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The GreeneHurlocker Blog

Retail Suppliers Beware! Seven Lessons Learned from Starion Energy’s Record-Setting Fine in Maryland, Part 1

This is the first in a two-part series highlighting “Lessons Learned” from the Maryland Public Service Commission’s recent ruling penalizing Starion Energy PA, Inc. for violating various consumer protection laws in Maryland  While these lessons may seem elementary to most retail electricity suppliers, bad actors exist and are finding themselves in trouble with the law.  When that happens, the reputations of fine retail suppliers in the energy market, and the restructured industry in general, are damaged.  As lawyers representing retail providers , we recognize the vast majority of retail electricity suppliers do their best to adhere to applicable laws.  We hope that this series will assist retail  electricity and, for that matter, natural gas, sellers in Maryland  to comply with  state laws and allow them to better serve Maryland customers.

The Maryland Public Service Commission recently imposed its harshest penalty to date on a retail supplier.  In Order No. 86211, the Commission found that Starion Energy, PA, Inc. had committed hundreds of violations of applicable statutes and regulations.  For instance, Starion (1) violated the Maryland Door-to-Door Sales Act by not providing customers with contracts that contain the required language in that Act; (2) engaged in an ongoing pattern of regularly switching customers to Starion service without the customer’s permission, and of employing false and misleading statements to solicit new customers; and (3) actively marketed within Southern Maryland Electric Cooperative’s (SMECO’s) service territory and to Pepco’s commercial customers without a license for a period of approximately six months and continued to operate in SMECO’s territory on a passive basis despite being fully aware that it lacked the necessary license.  For all this (and more), the Commission fined Starion $350,000 and imposed other restrictions and compliance requirements.

The underlying thread connecting all of Starion’s violations was lack of oversight and control over its sales and marketing representatives during a time of what Starion termed as rapid and unexpected customer growth in the Maryland retail electricity market.  The Commission ruled that rapid growth does not mitigate a supplier’s obligations to comply with applicable regulations and found that Starion had committed more than a hundred customer protection violations.

Starion entered the Maryland electricity market in 2010, after receiving a $70,000 penalty from the Connecticut Department of Public Utilities for allegations that included slamming.  The Commission was aware of the Connecticut proceeding but issued the license based on an affidavit from Starion’s CEO that Starion would adhere to all applicable Maryland regulations.  Starion apparently hit the Maryland ground running, signing up more customers than its customer service personnel could handle.  Although the Order does not reveal Starion’s customer count, Starion relied heavily on door-to-door and telemarketing to solicit new customers.  Most of the violations occurred in the SMECO territory; in fact, SMECO contended that it began receiving complaints as soon as Starion and SMECO completed their EDI testing.

Lesson One:  Retail Suppliers Are Responsible for the Acts of Their Marketing Agents.

Starion contracted both directly with independent representatives and indirectly through vendors that contracted with other independent representatives on behalf of Starion. While this kind of marketing structure is not unique or impermissible in Maryland, such an attenuated sales force structure requires thoughtful and diligent compliance training and ongoing monitoring. As the Starion story shows, outsourcing door-to-door marketing, and telemarketing for that matter, does not insulate a supplier from the risks and penalties for failure to comply with applicable state and federal statutes and regulations.

Starion, like the retail suppliers in prior cases involving alleged consumer protection violations, did not dispute that it was responsible for the conduct of its marketing vendors and their contractors.  When marketing agents make false or misleading claims to customers, those claims are imputed to the retail supplier they represent. The Commission’s decision in Starion reiterated this view.

Lesson Two:  To Guard Against Slamming Allegations, Retail Suppliers Should Obtain the Customer’s Permission to Switch Before Requesting the Customer’s Utility Account Number.

