PATTON B066Sup ATJORH£YS AT LAW

September 20, 2011

VIA EMAIL AND FEDERAL EXPRESS PRIVILEGED AND CONFIDENTIAL

Brennan Foley Attorney- Legal Division Public Utility Commission. of Texas 1701 North Congress Avenue P.O. Box 13326 Austin, TX 78711

2550 M Street. NW

Washington, DC 20037-1350

202·457-6000

Facsimile 202-457-6315

www.pattonboggs .com

Re: Investigation of Compliance with PURA § 39.352, Certification of Retail Electric Providers and P.U.C. SUBST. R. 25.107, Related to Confirmation of Retail Electric Providers

Investigation # 2011050001

Dear Mr. Foley:

We have reviewed your letter dated August 25, 2011 (the "August 25 Letter") \Vith respect to the above-captioned investigation of Glacial Energy of Texas, Inc. ("Glacial TX") by the Oversight and Enforcement Staff of the Public Utility Commission of Texas ("PL'CT"). Below is Glacial TX's initial response to Staff's August 25 Letter, as further clarified by Staff during our meeting in Austin on August 30, 2011.

1. Summary

A. Staff's Conclusions

As you know, Glacial TX has been licensed as a Retail Electric Provider ("REP") in Texas since March 2006. Mr. Gary Mole holds an 80% interest in Glacial Energy Holdings which, in turn, owns 100% of Glacial TX..

Staff has concluded that Glacial TX is not in compliance with current P.U.C. SUBST. R. 25.107 (g)(1 )(D), which provides that "[a]n individual that was a principal of a REP that experienced a mass transition of the REP's customers to [a Provider of Last Resort ("POLR")) shall . . . not own more than 10% of a REP or directly or indirectly control a REP." It is our understanding that Staff's position is that, because Staff concludes that Mr. Mole was a principal

Washington DC I Northern Virginia I New Jersey 1 New York I Dallas I Denver I Anchorage 1 Doha 1 Abu Dhabi

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of Franklin Power Company ("Franklin Power"), he is prohibited from holding a 10% or greater interest in Glacial TX. Based on our conversation at the .August 30 meeting, it is further our understanding that, in addition to the proposed financial penalties identified in the r\U!:,>1.1St 25 Letter, Staff is prepared to recommend that, if Mr. Mole docs not divest his interest in Glacial TX down to 10% or less and otherwise eliminate his ability to control Glacial "IX, the PUCT should revoke Glacial TX's REP license.

The August 25 Letter also concludes that GlaciallX violated former P.U.C. SUBST. H.. 25.107(g)(A) and 25.107(g)(B), which were in effect when Glacial TX submitted its REP application. Those rules required a REP applicant to disclose, among other things, the prior experience of its principals. It is our understanding that Staffs position is that Glacial TX should have disclosed that Mr. Mole was a principal of Franklin Power on Glacial TX's initial REP license application.

B. Glacial TX's Responses

As described in detail below, Mr. Mole never exercised control over Franklin Power's day-to-day operations and, therefore, was not a principal of Franklin Power. As a result, Glacial TX did not violate the former P.U.C. SUBST. R. 25.107(g)(A) and 25.107(g)(B) when it submitted its application, and the current P.U.C. SUBST. R. 25.107(g)(l)(D) is inapplicable to Glacial TX. Moreover, P.U.C. SUBST. R. 25.107(g)(1)(D) became effective on May 21, 2009, more than three (3) years after Glacial TX obtained its REP license.' As such, even if Mr. Mole were deemed to have been a principal of Franklin Power (which he was not), requiring Mr. ;\1olc to divest his interest in Glacial TX or, in the alternative, revoking Glacial TX's license because Mr. Mole holds a greater than 10% interest, would violate the long-standing prohibition against retroactive application of agency regulations under both federal and Texas law.

It is irrelevant that P.U.C. SUBST. R. 25.107(g)(1)(D) does not expressly provide that the rule is intended only to be applied prospectively. Because of the presumption against .retroactive lawmaking under both federal and Texas State law, the relevant inquiry is whether the Texas Public Utility Regulatory Policy Act ("PURA") expressly contemplates that the PUCf may promulgate REP regulations with retroactive application. It does not. Moreover, in the rulemaking proceeding in which it adopted P.U.C. SUBST. R. 25.107(g)(l)(D), the PUCT did not indicate that it intended for the new 10% ownership restriction to have retroactive effect. The proposed application of P.U.C. SUBST. R. 25.1 07(g)(1)(D) to Glacial'fX therefore constitutes impermissible retroactive lawmaking.

I Notice of Approval, Public Utility Commission of Texas, Docket No. 32342 (Mar. 6, 2006) ("1"-:oticc of Approval") .

