Internal PUCT Staff Memo Recommends Fine Against Glacial Energy, Revocation Cited

An internal memo dated August 31, 2011 from the PUCT's Oversight and Enforcement Division recommended an administrative penalty against Glacial Energy for several alleged violations relating to its original REP application and ongoing ownership. The memo, at one point, also recommends certificate revocation.

The internal Staff memo relates to a non-public investigation of Glacial undertaken by Staff. The Texas memo, said to have been obtained under a Freedom of Information request, was subsequently included in a filing by Michael Petras, who is involved in litigation against Glacial, with the District of Columbia PSC as part of a request for the D.C. PSC to institute similar action.

PUCT investigation proceedings do not become formal until a Notice of Violation is issued and publicly docketed. The internal Staff memo, to Executive Director Brian Lloyd, precedes this step, and, as such, does not represent a formal litigation position taken by Staff as of yet, but rather is a recommendation for further action based on the conduct of the non-public investigation as of that date, which was August 31.

Since that time, there has been no formal action taken by the PUCT on the internal memo, and no Notice of Violation has yet been issued or docketed.

Glacial Energy provided the following statement:

"We always cooperate with our regulators. We are in ongoing discussions with the Texas PUC, no formal enforcement action has been launched, and the PUC staff has not yet made any final recommendations. It would be premature to make any determination of an outcome or comment beyond this at this time."

In the August memo, Oversight and Enforcement Division (O&E) Staff alleged that Glacial violated several substantive rules, as they existed in 2006, and also the 2009 revisions, by providing, "false or misleading information to the Commission when it applied for a retail electric provider (REP) certification in 2006, and for not complying with the Commission's ownership and experience requirements adopted in 2009 for principals with a REP that experienced a mass transition of its customers to the provider of last resort (POLR)."

These allegations relate to Gary Mole, majority shareholder of Glacial Energy Holdings at the time of the memo, and his prior involvement with Franklin Power, a REP which experienced a POLR drop and whose certificate was revoked.

"Based upon knowledge and belief, including Glacial's responses to requests for admissions and information, the application filed with the Commission by Glacial on January 27, 2006 should have disclosed Gary Mole, ownership interests and experience with Franklin Power Company (Franklin), (formerly Energy West Resources, Ltd, d/b/a Franklin Power Company), including the fact that Franklin experienced a mass transition of customers to POLR in 2005. Nor did the application disclose the then pending complaints filed by TXU Electric Delivery Company and Centerpoint Energy Houston to revoke the certificate of Energy West Resources, Ltd for failure to satisfy the Commission's financial standards," O&E Staff alleged in the memo.

Later, by Order dated July 17, 2006, the Commission revoked the certificate of Energy West Resources, Ltd, d/b/a Franklin Power Company.

"Then beginning on May 21, 2010, the effective date of P.U.C. Subst. R.25.107(g)(1)(D), which established new experience and ownership requirements for REPs, Gary Mole continued to use his experience to satisfy the newly effective 15-year experience requirement, despite being a principal of Franklin Power Company (formerly Energy West Resources, Ltd, d/b/a Franklin Power Company), a REP that experienced a mass transition of its customers to POLR in 2005. Moreover, Gary Mole continues to be the majority shareholder of Glacial Energy Holdings which owns Glacial Energy of Texas, Inc., a wholly-owned subsidiary of Glacial Energy Holdings, in violation of the 10 percent ownership cap. " O&E Staff alleged in the memo.

Specifically, Subst. R.25.107(g)(1)(D) provides that, "An individual that was a principal of a REP that experienced a mass transition of the REP's customers to POLR shall not be considered for purposes of satisfying this [experience] requirement, and shall not own more than 10% of a REP or directly or indirectly control a REP."

Under a section of the memo titled "Relief Sought," O&E Staff sought for the PUCT to:

"1) Issue an order finding Glacial in violation of PURA § 39.352 and P.U.C. Subst. R. 25.107(g)(9)(A), 25.107(g)(9)(B) and 25.107 (g)(1)(D); and

"2) Issue an order imposing an administrative penalty of $143,600 on Glacial for its violation of PURA § 39.352 and P.U.C. Subst. R. 25.107(g)(9)(A), 25.107(g)(9)(B) and 25.107(g)(1)(D)."

Additionally, in an opening "Summary" section, O&E Staff sought, "Such other and further relief as warranted by law."

In a "Conclusion" section, O&E Staff, "recommends that the Commission issue an order revoking Glacial's REP certificate."

The recommended license revocation is only included under this Conclusion section, and not under requested relief. Nor are the standards for certificate revocation substantively discussed elsewhere in the memo, (in contrast to the discussion of the factors determining the recommended $143,600 penalty).

"An administrative penalty is necessary in order to deter future violations and to set an example for other REP applicants, especially since Glacial's primary principal, Gary Mole, was a principal of a REP that experienced a mass transition of its customers to POLR due to a failure to meet its financial obligations," O&E Staff said in recommending the $143,600 fine.

"Glacial's entry into the retail electric market, to date, has not caused any actual economic harm to market participants or its customers. However, the potential exists for extensive economic harm and disruption of service given Glacial's principal's, Gary Mole, history of involvement with a REP that experienced a POLR transition and which defaulted on its financial obligations. This adds to the seriousness of the violation," O&E Staff said in the memo.

"Glacial's failure to comply with PURA § 39.352, P.U.C. Subst. R. 25.107(g)(9)(A), 25.107(g)(9)(B) and 25.107(g)(1)(D) by having acquired a REP certificate by providing false and misleading information to the Commission in 2006, and its subsequent willful disregard for the Commission's current rules regarding the post May 21, 2010 experience and ownership requirements has serious, potential implications to customers and market participants alike," O&E Staff alleged in the memo.