Broker: Texas Strawman's Broker Compensation Disclosure Requirement Would Put Brokers Out Of Business, Only Benefit Large REPs

TEPA: Disclosure Would Lead To "Commoditization" Of Brokerage Services

Brokers Note Retail Providers Not Required To Disclose Margins

REPs Seek Prohibition On Use Of TDU Branding By Broker

October 1, 2019

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Copyright 2010-19 EnergyChoiceMatters.com
Reporting by Paul Ring • ring@energychoicematters.com

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Adopting a proposal in a strawman draft rule to require Texas electric brokers to disclose the amount or calculation of their compensation, from retail electric providers, to customers, "would have the end result of putting brokers out of business," and only serve to benefit large REPs, RES Nation, LLC, a broker, said in comments to the Texas PUC

See EnergyChoiceMatters.com's exclusive analysis of the strawman broker rules here

As first reported by EnergyChoiceMatters.com, the strawman would require that all brokers must disclose to clients, prior to the initiation of brokerage services, how the broker will be compensated for providing brokerage services, who will provide the compensation, and the amount or method of calculation of the compensation

RES Nation said in comments to the PUC that, "RES strongly objects to the overreaching and digressive requirements contained within staff's proposed strawman rules. Specifically, our primary concern is the requirement contained in new §25.486(d)(5) to disclose broker's fee structure. Such a disclosure would be a direct violation of existing confidentiality agreements between the broker and Retail Electric Providers (REPs). In the current market structure, broker fees are typically part of the pricing the broker has negotiated with the REP for its customers. If those end- use customers think that price point is too high, they will punish the brokers by taking their business elsewhere. Therefore, the market already has a solution for customers who believe the prices being offered by the broker are too high."

RES Nation further said, "There is nothing beneficial to be gained by requiring brokers to disclose either their fee or the methodology by which their fee is calculated (if that would make it readily easy to back into the fee, as would most certainly be the case.) This rule provision, as it is proposed, would have the end result of putting brokers out of business. Since many of the smaller REPs use brokers almost exclusively to gain customers, the only beneficiary of this would be the largest (and former affiliate) REPs. That would result in less competition and less choice for consumers, which stands in direction opposition of deregulation efforts."

"Finally, if brokers are required to disclose their fees, then retailers and generators should also have to disclose their margins and mark-ups," RES Nation said

In separately filed comments, several other brokers made a similar point on the proposed requirement for broker compensation to be disclosed, while REP margins are not required to be disclosed.

Professional Energy Management LP said in its comments that, "REPs are not required to disclose their margin."

Brokers also noted that the amount of compensation may not be known prior to the initiation of brokerage services as contemplated by the strawman

"[T]he amount is not necessarily known/decided until broker actually knows the scope of services desired, the load history and profile of the customer's load. As in other competitive businesses, Customer is free to shop with other brokers or shop directly with REPs. Customers are free to purchase elsewhere and broker may opt to lower its margin to win the customer's business. We hope the commission will recognize that the scope and quality of brokerage services vary, not only from broker to broker, but also from customer to customer dependent upon the scope of services customer desires. Some customers desire bill auditing, assistance with strategies for lowering or controlling TDU costs (4CP exposure), guidance regarding qualification for sales tax exemption, liaison to REP for billing issues, etc. The service variations can be very significant and therefore should not be treated as a commodity as if it was an Amazon purchase," Professional Energy Management LP said

Professional Energy Management LP did not object to a requirement to disclose the presence of compensation, and who will provide such compensation, and the "method" of calculating such compensation, but opposed a requirement to disclose the "amount" of compensation

TruEnergy Services, LLC said in its comments that the compensation disclosure requirement does not exist for aggregators, "even though they are obviously compensated for providing services."

TruEnergy also noted the compensation information may not be known before the start of brokerage services. "[P]urely from a logistical and feasibility perspective, it may not be possible to know this information with any precision until after the client has entered an agreement with a REP. The compensation may be transaction-based, load-based (i.e., $/kWh), or based in something entirely different. Likewise, the amount and design of the compensation can vary based on which REP transacts with the client. The best retail offering for the client and, therefore, the selected REP cannot always be known at the beginning of the interaction with the client. Even with its best efforts (ignoring the significant competitive harm of such public disclosures), a broker might not be able to comply with this proposed language," TruEnergy said

The disparate treatment of REPs and brokers under the proposed strawman was also noted with respect to the proposed required renewal of broker registrations every three years

"This expiration date does not exist for aggregators or REPs and is unnecessary," TruEnergy said

Likewise, Energy Edge Consulting LLC noted that, "a registration renewal is not required of other market participants such as REPs, aggregators and power generation companies."

The Energy Professionals Association said that, "Compensation is considered proprietary and can vary by REP and customers. Electricity brokering is an optional and bespoke service available to retail electric customers. While brokers may elect to disclose their fees to their clients, requiring disclosure is anti-competitive and will force the commoditization of brokerage services to the detriment of customers."

"Stating the amount of compensation for brokers only and not stating for other market participants is both impractical and also creates a regulated environment in a deregulated industry," TEPA said

REPs Seek Prohibition On Use Of TDU Branding By Broker

Retail electric providers said in comments on the strawman that brokers should not be allowed to use the same name brand as a TDU

The Alliance for Retail Markets noted that the strawman places certain restrictions on the assumed or business names a broker may use, stating that a business name, "must not be deceptive, misleading, inappropriate, confusing, or duplicative in whole or part of any name currently in use or previously approved for use by a broker, aggregator, or REP in a way that may be confusing or misleading."

"To cover all bases, the list of prohibitions in this provision should include a reference to 16 TAC § 25.272, relating to Code of Conduct for Electric Utilities and Their Affiliates, which would apply to the assumed name of a co-branding broker affiliated with a transmission and distribution (T&D) utility. Such co-branding should be prohibited because it would provide an unfair competitive advantage to the broker affiliated with the T&D utility, contrary to 16 TAC § 25.272. Conversely, to the extent a broker is affiliated with another competitive market entity, a business name similarity and co-branding should not necessarily be prohibited," ARM said

In separately filed comments, Texas Energy Association for Marketers (TEAM) similarly said, "TEAM suggests that this language also include a restriction against co-branding with a transmission and distribution utility. By its nature such co-branding could lead to confusion that the broker is able to receive preferential treatment or reliability of service from the monopoly provider of utility service."

TEAM suggested the following language for the rule: "A registering entity may operate under a maximum of five assumed names. At the time of registration, the registering entity must provide all names to the commission. Business names must not be deceptive misleading, inappropriate, confusing, or duplicative in whole or part of any name currently in use or previously approved for use by a broker, aggregator; or REP in a way that may be confusing or misleading. Business names may not be duplicative in whole or in part of the brand or business name of a transmission and distribution utility[.]"

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