Survey Shows Nearly 150,000 Customers Expect Better Service from AEP Retail Energy, Direct Energy Says

A survey conducted for AEP Texas Commercial & Industrial Retail Limited Partnership, d/b/a AEP Retail Energy, shows that nearly 150,000 customers would expect better service from AEP Retail Energy, which Direct Energy argued shows an unfair competitive advantage provided to the REP through its use of the shared AEP brand with two Texas TDUs (39509).

In reply testimony regarding AEP Texas Commercial & Industrial Retail Limited Partnership's application to serve mass market customers (11/11), the Direct Energy companies presented testimony from James Steffes, Vice President and General Manager, Texas Residential for Direct Energy. Additionally, Direct Energy, along with the Texas Energy Association for Marketers and the Alliance for Retail Markets, presented testimony from Professor Wayne D. Hoyer, The James L. Bayless/William S. Farish Fund Chair for Free Enterprise in the Department of Marketing at the University of Texas, who discussed flaws in a survey AEP Retail Energy filed in direct testimony which AEP Retail Energy said showed that its use of the AEP name is not misleading or confusing.

Citing Hoyer's analysis of the AEP Retail Energy survey, Steffes said that, among customers in the AEP Texas Central and North TDU areas, as many as 17% of customers surveyed, "had an expectation of better reliability if they were served by both an AEP branded REP and TDU." This 17% is derived by combining customers who responded that they would receive either better "service" or better "treatment."

While AEP Retail Energy has referred to this as, "only a very small percentage," Steffes noted that, when applied across the AEP Texas Central and North service areas, 17% is approximately 135,000 customers.

The survey, "demonstrates that REPs could lose customers based on a non-competitive dynamic, which was never intended in the Texas market structure. That is, unlike pricing or customer service, or even branding and marketing, the misperception of a potential benefit by customers of what it means to be served by an AEP-branded REP is NOT a competitive dynamic in a transparent market because not only is there no such benefit, but such benefit is impermissible. As a result, significant market distortion and harm will occur," Steffes testified.

Furthermore, Steffes said that AEP Retail Energy's survey, "demonstrate[s] that at least 52% of survey respondents identify that the company AEP Retail Energy exists before such company has spent any money to advertise its existence."

In contrast, Steffes reported Direct Energy has been actively marketing in the TDU service territories of Oncor and CenterPoint Energy Houston Electric for close to ten years, and has spent a redacted amount of money on marketing and advertising, resulting in a redacted unaided brand awareness percentage (but presumably lower than 52%).

"It would be difficult to argue that prior to spending any money on brand awareness in Texas, AEP REP holding a 52% brand awareness does not provide evidence of an unfair competitive advantage to AEP REP that was not intended in the Texas competitive market structure," Steffes said.

"Thus, the AEP branding effort unfairly leverages brand familiarity with the regulated TDU to advance the interests of its competitive affiliate REP," Steffes added.

Steffes further said that while the trade name AEP Retail Energy may describe the company as a retail provider rather than a TDU, the trade name is, "not descriptive enough to distinguish as separate from AEP Texas."

"Within the AEP TCC and AEP TNC service territories, the AEP brand, whether 'AEP,' 'AEP Texas,' or the individual companies, has become affixed in the minds of consumers. The addition of another AEP company to the mix -- a mass market REP -- will likely serve to immediately cause customers to believe that this AEP REP, call it AEP Retail Energy, is 'AEP' and is part and parcel of 'AEP Texas,'" Steffes said.

Furthermore, Steffes noted (as Matters has) that even if the trade name AEP Retail Energy is used, "[c]onfusion must also be addressed pursuant to Commission rules which require that the actual certificated name AEP Texas Commercial & Industrial Retail Limited Partnership be used in certain materials, including the Electricity Facts Label, Terms of Service and customer bills."

"Should the AEP Retail Energy trade name be used for marketing purposes, which is the likely scenario, customers of AEP REP will see the REP also identified as AEP Texas Commercial & Industrial Retail Limited Partnership, a further association with the AEP Texas brand," Steffes said.

"Only a name that excludes the use of the term 'AEP' will clearly distinguish the REP from the affiliated regulated utility," Steffes argued.