light Power & Gas” brand created to
market retail electricity and natural gas to customers in various states/markets. According
to LPGNY, its business was never advanced in New York, although the intent was for it
to operate as a retail electricity seller in New York since it was created back in 2014.
1 16 U.S.C. §§ 824e, 825e (2012).
2 18 C.F.R. § 385.206 (2018). (continued ...)
Docket No. EL19-39-000- 2 -
LPGNY explains that in the fall of 2018, the New York Public Service Commission
(New York Commission) authorized LPGNY to operate as an energy service company to provide electric supply service to New York retail customers. LPGNY states that it must register with NYISO to participate in NYISO’s wholesale electricity markets.3
LPGNY states that North Energy, a separately owned and operated limited
liability company, was an energy service company providing electric supply service to
New York retail customers until September 17, 2018, when it filed for Chapter 11
bankruptcy due to unanticipated events involving the separate bankruptcy of its creditor
and vendor, Big Apple Energy, LLC.4 According to LPGNY, following North Energy’s
bankruptcy, NYISO asserted claims against North Energy for various unpaid amounts
related to its purchases in NYISO’s markets, which exceeded North Energy’s collateral
held by NYISO. LPGNY states that NYISO subsequently obtained an order from the
bankruptcy court granting relief from the automatic stay so that NYISO could terminate
North Energy’s ability to participate in NYISO’s electricity markets, and NYISO could
set off North Energy’s collateral against NYISO’s claims for unpaid amounts.5
B.Section 27 of NYISO’s OATT
Section 27 of NYISO’s OATT discusses the declaration and recovery of bad debt
losses and sets forth the process that NYISO uses to recover defaults that are owed under
both NYISO’s OATT and Market Administration and Control Area Services Tariff
(Services Tariff).6 Under Section 27.4 of NYISO’s OATT, a Transmission Customer7
3 Complaint at 4-5, Attachment 1 Leiber Aff. ¶¶ 3-10, 15.
4 Id. at 6, Attachment 1 Leiber Aff. ¶¶ 22-23.
5 Id. at 6-7, Attachment 1 Leiber Aff. ¶¶ 24-25, Ex. J.
6 NYISO, OATT, Attachment U, § 27 (0.0.0). The procedures set forth in Section 27 include the processes NYISO must use to notify market participants of the declaration of a bad debt loss (Section 27.2), the formula that is used to charge Transmission Customers for bad debt losses (Section 27.3), and the requirements for re-entry of a Transmission Customer that had its bad debt loss charged to other
Transmission Customers (Section 27.4).
7 NYISO’s OATT defines a Transmission Customer as: “Any Eligible Customer
(or its designated agent) that (i) executes a Service Agreement, or (ii) requests in writing
that the ISO file with the Commission a proposed unexecuted Service Agreement to receive
Transmission Service under Part 3, 4 and/or 5 of the Tariff.” Id. § 1.20 (0.0.0). An Eligible
Customer, as used in the definition of Transmission Customer, is defined as: “(i) An entity
that is engaged, or proposes to engage, in the wholesale or retail electric power business
(continued ...)
Docket No. EL19-39-000- 3 -
whose previous default resulted in a Schedule 1 bad debt loss charge to other Transmission
Customers may not reenter the market until it has (1) cured such default by paying all
outstanding obligations and (2) met “all ISO minimum participation criteria, registration
requirements, and creditworthiness requirements, including posting of required collateral,
prior to being re-admitted by the ISO to participate in the New York wholesale energy
markets.”8
C. LPGNY’s Application for NYISO Registration
On November 26, 2018, LPGNY completed its application for registration with
NYISO to participate in NYISO’s markets.9 On December 21, 2018, NYISO issued a
letter notifying LPGNY that it would hold LPGNY’s application in abeyance pending
payment by another market participant—North Energy—of its outstanding and unpaid
obligations to NYISO under Section 27.4 of NYISO’s OATT.10 The letter stated that
NYISO determined that LPGNY is a continuation of North Energy, with successor
liability for North Energy’s debts to NYISO and that, pursuant to Section 27.4 of
NYISO’s OATT, a Transmission Customer that defaults on a payment obligation to
NYISO must cure the default and make payment in full prior to being re-admitted to
participate in NYISO’s markets.11 NYISO’s letter to LPGNY further stated that NYISO
including any electric utility, power marketer, Federal power marketing agency, or any
person generating Energy for sale for resale is an Eligible Customer under the Tariff.
Electric energy sold or produced by such entity may be electric energy produced in the
United States, Canada or Mexico. However, with respect to transmission service that the
Commission is prohibited from ordering by Section 212(h) of the Federal Power Act, such
entity is eligible only if the service is provided pursuant to a state requirement that the
Transmission Owner offer the unbundled Transmission Service, or pursuant to a voluntary
offer of such service by the Transmission Owner. (ii) Any retail customer taking unbundled
transmission service pursuant to a state requirement that the Transmission Owner offer the
transmission service, or pursuant to a voluntary offer of such service by the Transmission
Owner, is an Eligible Customer under the Tariff.” Id. § 1.5 (13.0.0).
8 Id. § 27.4 (0.0.0).
9 NYISO Answer, Attachment III Davies Aff. ¶ 6.
10 Complaint, Ex. H.
11 Id.
(continued ...)
