PENNSYLVANIAPUBLIC UTILITY COMMISSION

Harrisburg, PA 17105-3265

Public Meeting held June 19, 2014

Commissioners Present:

Robert F. Powelson, ChairmanJohn F. Coleman, Jr., Vice ChairmanJames H. Cawley, StatementPamela A. WitmerGladys M. Brown

Pennsylvania Public Utility Commission,Bureau of Investigation and Enforcement

v.

ResCom Energy LLC

M-2013-2320112

OPINION AND ORDER

BY THE COMMISSION:

Before the Pennsylvania Public Utility Commission (Commission) for

consideration and disposition is a proposed Settlement Agreement (Settlement) filed on

December 2, 2013, by the Commission’s Bureau of Investigation and Enforcement (I&E)

and ResCom Energy LLC (ResCom or Company) (collectively, the Parties), with respect

to Informal Investigations conducted by I&E. The Parties submitted initial Statements

and Supplemental Statements in Support of the Settlement Agreement. I&E contends

that the proposed Settlement is in the public interest and is consistent with the

Commission’s Policy Statement at 52 Pa. Code § 69.1201, Factors and standards for

evaluating litigated and settled proceedings involving violations of the Public Utility

Code and Commission regulations—statement of policy. I&E Statement in Support

at 10-14. We will issue the Settlement for comment.

History of the Proceeding

This matter concerns two informal investigations initiated by I&E at the

request of the Commission’s Bureau of Consumer Services (BCS). By letter dated

September 17, 2012, I&E instituted an investigation of ResCom regarding allegations of

slamming1 and related unauthorized marketing practices received in 2012 from multiple

sources, including consumer complaints filed with BCS, reports from electric distribution

companies (EDCs), other electric generation suppliers (EGSs), and other direct consumer

contacts with Commission Staff. Settlement at 3.

On July 25, 2013, I&E instituted a second informal investigation of

ResCom pertaining to alleged marketing violations by the Company’s third party agent.

Based on its investigations, I&E found what it considered to be numerous violations of

the Commission’s Regulations and the Telemarketer Registration Act, 73 P.S. §§ 2241 et

seq. Settlement at 7-9.

The Parties entered into negotiations and agreed to resolve these matters in

accordance with the Commission’s policy to promote settlements at 52 Pa. Code § 5.231.

For purposes of this Settlement, I&E’s investigations have been consolidated. Settlement

at 3. The Parties filed the instant Settlement and initial Statements in Support of the

Settlement on December 2, 2013. By Order entered March 19, 2014 (March 2014

Order), we directed the Parties to file Supplemental Statements in Support of the

Settlement. On April 11, 2014, the Parties filed the required Supplemental Statements.

1 Slamming is an unauthorized change to a customer’s supply service. EDC Customer Account Number Access Mechanism for EGSs, Docket No. M-2013-2355751 (Order entered April 18, 2013).

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Background

In July 2012, BCS began receiving complaints regarding an entity or

entities calling consumers for the purpose of making EGS sales calls but failing to

identify themselves. Settlement at 4. Multiple EDCs reported similar allegations to the

Commission’s Office of Competitive Market Oversight indicating that customers were

being called by entities falsely representing that they were associated with the EDC. The

EDCs making the allegations reported that they became concerned with ResCom due to

its high rescission rate in their respective service areas and by customer calls specifically

identifying “ResCom/Positive Energy” as the source of the problematic sales calls. Id.2

On July 9 and 10, 2012, ResCom received non-Commission complaints

regarding calls made with Caller ID numbers that were not recognized by ResCom.

According to the Settlement, ResCom initiated an investigation and contacted its third

party vendor call centers. Settlement at 4. Also on July 10, 2012, Energy Cooperative

Association of Pennsylvania (ECAP), an EGS, notified the Commission that its call

center received customer reports of being contacted by a supplier claiming to be

associated with ECAP or PECO Energy Company (PECO), an EDC. According to the

Settlement, some ECAP customers specifically identified “ResCom/Positive Energy” as

the source of the problem calls. Id. at 5.

