Consumers' Counsel Opposes Settlement Under Which Retail Supplier Would Sell Ohio Book, Exit Market

OCC Seeks Immediate Return Of Customers To Default Service

September 5, 2019

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

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The Office of the Ohio Consumers’ Counsel submitted testimony to the Public Utilities Commission of Ohio opposing a proposed settlement between the PALMco Power companies (Indra Energy) and PUCO Staff under which, among other things, PALMco would sell its Ohio book of customers and cease operating in the state

The settlement had been exclusively first reported by EnergyChoiceMatters.com (story here). The settlement would resolve various allegations against PALMco, including allegations from PUCO Staff that PALMco was engaged in, "unfair, misleading, deceptive and unconscionable marketing, solicitation, and sales acts and practices when PALMco committed to provide customers with 'competitive' and 'the best' rates, when in reality, PALMco charged customers quadruple the price to compare."

Under the stipulation, prior to expiration of its current certificates, PALMco would exercise good faith efforts to assign all remaining Ohio customer contracts to an unaffiliated third-party supplier, in accordance with a bona fide transaction for value.

The stipulation provides that the funds realized from any transaction associated with the assignment of customer contracts will be used by PALMco to satisfy the following obligations, in order of priority, as follows:

• PALMco will re-rate all gas and electric customers who enrolled between 10/1/18 and 11/30/18 and who were not previously re-rated. Re-rate means PALMco will calculate the difference between the rate it charged to the customer and the rate the customer would have paid to the applicable utility under the utility’s standard service offer or default rate, and refund or credit the difference to the customer. The Signatory Parties estimate that the total cost to re-rate all such customers will be approximately $800,000.

• If the funds realized from a transaction exceed the amount of the total refund obligation described in Paragraph (a) above, then 50% of the remaining funds shall be paid to the State of Ohio as a forfeiture. The forfeiture is subject to a cap of $750,000

In testimony opposing the settlement, a witness for OCC said, "The Settlement’s provisions leave open the very real possibility that thousands of customers harmed by PALMco’s actions will not be made whole."

"Under the terms of the Settlement if PALMco does not sell its customer contracts or does not receive at least $800,000 for the sale of its customer contracts, then some number of customers will not receive full restitution. For example, if PALMco decides that it is easier and less costly to cut its losses in Ohio and simply conduct a “fire sale” and sell its customer contracts for a nominal amount or if it is unable to obtain at least $800,000 from the sale, then customers could be left with only partial restitution or no restitution at all," a witness for OCC testified

OCC's witness further said, "And, at this point, it is important to recognize that there is a very real possibility that PALMco could receive less than $800,000 for sale of its customer contracts."

Information concerning the specific nature of the contracts were redacted in a public filing

However, OCC's witness stated, "These contracts likely will not have substantial value to other marketers because the purchasing marketer will have no assurance of retaining the customers long enough to recoup its costs of acquiring them."

"Another issue that could diminish the value of a sale of PALMco’s business is that some substantial portion of customers may either return to their local utility’s standard service offer ('SSO') or choose another competitive electric and/or natural gas marketer for their service after being informed that PALMco is exiting the Ohio market. Competitive electric and natural gas marketers interested in purchasing PALMco’s customer contracts will no doubt factor this potentially large customer exodus into the purchase price they will offer to PALMco," OCC's witness said

"[T]here is nothing in the Settlement, or anywhere else in the record in this case, that provides for full restitution to all of the customers harmed by PALMco’s actions if PALMco is unable to sell the customer contracts or if the sale price is less than the estimated $800,000," OCC's witness said

Furthermore, OCC's witness noted that the settlement addresses specific classes of customers (those enrolling during certain time periods, and those who had filed complaints), with OCC's witness stating, "the Settlement is completely silent about all other variable rate customers who enrolled with PALMco outside of the periods identified in the Settlement and have not complained to the PUCO. And there are more of these customers than there are customers who have received or may receive restitution in the future."