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Mr. Mole clearly has a "vested right" (i.e., his ownership interest in Glacial '!X) that would be impaired by the retroactive application of P.U.C. SUBST. R. 25.107(g)(l)(D). Since there were no limitations on the level of ownership under the PUCT's REP regulations when Glacial TX obtained its REP license in March 2006 (and for more than three (3) years aftetwards), there was no reason for Mr. Mole to have limited his economic or legal interest in Glacial TX.2 Had this limitation existed in 2006, Mr. Mole may not have formed Glacial IX and invested significant resources to developing a successful REP. Retroactive application is inappropriate where, as here, advance notice of the new rule would have motivated a change in behavior or conduct.

In addition, it would be unjust and inequitable to require Mr. Mole to divest his majority interest in Glacial TX and relinquish control to an unidentified third party. Mr. Mole invested in Glacial 'IX and devoted significant resources to growing its business prior to the promulgation of P.U.C. SUBST. R. 25.107(g)(1)(D). Moreover, the August 25 Letter acknowledges that "Glacial's entry into the retail electric market, to date, has not caused any actual economic harm to market participants or its customers."3 Indeed, Glacial TX has been successfully providing retail electricity service to industrial, commercial and institutional retail customers in Texas since 2006. The PUCT's official Electric Choice Website indicates that only one (1) complaint was filed against Glacial TX in the six-month period starting March 1, 2011.4 To put this into perspectiYc, a total of 2,470 complaints were filed against the Texas REPs during this same period, 606 of which were flied against one single REP.

In an attempt to justify the draconian measure of retroactively applying P.U.C. Sl.!BST. R. 25.107(g)(1)(D) and forcing a divestiture of Mr. Mole's interests, the August 25 Letter states that the "potencial exists for extensive economic harm and disruption of service given Glacial's principal's, Gary Mole, history of involvement with a REP that experiences a POLR transition due to its default on its fmancial obligacions."5 Such a claim- in particular given Mr. Mole's limited role with Franklin Power, the presumption against retroactive lawmaking, Glacial TX's positive record of service in Texas over the past five (5) years, and the lack of any support for a conclusion that the "potential" for harm is any greater with GlaciallX than for any other RE·:P­would be insufficient to withstand a judicial challenge to Staffs proposed application of P.U.C. SUBST. R. 25.107(g)(1)(D) to Glacial TX.

2 \'V'hen Glacial TX submitted its REP license application in l\:Iarch 2006, Mr. Mole was the sole owner of Glacial Energy Holdings.

3 August 25 Letter at p. 4.

4 See http://www.powertochoose.org/ contetJt/ coroplainr/jnclex grid .aspx.

s August 25 Letter at p. 4.

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Finally, Glacial TX is aware that the PUCT recently issued an order approving a settlement agreement that requires a divestiture of interests in a REP pursuant to P.U.C. SLTBST. R. 25.107(g)(1)(D).6 For the reasons described below, the PUCT order in that proceeding docs not create relevant precedent requiring Mr. Mole to divest his interest in Glacial TX.

2. Mr. Mole Was Not a Principal of Franklin Power

A. The Facts Do Not Support a Conclusion that Mr. Mole Was a Principal of Franklin Power.

Staff's August 25 Letter concludes that "Mr. Gary Mole was a principal of Franklin Power Company by virtue of his majority ownership and involvement in the day-to-day operations and management of Franklin Power Company."7 The PLICT':; current RFP regulations define a "principal" as "[a] person or a member of a group of persons that controls the person in question."8 While Mr. Mole had an indirect, 60% interest in Franklin Pmvcr,'' he never exercised, nor did he ever intend to exercise, control over Franklin Power. Rather, Mr. Mole's primary business focus was on the company of which he was the sole owner, Essential Utilities Corporation ("EUC"). In the attached email dated September 30, 2003 (i.e., written during the formation of Franklin Power), Mr. Mole expressly states that he "ha[s] no interest in controlling the company [i.e., Franklin Power]" but rather intends to focus his efforts on EL'C. "'

EUC operated as a consultant/broker, advising commercial, industrial and institutional end-use customers with respect to their retail electricity service options. Mr. Mole originally established a consulting company for retail electricity customers in Australia, and continued that business when he formed EUC in 2002. Mr. Mole directed his clients to a number of other REPs, in addition to Franklin Power. The fl.rst email contained in Attachment B is indicativ~;: of EUC's business relationship with Franklin. Mr. Mole, as principal of EUC, is attempting to secure customers for Franklin Power, but is experiencing difficulties because of credit problems at Franklin Power. In the second email, Mr. Mole, in his position as principal of EUC, is explaining to a potential customer EUC's relationship with Franklin Power. In the third email, Mr. Michael V. Petras is considering hiring additional EUC salespeople.

(,Interim Order, Application of DPI Energy, LLC for an Amendment to 1 ts Retail Electric J>rovidl·r (RH') Certification Pursuant to SUBST. R. 25.107, PUC Docket No. 37917 (i~sued Sept. 15, 20ll) (the ''dPi l'.m·'.Y.f On/1'1'').

