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For 25 Years, The Term "Aggregator" Meant Pooling Customers. A Footnote In a Motion Ruling Changed That

June 13, 2023

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Copyright 2010-23
Reporting by Paul Ring •

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The Connecticut PURA's March 30 motion ruling concerning what entities are considered electric aggregators is contrary to 25 years of precedent and prior explicit pronouncements, which PURA did not acknowledge in such ruling.

As previously reported, the March 30 motion ruling, aka Ruling on Motion No. 16 in Docket 14-07-20RE01, addressed the entities which are authorized to "enroll" customers, with PURA holding that such authorized entities are: electric suppliers, agents of electric suppliers, aggregators, and agents of aggregators

In doing so, Ruling on Motion No. 16 addressed the definition of aggregators

We observe that PURA in Ruling on Motion No. 16 specifically declined to clarify the issues before it, as PURA said that it had, "determined that clarification is not required as the issue at hand is already sufficiently clear."

Yet, in a footnote, PURA interpreted the definition of "aggregator", and did so in a manner contrary to 25 years of precedent. At the very least, it would seem the definition of aggregator was not clear, and merited a more formal analysis rather than addressing the matter in a footnote.

PURA's Office of Education, Outreach, and Enforcement (EOE) has lamented that suppliers are wanting to, "have their cake and eat it too," when it comes to the treatment of aggregator (see yesterday's story here), but it seems Ruling on Motion No. 16 does the same. PURA wants to couch the ruling as maintaining the status quo -- insofar as the motion is not a "clarification" -- but then adopts a novel interpretation of the term aggregator in a footnote

As been noted repeatedly here in the last several months, Conn. Gen. Stat. § 16-1(a)(25) defines 'aggregator' to mean, "(A) a person, municipality or regional water authority that gathers together electric customers for the purpose of negotiating the purchase of electric generation services from an electric supplier, or (B) the Materials Innovation and Recycling Authority, if it gathers together electric customers for the purpose of negotiating the purchase of electric generation services from an electric supplier, provided such person, municipality or authority is not engaged in the purchase or resale of electric generation services, and provided further such customers contract for electric generation services directly with an electric supplier, and may include an electric cooperative established pursuant to chapter 597."

One of the issues presented before PURA in Ruling on Motion No. 16 is how to define entities in the market, which do not receive compensation from suppliers, given the above definition.

For 25 years the plain meaning of "gathers together" has meant the pooling of customers, but in Ruling on Motion No. 16, PURA adopts a new interpretation -- holding that merely serving more than one customer equates to gathering customers together

In a footnote in Ruling on Motion No. 16, PURA held, "if an entity represents customers ... then by definition the entity has gathered together customers for the purpose of negotiating their purchase of supply... "

In this footnote, PURA was endorsing the position of EOE, which had more fully stated, "{I]f an entity represents customers (i.e., represents the customers’ interests and serves as the customers’ agent, not a supplier’s agent), then by definition the entity has gathered together customers for the purpose of negotiating their purchase of supply (the moment the entity has more than one customer, it has, by definition, gathered customers; presumably, an aggregator could not function as a business if it had only one customer). If the General Assembly presumed aggregators would form groups of customers and negotiate on behalf of the entire group at once, then the General Assembly failed to include that in the definition of electrical aggregator in Conn. Gen. Stat. § 16- 1(a)(25) and that is not how the aggregator market has formed in the intervening decades. That is not to say that the aggregator market cannot function in such a manner, simply that it has not developed over time to function solely in that manner. The way the market has formed appears to agree with the statute, which does not say that the aggregator must gather customers and negotiate on behalf of all of them as a group; the statute simply says an aggregator gathers customers and negotiates on the customer’s behalf."

PURA also summarized in Ruling on Motion No. 16 that, "it would make little sense for the Legislature to have provided the Authority with broad regulatory powers governing customer enrollment by third-party supplier agents and electric aggregators yet simultaneously allow for the existence of unregulated entities enrolling consumers beyond the protective sphere of the Title 16 and the Authority’s Marketing Standards."

However, PURA has never previously defined aggregator to mean any entity compensated by the customer, which it did in Ruling on Motion No. 16 through the above-cited interpretation of "gathers together".