Docket No. EL19-39-000- 4 -
will resume its evaluation of LPGNY’s application once North Energy has paid all outstanding amounts owed to NYISO.12
Shortly after it received the December 21, 2018 letter, LPGNY states that its
counsel contacted NYISO’s counsel in an attempt to understand the basis for NYISO’s legal position and resolve the dispute, but they did not resolve the dispute.13 LPGNY states that NYISO also indicated that dispute resolution under NYISO’s tariffs would not be productive because NYISO would not change its legal position.14
II.Complaint
LPGNY requests that the Commission find that: (1) NYISO violated its OATT by
holding LPGNY’s registration application in abeyance pending payment by North Energy
of its outstanding and unpaid obligations to NYISO under Section 27.4 of NYISO’s
OATT; (2) NYISO unreasonably, unlawfully, and unduly discriminated against LPGNY
by refusing to process its application for registration based on an unwritten successor
liability policy; (3) NYISO violated FPA section 205 by failing to include its unwritten
successor liability policy in its filed OATT; (4) any determination of successor liability
should be made by a court, not NYISO; and (5) NYISO failed to follow its bad debt and
re-entry provisions for defaulting Transmission Customers under Section 27 of NYISO’s
OATT.15 LPGNY asks that the Commission direct NYISO to expeditiously process
LPGNY’s application without further delay, and provide such further relief as the
Commission deems necessary. LPGNY also requests, under Rule 206(b)(11),16 that the
Commission fast track the disposition of this proceeding based on the pleadings because
it asserts that there are no issues of material fact in dispute regarding NYISO’s actions
and the relevant terms of NYISO’s OATT.17
12 Id.
13 Complaint at 7-8.
14 Id. at 8.
15 Id. at 1-2.
16 18 C.F.R. § 385.206(b)(11) (2018).
17 Complaint at 17-18.
(continued ...)
Docket No. EL19-39-000- 5 -
LPGNY claims that NYISO ignored the plain language of NYISO’s OATT by
importing a standard of common law successor liability into the OATT.18 LPGNY
explains that Commission precedent requires independent system operators (ISOs)
to abide by the express terms of their tariffs.19 LPGNY argues that a review of
Section 27.4, the definition of Transmission Customer used in that section, and the
definition of Eligible Customer as used in the definition of Transmission Customer
shows that NYISO’s OATT does not contain any language that references a
“continuation,” “mere continuation,” or successor liability of any kind.20 LPGNY
therefore asserts that NYISO violated its OATT by applying a successor liability policy,
and unduly discriminated against LPGNY by prohibiting its participation in NYISO’s
markets for the purpose of applying misplaced leverage against North Energy, an
unrelated entity.21 LPGNY also argues that NYISO’s unwritten successor liability policy
significantly affects the terms and conditions of service under NYISO’s OATT, and is
unenforceable because the policy has not been filed with the Commission under FPA
section 205.22
LPGNY argues that as a matter of policy, the Commission should find that
imputing a successor liability standard into the OATT is unreasonable and unduly
discriminatory because successor liability is a question that should be determined by a court, rather than NYISO or the Commission.23 In particular, LPGNY asserts that such determinations should be made by neutral judges, rather than “biased” NYISO
18 Id. at 2, 11-12.
19 Id. at 9-10 (citing PPL EnergyPlus, LLC v. N.Y. Indep. Sys. Operator, Inc.,
115 FERC ¶ 61,383, at P 28 (2006) (finding that NYISO violated its Services Tariff by
awarding import rights based on an “unreasonable and illogical” distinction that the
customer had no reason to know based on NYISO’s Services Tariff and installed capacity
manual); City of Anaheim v. Cal. Indep. Sys. Operator Corp., 94 FERC ¶ 61,268, order
on reh’g, 95 FERC ¶ 61,197 (2001)); see also id. at 9 n.7 (citing additional precedent).
20 Id. at 11-12.
21 Id. at 12.
22 Id. at 15-16 (citing, e.g., PJM Demand Response Coalition v. PJM Interconnection, L.L.C., 143 FERC ¶ 61,061, at P 17 (2013) (footnote omitted) (“The FPA requires all
practices that significantly affect rates, terms and conditions of service to be on file with the Commission, and these practices must be included in a Commission-accepted tariff rather
than other documents.”)).
23 Id. at 13.
(continued ...)
Docket No. EL19-39-000- 6 -
administrators.24 LPGNY notes that NYISO has failed to provide a written legal basis or explanation for its finding of successor liability.25
Finally, LPGNY asserts that NYISO failed to follow the bad debt procedures
outlined in Section 27 of its OATT. Specifically, LPGNY argues that, even if there were a basis to treat LPGNY as a successor to North Energy, NYISO first has to follow the
steps required by Section 27, including declaring a bad debt under Section 27.1,
providing notice of the bad debt as required in Section 27.2, and allocating the bad debt loss as a Schedule 1 charge pursuant to Section 27.3.26 LPGNY notes that NYISO has admitted that it has not declared a bad debt loss by North Energy.27 LPGNY asserts that even if North Energy were seeking re-entry into NYISO’s markets under Section 27.4 of NYISO’s OATT, NYISO would not have a basis to bar its re-entry because the bad debt procedures of Section 27 have not been followed.28
III. Notice and Responsive Pleadings
Notice of the Complaint was published in the Federal Register, 84 Fed. Reg. 1720
(2019), with NYISO’s answer and all interventions or protests due on or before
February 19, 2019. NYISO filed a timely answer. PJM Interconnection, L.L.C. (PJM)
and the New York Transmission Owners (NYTOs)29 filed timely interventions and
comments opposing the Complaint.30 The Maryland Public Service Commission
24 Id. at 14.
25 Id.
26 Id. at 12-13.
27 Id. at 13.
28 Id.
29 NYTOs consist of: Central Hudson Gas & Electric Corporation; Consolidated
Edison Company of New York, Inc.; Niagara Mohawk Power Corporation d/b/a National
Grid; New York Power Authority; New York State Electric & Gas Corporation; Orange
and Rockland Utilities, Inc.; Power Supply Long Island; and Rochester Gas and Electric
Corporation.
