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Update: Regulator Issues Proposed Decision Requiring New Disclosures, Customer Signatures, For An Entity Representing Customers In Securing A Retail Supplier Contract

Customer Signature Required Before Entity May "Obtain" Pricing

Entity's Commission Must Be Disclosed

Draft Envisions That Entities Would Not Be Able To Comply With New Requirements In Cold Call Sales

June 14, 2023

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Copyright 2010-23
Reporting by Paul Ring •

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The Connecticut PURA formally issue a proposed decision which, in addition to granting aggregator certificates to several entities in an omnibus fashion, would also create new marketing and disclosure rules for those specific aggregators, including a requirement to obtain a customer's signature on two separate documents, one of which must be signed before the aggregator "obtains" pricing.

The proposed decision also sets forth proposed requirements which the proposed decision does not believe could be satisfied through a "cold call", as discussed further below

PURA's formal proposed decision generally adopts the material language of the previously reported proposed decision sought by PURA's Office of Education, Outreach, and Enforcement (EOE), except PURA's formal proposed decision omits various language used by EOE in chastising retail suppliers. Substantively, however, with respect to the newly proposed disclosure and signature requirements for the 22 aggregators which would be certificated under the decision, the formal proposed decision does not materially differ from EOE's proposal

The proposed decision would grant aggregator certificates to 22 entities (the Applicants), limited to non-residential service, provided that the aggregators comply with all of the requirements in the proposed decision and revise their contracts and processes accordingly. The proposed decision would not authorize any of the 22 applicants to serve residential customers

The proposed decision reiterates that, "Pursuant to Connecticut law and the Authority’s clarification in the Ruling on Motion No. 16 in Docket No. 14-07-20RE01, PURA Development and Implementation of Marketing Standards and Sales Practices by Electric Suppliers - Revised Standards, an entity that represents the customer in securing a supplier contract and is ultimately compensated by the customer with the customer’s knowledge is an aggregator."

The proposed decision reiterates, "An aggregator is the customer’s agent. If an entity represents the supplier in the transaction, then the entity is the agent of the supplier and the supplier must claim the entity on its Form 6. See Conn. Agencies Reg. § 16-245o(h)(1). No entity may be both an aggregator and an agent of suppliers."

As has been noted, Conn. Agencies Reg. § 16-245o(h)(1) provides in part 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."

"To facilitate the requisite transparency with customers," the proposed decision would require the specific 22 Applicants to comply with new disclosure and signature requirements discussed below. The proposed decision does not address whether such requirements would be imposed on existing aggregators in the market, not does it appear any generic proceeding to accomplish such has been formally initiated at this time

The proposed decision would require that every Applicant must provide each customer with three documents (Three Customer Communications).

While the proposed decision states that the documents may be electronic documents, the proposed decision does not specifically address whether required customer "signatures" may be electronic

The proposed decision would require that the Applicant must provide the first document at the outset of the relationship between the Applicant and the customer, and the document must:

1. Describe in detail how the Applicant will be compensated;

2. Explain the process that the Applicant uses to find prospective rates for the customer;

3. Explain to the customer the number of suppliers (or range of number) from which the Applicant will solicit rates and the current suppliers from whom it solicits;4 and

4. Require the customer’s signature to permit the Applicant to obtain pricing for the customer.

Concerning this first document, the proposed decision states, "Based on the content of this document and its timing, it is difficult to imagine the situation in which an Applicant may satisfy this requirement when 'cold calling' potential customers. A 'cold call' would have to result in a multi-step process in which the Applicant interacted with the customer, provided the document, obtained the customer’s signature, and then solicited bids for the customer."

