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Staff Of State Regulator Seeks Up To $1 Million Penalty Against Retail Supplier

November 25, 2019

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Copyright 2010-19
Reporting by Paul Ring •

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Staff of the Illinois Commerce Commission has recommended that the Commission impose a financial penalty ranging from $350,000 to $1,000,000 on LifeEnergy, LLC for alleged violations of certain enrollment and compliance rules

LifeEnergy, which as exclusively first reported by sold most of its book to NRG Energy, has filed to surrender its Illinois retail supplier license, and has agreed to customer refunds, argues that the ICC lacks authority to issue fines for purely punitive purposes, which the company says would be the case here, given the other corrective actions that have been undertaken.

The proceeding concerns an investigation by the ICC of LifeEnergy's alleged failure to comply with Part 412 of the Commission's rules.

In a post-hearing position statement, Staff said that it reads Section 412.120(g) to require that, "[i]n-person solicitations that lead to an enrollment require a Letter of Agency or a third-party verification." 83 III. Adm. Code 412.120(g).

Staff alleged that, "Staff notes that in discovery, the Company identified customer enrollments that the Company later determined should have resulted in a rejection of sale, rather than enrollment of the customers," as Staff alleged in a brief that certain enrollment were, "in violation of Section 41 2.120(g) because the enrollments were not appropriately verified as required by the rule."

Staff said that Section 412.120(g) states, "[t]he RES shall not approach the customer after the TPV [third party verification] for a period of 24 hours unless contacted by the customer." 83 III. Adm. Code 412.120(g).

Citing a LifeEnergy data response concerning enrollments, Staff alleged that, "LifeEnergy stated in its DR response that: 'If the sale was classified as a 'No Sale',[sic] the sales agent is notified of the failed TPV in real time via their enrollment tablet, and depending on the No Sale disposition reason, will attempt to revisit and re-educate the customer allowing them to attempt the TPV process again. As a result, the customer’s name listed is listed more than once, with ultimately one 'good sale' disposition identified under column 'status_txt'.[sic]"

As a result, Staff alleged that, "it identified multiple instances of the Company’s sales agents approaching customers and attempting a second TPV during the 24-hour waiting period prescribed by Section 412.120(g)[.]"

Staff said that, in Staff's view, Part 412 requires that an ARES ensure that its sales agents are "fully knowledgeable" of Part 412 and provide certification to the Commission of their training prior to an agent soliciting consumers on its behalf. 83111. Adm. Code 412.170(a) and (e).

Staff alleged that LifeEnergy, "not only failed to certify to the Commission the training of its sales agents, but it also failed to train them on the amended rule prior to allowing them to market or sell to customers in Illinois."

Staff alleged that LifeEnergy failed to timely process customer requests to rescind enrollments

Staff recommended the Commission impose a "financial penalty" ranging from $350,000 to $1,000,000, in addition to requiring that LifeEnergy provide refunds to all customers enrolled by untrained agents based upon the difference between what the customer paid to LifeEnergy and what the customer would have paid to their default electric supplier.

Staff noted that LifeEnergy identified the total amount of the refunds owed to affected customers as being approximately $34,000. LifeEnergy has agreed to such a refund

Staff noted that other relief has been rendered moot since LifeEnergy has filed to relinquish its certificate

Specifically, LifeEnergy has stated that it will agree to surrender its Certificate of Service Authority to operate as an alternative retail electric supplier (ARES) after all enrolled customers are transitioned to NRG or transferred to default service, or by December 31, 2019, whichever date comes first

In the summer of 2019, LifeEnergy sent 30-day notices to all its 4,982 enrolled Illinois customers concerning the assignment of their contracts to NRG

LifeEnergy said that, by September 11, 2019, LifeEnergy only had 70 customers on flow (less than 1.5% of its original customer base) of which 67 customers had actively rejected the switch request and ComEd had returned them to LifeEnergy. LifeEnergy said that it currently is in the process of switching those customers to the applicable default provider subject to the rules regarding prior customer notification

LifeEnergy noted that it has agreed to pay refunds to all customers enrolled with LifeEnergy between May 1, 2018 and July 2, 2018 in an amount which is equal to the difference between what the customers actually paid and the amount that they would have paid on default service, which LifeEnergy calculates to be approximately $34,000 in total.

