Retail Supplier Proposes $25,000 Charitable Donation to Resolve Unauthorized Enrollments

Direct Energy Services, LLC (DES) has proposed to make a $25,000 charitable donation to resolve 13 Michigan enrollments which occurred without customer authorization, with such unauthorized enrollments the result of four sales agents that, "purposefully manipulate[d] DES's quality assurance measures and engaged in conduct disregarding applicable laws and regulations."

"[I]n June and July of this year, four Sales Agents in [DES's] Sales Vendor's Troy, Michigan sales office set out to purposefully manipulate DES's quality assurance measures and engaged in conduct disregarding applicable laws and regulations. DES was first apprised of the problem when three Michigan Public Service Commission complaints were sent to DES's complaints team," Direct Energy reported to the Michigan PSC.

The complaints were from small business customers that had received a letter confirming their enrollment with Direct Energy for natural gas supply service, despite the fact that they had never authorized such an enrollment. In these complaints, the business owners also stated that the decision-makers who were listed as having authorized the enrollment were not employed by their companies.

Direct Energy's investigation of the complaints revealed that, upon obtaining sufficient, or believed to be sufficient, information from a potential customer to submit an enrollment, the four Sales Agents would pose as the customer during the third-party verification (TPV) call using a fictitious name, while also supplying falsified account information to complete the TPV process and submit an enrollment that would not be immediately rejected by the utility's systems.

Because of the use of largely fictitious information, many of the falsified enrollments were, in fact, rejected by the utility. However, Direct Energy has confirmed 13 unauthorized enrollments of small commercial natural gas customers.

Direct Energy took a number of immediate actions to correct the situation. First, the four Sales Agents implicated in the investigation were immediately terminated by the Sales Vendor. Direct Energy also suspended all sales from the Sales Vendor's Troy, Michigan office on August 3, 2012, pending the completion of its investigation and implementation of new, improved control processes. This office remains temporarily closed.

Direct Energy also contacted its TPV vendor and asked for additional assistance in isolating the customers and Sales Agents that were involved. The inappropriate activity appears to have begun on June 18, 2012 and, while all four Sales Agents had multiple invalid enrollments, one was clearly responsible for the majority, Direct Energy said.

For customers subject to unauthorized enrollments, Direct Energy immediately cancelled service to such customers, as appropriate, doing so in a way that would not result in customers having to stay with the utility for 12 months, a condition that would usually apply upon a customer's return to utility service.

Direct Energy will refund any unauthorized amounts that the customer paid to Direct Energy that are greater than what they would have paid their authorized supplier during the affected time period.

Additionally, Direct Energy sent such customers, and another 150+ affected small commercial customers whose switch was cancelled before enrollment, a $50 Visa Gift Card as a gesture of good will and to compensate all of the affected business owners for their time and trouble.

Direct Energy's sales quality program at the time of the incident already required background checks and drug tests for all new sales agents, and included a thorough training and testing program using training materials created and approved by Direct Energy. The existing sales quality program provided that an independent TPV is conducted on each sale, with 5% of sales subject to "Moment of Truth" surveys by another independent third-party vendor, which are intended to evaluate whether the sales agents acted appropriately, performed all required actions, and left a good impression with the customer.

As a result of the incident, Direct Energy has made enhancements to the sales quality program.

An additional small business sales quality lead will be hired in order to increase the frequency of vendor office visits and vendor and agent training and to provide additional capacity for complaints investigation and resolution. Direct Energy will also hire two additional internal door-to-door sales representatives to increase the frequency of visits to vendor sales offices and allow Direct Energy's small business sales team to focus on individual field office locations so that Direct Energy can maintain closer oversight of these locations.

"In regards to Sales Agent compensation, DES is currently reviewing its agent compensation plans to ensure that there is an appropriate emphasis on compliance with existing rules," Direct Energy said.

Direct Energy has also worked with its TPV vendor to create enhanced reports that will enable Direct Energy to flag potential issues, including accounts that have the same phone number, decision maker, or accounts with multiple locations, and to show the percentage of "good sales" versus "no sales" for each sales agent of all third-party sales vendors.

Reports that are internally generated by Direct Energy will also flag sales agents with abnormally high rates of utility rejections; these reports will be reviewed daily.

Direct Energy will also hire an additional small business operations analyst to further enhance internal reporting and review all reports for trends that are indicative of improper behavior and warrant immediate investigation. Direct Energy will also establish monthly meetings among its internal small business sales, sales quality, compliance, and government and regulatory affairs teams to facilitate discussion of any issues of importance.

Additionally, when the small business door-to-door sales channel in Michigan is reopened, several improvements will be made to ensure the Sales Vendor is in compliance with applicable regulations and corporate policy. Specifically, "Moment of Truth" surveys will be attempted on 100 percent of new sales generated through this channel for the next six months.

Sales agents will use a paper contract in addition to the existing TPV safeguard for the next six months. "We are currently utilizing an internet based tablet program to contract with door-to-door customers in other states and are hopeful to launch the same technology in Michigan in the upcoming months which has afforded customers a better sales experience. The sales contract must be reviewed and signed by the customer (either on paper or via the computer tablet model) for a sale to be considered valid," Direct Energy said.

Lastly, all sales agents will carry Direct Energy branded business cards and provide a card to the potential customer at the time of the in-person contact.

Given such corrective actions, Direct Energy proposed to resolve the matter by making a donation of $25,000 to Michigan Interfaith Power & Light, a 501 (c) (3) coalition of 185 nondenominational houses of worship and congregations. The goals of this statewide organization include improving the operational energy efficiency of their facilities via technical assistance through energy evaluations, attractive financing for projects, direct installation of low and no cost measures, and energy education for their congregants.

Direct Energy further proposed that monthly conference calls be conducted with Commission staff to discuss any issues and trends

Case No. U-14537