The proposed decision would require that the Applicant must provide the second document to the customer once the Applicant has obtained prospective rates, and the document must:

1. Tell the customer each supplier from whom the Applicant solicited prospective rates;

2. Tell the customer the rates offered by each supplier;

3. Describe the Applicant’s commission included in each rate; and

4. Require the customer’s signature acknowledging receipt of said information.

Concerning the disclosure of the aggregator's "commission" (which may only reflect compensation ultimately paid by the customer, though a 'pass-through' is allowed as noted below), the proposed decision states, "For example, if the aggregator provides rates from Supplier A and Supplier B, but the aggregator’s commission with Supplier A is one cent and with Supplier B is two cents, this must be explained to the customer. This information can be included as part of the bid package given to the customer and may include the Applicant’s recommendation. If the Applicant directly charges the customer a flat fee (i.e., does not collect a fee through the supplier) and does not include a commission and/or mark-up to the suppliers’ rates, it may include only the supplier’s rates, but the Applicant would be required to disclose the flat fee in the first document."

The proposed decision would require that the third document is the existing notice required by Conn. Agencies Regs. § 16-245-3(d), and the Applicant would provide this notice to the customer after the customer contracted. This currently required notice includes, among other things, the rate for electric generation services stated in its aggregation offer, or a description of how electric generation services are charged to customers under its aggregation offer.

The proposed decision provides that, "All Applicants must solicit prospective rates for each customer from more than one supplier."

"An entity that obtains rates from only one supplier and enrolls customers with only one supplier is an agent of that supplier," the proposed decision states

The proposed decision notes that aggregators may use agents, but reminded that aggregators would be legally responsible for such agents

Specifically, the proposed decision states, "Some Applicants indicated outside entities make sales on their behalf. Anyone making sales on behalf of the Applicant, anyone facilitating customers contracting with a supplier on behalf of the Applicant, anyone whom the Applicant compensates or provides a commission to for facilitating customers contracting with a supplier, and anyone with whom the Applicant has an agreement (labeled as an Independent Contractor, broker, channel partner, or any other title) to facilitate customers contracting with a supplier is an agent of the Applicant for whom the Applicant is responsible. The above list is not comprehensive, and all Applicants shall read it with the understanding of the Authority’s Ruling on Motion No. 16 in Docket No. 14-07-20RE01: there are only three legal entities operating in the supplier market in Connecticut (i.e., suppliers, aggregators, and their agents) and no other entity may operate in the market. If Applicants have agreements with any entities such as those listed above in which the agreement indicates that the entity is not the Applicant’s agent, the Applicant must revise or amend such agreements to reflect an agency relationship. Further, Applicants must understand their legal responsibilities for anyone acting as their agent and interacting with customers, and must train and monitor all agents to ensure compliance with Conn. Gen. Stat. § 16-245o and other applicable law, regulations, Authority decisions, orders, and rulings. All Applicants shall annually file in their licensing [sic] docket a list of all agents working on their behalf."

More broadly, the proposed decision cautions Applicants that, in being certificated, they are entering a regulated market, in which they have attendant obligations, and in which certain behavior is prohibited

The proposed decision states, "Applicants must recognize that in being granted an aggregator certificate, they are entering a highly regulated and transparent market. As such, they must ensure that their business meets all of the applicable statutes, regulations, and Authority decisions, orders, and rulings. The Applicants must accept the responsibility of ensuring they maintain knowledge of the legal framework under which they function in Connecticut. Equally as important, the Applicants must recognize that they solely represent customers in this process and have the responsibility of acting as the customer’s agent and working in the customer’s best interest. Conn. Gen. Stat. § 16-245o places many obligations and restrictions on aggregators’ engagement with customers, and additionally prohibits deceptive marketing and makes any violation thereof a violation of the Connecticut Unfair Trade Practices Act. Applicants must familiarize themselves with the Authority’s application of Conn. Gen. Stat. § 16-245o, as applied to aggregators and suppliers. Any Applicant found deviating from its legal responsibilities and obligations may be subject to prosecution under Conn. Gen. Stat. § 16-41."

As noted, the proposed decision would not grant any of the Applicants the authority to serve residential customers.