In a position statement, LifeEnergy asserts that no material questions of fact are in dispute.

However, LifeEnergy opposes any further monetary penalty, arguing that the ICC lacks authority to impose such a penalty in these circumstances

"LifeEnergy disagrees with Staff’s recommendation that the Commission impose an additional monetary penalty on LifeEnergy because (i) neither Staff nor CUB has articulated a legitimate rationale for why a financial penalty is warranted in this case, and (ii) there is no evidence in the record to support a proposed financial penalty of $2.1 million, as CUB recommends, or in the range between $350,000 and $1 million, as Staff recommends, and the methodology that was used to calculate it. LifeEnergy argues that the only rationale for imposing such a penalty would only be for the purpose of 'punishing' LifeEnergy, not for the furtherance of the enforcement of Part 412, a rationale rejected by Illinois courts. LifeEnergy also disagrees with Staff’s and CUB’s reliance on a 'disgorgement of profits' theory to justify a further financial penalty because there is no authority for imposing such penalties in the PUA, and, in any event, there is no evidence in the record demonstrating that LifeEnergy, in fact, profited from its violations," LifeEnergy said in a position statement

"LifeEnergy further argues that imposing a $2.1 million penalty, or any additional financial penalty, for a 62-day violation and where customer refunds amount to approximately $34,000 would be arbitrary and capricious in light of recent Commission dockets in which alleged violations against other ARES were much more significant in scope and duration, yet the resolution of the dockets resulted only in refund payments to affected customers. LifeEnergy cites to the following dockets in support of this argument: Illinois Commerce Commission On Its Own Motion v. Sperian Energy Corp., Dkt. No. 15-0438, 2018 WL 5631269 (Ill.C.C.) (October 25, 2018) (approving settlement agreement under which ARES agreed to pay $2.65 million in customer refunds over the course of six (6) years of alleged Part 412 violations); Illinois Commerce Commission On Its Own Motion v. Nordic Energy Services LLC, Dkt. No. 15-0139, 2015 WL 3814932 (Ill.C.C. June 16, 2015) (approving settlement agreement under which ARES agreed to provide customer refunds up to a minimum of $310,800); Illinois Commerce Commission On Its Own Motion v. Major Energy Electric Services LLC, Dkt. 14-0512, 2015 WL 2229287 (Ill.C.C. May 6, 2015) (approving settlement agreement under which ARES agreed to establish customer refund payment fund in amount of $262,500)," LifeEnergy said

"LifeEnergy argues that a violation of Part 412 does not justify the imposition of a civil fine unless such a fine would aid in the enforcement of Part 412 against the violator, citing Park Crematory v. Pollution Control Board," LifeEnergy said

LifeEnergy argued that its failure to achieve timely compliance with the new Part 412 rules, though negligent, was not intentional, and that it acted in good faith to comply with the training requirements by working with Staff to achieve compliance

"Under the circumstances of this record, imposing an additional financial penalty would be 'purely punitive,' a motive which is impermissible under Illinois law. LifeEnergy has already agreed to the remedies articulated under Section 5/16-115B(b) of the Public Utilities Act: LifeEnergy ceased sales and marketing activities on October 1, 2018; LifeEnergy agreed to pay refunds to customers affected by the violations; and, most importantly, LifeEnergy agreed to surrender its Certificate of Service Authority. Imposing additional financial penalties at this point would further an improper objective of 'making an example' of LifeEnergy instead of furthering enforcement of the PUA. Insofar as LifeEnergy has agreed to pay refunds to affected customers and surrender its Certification of Service Authority, imposing an additional financial penalty is unnecessary," LifeEnergy said

Staff argued that under the caselaw cited by LifeEnergy, a punitive penalty was not upheld because the violation occurred due to "inadvertence" by an actor

Staff alleged that, "Contrary to the cases discussed ... LifeEnergy did not fail to comply out of mere inadvertence, it failed to comply with multiple sections of Part 412 and failed to address some of the violations Staff identified. Staff argues that LifeEnergy knew or should have known the date upon which compliance with Part 412 was required, given multiple communications from Staff, as well as the provisions of the rule itself."

Docket No. 18-1540

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