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PSC Staff Recommends Retail Supplier Be Ordered to Cease Serving Customers, In Part Due To Pricing

January 6, 2015

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Copyright 2010-15 EnergyChoiceMatters.com
Reporting by Paul Ring • ring@energychoicematters.com

Staff of the Maryland PSC have filed testimony recommending that Starion Energy, "be ordered to cease serving customers in the State."

Staff's testimony, in a proceeding reviewing Starion's marketing practices, alleges that Starion, "continues to engage in deceptive marketing practices," but most notable from Staff's testimony is the inclusion of Starion's pricing as an area supporting Staff's recommendation.

As more fully detailed below, Starion has responded that the issues cited by Staff have been previously litigated, and that the majority of complaints cited in testimony filed by the Office of People's Counsel relate to marketing activity and contracts which pre-date a March 2014 PSC order which addressed Starion's prior activity.

Specifically, Staff alleged there is, "a pattern of Starion offering a competitive introductory rate of usually $0.0729 per kWh, and then increasing its rates to well above SOS rates."

Although Staff's concern regarding pricing is heightened by alleged misrepresentations of pricing (such as alleged representations of savings), of greater import to the broader retail market is that Staff is also concerned generally with rates which significantly exceed SOS rates or LMP.

While Starion in testimony has cited, "unfavorable market conditions affecting wholesale energy costs," for its higher rates, Staff alleged that Starion's higher rates have occurred over a number of different months.

Staff alleged that, "Starion has charged rates of $0.2197 per kWh in each month from March through November of 2014 ... [T]he monthly average load-weighted LMP for PJM has exceeded $80 per MWh (or $.08 per kWh) just once since 2009. This represents the approximate cost for a supplier purchasing its electricity on a day to day basis to serve its variable rate customers," Staff said.

"While Starion typically offers customers an initial rate of around $.08 per kWh, for the last several months, Starion has been billing a majority of its customers almost $0.22 per kWh. At the same time, the monthly average wholesale rates have been typically been [sic] well under half this rate. These practices either call into question the Company's managerial competence, or more likely demonstrates a deliberate strategy of charging customers a rate far exceeding Starion's costs," Staff said.

Again, we stress that these conclusions from Staff were not directly linked to other allegations of misrepresentation, and it appears Staff's concern regarding "excessive" rates would remain absent any other allegations in the proceeding.

This presents a dangerous precedent for the market, as now Staff is in the position of reviewing whether a supplier's rates, even when properly disclosed, "far exceed" the supplier's cost.

While we make no averment to the specifics of Starion's situation, it is understandable why, even if LMPs spike only in one month, a supplier may be required to continue charging rates in excess of the prompt month's lower LMP, because shocks often entail additional costs other than just procuring spot power at the higher LMP (notably, the supplier may have had to make short-notice, and therefore more expensive, credit arrangements due to credit calls based on higher spot pricing). Implicit in Staff's testimony is that rates higher than average LMP are only justifiable for a short-period of time (undefined by Staff), opening potential new regulatory risks for suppliers.

Turning back to Staff's recommendation, Staff also alleged that Starion continues to have a large number of complaints filed against it in Maryland (97 over a 6-month period in question), even though Staff said that the company has had an almost 99 percent reduction in the number of customers enrolled since the peak in March 2013.

Staff said that most complaints alleged unexpected increases in variable rate prices.

Staff further testified that a number of customer complaints alleged misleading statements.

Staff alleged that, "One customer who was charged a rate as high as $0.1799 per kWh stated that Starion 'said we were part of Pepco' and 'promised I would save money'. Another asserted they 'were originally told that the rate would always be less than Pepco.' A customer charged $0.2197 per kWh stated that Starion told them 'the price would be very similar to the fixed rate price,' while another customer claimed Starion 'said they were from Pepco and government program [sic] to assist in lowering electric bill.'"

Staff alleged that, a year after an original show cause order directed to Starion, "the Company is still engaging in behavior that continues to cause numerous customer complaints and allegations of fraud, deceptive practices and slamming. While the number of complaints filed against the Company has dropped, this appears to be largely the result of the Company's decision to all but cease marketing in the State, which along with Starion's high rates has caused the Company's customer count in Maryland to fall by more than half since June 2013."

To the extent the PSC does not adopt Staff's recommendation to require Starion to cease serving customers, Staff alternatively suggested that Starion be prohibited from using utility consolidated billing.

"This would justifiably place the burden on Starion of recovering the charges that so many Maryland consumers have objected to; while at the same time ensuring that no Starion customer would lose electricity service for disputing a Starion charge. In affect, Starion would be acting like companies in almost every other industry, where companies attempt to collect disputed bills via a collection process, and without the threat of a vital utility service discontinued," Staff said.

Starion provided the following statement to EnergyChoiceMatters.com:

"Starion, like any company committed to its customers and the ongoing betterment of its services and its business, has grown as a result of its experiences with both the Maryland Public Service Commission and the energy market. The events addressed in the PSC's Order 86211 occurred as a result of Starion's rapid growth and the drastic weather that caused record wholesale energy demand and price spikes in the winter of 2012-2013. In response to the PSC's order, Starion complied with every directive from the PSC. Notably, Starion's actions included prompt payment of $350,000 pursuant to Order 86211, submission of all marketing materials for review and comment by interested parties and filing, on September 5, 2014, of the first of ongoing semi-annual reports providing an explanation of all customer complaints received by Starion since Order 86211.

"The Commission has set an evidentiary hearing for January 15th and 16th before an Administrative Law Judge to allow for explanation of the details of the complaints listed in Starions's September 5, 2014 compliance filing. Starion welcomes the opportunity for a full and transparent discussion of the complaints and believes that the hearing will show that each complaint related to customers and events pre-dating Order 86211, involved issues that have already been fully addressed and resolved by both Starion and the PSC and, importantly, came from a customer whose concerns were fully, promptly and professionally resolved. Indeed, testimony from the Office of People's Counsel states: 'Most of the complaints relate to marketing activity and contracts which pre-date Order 86211. Since the issuance of the Order, Starion's active marketing is solely directed towards re-enrolling customers who previously purchased their electricity supply from Starion.'

"The testimony of PSC staff similarly focuses on issues that have already been litigated and addressed, including variable rate issues. Staff's witness states: 'Yes, I have reviewed these complaints; the most common was a complaint of unexpected increases in variable rate prices.'

"Again, these issues have already been addressed. It should also be kept in mind that the Maryland PSC does not have jurisdiction over energy supply prices.

"In short, Starion has done exactly what the PSC asked of it and OPC's and Staff's testimony seek to rehash the past. Starion is certain that the upcoming hearing will show not only that, but also that Starion as a company has grown and developed as a result of its experiences last year. "

Case No. 9324

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