PENNSYLVANIA COMMONWEALTH OF PENNSYLVANIA

PENNSYLVANIA PUBLIC UTILITY COMMISSION P.O. BOX 3265, HARRISBURG, PA 17105-3265

IN REPLY PLEASE REFER TO OUR FILE

May 29, 2013

Rosemary Chiavetta, Secretary Pennsylvania Public Utility Commission P.O. Box 3265 Harrisburg, PA 17105-3265

Re: Pennsylvania Public Utility Commission, Bureau of Investigation and Enforcement v. AP Gas & Electric (PA), L L C Docket No. IV1-2013-2311811

Dear Secretary Chiavetta:

Enclosed for filing please find the original of the Settlement Agreement and accompanying Statements in Support of the parties relative to the above-captioned proceeding. Copies of this filing have been served in accordance with the attached Certificate of Service.

Should you have any questions, please do not hesitate to contact me.

Sincerely,

Michael L. Swindler Prosecutor Attorney ID No. 43319

Enclosures

cc: As per Certificate of Service

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B E F O R E T H E PENNSYLVANIA PUBLIC U T I L I T Y COMMISSION

Pennsylvania Public Utility Commission Bureau of Investigation and Enforcement

v.

AP Gas & Electric (PA), L L C , d/b/a APG&E

Docket No. M-2013-2311811

S E T T L E M E N T A G R E E M E N T

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I. Introduction

1. The parlies to this Setllemenl Agreement ("Settlement AgreeinenETJ are ^ 2

Pennsylvania Public Utility Commission's Bureau of Investigation and Enforcement

("I&E"), by its counsel, P.O. Box 3265, Harrisburg, PA 17105-3265 and AP Gas &

Electric (PA), LLC, d/b/a APG&E, a Texas limited liability company authorized lo do

business in Pennsylvania ("APG&E" or "Company"), 6161 Savoy Drive, Suite 500,

Houston, TX 77036.

2. The Pennsylvania Public Utility Commission ("Commission") is a duly

constituted agency of the Commonwealth of Pennsylvania empowered to regulate utilities

within this Commonwealth pursuant lo ihe Public Utility Code ("Code"), 66 Pa.C.S.A.

§§ 101,6'/ seq.

3. Section 501(a) of the Code, 66 Pa.C.S.A. § 501(a), authorizes and obligates

the Commission to execute and enforce the provisions of the Code.

4. The Commission has delegated its authority to initiate proceedings that are

prosecutory in nature to I&E and olher bureaus with enforcement responsibilities.

Delegation of Prosecutory Authority to Bureaus with Enforcement Responsibilities,

Docket No. M-00940593 (Order entered September 2, 1994), as amended by Act 129 of

2008, 66 Pa.C.S.A. § 308.2(a)(l I).

5. APG&E is a jurisdictional electric generation supplier ("EGS") 1 licensed

by the Commission to operate in the service territories of all electric distribution

companies in Pennsylvania.

6. APG&E is a public utility as defined by 66 Pa.C.S.A. § 102, only for the

limited purposes as described in Sections 2809 and 2810 of the Competition Act.

7. APG&E, as a provider of electric generation service for compensation, is

subject lo the power and authority of the Commission pursuant to Section 501 (c) of the

Public Utility Code, 66 Pa.C.S.A. § 501(c).

8. Pursuant to the provisions of Ihe applicable Commonwealth statutes ancl

regulations, the Commission has jurisdiclion over the subject matter and the actions of

APG&E in ils capacity as an EGS serving consumers in Pennsylvania.

1 "Eleclric generalion supplier' is defined in Seelion 2803 of llie Eleelricity Generalion Customer Choice and Compelilion Acl, 66 Pa.C.S.A. §§ 2801-2812 ("Competition Acf) ; See also, 52 Pa. Code §57.171. 2 APG&E was granted Connnission approval as an alternative relail electric supplier on or about October 14, 2010. APG&E's first eleclric generation supply customer in Pennsylvania was enrolled in 2011.

9. Section 3301 of the Code, 66 Pa.C.S.A. § 3301, authorizes the Commission

to impose civil penalties on any public utility or on any other person or corporation

subject to the Commission's authority for violations of the Code or Commission

regulations or both. Section 3301 further allows for the imposition of a separate fine for

each violation and each day's continuance of such violation(s). Specifically with regard

to standards for changing a customer's electric generation supplier, the Commission is

empowered to assess fines under the aforementioned 66 Pa.C.S. Chapter 33, pursuant to

52 Pa. Code§ 57.177(e).

10. I&E initiated an informal investigation of APG&E consistent with Sections

331 (a) and 506 of the Public Utility Code, 66 Pa.C.S. §§ 331 (a) and 506 and 52 Pa. Code

§3.113. This investigation focused on one self-reported fraudulent marketing incident3

and numerous consumer complaints received by the Commission's Bureau of Consumer

Services ("BCS") relating to the Company's marketing practices for its EGS services in

Pennsylvania from 2010 through 2012.

11. Asa result of negotiations between APG&E and l&E (hereinafter

"Parties"), the Parlies have agreed to resolve their differences as encouraged by Ihe

Commission's policy to promote settlements. See, 52 Pa. Code § 5.231. The duly

authorized Parlies executing this Settlement Agreement agree to the settlement terms set

forth herein and urge the Commission to approve the Settlement Agreement as submitted

as being in the public interest.

"' This form of "slamming" has been referred lo by llie Commission as "enrolling customers lo receive electric generalion supply service without proper customer aulhori/.alion." Pennsylvania Public Utility Commission Law Bureau Prosecutory Staff v. PEPCO Energy Services, Dockel No M-OOO11588 (Tentative Order entered December 20,2001).

II . Background

12. On June 12, 2012, APG&E self-reported a slamming incident to BCS

regarding an occurrence in early May 2012 where an "independent broker"4 submilted to

APG&E a 12-month service contract for a commercial customer in PECO service

territory that was purported to be signed by an authorized representative of Ihe customer.

