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Regulator Assesses $250,000 Civil Penalty Against Retail Supplier

June 15, 2018

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Copyright 2010-17 EnergyChoiceMatters.com
Reporting by Karen Abbott • kabbott (at) energychoicematters.com

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The Connecticut PURA adopted a final decision in which PURA, "determines that Choice Energy, LLC failed to comply with Section §16-245o(h)(8) of the General Statutes of Connecticut when it abruptly discontinued its contractual savings guarantee with 17,630 existing customers as of January 1, 2013. Furthermore, Choice Energy, LLC violated §§16-245o(f)(2), 42-110b(a), and 16-245(g) as well as §42-110b-18 of the Regulations of Connecticut State Agencies when it: (1) used the undefined and misleading term 'effective rate' in its guarantee for 30,271 new and existing customers; and (2) provided a misleading description of the price to compare in its savings guarantee issued to 17,630 customers when it switched to 100% green energy in 2012."

"Pursuant to Conn. Gen. Stat. §16-41, Choice is assessed a civil penalty in the amount of one hundred thousand dollars ($100,000) for violations of Conn. Gen. Stat. §16-245o(h)(8), which also constitute violations of Conn. Gen. Stat. §42-110b(a), and Choice is assessed a civil penalty of one hundred fifty thousand dollars ($150,000) for violations of Conn. Gen. Stat. §§16-245(g) and 16-245o(f)(2), which also constitute violations of Conn. Gen. Stat. §42-110b(a) and Conn. Agencies Regs. §42-110b-18," PURA held in its order

Choice Energy, LLC provided the following statement to EnergyChoiceMatters.com:

"Choice Energy, LLC, (Choice Energy) is disappointed by the June 14, 2018 Final Decision of the Connecticut Public Utilities Regulatory Agency (CT PURA), especially regarding certain terms of service wording in use at the time. The matters in question dated back to early 2013 and before. Choice Energy fully cooperated with CT PURA’s investigation at all times since the docket was opened in July 2014. Choice Energy prides itself of our track record in transparency with our proactive use of a Schumer-box like disclosure well before it was even raised by the Authority for consideration as a requirement. We strongly disagrees that these extraordinarily high fines were warranted or appropriate, especially given the absence of contemporaneous complaints from CT PURA, other Connecticut public agencies or any consumers while the program in question was in effect. However, Choice Energy management has decided not to further contest the fine in the interest of continued good working relationship with CT PURA and being able to refocus 100% of management’s attention on customer service going forward."

PURA in its final order stated that, from August 2010 through December 2010, Choice entered into 2,403 customer contracts. PURA said in its order that each contract contained the following "savings guarantee" provision: "Price. This is a monthly variable rate product priced based on market conditions that may change from time to time… Your initial Choice Price is shown in your Welcome Kit. This rate may fluctuate from month to month, which we guarantee to be at least 7% below your LDU’s standard Generation Service Charge rate, also known as the Price to Compare..."

PURA in its final order stated that, from January 2011 through December 2011, Choice entered into 12,641 customer contracts which contained the following "savings guarantee" provision: "we guarantee that for as long as you remain our customer, your effective rate each year will always be below your LDU’s standard Generation Service Charge rate, also known as the Price to Compare..."

PURA in its final order stated that, "Choice used the term Effective Rate for the first time in its 2011 contracts. In this proceeding, Choice defined Effective Rate as: Cumulative Charges / Cumulative Usage = Effective Rate."

PURA in its final order stated that, "Choice never explained to its customers how it intended to calculate Effective Rate."

PURA in its final order stated that, in January 2012, Choice revised the savings guarantee to reflect its change to a 100% renewable product, with the language, "we guarantee that for as long as you remain our customer, your effective rate each year will always be below your LDU’s standard Generation Service Charge rate (also known as the Price to Compare) and, if applicable, the rate available from the CT Clean Energy Option program or its equivalent..." PURA said in its order that, from January 2012 through December 2012, Choice entered into 17,630 customer contracts containing such language

PURA in its final order stated that, "In January 2013, Choice mailed a letter to all existing customers indicating that it was unilaterally discontinuing its savings guarantee contained in the 2010, 2011, and 2012 contracts. Choice mailed a similar notice to its most recently acquired customers on March 1, 2013, resulting in 16,069 total letters sent to customers discontinuing the savings guarantee. Late Filed Exhibits Nos. 14a-14d; Choice PFT, pp. 18-23. According to Choice, customers were not asked to respond to the notice or to give consent, but customers had the option to switch suppliers without incurring a cancellation fee."

PURA said that Conn. Gen. Stat. §16-245o(h)(8) provides, in pertinent part: "An electric supplier shall not make a material change in the terms or duration of any contract for the provision of electric generation services by an electric supplier without the express consent of the customer..."

PURA said in its order that, "Choice did not dispute that the discontinuation of the price guarantee would constitute a 'material change in the terms of the contract,' and Choice was unable to provide evidence that any customer expressly consented to the discontinuation of the price guarantee."