7 August 25 Letter at p. 2 n.5.

8 P.U.C. SUBST. R. 25.107(b)(11).

9 Mr. Mole's interest in Franklin Power was held indirectly through Touchstone Properties, LLC.

10 Attachment A.

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Mr. Mole was never an officer, director or employee of Franklin Power. Mr. Mole never had an office or telephone number at Franklin Power and, as the numerous emails demonstrate, did not even have a Franklin Power email address. Indeed, the emails provided to Staff by Mr. Petras are expressly signed by Mr. Mole in his capacity as "Principal" of EUC. There arc no business records that demonstrate that Mr. Mole ever participated in a shareholder or director meeting- indeed, there are no records because he did not participate in the day-to-day management of Franklin Power. The representative email attached hereto as Attachment C demonstrates that significant decisions were made by Mr. Petras and others in management positions at Franklin Power, without the involvement of Mr. Mole. Mr. Petras, in his role as Director of Franklin Power, is unilaterally approving a loan "in the company's and shareholders [sic] best interests."

B. The Term "Principal" Was Not Defined in the PUCT's Regulations When Glacial TX Submitted its REP License Application.

The August 25 Letter also concludes that Glacial TX violated former P.U.C. SUllST. R. 25.107(g)(A) and 25.107(g)(B), which were in effect when Glacial TX submitted its REP application. Those rules required a REP applicant to disclose, among other things, the prior experience of its principals. As noted above, "principal" is defined in the PCCf's current REP regulations as "[a] person or a member of a group of persons that controls the person in question." 11 However, the definition of"principal" was not added to the regulations until May 21, 2009 - more than three (3) years after Glacial TX submitted its application for a REP license. Therefore, even if Staff concludes that the current definition of "principal" is sufficiently broad to find that Mr. Mole was in fact a principal of Franklin Power, it should not apply that same definition to the requirements offormer P.U.C. SUBST. R. 25.107(g)(A) and 25.107(g)(B), which were in effect prior to the adoption of the definition.

Given the absence of any defmition of the term "principal" when Glacial TX submitted its initial REP license application, Glacial TX understandably concluded that, because Mr. Mole had not been an officer, director or employee of Franklin Power, and was not otherwise involved in the day-to-day decision-making of Franklin Power, he was not a principal of Franklin Power. There was never any intent on the part of Glacial 'IX to hide Mr. Mole's relationship with Franklin Power on its application. In fact, Glacial "IX's application relied on the expertise of 1\.'lr. Francisco Segura, who at that time was President of Operations of Glacial Energy Holdings. Glacial TX's application expressly states that, prior to his employment with Glacial Energy Holdings, Mr. Segura "served as Vice President of Operations and Customer Relations for Franklin Power where he was responsible for back office operations and software reporting, and was instrumental in building Franklin Power Co. and its billing center and customer care

n P.U.C. SUBST. R. 25.107(b)(11).

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center."12 The PUCT issued a Notice of Approval of Glacial TX's REP application on March 6, 2006, without raising any concerns that Mr. Segura had previously been an officer of Franklin Power.

C. Mr. Petras Is Attempting To Gain Leverage in an Unrelated Lawsuit.

Staff bases its conclusion that Mr. Mole was a principal of Franklin Power primarily on allegations made by Mr. Petras. As Staff is aware, Mr. Petras flled a lawsuit against Mr. Mole, Glacial Energy Holdings, Glacial TX, their affiliates and certain other third parties in late April 2011 in state court in the District Court for Dallas County, Texas. After facing numerous and incurable legal deficiencies in state court, the complaint was non-suited and refiled in federal court. Mr. Petras' inability to get past the most rudimentary stages of litigation in state court will continue in federal court. Glacial filed a full motion to dismiss all counts of the Complaint on August 30, 2011. 13

The issues involved in the federal court proceeding are separate and distinct from the issues raised in Staffs current investigation, and Glacial TX has no desire to involve Staff or the PUCT in that litigation. Glacial TX merely wishes to clarify the context in which l'vlr. Petras is providing information to Staff and to note that Mr. Petras, who himself was an officer of Franklin Power, is not unbiased. Rather, he is attempting to use Staffs investigation of Glacial TX to obtain strategic leverage over Mr. Mole and Glacial Energy Holdings in the litigation proceeding.

3. Application ofP.U.C. SUBST. R. 25.107(g)(l)(D) to Glacial TX Would Violate Both Federal and State Law Against Retroactive Lawmaking.

P.ll.C. SUBST. R. 25.107(g)(l)(D) became effective on May 21,2009, more tban three (3) years after Glacial TX obtained its REP license. As such, requiring Mr. Mole to divest his interest in Glacial TX (assuming that Mr. Mole is deemed to have been a principal of Franklin Power, which he was not) ot, in the alternative, revoking Glacial1X's certification because Mr. Mole holds a greater than a 10% interest, would violate the long-standing prohibition against retroactive application of regulations under both federal and Texas law.