On July 12, 2012, ResCom received an additional complaint regarding a

possible “Do Not Call” violation. After an internal investigation, ResCom determined

that one of its third party vendors, Energy Group Sales, was indirectly responsible for the

problematic calls.3 On July 19, 2012, ResCom terminated its contract with Energy Group

Sales. Settlement at 5. 2 Positive Energy Electricity Supply LLC (Positive Energy) is ResCom’s

exclusive marketing partner responsible for enrolling customers for ResCom. ResCom Statement in Support of Settlement at 2.

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Thereafter, BCS requested that I&E initiate an investigation into ResCom’s

marketing practices in Pennsylvania. By letter dated September 17, 2012, I&E notified

ResCom that an informal investigation had been instituted. Settlement at 5-6.4

On April 12, 2013, an individual, who identified himself as a former sales

agent at Consumer Energy Partners’ (CEP) call center, contacted BCS. The individual

stated that ResCom contracted with the call center to provide calls to Pennsylvania

consumers in the PPL Electric Utilities Corporation and PECO residential markets. He

claimed that call center agents, acting on behalf of ResCom, called consumers whose

telephone numbers were obtained from telephone directories which were not screened to

omit consumer telephone numbers on “Do Not Call” lists. Settlement at 6. Upon request

by BCS, I&E, by letter dated July 25, 2013, initiated an informal investigation of

ResCom’s marketing practices regarding its third party agent, CEP.

Pursuant to letters dated July 3, 2013, and August 22, 2013, I&E notified

ResCom that I&E’s informal investigations revealed sufficient data to substantiate

allegations of violations of the Public Utility Code (Code), 66 Pa. C.S. §§ 101 et seq., the

Telemarketer Registration Act, supra, and the Commission’s Regulations. Settlement

at 7.

I&E was prepared to allege in a formal complaint that ResCom or its agents

failed to comply with the Commission’s Standards for Changing a Customer’s Electricity

Generation Supplier, 52 Pa. Code §§ 57.171 et seq. According to I&E, the Company

neglected to obtain direct oral or written confirmations to change the EGS on multiple

3 During its internal investigation, ResCom discovered that Energy Group Sales, without ResCom’s knowledge, made sales calls on behalf of ResCom via subcontracted call centers which were neither authorized nor trained by ResCom. Settlement at 5.

4 BCS received additional complaints through April 2013 regarding the marketing practices of ResCom’s marketers for its EGS services in Pennsylvania. Settlement at 5.

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consumer accounts, resulting in the physical switching of the EGS accounts without

proper authorization or verification in violation of 52 Pa. Code § 57.173. Second, I&E

would have alleged that the Company or its agents failed to comply with the Electricity

Generation Customer Choice and Competition Act, 66 Pa. C.S. §§ 2801 et seq., by

engaging in fraudulent, deceptive or otherwise unlawful acts in the process of marketing

EGS services to Pennsylvania consumers in violation of 52 Pa. Code § 54.43(f). Third,

I&E would have averred that ResCom or its agents violated the “Do Not Call” provision

of the Telemarketer Registration Act, supra, by engaging in marketing efforts on multiple

consumer accounts resulting in telephone calls to consumers listed on a state or federal

“Do Not Call” list. Lastly, I&E would have alleged that the Company violated the Code

of Conduct at 52 Pa. Code § 54.43, which makes an EGS responsible for the fraudulent,

deceptive or unlawful marketing acts of a licensee, employee or agent.

As a result of negotiations between I&E and ResCom, the Parties have

agreed to resolve their differences and urge the Commission to approve the Settlement as

being in the public interest. Settlement at 4.

The proposed Settlement, which is attached to this Opinion and Order, has

been filed by the Parties in order to resolve allegations of slamming and related

unauthorized marketing practices. Settlement at 3. As discussed above, I&E would have

filed a formal complaint alleging multiple violations of Regulations 54.43 and 57.173,

52 Pa. Code §§ 54.43, 57.173, as well as Section 2245.2 of the Telemarketer Registration

Act, 73 P.S. § 2245.2.