13. On or about June 15, 2012, APG&E was contacted by local law

enforcement authorities and advised that a complaint had been filed related lo the

fraudulent contract. The complaint alleged that the EGS transfer was not authorized and

that, in addition, the new contract would result in a substantial increase in the monthly

electric bill of the business. It is alleged that, as a result of this incident, the Company as

licensee and/or its agent may have violated Chapters 54, and 57 provisions (52 Pa. Code)

concerning the standards for changing a customer's electricity generation supplier,

among other statutes and regulations, and, by taking action to switch or by switching their

generation service without authorization, engaged in "slamming" the affected customer.5

4 APG&E defines "independenl broker" as any non-affiliated and/or non-subsidiary niarkeling or sales organizalion lhat faeililale.s residential and/or C&l customer acquisition on behalf of APG&E. 5 52 Pa. Code § 54.43, Slandards of conduct and disclosure for licensees, Subsection (f). stales: "A licensee is responsible for any fraudulent deceplive or other unlawful niarkeling or billing acts performed by the licensee, ils employes, agents or represenlalives. Licensee shall inform consumers of state consumer protection laws lhal govern the cancellation or rescission of eleclric generalion supply contracts." See also, hiterim Guidelines for Marketing and Sales Practices for Electric Generation and Natural Gas Suppliers, Dockel No. M-2() 10-21859KI (Order entered November 5, 2010), Annex A, Proposed Interim Guidelines al Section G.4.

14. In addition to the above self-reported incident, various complaints were

filed with BCS relating to the Company's marketing practices for its EGS services in

Pennsylvania for 2011 ancl 2012.

15. BCS requested that I&E review the matter. An informal investigation was

initiated by I&E into APG&E's marketing practices as an EGS in Pennsylvania.

16. By letter dated February 15, 2013, l&E advised APG&E that I&E's

informal investigalion had concluded that sufficient data had been gathered to

substantiate allegations of violations of the Public Utility Code and/or other applicable

statutes and regulations.

(7. APG&E neither admits nor denies any of I&E's informal investigation

allegations of violations of the Public Ulility Code and/or other applicable statutes and

regulations.

III . Alleged Violations

18. As a result of ils investigation, l&E identified various consumer

complaints.

19. Based on information obtained through ils investigalion as described above

and a review of the Commission's regulations and relevant statutes, I&E was prepared to

contend by the filing of a formal complaint lhat APG&E violated certain provisions of

Title 52 of the Pennsylvania Code6 as well as of the Public Utility Code7 in that:

6 Specifically, Sctiiims 54.42(a)(9) ami 54.43(0 of llie Electricity Generation Customer Choice & Competition Act, 52 Pa. Cade 54.1, etseq. 7 Specifically, Chapter 57 of the Commission's regulations, Subchapter M., Standards for Changing a Customer's Electricity Generation Supplier. 52 Pa. Code §§ 57.171 -177.

a. The action of the Company or of an agent or agents of the Company failed to comply with the "Standards for Changing a Customer's Electricity Generation Supplier" in that the Company or an agent or agents of the Company failed to obtain "direct oral confirmation or written authorization from the customer to change the EGS" in the process of switching the electric generation supplier on multiple consumer accounts which resulted in physically switching the electric generation supplier of those accounts without the proper authorization of the consumers or without proper verification.

If proven, this is a violation of 52 Pa Code § 57.173.

b. The action of the Company or of an agent or agents of the Company failed lo comply with the Electricity Generalion Cuslomer Choice and Competition Act, 52 Pa. Code §§ 54.1, cl seq., in that the Company or an agent or agents of the Company engaged in fraudulent, deceptive or otherwise unlawful acts in the process of marketing electric generation supplier services of the Company to Pennsylvania consumers.

If proven, this is a violation of 52 Pa. Code § 54.43(0 (multiple counts).

c. The Company or an agent or agents of the Company failed to comply with the "Do Not Call" provision of the Telemarketer Regislralion Act, 73 P.S. §§ 2241, el seq., in that the Company or an agent or agents of the Company initiated the process of marketing efforts related to switching the eleclric generation supplier on multiple consumer accounts and resulted in making telephone calls, and sometimes multiple telephone calls, to consumers listed on a state or federal "Do Not Call" list.

If proven, this is a violation of 73 P.S. § 2245.2 (multiple counts).

d. The Company violated the Code of Conduct at 52 Pa. Code § 54.43 in that licensed suppliers are "responsible for any fraudulent deceptive or olher unlawful marketing or billing acts performed by the licensee, its employes [sic], agents or representatives" and APG&E is a "licensee" as lhat term is defined at 52 Pa. Code § 54.31.

If proven, this is a violation of 52 Pa. Code § 54.43 (multiple counts).

e. The Company failed to furnish and maintain adequate, efficient, safe and reasonable service and facilities in the provision of service as an

electric generation supplier in that the Company or an agent or agents of the Company failed to comply with the Public Utility Code's "Standards for Changing a Customer's Electricity Generation Supplier," the Electricity Generation Customer Choice and Competition Act and the Telemarketer Registration Act.

If proven, this is a violation of 66 Pa.C.S. § 1501 (multiple counts).

20. Throughout the entire investigatory process, APG&E ancl I&E remained

active in communications and informal discovery and continued to explore the possibility

of resolving this investigation, which ultimately culminated in this Settlement

Agreement. During the investigatory process, APG&E complied with l&E's requests for

information and documentation.

21. I&E acknowledges lhat APG&E has fully cooperated with this

investigation.

IV. Settlement Terms

22. APG&E and I&E desire to: (i) terminate I&E's informal investigalion and

(ii) settle this matter completely without litigation.

