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RESA: Illinois Marketing, Customer Protection Rules Should Apply to Municipal Aggregations
September 24, 2011
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The marketing, disclosure, and related consumer protection rules to be established by the Illinois Commerce Commission for small volume electric customers should be extended to customers included in municipal aggregations, the Retail Energy Supply Association said in comments on a new First Notice Order in Docket 09-0592.
Although the Part 412 electric customer protection rulemaking addressed by the First Notice Order has been before the ICC for nearly two years (and longer when including pre-filing work groups), the applicability of the rules to opt-out municipal aggregations has not yet been substantively raised by parties. However, upwards of 50 cities and towns have now either approved, or scheduled to vote on, opt-out aggregation plans
"Clearly, the Proposed Rule applies to all residential and small commercial customers, including those acquired through municipal aggregation programs," RESA said, though RESA conceded that, "it is unclear how some of the individual provisions within the Proposed Rule would be met."
Particularly, many of the proposed requirements apply to a retail electric supplier which contracts with a customer, which does not occur under municipal aggregation. RESA, however, said that, "clearly there is an implicit contract," between each customer in an opt-out aggregation and the supplier.
The most significant issues raised by RESA include whether the right of rescission and limits on early termination fees apply to customers in municipal aggregations.
As previously reported, the proposed rules limit early termination fees at $50, and provide that the customer shall be allowed to cancel a contract without penalty within 10 business days after the date of the first bill.
RESA noted that not applying the cap on early termination fees to municipal aggregations would provide such aggregations and their suppliers with a pricing advantage, since they would be able to price less risk into their fixed contracts by including higher termination fees.
"A municipality having the primary goal of procuring the lowest-cost electricity on behalf of the residents and small businesses within its boundaries, knowing full well that products that don't have early termination fees carry a premium, could make a decision to select a fixed-rate product of 6.00 cents with a $200 ETF [early termination fee] over a product of 6.60 cents without an ETF for all its eligible customers. Meanwhile, under the current proposed decision, a customer that is not part of a municipal aggregation program is not even provided the opportunity to make that choice for themselves and RESs are effectively restricted from making an offer that would be competitive," RESA said.
"In effect, Illinois will create an environment where terms of the product for the municipal aggregation customer (which may include a $200 ETF and no ability to cancel penalty-free ten days after issuance of the first bill) were dictated by the municipality's board of governance, and the terms of the product for the residential customer who reviews the Plug In Illinois website, does a substantial amount of research, and painstakingly review[s] the products and terms available to him or her, has the terms (at least in part) dictated by the Commission (a $50 ETF cap that results in higher costs to the customer, particularly those that have every intention of fulfilling their contract) ... Illinois would have created a retail electric choice program where the customer does not have the freedom to choose the product that is best for them, but instead where the government either dictates or limits the choices made available to them. Such a paradox cannot be allowed," RESA added.
"Customers that make an affirmative choice, after receiving full disclosure of the relevant terms and conditions, both during the sales process and contracting process, receive additional protections because, according to the Commission, 'residential consumers are not accustomed to purchase their electric supply from entities other than their utility, require additional protections from inordinately high early termination fees.' Meanwhile, a customer [enrolled under opt-out aggregation] that does not make an explicit, affirmative choice, is not directly marketed to, and was not actively involved in the contracting process, which has terms and conditions thrust upon them (particularly if they do not review the opt-out notice), is not afforded these same protections. Under this scenario, the Commission would be concluding that customers need to be protected from their own decisions, but not the decisions of their municipality's board of governance. This is quite simply illogical, and unacceptable," RESA said.
Furthermore, RESA said that the Commission should require each residential and small commercial customer obtained through municipal aggregation to receive a copy of the Uniform Disclosure Statement.
As an aside, RESA noted that Pennsylvania, where residential migration has quickly exceeded 1 million customers, does not allow opt-out municipal aggregation, "meaning residential customers evaluated products and made affirmative decisions on what best meet their needs."
Use of Utility Name, Logo
Also drawing more ink in the instant comments versus prior rounds of comments in the rulemaking is the proposed limitation on the use of an electric utility's name or logo by an affiliate.
In its revised First Notice Order, the ICC included a provisions stating, "A RES [retail electric supplier] shall not be permitted to market power and energy service to residential customers using a similar name (where any part of the RES name contains any part of the utility name) or logo to that of an existing electric utility affiliated in Illinois."
The term retail electric supplier includes both alternative retail electric suppliers and electric utilities serving or seeking to serve retail customers pursuant to Section 16-116 of the Public Utilities Act.
Spark Energy said that the prohibition on the use of a utility name/logo should apply to both electric and gas utilities in Illinois, and regardless of whether the retail supplier is an affiliate of the utility. Currently, Dominion Retail offers electric service as Nicor Electric, under a licensing agreement with the parent of the gas utility.
"The value to a RES of name recognition and brand awareness is immense. It is an important asset that most suppliers, including Spark Energy, spend a great deal of money to create. However, if the ICC chooses to permit a utility to sell its name or logo to a RES, it should ensure that the transaction compensates the customers of that utility for the market value of the brand recognition being sold to the RES. Without such oversight, such transactions can undermine the integrity of the competitive market by giving undue advantage to certain suppliers," Spark said.
Similarly, BlueStar Energy Services said that, "if Illinois is truly to have a competitive market, the affiliate use of utility name and logo must end."
BlueStar would extend the prohibition to gas, telephone, and water utilities in addition to electric utilities.
In contrast, Interstate Gas Supply, which markets as Columbia Retail Energy in some areas, said that use of a name or logo similar to that of the electric utility should be permitted with proper disclosures, further stating that the ICC should clarify, "that the rules do not absolutely preclude the use of an ARES name similar to that of a utility within the customer's service area," when proper disclosures are made.
MidAmerican Energy sought to clarify that the prohibition on utility name/logo use does not apply to utilities serving retail customers competitively pursuant to Section 16-116 of the Public Utilities Act, which allows the utilities themselves (and not affiliate companies) to serve load competitively outside of their franchised service area. Although the term "retail electric supplier" used in the prohibition includes such utilities, the prohibition only applies to the name/logo of an, "electric utility affiliated in Illinois." As the Section 16-116 load serving entities are utilities themselves, and not affiliates, it's unclear what the intent of the ICC was in its language (though to Matters it appears to exclude Section 16-116 entities), but nevertheless MidAmerican sought to make the exemption from the provision explicit for Section 16-116 load serving entities.
Other Issues
Generally, the other main issues in the rulemaking have been debated for two years, and parties' positions have not changed.
Generally, suppliers oppose the termination fee cap, the extended no-cancellation-fee period, and the use of the utility enrollment date (rather than contract date) as the start of the rescission period.
To the extent the ICC approves a provision allowing customers to cancel a contract with no penalty within 10 days of the first bill, RESA said that the Office of Retail Market Development should be required to maintain a database to track contract cancellations, in order to enforce the limit of one cancellation fee waiver per customer per 12 month period.
IGS Energy suggested that, to the extent termination fees are capped, a sliding scale should be used based on contract length, such as $50 for 12 month contracts, with an upper limit of $150 for multi-year contracts.
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