7.5 Marketer, Broker & Aggregator Requirements
7.5.2. Regulatory oversight over electric service providers
Primary Points:
o Any energy service provider interacting directly with retail
customers must be registered.
o Registration requires filing of corporate information and posting
a bond with Commission. Upon satisfaction, the provider receives a
license.
o The Commission is the logical lead agency for enforcement
o The Commission can revoke a license if violations of CPUC
rules are proved.
o The Commission can suspend a license or curtail solicitation
of new customers if the likelihood of violations is established by staff or
customers.
7.5.2.1. Retail Customer Interaction Compels A License
Competition will engender the entry of a number of service
providers. Some will offer brokerage, some aggregation services, some
demand-side services and some will offer services that have not even
been envisioned at the moment. Such is a unfettered market.
The issue is whether the retail market will be entirely unfettered.
The answer is no. Like almost every other service in the United States,
there is a certain amount of regulatory oversight necessary to ensure
consumers are not defrauded and the competitive market is functioning
properly.
However, the electric industry will require greater regulatory
oversight than other standard retail services because of the necessary
nature of electric service and the relative unsophistication of consumers
in valuing and understanding electric services. The latter may develop
over time; the former will become increasingly important as the
telecommunications and computer industries mature.
Regulators must focus upon retail transactions between electric
providers and retail customers, with an emphasis of focus on small
business and residential customers. As with long distance and local
phone service providers in California, any provider offering electric
brokerage, marketing, aggregation or equivalent services directly to retail
customers will be required to register with the CPUC. That way, if any
service provider interacts with a retail customer, that provider will fall
under the jurisdiction of the CPUC.
The purpose in such licensing is to proactively ensure
accountability by energy providers and to ensure that customers have
adequate recourse in the event that the provider fails to perform.
7.5.2.2 Providers Not Subject to Registration
Not all retail energy services will require registration. The
purpose of registration is to ensure accountability and recourse where
electricity service is provided to retail customers. In some
circumstances, accountability is inherent in some energy providers.
For example, municipal or other public entities providing service
within their own franchise areas would not fall under CPUC jurisdiction
and thus would not be subject to licensing. However, if any such entity
were to offer services to non-franchise customers, the same
accountability does not exist and registration and bonding is warranted.
Non-franchise customers can not vote, they can not easily appear at
public hearings and they do not reap many of the tax-related benefits
available to municipalities.
Also, energy service companies offering only demand-side
management, generation or other services unrelated to purchase of
energy would not be required to be licensed so long as those providers
are not participating in or benefitting from publicly-funded energy
programs, such as DSM or renewable credits. However, if
participating in a publicly-funded program or if bundling other energy
service with energy brokerage services, then licensing is warranted.
Finally, energy cooperatives should not be required to be
registered so long as all cooperative members are owners of the
cooperative, and thus enjoy the higher level of accountability and
recourse enjoyed by owners.
Other providers, such as brokers interacting with aggregators,
generators, companies offering ancillary services and scheduling
coordinators are not required to provide a filing or bond with the CPUC
so long as their interaction remains with other wholesalers. However,
these providers may have to fulfill registration requirements established
by the ISO.
7.5.2.3 Registration entails licensing and bonding requirements
In order to serve retail customers, non-exempt energy providers
will be required to provide to the CPUC and keep updated, their legal
name(s), business address, state where incorporated or associated,
date of incorporation, articles of incorporation, or association, name and
title of each officer and director, name, title and phone number of a
designated customer service contact person, name, title and phone
number of the regulatory contact person, brief description of the nature
of business being conducted and disclosure of any past civil or criminal
action taken against the company or any officer or director for any illegal
acts related to the operation of any business for previous ten years.
This information gives regulators and consumers the necessary
information they need to judge the viability of the provider.
The rationales for this licensing and bonding requirements are:
a. Retail customers must be able to learn about the owners,
location and financial viability of any prospective advisor. In order to
ensure uniformity, that information should be on file with a
clearinghouse. The CPUC fills that role.
b. In order to guard against undercapitalized or fly-by-night
companies, the CPUC must have a means of screening prospective
energy providers.
c. Retail customers, especially residential and small business
consumers, will not have the wherewithal to screen prospective
companies. The abuses of the solar hot water market and the long-
distance telecommunications companies have graphically demonstrated
the need for the ability to screen providers.
d. To proactively guard against unanticipated market abuses
and dissemination of misinformation to the marketplace as has occurred
in the telecommunications service sector.
e. To preserve the CPUC's jurisdiction over these entities
7.5.2.3.1. Bonding requirement
In addition to information registration, a provider must also
provide either a bond or some alternative insurance that would give
customers a fund against which to secure damages attributable to fraud
or non-performance. The reasons for the bonding are:
a. The upfront costs of entering the electric services market is fairly low.