Although ResCom disputes some or all of I&E’s allegations, the Company

acknowledges the seriousness of slamming and related unauthorized EGS marketing

practices and recognizes the need to prevent the reoccurrence of similar situations.

Settlement at 10. In the Settlement, I&E credits ResCom with fully cooperating and

complying with I&E’s investigation and requests for documentation. Id. at 9-10.

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As noted above, our March 2014 Order directed the Parties to file

Supplemental Statements in Support of the Settlement because there was not enough

information to evaluate whether the civil penalty and corrective actions were sufficient to

address the alleged violations. Specifically, we sought further information as to how

ResCom revised its operating procedures so as to safeguard against future slamming

incidences. Additionally, we requested further information related to the number of

customers affected by the allegedly illegal marketing practices, the number of customers

allegedly slammed, the number of customers ResCom allegedly attempted to slam but

successfully rescinded, and the number of alleged Do Not Call violations. March 2014

Order at 9.

On April 11, 2014, ResCom filed a Supplemental Statement in Support of

the Settlement (ResCom Supplemental Statement) to provide additional information

about its marketing and operational procedures to help safeguard against slamming.

ResCom states that it instituted a computerized “gating” system to prevent a customer’s

enrollment from being sent to the Company unless the enrollment is electronically

matched to that customer’s third party verification (TPV) or signed letter of authorization

(LOA). According to ResCom, this procedure has been highly effective in preventing

enrollment without evidence of a customer’s authorization. Id. at 2. Additionally,

ResCom highlights its corrective action of upgrading its TPV script to require that the

person giving the verification confirm that he or she is the authorized party on the

account. Id.

Recognizing the limits of a TPV or LOA process to prevent slamming

incidents, ResCom has also instituted an auditing team that regularly audits, on a weekly

basis, a random sample of sales from each third party marketing organization making

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calls on the Company’s behalf.5 The auditing team verifies whether the third party

marketing organization is properly identifying itself, abiding by ResCom’s marketing

standards, and adhering to its script. ResCom also states that the auditing team checks

whether these marketing organizations adhere to “internal Do Not Call List

maintenance.” Id. at 2.

Finally, ResCom and its exclusive marketing partner Positive Energy now

require each third party marketing organization and their sales agents to execute Positive

Energy’s Code of Conduct.6 If, during the auditing process, a sales agent is found to have

violated the Code of Conduct in any way, he or she is to be terminated immediately. Id.

at 2-3.

Also on April 11, 2014, I&E filed a Supplemental Statement in Support of

the Settlement (I&E Supplemental Statement) to provide additional information about the

number of customers affected by the alleged actions of ResCom. I&E states that its

investigation pertaining to the first informal investigation found thirteen BCS customer

complaints comprising forty-nine potential regulatory violations. I&E Supplemental

Statement at 5.7 According to I&E, the thirteen customer accounts represent the “total

universe of potential customers that were affected by ResCom’s actions.” Id.8 I&E

5 ResCom details its Pilot Program which places every new third party call center on a probationary status and explains a graduated process of evaluating samples of calls for quality compliance. If a third party call center passes this initial quality review process, it will become part of the regular weekly audit program for all third party marketing organizations whereby ten to twenty percent of the week’s sales are reviewed on a random basis for quality. Failure to meet the required quality standards may result in the termination of the marketing organization. ResCom Supplemental Statement at 2.

6 ResCom attached a copy of the Code of Conduct as an exhibit. ResCom Supplemental Statement, Exh. A.

7 I&E notes that it had erroneously referred to fourteen customer complaints in its original Statement in Support. Id.

8 I&E’s statement appears to relate only to its first informal investigation. I&E’s Supplemental Statement at 5. As discussed below, I&E determined it is unable to quantify the number of violations related to its second informal investigation.

