Initial Decision Would Find Retail Supplier's Use of Term "Competitive" Violated Marketing Rules Based on Actual Prices Charged (Precedent That Rate Only 5% Higher Uncompetitive?)

An initial decision from a Pennsylvania ALJ would conclude that the use of the term "competitive" by a Palmco Energy PA, LLC sales agent during a sales call to describe rates after an introductory period, when the rates subsequently charged were not found to be competitive by the ALJ, amounts to violation of Sections 62.114 and 111.12 of the Public Utility Code, which prohibit false or misleading representations and require accurate and timely information about service.

The initial decision is not final and may be appealed by Palmco Energy.

A transcript of the sales call between the complainant and a Palmco Energy sales agent indicates that the agent informed the customer six times that the variable rates that would be charged after the expiration of an introductory period would be "competitive," the ALJ found.

For example, the agent informed the customer that, after the first two billing cycles, the customer, "will continue to enjoy competitive variable rates."

The ALJ noted that neither the Public Utility Code nor the PUC's regulations provide a definition of "competitive" or "competitive rate." Nor was there any record evidence indicating that the Palmco representative ever defined what "competitive" or "competitive rate" meant.

The ALJ cited Webster's Dictionary as including as part of the definition of "competitive" the following: "as good as or better than others of the same kind: able to compete successfully with others."

"As such, in order for a rate to be competitive, it must be as good as or better (i.e., lower) than the rate offered by other providers of the same or similar service. In this case, that means that when a utility or its representative states that a rate offered for natural gas supply service will be 'competitive,' the rate will be as good as or lower than the rate offered by other providers of natural gas supply service," the ALJ said.

The ALJ concluded that the customer was charged as follows, and compared the Palmco rate to the UGI default service rate:

Bill      UGI Rate   Palmco Rate   Difference 
Sept '13   0.68919    0.49818      -27.7%
Oct '13    0.68919    0.49786      -27.8%
Nov '13    0.68919    0.49769      -27.8%
Dec '13    0.68919    0.72977       +5.9%
Jan '14    0.62045    1.25438     +102.2%
Feb '14    0.62045    1.38687     +123.5%

"Palmco's rate was not as good as or better than – i.e., competitive – when compared to UGI's rates for the months of January and February, 2014 when Palmco's rate was more than double UGI's rate. The statements made by [Palmco's agent] that Palmco's rate would be 'competitive' were misleading and, therefore, violated Commission regulations that prohibit the use of misleading or deceptive statements," the ALJ said (emphasis added)

Not explicitly addressed by the ALJ is whether Palmco's December 2013 rate, which was above the UGI rate but only by 4¢ per CCF, was uncompetitive and therefore would, in another case, amount to a violation in the absence of the much higher January and February rate. Using the ALJ's cited test of "as good as or better", in the most literal sense, to determine whether a rate is competitive, the December 2013 rate, which is just over 5% higher than the default service rate, would be deemed uncompetitive.

While the ALJ only references violations for the months of January and February for purposes of calculating a civil penalty, we do not find this dispositive, and the actual conclusions of law merely find that a violation occurred, but did not specify which prices constituted a violation.

The ALJ also concluded that, "it is not necessary to compare Palmco's rates to other NGS rates to find a violation of Commission regulations. "

"A review of the supply rate charged by the natural gas distribution company (NGDC) – in this case UGI – is sufficient to establish that Palmco's rates were not competitive because the NGDC, as default supplier, is also part of the market ... When viewed from the customer's perspective when interacting with the NGS representative, it is reasonable to believe that the statement that Palmco's rates would be “competitive” means that the rate would be competitive not only in relation to other NGS's rates but also in relation to the NGDC's rate," the ALJ said.

"When Palmco's rate increased to more than double UGI's rate in the months of January and February, 2014, it was no longer competitive, and [the sales agent's] assertion to [the complainant] that the Palmco rate would remain competitive following the expiration of the introductory rate is revealed as misleading and deceptive and in violation of Commission regulations prohibiting such statements," the ALJ said.

The ALJ also said that the Palmco sales agent during the call indicated that the rate after the introductory period would be, "the lowest rate on the market," but as noted above the ALJ's conclusions that a violation occurred were not based solely on this statement, and do find that the use of the term "competitive", in light of the actual rates charged, amounts to a violation.

Although the Palmco sales agreement stated that the price for gas supply would vary from month to month, and that there is no ceiling on that price, and that savings are not guaranteed, the ALJ said that these statements could not cure the oral representation of "competitive" rates.

The ALJ's initial decision would impose a $2,000 civil penalty for the violations of Sections 62.114 and 111.12 of the Public Utility Code

Palmco Energy provided the following statement to EnergyChoiceMatters.com:

"This case is still ongoing, and we ultimately hope to succeed. In the meantime, we await the Commission's final decision and continue to provide our customers with quality customer service."

Docket C-2014-2402558