Retail Suppliers Beware! Seven Lessons Learned from Starion Energy’s Record-Setting Fine in Maryland, Part 1

This is the first in a two-part series highlighting “Lessons Learned” from the Maryland Public Service Commission’s recent ruling penalizing Starion Energy PA, Inc. for violating various consumer protection laws in Maryland  While these lessons may seem elementary to most retail electricity suppliers, bad actors exist and are finding themselves in trouble with the law.  When that happens, the reputations of fine retail suppliers in the energy market, and the restructured industry in general, are damaged.  As lawyers representing retail providers , we recognize the vast majority of retail electricity suppliers do their best to adhere to applicable laws.  We hope that this series will assist retail  electricity and, for that matter, natural gas, sellers in Maryland  to comply with  state laws and allow them to better serve Maryland customers.

The Maryland Public Service Commission recently imposed its harshest penalty to date on a retail supplier.  In Order No. 86211, the Commission found that Starion Energy, PA, Inc. had committed hundreds of violations of applicable statutes and regulations.  For instance, Starion (1) violated the Maryland Door-to-Door Sales Act by not providing customers with contracts that contain the required language in that Act; (2) engaged in an ongoing pattern of regularly switching customers to Starion service without the customer’s permission, and of employing false and misleading statements to solicit new customers; and (3) actively marketed within Southern Maryland Electric Cooperative’s (SMECO’s) service territory and to Pepco’s commercial customers without a license for a period of approximately six months and continued to operate in SMECO’s territory on a passive basis despite being fully aware that it lacked the necessary license.  For all this (and more), the Commission fined Starion $350,000 and imposed other restrictions and compliance requirements.

The underlying thread connecting all of Starion’s violations was lack of oversight and control over its sales and marketing representatives during a time of what Starion termed as rapid and unexpected customer growth in the Maryland retail electricity market.  The Commission ruled that rapid growth does not mitigate a supplier’s obligations to comply with applicable regulations and found that Starion had committed more than a hundred customer protection violations.

Starion entered the Maryland electricity market in 2010, after receiving a $70,000 penalty from the Connecticut Department of Public Utilities for allegations that included slamming.  The Commission was aware of the Connecticut proceeding but issued the license based on an affidavit from Starion’s CEO that Starion would adhere to all applicable Maryland regulations.  Starion apparently hit the Maryland ground running, signing up more customers than its customer service personnel could handle.  Although the Order does not reveal Starion’s customer count, Starion relied heavily on door-to-door and telemarketing to solicit new customers.  Most of the violations occurred in the SMECO territory; in fact, SMECO contended that it began receiving complaints as soon as Starion and SMECO completed their EDI testing.

Lesson One:  Retail Suppliers Are Responsible for the Acts of Their Marketing Agents.

Starion contracted both directly with independent representatives and indirectly through vendors that contracted with other independent representatives on behalf of Starion. While this kind of marketing structure is not unique or impermissible in Maryland, such an attenuated sales force structure requires thoughtful and diligent compliance training and ongoing monitoring. As the Starion story shows, outsourcing door-to-door marketing, and telemarketing for that matter, does not insulate a supplier from the risks and penalties for failure to comply with applicable state and federal statutes and regulations.

Starion, like the retail suppliers in prior cases involving alleged consumer protection violations, did not dispute that it was responsible for the conduct of its marketing vendors and their contractors.  When marketing agents make false or misleading claims to customers, those claims are imputed to the retail supplier they represent. The Commission’s decision in Starion reiterated this view.

Lesson Two:  To Guard Against Slamming Allegations, Retail Suppliers Should Obtain the Customer’s Permission to Switch Before Requesting the Customer’s Utility Account Number.

The Commission found that its Office of External Relations (OER) had received 122 complaints relating to allegations of slamming by Starion.  The customers who complained to SMECO repeatedly stated that the Starion representative attempted to obtain their SMECO account number prior to the customer agreeing to switch service (or at times even before the customers fully understood the nature of the call).  While the Commission did not explicitly say so, it seems that the best practice would be for the retail supplier to have the customer affirmatively state that he or she desires to switch electricity service.  Only then should the retail supplier attempt to obtain the customer’s utility account number.

Lesson Three:  Retail Suppliers Should Fully Disclose Terms and Conditions of Service Regarding Variable Rates.

Starion offered a variable rate product in Maryland, probably similar to variable rates offered by other suppliers in Maryland and beyond. When Starion experienced rising costs in the northeast, it raised its prices throughout its footprint, including a “significant increase” for its Maryland customers even though the reason for the increase stemmed from areas beyond Maryland and PJM.  According to Starion, this price increase resulted in many customer lodging complaints with the Commission.  While the Commission did not find any consumer protection violation resulting from Starion’s spreading the cost over its entire footprint, it did express concern “that Maryland customers may not be fully informed that their variable rate may be calculated based upon market prices across such a wide geographic area. Starion has an obligation to clearly disclose the terms of its service to its Maryland customers.”

Check back soon for Part Two of this series.

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David Greene
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