The Commission found that its Office of External Relations (OER) had received 122 complaints relating to allegations of slamming by Starion.  The customers who complained to SMECO repeatedly stated that the Starion representative attempted to obtain their SMECO account number prior to the customer agreeing to switch service (or at times even before the customers fully understood the nature of the call).  While the Commission did not explicitly say so, it seems that the best practice would be for the retail supplier to have the customer affirmatively state that he or she desires to switch electricity service.  Only then should the retail supplier attempt to obtain the customer’s utility account number.

Lesson Three:  Retail Suppliers Should Fully Disclose Terms and Conditions of Service Regarding Variable Rates.

Starion offered a variable rate product in Maryland, probably similar to variable rates offered by other suppliers in Maryland and beyond. When Starion experienced rising costs in the northeast, it raised its prices throughout its footprint, including a “significant increase” for its Maryland customers even though the reason for the increase stemmed from areas beyond Maryland and PJM.  According to Starion, this price increase resulted in many customer lodging complaints with the Commission.  While the Commission did not find any consumer protection violation resulting from Starion’s spreading the cost over its entire footprint, it did express concern “that Maryland customers may not be fully informed that their variable rate may be calculated based upon market prices across such a wide geographic area. Starion has an obligation to clearly disclose the terms of its service to its Maryland customers.”

Check back soon for Part Two of this series.

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We’ve Got Happy Feet for Deep Run High

Our firm is happy to join the sponsors of the Deep Run Marathon Dance , scheduled for March 14-15, 2014. The students of the Deep Run High School are staging this 8th Annual Marathon Dance to benefit the charities of our local community. Deep Run High School students, of all grades, have raised more than $1.1 million for local charities.  Last year alone, they raised over $243,000.00!  The Marathon Dance is run and put together by the help of the student committee. They organize and promote fundraisers and the event itself. They also help choose the beneficiaries. Read more at the Richmond Times Dispatch.

Solar Energy Industries Association Meets at Firm Offices

We were pleased to host the Board of Directors of the Maryland, District of Columbia and Virginia Solar Energy Industries Association (MDV-SEIA) in downtown Richmond on February 20, 2014. Eric Hurlocker, a founding partner of the firm, is a Board member of the MDV-SEIA.

The Board covered regular business of the association, and will also discuss issues before the General Assembly of Virginia, which is considering a number of solar and other renewable energy related initiatives.

Eric was elected to the Board in 2013. His law practice involves representing developers, investors and manufacturers of solar projects and equipment, as well as other businesses in the renewable energy sector. He also works with clients on commercial transactions and general corporate work for energy and technology companies, manufacturers and services providers.

Members of MDV-SEIA design, sell, integrate, install, maintain and finance solar energy equipment for residential, commercial, and institutional customers throughout the region. Among the membership are included accountants, attorneys, builders, architects, electricians, plumbers, and consultants that support the solar industries. Complete information is available at http://mdvseia.org/

 

Virginia Commission Sets Hearing on Dominion’s Proposed Brunswick County Power Station and Transmission Facilities

On December 12, 2012, the Virginia State Corporation Commission issued an Order for Notice and Hearing in relation to Dominion Virginia Power’s application for various regulatory approvals associated with the construction and operation of a 1,358 MW natural gas fired and related transmission facilities.

The power station would be located in Freeman, VA.  It would be fueled by natural gas provided by Transco through its Virginia Southside Expansion Project.  The estimated cost of the project (excluding financing costs) is estimated to be just under $1.3 billion.

As part of the application, Dominion requested approval to recover, through rates proposed to be effective September 1, 2013, an annual revenue requirement of approximately $44.6 million in project financing costs and allowance of funds used during construction of the plant and related infrastructure.  In calculating the $44.6 million revenue requirement, Dominion proposes to add a 100 basis point enhancement to its 10.4% general rate of return on common equity (ROE), as currently authorized by Virginia law.

Also in the application, Dominion proposed several potential routes for siting and building transmission facilities necessary to transmit the electricity from the power station to the electric grid.

