NATIONAL ASSOCIATION OF STATE UTILITY CONSUMER ADVOCATES

RESOLUTION 2012-04

URGING THE ADOPTION OF STATE LAWS AND REGULATIONS REGULATING COMPETITIVE ENERGY SUPPLY MARKETS, INCLUDING MEASURES DESIGNED TO PROMOTE HONESTY AND CLARITY IN MARKETING AND TO GIVE CONSUMERS A REASONABLE ABILITY TO SELECT A COMPETING PROVIDER

Whereas, the markets for electricity and natural gas have been open to retail competition in numerous states for nearly two decades; and

Whereas, there are differing procedures among the states by which competitive retail energy providers may be authorized to conduct business, differing business models by which the providers conduct business, and almost as many approaches to marketing as providers; and

Whereas, frequent, even daily, commercial messaging by such providers often presents consumers with bewildering claims and options; and

Whereas, compounding the problem, there have been documented complaints of marketing representations that are false and misleading, including representations of affiliation with a public utility and representations regarding the savings a consumer can expect if the consumer switches providers;

[i] and

Whereas, the false and misleading representations have been delivered both door-to-door and by telephone; and

Whereas, in consequence of these difficulties, consumers are frequently surprised to learn that their provider contracts do not match expectations or are not well-suited to their needs; and

Whereas, retail energy providers have control over, and are responsible for, the content, manner and methods of marketing, whether in house or by their contracted third-party marketing agents; and

Whereas, on the front end, consumers need an ability to compare competitive offers meaningfully and directly, price to price, and desired feature to desired feature; and

Whereas, the ability of consumers to escape unexpected and unwanted terms and conditions is frequently undercut by expensive early termination fees, which are anticompetitive and even antithetical to the concept of a competitive market;[ii] and

Whereas, on the back end, consumers need an ability to switch to a competing provider, without undue constraints from unreasonable early termination fees, if and when they determine a competing offering is superior or better suited to their needs; and

Whereas, the receipt of electricity supply or natural gas supply is not a luxury but a necessity of life; and

Whereas, households of modest means must optimize the spending power of their limited incomes; and

Whereas, consumers are entitled to honest, transparent and accurate marketing in matters concerning vital and essential services, including electricity and natural gas supply; and

Whereas, such honest, transparent and accurate marketing enhances customer confidence in the competitive markets and benefits all concerned, including the providers; and

Whereas, retail energy marketers would benefit from a common set of guidelines for conducting marketing efforts to consumers;

Now, therefore, be it resolved, that state legislatures and state public utility commissions should develop and adopt laws and regulations regulating competitive energy supply markets, including measures designed to promote honesty and clarity in marketing and measures designed to give consumers a reasonable ability to select a competing provider. 

Be it further resolved, that such laws and regulations should incorporate the following specific consumer protections:

  1. Retail energy marketers should be required to make honest and accurate marketing presentations; deceptive and misleading statements should be prohibited.[iii]
  2. Retail energy providers should be required to disclose the price of energy supply, i.e., cents per Kwh for electricity or dollars per Dth/CCF for natural gas, before a consumer signs or verbally agrees to a contract for energy supply.
  3. Regulators should require uniform disclosure of prices and terms by retail energy providers and should make the information available on their websites and by other means in order to permit consumers to compare and make informed selections of products and services offered in the supply markets.
  4. Before consumers are asked to sign a contract or verbally agree to enroll with a new provider, retail energy providers should be required to give consumers written information that clearly and conspicuously discloses, in plain language, the prices, terms and conditions of the products and services being offered and sold.
  5. Before consumers are asked to sign a contract or verbally agree to enroll with a new provider, retail energy providers should be required to disclose specifically what, if any, fees and charges apply, such as application fees, customer charges, administrative charges, taxes or early termination fees.
  6. Retail energy providers should be required to confirm that the person authorizing the switch of an account holder’s energy supply to a new competitive retail energy provider is in fact the account holder; unauthorized switches should be prohibited.[iv]
  7. Under well-established principles of the law governing principal and agent, retail energy providers should be held accountable for the misrepresentations, misleading scripting and other rogue actions of their marketing agents
  8. Statutory and regulatory requirements should be enforced through the assessment of significant civil monetary penalties, and through escalating penalties including suspension and revocation of authority to do business when patterns of consumer protection violations occur.[v]
  9. Provider contracts should be subject to a “cooling off” period of a number of days, not fewer than three, during which the consumer can rescind the contract without incurring any obligations under it.[vi]
  10. Early termination fees should be clearly disclosed in advance of signing a contract and separately agreed to in writing.[vii]
  11. Early termination fees should be limited in amount,[viii] as, for example, to the maximum $50 allowed under Illinois law for alternative gas suppliers;[ix]
  12. Early termination fees should include grace period exceptions, extending until thirty (30) days after receipt of the first bill, under which a surprised or dissatisfied consumer can terminate the contract without incurring any such fee.[x]
  13. All solicitation materials and presentations should be required to include a conspicuous statement that the consumer will be able to terminate the contract during the grace period without being assessed an early termination fee.
  14. Retail energy providers should be permitted to market energy supply as “green,” “renewable” or “environmentally friendly” only if the energy supply being marketed includes purchases entirely separate, apart from, and in excess of, those required to meet any state renewable portfolio standard requirements applicable to retail energy providers.
  15. Marketing activities should be consistent with other applicable state and federal laws and regulations.[xi]

Be it further revolved, that NASUCA authorizes its Executive Committee to develop specific guidelines for retail energy marketing to consumers and to take appropriate actions consistent with the terms of this resolution.  The Executive Committee shall advise the membership of any proposed action prior to taking such action, if possible.  In any event, the Executive Committee shall notify the membership of any action taken pursuant to the resolution.

