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FirstEnergy Advisors Says Ohio Broker Application, Name Comply With Corporate Separation Rules

February 19, 2020

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Copyright 2010-20
Reporting by Paul Ring •

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Suvon, LLC d/b/a FirstEnergy Advisors and FirstEnergy Home said in a filing with the Public Utilities Commission of Ohio that its structure and name comply with applicable corporate separation rules and statutes, and that PUCO should approve its application without holding a hearing

As previously reported, NOPEC, OCC and Vistra Energy have objected to FirstEnergy Advisors' electric broker application, alleging various violations of the revised or administrative code that would arise given the company's affiliation with the FirstEnergy Ohio distribution utilities

See our prior story here for background on the objections

FirstEnergy Advisors moved to deny the requests for a hearing from NOPEC et al.

"The arguments raised by the Ohio Consumers’ Counsel ('OCC'), Northeast Ohio Public Energy Counsel ('NOPEC'), the Northwest Ohio Aggregation Coalition ('NOAC') and Vistra Energy Corp. ('Vistra') have been raised in numerous proceedings for well over a decade. In every instance, the Commission correctly rejected those arguments because it has chosen to follow Ohio law rather than those parties’ arbitrary demands. There are no factual disputes. Accordingly, the Commission should follow its well-established precedent, deny the requests for hearing, and grant FirstEnergy Advisors’ license application," FirstEnergy Advisors said

FirstEnergy Advisors said that there is no prohibition on the use of shared service employees.

"OCC/NOPEC claim that because some of the managers of FirstEnergy Advisors are shared service employees this is grounds to deny the Application. NOAC joins this argument and claims a hearing is necessary 'to uncover the actual workings of FirstEnergy Advisors and its interactions with FirstEnergy and its regulated subsidiaries.' However, OCC/NOPEC never explain why the use of shared service employees is improper under Ohio law. This is significant because there is simply no prohibition in Ohio law against using shared service employees. Indeed, Ohio has extensive experience in working with shared service employees who properly allocate their time among different entities. Ohio has adopted OAC 4901:1-37-04(A)(5) and 4901:1-37-08, which specifically address how shared service employees should be accounted for under a cost allocation manual. As Ohio law expressly permits the use of shared service employees, and OCC/NOPEC have cited nothing in support of their position, this argument should be rejected as a matter of law," FirstEnergy Advisors said

"Rather than making a legal argument, OCC/NOPEC claim that FirstEnergy Advisors must show that it is fully separated from its regulated affiliates and that it cannot do so because it uses shared service employees. This is incorrect. FirstEnergy Advisors has already shown it is a separate corporate entity known as Suvon, LLC. The use of shared service employees has nothing to do with this corporate structure. FirstEnergy Advisors is legally separated from its regulated affiliates," FirstEnergy Advisors said

"Notably, the same commonality of managers was present when FirstEnergy Solutions ('FES') was the CRES provider for NOPEC. NOPEC never objected to this commonality of managers when it was in a financial arrangement with FES," FirstEnergy Advisors said

FirstEnergy Advisors alleged, "NOPEC’s current objection to this structure therefore appears to be strategic rather than a concern that FirstEnergy Advisors’ use of shared service employees is improper under Ohio law. Likewise, FES has served the NOAC communities for years and NOAC never objected to the commonality of managers."

FirstEnergy Advisors further alleged, "The final argument raised by OCC/NOPEC on this point reveals NOPEC’s purpose is actually anti-competitive rather than a true concern of customer confusion. FirstEnergy Advisors has identified two former FES employees as officers and directors. NOPEC objects because those two individuals previously worked on FES governmental aggregation programs. Presumably, NOPEC is concerned because FirstEnergy Advisors will provide communities with an experienced broker who can provide customers with options regarding governmental aggregation. Having experienced individuals associated with FirstEnergy Advisors is, however, beneficial to the market because it provides another experienced competitive option for aggregation programs in Ohio."

FirstEnergy Advisors also said that because FirstEnergy Advisors is a separate entity from the utilities, will operate independently of the utilities, and will comply with all corporate separation rules, there is no violation of R.C. 4928.17(A)(1).

FirstEnergy Advisors said, "OCC/NOPEC also claim that 'FirstEnergy Advisors is not structurally separate from the regulated utilities because of their common control and management,' and further claim this to be a violation of R.C. 4928.17(A)(1). Once again, OCC/NOPEC fail to provide any evidence of any purported violations by FirstEnergy Advisors. Contrary to their unsupported claims, FirstEnergy Advisors is a separate entity from the utilities and there are no subsidies from the utilities to FirstEnergy Advisors."

FirstEnergy Advisors said, "OCC/NOPEC concede that 'structurally separate affiliates are permitted to share employees and services' so long as 'the employees’ activities do not violate the code of conduct per Ohio Admin. Code 4901:1-37-04(D) and are properly accounted for in the cost allocation manual per Ohio Admin. Code 4901:1-37-04(A)(5).' As shown by those admissions, so long as FirstEnergy Advisors complies with those restrictions there is nothing inappropriate about its structure."