The Commission’s published schedule includes the following key deadlines:

  • Persons or entities desiring to participate in the proceeding as a “Respondent” must file a notice of participation on or before February 1, 2013.
  • Respondents must file any testimony and exhibits they wish to use in support of their positions on or before March 1, 2013.
  • A hearing on the Dominion application is scheduled to begin on April 24, 2013 at the Commission’s offices in Richmond.

Notably, the Commission’s order comes on the heels of Attorney General Cuccinelli’s recent report in which he raised issues with the ROE adders, such as the 100 basis point adder in this proceeding.  Another issue in the case could be the Commission’s recent directive that Dominion address market alternatives in future cases involving new generation.

For more information, please contact GreeneHurlocker.

About GreeneHurlocker, PLC

GreeneHurlocker PLC, located in Richmond, Virginia, provides a full range of litigation, energy law, and administrative/regulatory services. GreeneHurlocker is committed to delivering the highest quality legal services to its clients in a professional, effective and cost-efficient manner. Please contact Brian Greene or Eric Hurlocker at (804) 864-1100 for more information, or visit us on the web at www.GreeneHurlocker.com.  You can also follow us on Twitter: @GreeneHurlocker.

Virginia Attorney General Reports on Utility ROE Enhancement Adders

In November 2012, Virginia’s Attorney General, Kenneth Cuccinelli, issued a report on his office’s review of the statutory adders that were a part of Virginia’s unique ratemaking system.  The goal of the study was to review the adders and determine if they were advancing the goals of the 2007 Regulation Act:   (a) protecting customers from price volatility and unnecessary rate increases, (b) reliability, (c) fuel diversity, (d) environmental benefits and (e) economic development.

Notably, the report concluded that:

  • The adder associated with achievement of the Renewable Portfolio Standard has cost customers of Virginia’s two investor-owned utilities, Appalachian Power and Dominion Virginia Power, about $740 million, yet the adder not served to advance the environmental concerns that led to its inclusion in the 2007 Act.  The utilities have not built any new renewable energy facilities, but have relied on purchases of Renewable Energy Credits (or RECs) from previously constructed facilities.
  • The generation adders for new generation projects that have been approved will increase the two utility companies’ combined revenue requirements by an estimated $284 million over the term of the adders, and have not advanced the key goals of the 2007 Act in light of the substantial costs they impose.

The Attorney General concluded the report with a call for more discussions on the adders, their costs, and whether they are achieving their intended results.  The Attorney General’s press for “serious policy discussions” on these issues, combined with candidacy for Governor and next year’s election, could make for an interesting upcoming General Assembly session.  In a press conference, Mr. Cuccinelli stated that the 2007 statute has been a “very favorable deal for the two utilities,” a claim that the utilities dispute.

Another interesting subplot will be the Attorney General’s advocacy in Dominion’s recent filing before the State Corporation Commission for approval to construct a 1,380 MW natural gas facility (Docket Number PUE-2012-00128).  Dominion would benefit from the generation adder which would apply to this proposed new facility.  In additional to all the other issues that will arise during that case, the attorney general’s report and advocacy during the case will be worth following.

The General Assembly has recently directed the Attorney General and the Commonwealth’s two utilities to engage in discussions as to potential legislative changes to the ROE Adders that were the subject of the Attorney General’s report.

About GreeneHurlocker, PLC

GreeneHurlocker PLC, located in Richmond, Virginia, provides a full range of litigation, energy law, and administrative/regulatory services. GreeneHurlocker is committed to delivering the highest quality legal services to its clients in a professional, effective and cost-efficient manner. Please contact Brian Greene or Eric Hurlocker at (804) 864-1100 for more information, or visit us on the web at www.GreeneHurlocker.com.  You can also follow us on Twitter: @GreeneHurlocker.

 

 

Virginia Commission Approves Virginia-American Water Rate Case Settlement

On December 12, 2012, the Virginia State Corporation Commission issued a Final Order approving a Stipulation that allows Virginia-American Water Company to increase its rates by almost $2.3 million, although the increase is significantly less than what the Company had initially requested.

