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Draft Decision Would Prohibit Retail Supplier From Enrolling New Customers For Six Months

Draft Would Fine Supplier $1.5 Million

Draft Addresses Sales/Marketing Language Used By Agents

Also Interprets Use of "Cost Recovery Fees" For Non-Commodity Products

February 27, 2019

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Copyright 2010-19 EnergyChoiceMatters.com
Reporting by Paul Ring • ring@energychoicematters.com

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The Connecticut PURA today issued a draft decision under which Direct Energy Services, LLC would be assessed a civil penalty in the amount of one million five hundred thousand dollars ($1,500,000) for what the draft concludes are violations of Conn. Gen. Stat. §§ 16-245, 16-245o, 16-245s, and 42-110b.

Furthermore, under the draft, "Direct is prohibited from accepting new residential customers for six months[] and Direct must submit to auditing of marketing by the Authority for one year after the end of the six-month prohibition on accepting new customers. "

Jessica Mahaffey, Vice President, External Affairs, Direct Energy, provided the following statement to EnergyChoiceMatters.com:

"The proposed Draft Decision comes at the end of a protracted investigation into our sales and marketing practices that began six years ago and which focused initially on operational and customer communications issues back in 2012. Direct Energy cooperated fully in this investigation and has provided significant evidence that rebuts many of the PURA findings. There were only a few issues found, which we immediately addressed, and made sure any customer-specific issues were satisfactorily resolved. We believe that the evidence on the record simply does not support the proposed level of sanctions against our company. Direct Energy takes very seriously its responsibility to supervise its sales agents and enforce compliance with all applicable laws and regulations. We care about our customers, and when we make a mistake, or anyone working on our behalf makes a mistake, we make every effort to correct the issue and provide a satisfactory resolution for any impacted customer."

     -- Jessica Mahaffey, Vice President, External Affairs, Direct Energy

The draft decision is not final and parties may file exceptions to the draft decision.

The draft followed a Notice of Violation issued in September, which was exclusively first reported by EnergyChoiceMatters.com

See our prior story for details on the NOV

Under the draft, PURA would determine that, "Direct Energy Services, LLC (Direct) has failed to comply with Conn. Gen. Stat. §§ 16-245, 16-245o, 16-245s, and 42-110b, by: 1) not having Spanish marketing materials available when conducting solicitations and sales; 2) not having Spanish-language contracts available when conducting solicitations and sales, resulting in invalid contracts; 3) misstating standard service price; 4) not stating in its marketing that it did not represent an electric distribution company (EDC); 5) not explaining the purpose of its solicitations; 6) misrepresenting cancellation fees; 7) using undefined terms and not accurately explaining rates; 8) implying customers must choose a supplier; 9) misleading customers into believing generation charges were the total bill; 10) coaching customers and answering questions through the third-party verification (TPV) process; 11) charging excessive cancellation fees; 12) not directly training its third-party agents; and 13) engaging in other unfair and deceptive marketing practices, including but not limited to, making misleading statements in its marketing."

The draft would find that, "Direct violated Conn. Gen. Stat. § 16-245o(h)(3)(B)(i) by not stating and by misstating the price of standard service[.]"

The draft states, "Direct concedes in its Reply Brief that its 'agents misstated the future Standard Service rate.' Direct Reply Brief, p. 15. Whether these misstatements were purposeful or accidental is irrelevant to the legal violation. The law requires Direct to accurately state the standard service rate and Direct did not do so."

The draft states, "In addition, Direct characterizes standard service as a variable rate in its marketing. Late Filed Exhibit 2C, pp. 139-41, 144-45, 365, 377, 460, 554, 556, 614 and 635. See also, Id. at p. 400 ('[W]hen you just have Eversource as your company and no supplier, then that means Eversource can charge you whatever they want to on your bill…'). Conn. Gen. Stat. § 16-245o(g)(4) banned variable rate contracts in Connecticut and it is actively misleading to characterize standard service as a variable rate when, by definition, standard service cannot be a variable rate under Connecticut law."