23. APG&E acknowledges that the Commission has a long-standing "zero-

tolerance" policy concerning slamming and related customer enrollment issues, that the

Commission has penalized companies that engage in or are alleged to have engaged in

inappropriate supplier marketing practices, and that (he Commission has made it clear

that such practices will not be tolerated.

24. Although APG&E does not admit any wrong doing and may dispute or

disagree with some or all of the allegations above, it fully acknowledges the seriousness

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

Moreover, the Parties recognize that this is a disputed claim and, given the inherent

unpredictability of the outcome of a contested proceeding, the Parties further recognize

the benefits of amicably resolving the disputed issues through settlement.

25. APG&E and f&E, intending to be legally bound and for consideration

given, desire to fully and finally conclude this informal investigation and agree to

stipulate as lo the following terms solely for the purposes of this Seltlemenl Agreement:

a. APG&E will pay a civil settlement amount of forty-three thousand iwo hundred dollars ($43,200.00) to resolve all allegations of slamming and related unauthorized actions and lo fully and finally settle all possible liability and claims of alleged violalions of the Pennsylvania Code and the Public Utility Code arising from, or related to, the unauthorized marketing practices investigated herein. Said payment shall be made by check to "Commonwcallh of Pennsylvania" and presented to the Commission within thirty (30) days after the Commission has entered a final order approving the Settlement Agreement. No portion of this payment shall be recovered from Pennsylvania consumers by any future proceeding, device or manner whatsoever.

b. APG&E has taken corrective action and implemented revisions to ils operating procedures which will act as safeguards against future unauthorized EGS marketing practices of employees or agents of APG&E. The pertinent portions of APG&E's modified procedures arc briefly described as follows:

i . Since self-reporting the incident which occurred in May 2012, APG&E proactively identified and contacted the independent broker and the specific sales agent responsible for the alleged fraudulent contract. APG&E pulled all contracts brought in by the independent broker and had APG&E customer service represenlalives call and verbally verify all prior submitted contracts submilted by that independent broker.

i i . Since Fall 2012, APG&E is no longer engaged with any of the independent brokers doing mass marketing for APG&E in Pennsylvania in 2011 and 2012^

i i i . APG&E vetted, found unsuitable and rejected an estimated twenty-four (24) potential independent brokers that applied to market APG&E products and services in the Northeast in 2011 and 2012.

c. If it docs not already do so, APG&E agrees to annually send correspondence lo its customers confirming that the customer has selected APG&E as his or her electric generation supplier and that APG&E has no affiliation with the customer's public utility. This annual correspondence shall provide APG&E's contact information, including the address, phone number and website as well as the Commission's contact information, including the website and the toll free number for consumer complaints.

d. APG&E will endeavor to fully comply wilh the Commission's marketing guidelinesy and will provide Commission I3CS staff with all marketing materials to be used in Pennsylvania for review upon request of staff.

e. APG&E will provide Commission BCS staff with written notice of any change to the Company's practice and procedures related to marketing consumers for EGS products and services in Pennsylvania and will provide details of those changes upon request of staff. This requirement will remain in effect for one (1) year after the enlry of a Commission final order in Ihis matter and may be extended al the discretion of BCS staff.

f. APG&E will file with the Commission and serve on BCS staff a quarterly report capturing: (i) the complaints received by the Company (not complaints filed with the Commission), and categorizing the complaints as residential or commercial; and (ii) the monthly complaint rate (number of complaints for (he month divided by the number of consumers switching EGS services lo Company for the month). This requirement will remain in effect for one (1) year after the entry of a Commission final order in this matter and may be extended at the discretion of BCS staff.

! t According lo APG&D's records, six (6) independenl brokers engaged by APG&E lo perform marketing services in Pennsylvania in 2011 had iheir contracts with APG&E terminated and/or were placed permanently inactive. An additional four (4) independent brokers were terminated and/or placed permanently inactive in 2012. !1 Intei iw Guidelines for Marketing and Sales Practices for Electric Generation and Natural Gas Suppliers, Docket No. M-2010-2185981 (Order entered November 5, 2010).

g. APG&E will confirm its single point of contact for Commission BCS staff for resolution of customer inquiries and/or complaints received by the Commission and will respond to all consumer inquiries and complaints in accordance wilh BCS requirements, including providing to Commission BCS staff a copy of the cuslomer contract and any audio recordings of the sales call and verification call. This requirement will remain in effect for one ( I ) year after the entry of a Commission final order in this matter and may be extended at the discretion of BCS staff.

h. In exchange for the action taken by APG&E as described above, l&E agrees not lo institute any formal complaint relating to the unauthorized customer enrollments and/or related marketing practices lhat are the subject of this Settlement Agreement.

i. The terms and conditions in this Settlement Agreement cannot be used and will not be admissible in any future proceeding, including, but not limited to, the Commission, the Pennsylvania court system or the federal court system, relating lo this or any other matter as proof of unlawful and/or improper behavior, or as an admission of unlawful and/or improper behavior by APG&E.

26. In consideration of the Company's payment of a monetary civil selllement

and its compliance with the non-monetary terms of this settlement, as specified herein,

I&E agrees lo forgo the institution of any formal complaint that relates lo the Company's

conduct as described in the Selllement Agreement. Nothing contained in this Settlement

Agreement shall adversely affect the Commission's authority lo receive and resolve any

informal or formal complaints filed by any affected party with respect to the incident,

except that no penalties beyond the civil settlement amount agreed lo herein may be

imposed by the Commission for any actions identified herein.

V. Conditions of Settlement

27. The Parties submit that a settlement avoids the necessity for the prosecuting

agency to prove elements of each violation. In return, the opposing party in a settlement

agrees to pay a lesser sum to avoid the possibility of a larger fine or penalty resulting

from litigation. This settlement represents a compromise by both APG&E and I&E of

their respective litigation positions. Any fines and penalties resulting from a litigated

proceeding, typically are different from payments resulting from a settlement.