For 25 years, the definition of aggregator affirmed in multiple decisions from PURA has been that an aggregator is an entity which pools customers.

In a December 23, 1998 decision in Docket No. 98-06-13, PURA [note, the name of the agency has changed over time, but such is irrelevant to its orders, and for simplicity, we will refer to all prior rulings as from PURA] held that, "As a result of competition, customers will be free to contract with any certified retailer, to form buyers’ associations to act on their behalf, or to contract with load aggregators to obtain their electricity services. Load aggregators may be municipal, non-profit or private entities that organize customers to obtain more favorable contracts from retailers or marketers. Load aggregators will be agents who specialize in bringing buyers together. They will not take title to the electricity but provide the service of arranging multiple customer purchases."

PURA in Docket No. 98-06-13 went on to state that, "Aggregation can help suppliers reduce their costs by bringing together many small customers." [emphasis added]

PURA in Docket No. 98-06-13 went on to state that, "Recent experience in the telecommunications industry suggests that without aggregation, residential consumers may not be sought out by competitive suppliers in the near future. While competition is now fierce for the long distance telecommunications business of residential customers, these customers were not initially targeted by the phone companies. Aggregation may be most important for smaller customers in the early stages of electric competition while suppliers concentrate their efforts on large commercial, industrial and institutional customers."

PURA in Docket No. 98-06-13 went on to state that, "In addition to reducing transaction costs, aggregation can reduce costs by spreading the fixed costs of generation plants and overhead over more kiloWatt (kWh) hours. Small residential and commercial customers generally have a lower load factor than larger commercial/industrial (C/I) customers. This means that residential customers use fewer kiloWatthours per kiloWatt (kW) of demand compared to larger C/I customers. Spreading the fixed costs of generation plant and overhead over more kWhs results in somewhat lower generation costs on a kWh basis for large C/I customers than residential customers. The reason C/I rates are lower is that large C/I use more energy during off peak periods, lowering the average cost per kWh." [emphasis added]

Most notably, PURA in Docket No. 98-06-13 went on to state that, "Existing utilities currently attempt to levelize their loads through various means to reduce overall costs. The incentive for suppliers to minimize costs will be even greater in the future so they can offer competitive rates. Aggregation can help suppliers reduce generation costs by grouping together customers to form a pool with a favorable load profile, recruiting customers that primarily use power during off peak periods or managing the load of customers through rates, interruptible service agreements or automated controls." [emphasis added]

Entities representing the customer which do not pool customers together, but rather which find clients on a rolling basis and which instead evaluate and advise on "standing" supplier offers or terms and conditions in the market, clearly do not leverage the size of their customer base, which is constantly changing, and thus cannot assist in reducing fixed costs as group buying pools would

Also in Docket No. 98-06-13, PURA envisioned that aggregators would be issuing RFPs for specific load, as opposed to an individual customer choosing from offers from an "aggregator" on a rolling basis (as PURA now defines the term)

In Docket No. 98-06-13, PURA stated, "With regard to CAFCA’s [Connecticut Association for Community Action] request that customers participate in aggregation on a no-lose basis, the Department agrees with CL&P and UI that such guarantees cannot be required in a competitive marketplace. Concerning default service, the Department agrees with CL&P that a customer should not switch suppliers until the customer has a valid contract with a new electric supplier and the supplier is prepared to take title to the load of the customer. Therefore there is no need to make provisions for customers to return to the utility pool if the aggregation request for proposal is unsuccessful. Aggregation customers would be treated like all other customers if for some reason their supplier could no longer serve them or a customer wants to return to the default supplier for generation service."

PURA in Docket No. 98-06-13 also said, "In general, the Department is taking steps, through administrative regulations and the consumer education outreach program, to facilitate aggregation and encourage customers to participate in aggregation."