 

Submitted by Consumer Protection Committee

Approved June  25, 2012

Charleston, South Carolina

Abstention:  Indiana

[i] See Illinois Commerce Commission Docket No. 08-0175,  Citizens Utility Board, Citizens Action/Illinois, AARP v. Illinois Energy Savings Corp., d/b/a US Energy Savings Corp – Complaint as to marketing practices in Chicago, IL, Order dated April 13, 2010; Maryland Public Service Commission Case No. 9253, In the Matter of the  Complaint of the Staff of the Public Service Commission Against North American Power and Gas, LLC, Order Nos. 83785 dated Jan. 14, 2011 and 84096 dated June 9, 2011; Ohio Public Utilities Commission Case No. 02-1828-GA-CRS, In the Matter of the Application of Commerce Energy, Inc. d/b/a Just Energy for Certification as a Competitive Retail Natural Gas Provider, Order dated Nov. 22, 2010; see also Ohio Consumers’ Counsel, Press Release, “OCC files complaint against IGS marketing tactics” (Oct. 21, 2010).

[ii]See Annual Report and Analysis of Competitive Market Conditions with respect to Commercial Mobile Services, 24 F.C.C.R. 6185 ¶ 185 (FCC 2009) (“[t]he practice of assessing [early termination fees] . . . represents a barrier to consumers’ ability to switch service providers”).  In a recent court decision similarly involving the assessment of early termination fees in conjunction with contracts for cellphone service, the fees did not appear to be “based on the amount of any actual or estimated loss” but instead to have been assessed “from a competitive standpoint,” with a purpose “to control churn” and “prevent customers from leaving.”  Cellphone Fee Termination Cases, 122 Cal.Rptr.3d 726, 745 (Cal. App. 2011).
[iii]See Code of Mass. Regs. 19.94 (making it an unfair or deceptive act or practice for a retail seller of electricity to make any material misrepresentation to the public or to any consumer, either directly or through any type or marketing or agreement, or through the use of any misleading symbol or representation, which the seller knows or should know has the capacity or tendency to deceive or mislead a reasonable consumer, or that has the effect of deceiving or misleading a reasonable consumer, in any material respect, including, among others, representations related to:  (a) the quality, environmental or other characteristics, or source of any product or service being offered for sale; (b) the business relationship between any retail seller of electricity and any distribution company; (e)  the distribution price, the generation price or the total delivered price of electricity or the price of any related electricity products or services; or (h) the amount of money to be saved by a consumer, expressed in any manner, if a consumer chooses one retail seller of electricity over any other seller).  See also Md. Code Ann., Commercial Law 13-301.
[iv]See 815 Ill. Comp. Stats. Ann. 505/2DDD(d); Md. Code Ann., Public Utilities 7-705; Mich. Comp. Laws Ann. 460.9(2).
[v]See Mich. Comp. Laws Ann. 460.9(9)(a) (authorizing fine for first offense not less than $20,000 nor more than $30,000 and fine for second or subsequent offense not less than $30,000 nor more than $50,000, or, if second or subsequent offense was knowingly in violation of requirements, not more than $70,000; each violation is separate offense).
[vi]See 16 C.F.R. § 429.1.

[vii]See Annual Report and Analysis of Competitive Market Conditions with respect to Mobile Wireless including Commercial Mobile Services, 25 F.C.C.R. 11407 ¶ 236 (FCC 2010) (“it is essential that consumers fully

understand what they are signing up for – both in the short term and over the life of the contract – when they accept a service plan with an early termination fee”).

[viii]In 2009, when Verizon doubled its early termination fee for certain devices from $175 to $350, the action prompted an inquiry from the Federal Communications Commission. 24 F.C.C.R. 14320 (FCC 2009).  See also Annual Report and Analysis of Competitive Market Conditions with respect to Mobile Wireless including Commercial Mobile Services, 25 F.C.C.R. 11407 ¶ 236 (FCC 2010) (“early termination fees are substantial (and in some cases are increasing) and have an important impact on consumers’ ability to switch providers”).

[ix]220 Ill. Comp. Stats. Ann. 5/19-115(g)(5)(A) (“any early termination fee or penalty shall not exceed $50 total, regardless of whether or not the agreement is a multiyear agreement”); 815 Ill. Comp. Stats. Ann. 505/2DDD(e) (same).
[x]See Pacific Bell Wireless, LLC v. Public Utilities Commission, 44 Cal.Rptr.3d 733 (Cal. App. 2006) (policy of charging customers an early termination fee to cancel a wireless telephone service contract without permitting any type of grace period was an unjust and unreasonable practice, particularly when company admitted the best way for customers to decide whether company’s service would work for them was to try the service for some period of time”).  See also Annual Report and Analysis of Competitive Market Conditions with respect to Commercial Mobile Services, 24 F.C.C.R. 6185 ¶ 185 (FCC 2009) (“Other provider practices also affect consumers’ ability to switch service providers. Mobile telephone service providers generally allow new customers to cancel their service for any reason without incurring the early termination fee within a grace period – typically thirty days – of signing the agreement”).

[xi]See  Telemarketing and Consumer Fraud and Abuse Prevention Act, 15 U.S.C. Sec 6101 et seq.;

Telemarketing Sales Rule, 16 C.F.R. Part 310.