The draft cites one exchange with a customer as follows: "in this exchange Direct can be heard saying, '[W]ith CL&P if you – if you didn’t renew, you know, you will revert back to them eventually. And, you know, like I said, their rates are going to go up to about 16 cents.,'" as PURA noted that customers do not revert back to an EDC without affirmative action and CL&P has not charged a 16-cent rate at any time applicable in the investigation

The draft states, "Direct argues that when an agent describes standard service as a variable rate 'she is speaking colloquially.' Direct Reply Brief, p. 24. This argument does not provide a legal excuse. First, the Authority notes the volume of Direct’s marketing calls in which the agents used the term variable rate. Second, under such a 'colloquial' definition, any rate that ever changes could be termed variable. Going forward, Direct should train its agents to refrain from using language regarding variable rates in any description of standard service rates to avoid misleading customers in violation of Conn. Gen. Stat. § 16-245o(h)(3)(B)(i)."

The draft states that, "Direct argues the statute [concerning standard service rate disclosures] applies only to written communications. The statutes makes no such distinction. Instead, it provides a blanket requirement that a supplier must disclose the EDC’s current charges when the supplier is advertising or disclosing the prices of electricity and, when advertising in writing, the supplier has further obligations. It tortures the consumer protection statute to read a disclosure requirement into only written advertisements but not into verbal ones."

The draft would find that, "Direct violated Conn. Gen. Stat. § 16-245o(h)(2)(A) by not stating it did not represent the EDC[.]"

The draft states, "Direct has violated Conn. Gen. Stat. § 16-245o(h)(2)(A) by its salespersons using language in many of Direct’s calls implying that Direct represents an EDC. This implication comes in differing forms. In some cases, Direct first tells a customer it is 'an energy adviser working with your electric company.' Late Filed Exhibit 2C, pp. 199 and 595. The statutory violation occurs once Direct has made such a statement. Direct cannot cure the violation by later stating its name in the sales solicitation conversation. See e.g., Late Filed Exhibit 2C pp. 116-118 (customer hands the phone to her son and says that Eversource is calling); pp. 36 and 37 (Direct clarifies its role for the first time as it is sending the customer to the third-party verification and the customer does not understand what is occurring). In other cases, Direct states, '[W]e're calling about the information on your Eversource electric bill on page 1. Have you reviewed that information by chance?' and then instructs the customer to get her Eversource bill. Id. at 664. The way Direct begins these types of calls implies that the call is sanctioned by or on behalf of Eversource."

The draft states, "In yet other cases, Direct states, 'We're the supplier for Eversource's energy choice program,' that it is part of Eversource’s program for its customers 'that allows you to have the lowest rate possible on your bill by choosing a supplier,' or that the EDCs 'encourage, you know, their customers to choose a supplier.' Id. at 118, 208-09, 449, 485, 603. Once again, Direct stating its name does not cure any violation that may have occurred due to the salesperson implying that the call is from someone associated with the EDC, implying that Direct is the sole supplier working with an EDC, or implying that the EDC wants the customer to choose that supplier. Direct cannot rely on back-end compliance in a sales call of identifying itself by company name and as an electric supplier, after the salesperson may have violated the statute at the outset and during prior conversation by not stating that the caller was not representing an EDC, or by using language that strongly implies the call was from or authorized on behalf of an EDC[.]"

The draft would find that, "Direct violated Conn. Gen. Stat. § 16-245o(h)(2)(A) by not explaining the purpose of its solicitations."

"Conn. Gen. Stat. § 16-245o(h)(2)(A) requires every supplier and/or its agent to 'explain the purpose' of their solicitations. Direct did not explain the purpose of its marketing calls and thus violated the statute. See, e.g., Late Filed Exhibit 2C, p. 21 ('The reason for the call is to let you know as of the next available meter reading with your Connecticut Light & Power Eversource electric account, if you still qualify, you'll be receiving a low fixed rate that is going to be about 25 percent lower than the regular rate and it's also going to make -- it's also going to be good for nine months if you qualify for through free state program.')," the draft states

The draft states, "The Authority finds that Direct intentionally misrepresented the purpose of its solicitations. For example, 'Well, we're not calling you to switch anything. We're actually calling you about the information on your Eversource bill regarding the energy choice program.' Id. at p. 525. Or, when asked if the caller was a telemarketer, Direct said, 'No, I'm not at all.'"

