Draft Order Would Require (Broadly Defined) Aggregators To Obtain Customer "Signature" Before Obtaining Pricing

Draft Would Create New Disclosures For Aggregators, Including Amount Of "Commission", Require Customer To Sign Two Separate Documents

Draft Envisions That Aggregators Would Not Be Able To Comply With New Requirements In Cold Call Sales

Draft Would Mandate Aggregators Obtain Pricing From Multiple Suppliers; Any Entity Presenting Pricing From Only 1 Supplier Is An Agent

Draft: "Alarming" How Retail Suppliers Have Addressed Aggregator Issue

June 12, 2023

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Copyright 2010-23 EnergyChoiceMatters.com
Reporting by Paul Ring • ring@energychoicematters.com

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The Office of Education, Outreach, and Enforcement (EOE) of the Connecticut PURA requested that PURA issue a proposed decision which, in addition to granting aggregator certificates to several entities in an omnibus fashion, would also create new marketing and disclosure rules for aggregators, including a requirement to obtain a customer's signature on two separate documents, one of which must be signed before the aggregator "obtains" pricing.

The proposed decision sought by EOE would also set forth requirements which the proposed decision does not believe could be satisfied through a "cold call", as discussed further below

EOE asked that PURA issue EOE's proposed final decision for consideration. The use of the term "proposed decision" in this story refers to the proposed decision sought by EOE. PURA has not formally granted EOE's motion for the issuance of the sought proposed decision as of publication time

The proposed decision would grant aggregator certificates to 22 entities, limited to non-residential service, provided that the aggregators comply with all of the requirements in the proposed decision and revise their contracts and processes accordingly. The proposed decision would not authorize any of the 22 applicants to serve residential customers

The proposed decision reiterates PURA's recent holdings with respect to aggregators (see details here), dismissing laments from certain applicants that their services constitutes brokering, not aggregation (note: any reference to Applicants in this story refers to the entities seeking an aggregator certificate).

The proposed decision states, "Pursuant to Connecticut law and the Authority’s clarification in the Ruling on Motion No. 16 in Docket No. 14-07-20RE01, an entity that represents the customer in securing a supplier contract and is ultimately compensated by the customer with the customer’s knowledge is an aggregator."

The proposed decision states, "Many Applicants appear to desire to function as a third entity labeled a 'broker.' Other states might permit brokers, but as stated, Connecticut law does not recognize such an entity; therefore, despite repeated complaints from Applicants, they have no option of existing as an undefined, unregulated entity that engages with Connecticut customers."

It bears noting that the structure envisioned by the proposed decision rests on several key points, which have not been tested outside of PURA

As previously noted, Conn. Gen. Stat. § 16-1(a)(25) defines 'aggregator' to mean, "(A) a person, municipality or regional water authority that gathers together electric customers for the purpose of negotiating the purchase of electric generation services from an electric supplier…provided such person, municipality or authority is not engaged in the purchase or resale of electric generation services, and provided further such customers contract for electric generation services directly with an electric supplier, and may include an electric cooperative established pursuant to chapter 597."

PURA, in a footnote in its Ruling on Motion No. 16, adopted the view of EOE that, "if an entity represents customers ... then by definition the entity has gathered together customers for the purpose of negotiating their purchase of supply," even if the entity is not gathering customers into a pool or pools to obtain pricing. This interpretation of "gather together" is novel.

Additionally, statute defines an aggregator as an entity that not only gathers together customers, but one which does so for, "the purpose of negotiating the purchase of electric generation services from an electric supplier."

Emphasis on the terms "negotiating the purchase," as opposed to: contracting, consulting, advising.

If an entity does not "negotiate" in its services to the customer -- such as by merely providing the equivalent of "rack pricing" -- then the entity arguably does not fit the definition of aggregator, absent further interpretation by PURA stating such -- (we emphasize this is our glib reading, and anything in this story does NOT constitute legal advice, and we'd caution any entity that would rely on such a muse without first obtaining a court's opinion to such effect).