PURA said in its order that, "Choice presented three defensive claims: (1) Choice believed that securing customer consent through advance notice and opportunity for the customer to respond was sufficient under applicable Connecticut law; (2) the Authority had not previously interpreted §16-245o(h)(8), and therefore, Choice claimed it had no guidance as to the meaning of express consent; and (3) its practice was acceptable as its Terms of Service contained a provision that allowed Choice to change the terms of the contract with any customer upon a 30-day notice. The Authority rejects each assertion."

PURA said in its order that, "the plain and ordinary meaning of 'the express consent of the customer' is that the customer’s consent must be clearly and directly stated. In other words, the customer must take an affirmative action to state or show that consent has been given."

PURA said in its order that, "The Authority rejects Choice’s contention that a customer’s lack of response to the Company’s notice is equivalent to the customer’s affirmatively giving consent. Choice unsuccessfully attempts to replace the statutory requirement of express consent with implied consent."

PURA further said in its order that Conn. Gen. Stat. §16-245o(j) provides that "any contract . . . in material violation of the provisions of [section 16-245o] shall be void and unenforceable. Any waiver of the provisions of [section 16-245o] by a customer of electric generation services shall be deemed void and unenforceable by the electric supplier."

"Thus, a customer may not waive the express consent requirement in Section 16-245o(h)(8). Any contract provisions that allowed Choice to change the terms of the contract with only a 30-day notice are void and unenforceable pursuant to Conn. Gen. Stat. §16-245o(j)," PURA said in its order

"The Authority finds that when Choice unilaterally discontinued the price guarantee stated in the customers’ contracts, Choice made a material change in the terms of the 17,630 service contracts without the express consent of the customers, which violated Conn. Gen. Stat. §16-245o(h)(8)," PURA said in its order

PURA said in its order that, pursuant to Section 42-110b-18 of the Regulations of Connecticut State Agencies (Conn. Agencies Regs.), it shall be an unfair or deceptive act or practice to "misrepresent the nature, characteristics, standard ingredients, uses, benefits, quantities or qualities of merchandise or services." Conn. Gen. Stat. §16-245o(f)(2) provides, in pertinent part: "Each contract for electric generation services shall contain all material terms of the agreement, a clear and conspicuous statement explaining the rates that such customer will be paying, including the circumstances under which the rates may change, a statement that provides specific directions to the customer as to how to compare the price term in the contract to the customer’s existing electric generation service charge on the electric bill and how long those rates are guaranteed." Conn. Gen. Stat. §16-245(g) also provides: "As conditions of continued licensure … (2) the licensee shall comply with the Connecticut Unfair Trade Practices Act..." The Connecticut Unfair Trade Practices Act, Conn. Gen. Stat. §42-110b(a), provides: "[n]o person shall engage in unfair methods of competition and unfair or deceptive acts or practices in the conduct of any trade or commerce."

PURA said in its order that, "The Authority holds that Choice violated §§16-245(g), 16-245o(f)(2), and 42-110b(a) by not defining the material term Effective Rate and by providing a misleading description of the price to compare in its savings guarantee when it switched to 100% green energy in 2012."

PURA said in its order that, "Choice internally defined Effective Rate as Cumulative Charges divided by Cumulative Usage, but did not inform its customers of this definition or of how to calculate the Effective Rate. Response to Interrogatory CA-4. Because Choice did not define Effective Rate for its customers, a reasonable customer could not know if the Effective Rate was the actual monthly rate charged by Choice, a calculation to obtain a monthly rate, or an average of an unspecified number of rates. If the customer were to understand it was an average, a reasonable customer would not have known the formula for calculating the average. A reasonable customer also would not have realized that for the Effective Rate to provide him with the guaranteed savings he must remain with Choice for a full twelve-month contract period."

PURA said in its order that, "For the 17,630 new customer contracts in 2012, Choice still had not defined Effective Rate for customers or identified how to calculate it to verify its savings guarantee. Furthermore, it continued to require a customer to remain with Choice for a full year to realize the Effective Rate, and thus realize potential savings, but did not convey this information to its customers. Choice’s reliance on an unreasonable interpretation of undefined terminology to denote savings was deceptive, misrepresented the characteristics of the potential savings, and was unfair to customers. As a result, it violated both Conn. Gen. Stat. §16-245o(f)(2) and CUTPA."

PURA said in its order that, "The term Effective Rate runs afoul of Section 16-245o(f)(2) because it does not explain a material term of the contract, does not provide specific directions to the customer as to how to compare the price term in the contract, and does not make clear how long the rate is guaranteed as required by the statute. Choice devotes much of its Written Exceptions to argue that the Effective Rate was not a material term of the contract. The Authority finds Choice’s argument unpersuasive. As the Authority noted, a term of a contract is material under CUTPA if the term is 'likely to affect customer decisions or conduct.' Caldor, Inc. v. Heslin, 215 Conn. 590, 597 (1990) (internal quotations and citation omitted). Whether using this definition or the myriad synonyms Choice employs in its Brief and Written Exceptions – important, necessary, substantive, significant – the Authority still concludes that the term Effective Rate was material."