The draft states, "The following exchanges are examples of violations of Conn. Gen. Stat. § 16-245o(h)(2)(A): When a customer states, 'No, I’m not interested in changing,' the agent’s responds: 'Well, no, you don’t change anything. Everything stays the same. Your utility company’s still going to be your utility company.' The customer protests, 'I’m not interested, though.' The agent continues and the customer questions, 'Get my electricity from a different provider, correct, that’s what this phone call is about?' The agent answers, 'No not - - no, you’re still going to get your electric from Eversource.' Only when the customer says, 'Is this what you’re calling about, changing the generation company? Yes or no. It’s a simple answer,' does the agent state, 'We are an authorized supplier to Eversource.' Id. at pp. 77-79. Even at this point, however, the agent still does not explain the purpose of the solicitation, and that after the customer had to badger the agent into revealing what little information he did. See also, Id. at p. 555 ('Are you trying to get me change companies? THE AGENT [name omitted]: No, ma'am, this is the same bill, same service. Again, this is Eversource's energy choice program.'). These phones call exemplify what the legislature was trying to prevent when it set forth the requirements in Conn. Gen. Stat. § 16-245o(h)(2)(A)."

The draft would find that, "Direct violated Conn. Gen. Stat. § 16-245o(h)(2)(A) by using the undefined term 'price protection' and not accurately explaining rates."

The draft states, "Direct used the phrase 'price protection' in much of its marketing without ever explaining to a customer what the term meant. See e.g., Late Filed Exhibit 2C, p. 668 ('You don't have no price protection on the bill, so we do want to get the price protection applied at 7.49 cents per kilowatt hour for the next nine months, you know, since you don't have any protection.'). A reasonable customer would not understand what 'price protection' means, or worse still, would understand it to mean that Direct was protecting them from higher charges. As a result, the Authority finds that Direct violated Conn. Gen. Stat. § 16-245o(h)(2)(A)(iii)."

The draft would find that, "Direct violated Conn. Gen. Stat. § 16-245o(h)(3)(B) by implying a customer must choose an electric supplier."

"In violation of the statute, Direct’s marketing suggests a customer must choose a supplier. For example, in one call Direct states, 'I do have to reach out to the whole state of Connecticut that has Eversource, so we have to go ahead and get it going.' Late Filed Exhibit 2C, pp. 116-118. Or Direct states, 'Because this is for all Eversource customers, the whole state of Connecticut. All customers are getting their price protected rate, because of the Energy Choice.' Id. at 144 and 145; see also, Id. at 632 and 633. 'Well, the information – the information is actually on your bill, ma'am, so you've already been mailed the information. You're already in the program, ma'am.' Id. at 403 (on the contrary, customers must actively choose a supplier to be 'in the program.'). 'It’s mandated statewide, you know, because of the state of Connecticut…' Id. at 616-17.1 Worse still, 'because [EDCs] actually encourage, you know, their customers to choose a supplier.' Id. at 118, 377 and 398. Such statements suggest that a customer must engage in the transaction. These representations made by Direct sales agents violated Conn. Gen. Stat. § 16-245o(h)(3)(B)," the draft states

The draft states, "The Authority must address the gross misstatement Direct argues in its Brief – that customers are encouraged to choose a supplier. Customers are not encouraged to choose a supplier. The law instituting competitive supply allows a customer to choose a supplier. Allowing and encouraging are two different verbs and Direct’s marketing should reflect the difference."

The draft states, "Direct violated Conn. Gen. Stat. § 16-245o(h)(3)(A) by misleading a customer into believing the electric generation services portion of the bill would be the total bill amount."

The draft states, "The following is an example of a statutory violation. A customer attempts to rebuff Direct’s offer, only to be pressed by Direct’s agent. When the customer states that she already has a better deal and is looking at her bill to attempt to understand the charges, the agent says, 'A lot of the companies have a delivery charge and they have a customer charge and they have a recovery charge.' Late Filed Exhibit 2C, p. 65. The customer, untrusting but confused, asks the agent, 'You don't charge the transition charges, distribution --,' to which the agent responds, 'Ours is a flat rate. We don't charge anything else.' Id. at p. 66. While what the agent said is technically true, it is not true in the context of the customer’s question or of how it was being presented to the customer. The Authority finds that Direct was actively convincing this customer that the supplier she currently was with did charge her additional charges that Direct would not charge. By the end of the salesperson’s lengthy explanation, the customer appears convinced that the rate Direct is quoting her is the entirety of her price, whereas the rate she currently receives from her supplier, which happens to be lower than Direct’s rate, is not the entirety of her price. See also, Id. at p. 591 ('THE CUSTOMER [name omitted]: And there's no other charges that you charge? THE AGENT [name omitted]: No. No, everything is included in our rate. The 7.49 times your kilowatts, that's all you'll see on the bill with us as the supplier.'). These calls violate Conn. Gen. Stat. § 16-245o(h)(3)(B)."