Finally, nothing in statute provides that an aggregator must act solely on behalf of the customer. That provision has solely been PURA's holding via an order.

Turning back to the proposed decision, the draft would hold that, "All Applicants [aggregators] must solicit prospective rates for each customer from more than one supplier."

"An entity that obtains rates from only one supplier and enrolls customers with only one supplier is an agent of that supplier," the proposed decision would state

The proposed decision would establish several requirements and disclosures for aggregators.

The proposed decision states, "Applicants must ensure that their customers understand the service they are performing and the costs for that service. Many Applicants indicated that they do not divulge their commission to their customers. Customers deserve to realize they are paying the Applicant for a service and that payment is included in their supplier’s rate. Many Applicants also indicate that they do not divulge to customers the number of suppliers with which they do business. Customers need to understand if an Applicant is evaluating bids from five suppliers or two. Customers further need to understand how the Applicant is selecting the bids to show to the customer (presuming it does not show the customer all bids). Applicants must recognize that they will be doing business in a transparent market. To the extent Applicants are uncomfortable with that transparency, they should choose not to become an aggregator."

The proposed decision would require aggregators to obtain two signed documents from a customer, including a signed document prior to the aggregator being "permit[ted]" to obtain pricing for the customer. Overall, the aggregator would be required to provide three documents to the customer

As described further below, the proposed decision would essentially prohibit conducting business during a "cold call" (notably telephonic cold calls) due to the need to satisfy the various proposed requirements

The first required document would be required to be provided by the aggregator at the outset of the relationship between the aggregator and the customer. This first document must:

1. Describe in detail how the aggregator will be compensated;

2. Explain the process that the aggregator uses to find prospective rates for the customer;

3. Explain to the customer the number of suppliers (or range of number) from which the aggregator will solicit rates and the current suppliers from whom it solicits; and

4. Require the customer’s signature to permit the Applicant to obtain pricing for the customer.

The proposed decision states, "Based on the content of this [first] document and its timing, it is difficult to imagine the situation in which an Applicant may satisfy this requirement when 'cold calling' potential customers."

"A 'cold call' would have to result in a multi-step process in which the Applicant interacted with the customer, provided the document, obtained the customer’s signature, and then solicited bids for the customer," the proposed decision states

Under the proposed decision, the aggregator must provide the second document to the customer once the aggregator has obtained prospective rates.

The second document must:

1. Tell the customer each supplier from whom the aggregator solicited prospective rates;

2. Tell the customer the rates offered by each supplier;

3. Describe the aggregator’s commission [sic] included in each rate; and

4. Require the customer’s signature of receipt.

It is unclear why the proposed decision uses the term "commission" in this instance when the generally used definition of the term refers to, "an amount of money, typically a set percentage of the value involved, paid to an agent in a commercial transaction," whereas aggregators cannot serve as supplier agents and cannot be compensated by suppliers (an aggregator may bill its fee or mark-up via the supplier rate as a pass-through, but such is not a "commission" as the term is generally used). The intent appears to be that the aggregator shall disclose its mark-up or any fee added to the supplier rate, but the proposed decision's use of the term "commission" here further muddies the already murky waters and illustrates how difficult it is to categorize every entity into one of the following categories: supplier, supplier's agent, aggregator, or aggregator's agent

Concerning the disclosure of the aggregator's "commission" to customers, the proposed decision in a footnote states, "For example, if the aggregator provides rates from Supplier A and Supplier B, but the aggregator’s commission with Supplier A is one cent and with Supplier B is two cents, this must be explained to the customer. This information can be included as part of the bid package given to the customer and may include the Applicant’s recommendation. If the Applicant directly charges the customer a flat fee (i.e., does not collect a fee through the supplier) and does not include a commission and/or mark-up to the suppliers’ rates, it may include only the supplier’s rates, but the Applicant would disclose the flat fee in the first document."