28. The Settlement Agreement meets the standards set forth in the

Commission's Policy Statement at 52 Pa. Code § 69.120L. The Parties submit that the

Settlement Agreement is in the public interest because it effectively addresses the

slamming issue that was the subject of I&E's investigation, avoids the time and expense

of litigation, which entails hearings, travel for the company's out-of-state witnesses and

counsel, and the preparation and filing of briefs, exceptions, reply exceptions, and

possible appeals.

29. With the Commission's approval that the terms and conditions in this

Settlement Agreement are in the public interest, APG&E agrees, along with the non­

monetary terms set forth above, to pay a civil settlement amount of $43,200 within thirty

(30) days of the date of the Order approving this Settlement Agreement, to resolve

completely the allegations raised by I&E's investigation. Moreover, APG&E agrees not

to seek recovery of any portion of this settlement amount from its Pennsylvania

customers.

30. This Settlement Agreement is a full and final resolution of the

Commission's investigation related in any way to the matters described in this Settlement

Agreement.

31. APG&E and l&E have agreed to this settlement in the interests of avoiding

formal liligation and moving forward in the conduct of business in Pennsylvania.

32. APG&E and I&E have entered into and seek the Commission's approval of

the Selllement Agreement pursuant to 52 Pa. Code § 3.1 13. This Settlement Agreement

is subject lo all applicable administrative and common law treatments of scttlcmcnls,

settlement offers and/or negotiations. The validity of this Settlement Agreement is

expressly conditioned upon the Commission's approval under applicable public interest

slandards without modification, addition, or deletion of any term or condition herein.

Accordingly, this Settlement Agreement is made without any admission against or

prejudice to any position which any Party might adopt during litigation of this case if this

settlement is rejected by the Commission or withdrawn by any of the parties as provided

below. This Selllement Agreement is, therefore, a compromise and is conditioned upon

the Commission's approval of the terms and conditions contained herein without

modification or amendment.

33. This document represents the Settlement Agreement in its enlirely. No

changes to obligations set forth herein may be made unless they are in writing and are

expressly accepted by the Parlies involved. This Settlement Agreement shall be

construed and interpreted under Pennsylvania law.

34. None of the provisions of the Settlement Agreement or statements herein

shall be considered an admission of any fact or culpability. I&E acknowledges lhat this

Settlement Agreement is entered into with the express purpose of settling the asserted,

12

disputed claims regarding the specific alleged violations of the Commission's regulations

and Public Utility Code.

35. If either Party should file exceptions to the tentative or final order of the

Commission, the other Parly shall have the right to file a reply to exceptions.

36. If the Commission fails to approve by tentative and final order this

Settlement Agreement, including any of the terms or conditions set forth herein, without

modification, addition, or deletion, then either Party may elect to withdraw from this

Settlement Agreement by filing a withdrawal in response lo the tentative or final order

within twenty (20) days of the date the tentative or final order is entered. None of the

provisions of this Settlement Agreement shall be considered an admission of fact or law

or be binding upon the Parties if one of them files a withdrawal.

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WHEREFORE, AP Gas & Electric (PA), LLC and the Pennsylvania Public

Utility Commission's Bureau of Investigation and Enforcement respectfully request that

the Commission adopt an order approving the terms and conditions of this Settlement

Agreement as being in the public interest.

Respectfully Submitted.

Pennsylvania Public Utility Commission Bureau of Investigation and En forcement

B Michael L. Swindler Prosecutor PA PUC P.O. Box 3265 Harrisburg., PA 17105 717.783.6369 m s w i n d 1 erfffipa. gov

Date:

AP Gas & Electric (PA), LLC

By:. Chris Weaver CEO 6161 Savoy Drive Suite 500 Houston, TX 77036 713.337.2822 cweaver@.apg,el lc.com

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B E F O R E T H E PENNSYLVANIA PUBLIC U T I L I T Y COMMISSION

Pennsylvania Public Utility Commission Bureau of Investigation and Enforcement

v.

AP Gas & Electric (PA), L L C , d/b/a APG&E

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Docket No. M-2013-231181 jfc^ * 70

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STATEMENT IN SUPPORT OF SETTLEMENT AGREEMENT OF AP GAS &

ELECTRIC fPA). L L C <l/h/:i APG&E

AP GAS & ELECTRIC (PA). LLC d/b/a APG&E. a limited liability company formed

pursuant to ihe laws of the Stale of Texas and a licensed eleclric generalion supplier wilh ihe

Pennsylvania Public Utility Commission ("APG&E" or the "Company") hereby submits its

Statement in Support of the Selllement Agreement ("Seltlemenl") of the above-referenced

informal investigation by the Bureau of Investigalion and Enforcemenl ("I&E") of ihe

Pennsylvania Public Utility Commission ("Commission").

APG&E believes thai ihe Seltlemenl is consislenl with the factors and slandards flrsl

articulated by Ihe Commission in Rosi v Bell Atlanlic Pennsylvania. Ine. el al.. 94 PA PUC 103.

Docket No. C-00992409 (order entered March 16. 2000) and suhsequenlly adopted in llie

Commission's statement of policy for evaluating settlements of alleged violalions of the Public

Utility Code (Ihe "Code") and Commission regulations. See 52 Pa. Code § 69.1201 (ihe

"Slalemenl of Policy"). In parlieular. the Statement ol'Policy provides that ihe Commissioivs

policy is lo afford ihe parlies llexibiliiy to reach an amicable resolution provided ihe resolulion is

consislenl with Ihe public interest. In reaching the Setllemenl. Ihe parlies in Ihis mailer were

guided by the laclors and standards set forth in 52 Pa. Code ij 69.1201. The Setllemenl

adequately sets forth the facts underlying ihe allegations of l&E and the respective positions of

the parties. It is the product of both a thorough and professional investigation by l&E and of a

cooperative dialogue between the Company and l&E. The Seltlemenl is consistent with the

public interest and should be approved.