30 Exelon Corporation (Exelon) also filed a timely motion to intervene, which
LPGNY opposed. Exelon subsequently withdrew its motion to intervene. Pursuant to
Rule 216(b) of the Commission’s Rules of Practice and Procedure, 18 C.F.R. § 385.216(b)
(continued ...)
Docket No. EL19-39-000- 7 -
(Maryland Commission) filed a timely notice of intervention taking no substantive position.31
On March 6, 2019, LPGNY submitted answers opposing the interventions by
PJM, the Maryland Commission, and NYTOs. On March 8 and 19, 2019, respectively, the Maryland Commission and NYTOs filed answers to LPGNY’s answers in opposition to their interventions.
On April 24, 2019, LPGNY filed an answer to NYISO’s answer.
On May 20, 2019, NYISO filed a second answer to LPGNY, and subsequently, on June 4, 2019, LPGNY filed a second answer to NYISO.
A.NYISO’s Answer to the Complaint
NYISO argues that under the specific circumstances of this case, it reasonably
concluded that LPGNY and North Energy are the same entity or “Transmission
Customer” under Section 27.4 of its OATT.32 NYISO provides two affidavits to support
its contention that LPGNY and North Energy are essentially the same entity operating in
NYISO’s markets.33 NYISO states that LPGNY was a “shell company” that was only
activated once North Energy filed for bankruptcy and that the timeline of these events
supports the conclusion that LPGNY’s principals are attempting to skirt North Energy’s
debt obligations to NYISO and re-enter NYISO’s markets without settling these
obligations.34 NYISO states that North Energy currently owes an estimated $692,186.74, subject to the invoice true-up process, which will be complete in July 2019.35
(2018), the withdrawal of Exelon’s pleading became effective at the end of 15 days from the date of Exelon’s filing of the notice of withdrawal.
31 We note that the Maryland Commission styled its intervention as a motion to
intervene. Because this intervention was timely filed and filed by a State Commission,
we treat the Maryland Commission’s motion to intervene as a notice of intervention in
accordance with Rule 214(a)(2) of the Commission’s Rules of Practice and Procedure,
18 C.F.R. § 385.214(a)(2) (2018).
32 NYISO Answer at 6-8, 10.
33 Id. at 3, 5, Attachment II Prevratil Aff., Attachment III Davies Aff.
34 Id. at 4-5, 7-8, 10.
35 Id., Attachment II Prevratil Aff. ¶ 7. (continued ...)
Docket No. EL19-39-000- 8 -
NYISO argues that LPGNY’s first discernable business activities (to register LPGNY
as an energy service company with the New York Commission in September 2018, and to
contact NYISO to register as a market participant in NYISO’s markets) only took place
after North Energy was in dire financial straits.36 NYISO states that on August 27, 2018,
Big Apple Energy, LLC, which was financing North Energy, filed for bankruptcy.37 NYISO
states that North Energy defaulted on its obligations to NYISO and filed its own Chapter 11
bankruptcy case on September 17, 2018.38 NYISO states that on October 10, 2018, it
received permission from the bankruptcy court to terminate North Energy’s participation in
NYISO’s markets and to access North Energy’s collateral for its obligations in NYISO’s
markets.39 NYISO states that a week later, on October 17, 2018, one of North Energy’s
principals, operating through LPGNY, initiated a formal application with NYISO to register
LPGNY as a market participant in NYISO’s markets, and LPGNY completed that application
on November 26, 2018.40 NYISO states that it identified a close factual overlap between
LPGNY and North Energy including shared principals, the same business model, similar
addresses, the same service territory, and the same customers.41
NYISO explains that North Energy’s collateral was not sufficient to cover its
obligations in NYISO’s markets, and if this obligation is not repaid, other market
participants will be left to bear that obligation.42 NYISO contends that it has a
responsibility to administer its tariffs in a common sense manner, and to protect market
participants from unreasonable credit risks and associated costs.43 NYISO further argues
that neither the OATT, the filed rate doctrine, nor Commission policy should allow
36 Id. at 4.
37 Id., Attachment II Prevratil Aff. ¶ 6.
38 Id.
39 NYISO Answer at 3, 5.
40 Id. at 5, Attachment III Davies Aff. ¶ 6.
41 Id. at 5, Attachment II Prevratil Aff. ¶¶ 9-11, Attachment III Davies Aff. ¶¶ 7-
12.
42 Id. at 3-4.
43 Id. at 6.
(continued ...)
Docket No. EL19-39-000- 9 -
market participants to evade their overdue financial obligations by simply changing corporate form.44
NYISO argues that Section 27.4 of the OATT authorizes NYISO to refuse
registration of LPGNY until its principals settle North Energy’s debt obligations under
Section 27.4 of the OATT.45 NYISO explains that, while it would not normally
consider separate LLCs to be the same Transmission Customer, treating LPGNY and
North Energy as the same Transmission Customer under Section 27.4 is reasonable based on the exceptional facts of this case, which indicate that there is no practical difference
between LPGNY and North Energy.46 NYISO also asserts that establishing a new LLC
in New York is relatively easy and inexpensive, and that without interpreting the term
“Transmission Customer” as it has, NYISO and its market participants would face
substantial additional credit risks.47
NYISO asserts that, even if the Commission were to find Section 27.4 to be
ambiguous, the Commission should find that NYISO’s application of Section 27.4 was
reasonable given the specific facts of the case, precedent, and Commission policy.
