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Changes Made In Final Order On New Disclosures, Customer Signatures Required For Entities Representing Customers In Securing A Retail Supplier Contract

Customer Signature Required Before Entity May "Obtain" Pricing

Entity's Commission Must Be Disclosed

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

June 28, 2023

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Copyright 2010-23
Reporting by Paul Ring •

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The Connecticut PURA formally issued a final decision which, in addition to granting aggregator certificates to several entities in an omnibus fashion, also creates 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 final decision also sets forth requirements which the decision does not believe could be satisfied through a "cold call", as discussed further below

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

The final decision reiterates that, "Pursuant to statute 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 final 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 decision requires the specific 22 Applicants covered by the decision to comply with new disclosure and signature requirements discussed below

The final decision provides that every Applicant must provide each customer with three documents (Three Customer Communications). The decision states, "The documents referred to in this section may be electronic documents."

The final decision requires 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; and

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

Concerning this first document, the 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 final decision requires that the Applicants 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 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. To address changes in the market, an Applicant may seek to adjust their fee after the second of the Three Customer Communications have been supplied to the customer. An Applicant may only reduce their fee to address market conditions without additional notification to the customer. If an Applicant seeks to increase their fees to address market conditions, the increased fee must be disclosed in an updated/new offer to the customer."

The third document that Applicants must provide is the notice required by Conn. Agencies Regs. § 16-245- 3(d),6 and the Applicant would provide this notice to the customer after the customer contracted with a supplier. 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.

In one of the changes from a proposed decision, the final decision allows certain exceptions to the new requirement that the Applicants must always provide rates from multiple suppliers to customers

The final decision provides that, "[a]ll Applicants must solicit prospective rates for each customer from more than one supplier, except in the following two limited circumstances":

1. "when an existing customer explicitly requests that an Applicant only provide pricing from a single supplier, and

2. "when the pricing being sought is to amend and/or extend an existing agreement between the customer and a particular supplier."

"Apart from these two exceptions, an entity that fails to solicit rate offers from more than one supplier and enrolls customers with that supplier will be deemed an agent of that supplier and subject to all applicable requirements for supplier agents," the decision states

The decision notes that aggregators may use agents, but reminded that aggregators are legally responsible for such agents

The 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 docket a list of all agents working on their behalf."

As noted above, all of the granted aggregator certificates are limited to the non-residential customer classes for which the specific applicant sought authority

"Certain Applicants requested to serve residential markets. 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," the decision states

The final decision cautions Applicants as follows: "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 complies with all applicable laws, including 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 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."

The final decision warned applicants that, "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."

More specifically, the final 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 final decision further states that, "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 final decision states

The final decision further cautioned Applicants concerning their current contractual language suggesting that Applicants are agents of suppliers, and directed such contracts to be changed in accordance with the discussion above that aggregators may not be agents of suppliers

The final decision states, "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."

"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 final decision states

In another change from the proposed decision, the final decision does not order any Applicant to provide financial security, including not requiring security from those entities which had volunteered to provide security. As previously reported, the draft order would have required those Applicants voluntarily offering to post security to post such security as volunteered.

Each of the following companies were granted an electric aggregator certificate to serve the non-residential markets requested by each Applicant on the conditions described above: 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.

Docket 23-04-02 et al.


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