Aggregators need only a computer and customer leads. Thus
bonding requirement will not put an undue burden on any prospective
new entrant, as its start-up costs are relatively low.
b. Without a bond, it is likely that complainants and their
attorneys/representatives will not be able to recover damages caused by
failed service providers.
c. The bonding process, itself, serves as a useful screen against
companies or individuals with questionable financial pasts who seek to
enter the electricity market. Bonding services will either decline to
bond or require higher deposits of entrants with questionable records.
The amount of the bond would be established based upon the
prospective number of customers to be served. e.g. a local community
aggregator planning to serve 50 residents could post a very modest
bond whereas a large aggregator planning to serve customers
throughout the state would require a more substantial bond.
The Commission would be required to ensure that bonding costs
do not become so prohibitive that they discourage new entrants.
However, the bonds or other insurance mechanisms must be adequately
secure to protect against anticipated claims by customers. The
insurance companies that serve Californians are obligated to provide
such assurances in order to offer service in the state; it is anticipated
that the costs for energy service bonding not exceed costs faced by
insurers.
7.5.2.3.2 Why Electric Registration Must be More Stringent Than
Telephone
As discussed above, The registration process needs to be stringent
enough to protect customers but not so onerous as to create a barrier to
entry. The CPUC has developed a non-dominant carrier registration
process for local telecommunications companies that is not overly
burdensome. It requires filing with the CPUC the identities of the
owners and officers of the corporation, a description of services to be
provided and basic financial information to ensure economic viability.
However, the telecommunications registration does not require
bonding. This is precaution that is necessary for electric service for
many reasons:
a. Electric service is a necessity and generally is more expensive than
phone service. Thus greater potential losses are likely and greater
protection is warranted;
b. Electric service is a necessary commodity. State statute bans
habititation of a residence that does not have electric service.
c. Small consumers will be very vulnerable to commercial exploitation
during the transitional period of deregulation. Phone service
deregulation has been phased over a decade, whereas electric
deregulation will occur rapidly.
d. Long distance and OAS deregulation has led to significant consumer
abuses and are among the most common consumer complaints in the
1990s.
7.5.2.3 Revocation and Suspension of Licenses is Within the Purview
of the CPUC
The CPUC's ability to revoke, suspend or limit a license is
absolutely necessary for adequate enforcement. In the initial 5-10
transitional years of electric competition, new entrants must be clearly
noticed that questionable business practices, undue risks and shabby
treatment of customers will not be tolerated. The potential for abuse
and the serious ramifications of that abuse mandate adequate
enforcement powers by the agency. The CPUC's staffing and its
expertise on energy matters positions it as the only logical state agency
charged with enforcement.
Consumers might also be able to look to civil courts for tortious
or statutory remedies (e.g. Business & Professions Code Section 17200
et seq). However, these cases would be expensive to pursue and the
civil courts are not equipped to handle the load of individual complaints
that will correlate with the advent of competition. Moreover, the courts
will not be well-positioned to establish uniform industry rules where
patterns of rule violations or shabby customer service are established.
Thus, the CPUC should continue its role as lead enforcement agency for
customer complaints about all retail energy services.
This enforcement power is anchored by the CPUC's ability to
license an energy service company. Without this ability, enforcement
of CPUC rules would be ineffectual. The CPUC rules would include a
code of conduct and a set of specific minimum standards of service as
described in the discussion on code of conduct.
The CPUC should have the ability to suspend, limit or revoke
licensure depending upon the gravity of provider malfeasance.
Suspension would be invoked only where due process had been
afforded to a provider. However, injunctive suspension or limits on a
license could be imposed upon a showing that the Commission rules
had likely been violated by a service provider and that significant
damage could be caused by a continuation of service by that provider.
Michael Shames - mshames@ucan.org
Utility Consumers' Action Network
1717 Kettner Blvd. Suite 105
San Diego, CA 92101
619-696-6966
.