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alleges that the circumstances surrounding these complaints contained sufficiently

credible information to warrant prosecution of formal proceedings. Id. I&E further

alleges that, of the thirteen customer accounts in question: (1) three were physically

switched and remained customers of ResCom for a period of time before being returned

to their prior EGS; (2) three had a supplier switch initiated, but the EGS enrollments were

cancelled within the rescission period and no physical EGS change took place; (3) two

involved unauthorized marketing practices in door-to-door sales; (4) three involved

unauthorized marketing practices in telemarketing sales; and (5) two involved Do Not

Call violations. Id.

In response to the second informal investigation pertaining to CEP, a third

party marketing agent of ResCom, I&E concluded there was no practical means by which

ResCom could quantify the number of potential Do Not Call violations, if any,

committed by CEP. Id. at 6. According to I&E, this investigation resulted from a

whistleblower’s claims that CEP call center agents called consumers whose telephone

numbers were obtained from telephone directories which were not screened to omit the

telephone numbers of consumers on federal and state Do Not Call lists. I&E states that,

if found to be true, the allegations would result in additional EGS marketing violations

against ResCom. Accordingly, I&E avers that it merged this new claim into its already

ongoing investigation of ResCom. Id. at 5-6.

During its investigation into the whistleblower allegations, I&E confirmed

that ResCom had an arrangement with CEP from August 2012 to May 2013 for CEP to

solicit Pennsylvania residential consumers by telephone on behalf of ResCom. However,

ResCom claimed that CEP was responsible for obtaining its own leads and for

maintaining and scrubbing those leads against all governmental and internal Do Not Call

lists. Under no circumstances was CEP to call or solicit any person on those Do Not Call

lists. Further, ResCom averred that it was not aware of the improper procedures followed

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by CEP. After learning of the allegations, ResCom terminated its business relationship

with CEP. I&E Supplemental Statement at 6.

I&E recognizes that ResCom’s oversight of its marketing partner was “less

than stellar.” However, I&E acknowledges there was no practical means by which

ResCom could determine the number of Do Not Call violations. Because of the lack of

information, I&E decided to negotiate a settlement without quantifying the extent of

CEP’s Do Not Call violations. Id.

Terms of the Settlement9

Pursuant to the proposed Settlement, ResCom will pay a civil penalty of

$59,000, of which no portion shall be recovered from Pennsylvania consumers by any

future proceeding, device or manner whatsoever.10 Settlement at 11. I&E explains that

the civil penalty represents a monetary fine of $1,000 for each of the forty-nine violations

alleged by I&E. The additional $10,000 civil penalty results from the separate

whistleblower investigation and ResCom’s inadequate Do Not Call oversight. I&E

Supplemental Statement at 7.

The Company also acknowledges that it has revised its operating

procedures as safeguards against future unauthorized EGS marketing practices of

ResCom’s employees or agents. Specifically, ResCom notes it has implemented the

9 The terms are set forth in greater detail in the Settlement at 11-17.10 We note that the Parties initially describe the proposed payment as a “civil

settlement.” Settlement at 11. However, the Parties also stipulate that ResCom shall not seek a tax deduction in the amount of the “civil sanction” pursuant to Section 162(f) of the Internal Revenue Code. Id. Section 162(f) of the Internal Revenue Code provides that no business or trade expense deduction shall be allowed for any fine or similar penalty paid to a government for the violation of any law. 26 U.S.C. § 162(f). For ease of reference, and consistency with the Code, 66 Pa. C.S. § 3301, we shall describe the payment herein as a civil penalty.