12 Mr. Segura is no longer employed by Glacial Energy Holdings.

B A copy of the Motion to Dismiss is attached hereto as ;\ttachmcnt D.

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A. Application of P.U.C. SUBST. R. 25.107(g)(1)(D) Would Violate Federal Law.

Article 1, Section 9 of the U.S. Constitution states: "[n]o Bill of Attainder or ex post facto Law shall be passed."14 In addition, Section 10 prohibits states from passing ex post facto laws . '~ While ex post facto clauses prohibit retroactive application of penallegislation,'r. federal case law has consistently held that retroactive application of rules and regulations is disfavored in both the criminal and civil context, absent some explicit indication by the legislating body that such legislation should be applied retroactively.

In the landmark U.S. Supreme Court decision .Bowen''· Georgetown Unit,mify J-loJpital, the Court conclusively stated that:

Retroactivity is not favored in the law. Thus, congressional enactments and administrative rules will not be construed to have retroactive effect unless their language requires this result. By the same principle, a statutory grant of legislative rulemaking authority will not, as a general matter, be understood to encompass the power to promulgate retroactive rules unless that power is conveyed by Congress in express terms. Even where some substantial justification for retroactive rulemaking is presented, courts should be reluctant to find such authority absent an express statutory grant. 1171

The U.S. Supreme Court further discussed retroactive application of statutes and regulations in LandgrqftJ. US! .1:'1/m Produds:

When a case implicates a federal statute enacted after the events in suit, the court's fust task is to determine whether Congress has expressly prescribed the statute's proper reach. If Congress has done so, of course, there is no need to resort to judicial default rules. When, however, the statute contains no such express command, the court must determine whether the new statute would have retroactive effect, i.e., whether it would impair rights a party possessed when he acted, increased a party's liability for past conduct, or impose new duties with respect to transactions already completed. If the statute would operate

14 U.S. Const. art. I § 9, cl. 3.

IS U.S. Const. art. I § 10, d. 1.

16 Landgrafv. US! Film Prod11ctJ, 511 U.S. 244, 266 (1994).

17 B01ven v. Georgetown Univ. Ho!p., 488 U.S. 204, 208-09 (1988) (citations omitted).

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retroactively, our traditional presumption teaches that it docs not govern absent clear congressional intent favoring such result.ll 81

The Court stated that "the court must ask whether the new provision attaches new legal consequences to events completed before its enactment," and expressed that "we have declined to give retroactive effect to statutes burdening private rights unless Congress has made clear its intent."19 The Supreme Court has also addressed retroactive application of state laws, and reversed state court findings on the basis that the state court inappropriately applied a new state 1 . l 20 aw retroactive y.

The Fifth Circuit has followed the Supreme Court's guidance in interpreting allegeu retroactive application of agency rules. Significantly, the Fifth Circuit has held that the rule prohibiting retroactive application of regulations must be applied where "retroactive application of a statute would either upset 'vested' rights or interfere with settled expectations that guided an individual's conduct. 'Retroactive application of laws is undesirable where advance notice of the change in the law would motivate a change in an individual's behavior or conduct."'21 The Fifth Circuit has interpreted a "vested right" to be a right vested in citizens by existing laws.22

There is nothing in PURA, pursuant to which the PUCT promulgated P.C.C. Sl"BST. R. 25.107(g)(1)(D), that would grant the PUCT, either expressly or implicitly, the ability to

promulgate REP regulations with retroactive effect. Moreover, in the rulemaking proceeding in

1s L..andgraj; 511 U.S. at 280.

19 Id. at 269-70.

20 U1rited States v. Lillie Lake Mi.Jere Land Co., 412 U.S. 580, 602-04 (1973) (finding th;1t Louisiana $!"Hie law may not retroactively abrogate the terms of written agreements made by the United States); P~t/1/i.- lltil.r. Com111'11 ~/ Ohio v. United F11el Gas Co., 317 U.S. 456, 464 (1943) ("There is no basis 111 the stamte fconferring jurisdiction to ~cr

rates) for concluding that the [Ohio State Public Utilities] Commission's orders can he rctroacti\-c to the thm· when the Commission's inquiry into the rates was begun .... "); Bronso111•. Kilr!{je, 42 U.S. 311 (1843) (invalithmng state legislation granting redemption rights to mortgagors who had <~lready lost l<~nd m foreclosures).

21 Gnffolr v. U.S. Dep't ofHealth, 802 F.2d 146, 153 (5th Cir. 1986) (citations omitted); .•·ee Pif11clllell'· M11ktu~y, 530 F.3d 321, 326 (5th Cir. 2008) (concluding a new regulation did not have an impermissible retroactive effect because it "neither attaches a new disability to past conduct nor upsets settled expectations.") (cimtions omitted).