NYISO argues that Commission precedent applicable to disputes concerning ambiguous
tariff provisions require consideration of at least two principles applicable to this case:
(1) the underlying purpose of the ambiguous tariff provision; and (2) whether disregarding
the corporate form is in the interest of public convenience, fairness, or equity.48 NYISO
44 Id.
45 Id.
46 Id. at 7-9.
47 Id. at 8.
48 Id. at 11-15 (citing N.Y. Indep. Sys., Operator, Inc., 131 FERC ¶ 61,032 (2010)
(where the tariff language is ambiguous, the Commission will consider extrinsic
evidence, including the underlying purpose of the tariff provision); Sw. Power Pool, Inc.,
160 FERC ¶ 61,115 (2017) (same), order denying reh’g, 163 FERC ¶ 61,063 (2018),
pet. denied sub nom. Mo. River Energy Servs. v. FERC, 918 F.3d 954 (D.C. Cir. 2019);
Town of Highlands v. Nantahala Power & Light Co., 37 FERC ¶ 61,149, at 61,356
(1986) (Town of Highlands) (finding that an “agency may disregard the corporate form in
the interest of public convenience, fairness, or equity” and “[t]his principle of allowing
agencies to disregard corporate form is flexible and practical in nature”), reh’g denied,
38 FERC ¶ 61,052 (1987), aff’d sub nom. Nantahala Power & Light Co. v. FERC, 840
F.2d 11 (4th Cir. 1988); Transcontinental Gas Pipeline Corp. v. FERC, 998 F.2d 1313,
1321 (5th Cir. 1993) (stating that where the statutory purpose could thus be easily
frustrated through the use of separate corporate entities, an agency is entitled to look
(continued ...)
Docket No. EL19-39-000- 10 -
asserts that applying these principles would lead the Commission to conclude that NYISO acted reasonably in determining that LPGNY and North Energy should be considered the same Transmission Customer for the purposes of Section 27.4. NYISO states that
interpreting Section 27.4 in a way that adheres to formalistic distinctions based on
corporate form and ignores the obvious connections between LPGNY and North Energy would have “unfair, unusual, absurd or improbable results.”49
NYISO further argues that its application of Section 27.4, which is part of a
broader set of credit risk management provisions intended to limit the exposure of market participants to unreasonable risks of default and losses, is consistent with the
Commission’s credit policy and the FPA’s overarching consumer protection goals.50
NYISO states that its actions are necessary to avoid imposing unreasonable credit risks on its market participants.51
NYISO argues that it followed its OATT provisions and did not unduly
discriminate against LPGNY. NYISO states that LPGNY is incorrect to claim that
NYISO must declare a bad debt loss before it may require LPGNY to pay North Energy’s
financial obligations to NYISO. NYISO states that it has followed the applicable OATT
procedures, including declaring North Energy in default and terminating North Energy’s
participation in NYISO’s markets. NYISO explains that it has not yet formally declared
a bad debt loss for North Energy because it cannot know the precise amount of the debt
until its true-up process and schedule are complete in July 2019.52 NYISO states that it
would be an unreasonable result if NYISO could only protect other market participants
through corporate form and treat the separate entities as one and the same for purposes of regulation)).
49 Id. at 7-8, 15 (citing Monterey MA, LLC v. PJM Interconnection, L.L.C.,
165 FERC ¶ 61,201, at P 45 (2018) (stating that tariffs must have a reasonable construction
and should be interpreted in such a way as to avoid “unfair, unusual, absurd or improbable
results”)).
50 Id. at 16-17 (citing Policy Statement on Electric Creditworthiness, 109 FERC
¶ 61,186, at P 1 (2004); Credit Reforms in Organized Wholesale Electric Markets, Order
No. 741, 133 FERC ¶ 61,060, at P 2 (2010), order on reh’g, Order No. 741-A,
134 FERC ¶ 61,126, reh’g denied, Order No. 741-B, 135 FERC ¶ 61,242 (2011)).
51 Id. at 17-18.
52 Id. at 19, Prevratil Aff. ¶ 7. (continued ...)
Docket No. EL19-39-000- 11 -
by prematurely declaring the bad debt loss amount before the final amount can be confirmed.53
Finally, NYISO explains that its decision does not rely on common law successor
liability principles, but on the express language of OATT Section 27.4, the application of
that language to the facts here, and NYISO’s understanding of the Commission’s credit
policies and NYISO’s own responsibilities.54 Nevertheless, NYISO points out that there
is a similar concept embedded in the assignment provision of the pro forma services
agreement under NYISO’s Services Tariff, and thus the concept of holding successors
accountable for an obligation of their predecessors is consistent with NYISO’s overall
tariff framework.55
B.LPGNY’s Answer to NYISO
LPGNY argues that NYISO’s answer significantly changes NYISO’s previously
stated reasons for holding LPGNY’s registration application and raises various issues for
the first time.56 LPGNY asserts that this is a moving target57 because prior to its answer,
NYISO did not state that it was relying on the interpretation of its OATT, point to
LPGNY’s principals as being responsible for North Energy’s debts, state that it had
concerns with LPGNY’s ability to meet NYISO’s creditworthiness requirements, or note
concerns regarding impacts on other market participants.58 In addition, LPGNY contends
that NYISO’s answer also expands its new creditworthiness concerns into speculative
concerns about practices in the market that are beyond the scope of the Complaint.59
53 Id. at 19.
54 Id. at 21.
55 Id.
56 LPGNY Answer at 1-4, 6-8.
57 Id. at 3 (citing, e.g., Baltimore Gas & Elec. Co., 91 FERC ¶ 61,270, at 61,922 (2000) (footnotes omitted) (“We look with disfavor on parties raising on rehearing issues that should have been raised earlier. Such behavior is disruptive of the administrative
process because it has the effect of moving the target for parties seeking a final
administrative decision.”)).
