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Retail Suppliers Beware! Four More Lessons Learned from Starion Energy’s Record-Setting Fine in Maryland

This is the second 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. The first cited three lessons for retail electricity suppliers. This final post lists another four.

Lesson Four: Retail Suppliers Absolutely Cannot Make Misrepresentations When Communicating With Customers.

This part of the Maryland Public Service Commission’s decision is painful to read. The Commission found that Starion engaged in a “clear pattern of repeated misrepresentations” to potential customers, including (1) claiming to be representatives of the utility; ; (2) guaranteeing savings; (3) claiming that SMECO buys its power from Starion, so buying direct from Starion would eliminate the middle man. Starion representatives included similar claims on marketing materials, including door hangers left on the doors of SMECO customers. Many of the complaints contended that the Starion representative committed multiple violations in the same phone call.

For its part, Starion did not dispute that these statements were made by Starion representatives. In fact, the Commission noted that, Starion “conceded that the number of misrepresentations could exceed 10,000, although we understand that she was merely reflecting the fact that Starion could not verify how often these misrepresentations occurred.”

Prohibitions against such false or misleading sales tactics are a fundamental component of both Maryland and federal consumer protection laws. Retail electricity suppliers need to be adamant in their training and monitoring of sales agents, including vendors, to ensure that misrepresentations of this kind do not occur.

Lesson Five: Retail Suppliers Must Comply With Maryland’s Door-to-Door Act.

Maryland’s Door-to-Door Act requires sales representatives to fulfill certain requirements. These requirements include things like the sales representative wearing a name badge clearly himself/herself – not branded to the customer’s utility – and providing the customer a written copy of the contract. The Commission found that Starion had violated these requirements over a series of months, and that “[c]onsidering how significantly Starion relied upon this type of solicitation to attract new customers, its ongoing failure to comply with this law is remarkable.” Door-to-door solicitation is generally a risky endeavor, and the Commission in a prior case has held that one instance of misrepresentation could have been enough, if proven, to warrant revocation of the supplier’s license. Therefore, retail suppliers engaging in door-to-door solicitations need to make sure they comply with the requirements of the Door-to-Door Act by, among other things, making sure their sales representatives and vendors receive adequate training before soliciting customers, and the sales force should be monitored daily, even by random audits, if possible.

Lesson Six: Retail Suppliers Should Be Aware that the Maryland Telephone Solicitation Act is Unlike Other State’s Telemarketing Laws.

The Maryland Telephone Solicitation Act (MTSA) has certain specific requirements to obtain a valid and enforceable contract via a phone solicitation. After the initial phone call suppliers must send the customer a written contract within three business days containing statutorily specified language, which the customer must then sign. There are several exemptions to the MTSA, and its “wet” signature requirement. One exemption is if the supplier sends the prospective customer written marketing materials before the telephone solicitation, and the sale is made pursuant to an examination of those materials. Suppliers conducting telephone solicitations in the regulated Maryland retail electricity market also need to be aware of and comply with federal consumer protection laws addressing telephone solicitations – including the Telephone Consumer Protection Act and the National Do-Not-Call List. To avoid falling afoul of telephone solicitation laws, be sure to include required disclosures and statutorily-prescribed language in the scripts used by your telemarketers.

Starion had not obtained any wet signatures and, for whatever reason, no party questioned the Starion witness about whether Starion sent direct mail pieces before calling Maryland residents. While the Commission noted that Starion had the burden of proving that the MTSA exemption applied, the Commission nonetheless held that there could be no MTSA violation because the record was unclear as to Starion’s prior contacts.

Lesson Seven: Retail Suppliers’ Licenses in Maryland are Specific to Utility Service Territories and Customer Service Types, and the Commission Must Approve Any Changes to a Supplier’s License.

In its 2010 Maryland license application, Starion elected not to include commercial customers in Pepco’s service territory or any customers in SMECO’s service territory. Starion could have included these territories simply by checking the applicable boxes on its application. Because Starion had not sought the Commission’s approval to amend its license, the Commission found that Starion had violated applicable regulations. Prudent retail electricity suppliers seeking an initial license should select all of the customer types and service areas, as there is no requirement that a supplier initially serve all selected customers. For those suppliers already licensed and operating in Maryland, it is imperative that you know the scope of your license and operate within the service territories you selected. If you wish to expand, following proper Commission procedures to update your license will save you some serious headaches, and possible dollars, down the road. In the Commission’s words, Starion’s “failure to request an expanded license to operate in SMECO’s service territory until after it is caught is not an academic mistake.”

The regulatory landscape for retail electricity suppliers in Maryland is complex and dynamic, so suppliers need to be aware of the breadth of law regulating marketing in Maryland, and learn from Starion’s mistakes. If you have questions about the Maryland electricity market, the Starion decision or other issues of energy regulation and sales, please contact one of our energy lawyers.

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