FirstEnergy Advisors said, "OCC/NOPEC present no evidence of any violation of these rules. Instead, OCC/NOPEC simply assume that FirstEnergy Advisors will violate these rules. In fact, they claim that any use of shared service employees 'is per se unlawful under Ohio Rev. Code 4928.17(A)(1). It cannot be permitted.' Once again, OCC/NOPEC are ignoring 20 years of Ohio precedent and the language of the very rules they cite. Unregulated affiliates (such as the entities associated with regulated utilities discussed infra) operated for years without any violation of Ohio’s corporate separation rules. Thus, this structure is not 'per se unlawful.' This history of compliance also shows that FirstEnergy Corp. was able to operate an unregulated affiliate for almost two decades without any improper disclosure of customer information. As such, there is no reason to suspect that FirstEnergy Advisors’ brokerage services would be any different."

FirstEnergy Advisors said, "Because FirstEnergy Advisors complies with all corporate separation rules, including ensuring that employees properly allocate their time and observe the no-conduit rule strictly so there is no impermissible exchange of utility data, there is no violation of R.C. 4928.17(A)(1)."

FirstEnergy Advisors further said, "Use of the name 'FirstEnergy Advisors' is not a violation of Commission Rules, and any restriction on such use imposed by the Commission would be a constitutional violation."

FirstEnergy Advisors said, "OCC/NOPEC claim that FirstEnergy Advisors’ use of the 'FirstEnergy' name violates Ohio Admin. Code 4901:1-37-04(D)(7) and (D)(9), while Vistra claims that its use is misleading in violation of Ohio Admin. Code 4901:1-21-05(C)(10). NOAC’s position is less clear, but appears to advocate for a change in name as well. The Commission has repeatedly rejected these arguments and should reject them again here for the same reasons."

FirstEnergy Advisors said, "OCC/NOPEC support their claim that the use of the 'FirstEnergy' name is prohibited under Ohio Admin. Code 4901:1-37-04(D)(7) because, according to them, the use of the name constitutes an 'endorsement' under that section. The only support for this interpretation is citations to an audit report which the Commission has not adopted. OCC/NOPEC completely ignore that the Commission has already analyzed and ruled that unregulated entities can use names affiliated with regulated entities. In fact, the Commission held that, 'absent other circumstances indicating that the use of the name and/or logo is unfair, misleading, or deceptive,' the Commission did 'not believe that an unaffiliated CRES supplier should necessarily be prohibited from using the incumbent utility’s name and/or logo.' As they have countless times in the past, OCC/NOPEC still fail in their attempts to show that this practice is misleading or deceptive."

FirstEnergy Advisors said, "Here, there is no evidence that the use of the name violates any Commission Rules -- nor do the parties provide any. In fact, Ohio law expressly requires that customers be informed of an affiliate relationship with an Ohio utility. OAC 4901:1-21-05(C)(8)(g) states it is inherently deceptive to '[f]ail to conspicuously disclose an affiliate relationship with an existing Ohio electric utility' when advertising or marketing. As it would be improperly deceptive to fail to disclose this relationship, OCC/NOPEC’s argument is not valid. Instead FirstEnergy Advisors will comply with all Commission rules, including the rules that require an affiliate disclaimer and the requirement that employees disclose the entity the employee is representing."

FirstEnergy Advisors said, "Vistra argues that approving FirstEnergy Advisors’ Application is anticompetitive and will 'result in the exact threat to competition the Commission must prevent,' purportedly due to the 'competitive advantage' that comes 'with the use of the FirstEnergy name.' Vistra’s argument fails for two reasons. First, it is axiomatic that additional competitors inherently increase competition—which was one reason that served as a basis for Ohio’s establishment of retail competition."

FirstEnergy Advisors said, "Secondly, if use of the 'FirstEnergy' name was improperly anticompetitive, then the Commission would not have repeatedly approved similar nomenclature for retail providers with public utility affiliation. The Audit Report did not identify any changed circumstances from when the Commission previously approved FirstEnergy Solutions’ name, which raised identical issues. Accordingly, Vistra’s argument that approving FirstEnergy Advisors’ Application is anticompetitive is baseless."

FirstEnergy Advisors said, "It is also worthwhile to note that Vistra has been unable to locate any authority in support of its position."

FirstEnergy Advisors said, "Vistra then creates another strawman that FirstEnergy Advisors 'could' be part of a vertically integrated utility. Once again Vistra shows a startling lack of understanding of Ohio’s regulatory scheme. FirstEnergy Advisors will be offering brokerage services and does not own generation. Therefore, under no circumstance could this be considered a vertically integrated utility. Even if FirstEnergy Advisors did own generation (which it does not), customers have choice in Ohio and are not forced to accept generation service from their distribution utility. As such, this argument does not make sense."

FirstEnergy Advisors said, "Finally, Vistra claims that there could be cross subsidization if FirstEnergy Corp. allows use of 'existing advertising infrastructure, including websites and customer bills' in violation of R.C. 4928.02(H). Yet again, Vistra illustrates its lack of understanding of Ohio’s corporate separation rules. Vistra should be aware of the exhaustive protections in place, including but not limited to the prohibition of cross-subsidies, the requirement to maintain separate accounting, strict financial arrangement requirements, and the code of conduct. FirstEnergy Advisors will comply with each of these requirements, ensuring that the unfounded possibilities Vistra imagines will not occur."

FirstEnergy Advisors said, "Intervenors fail to raise any arguments that warrant the suspension of the application process regarding FirstEnergy Advisors’ Application. Accordingly, FirstEnergy Advisors respectfully requests that the Commission deny the parties’ motions to set this matter for hearing and approve FirstEnergy Advisors’ Application."

Case No. 20-0103-EL-AGG

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