58 Id. at 6-13.
59 Id. at 9.
(continued ...)
Docket No. EL19-39-000- 12 -
LPGNY also argues that NYISO failed to definitively state that its OATT is
ambiguous, as required by Commission precedent, before considering extrinsic
evidence.60 In addition, LPGNY states that the defined term “Transmission Customer”
does not mention successors, principals, or corporate form, and that NYISO is
impermissibly using extrinsic evidence, such as NYISO’s credit practices, to alter the
express terms of the OATT.61 LPGNY contends that NYISO’s OATT is not ambiguous and the Commission has previously rejected the use of extrinsic evidence where the tariff was found to be unambiguous.62 LPGNY further asserts that the Commission should
reject NYISO’s arguments that its unfiled successor liability policy should be upheld
because, among other reasons, NYISO’s conduct is discriminatory and NYISO does not have a written policy or tariff language that states the factors that will be considered in
determining whether an entity is a successor.63
LPGNY further asserts that the due process requirements of administrative
agencies should be applied to NYISO, and that NYISO is prohibited from engaging in
post hoc rationalizations under those requirements.64 LPGNY claims that NYISO’s
determination should be rejected because it purports to establish successor liability
without due process and without applying New York state law, and impinges on
LPGNY’s Seventh Amendment right under the U.S. Constitution to a jury trial.65
LPGNY also asserts that NYISO refers to North Energy, LPGNY, and LPGNY’s
principals interchangeably despite having no factual findings or evidentiary basis to
support such a finding.66
60 Id. at 14 (citing, e.g., S.C. Elec. & Gas Co., 56 FERC ¶ 61,379, at 62,440 (1991)).
61 Id. at 16.
62 Id. at 21.
63 Id. at 25-28.
64 Id. at 4-6.
65 Id. at 2, 28-32.
66 Id. at 9, 12, 33. (continued ...)
Docket No. EL19-39-000- 13 -
C.Interventions, Comments, and Answers
1.PJM Comments and LPGNY Answer
PJM requests that the Commission deny the Complaint. PJM adds that, if the
Commission does not conclude that NYISO’s actions were clearly authorized under the
plain language of NYISO’s OATT, then the Commission should determine that NYISO’s
interpretation of its OATT was reasonable and consistent with Commission policy and
precedent.67 PJM states that the Complaint “implicates broader and common policy
issues regarding whether the tariff rules” of regional transmission organizations (RTOs)
and ISOs permit them to deny a new member’s or market participant’s application based
on prior negative enforcement history of such an entity and its principals, officers,
employees, and agents which indicate that the entity is an unacceptable risk.68 PJM
explains that in order to protect the interests of the ISO/RTO members, ISOs/RTOs
should be permitted to look into the history of both the entity applying for membership
and the individuals who control or are associated with the applicant.69
PJM further states that ISOs/RTOs should be permitted to prevent individuals
from posing risks to the ISO/RTO markets by simply establishing a new entity with the
same individuals who may be subject to prior or ongoing violations or settlements of
investigations by Federal or State regulatory agencies or courts.70 In addition, PJM
argues that the Commission’s anti-manipulation provisions and rules concerning
interlocking directorates do not allow individuals to hide behind corporate entities.71
Thus, PJM asserts, the Commission may similarly concern itself with individual actions
and past behaviors pursuant to its authority under FPA section 205 to the extent that
provisions under ISO/RTO tariffs related to registration applications to participate in the
ISO/RTO markets are filed pursuant to that section.72 Finally, PJM states that the instant
proceeding presents an example of an ISO/RTO reasonably applying authority under its
tariff to deny membership to an entity controlled by principals who defaulted in a prior
corporate venture, and that a denial of a registration application under circumstances
67 PJM Comments at 4-5.
68 Id. at 1.
69 Id. at 3.
70 Id. at 3-4.
71 Id.
72 Id. at 4.
(continued ...)
Docket No. EL19-39-000- 14 -
similar to those in this proceeding is not unduly discriminatory and is just and reasonable.73
In its answer opposing PJM’s motion to intervene, LPGNY requests that the
Commission deny the motion to intervene because PJM has failed to establish a direct
interest in the outcome of this proceeding as required by Rule 214(b)(2) and Commission precedent. In addition, LPGNY argues that PJM has other procedural options that it can utilize to make its positions known or to seek a ruling specific to its interests.74
2.NYTOs’ Comments and Answers
NYTOs request that the Commission reject the Complaint. NYTOs argue that,
if the Complaint is granted, the amounts owed by LPGNY would likely be shifted to
end-use NYTO customers and increase the risk of additional payment defaults for such
customers.75 NYTOs further contend that any purposeful shifting of market obligations
is unjust and unreasonable and would create dangerous precedent if accepted by the
Commission.76 NYTOs assert that LPGNY’s arguments ignore the policy issues at the
heart of the Commission’s statutory obligations, which are to protect electric customers
from unjust and unreasonable rates, terms, and conditions.77 NYTOs explain that NYISO
should be permitted to take the actions necessary to protect customers if LPGNY’s
attempt to re-enter the NYISO markets is a scheme to inappropriately shift costs and risk
to New York customers, and assert that an entity’s ability to meet the financial
obligations associated with participation in the NYISO markets is within the scope of
NYISO’s registration application process.78 NYTOs further state that the reported
actions of LPGNY’s principals raise a serious question of conduct and motives.79
73 Id. at 5.
74 LPGNY Answer to PJM Intervention at 2-4 (citing 18 C.F.R. § 385.214(b)(2) (2018)).
75 NYTOs Comments at 2.
76 Id.
77 Id. at 3 (citing 16 U.S.C. §§ 824d, 824e (2012)).
78 Id.
79 Id.
(continued ...)