22 See, e.g., Mills v. Habluetzel, 456 U.S. 91, 102 (1982) ("It is well established law in Texas that :1fter a <:<~u~e of actlon has become barred by a statute oflim.itation, the defendant has a vested right to rely on the st<~tutc <IS a defense, and the state legislature cannot divest the defendant of this right by thereafter lifting the h<~r of limitat.wn which had accrued in favor of the defendant. Any statute that had such an effect would be considered a retroacrin! law violative of Article 1, sec. 16 of the Constitution of the Stllte of Texas.") (citation omitted); .rt:t: tdJQ (.iJ/tleu. 1311//, 3 U.S. 386, 394 (1798) ("It is not to be presumed, that the federal or state legislatures will pass laws to tkprivt· citi?.t·ns of rights vested in them by existing laws .... When I say that a right is vested in a citizen, I me;~n, th;~t he has the power to do certain actions; or to possess certain things, according to the law of the land.").

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which it adopted P.U.C. SUBST. R. 25.107(g)(1)(D), the PUCT did not indicate that it intended for the new 10% ownership restriction to have retroactive effect. It is irrelevant for purposes of this analysis that P.U.C. SUBST. R. 25.1 07(g)(1)(D) does not expressly provide that the 10% ownership restriction is intended only to be applied prospectively; the relevant inquiry under long-standing federal law is whether the statute expressly contemplates retroactive application.

Mr. Mole clearly has a "vested right" (i.e., his ownership interest in Glacial Tx) that would be impaired by the retroactive application ofP.U.C. SUBST. R. 25.107(g)(1)(D) . Since there were no limitations on the level of ownership under the PUCT's REP regulations when Glacial TX obtained its REP license in March 2006 (and for more than three (3) years afterwards), there was no reason for Mr. Mole to have limited his economic or legal interest in Glacial TX..23 Had this limitation existed in 2006, Mr. Mole may not have formed Glacial TX and invested significant resources to developing a successful REP. In other words, retroactive application is inappropriate, where, as here, "advance notice of the change in the law would [have] motivate[d) a change in ... [Mr. Mole's] behavior or conduct."24

Moreover, the PUCT's rulemaking order adopting the revised REP regulations docs not even mention the new 10% ownership restriction, to say nothing of its intended retroactive application.25 As Glacial TX had no notice during the rulemaking proceeding that the PCCI' intended to apply P.U.C. SUBST. R. 25.107(g)(1)(D) retroactively, it would violate Glaciall'X's due process rights to require a divestiture of Mr. Mole's interest above 1 0~'o. 26

23 When Glacial TX submitted its REP license application in r-.:[arch 2006, Mr. Mole was the sole owner of Glacial Energy Holdings.

24 Griflolt, 802 F.2d at 153.

25 Order Adopti11g the Repeal of§25.107 attd New §25.107 As Approued at the Apni 23, 2009 Ope11 Mcelil{g, Project No. 35767 (issued May 1, 2009).

26 La11dgraj; 511 U.S. at 266 ("The Due Process Clause also protects the interests in fair notice and repose that may be compromised by retroactive legislation; a justification sufficient to validate a statute's prospective application under the Clause 'may not suffice' to warrant its retroactive application.") (citation omitted); DoJ(~Ia..- ''· Buder, 412 U.S. 430,432 (1973) (stating that "[w]hen ... [an] unforeseeable state-court construction of a criminal statute is applied retroactively to subject a person to criminal liability for past conduct, the effect is ro deprive him of due process of law in the sense of fair warning ... . ") (citation omitted); L.apez 11. Stale, 928 S.W.2d 528, 534 (I'cx. Ct-im . .App. 1996) (citing U .S. Supreme Court view that the Due Process Clause prohibits retroactive decisions, where construction or clarification of law is "unforeseeable."); see also U11ited States v. DarNJ'I110I11, 449 U.S. 292, 299 (1981) (fmding there was adequate notice where the proposed change in law -,,had b een under public discussion for almost a year before its enactment.").

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B. Application ofP.U.C. SUBST. R. 25.107(g)(1)(D) to Glacial TX Would Violate Texas State Law.

Article 1, Section 16 of the Texas Constitution provides that "[n]o bill of attainder, ex post facto law, retroactive law, or any law impairing the obligations of contracts, shall be madc."27

The Court of Appeals of Texas has concluded that the Texas State prohibition against ret-roactive,; laws is even stronger than that provided in the U.S. Constitution. Specifically, the Court found that "[t]he Texas Constitution, unlike the federal constitution, specifically prohibits retroactin~

laws."28

laws: The Texas Supreme Court has further elaborated on the prohibition against retroactive

The general rule is that there exists a presumption that an act is intended to operate prospectively and not retroactively. If there is any doubt, the intention will be resolved against retrospective operation of a statute. An act will not be applied retrospectively unless it appears by fair implication from the language used that it was the intent of the Legislature to make it applicable to both past and future transactions. 1291

In Liberry, the Texas Supreme Court discussed the two questions that must be considered when determining whether an agency order constitutes an impermissible retroactive law. "First, we must determine whether the statute authorizing the order is intended to allow the agency to issue a rule with retroactive effect . .. . The second question is whether the order is constitutionally objectionable. A retroactive law violates the Texas Constitution when the law deprives parties of a vested right."30

27 Tex. Const. ar t. I§ 16.

28 Uber[yM11t. Itu. Co. v. Tex Dep'tofins., 187 S.W.3d 808,820 (fex. App. 2006) ("Lilur{y") .

29 Ex ParteAbe/4 613 S.W.2d 255,258 (fex. 1981) (citation omitted) .

Jo Liberty, 187 S.W.3d at 820 (citations omitted).

