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ALJ: Retail Supplier Not Reducing Variable Rates As Wholesale Rates Decline A Violation of Marketing Rules

May 16, 2016

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Copyright 2010-16 EnergyChoiceMatters.com
Reporting by Paul Ring • ring@energychoicematters.com

In a proposed order concerning an investigation of Blue Pilot Energy, LLC (click here for related story today), a Maryland Public Utility Law Judge made a conclusion with broader market implications, concerning how retail suppliers charging variable rates set and market their rates.

Blue Pilot Energy's variable rate disclosure statement during the relevant period provided as follows:

"You have a variable rate plan with a starting price set at x.x cents per kWh. This initial rate will be effective for at least the first ninety (90) days of service. Thereafter, your price may vary on a month-to-month basis ... At any time after ninety (90) days of service, but not more frequently than monthly, Blue Pilot may increase or decrease your rate based on several factors, including changes in wholesale energy market prices in the PJM Markets. Your variable rate will be based upon PJM wholesale market conditions."

However, the PULJ in a proposed order found such disclosure to be at odds with the company's business practices, as the PULJ concluded that the company's practice was to not lower the customer's rate in response to lower wholesale prices, unless the customer affirmatively contacted the company for a new rate.

The proposed order is not final and may be appealed

"I find that the Company's business practice or policy was to either maintain a customer's initial rate or to increase the rate after the guarantee period to allow it to recover unexpected costs in procuring its electricity supply," the PULJ said

The PULJ cited testimony from the company that indicated that the company's plan was to keep the customer at this offered rate unless (a) the customer contacted the Company for a "better rate" after the expiration of the guarantee period; (b) the company proactively contacted the customer to offer a better rate to retain the customer's business; or (c) the company's costs necessitated an increase in the rate after the guarantee period expired.

Reviewing rate data from the company, "even when the Company was offering 'better rates' to enroll new customers, the majority of customers with a higher rate outside of a guarantee period continued to be consistently billed their initial 'guarantee' rate," the PULJ said

The PULJ noted that under the Blue Pilot sales script, after disclosing near the end of the sales call that the offered rate is guaranteed for either 60 or 90 days and then may vary, up or down, the sales person states, "The way that we separate ourselves from the competition is I tell all my customers to call me back in 50/80 days. We will do a free evaluation on your account and if we have a better rate at that point we'll pass the savings down to you."

"Unsaid is that unless the customer calls the Company to have a 'free evaluation' conducted, the customer's rate would not automatically decrease to the 'better rate.' Nor does the Disclosure Statement incorporate the 'offer' of a 'free evaluation' to obtain a 'better rate' once the guarantee period expired," the PULJ said

"I find that the Company's business practice or policy was to either maintain a customer's initial rate or to increase the rate after the guarantee period to allow it to recover unexpected costs in procuring its electricity supply. At least through March 2014, a decrease in the initial guaranteed rate was not automatic and took some action on the part of the customer or the Company to vary the rate in this manner," the PULJ said

That prompted the PULJ to conclude, "I find that, based on the evidence in the record, the Company did not adequately disclose the nature of its monthly rate, because the Company business plan was that the initial rate offered to the customer would be 'fixed' during the customer's enrollment, and the Company would not decrease the monthly rate based on the PJM market prices for wholesale electricity even after the guarantee period, unless the customer contacted, or was contacted by, the Company to obtain a 'better rate' and be locked into another 'guarantee period.' Only after the Company began to experience substantial increases in its wholesale electricity costs, did it rely on its description of its 'variable' rate to increase monthly rates for customers who were outside the guarantee period. After March 2014, the evidence suggests that the Company did 'proactively' decrease most of its customers' monthly rates ... but the monthly rate remained well in excess of the BGE SOS rate.'"

"I therefore find that the Company's disclosure of the manner in which the billed rate would vary after the expiration of the 60- or 90-day guarantee period was an unfair or misleading marketing and trade practice in violation of COMAR 20.53.07.07A.(2)," the PULJ said

Case 9346(c)

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