Docket No. EL19-39-000- 15 -
In its answer opposing NYTOs’ intervention, LPGNY asserts that the motion to
intervene lacks sufficient factual detail to demonstrate NYTOs’ interest, relies on
conclusory statements, and fails to establish a direct interest in the outcome of this
proceeding as required by Rule 214(b). LPGNY contends that Rule 214 lists four such
interests as the interests of a consumer, customer, competitor, or security holder, and that
NYTOs do not fit into any of these interest categories. LPGNY further states that
NYTOs’ interest in this case—that this case could create precedent—is not sufficient to
show that NYTOs will be directly affected by the outcome of this case.80
In response, NYTOs state that LPGNY’s answer mischaracterizes NYTOs’ motion
to intervene. NYTOs contend that, contrary to LPGNY’s assertions, NYTOs did not state
that their basis for intervention is the possible precedential effect of the Commission’s
decision.81 NYTOs further contend that LPGNY’s statement that NYTOs’ interest in this
proceeding is an indirect interest of NYTOs’ customers is incorrect. NYTOs counter that
their motion to intervene states that NYTOs are directly affected by this proceeding due
to their numerous roles in the NYISO markets, which include the fact that NYTOs own
transmission facilities operated by the NYISO, NYTOs recover the costs of operating
their transmission facilities under NYISO’s OATT, and NYTOs are load serving entities
that purchase energy, capacity, and ancillary services for themselves and on behalf of
customers in the NYISO markets governed by NYISO’s Services Tariff. NYTOs assert
that any unpaid costs in the NYISO markets may ultimately be paid by other registered
market participants, including NYTOs and their customers. Finally, NYTOs state that,
contrary to LPGNY’s statements, the Commission’s regulations do not limit intervention
to specific classes of entities.82
3. Maryland Commission’s Notice of Intervention and Answers
The Maryland Commission filed a notice of intervention stating that, as an agency of the State of Maryland, it is intervening in the proceeding because the Commission’s decision in this case may impact PJM’s markets.
LPGNY filed an answer opposing the Maryland Commission’s notice of
intervention. LPGNY contends that the Commission should deny the notice of
intervention because the Maryland Commission has failed to establish a direct interest in
the outcome of this proceeding as required by Rule 214(b)(2) and Commission precedent.
80 LPGNY Answer to NYTOs Intervention at 2-3 (citing 18 C.F.R. § 214(b)(2) (2018)).
81 NYTOs Answer at 3.
82 Id. at 3-5.
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Docket No. EL19-39-000- 16 -
In addition, LPGNY argues that the Maryland Commission has other procedural options to monitor the proceeding and/or address its concerns.83
In response, the Maryland Commission filed an answer asserting its right to
intervene as a State Commission in this proceeding under Rule 214(a)(2). Consistent
with Rule 214(a)(2), the Maryland Commission further contends that, because its
intervention was timely, an explanation of its interest in the proceeding is not necessary.84
IV. Discussion
A.Procedural Matters
Pursuant to Rule 214 of the Commission’s Rules of Practice and Procedure,85
notwithstanding LPGNY’s opposition, the timely notice of intervention filed by the
Maryland Commission serves to make the Maryland Commission a party, and we grant the timely motions to intervene filed by PJM and NYTOs. The Maryland Commission is a
State Commission and its timely notice of intervention makes it a party to this proceeding pursuant to Rules 1.101(k) and 214(a)(2) of the Commission’s Rules of Practice and
Procedure.86 PJM and NYTOs have expressed interests in the outcome of this proceeding that are not represented by any other party, and the proceeding is at an early stage and their intervention will not create an undue burden. Accordingly, we find that it is in the public interest to grant PJM’s and NYTOs’ interventions.
Rule 213(a)(2) of the Commission's Rules of Practice and Procedure prohibits an answer to an answer unless otherwise ordered by the decisional authority.87 We accept the answers submitted by LPGNY on March 6 and April 24, 2019, and the answers
submitted by the Maryland Commission and NYTOs, because they have provided
information that assisted us in our decision-making process. However, we are not
persuaded to accept NYISO’s May 20, 2019 answer and LPGNY’s June 4, 2019 answer and, therefore, reject them.
83 LPGNY Answer to Maryland Commission Intervention at 2-4 (citing
18 C.F.R. § 214(b)(2) (2018)).
84 Maryland Commission Answer at 2-3 (citing 18 C.F.R. § 214(a)(2) (2018)).
85 18 C.F.R. § 385.214 (2018).
86 Id. §§ 1.101(k), 385.214(a)(2).
87 Id. § 385.213(a)(2).
Docket No. EL19-39-000- 17 -
B.Substantive Matters
We deny the Complaint because we find that NYISO did not violate its OATT by attributing to LPGNY the outstanding debts of North Energy, a bankrupt former NYISO market participant, for purposes of considering LPGNY’s application for registration in NYISO’s markets.