In a December 1, 1998, PURA also adopted a Consumer Education Outreach Program in Docket No. 98-07-03

While the decision itself did not define key terms, education materials adopted pursuant to this program, and other directives, clearly define aggregator as an entity operating a buying pool

PURA's then-educational website, http://www.dpuc-electric-choice(dot)com/consumers/glossary(dot)html (note: original link dead, see archive here) defined aggregator as follows in a glossary as of June 6, 2000 (note that we've disabled direct links to the original sites as they may now be owned by domain "squatters" and may contain malicious code, we encourage only visiting the linked archived sites):

"Aggregator - an entity licensed by the DPUC that brings a group of consumers together to buy energy in bulk. The group of consumers is called a buying group."

Note that this definition was still being used as late as May 2009, on an updated web address http://www.wattsnewct(dot)com/glossary(dot)html (link dead, archived here

PURA's then-educational website also included a specific page about aggregation, http://www.dpuc-electric-choice(dot)com/aggregators/aggregators(dot)html (note: original link dead, see archive here) which included the following description as of June 6, 2000:

"The Aggregation Option

"You Can Buy Energy through an Aggregator

"An aggregator brings consumers together to form a buying group and to request bids from electric suppliers. By negotiating for energy in bulk, an aggregator may be able to get lower energy prices for the group's members. Aggregation is also a way to combine business consumers to create a group load profile that is more appealing to electric suppliers.

"The aggregator does the research, selects an electric supplier, and identifies price, contract terms, and any services wanted by the buying group's members. This saves the members time and effort. Consumers may join a buying group for the potential savings, for convenience, for the additional services offered, or to buy energy made from renewable sources.

"Some examples of organizations that may become aggregators are civic organizations, cities and towns, business associations, and private or non-profit organizations."

This plain definition was consistently used by PURA in the intervening years

Most notably, in a September 1, 2010 decision in Docket No. 10-01-04, one of the formative aggregator cases, PURA affirmed the interpretation of the statutory definition of aggregator as follows:

"In enacting this statute, the legislature contemplated that the electric aggregators would first gather customers, then using the aggregated pool as leverage, the aggregators would negotiate prices with the electric suppliers on behalf of the aggregated customers. The presumption was that customers would get a better deal being part of a larger group than they would get as individual customers." [emphasis added]

Additionally, in a March 16, 2011 decision in Docket No. 10-06-24, another of the formative dockets on aggregation in Connecticut, PURA was explicit that, "As the Department has discussed many times in the past, the law contemplates that Aggregators aggregate customers’ individual electric loads or consumption to negotiate for better prices with Suppliers; however, once terms and prices have been negotiated, Aggregators must step out of the process and the Suppliers and Customers must, directly and individually, enter into their own contractual relationship." [emphasis added]

In Docket No. 10-06-24, reiterating prior rulings, PURA said, "the Department has pronounced and reiterated its position that Aggregators must act as the customers’ agents in negotiating electric generation prices for the gathered customers."

In Docket No. 10-06-24, PURA said, "As required by statute, Aggregators must represent customers in negotiating the best electric generation price for those customers."

Docket No. 10-06-24 also addressed the use of power of attorney by aggregators to enroll customers with suppliers. Rulings concerning this matter were later stayed (and perhaps remain stayed), and ultimately not relevant to the question here, but a PURA observation made in connection with the discussion of the power of attorney issue is noteworthy

In Docket No. 10-06-24 PURA said, "The Department notes that the law does not prohibit customer representation by brokers, marketers or other types of agency. Thus, Power of Attorney agreements between customers and brokers or marketers would be authorized and accepted, subject to relevant consumer protection laws."

Since this decision, statute effective in July 2011 (Public Act No. 11-80) made explicit that any entity compensated by a supplier is a legal agent of such supplier, which doesn't expressly contradict the ability of customers to enter Power of Attorney agreements with "brokers", but would make the supplier responsible for any actions of the broker, which suppliers are unlikely to accept in power of attorney situations, making the point moot. Still, it is a recognition that there were non-aggregator entities, which represented customers, in PURA's March 16, 2011 decision in Docket No. 10-06-24

After PURA's March 16, 2011 decision in Docket No. 10-06-24, as well as Public Act No. 11-80, PURA dismissed numerous aggregator applications from entities due to two linked provisions: (1) the applicant would be compensated by the supplier, making the applicant the legal agent of the supplier per Public Act No. 11-80, and, PURA's prior decisions, including in Docket No. 10-06-24, that an aggregator may not be the agent of the supplier and thus compensation by a supplier disqualifies an applicant from being an aggregator