The Company’s service territory includes four different Districts, each with its own revenue requirement.

  • In Hopewell, the Company had requested a 12.5 increase and settled for no increase.
  • In Prince William, the Company sought a roughly $1.8 million increase and settled for about $1.1 million.
  • In Alexandria, the Company sought about $1.7 million and settled for $930,000.
  • In the Eastern District, represented by GreeneHurlocker, the Company sought a 34% increase (approximately $570,000) and settled for an approximate 13.5% increase (about $228,500).  In the Eastern District, the Company settled for 38% of its requested amount.

The settlement includes a 9.75% return on equity, which is lower than the 11.3% ROE that the Company requested and also lower than the Company’s previously-authorized ROE of 10.7%.

The Company, which had been collecting its proposed rates since July 12, 2012 on an interim basis subject to refund, is required to issue refunds, with interest, by March 12, 2013.

About GreeneHurlocker

GreeneHurlocker, PLC, located in Richmond, VA, provides a full range of litigatino, energy law, and administrative/regulatory services.  GreeneHurlocker is committed to delivering the highest quality services to tis clients in a professional, effective, and cost-efficient manner. Please contact Brian Greene or Eric Hurlocker at (804) 864-1100 for more information, or visit us on the web at www.GreeneHurlocker.com.  You can also follow us on Twitter: @GreeneHurlocker.

End of Year Planning

As companies start working on their end of year planning and reviewing current-year results, we want to remind business leaders and owners to keep in mind the following:

  1. Do you have a succession plan to address the unexpected incapacity or death of a key officer, director or owner?  You may want to check your bylaws, operating agreement or other organizational documents to ensure that these issues are addressed as you want them.  Remember, as your organization changes, you may need to revisit these areas from time to time.  If you are a small business it is particularly important that you address these issues to ensure that your business will continue uninterrupted (or at least with minimal interruption) during a period of change.
  2. Do you have adequate insurance coverage for key officers, directors or owners?  Areas to consider are life insurance programs, disability policies and long-term insurance.  Also, don’t forget to make sure that your assets are adequately insured (particularly if you have added or shed assets during the year), including business risk insurance programs.
  3. Do you have a line of credit or other credit facility in place?  While your business may have adequate liquidity at the present time, you may wish to consider putting a line of credit  or other credit facility in place while operations are going well.  Making these arrangements now (i) may provide a safety net to guard against a temporary down-turn in your cash flow or an unexpected liability, and (ii) may give your business the confidence to take advantage of a growth opportunity without undue delay.
  4. Do you know a good business counselor or coach?  Whether your company is in start-up mode or has been in business for years, there are a number of very good business counselors and coaches available to work with business owners and officers on a periodic basis or to address a specific issue that your business may be facing.
  5. Are your people happy?  While this one often goes without saying, the end of the year is a good time to take the temperature of your organization and assess your working environment.   With the amount of time spent working at your business, it is important to make sure that your people remain motivated and dedicated to the success of the business.

These are the types of issues that can make a difference when it comes to the future success and viability of your business.  These issues can also impact, on a personal level, the individuals who work for or with you.  Let us know if you have any questions or desire additional information on these or other business-related issues as 2012 comes to a close.

 

Energy Policy and November 2012

As we move closer to the upcoming elections this year, it has become clear that energy policy will be a significant campaign issue.  All sectors have a stake in the outcome of the election and the resulting path energy policy may take.

Recently, Mr. Romney issued a white paper outlining his vision for energy independence as part of his Plan for a Stronger Middle Class.  Click to see entire paper http://www.mittromney.com/sites/default/files/shared/energy_policy_white_paper_8.23.pdf.  The renewable energy industry has already weighed in on the Romney program in a fashion that may surprise you.

President Obama has issued his own energy program, the “All of the Above” Energy Strategy, which you can view at   http://www.barackobama.com/record/environment?source=issues-nav.

We will continue to update you on developments on this key election day issue over the course of the next two months.