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The Texas Supreme Court further expanded on when a right becomes vested:

A right becomes vested when there is "more than a mere expectation based on an anticipation of the continuance of an existing law; it must have become title, legal or equitable, to the present or future enforcement of a demand." When determining whether a law retroactively impairs a vested right, the court must consider (1) whether the law advances or retards the public interest; (2) whether the retroactive portion of the law gives effect to or defeats the bona fide intentions or reasonable expectations of affected persons; and (3) whether the law surprises people who relied on contrary law for a long period of time.'31

'

Here, as under the federal analysis, Mr. Mole has a "vested right" by virtue of his ownership interest in Glacial T:X. There were no restrictions on the ownership of REPs until P.U.C. SUBST. R. 25.107(g)(l)(D) went into effect. It is particularly clear under Texas State law that Mr. Mole has a vested right, since such right is explicitly defined in case law to incluuc a right that has "become title, legal or equitable."32 In addition, P.U.C. SUBST. R. 25.107(g)(1)(D) constitutes a "surpriseD [to Mr. Mole,J ... who relied on contrary law li.e., the previous PLCT regulations applicable to REPs, which did not include an ownership limitation] for a long period of time" (i.e., from the effectiveness of Glacial TX's REP status unul May 21, 2009). 13 Moreover, Texas courts have explicitly stated that "[i]t is, of course, well-established that an amendment is . presumed to operate prospectively only."34

Texas State courts have concluded that the rule against retroactive laws is not absolute, and will yield to a state's right to safeguard public safety and welfare:'5 However, Staff itself has acknowledged that "Glacial's entry into the retail electric market, to date, has not caused any

31 ld. at 820-21 (citatjon omitted).

32 It/.

1\ !d.

J4 Amplifolle Corp. 11. CanJtrrJII Cnty, 577 S.W.2d 567,570 (Tex. Ctv .. \pp. 1979) (citatJon omltled) .

. n Harpen•. Ul/ds~. 616 F.2d 849,856-57 (5th Cir. 1980) c··nle [stateJ nght to exercise the police power I~ a continuing one. It is one of the essential powers of government and the imperatiVe necessity for its existcnCl' precludes any limitation upon it unless it be arbjtrarily exercised. 1t is probably the last limitable of govcrnmcnral powers, even dwugh in its operation it often cuts down property rights, and is capable of being exercised to legislate retroactively without offending due process. Thus it is that a vesred interest in eXIsting condltlon~, be it a bccns<· In

operate a business, existing building codes or zoning regulations, present rates of intere~t, health regulauons, or whatever, cannot be asserted against the proper exercise of the police power."); Btmbop ''· Afedi11a c.ir(y (hrdery,mmul Water Conservatio11, 925 S. W.2d 618, 633-34 (Tex. 1996); Stale .Bd. 4 &gistralioiiJor Prl!f'l E1rg h 1'. lr/,.hita /.!1(~:~. 5(J4 S.W.2d 606, 609 (!'ex. Civ. App. 1973) (finding that retroactively prohibiung the usc of "cngmccr" in a previously registered company name, when such company was not vahdly licensed in the state, permissible, as such prohihmon was valid exercise of the State's police power).

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actual economic harm to market participants or its customers."Jc. Staff's claim that rhc "potential exists for extensive economic harm and disruption of service" is speculative at best and unsupported by any evidence. As such, the claim of "potential" harm is insufficient to support a finding that Mr. Mole's divestiture is necessary to safeguard the public welfare, in particular given Mr. Mole's limited role with Franklin Power, the presumption against retroactive lawmaking, Glacial TX's positive record of service in Texas over the past three years, and the lack of any support for a conclusion that the "potential" for harm is any greater with Glacial TX than for any other REP.

4. The PUCT's Recent dPi Energy Order Is Clearly Distinguishable

Glacial TX notes that, on September 15,2011, the PUCT issued an order approving a proposed settlement that required Amvensys Telecom Holdings, LLC ("Amvensys") to divest 100% of its ownership interests in dPi Energy, LLC ("dPi Energy"), which holds a REP license. F

The PUCT determined that Amvensys' divestiture was required pursuant to P.U.C. SCBST. R. 25.107(g)(1)(D) because an individual owning 50% of Amvensys (Mr. Zahed Lateef) had been a principal of another REP when it experienced a mass transition of its customers to a POI .R.