While there may be some reasons an aggregator charges a higher mark-up on a supplier's rate and not others (we can't think of many -- perhaps a supplier charges for access to pricing and/or the aggregator has to use an agent, and incurs more cost, to obtain pricing from a certain supplier versus another), but the idea that aggregators will be charging different commissions to customers again appears to stem from the idea aggregators are being compensated by suppliers (who charge different commissions) -- the very behavior the proposed decision, and prior decisions, says cannot occur.

The third document required to be provided by aggregators under the proposed decision would be the notice required by Conn. Agencies Regs. § 16-245-3(d), and the aggregator would provide this notice to the customer after the customer contracted with a supplier. This currently required notice includes, among other things, the rate for electric generation services stated in its aggregation offer, or a description of how electric generation services are charged to customers under its aggregation offer.

The above-described requirements are quoted below verbatim in the proposed decision as follows: "To facilitate the transparency with customers, every Applicant must provide each customer with three documents. The Applicant must provide the first document at the outset of the relationship between the Applicant and the customer and the document must: 1. Describe in detail how the aggregator will be compensated; 2. Explain the process that the aggregator uses to find prospective rates for the customer; 3. Explain to the customer the number of suppliers (or range of number) from which the aggregator will solicit rates and the current suppliers from whom it solicits; and 4. Require the customer’s signature to permit the Applicant to obtain pricing for the customer. The Applicant must provide the second document to the customer once the aggregator has obtained prospective rates and the document must: 1. Tell the customer each supplier from whom the aggregator solicited prospective rates; 2. Tell the customer the rates offered by each supplier; 3. Describe the aggregator’s commission included in each rate; and 4. Require the customer’s signature of receipt. The third document is the notice required by Conn. Agencies Regs. § 16-245-3(d) and the Applicant would provide this notice to the customer after the customer contracted with a supplier. Applicant shall retain all three documents for three years from the date they are provided to and/or signed by the customer."

The proposed decision devotes more time to explaining aggregators in the Connecticut retail market, and the lack of a broker entity in the market, as follows:

The proposed decision states, "More importantly, Applicants [aggregators] must understand the role of the aggregator relative to the supplier. To the extent any Applicant applied because suppliers refused to accept the Applicant as an agent, the Applicant must understand that it represents the customer as an aggregator now and not the supplier. Suppliers may not eschew their liability for agents by forcing the Applicant to obtain an aggregator’s certificate. If an entity represents the supplier in the transaction then the entity is the agent of the supplier and the supplier must claim the entity on its Form 6. As the Authority has stated repeatedly, no entity may be an aggregator and an agent of suppliers. All Applicants have stated they are not agents of suppliers, but they must understand that as long as they maintain their aggregator certificate they may not ever function in any manner that could be viewed as being an agent of the supplier."

The proposed decision states, "Having reviewed the contracts between every Applicant and suppliers, it appears that many of the contracts do not clearly delineate the Applicant as representing the customer and being compensated ultimately by the customer. As EOE noted in its Motion for Clarification, there may be instances in which non-residential customers wish to receive one bill for all of their energy supply services. In those instances, it benefits the non-residential customer for the supplier to include the aggregator’s compensation in that bill and pass that compensation straight to the aggregator. Not all supplier contracts provided by the Applicants, however, contain straight pass-through provisions. Many contain provisions in which a portion of the aggregator’s mark-up goes to the supplier. Others contain provisions in which the supplier pays the aggregator a flat fee for each customer procured, in the same way a supplier would pay an agent. Still others contain provisions in which the supplier pays the aggregator an amount up front, includes the aggregator’s mark-up in the customer’s rate, and then the supplier retains any excess, or that do not remove the mark-up if the customer ceases doing business with the aggregator."