Although APG&E acknowledges the seriousness of l&E?s allegations, APG&E neither

admits nor denies any of l&E/s informal investigation allegations of violations of ihe Publie

Utility Code and/or olher applicable statutes and regulations. However, APG&E would like to

reassure the Commission that it lakes ils obligations as an electric generation supplier ("EGS")

seriously, as demonstraled by (i) ils cooperation with l&E. (ii) ils past and eurienl history of

regulatory compliance, and (iii) the fact thai at all limes relevant to this mailer it acted

proactively and in good faith lo resolve any and all silualions lhat arose in regards to Ihe alleged

aels by companies working for the Company. Eurther. APG&E has worked swiftly and

diligently in (i) ensuring that Pennsylvania cuslomer righls have been protected and (ii)

terminating business relationships wilh all those marketing companies responsible for muliiple

violations of the Public Utility Code. Moreover, most importantly. APG&E has volunlarily

changed its internal procedures and policies in regards to its selection of marketing companies to

avoid recurrence of these kinds of situations. APG&E has shown the l&E il has taken both

aggressive and proactive steps in ensuring that all Public Ulility Codes and customer protection

rules are strictly followed, which should be viewed as a model of cooperation between APG&E

and l&E. The changes to APG&E's procedures are designed lo improve the qualily of cuslomer

service, protect consumers and are in the public interest.

APG&E respectfully submits lhal. under all of ihe circumsUmccs. the Seltlemenl is in the

publie interest because il (i) complies with the standards set forth in the Commissioivs Slalemenl

of Policy, (ii) effectively addresses the issues idenlilied by I&E's investigalion (particularly the

prompt and voluntary implemenlalion of remedial action by APG&E lo avoid similar mistakes in

the future) and (iii) avoids the lime ancl expense of liligalion which entails hearings, tilings of

briefs, exceptions, reply exceptions, and possible appeals (thus conserving the resources of ihe

Commission and ils staff l&E and APG&E).

'I'he Company has also agreed lo pay a fair and equilable civil setllemenl amount and file

additional reports to the Commission, to ensure slricl. compliance of all Codes and cuslomer

proleelion rules. The monetary lerms of the Selllemenl lakes into account the nature and

consequences of this matter as well as the unintentional and inadvertent nature of the incident by

APG&E. a company thai has. in all respects, and without exception, been a responsible corporate

citizen.

In light of the foregoing and of the Commission's policy to promote scltlemenls and the.

desire of both parlies lo resolve this mailer without formal litigation. APG&E respeelluliy

requests thai the Commission adopt an order approving the lerms and conditions of Ihe

Settlement as being in the public interest.

Respeelluliy submitled. AP Gas & Eleclric (PA). EEC d/b/a APG&E

Suite 500 C/J ^ MousloiK Texas 77036 o m .^p. Phone: 713-337-2821 m 5 " fax: 888-511-3141 ^ ^ ^

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CKRTH ICAHON

This is to certify lhal a copy of ihe foregoing Statement in Support of Setllemenl Agreement of AP Gas & Eleclric (PA). LLC was mailed postage prepaid on the above dale lo:

Michael L. Swindler PA Public Ulility Commission Bureau of Investigalion and Enforcement Commonwcallh Keystone Building 400 North Slreel. .I 1 ' 1 ' floor Harrisburg PA 17120

BEFORE THE PENNSYLVANIA PUBLIC UTILITY COMMISSION rn

Pennsylvania Public Utility Commission Bureau of Investigation and Enforcement

v.

AP Gas & Electric (PA), L L C , d/b/a APG&E

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DocketNo. M-2013-2311811

STATEMENT IN SUPPORT OF SETTLEMENT AGREEMENT OF PENNSYLVANIA PUBLIC UTILITY COMMISSION BUREAU OF INVESTIGATION AND ENFORCEMENT

The Pennsylvania Public Utility Commission Bureau of Investigation and

Enforcement ("I&E") submits this Statement In Support Of Settlement Agreement at the

above docket. The specific terms of the settlement are found at Paragraphs 22 through 26

of the Settlement Agreement. I&E submits that the settlement as memorialized by the

Settlement Agreement was amicably reached by AP Gas & Electric (PA), LLC, d/b/a

APG&E ("APG&E" or "Company") and I&E (hereinafter collectively referred to as

"Parties") and balances the duty of the Pennsylvania Public Utility Commission

("Commission") to protect the public interest with the interests of the Company, the

Company's customers, and all electric consumers in Pennsylvania.

This matter involves APG&E, a jurisdictional electric generation supplier ("EGS")

licensed by the Commission to operate within the service territories of all electric

distribution companies in Pennsylvania. In June 2012, APG&E self-reported a slamming

incident to the Commission's Bureau of Consumer Services ("BCS") regarding an

occurrence in early May 2012 where an "independent broker"1 submitted to APG&E a

12-month service contract for a commercial customer in PECO service territory that was

purportedly signed by an authorized representative of the customer. The commercial

customer lodged a complaint with local law enforcement alleging that the EGS transfer

was not authorized and the contract was fraudulently endorsed. In addition to this self-

reported incident, various consumer complaints against APG&E were filed with the BCS

relating to the Company's marketing practices for its EGS services in Pennsylvania from

2010 through 2012. The BCS complaints were related to marketing contacts initiated by

the Company's independent, third-party sales agents and included allegations of

deceptive sales practices, misrepresentation, and in a few cases, the unauthorized

switching of generation service or "slamming." Some of the BCS complaints indicated,

among other things, that APG&E may have enrolled accounts without proper

authorization to do so, or without proper verification of transactions, contrary to the

"Standards for Changing a Customer's Electricity Generation Supplier" regulations at 52

Pa. Code §§ 57.171-179.