Significantly, Amvensys acquired its ownership interest in dPi Energy on No\·cmhcr 17, 2009- i.e., after P.U.C. SUBST. R. 25.1 07(g)(1)(D) went into effect. Mr. Latccf was therefore on notice when Amvensys purchased dPi Energy that he was prohibited from owning tnorc than 10% of a REP. As a result, the PUCTs required divestiture in the df>i E.1rergy Order was not prohibited by the long-standing prohibition against retroactive lawmaking under botb federal and Texas State law.3

H The dPi Enew Order therefore does not create relevant precedent relJUiring Mr. Mole to divest his interest in Glacial TX.

Moreover, the underlying facts presented in the dPi Energy proceeding differ significantly from those presented with respect to Glacial TX. In particular, Mr. Lateef had been a director of the REP when it experienced a mass transition of its customers, and therefore Mr. Latecf clearly had some level of control over the day-to-day operations of that failed REP. Perhaps even more significantly, dPi Energy was in violation of a number of other substantive regulations applicable to REPs, including the failure to maintain separate, segregated accounts for customer deposits

16 ,\ugust 25 Letter at p. 4.

J7 dPi E11ergy Order.

JS In testimony, Mr. Lateef acknowledged that P.U.C. SUBST. R. 25.107(g)(1)(D) was applic;lhlc. D1rect

Testimony of Zahed "Ed" Lateef on Behalf of dPi Energy, LLC, .-\pplication of DPI Energy, LJ.C for an ;\mendment to Its Retail Electric Provider (REP) Certification ·Pursuant ro SL:BST. It 25.107. PUC Docker No. 37917, at 4 (filed Nov. 8, 2010) .

PATTON BOGBSl~ AlleiRIYS 11 llW

Brennan Foley September 20, 2011 Page 13

pursuant to P.U.C. SUBST. R. 35.107(f)(2)(A), and failure to disclose that Mr. Lateef had been convicted of a felony.

5. Conclusion

Staff has expressed a willingness to engage in settlement discussions with respect to the financial penalties proposed in the August 25 Letter. Glacial TX is willing and interested in engaging in such discussions, including a settlement to resolve Staffs allegation of Glacial TX's violation ofP.U.C. SUBST. R. 25.107(g)(l)(D). We look fmward to speaking with you further about this matter.

;::7~~ a:deen S. Kelly ../1 r George D. (Chip) Cannon, Jr.\ Suthima Malayaman

Attachments

ATTACHMENT A

M V Petras

From:

Sent:

To:

Cc:

Gary Mole !gary mole@essent1alutilit1es com)

'I uesday, September 30, 2003 1·01 AM

'Roger McAulay'

M V Petras

Subject: Franklin Power set up

Roger.

I need to get an understanding on how you are going to set Franklin Power up? C- Corp, LLC, etc mcorporate where etc etc. So I can get Charles to set up my share of the company.! need to be caref w1th some ofthe customers not to mention the other power companies.so I need to be behind the curta1n The current shareholding as I understand it.

• Roger - 2oryo • Mtke- 20% ·Gary · 60%

Wtth 5fYt, to be added for employees once we have our shares.

Also who 1s gotng to be on the board ? I don't know 1f M1ke is gomg to be on the bOard beCause of he has, but I thmk tt would be best for all concerned to have someone on the board who .serviced everyone's interests. As I have no interest in controlling the company and have enough shit to de wtth sales people and customers on the EUC side. . · And my only tnterest or agenda on the Franklin Power stde is to build the company and sell forth price as soon as possible so I never have to speak about power ag~in. ·

Please advrse on your thoughts and what you feel ts best for us all on the above.

Thank you.

Regards,

Gary Mole Pnncipal E.ssential Utilities Corporation Phone· 214 526.7822 Fax· -214 292.943.1

~ONFIOENTIALITY NOTE:

This message is intended fOr ... l'lf'lt~." .

ATTACHMENT B

.. . -·- .... ----·-.. --.~ -·--··------- --··- ·-·-·----~-.... -----·---·-~--- -

From: Sent:

Gary Mole [gary.mole@essentialutilities.com) Tuesday, April 13, 2004 12:34 AM

To: Subject:

gsmith 1953; Andrew S Marriner; Roger McAulay; mvp@frankllnpower.com Fw:

Attachments: NY Switch Summary _040704.xls

Importance: High

Gents,

I am sorry to inform you of the following:

1. St. Francis Prep Schooi,St.Francis College, Parker Jewish and Bishop Hucles will need to be taken of the attached list as they have signed contracts with Con Ed Solutions.

2. Should Franklin Power not have a price for Sage Realty by close of business on April 15th 2004 they will be resigning with Constellation.

A number of these customers have been waiting a long time for a contract from Franklin Power and even thou they are happy and have reviewed the contract, customers do not understand, if Franklin Power is the power business why they cannot provide a price.