The draft states, "Direct violated Conn. Gen. Stat. § 16-245s by coaching its customers and answering questions through third-party verification."

The draft states, "The transcripts of the recorded sales calls show that Direct routinely remained on the line or with the customer, specifically telling the customer what to say in advance of the TPV, and answering customer questions throughout the TPV. See, e.g., Late Filed Exhibit 2C, pp. 44, 47, 49, 578, p. 274 (Interrupting the TPV, Direct’s agent says, 'All you have to do is answer with a clear yes. If you ask them a question, they're going to hang up on you,' to which the customer responds, 'So I have to say yes; right?')."

The draft states, "Direct violated Conn. Gen. Stat. § 16-245o(h)(7)(A) by charging customers more than fifty dollars when cancelling a contract."

The draft states, "Direct violated this statute by collecting a cancellation fee of $200 from customers who received a Nest Thermostat upon enrollment. Direct argues that this fee was not associated with a contract for electric generation services and was a device recovery fee, not a cancellation fee. This argument is based on semantics and has no merit. The fee was associated with a contract for electric generation services. Receiving the Nest thermostat was part of the process of completing a contract for electric generation services with Direct. Direct did not enter into a separate contract with customers for the sole purpose of providing them with a thermostat. Even if it had, the cancellation of the contract for electric generation services is what precipitated the $200 fee. Direct cannot honestly argue that it did not charge a customer a $200 fee after the customer cancelled his contract. Such a scheme undermines the purpose of limiting the early termination fee, which is to allow customers to more readily switch suppliers, or return to standard service."

The draft would find that, "Direct violated Conn. Gen. Stat. § 16-245o(h)(2)(A) and § 16-245o(h)(7)(A) by misrepresenting cancellation fees."

"Direct violated both of these statutes by misstating to customers that other suppliers did not have a cancellation fee or that other suppliers had cancellation fees in excess of fifty dollars," the draft states

According to the draft, "Direct admitted during the hearings that it did not carry Spanish marketing materials with it during its door-to-door campaigns."

The draft states, "Direct claims that not carrying Spanish marketing materials with it during its door-to-door solicitations is not a violation of Conn. Gen. Stat § 16-245o(h)(2)(B). Direct argues that the statute distinguishes between sales and solicitations, and that the statute only requires that Spanish-language materials be made available for door-to-door sales, but does not require Spanish materials for the actual solicitations leading up to the door-to-door sales."

The draft states, "The language of the statute, however, supports no such distinction. The requirement to make Spanish-language materials available applies to all door-to-door sales attempts where the seller intends to solicit and enter into a sales agreement at a place other than the seller’s place of business, whether or not the sales solicitation culminates in an actual sale."

"Contrary to Direct’s argument in its brief, the NOV’s interpretation of the statute is straightforward: all door-to-door solicitations must have both English and Spanish written materials available. The statute does not qualify the requirement based on whether or not the supplier intends to solicit in Spanish and the Authority will not read such a qualification into the statute," the draft states

The draft states, "Furthermore, Direct posits the argument that the Authority had to prove Direct’s door-to-door marketing intended to solicit customers with a demand of one hundred kilowatts or less. The language in the statute is meant to distinguish between marketing to residential customers, whose average demand significantly less than one hundred kilowatts, and business customers, whose average demand is greater. Conn. Gen. Stat. § 4-178 allows the Authority to use its 'experience, technical competence, and specialized knowledge' to evaluate the evidence. The Authority’s knowledge and experience indicate, as Direct well knows, that residential customers do not have a demand greater than one hundred kilowatts. It would be impossible for Direct to conduct door-to-door residential marketing in the areas in which it marketed and engage with a residential customer with a maximum demand of greater than one hundred kilowatts. Direct’s argument is not grounded in reality or knowledge of residential electric customers."

The draft would further find that, "Direct’s contracts with Spanish-language customers are invalid because Direct did not provide contracts in Spanish[.]"

