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PSC Staff Seeks To Require Supplier to Refund Charges in Excess of SOS Rate; Transfer Some Customers to Other Suppliers; Proposes $3.3 Million Fine

September 25, 2013

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Copyright 2010-13
Reporting by Paul Ring •

Staff of the Maryland PSC have proposed that Starion Energy PA, Inc. should be required to refund to customers any charges in excess of Standard Offer Service rates, and also proposed a $3.37 million civil penalty, for various violations alleged by Staff.

Staff's proposal came in testimony concerning a show cause proceeding regarding Starion's marketing practices and complaints.

Among other things, Staff testified that Starion should be required to submit to the Commission for its approval a plan to remediate the financial harm caused to customers since Starion began marketing its services in Maryland. "At minimum this should include a refund of all rates above standard offer service ('SOS') that Starion has charged its Maryland customers."

While Staff testified that the Commission does not regulate the rates of electricity suppliers, "Commission rules and regulations do preclude electricity suppliers from committing fraud or engaging in deceptive practices (COMAR"

Staff alleged that Starion's website states that customers can save money by switching to Starion, and alleged numerous instances of Starion representatives claiming the company would save customers money.

However, Staff alleged that Starion charged "extraordinarily high rates," with some rates alleged to be in excess of 15¢/kWh, with Staff alleging Starion's rates were in excess of SOS rates and competitors' rates. "[O]f the over 100 non-Starion supplier offers shown on OPC's Electric Suppliers Price Chart as of September 17, 2013 for the service territories in which Starion operates, only four offers were higher than the Starion rate described in the previous question [a reference to a redacted weighed average Starion rate], and three of these were for 100% renewable electricity."

"Given Starion's extraordinarily high rates, the Company and its representatives['] repeated assertions that customer[s] can save money by switching to Starion are clearly deceptive and misleading," Staff alleged.

Starion, in testimony filed yesterday, blamed the variable rate increases on higher wholesale costs, stating that it had elected to not engage in forward hedging for the winter of 2012-13, which saw protracted severe cold weather in the Northeast cause spot prices to spike.

While most of the wholesale pricing impacts were felt in New England, and to a lesser extent parts of New York, Starion said that even spot prices in the PJM Interconnection RTO were affected, with some real time prices exceeding $300 per megawatt hour.

During the winter, Starion's overall average wholesale cost per megawatt hour was almost triple the prices of a few months earlier.

While most of the increased cost came from New England, a witness testifying on behalf of Starion testified that the company made, "a deliberate business decision to spread the costs fairly over their entire base of variable rate customers;" hence, the variable rate increase for the Maryland customers.

Starion also testified that it believes that its variable rate customers in Maryland were adequately apprised of the potential increase to their rate, noting that, "The applicable terms and conditions state that: '[t]he variable rate may change in response to market conditions, including such factors as electricity market pricing, applicable taxes, transmission costs, utility charges and other market price related factors, as determined in Starion's discretion.'"

"In 2013, the wholesale procurement costs imposed significant charges on Starion Energy Inc. which adversely effected Starion's variable rate customers. Starion does not have control over these charges and must factor them in when determining variable rates," Starion said.

"[A] significant market event in one jurisdiction can have a significant impact across the supplier's entire footprint as it did here," Starion said. "There was simply no way for Starion Energy Inc. to absorb the costs imposed upon it which is why Starion chose to exercise its discretion to pass on some of the costs through its variable rate product," Starion said.

Staff further alleged that Starion was operating within the Southern Maryland Electric Cooperative's service area without authority from the Commission to do so, as Staff alleged Starion did not include SMECO as a territory in which it would operate on its application.

Staff proposed that Starion should be required to submit an orderly plan for the Commission's approval to migrate its existing customers in the SMECO service territory to the supplier of their choice at no cost to the customer.

Staff proposed a $2.98 million penalty for this alleged violation of operating within SMECO without authority.

Staff also proposed a $150,000 penalty for alleged misrepresentation, and a $240,000 penalty for an alleged failure to update, as required, information relied upon by the PSC in Starion's supplier license application, to include the disclosure of new adverse actions taken against the company by regulators in other jurisdictions (such as a cease and desist order from the D.C. PSC).

Staff's witness said that, at this time, it does not believe Starion has shown sufficient good faith to warrant the Commission not imposing the full civil penalty of $3.37 million, but said that, "if Starion were to cease its deceptive marketing practices and take substantial actions to remediate the harm the Company has caused to Maryland customers, I would recommend that the Commission decline to issue a civil penalty."

Staff also sought that the Commission require Starion to immediately cease and desist from marketing to new customers in Maryland. Staff further proposed that, within 30 days, Starion should be required to submit its plans to market its services in Maryland. Such plans should include, all documents used in marketing services in Maryland by whatever means including contracts, scripts, customer outreach materials, and customer education materials. Starion should be prohibited from marketing its services to new customers in Maryland until its marketing plans have been approved by the Commission, Staff said.

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