As time continues on there will be nothing that EUC will be able to do to stop customers from signing with other suppliers, as customers are wanting to sign contracts and have this matter off the table.

Regards,

Gary Mole P1incipal Essential Utilities Corporation Phone: 214.526.7822 Fax: 214.292.9431

CONFIDENTIALITY NOTE:

This message is intended for the use of the individual[s] or e.o.tity[ies] to which it is addressed and may contain confidential info1mation that is privileged,confidential or otherwise protected from disclosure under law .If the reader of this message is not the intended recipient.you are hereby notified that any dissemination,distribution or copying of this communication is strictly prohibited.Ifyou have received this communication in error,please notify us by reply email and delete the original message from your computer. Thank you.

::::;:...C?.Q~J~fl=~=;:;; .... _. ---··· .,. · ··-······ ··· ·-· r· · llt • . ..,.<.:.:,-•·· ····r~AA~I>1··· ··- ···· ··-··· - ····-··-···r·'- -':1-~~,-~ ... ,..,. - --·· ··· ·-·· -· J : f.l_Qifi·~Q~m b~~l:J·~~:.;: ··.: .. :=: . :~:~ ·=-·. ~ ··-· .......... u·--·- *: .. ~J;:i::r~-A -:.·. -.t~~i:: · ~t 1· tj~~r~ :::-:. · . · ; .. · ~ . ·. .. . ~:_:--:.::=~~?.} '!:.~!~ 12~t:~t~ ~ ·. ~ . :. ~ .. ... .. :.:.:~:::._ ·. To: Roger; MVP ; Andrew ; Garv Mole Sent: Thursday, April 08, ~0.94 11:36 A~--

To all-The attached spreadsheet is a summary of the NY initial switch groups. The worksheet labeled "NY SW Overview" provides a quick look at historical load volumes and volumetric hedges we could consider

MP- 002430

From: Sent: To: Cc: Subject:

Importance:

Scott,

Gary Mole (gary.mole@essenUalutilitles.com] Wednesday, January 14, 2004 12:22 PM Scott Fawcett mvp@frankllnpower.com Customer deals

High

This Is Just to confirm the following with you:

1. Any deal which Is done with Franklin Power through your company, no fee Is paid to Gary Mole or EUC ror commission at all on any Empowered customers.

2. EUC Is helping Franklin Power because companies like Gexa Energy, Reliant and TXU are very hard to do business with and in Gexas case they don't transfer the customers on time have major billing problems and EUC has lost a lot of business through problems with these providers.

If EUC can help win Franklin Power business this will put EUC in a much better position to address some of our larger customers later this year.

Should you need to confirm this matter I can obtain a letter from Franklin Power confirming that no commission payments are made on any of your business.

Let me know what customers and pricing we need to be at for the 24,000,000 kWh deal or any others to be won at?

Thanks again.

Regards,

Gary Mole Principal Essential Utilities Corporation Phone: 214.526.7822 Fax: 214.292.9431

CONFIDENTIALITY NOTE:

This message is intended for the use of the lndividual{s) or entity{ies] to which it Is addressed and may contain confidential information that Is prlvlleged,contidential or otherwise protected from disclosure under law.lf the reader of this message is not the intended recipient, you are hereby notified that any dissemination, distribution or copying of this communication is strictly prohibiled.lf you have received this communication in error, please noury us by reply email and delete the original message from your computer. Thank you.

From: Sent: To: Subject: Attachments:

M V Petras [michaelpetras@yahoo.com] Saturday, July 19, 2003 2:05PM 'Gary Mole' Power Company Model Billing Est 7-18-03.xls

···-· ··-·······--·· -· .. ----,,...-

If we hire 10 sales people atBUC they need to get $40MM in bills a month in the pipeline ... Considering that is 4-5 David McQuaids a month per sales person is not saying much.

I spent the rooming looking at price/sales and price/earnings comp for most power companies within the entire industry. One word ... PUCK!

If these ten sales people hit their quota ... the company would indeed be worth .8 to 1.2 times sales or 25X to SOX earnings. In practical term the company at the end of our fll'St year would be worth $500MM no problem.

That said ... the biggest problem would be billing and customer management But think through this for a second .. . if in the first 6 months we just sign up David McQuaids and Shamrocks ... that~ s 40 to 50 customers per month or 600 customers for the flrst year. Since we are business customer focused the number of them are smalL.. Hell we can have an account manager for evey 30 customers ... Think about that! !I I am not sure if that is the case now ... if David McQuaid can call someoue (the same person) everytim.e and get high quality customer service. But we might be revolutionizing customer relationship management? ... Particularly for this industry.

Once we hit a hundred customers then we hire several really good technical people to work with IBM/PeopleSoftl Accenture to develop a billing system. Then we back fill and get all the owners to sell it to their TENANTS we double om· billings overnight and we go from there ....

This is really exciting and would not be that difficult to set up ...

MVP

MP- 002513