However, a decision from September 20, 2012 -- after PURA's formative March 16, 2011 decision in Docket No. 10-06-24 -- is instructive

As noted, in the immediate aftermath of the March 16, 2011 decision in Docket No. 10-06-24 and Public Act No. 11-80, applicants being compensated by suppliers were still seeking aggregator certificates, and such applications were unsurprisingly closed without the grant of an aggregator certificate

However, in at least one case, an applicant was denied an aggregator certificate because its operations appeared more similar to serving individual customers, rather than having an aggregation "program".

Specifically, in Docket No. 12-08-18, PURA in a September 20, 2012 decision denied an aggregator certificate to an applicant in which PURA did not explicitly state that the denial was because either the applicant would be compensated by suppliers or otherwise be acting as the agent of the supplier(s). [Note, the applicant did, in fact, state that it would be compensated by suppliers, but unlike in numerous other contemporary decisions, PURA did not highlight this is as a disqualifying factor for an aggregator certificate]

Rather, PURA in the September 20, 2012 decision in Docket No. 12-08-18 said, "You [aggregator Applicant EnergyRebate] stated in your response to Exhibit B-4(a) in your application that 'There is no aggregation program; we solicit customers to give them the best price from different suppliers.' Based on this information, it seems that EnergyRebate, Inc. intends to operate as a broker/marketer, and not as an aggregator as defined by law. Connecticut law currently does not require electric agents or brokers to be registered or licensed. Therefore, the Authority cannot process your application and hereby closes this docket without prejudice."

Again, regardless of the specifics in the EnergyRebate case (where EnergyRebate did state it would be compensated by suppliers but PURA did not note this in its final decision), PURA's dicta in the decision would suggest that merely soliciting customers and presenting them with what the entity believes is the best offers, when the entity is not compensated by the supplier, does not constitute aggregation

To summarize, PURA's precedent prior to March 2023 had created a structure where all aggregators must be agents of the customer. However, prior to the March 30 Ruling on Motion No. 16, not all customer agents have been defined as aggregators

Aside from parsing the terms "gathers together", PURA's broader interpretation of the definition of aggregator rests on the argument that the legislature would not have intended there to be any regulatory "gap" in customer protection from entities not subject to PURA "regulation."

While we could devote even more ink in addressing that issue, the broader concern is PURA's styling of its Ruling on Motion No. 16. If revised statutory interpretations are appropriate given how the market has developed and other statutory changes since the term aggregator was established in statute, PURA should engage in a more robust dissection of the issue. Hand-waving away any problematic language via a footnote is not sound

It should be emphasized that most traditional brokers are already subject to PURA regulation because if they are compensated by the supplier, they are defined, by statute, as legal agents of the supplier

As has been noted, Conn. Gen. Stat. § 16-245o(h)(1) provides that "[a]ny third-party who contracts with or is otherwise compensated by an electric supplier to sell electric generation services, or contracts with or is compensated by a third-party marketer of the electric supplier to sell electric generation services for the electric supplier, shall be a legal agent of the electric supplier. No third party may sell electric generation services on behalf of an electric supplier unless such third party has received appropriate training directly from such electric supplier."

Accordingly, the universe of entities under any feared "gap" would be small -- entities that represent the customer, but which do not gather together (pool) customers

For large C&I customers, these would mostly take the form of customer-compensated consultants or advisors

Indeed, although PURA does not go so far in Ruling on Motion No. 16, EOE's interpretation could ensnare any entity advising a customer on an electric supply contract -- including outside legal counsel

In a point that has recently been raised in New York as New York grapples with implementing a broker/consultant law, EOE's definition of the term aggregator could include law firms retained by customers to review their electric supply contracts

Several law firms in New York noted that they may provide advice pertaining to electric services, with such legal representation possibly including energy procurement advice, reviewing and revising contracts, analyzing and negotiating contract terms and conditions, and/or advocating on behalf of clients for contract terms and conditions that further the best interests of the client. [obviously the New York firms were addressing questions specific to New York and we stress they have not opined on any Connecticut matters; we are merely extrapolating their arguments to another situation]

EOE's interpretation of the term aggregator would appear to include such client-specific representation performed by lawyers within the definition of aggregator, since the lawyer is representing the customer. However, it strains credulity that a law firm, which may advise a unique client once every 6 months in electric supply negotiations, is gathering customers together and could plausibly be considered an aggregator under statute

"[T]here is no situation in which an entity paid by customers does not gather customers and negotiate the purchase of their electric supply," EOE has stated. Experience says otherwise.