As an initial matter, we find that Section 27.4 of NYISO’s OATT is silent with
respect to the question of whether two different LLCs with close ties can be treated as the same Transmission Customer. Section 27.4 of NYISO’s OATT states:
27.4 Re-Entry of Defaulting Transmission Customer
In addition to the provisions for curing a Transmission
Customer default contained elsewhere in the ISO Tariffs, a
Transmission Customer whose previous default resulted in a
Schedule 1 bad debt loss charge to other Transmission
Customers must (i) cure such default by payment to the ISO
of all outstanding and unpaid obligations and (ii) meet all ISO
minimum participation criteria, registration requirements, and
creditworthiness requirements, including posting of required
collateral, prior to being re-admitted by the ISO to participate
in the New York wholesale energy markets.88
The definition of “Transmission Customer” in NYISO’s OATT does not indicate
whether and when an entity seeking to register and a previously registered entity should
be treated as the same entity.89 Thus, we find that Section 27.4 neither explicitly supports
nor prohibits NYISO’s decision to treat LPGNY and North Energy as the same entity and
thus to hold LPGNY’s registration request in abeyance pending the resolution of
North Energy’s debts.
However, we may look to relevant Commission precedent addressing the
conditions under which the Commission may regard two entities as a single entity—
sometimes referred to as the “single entity theory”—to inform our decision. In particular, the Commission has found that:
The general rule applicable to our determination is that an
agency may disregard the corporate form in the interest of
public convenience, fairness, or equity. This principle of
88 NYISO, OATT, Attachment U, § 27.4 (0.0.0).
89 See supra note 7.
Docket No. EL19-39-000- 18 -
allowing agencies to disregard corporate forms is flexible and
practical in nature. Corporations may be regarded as one
entity for the purposes with which the agency is immediately
concerned even though they are legitimately distinct for other
purposes. Moreover, no bad intention on the part of the
corporations is necessary; the inquiry is simply a question of
whether the statutory purposes would be frustrated by the
corporate form.90
On this record, we find it reasonable to treat LPGNY as effectively the same entity as
North Energy under the single entity theory. Our decision, we emphasize, does not rely
on the application of “successor liability” that LPGNY alleges is the basis of NYISO’s
actions.
LPGNY’s primary argument in defense of its and North Energy being treated
separately is that LPGNY and North Energy are separate corporate entities, and NYISO
recognizes that LPGNY and North Energy are separate LLCs.91 However, as explained
above, the Commission has disregarded corporate form “in the interest of public
convenience, fairness, or equity” and considered two entities as effectively one when
necessary to fulfill the Commission’s statutory and regulatory goals. While there is no
specific test for when the single entity theory should be employed, the Commission has
90 Town of Highlands, 37 FERC at 61,356 (footnotes omitted); see also
Transcontinental Gas Pipe Line Corp., 58 FERC ¶ 61,023, at 61,045 (1992), aff’d sub
nom. Transcontinental Gas Pipe Line Corp. v. FERC, 998 F.2d at 1320. In Town of
Highlands, the Commission rejected a request by Nantahala Power and Light Company
(Nantahala), a wholly owned subsidiary of Aluminum Company of America (Alcoa), to
reinstate depreciation expenses in its rates, finding that Nantahala failed to show that the
expenses remained unrecovered by Alcoa. In making its determination, the Commission
expressly rejected arguments that it needed to determine whether it was appropriate to
pierce the corporate veil. Town of Highlands, 37 FERC at 61,355-56. Rather, the
Commission applied the single entity theory, stating, “[o]ur decision on this issue relies
instead on the broad authority of an agency to look beyond a subsidiary to its owner to
achieve the agency’s statutory mandate and to assure that statutory purposes are not
frustrated.” Id. at 61,356.
91 NYISO Answer at 8.
Docket No. EL19-39-000- 19 -
focused on such factors as the interconnectedness of the business relationships.92 We
find that NYISO’s decision to treat LPGNY as the same entity as North Energy is
reasonable in light of the record, particularly the close overlap in not only those entities’
relevant personnel, but also their business activities. Namely, both entities have the same
contacts and administrators, similar addresses, are engaged in the same business in the
same territory, and seek to serve the same customers.93 As noted above, NYISO
submitted affidavits detailing the roles of the principal figures in both North Energy and
LPGNY, stating that Abe Leiber, Jack Klein, and Hindy Gruber are contacts and/or
administrators for both companies and have similar roles in each company.94 LPGNY
does not dispute that it has the same contacts and administrators or that LPGNY intends
to serve the same customers in the same market as North Energy.95 NYISO also states
that, although LPGNY was established as a company several years ago, LPGNY did not
begin engaging in business until North Energy defaulted on its NYISO obligations.96
Thus, we find that, in these factual circumstances, it is reasonable to disregard North
Energy’s and LPGNY’s separate corporate forms to ensure that an entity that had
incurred debts could not shift its business activities into a different corporate entity to
continue to do business while avoiding paying those debts.
Moreover, treating LPGNY and North Energy as the same Transmission Customer is
consistent with the Commission’s goals in the Policy Statement on Electric Creditworthiness,
i.e., to protect the organized wholesale electric markets, and ultimately customers, from
default by market participants. In that policy statement, the Commission stated that
RTOs and ISOs essentially serve as gatekeepers and that “the goal of reducing [] mutualized
92 See, e.g., Town of Highlands, 37 FERC at 61,355-56, 61,359; Transcontinental Gas Pipe Line Corp. v. FERC, 998 F.2d at 1320.