The BCS complaints also alleged that APG&E's independent third-party sales

agents may have solicited electric generation supply service in a manner contrary to the

APG&E defines "independenl broker" as any non-affilialed and/or non-subsidiary marketing or sales organization that facilitates residential and/or C&I customer acquisition on behalf of APG&E.

Commission's supplier marketing guidelines. Pursuant to 52 Pa. Code § 54.43(f), an

electric generation supplier is responsible for fraudulent, deceptive or other unlawful

marketing or billing acts performed by its agent. In some of the BCS complaints

investigated, it was alleged that the Company, as a result of the actions of its independent

third-party sales agents, may have violated provisions of Chapters 54 and 57 (52 Pa.

Code), among other statutes and regulations, concerning the standards for changing a

customer's electricity generation supplier.

APG&E investigated each of the BCS customer complaints, and provided

responses to BCS. BCS subsequently requested that I&E review the matter. An informal

investigation into APG&E's marketing practices as an EGS in Pennsylvania was initiated

by I&E. I&E's informal investigation concluded that sufficient data had been gathered to

substantiate allegations of violations of the Public Utility Code and/or other applicable

statutes and regulations in connection with some of the BCS customer complaints.

Specifically, I&E's investigation narrowed to 37 the number of BCS customer complaints

carefully reviewed for the purpose of preparing a successful litigation strategy. In its ^

analysis of these complaints, I&E uncovered 54 potential violations in its careful analysis

of 37 of the total of 60 BCS customer complaints reviewed.2 Had this matter proceeded

to an evidentiary hearing, I&E would have alleged that the Company committed

numerous violations of the Public Utility Code, as set forth in the "Alleged Violations"

section of the Settlement Agreement.

2 The violations cited include 73 P.S. § 2245.2 and 52 Pa. Code §§ 54.4, 54.6, 54.7, 54.43, and 54.173. Consistent with the discretion afforded to parties in their efforts to reach an amicable settlement, alleged violations of 66 Pa.C.S. § 1501 were not pursued by I&E in its quantification of the total number of violations for the purpose of calculating a civil settlement amount.

Had this matter proceeded to an evidentiary hearing, I&E would have alleged in its

case-in-chief as follows:

a. The action of the Company or of an agent or agents of the Company failed to comply with the "Standards for Changing a Customer's Electricity Generation Supplier" in that the Company or an agent or agents of the Company failed to obtain "direct oral confirmation or written authorization from the customer to change the EGS" in the process of switching the electric generation supplier on multiple consumer accounts which resulted in physically switching the electric generation supplier of those accounts without the proper authorization of the consumers or without proper verification.

If proven, this is a violation of 52 Pa Code § 57.173.

b. The action of the Company or of an agent or agents of the Company failed to comply with the Electricity Generation Customer Choice and Competition Act, 52 Pa. Code §§ 54.1, et seq., in that the Company or an agent or agents of the Company engaged in fraudulent, deceptive or otherwise unlawful acts in the process of marketing electric generation supplier services of the Company to Pennsylvania consumers.

If proven, this is a violation of 52 Pa. Code § 54.43(0 (multiple counts).

c. The Company or an agent or agents of the Company failed to comply with the "Do Not Call" provision of the Telemarketer Registration Act, 73 P.S. 2241, et seq., in that the Company or an agent or agents of the Company initiated the process of marketing efforts related to switching the electric generation supplier on multiple consumer accounts and resulted in making telephone calls, and sometimes multiple telephone calls, to consumers listed on a state or federal "Do Not Call" list.

If proven, this is a violation of 73 P.S. § 2245.2 (multiple counts).

d. The Company violated the Code of Conduct at 52 Pa. Code § 54.43 in that licensed suppliers are "responsible for any fraudulent deceptive or other unlawful marketing or billing acts performed by the licensee, its employes [sic], agents or representatives" and APG&E is a "licensee" as that term is defined at 52 Pa. Code § 54.31.

If proven, this is a violation of 52 Pa. Code § 54.43 (multiple . counts).

e. The Company failed to furnish and maintain adequate, efficient, safe and reasonable service and facilities in the provision of service as an electric generation supplier in that the Company or an agent or agents of the Company failed to comply with the Public Utility Code's "Standards for Changing a Customer's Electricity Generation Supplier," the Electricity Generation Customer Choice and Competition Act and the Telemarketer Registration Act.

If proven, this is a violation of 66 Pa.C.S. § 1501 (multiple counts).

In making a determination that the instant settlement was appropriate, I&E

weighed the Commission's clear "zero tolerance" mandate that it would "not tolerate

unlawful activity that threatens to harm Pennsylvania consumers and thereby the

burgeoning retail electricity market in Pennsylvania"3 against various mitigating

circumstances present here. Importantly, I&E acknowledges that APG&E fully

cooperated with I&E's investigation. APG&E promptly responded to I&E's requests for

information about the customer complaints and provided I&E with records,

correspondence, and other documents associated with the customer complaints. APG&E

described the decisive action taken by the Company, more fully described below, to

rectify the areas of concern which were the subject of I&E's investigation. Throughout

the entire investigatory process, APG&E and I&E remained active in communications

and informal discovery and continued to explore the possibility of resolving this

investigation, which ultimately culminated in the Settlement Agreement reached here.

3 Sec, Pennsylvania Public Ulility Commission, Law Bureau Prosecutory Staff v. MXenergy Electric Inc., M-2012-2201861 (Opinion and Order entered May 3, 20\2)("MXenergy").

The Settlement Agreement addresses the allegations raised in I&E's informal

investigation while avoiding the time and expense of litigation, including but not limited

to, discovery, preparation of witness testimony, hearings, briefs, exceptions, and appeals.

