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Ohio to Reconsider Licensing Requirements for Consultants, Denies Complaint Against Palmer Energy
November 2, 2011
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Copyright 2010-
The Public Utilities Commission of Ohio said that it is appropriate to explore further distinguishing the activities of consultants versus brokers, and suggested that the matter should be addressed in a future rulemaking, as the Commission denied a complaint against Palmer Energy Company filed by Buckeye Energy Brokers, Inc. (Case 10-0693-GE-CSS).
As only noted in Matters (3/29), the complaint largely centered on whether Palmer Energy's activities to assist governmental aggregations amounted to brokering, which requires a license, or merely constituted consulting, which PUCO has previously said does not require a license. At issue is a prior PUCO order which held that an entity may operate in the capacity of a consultant without the need to be certified as a public utility provided it is not engaged in the performance of a competitive service.
Ultimately, PUCO found that Buckeye Energy Brokers did not sustain its complaint.
Of greater import to the market is that PUCO agreed, "there is ambiguity relative to distinguishing the activities of consultants and brokers."
"Therefore, the Commission believes it would be appropriate to further explore this issue in a subsequent Commission proceeding, including possibly in the context of the upcoming five-year review of Chapter 4901:1- 29, O.A.C."
PUCO suggested that it may consider a bright-line distinction between licensed brokers and consultants based on compensation, or based obligations assumed by the consultant.
"One of the issues to be incorporated within this examination is the manner in which entities are compensated for their services and whether they receive compensation notwithstanding the fact that an aggregator program may not actually commence or is short-lived. Another possible issue for consideration could be an analysis of what are the obligations of the consultant to the extent that a supplier fails to provide the commodity required for the aggregation program," PUCO said.
Also of note to other market participants is that certain brokerage fees received by Palmer were disclosed during the case. Specifically, the supply contracts between FirstEnergy Solutions and several aggregations for which Palmer consulted provided that FirstEnergy Solutions would pay to Palmer $.00007 per kWh of electricity delivered to aggregation customers. Other contracts between Interstate Gas Supply and several aggregations for which Palmer consulted provided that Interstate Gas Supply would pay to Palmer $.0015 per CCF of gas delivered to aggregation consumers.
Turning to the specifics of the complaint, PUCO found that Buckeye failed to sustain its burden of proving that, during the time period at issue, Palmer engaged in activities as a provider of CRES [competitive retail electric service] and CRNGS [competitive retail natural gas service] without obtaining a certificate from the Commission.
Under the statutory definitions, PUCO noted that a company is deemed to provide competitive retail service either by being in the business of supplying such service, or in the business of "arranging" for the supply of the service.
"Based on a review of the record in this case, Buckeye has not shown that Palmer was involved in the actual supply of service prior to its certification," PUCO said.
Given its prior order that consultants need not be licensed if not engaged in the performance of a competitive service, PUCO said that, to be involved in "arranging" for the supply of competitive retail service, "an entity must be engaged in activity that exceeds the level of involvement of a consultant."
Among other things, Palmer Energy worked with cities pursuing municipal aggregations, assisting communities with the Commission certification process for government aggregators and the filing of reports on behalf of clients. Such activities, "were performed in the capacity as a consultant and ... the evidence on the record in this case does not support a finding that Palmer's actions constitute the performance of a competitive service," PUCO said.
"Additionally, we agree that the mere educating of communities regarding the aggregation process may be encompassed within its role of a consultant," PUCO added.
Buckeye's case largely rested on Palmer Energy's development, issuance, and evaluation of RFPs for governmental aggregators.
"While the record reflects that these activities were performed for the purpose of assisting in the clients' operations, the record does not reflect that the activities performed by Palmer in this regard rose to the level of Palmer itself engaging in the ultimate decision making process and entering into contractual obligations on behalf of its clients with respect to the provision of a competitive service," PUCO held.
"[T]he evidence in this case indicates that Palmer served in the role of an advisor assisting its clients," with such RFPs, PUCO said.
"While the record does reflect that Palmer held agency status and/or power of attorney for the purpose of working with CRNGS suppliers, natural gas companies, and transmission companies, Buckeye failed to establish that Palmer contractually obligated its client for the supply of CRES and CRNGS. Furthermore, the evidence reflects that Palmer, while not a party to the supplier contracts, was compensated by some of its clients through the supplier contracts based on the volume of the gas and electricity delivered. However, there is no evidence on the record indicating that Palmer played any role in negotiating this term in the supplier contacts or that the term itself was even negotiable. Buckeye has presented no evidence that the manner of payment is dispositive as to whether an entity is operating as a consultant or a broker. Without further evidence to the contrary on the record, the Commission is not able to conclude that the mode of compensation alone is indicative that Palmer was operating as a broker and not merely a consultant," PUCO said.
PUCO also dismissed as unsupported Palmer Energy's counterclaim that the Commission should suspend Buckeye's certification inasmuch as Palmer alleged that Buckeye has engaged in deceptive and misleading acts by telling others that Palmer was required to be certified before engaging in consulting services.
Commissioner Paul Centolella dissented from PUCO's conclusion, and would have held that Palmer's activities in assisting municipal aggregations required a broker license, though ultimately, Centolella would not have ordered any relief in the case given that the case is one of first impression, and that Palmer has subsequently sought and received broker licenses.
However, Centolella's dissent is instructive as to any future rulemaking on defining a broker, as Centolella's analysis rests on Palmer's compensation under supply agreements between the aggregating cities and suppliers, and specifically the fact that Palmer's compensation was contingent on deliveries.
"Although Palmer was not itself a party to the supply agreements, the specified payments to Palmer are persuasive evidence of the existence and nature of verbal or implicit agreements between Palmer and its aggregation clients. It is apparent that under verbal or implied contracts between Palmer and its aggregation clients Palmer would take steps to arrange for supply contacts in exchange for fees that would be paid contingent upon the successful delivery of electricity or gas to retail consumers. The distinguishing feature of a broker's contact, as opposed to a consultant relationship, is that the broker is paid a brokerage, commission, or fee that is contingent on the successful completion of a contract for the purchase or sale of a good or service. Contingent compensation alters the financial incentives and gives the broker a financial interest in the completion of a transaction. By contrast, a consultant that was paid solely for its service and expertise would be financially neutral regarding whether the supply contract and retail deliveries were completed. Palmer's compensation was contingent on the deliveries of electricity or gas under successfully completed supply contracts. When Palmer first entered into agreements or understandings that its compensation would be contingent upon the completion of the supply contracts that it was helping to negotiate and the successful delivery of electricity or gas to retail consumers, the firm should have sought certification as a retail power broker or a retail natural gas broker under the Commission's current Rules," Centolella said.
Email This StoryCopyright 2010-
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