The proposed decision emphasizes, "Any compensation structure in which the supplier is retaining a portion of the aggregator’s compensation or paying the aggregator separate from the customer’s usage calls into question the relationship between the supplier and the aggregator, and between the aggregator and the customer."

The proposed decision explains, "A straight pass-through is a simple concept as explained by EOE in its Motion for Clarification in Docket No. 14-07-20RE01. If the supplier’s rate is 10 cents/kWh, and the aggregator adds 1 cent as commission, the supplier charges the customer 11 cents/kWh and passes through the extra 1 cent/kWh to the aggregator. Any agreement more complicated than this is not a straight pass through and will not be approved by the Authority. As a result, all Applicants must revise all contracts with suppliers that currently do not contain simple, straightforward, pass-through compensation as described. Any other form of compensation passed from a supplier to an aggregator is impermissible."

The proposed decision states, "Further, many of the current contracts between suppliers and the Applicants contain other provisions that call into question the Applicant’s role as the customer’s agent and not the agent of the supplier. For example, there are contractual provisions specifically stating that the supplier appoints the Applicant as a 'sales representative…to promote, market, and sell' the supplier’s product. Entities that represent a customer do not promote, market, or sell for suppliers. Contracts say that the Applicant agrees to 'solicit potential customers.' Again, entities that represent a customer should not solicit on behalf of a supplier. Contracts say that Applicants will use the supplier’s marketing material; however, the Applicants should not be marketing for the suppliers at all. All contracts between the Applicants and suppliers should address only the Applicant’s ability to collect the straight pass-through compensation from the supplier. Any contract with provisions implying or calling into question the Applicant’s role and function as the customer’s agent must be revised to remove such provisions."

The proposed decision states, "Unfortunately, it appears that many of the current Applicants have done business in Connecticut under these contracts. Some Applicants previously applied for an aggregator’s certificate and were denied because their responses indicated they were agents of suppliers, at times because of provisions in the contracts with suppliers. It appears that suppliers unilaterally determined the Applicants were not their agents, yet did business with these Applicants. Suppliers may not insert a provision in a contract stating that the Applicant is not the supplier’s agent, then have provisions throughout the contract in which the Applicant is treated as a supplier’s agent,"

The proposed decision states, "It is alarming the way in which suppliers have attempted to have their cake and eat it too, refusing to designate Applicants as agents yet readily using them to facilitate enrollments under contracts that barely hide agency. Suppliers and the Applicants must decide if the Applicants are suppliers’ agents or if the Applicants represent customers. To the extent they determine the latter, their contracts must reflect that relationship."

The proposed decision notes that aggregators may use agents for which the aggregator is legally responsible, and sets forth requirements relating to such (similar to the currently supplier-agent requirements)

Concerning agents of aggregators, the proposed decision states, "Some Applicants indicated outside entities make sales on their behalf. Anyone making sales on behalf of the Applicant, anyone facilitating customers contracting with a supplier on behalf of the Applicant, anyone whom the Applicant compensates or provides a commission to for facilitating customers contracting with a supplier, and anyone with whom the Applicant has an agreement (labeled as an Independent Contractor, broker, channel partner, or any other title) to facilitate customers contracting with a supplier is an agent of the Applicant for whom the Applicant is responsible. The above list is not comprehensive and all Applicants shall read it with the understanding of the Authority’s Ruling on Motion No. 16 in Docket No. 14-07-20RE01: there are only three legal entities operating in the supplier market in Connecticut (suppliers, aggregators, and their agents) and no other entity may operate in the market. If Applicants have agreements with any entities such as those listed above in which the agreement indicates that the entity is not the Applicant’s agent, the Applicant must revise or amend such agreements to reflect an agency relationship. Further, Applicants must understand their legal responsibilities for anyone acting as their agent and interacting with customers, and must train and monitor all agents to ensure compliance with Conn. Gen. Stat. § 16-245o and other applicable law, regulations, Authority decisions, orders, and rulings. All Applicants shall annually file in their licensing docket a list of all agents working on their behalf."