Concerning residential service, the proposed decision states, "All requests to serve residential markets are currently denied. No Applicant provided sufficient information to assure the Authority that residential customers would be properly served. As a result, the Authority determines that no Applicant has met the burden of demonstrating it is capable of serving as an aggregator in the residential market and/or working with residential customers. The Authority is permitting the Applicants to serve other customer classes based on the information provided because the Authority currently understands that non-residential customers are more sophisticated market participants with business acumen, procurement strategies, and needs, in addition to the procurement of supply.8 Further, non-residential customers frequently do not have the freedom to move from supplier to supplier at will and without penalty;9 as a result, shopping amongst several rates and finding the best one at the time of the contract becomes more imperative for non-residential customers."

The proposed decision notes that three of the applicants voluntarily offered to post security in connection with being granted an aggregator certificate. The proposed decision would require each of these applicants volunteering to post security to post such security. The proposed decision would not generally require aggregators to post security

The proposed decision discusses further the interaction between suppliers and aggregators, and the obligations of aggregators, the prohibition on compensation from suppliers, and prohibited agreements or provisions between suppliers and aggregators, requiring that Applicants revise their contracts or business plans, if needed, as a condition of being granted a certificate

The proposed decision states, "A review of the contracts between each Applicant and suppliers reveals that many of the contracts do not clearly delineate the Applicant as representing the customer and being compensated ultimately by the customer. As EOE noted in Motion No. 16 in Docket No. 14-07-20RE01, there may be instances in which non-residential customers wish to receive one bill for all of their energy supply services. In those instances, it benefits the non-residential customer for the supplier to include the aggregator’s compensation in that bill and pass that compensation straight to the aggregator. Not all supplier contracts provided by the Applicants, however, contain straight pass-through provisions. Many contain provisions in which a portion of the aggregator’s mark-up goes to the supplier. Others contain provisions in which the supplier pays the aggregator a flat fee for each customer procured, in the same way a supplier would pay an agent. Still others contain provisions in which the supplier pays the aggregator an amount up front, includes the aggregator’s mark-up in the customer’s rate, and then the supplier retains any excess, or that do not remove the mark-up if the customer ceases doing business with the aggregator. Any compensation structure in which the supplier is retaining a portion of the aggregator’s compensation or paying the aggregator separate from the customer’s usage calls into question the relationship between the supplier and the aggregator, and between the aggregator and the customer."

The proposed decision states, "A straight pass-through is a simple concept as explained by EOE in Motion No. 16 in Docket No. 14-07-20RE01. If the supplier’s rate is 10 cents/kWh, and the aggregator adds 1 cent as commission, the supplier charges the customer 11 cents/kWh and passes through the extra 1 cent/kWh to the aggregator. Any agreement more complicated than this is not a straight pass through and will not be approved by the Authority. As a result, the Authority directs all Applicants to revise all contracts with suppliers that currently do not contain simple, straightforward, pass-through compensation as described and submit such revised contracts to the Authority. Any other form of compensation passed from a supplier to an aggregator is impermissible."

The proposed decision states, "Further, many of the current contracts between suppliers and the Applicants contain other provisions that call into question the Applicant’s role as the customer’s agent and not the agent of the supplier. For example, there are contractual provisions specifically stating that the supplier appoints the Applicant as a 'sales representative…to promote, market, and sell' the supplier’s product. Entities that represent a customer do not promote, market, or sell for suppliers. Contracts say that the Applicant agrees to 'solicit potential customers.' Again, entities that represent a customer are not permitted to solicit on behalf of a supplier. Contracts say that Applicants will use the supplier’s marketing material; however, the Applicants should not be marketing for the suppliers at all. In short, all contracts between the Applicants and suppliers should address only the Applicant’s ability to collect the straight pass-through compensation from the supplier. Any contract with provisions implying or calling into question the Applicant’s role and function as the customer’s agent must be revised to remove such provisions as a condition of receipt of an aggregator certificate."