"Given the known violations of Ohio law and the PUCO’s rules, customers should not have to complain to the PUCO in order to receive restitution for overcharges by PALMco. Many customers may not even be aware that they were overcharged," OCC's witness said

"In addition to this unfairness to consumers, there is the bad result that PALMco could profit from the sale of its business despite what the PUCO Staff found to be PALMco’s building of that business on deception of Ohio consumers," OCC's witness testified

"PALMco gets to keep one-half of the proceeds from the sale of its customer contracts that exceed the initial $800,000 reserved for restitution to customers enrolled between October 1, 2018 and November 30, 2018 who have not yet received restitution. As discussed above, in order to pay full restitution to customers and the full forfeiture provided in the Settlement PALMco would have to sell the customer contracts for $2.2 million. At the $2.2 million mark, PALMco will have fully met the Settlement’s proposed $750,000 forfeiture and it will have retained $750,000 for itself. PALMco will keep 100% of all proceeds above $2.2 million. This means, so long as PALMco sells its customer contracts for more than $800,000, it will gain proceeds from the sale and potentially profit from deceptively acquiring customers," OCC's witness said

OCC's witness further said, "the Settlement provides that PALMco will continue serving its existing customers and accept customer contract renewals until it completes the sale of the customer contracts or the expiration dates of its current PUCO certifications. As a result, PALMco will continue to receive the profit margin that is built into the rates that it is currently charging customers until the date that sale of its contracts is completed or its certification expire."

OCC's witness said that PALMco’s customers should be immediately switched to their utility’s default service. OOC's witness said that PUCO should order PALMco to immediately make restitution to, "all customers harmed by its unlawful actions without any contingency provision related to the sale of its customer contracts."

"The PUCO should not be swayed by any claims that PALMco lacks the resources necessary to make full restitution to aggrieved customers. There is no evidence in the record of this case that PALMco lacks sufficient resources to fully recompense all customers harmed by its unlawful actions. The PUCO should order full restitution to customers even if PALMco must liquidate its assets in order to do so," OCC's witness said

"If the PUCO decides to adopt the Settlement, then it should modify it to impose a minimum 'exit fee' that would apply to PALMco to cover any shortfall between the amount it receives from sale of its customer contracts and the amount necessary to make full restitution to customers," OCC's witness said

Another witness for OCC cited five regulatory actions taken against PALMco and/or other suppliers with affiliated or a degree of common ownership by various state regulators and/or attorneys general, with OCC's witness alleging that, "it appears that PALMco views state sanctions against it as a mere cost of doing business instead of as a cause for reform of its bad acts."

OCC's witness further recommended that, "the PUCO order full restitution to all customers harmed by PALMco, assess a substantial forfeiture to PALMco, and rescind PALMco’s operating certificate/license so that it cannot ever again participate in the Ohio retail markets."

A witness for PUCO Staff filed testimony in support of the settlement, stating, "The Stipulation, as a package, benefits consumers and the public interest, and represents a just and reasonable resolution of all issues in the proceeding."

The witness for PUCO Staff said that the stipulation is in the public interest for, among other reasons, the following reasons:

• "PALMco will not renew its competitive retail electric service (CRES) or competitive retail natural gas service (CRNGS) certificates with the Commission and, therefore, will no longer operate in the State of Ohio. This will benefit consumers and the public interest because it will eliminate the potential for future customer harm resulting from the marketing, solicitation, sale, provision or administration of contracts for CRES and/or CRNGS by PALMco to customers."

• "Those customers who enrolled with PALMco between December 1, 2018 and April 15, 2019 have received an adjustment to the rate charged by PALMco. The adjustment represents the difference between the rate PALMco charged and the rate the customer would have paid to the applicable utility under the utility’s standard service offer or default rate, resulting in a refund for the customers. The total cost of these refunds was approximately $385,000."

• "PALMco has provided refunds to customers who registered informal complaints with the Commission and will continue to provide refunds in response to such informal complaints, regardless of when the customer enrollment occurred. As of July 26, 2019, the total cost of these refunds was approximately $55,000."

• "PALMco will use the proceeds of any assignment of its remaining customer contracts to provide adjustments and refunds to all customers who enrolled with PALMco between October 1, 2018 and November 30, 2018, and who have not previously received a refund. The estimated cost of such customer refunds would be approximately $800,000."

• "PALMco will not enroll any new residential or small commercial customers for the remaining term of its existing CRES and CRNGS certificates. This benefits the public interest because it ensures that no new customers will be harmed."

• "PALMco will pay a forfeiture of up to $750,000."

Case No. 19-957-GE-COI

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