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PUCT Staff Recommend Denial of AEP Retail Energy Application to Serve Texas Customers Under 1 MW

February 28, 2012

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Copyright 2010-12 Energy Choice Matters

The application of AEP Texas Commercial & Industrial Retail Limited Partnership for an amendment to its Texas REP certificate, to allow it to serve customers under 1 MW using the trade name AEP Retail Energy, should be denied, Staff of the Public Utility Commission of Texas said in a post-hearing brief (39509).

See 11/11 for background on the application of AEP Texas Commercial & Industrial Retail Limited Partnership

Staff, which prior to hearing had not taken a substantive position on whether the use of the AEP Retail Energy name was permissible, believes that the use of the trade name AEP Retail Energy, "would be misleading," because, "as the evidence reflects, in the context of existing market confusion, many customers would be misled into believing that they should choose AEP Retail Energy because they: 1) would be purchasing their energy from an AEP TDU; 2) would get better service if they purchase from a REP that is affiliated with their TDU; 3) would get better reliability by doing business with a REP that is affiliated with their TDU; and/or 4) are familiar with the use of the AEP brand by AEP Texas."

Citing testimony from AEP Retail Energy's own witness, Staff said that, "[t]he evidence reflects that confusion exists in the market regarding the respective roles that the parties play in the market."

"In a market that is based upon the segregation between the retail sale of electricity on the one hand and the transmission and distribution of electricity on the other, Staff believes that it is important to evaluate whether consumers will be misled or deceived by a brand that is shared by a REP and a TDU," Staff said.

Staff noted that AEP Retail Energy's witness presented a study that showed only one-third of all the respondents were able to correctly answer the question: Does the company you buy electricity from also own, maintain and repair the wires that deliver electricity to your home?

Staff further cited evidence presented by the Direct Energy companies, whose witness noted that the percent of respondents familiar with AEP Texas was identical to the percentage of respondents familiar with its affiliated REP, AEP Retail Energy -- 73%.

Staff noted that Direct Energy's witness, "indicated that the correlation between the numbers is, 'suggestive that customers are making a connection between the two entities (the AEP TDUs and the AEP REP).'"

"There is a high level of name recognition of AEP Retail Energy in spite of the fact that AEP REP has not done marketing or otherwise engaged in business in the AEP Texas territories," Staff concluded.

"Therefore, the evidence shows that a large majority of surveyed customers in the AEP Texas territories were likely not aware that AEP Texas (AEP Central and AEP North) and AEP Retail Energy are separate and distinct entities," Staff said.

"Other factors contribute to the possibility that the shared name may be misleading to customers," Staff continued. "For instance, according to [AEP Retail Energy witness] Mr. Hesser, AEP corporate policy encourages the use of the AEP logo by AEP companies on their trucks, uniforms and websites. Staff believes that given the existing confusion in the market, many customers would have difficulty distinguishing between a REP and TDU if they share the same brand."

"If the name, logo and other AEP symbols are standardized and used by all the AEP companies, many customers would not understand or believe that the REP and the TDU are separate and distinct companies," Staff said.

Staff concluded that, "The proposed name ... is not compliant with P.U.C. SUBST. R. 25.107(e)(1)(b) which requires that a REP's business names not be deceptive, misleading, vague, otherwise contrary to §25.272 of this title (relating to Code of Conduct for Electric Utilities and Their Affiliates) for purposes of providing service in the entire State of Texas."

While it is clear from Staff's brief that Staff believes the trade name AEP Retail Energy does not comply with SUBST. R. 25.107, Staff, in opposing the "proposed name," did not specifically state whether it also believes that the use of the certificated name AEP Texas Commercial & Industrial Retail Limited Partnership would not comply with SUBST. R. 25.107, if used in the mass market, though Staff's broader statement that, "Staff concludes that the AEP REP's use of the AEP brand would be misleading," suggests that Staff believes any use of the AEP brand by a mass market REP would be inappropriate.

Staff also raised an additional concern which resulted from testimony during the hearing.

During the hearing, according to Staff's brief, AEP Retail Energy's witness, "indicated that a drawback to the REP not being allowed to use the AEP name would be the inability of the REP to utilize the existing AEP website."

"Staff believes that the use of the website in the manner described by AEP's witness would violate the PURA § 39.157(d)(6) prohibition against conducting joint advertising or promotional activities in a manner that favors the competitive affiliate, because use of a website is a promotional activity and AEP Retail Energy would be using the same website as the AEP TDUs - something no other REP would be allowed to do."

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