The proposed decision states, "Importantly, suppliers may not insert a provision in a contract stating that the Applicant is not the supplier’s agent, then have provisions throughout the contract in which the Applicant is treated as a supplier’s agent. Suppliers and the Applicants must decide if the Applicants are suppliers’ agents or if the Applicants represent customers. To the extent they determine the latter, their contracts must reflect that relationship. Equally important, Applicants must ensure that their customers understand the service they are performing and the costs for that service. Many Applicants indicated that they do not divulge their commission to their customers. The regulatory imperative in Connecticut supports the principle of transparency, such that customers are entitled to information adequately informing them that they are paying the Applicant for a service and that such payment is included in their supplier’s rate. Many Applicants also indicate that they do not divulge to customers the number of suppliers with which they do business. To make an informed decision, customers need to understand if an Applicant is evaluating bids from five suppliers or two. Customers further need to understand how the Applicant is selecting the bids to show to the customer (presuming it does not show the customer all bids)."

The proposed order would specifically grant an aggregator certificate, to serve any requested customer class other than residential customers, to the entities listed below. The draft would provide that such applicants must follow all orders contained in the proposed decision (several which are noted above) before they are allowed to conduct business as an aggregator in Connecticut.

The Applicants covered by the proposed decision are: Yolon Energy, LLC; Connect Energy Resource, LLC; Atlas Commodities II Retail Energy, LLC; MSI Utilities, Inc.; Amerex Brokers, LLC; Power Management Co., LLC; Pursuit Energy Solutions, LLC; Kobiona, LLC; Energy Advisory Service; Sprague Energy Solutions Inc.; The Fitzmichael Group, LLC dba Juice Energy Advisors; L5E, LLC; Open Energy Services, LLC; Tri State Energy Consultants, Inc.; Optimum Group, LLC; Power Direct, LLC; Crimson Power Solutions, Inc.; Energy Edge Consulting, LLC; Source One, Inc.; Sunlight Energy Group; Muirfield Energy, Inc.; and Engie Insight Services, Inc.

The proposed decision does omit certain language from EOE's proposal which had served to characterize and chastise retail suppliers. The omission of the language does not disturb the proposed decision's conclusions concerning the definition and obligations of aggregators and their interaction with suppliers.

Omitted language included the striking of the following from the EOE proposal:

[Struck] Many Applicants appear to desire to function as a third entity labeled a 'broker.' Other states might permit brokers, but as stated, Connecticut law does not recognize such an entity; therefore, despite repeated complaints from Applicants, they have no option of existing as an undefined, unregulated entity that engages with Connecticut customers. The Applicants should take the time to understand the legal entities in the states in which they do business.

[Struck] More importantly, Applicants must understand the role of the aggregator relative to the supplier. To the extent any Applicant applied because suppliers refused to accept the Applicant as an agent, the Applicant must understand that it represents the customer as an aggregator now and not the supplier. Suppliers may not eschew their liability for agents by forcing the Applicant to obtain an aggregator’s certificate. If an entity represents the supplier in the transaction then the entity is the agent of the supplier and the supplier must claim the entity on its Form 6. As the Authority has stated repeatedly, no entity may be an aggregator and an agent of suppliers. All Applicants have stated they are not agents of suppliers, but they must understand that as long as they maintain their aggregator certificate they may not ever function in any manner that could be viewed as being an agent of the supplier.

[Struck] Unfortunately, it appears that many of the current Applicants have done business in Connecticut under these contracts. Some Applicants previously applied for an aggregator’s certificate and were denied because their responses indicated they were agents of suppliers, at times because of provisions in the contracts with suppliers. It appears that suppliers unilaterally determined the Applicants were not their agents, yet did business with these Applicants.

[Struck] It is alarming the way in which suppliers have attempted to have their cake and eat it too, refusing to designate Applicants as agents yet readily using them to facilitate enrollments under contracts that barely hide agency. Suppliers and the Applicants must decide if the Applicants are suppliers’ agents or if the Applicants represent customers. To the extent they determine the latter, their contracts must reflect that relationship.

[Struck] Some Applicants stated that they were applying solely because suppliers refused to allow them to be agents. Applicants must realize that, in so doing, the suppliers have attempted to relieve themselves of liability and have placed such liability squarely upon the Applicants. Applicants should be certain before engaging with customers that they are prepared to accept that liability being placed on themselves. Representing customers in a highly regulated market is not a role that should be entered into lightly.

Dockets 23-04-02 et al.


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