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NRG Warns of Potential "Transitive" Co-branding Among NextEra Retail Providers, Oncor

Says Public Association Between NextEra REPs and Utility Oncor Could Be Created

February 1, 2017

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Copyright 2010-17 EnergyChoiceMatters.com
Reporting by Paul Ring • ring@energychoicematters.com

In response to an RFI to NextEra Energy in the Texas PUC proceeding reviewing NextEra Energy's application to acquire Oncor (where, as previously reported, NRG is seeking to require NextEra to divest its Texas REPs as part of any approval), the NRG companies have further detailed their concerns if Oncor becomes affiliated with the NextEra retail providers.

"The affiliate rule prohibits 'joint marketing, advertising or promotional activities' and the proposed Code of Conduct and Regulatory Commitments in the Application purport to prohibit co-branding by Oncor and NextEra competitive affiliates in terms of sharing of a name, trademark, brand, or logo," NRG said

"These provisions are insufficient to protect against abuse by an affiliated REP in the marketing arena," NRG said

"They do not preclude techniques that create an association in the public's mind of the affiliated companies by using other branding features, such as a competitive affiliate using similar branding (color scheme, font, advertisement style) across all NextEra affiliates and include the tag line of a NextEra Company (e.g., Gexa, a NextEra company; Oncor, a NextEra company)," NRG said

"Such transitive co-branding would not violate the offered Code of Conduct restrictions. Such indirect leveraging of its affiliation with a regulated utility would be abusive and irreparably damaging to fair competition among competitive REPs," NRG said

"There is also precedent for an affiliate of a utility, Centerpoint Energy, leveraging its corporate service marks and public recognition as a provider of transmission and distribution service to create a shopping website that compares product offerings by multiple REPs. Even under the strictest standards of unbiased comparison, such a foray into the competitive arena is inappropriate for a utility, yet a precedent exists," NRG said

"In context of the Proposed Transactions, the potential for abuse is much higher -- in the case of Centerpoint, the utility has no competitive REPs to participate in the shopping platform. However, the Proposed Transaction would allow Oncor to have affiliated competitive REPs that could participate. Again, the potential to exercise discretion in the structure and operation of the shopping platform to advantage competitive affiliates and discriminate against competitors -- such as the manner in which the platform is organized and presented, management of updates and accuracy of competitive offers -- creates the potential for more abusive behavior and irreparable harm to competitors that is nearly impossible to oversee and regulate," NRG said

"Oncor must be prohibited from engaging in any retail referral business, whether a shopping website or brokerage, because it has an affiliated REP. Even if Oncor were to offer 'comparable' contracts for sponsorship on its referral platform, Gexa would be incented to overpay as Oncor and Gexa share the same shareholders and thus the money would stay internal to the NextEra corporation," NRG said

"In regards to services provided by the utility to affiliated REPs in the ERCOT market, in practice numerous activities take place during daily conduct of business that entail a great measure of discretion and can be exercised in a manner that advantages an affiliated REP or disadvantages a competitor -- and would not run afoul of the affiliate rule prohibitions regarding communications or alteration of utility procedures. In fact, the affiliated REP need not even be aware that the utility is providing favorable treatment with the goal (either explicit or implicit) of ultimately benefitting the combined corporation's financial performance (i.e., NextEra) as a whole," NRG said

NRG said, "For example, placing an affiliated REP at the top of the queue for completing any of the following activities routinely performed by the utility would advantage affiliated REPs and be disadvantageous to competitors:

• Prioritization of outage restoration for an area in which the affiliate REP has a large concentration of customers;

• Resolution of escalated customer complaints;

• Resolution of Inadvertent Gains/Losses of customers

• Submission and processing of municipal permits and execution of interconnections related to new or reconfigured service for end use customers, expediting or delaying initiation or resumption of service

• Adding or removing switch-holds on customers, and the timing of such adding or removing, whether for tampering or at the request of the REP; and

• Reconnection of an individual customer"

"Moreover, a bias can be exercised to give an affiliate favorable treatment in situations that are not transparent or easily comparable to transactions with competitors, such as the resolution of billing disputes in a manner favoring affiliated REP. Similarly, the utility may create programs (such as outage management or energy efficiency) that --while 'available on a nondiscriminatory basis' (emphasis added [by NRG]) as required by rule -- are designed in a manner that inherently advantages the affiliated REP. In addition, even for a utility program that is completely unbiased and non-discriminatory, an affiliated REP has a natural predisposition toward participation, knowing that it 'has nothing to lose' in terms of funds expended to participate (ultimately going to the same corporate bottom line) or its information potentially failing [sic] into the hands of competitor through a breach of the affiliate rules. Of course, those advantages and assurances do not exist for competitors," NRG said

NRG said that current affiliate rules in Texas, "do not prevent alignment of affiliate interests and certain high level communications."

"Unlike under the Energy Future Holdings structure, where Oncor had equity ownership interests different from the unregulated affiliated Luminant and TXU as well as a board with independent directors that EFH did not control, under the Proposed Transactions there will be full alignment of equity ownership and an Oncor board of directors controlled by, NextEra. Obviously, Oncor management would have knowledge of NextEra competitive affiliate interests, and the actions of the members of the Oncor board of directors and the Oncor management team can be expected to reflect this knowledge. For example, it is not clear that the affiliate rules or proposed Code of Conduct would prohibit communications at the highest levels of management that could provide affiliated retail electric providers (REPs) advanced knowledge of planned rate changes or operational changes at the utility, which could be incorporated in REP product designs, marketing, and operations, thus providing unfair advantages over other REPs," NRG said

"While Oncor's proposed Code of Conduct does prohibit Oncor from sharing information with its competitive affiliates, it does not clearly prohibit the competitive affiliates from sharing confidential information with Oncor. But even this one directional protection is of limited value in the context, for example, of normal management interactions regarding goals and objectives that cannot effectively separate individual affiliate activities from strategic planning, particularly at the board and executive levels. More broadly, it will be clear to any Oncor personnel that what is beneficial for the competitive affiliates of the utility is also beneficial for Oncor, as all NextEra Energy affiliates have an ultimate, common financial structure. Further, directives from the NextEra senior management to the leadership teams of Oncor and the competitive generation affiliates, could lead to 'coincidental' land acquisitions by the competitive generation affiliates in an area that Oncor has been separately instructed to pursue transmission expansion," NRG said

Docket 46238

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