The Settlement Agreement, as proposed, is in the public interest and should be approved

by the Commission. The Settlement Agreement sets forth the following terms:

a. APG&E will pay a civil settlement amount of forty-three thousand two hundred dollars ($43,200.00) to resolve all allegations of slamming and related unauthorized actions and to fully and finally settle all possible liability and claims of alleged violations of the Pennsylvania Code and the Public Utility Code arising from, or related to, the unauthorized marketing practices investigated herein. Said payment shall be made by check payable to "Commonwealth of Pennsylvania" and presented to the Commission through the prosecuting attorney within thirty (30) days after the Commission has entered a final order approving the Settlement Agreement. No portion of this payment shall be recovered from Pennsylvania consumers by any future proceeding, device or manner whatsoever.

b. APG&E has taken corrective action and implemented revisions to its operating procedures which will act as safeguards against future unauthorized EGS marketing practices of employees or agents of APG&E. The pertinent portions of APG&E's modified procedures are briefly described as follows:

i . Since self-reporting the incident which occurred in May 2012, APG&E proactively identified and contacted the independent broker and the specific sales agent responsible for the alleged fraudulent contract. APG&E pulled all contracts brought in by the independent broker and had APG&E customer service representatives call and verbally verify all prior submitted contracts submitted by that independent broker.

ii . Since Fall 2012, APG&E is no longer engaged with any of the independent brokers doing mass marketing for APG&E in Pennsylvania in 2011 and 2012.4

A According to APG&E's records, six (6) independent brokers engaged by APG&E to perform marketing services in Pennsylvania in 2011 had their contracts with APG&E lenninaled and/or were placed permanently inactive. An additional four (4) independent brokers were terminated and/or placed permanently inactive in 2012.

i i i . APG&E vetted, found unsuitable and rejected an estimated twenty-four (24) potential independent brokers that applied to market APG&E products and services in the Northeast in 2011 and 2012.

c. If it does not already do so, APG&E agrees to annually send correspondence to its customers confirming that the customer has selected APG&E as his or her electric generation supplier and that APG&E has no affiliation with the customer's public utility. This annual correspondence shall provide APG&E's contact information, including the address, phone number and website as well as the Commission's contact information, including the website and the toll free number for consumer complaints.

d. APG&E will endeavor to fully comply with the Commission's marketing guidelines5 and will provide Commission BCS staff with all marketing materials to be used in Pennsylvania for review upon request of staff.

e. APG&E will provide Commission BCS staff with written notice of any change to the Company's practice and procedures related to marketing consumers for EGS products and services in Pennsylvania and will provide details of those changes upon request of staff. This requirement will remain in effect for one (1) year after the entry of a Commission final order in this matter and may be extended at the discretion of BCS staff.

f. APG&E will file with the Commission and serve on BCS staff a quarterly report capturing: (i) the complaints received by the Company (not complaints filed with the Commission), and categorizing the complaints as residential or commercial; and (ii) the monthly complaint rate (number of complaints for the month divided by the number of consumers switching EGS services to Company for the month). This requirement will remain in effect for one (1) year after the entry of a Commission final order in this matter and may be extended at the discretion of BCS staff.

g. APG&E will confirm its single point of contact for Commission BCS staff for resolution of customer inquiries and/or complaints received by the Commission and will respond to all consumer inquiries and complaints in accordance with BCS requirements, including providing to Commission BCS staff a copy of the customer contract and any audio recordings of the sales call and verification call. This requirement will

5 Interim Guidelines for Marketing and Sales Practices for Electric Generation and Natural Gas Suppliers, Docket No. M-2010-2185981 (Orderentered November5. 2010).

remain in effect for one (1) year after the entry of a Commission final order in this matter and may be extended at the discretion of BCS staff.

h. In exchange for the action taken by APG&E as described above, I&E agrees not to institute any formal complaint relating to the unauthorized customer enrollments and/or related marketing practices that are the subject of this Settlement Agreement.

i . The terms and conditions in this Settlement Agreement cannot be used and will not be admissible in any future proceeding, including, but not limited to, the Commission, the Pennsylvania court system or the federal court system, relating to this or any other matter as proof of unlawful and/or improper behavior, or as an admission of unlawful and/or improper behavior by APG&E.

APG&E has, as stated above, agreed to pay a fair and equitable civil settlement

amount totaling $43,200.00, and to take numerous corrective steps, as well as make

revisions to its operating procedures. APG&E has been proactive in its efforts to rescind

its business arrangements with third-party marketing agencies that have not performed to

the level demanded by APG&E or by the Commission. These monetary and non­

monetary settlement terms are in accord and satisfaction of disputed claims and were

reached after taking into consideration past settlements regarding similar incidents that

were approved by or submitted to this Commission which acted as a foundation from

which the Parties could determine reasonable settlement terms in this case.6

Similarities as well as defining distinctions where all considered in reaching a

settlement amount that would be deemed by this Commission as an appropriate balance

6 A recent example is the MXenergy case wherein this Commission stated, "|W]e simply do not believe that a $500-per-customer penally, even when combined with the corrective actions, is enough to remedy this situation or to deter potential future violalions of the Code or our Regulalions by an EGS." This settlement agreement is also similar in scope and lerms of setllemenl lo the settlement agreement entered inlo by the parties in Pennsylvania Public Utility Commission Bureau of Investigation & Enforcement v. IDT Energy, LLC, at Docket No, M-2013-2314312, filed with the Commission on May 15, 2013.

of all mitigating factors while adequately reflecting the seriousness of the allegations and

promoting ongoing regulatory compliance and compliance with Commission policy. It is

the position of I&E that the settlement reached, including a total civil settlement amount

to be paid by APG&E of $43,200.00, in addition to the non-monetary procedural changes

implemented or to be implemented by APG&E, is reasonable and should be found by this

Commission to be in the public interest.

The agreement of the Parties to settle this case is made without any admission or

prejudice to any position that the Parties might adopt during subsequent litigation,

including but not limited to, in the event that this settlement is rejected by the

Commission or otherwise properly withdrawn by either of the Parties.