EOE has also said, "That is what aggregators do – represent customers to negotiate their purchase of electric generation services."

EOE has argued that the statutory definition of aggregator fails to refer to aggregators forming "groups" (as if the terms 'gathers together' were not plain), and has argued that if the General Assembly had meant to define aggregators as only pool operators, it could have done so

The opposite is also true, and frankly more plausible. If the legislature had simply wanted aggregator to mean any entity which represents a customer, lawmakers could have easily, and more simply, done so, instead of inserting "unnecessary" language about gathering customers together and negotiating purchases

In fact, the claim that the General Assembly intended aggregators to "represent" customers, rather than be entities which pooled customers, is dubious given that PURA previously licensed an entity simultaneously as both a supplier and aggregator!

In a September 19, 2001 decision in Docket No. 01-04-10, PURA granted both a supplier license and aggregator license to Dominion Retail

"In this Decision, the Department of Public Utility Control finds that Dominion Retail, Inc. meets the technical, financial and managerial capability to operate as an Electric Supplier and Aggregator serving residential, commercial and industrial customers and grants it an Electric Supplier and Aggregator License," the 2001 decision states

While within 10 years PURA revised its treatment of suppliers and aggregators, starting in 2009 with the finding that an aggregator cannot be a supplier's agent, the fact PURA previously granted, in the same order, both a supplier license and aggregator license to the same entity means either PURA wholly whiffed on statutory interpretation of the term, or it was clear that the term aggregator did not mean any entity representing the customer

Aggregators are narrowly defined as an entity that "gathers together" (not just gathers, but gathers together, with together typically meaning "with or in proximity to another person or people" or "into companionship or close association") customers for the purpose of "negotiating" the purchase of electricity (we addressed the importance of the term "negotiating" yesterday).

For the mass market, entities which do not meet the definition of aggregator, and which are also not supplier agents, would most likely be concierge-type services which charge a subscription fee for their service and/or for their rate recommendations or analysis

EOE cites the example of Utiliz as an "aggregator". However, it should be noted that Utiliz in its electric aggregator application in Connecticut specifically described its "electric aggregation program" and said as follows, "If Utiliz Services LLC receives a large number of enrollments within the similar profile and geographic area we leverage them in blocks and negotiate additional savings with potential suppliers. (emphasis added) [Note: Utiliz has since withdrawn its Connecticut aggregator certificate)

Therefore, while Utiliz Services may offer multiple services (e.g. both individual customer service as well as pools), the service for which Utiliz Services was specifically seeking an aggregator certificate for -- and which was described as its "electric aggregation program" in its application -- was one in which Utiliz would be serving "blocks" of customers. Under the required description of its "electric aggregation program" in its PURA filing, Utiliz did not discuss any services in which it enrolls individual customers, on a one-by-one or rolling basis, with suppliers.

Accordingly, the Utiliz experience is not instructive as to whether the term aggregator includes concierge sites, in which compensation is solely from the customer, and which merely place individual customers, on a rolling basis, with suppliers which, in the opinion of the concierge service, offer the best rate and/or terms.

This is not to mean we favor any gap in oversight of entities interacting with retail electric customers, but the solution is not to strain statutory text beyond its plain meaning

The question of the entities required to be registered as aggregators has taken on even heightened importance -- beyond just the enrollment issues from March 2023 -- because, as noted in our story yesterday, EOE is seeking to impose new disclosure, signature, and related requirements on "aggregators". Again, this isn't being done in a generic proceeding, but in proposed orders in the aggregator-specific certification dockets for a group of companies (whether existing aggregators would later be subject to the same new requirements hasn't been explicitly addressed)


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