The draft states, "Direct argues that because a Spanish-speaking customer was able to say their name in English and say the English word 'yes' in response to questions in an English TPV process, the customer can knowingly consent to the content of an English contract. It requires little understanding of English to say one’s name and to say 'yes' when a salesman instructs you to say 'yes.' The evidence presented in the hearing showed that many Spanish-speaking customers completing the TPV process 'understood little English.' Tr., p. 739.1 The Authority rejects Direct’s assertion that someone who completes an English TPV and signs an English contract must understand English. The statute required Direct to provide Spanish-language contracts to native Spanish speakers. Direct has failed to do so. Direct, therefore, has violated the statute in each instance in which it failed to do so."

The draft states, "Direct violated Conn. Gen. Stat. § 16-245o(h)(1) by not directly training its third-party agents."

The draft states, "Direct attempts to circumvent the law by arguing that it does not contract with agents, but rather with third-party vendors; therefore, it is not required to train the agents because it has no contract with them. Applying Direct’s logic to the statute, the third-party vendor could sell on Direct’s behalf, but no employee of the third-party vendor could sell on Direct’s behalf because Direct has not contracted with the employees. The Authority finds that Direct’s logic produces absurd results."

The draft states, "The Authority finds that Direct makes misleading statements during its marketing. For example, when the customer looks at her bill and says she sees '1942.00 kWh' Direct tells her that means she is 'paying 19.42 cents per kWh.' Late Filed Exhibit 4, Attachment A, [name omitted] Sales Call. Direct’s statement was wholly incorrect; the customer had used 1942 kWh during that billing cycle. Another example: 'Sometimes when you don't pick a supplier, your utility picks a supplier for you, especially if the rates are high.' Id. at p. 266. Not only is Direct’s statement inaccurate, but it is designed to cause a customer to rush to leave a utility she thought was specifically picking a high rate. See also, Id. at p. 670 (In response to the customer saying that Sunwave was her supplier and complaining that her rates were high, Direct says, 'If you didn't choose a supplier, then someone chose that -- your utility chose one for you.'). Equally bad: 'This program is through the state of Connecticut and Eversource. So they're strongly recommending that you get a supplier.' Id. at 377; 398 ('This – this program is through Eversource, ma'am. They're strongly recommending that you choose a supplier, so you have a fixed rate on your bill.'). Neither the State nor Eversource has ever recommended, much less strongly recommended, that a customer get a supplier. Again, 'Even though you may not use a lot of electricity in the summer, that rate automatically goes up because it's summertime. Summertime and wintertime are where the rates go up on your light bill …' Id. at 380. The Authority has reason to believe that Direct’s statements are untrue (standard service sometimes goes down in July) and deceive the customer into thinking Direct is offering him a deal because his standard service rate 'automatically goes up because it’s summertime.'"

The draft states, "Finally, the Authority finds that Direct ran an entire marketing scheme regarding a Nest thermostat that misrepresented savings and attempted to effect an end-around the legal requirements regarding an early termination fee. Direct argues that it did not misrepresent the savings the Nest thermostat could offer, but the math it offers to back up its argument is quite creative. Direct argues that because a customer possibly could save up to 12% on heating bills and 15% on cooling bills, that means the customer would save 'on average, twenty-five percent (25%) to twenty-seven percent (27%).' Direct Reply Brief, p. 61. The only way a customer could save 27% would be if she were saving both 12% and 15% at the same time, which would mean she would have to run both her heating and cooling system at once – a process one would have to assume would never happen and would not generate savings. These types of actions found throughout the Authority’s investigation in this docket deceive customers and constitute CUTPA violations."

The draft states, "Direct’s Brief attempts to rely on its training materials and marketing scripts as a shield, but this reliance is misplaced. Training materials and marketing scripts are only as good as their implementation. The Authority has reviewed a substantial amount of Direct’s marketing and finds that the training materials and marketing scripts are not implemented. Appropriate words on a page are no substitution for actual enforcement of requirements."

The draft states, "Direct earned $54,918,600 in CT gross revenues in 2017. A fine of one million five hundred thousand dollars is appropriate given the volume of business done by Direct."

"The Authority finds that the violations cited herein are particularly grave. Deceptive marketing violations go to the heart of the electric supplier market. The Connecticut legislature set forth a statutory scheme to balance the benefits of electric supply with the customer protections necessary to facilitate a fair market. If suppliers are allowed to systemically violate the legal protections, it erodes confidence in the entire supplier market system. The Authority’s response to such violations should be commensurate to the harm they cause to customers and to the market as a whole," the draft states

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