As noted above, the proposed decision would not authorize any of the specific aggregators in the relevant proceedings, in which a certificate would generally be granted to each subject any changes required above, to serve residential customers

The proposed decision states, "Certain Applicants requested to serve residential markets. All requests to serve residential markets are currently denied. No Applicant provided information regarding marketing, training, and/or monitoring that offered sufficient safeguards for residential customers, and as noted above, some Applicants have agreements with third-party entities lacking sufficient protections for marketing to residential customers. As a result, the Authority determines that no Applicant has met the burden of demonstrating it is capable of serving as an aggregator in the residential market and/or working with residential customers. The Authority is permitting the Applicants to serve other customer classes based on the information provided because the Authority currently understands that non-residential customers are more sophisticated market participants with business acumen, procurement strategies, and needs in addition to the procurement of supply. Further, non-residential customers frequently do not have the freedom to move from supplier to supplier at will and without penalty; as a result, shopping amongst several rates and finding the best one at the time of the contract becomes more imperative for non-residential customers."

The proposed decision includes a final caution to aggregators concerning the legal liabilities aggregators assume in transacting in the market:

"Applicants [aggregators] must recognize that in being granted an aggregator certificate they are entering a highly regulated and transparent market. As such, they must ensure that their business meets all of the applicable statutes, regulations, and Authority decisions, orders, and rulings. The Applicants must accept the responsibility of ensuring they maintain knowledge of the legal framework under which they function in Connecticut. Equally as important, the Applicants must recognize that they solely represent customers in this process and have the responsibility of acting as the customer’s agent and working in the customer’s best interest. Conn. Gen. Stat. § 16-245o places many obligations and restrictions on aggregators’ engagement with customers, and additionally prohibits deceptive marketing and makes any violation thereof a violation of the Connecticut Unfair Trade Practices Act. Applicants must familiarize themselves with the Authority’s interpretation of Conn. Gen. Stat. § 16-245o, as applied to aggregators and suppliers. Any Applicant found deviating from its legal responsibilities and obligations will be prosecuted under Conn. Gen. Stat. § 16-41. Some Applicants stated that they were applying solely because suppliers refused to allow them to be agents. Applicants must realize that, in so doing, the suppliers have attempted to relieve themselves of liability and have placed such liability squarely upon the Applicants. Applicants should be certain before engaging with customers that they are prepared to accept that liability being placed on themselves. Representing customers in a highly regulated market is not a role that should be entered into lightly," the proposed decision states

The proposed decision notes that three of the applicants voluntarily offered to post security in connection with being granted an aggregator certificate. The proposed decision would require each of these applicants volunteering to post security to post such security. The proposed decision would not generally require aggregators to post security

The proposed order would specifically grant an aggregator certificate, to serve any requested customer class other than residential customers, to the entities listed below. The draft would provide that such applicants must follow all orders contained in the proposed decision (several which are noted above) before they are allowed to conduct business as an aggregator in Connecticut.

The applicants covered by the proposed decision are: Yolon Energy, LLC,; Connect Energy Resource, LLC; Atlas Commodities II Retail Energy, LLC; MSI Utilities, Inc.; Amerex Brokers, LLC; Power Management Co., LLC; Pursuit Energy Solutions, LLC; Kobiona, LLC; Energy Advisory Service; Sprague Energy Solutions Inc.; The Fitzmichael Group, LLC dba Juice Energy Advisors; L5E, LLC; Open Energy Services, LLC; Tri State Energy Consultants, Inc.; Optimum Group, LLC; Power Direct, LLC; Crimson Power Solutions, Inc.; Energy Edge Consulting, LLC; Source One, Inc.; Sunlight Energy Group; Muirfield Energy, Inc.; and Engie Insight Services, Inc.

Docket 23-04-02 et al.

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