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following: (1) Better ResCom Identification and Script Improvements – the Company

created new marketing materials, enrollment forms, t-shirts and scripts to clarify the

identity of the caller, the purpose of the call, and the lack of any affiliation between

ResCom and the local EDC; (2) Caller IDs and Extended Customer Service Hours –

ResCom added over 100 phone numbers to the call centers to be used on their caller IDs

and ensured that return calls to these numbers will ring directly to the Company’s

customer service center which is staffed until 9 p.m. on weekdays; (3) Do Not Call lists –

ResCom began distributing weekly Pennsylvania, federal and internal Do Not Call lists to

its contracted call centers, requiring the centers to scrub all their lists against ResCom’s

lists prior to using them; (4) Additional Training Resources – ResCom hired a full time

field trainer/inspector to train third party marketers, requires the trainer/inspector to

personally certify each field agent selling face-to-face on the Company’s behalf, and

increased the shadowing requirement for new field agents from seven to fourteen days;

(5) Phone Line Upgrade – ResCom transitioned to a new phone carrier to alleviate

outages and dropped calls. Settlement 12-13.

ResCom further agrees to provide BCS Staff with written notice of any

changes to its practices and procedures related to marketing to Pennsylvania consumers

for EGS products and services. This requirement will remain in effect for one year

following the entry of the Commission’s Final Order and may be extended at the

discretion of BCS Staff. Id. at 13.

Also for one year following entry of the Final Order, ResCom will provide

quarterly reports detailing: (1) the number of customer complaints received by the

Company and categorizing them as residential or commercial; and (2) the monthly

complaint rate, which is the number of monthly complaints divided by the number of

consumers switching EGS services to the Company for the month. BCS staff will have

the discretion to extend this reporting requirement beyond the initial one-year effective

date. Id.

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In its fourth quarterly report, ResCom agrees to provide information

describing compliance with the Code, Commission Orders and Regulations and the

conditions set forth in the Settlement. Moreover, the fourth quarterly report will include

updated information regarding lawsuits, investigations, and state commission proceedings

involving affiliates of ResCom in other jurisdictions. After receiving the fourth quarterly

report, the Commission’s Bureau of Technical Utility Services (TUS), with the assistance

of BCS and the Commission’s Law Bureau, shall prepare a Staff recommendation

regarding any appropriate licensing conditions for the Company. Id. at 13-14.

In response, I&E agrees to forbear from initiating a formal complaint

relative to the allegations that are the subject of the proposed Settlement. The proposed

Settlement will not, however, affect the Commission’s authority to receive and resolve

any formal or informal complaints filed by any affected party, except that no further

penalties beyond the agreed civil penalty may be imposed by the Commission for any

actions identified in the Settlement. Id. at 14-15.

The proposed Settlement is conditioned on the Commission’s approval

without modification of any of its terms or conditions. If the Commission does not

approve the proposed Settlement, or makes any change or modification to the proposed

Settlement, either Party may elect to withdraw from the Settlement. Id. at 17.

Discussion

Pursuant to our Regulations at 52 Pa. Code § 5.231, it is the Commission’s

policy to promote settlements. The Commission must, however, review proposed

settlements to determine whether the terms are in the public interest. Pa. PUC v.

Philadelphia Gas Works, Docket No. M-00031768 (Order entered January 7, 2004).

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Conclusion

Before issuing a decision on the merits of the proposed Settlement, and

consistent with the requirement of 52 Pa. Code § 3.113(b)(3), we are providing an

opportunity for interested parties to file comments regarding the proposed Settlement;

THEREFORE,

IT IS ORDERED:

1. That this Opinion and Order, together with the attached Settlement

Agreement and the Statements and Supplemental Statements in Support thereof, shall be

issued for comments by any interested party.

2. That a copy of this Opinion and Order, together with the attached

Settlement Agreement and the Statements and Supplemental Statements in Support

thereof, shall be served on the Office of Consumer Advocate and the Office of Small

Business Advocate.

3. That comments regarding the proposed Settlement Agreement will

be considered timely if filed within twenty (20) days of the date of entry of this Opinion

and Order.

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4. That, subsequent to the Commission’s review of comments filed in

this proceeding, an Opinion and Order will be issued.

BY THE COMMISSION,

Rosemary ChiavettaSecretary

(SEAL)

ORDER ADOPTED: June 19, 2014

ORDER ENTERED: June 20, 2014

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