PURA said in its order that, "The term Effective Rate was the basis of customers’ promised savings. This savings was important, necessary, substantive, significant, and very likely to affect customers’ decisions. Electric suppliers and electric distribution companies all sell the same product – electricity. One of the most prominent means of differentiation is cost savings to customers. Saving money on electric bills is a primary reason customers switch to a particular supplier. Choice is uninformed if it thinks a customer’s savings is not important, necessary, substantive, or significant to that customer, or that the savings is likely to affect the customer’s decision to switch to or remain with a supplier."

PURA said in its order that, "Choice mistakenly attempts to dissect the materiality of its savings program as a whole from the materiality of its method of calculating Effective Rate. It does not recognize that its method of calculating Effective Rate was the savings program as a whole. As Choice noted in its Brief, the savings program was based on Effective Rate. Brief p. 6. If a customer does not know how to calculate Effective Rate, then a customer cannot knowingly participate in the program. The Effective Rate and knowledge of how to calculate it has to be material because without it there is no savings program."

PURA said in its order that, "The importance is that Choice must disclose its method of calculation and define Effective Rate so that customers can determine if they are receiving a material term of their contract."

PURA said in its order that, "Furthermore, Choice’s sole focus in its Written Exceptions on the materiality of Effective Rate is misplaced because the undefined term violated the remainder of Conn. Gen. Stat. §16-245o(f)(2) as well. As noted, the statute also requires 'a clear and conspicuous statement explaining the rates that such customer will be paying, including the circumstances under which the rates may change, a statement that provides specific directions to the customer as to how to compare the price term in the contract to the customer’s existing electric generation service charge on the electric bill and how long those rates are guaranteed.' Conn. Gen. Stat. §16-245o(f)(2). The statute indicates that a contract should include material terms and these other requirements, not that the contract should include only material requirements as Choice argues. By not defining Effective Rate, Choice failed to clearly explain to customers how to compare the price term in their contracts with anything. Likewise, by not defining Effective Rate and clarifying to customers that they must be customers for a full year to realize the savings, customers had no way of knowing how long their savings were guaranteed."

PURA said in its order that, "Choice’s practice of using an undefined term to lure customers into believing they could save on their electric bills was not only unlawful as previously discussed, it also misled consumers by obscuring their knowledge of the actual rate they were paying each month and obscuring their means of verifying if they were experiencing the savings Choice promised. Under the circumstances, a reasonable consumer would not have known the definition of Effective Rate and could have interpreted it in any number of ways, including understanding it to be the actual rate they were paying. As previously detailed, the term Effective Rate was material because it was the rate by which consumers were supposed to verify their savings, a primary reason the consumer would have switched to Choice. This practice was deceptive and violated the public policy behind Conn. Gen. Stat. §16-245o(f)(2) of ensuring electric suppliers are transparent with customers and customers have sufficient knowledge on which to base their decisions."

Regarding the savings language cited above referencing that the Choice rate will be below the Price to Compare and, if applicable, "the rate available from the CT Clean Energy Option program or its equivalent," PURA said in its order that such language, "violates Conn. Gen. Stat. §16-245o(f)(2)," because, "It does not offer 'a clear and conspicuous statement explaining the rates that such customer will be paying,' as required by Section 16-245o(f)(2)."

"A reasonable interpretation of this new savings guarantee language is that Choice presented two alternative rates that the effective rate will 'always be below': the LDU’s Generation Service Charge rate, 'and, if applicable,' the CT Clean Energy Option program rate. Choice does not explain that those two rates will be added to each other to make the comparison," PURA said in its order

PURA in its order said that, "The Authority finds it significant that Choice changed material contract terms for 16,069 existing customers in 2013 and offered no plausible defense for not obtaining express consent as required by law. Equally significant is the fact that Choice offered a savings guarantee to 30,271 existing customers between 2011 and 2012 that was never clearly defined in its literature, and could not be verified by customers. Additionally, Choice changed to green energy in 2012 and failed to inform clearly 17,630 customers that their savings guarantee was subject to a price to compare consisting of a green energy premium based on the CCEO plus the utility standard service price."

PURA in its order said that, "The Authority notes that Choice had almost $3,000,000 of revenues in Connecticut in 2017. A two hundred fifty thousand dollar fine is appropriate given the amount of revenues Choice has earned from Connecticut customers and the large number of violations that occurred."

PURA in its order said that, "For the 16,069 violations of Conn. Gen. Stat. §16-245o(h)(8) which also constitute 16,069 violations of Conn. Gen. Stat. §42-110b(a), Choice is assessed a civil penalty of one hundred thousand dollars ($100,000)"

PURA in its order said that, "For the 47,901 violations of Conn. Gen. Stat. §§16-245(g) and 16-245o(f)(2), which also constitutes violations of Conn. Gen. Stat. §42-110b(a) and Conn. Agencies Regs. §42-110b-18, Choice is assessed a civil penalty of one hundred fifty thousand dollars ($150,000)."

Docket 14-07-15

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