93 NYISO Answer at 7, Attachment III Davies Aff. ¶¶ 8-13, Attachment II Prevratil Aff. ¶¶ 9-11.
94 Id. at 7, Attachment III Davies Aff. ¶¶ 9-11.
95 The affidavit submitted by Ms. Sheri Prevratil, the Manager, Corporate Credit
in the Finance Department of NYISO, states that Mr. Abe Leiber, who had been one of
the contacts for North Energy, expressed a desire to get his customers back during
discussions related to LPGNY’s registration application. Id., Attachment II Prevratil
Aff. ¶¶ 8, 10-11.
96 Id. at 4, 7, Attachment III Davies Aff. ¶ 6.
Docket No. EL19-39-000- 20 -
default risk is an important one.”97 The Commission further stated that ISOs/RTOs are usually non-profit entities that administer the market on behalf of market participants. In those markets, the Commission explained, credit is collectively extended to each individual market participant and, as a result, if one market participant defaults, the other market
participants absorb the amount of the default.98
In NYISO, defaults are socialized to other Transmission Customers pursuant
to the formula in Section 27.3 of NYISO’s OATT.99 As NYISO observes, if the term
Transmission Customer in Section 27.4 of NYISO’s OATT does not include separate
corporate entities that are identical “in every relevant respect” to a defaulting entity
except for corporate form, then NYISO and its market participants could face additional
credit risks.100 Under Section 27.4 of NYISO’s OATT, defaulting entities are required to
settle their outstanding debts before they can re-enter the markets. If North Energy can
move on as essentially the same entity and continue participating in the markets as
LPGNY without settling its outstanding debts, that is, if defaulting entities could continue
doing business while at the same time walking away from their debts, it would evade the
very purpose of Section 27.4, and other Transmission Customers would have to cover the
losses.
We disagree with LPGNY’s argument that NYISO must first follow the bad debt
procedures specified in Section 27.1 prior to denying LPGNY entry into the NYISO
markets. Section 27 of NYISO’s OATT, which describes the process by which NYISO
declares and recovers a bad debt loss, gives NYISO wide latitude in pursuing cost-
recovery measures that may minimize or avoid a bad debt loss. NYISO’s OATT states
that, when NYISO’s Chief Financial Officer “concludes that the ISO does not reasonably
expect payment in full from a defaulting Transmission Customer within an acceptable
time period,” then the Chief Financial Officer “shall declare that the net unpaid obligation
is a bad debt loss that requires recovery by the ISO . . . through a Schedule 1 charge, and
97 Policy Statement on Electric Creditworthiness, 109 FERC ¶ 61,186 at PP 18-19
(noting that credit exposure is not truly under a market participant’s control because it is
the ISO/RTO that serves as the gatekeeper for the integrity of the markets they
administer).
98 Id. PP 5, 17.
99 NYISO, OATT, Attachment U, § 27.3 (0.0.0) (providing that the amount of bad debt loss shall be allocated pro rata to all Transmission Customers).
100 NYISO Answer at 8.
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Docket No. EL19-39-000- 21 -
the ISO shall pursue available remedies for customer defaults under the ISO Tariffs.”101
Next, NYISO must give notice to market participants of its intent to declare a bad debt
loss.102 Although NYISO’s OATT then describes the steps NYISO “will ordinarily take”
to recover the bad debt,103 the OATT expressly provides that NYISO “may deviate from
[this] sequence of steps . . . or pursue alternative cost-recovery measures, if it determines
that doing so would be more likely to minimize the size of, or avoid, a bad debt loss.”104
Contrary to LPGNY’s assertions,105 the prohibition against post hoc rationalizations
by administrative agencies does not apply to NYISO. The cases LPGNY cites refer to
agency action and agency decision-making;106 as the respondent in a complaint proceeding,
NYISO is not held to the “arbitrary and capricious” standard provided in the Administrative
Procedure Act.107 Moreover, LPGNY has had an opportunity to respond to, and has
responded to, NYISO’s assertions in this proceeding, providing it with any necessary due
process.
Finally, to avoid such situations in the future, we encourage NYISO to add language to its OATT to address comparable situations, by setting forth the factors it will consider
to determine whether to treat two separate entities as the same entity for purposes of
Section 27.4.108
101 NYISO, OATT, Attachment U, § 27.1 (0.0.0). 102 Id. § 27.2.
103 These steps include drawing on the defaulting Transmission Customer’s
collateral or contributions to NYISO’s Working Capital Fund, or making claims against available loss protection insurance. Id. § 27.3.
104 Id.
105 LPGNY Answer at 4-6.
106 Id. (citing, e.g., Williams Gas Processing-Gulf Coast Co., L.P. v. FERC,
475 F.3d 319, at 326, 329 (D.C. Cir. 2006); Sithe/Independence Power Partners, L.P. v. FERC, 165 F.3d 944, at 949-50 (D.C. Cir. 2009)).
107 5 U.S.C. § 706(2)(A) (2012).
108 See Policy Statement on Electric Creditworthiness, 109 FERC ¶ 61,186 at P 11 (stating that credit criteria used by Transmission Providers should be made available to customers and the Commission to enable a determination whether credit analysis is being conducted in an appropriate and non-discriminatory manner).
Docket No. EL19-39-000- 22 -
The Commission orders:
The Complaint is hereby denied, as discussed in the body of this order. By the Commission.
( S E A L )
Nathaniel J. Davis, Sr.,
Deputy Secretary.
