By L.M. Sixel of the Houston Chronicle
(Aug. 23) – For about 15 years, the Houston sales company 7 Point Group sold electricity door-to-door, at grocery stores and during special events on behalf of NRG, the largest electricity seller in Texas, with brands such as Reliant Energy, Green Mountain Energy and Pennywise Power.
Business was so good that this spring NRG and 7 Point executives sat down over a steak dinner to talk about growth strategies, recalled 7 Point’s president, Marco A. Romero III. But just a couple of weeks later, the long relationship came to a crashing end with a late night phone call from NRG telling Romero that he and his company were fired.
“It made no sense,” said Romero, who estimates his 300 or so agents were responsible about 70 percent of NRG’s outside sales.
Now, the one-time business partners are in the middle of a nasty breakup, fighting in court over non-compete agreements and whether 7 Point used confidential NRG information to sell electricity for rival companies.
For the moment, 7 Point has essentially shut down after a state district court in Harris County ordered the company to temporarily stop selling electricity in Harris County and most places in Texas. The 7 Point Group has appealed that ruling.
The legal dispute, now before the state’s Fourteenth Court of Appeals, will likely drag on for months, but it opens another window on Texas’ deregulated power markets and the fierce competition among electricity retailers to sign up customers.
As with other mature markets, such as credit cards and cell phones, the way to grow is to poach customers from competitors, prompting aggressive tactics to lure those customers away.
In Texas, most of the selling of electricity plans is done by marketing companies hired by power providers. The marketing firms use armies of sales agents to pitch plans at grocery stores, sporting events or door-to-door. Good sales people can make six-figure incomes, industry officials say.
NRG paid 7 Point as much as $325 in commissions for each new customer, according to court records. The 7 Point Group has several contracts with NRG, including one signed four years ago to sell electricity plans door-to-door in Texas and others to pitch NRG plans at retail stores and community events, according to court documents.
The contracts included non-compete clauses, meaning that neither 7 Point or its representatives who work as independent contractors could sell electricity on behalf of an NRG competitor for at least six months after the contract was terminated
They troubles began, according to NRG, when it discovered its business partner had opened an office in McAllen to sell power for rival companies Amigo Energy and Just Energy in meat markets and other stores in Houston, Dallas and the Rio Grande Valley. The 7 Point Group’s McAllen office operated under the name. E.P. Distributors, which NRG described as a “sham” operation in court papers, designed to hide 7 Point’s involvement.
“This vendor was circumventing our business rules and the terms of our contract,” said NRG spokeswoman Pat Hammond.
In April, NRG fired 7 Point and sued the company in state district court in Harris County, alleging its former business partner breached its contract. NRG also accused 7 Point of saddling the electricity retailer millions of dollars in bad debt when the sales team found a loophole in the Green Mountain enrollment process that allowed sales representatives to bypass a credit check, which could enable sales reps to sign up more customers and boost commissions, but leave Green Mountain with customers who didn’t pay bills.
Executives of the 7 Point Group scoff at that suggestion. They say they were just following orders of NRG executives, whose compensation is tied to meeting sales goals, to sign up new customers as fast as possible after Hurricane Harvey, including those who might not typically qualify because of low credit scores
“They did it to hit their bonuses,” Romero, 7 Point’s president, said in an interview.
But now, he said, “they’re throwing me under the bus to protect themselves.”
Romero also disputes the allegation his company took confidential information from NRG. He noted that his company was among the first to set up tents and talk with shoppers at grocery stores, instead of just hiring people to walk around with sandwich boards. The technique, which Romero said his company first employed on behalf of Green Mountain Energy in 2006, help sell as many as 1,500 plans a week.
NRG bought Green Mountain in 2010 for $350 million in cash
“We were the ones teaching (NRG) all of these years,” said Romero.
Executives of 7 Point said in court documents they had little choice but to establish a new entity because NRG was trying to circumvent the sales agreement by hiring 7 Point sales representatives directly, instead of through their company. The 7 Point Group was “constantly attacked and bullied by NRG,” according to the company’s appeal.
Romero tried to convince NRG to drop its non-compete restrictions, according to court documents, and when he couldn’t reach a deal —and keep his business going — Romero assigned an employee to create E.P. Distributors to tap into a sector of the retail energy services market that NRG typically avoids: selling power to customers who lack Social Security numbers or those with low credit scores.
In May, state district judge Wesley Ward issued a temporary injunction against 7 Point which prevents the company from selling electricity on behalf of any provider in Harris County and most of Texas, and set the case for trial in October.
The 7 Point Group appealed the injunction to the Fourteenth Court of Appeals, saying it was too broad because it prevents the company from selling electricity in counties in which it does not currently operate and in stores in which it never sold NRG electricity, according to court records. The non-compete also bars sales agents who never signed the agreement from working, 7 Point argued.
The 7 Point Group closed its Houston office last week. Not only are legal fees mounting, Romero said, but other marketing companies are hiring away his carefully recruited sales team.
“We’re basically losing everything,” said Romero.
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