Unlicensed sales put electricity brokers in spotlight
About a year ago, Jay Snyder and Michael McCormick, both with experience in the electric supply business, started their own company to help businesses find the best deal on electricity.
Their brokerage based near Erie, called Fair View Energy, connected 27 commercial customers in Pennsylvania — encompassing hundreds of individual electric accounts — with three different electric suppliers. Over the year, the company earned more than $30,000 in commissions from the three suppliers, and, by all appearances, had satisfied both the suppliers and the customers.
But now, Fair View Energy faces a nearly $90,000 penalty from the Pennsylvania Public Utility Commission, which claims all those sales were illegal. Why? The company never got a license from the state.
The case reveals a regulatory blindspot of sorts for the PUC as well as the confusion — Fair View’s attorney called the state’s rules on brokers a “legal maze” — that can arise in the electricity markets.
Sifting through offers
The markets came into being when Pennsylvania and 15 other states deregulated power generation in the late 1990s. The states required electric utilities to sell their power plants and allowed energy supply companies to compete to get the best deal for the power. In many cases, the supply rates advertised by these companies are lower than what utilities like Duquesne Light Co. and West Penn Power Co. can offer.
Brokers have proliferated in recent years to sift through the offers from electric suppliers to get deals for large consumers who don’t necessarily have expertise on staff.
“Brokers act as that independent adviser to the customer,” said Richard Hudson, state chairman of the Retail Energy Supply Association. “These entities have built themselves up as a reputable independent source.”
Though operating in a competitive market, both suppliers and brokers fall under the purview of the state PUC. Companies that want to become electricity suppliers or brokers in Pennsylvania must complete a similar application, obtain a license from the commission, pay fees and post a surety bond.
Mr. Snyder or Mr. McCormick did not meet that requirement.
The PUC initiated an investigation this spring, finding Fair View’s brokered sales were unlicensed. Writing in its complaint that Fair View’s founders “knew or should have known that it was required to be licensed,” PUC investigators are asking for a civil penalty of $89,800 — which is $200 for each time it signed up an individual commercial account.
Responding to the complaint in a June 15 filing, Karen O. Moury, a Harrisburg attorney for Buchanan Ingersoll & Rooney who is representing Fair View, argued that the PUC’s requirements are far from clear. The PUC’s website does not specify that a broker needs a license, she wrote, and only on the third page of the application could it have been apparent to Fair View that it needed a license.
“The requirement for brokers to hold a license is not readily apparent to laypersons, even those with experience in the energy industry,” Ms. Moury wrote. “This legal maze is not a path that is easily followed, especially by non-lawyers.”
Reached by phone, Mr. Snyder declined to comment beyond an e-mail statement. “The licensed suppliers who paid commissions to Fair View Energy got what they paid for and have not complained to anyone,” he wrote. “Importantly, the customers likewise received the electricity that they paid for and have raised no complaints or concerns.”
A recipe for confusion
The case, the first enforcement action taken against an electric broker for not having a license, shows how brokers — intentionally or not — can skirt commission authority. The PUC does not require a supplier to check if brokers are licensed before allowing sales to go through them.