In Rosi v. Bell Atlantic Pennsylvania Inc., et al , 94 PA PUC 103, Dockel No. C-

00992409 (Order entered March 16, 2000), as set forth in Pennsylvania Public Utility

Commission v. NCIC Operator Services, Docket No. M-00001440 (December 20, 2000),

the Commission adopted and utilized standards for determining whether a particular

enforcement outcome is in the public interest. The standards set forth in Rosi were

reviewed by I&E. I&E submits that this Settlement Agreement complies with the

requirements for settlements found in Rosi and that the terms of the Settlement

Agreement are in the public interest.

I&E further asserts that approval of this Settlement Agreement is consistent with

the Commission's Policy Statement, Factors and standards for evaluating litigated and

settled proceedings involving violations of the Public Utility Code and Commission

regulations - statement of policy, at 52 Pa. Code § 69.1201 ("Policy Statement"). Under

the Policy Statement, while many of the Rosi standards may still be applied, the

Commission specifically recognized that in settled cases the parties "will be afforded

flexibility in reaching amicable resolutions to complaints and other matters so long as the

settlement is in the public interest." 52 Pa. Code § 69.1201(b).

The Commission's Policy Statement provides for ten (10) factors and standards to

be considered by the Commission. The first standard addresses whether the conduct at

issue was of a serious nature. 52 Pa. Code § 69.1201(c)(1). In June 2012, APG&E self-

reported a slamming incident to the BCS regarding an occurrence in early May 2012. In

addition, the BCS entertained various consumer complaints against APG&E relating to

the Company's marketing practices for its EGS services in Pennsylvania from 2010

through 2012. The BCS complaints were related to marketing contacts initiated by the

Company's independent, third-party sales agents and included allegations of deceptive

sales practices, misrepresentation, and in a few cases, the unauthorized switching of

generation service or "slamming." This would suggest that the conduct at issue was in

fact of a serious nature.

The second standard addresses whether the resulting consequence of the conduct

in question was of a serious nature. 52 Pa. Code § 69.1201(c)(2). The I&E investigation

has determined that the act of enrolling customers to receive electric generation supply

service without proper customer authorization, or "slamming," and related inappropriate

EGS marketing practices, have been recognized by the Commission as a serious

consequence. As stated, infra, the Commission maintains a "zero tolerance" standard

regarding slamming and made clear in the MXenergy case, among others, that it "will not

tolerate unlawful activity that threatens to harm Pennsylvania's consumers and thereby

the burgeoning retail electricity market in Pennsylvania." Order at 5. The alleged actions

of the Company or its agents tarnish the integrity of Pennsylvania's competitive

electricity generation marketplace and such a consequence is of a serious nature.

The third standard addresses whether the conduct was intentional or unintentional.

52 Pa. Code § 69.1201(c)(3). Since this standard may apply to litigated proceedings and

this matter has instead resulted in an amicable Settlement Agreement, it is not applicable

here.

The fourth standard addresses whether the Company made efforts to modify

internal practices and procedures to address the conduct at issue and prevent similar

conduct in the future. 52 Pa. Code § 69.1201(c)(4). The Company voluntarily modified

internal operating procedures, as described in Paragraph 25 of the Settlement Agreement,

to prevent this type of violation from recurring. As such, the Company is taking

appropriate action to address concerns and decrease the likelihood of similar incidents in

the future.

In the process of negotiating this Settlement Agreement, the remaining factors in

the Policy Statement were also considered. Specifically, the Parties reviewed the number

of customers affected, the compliance history of the Company, the Company's

cooperation with the Commission, and the monetary penalty necessary not only to deter

future violations but to recognize alleged violations in the past. The Settlement

Agreement was amicably negotiated and recognizes the Company's good faith efforts to

comply with the Commission's regulations.

Finally, a settlement avoids the necessity for the prosecuting agency to prove

elements of each violation. In return, the opposing party in a settlement avoids the

possibility of a greater fine or penalty. Both parties negotiate from their initial litigation

positions. The fines and penalties in a litigated proceeding, such as Rosi, have always

been different from those that result from a settlement. I&E submits that this is the

reason that Rosi listed whether penalties arise from a settlement or a litigated proceeding

as one of its tests.

The Settlement Agreement is in the public interest because it effectively addresses

the allegations identified by the informal investigation, avoids the time and expense of

litigation which entails hearings, filings of briefs, exceptions, reply exceptions, and

possible appeals. The Company has also agreed to pay a fair and equitable civil

settlement amount and has improved its procedural safeguards to avoid similar instances

from occurring in the future. Moreover, the Settlement Agreement 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.

Commission Rules and Regulations encourage the settlement of proceedings and,

consequently, APG&E and I&E convened frequent and extensive conferences and

discussions during the course of this proceeding. These discussions ultimately resulted in

the foregoing Settlement Agreement which is a full and final resolution of the

Commission's investigation.

12

In addition to the foregoing reasons, based upon I&E's analysis of these matters,

acceptance of this proposed settlement is in the public interest because resolution of this

case by settlement rather than litigation will avoid the substantial time and expense

involved in continuing to formally pursue all allegations in this proceeding. Moreover,

acceptance of the Settlement Agreement at this time will ensure that the Company will

immediately implement the changes in their policies enumerated in the Settlement

Agreement instead of at the end of what could be protracted litigation.

WHEREFORE, I&E represents that it supports the settlement of this matter as

memorialized by the Settlement Agreement as being in the public interest and

respectfully requests that the Commission approve the foregoing Settlement Agreement,

including all terms and conditions contained therein in its entirety.

Respectfully submitted,

'ayne T. Scott, First Deputy Chief Prosecutor Michael L. Swindler, Prosecutor Bureau of Investigation and Enforcement

Dated: May 28, 2013

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CERTIFICATE OF SERVICE

I hereby certify that I am this day serving the foregoing document upon the persons listed and in the manner indicated below:

Notification bv first class mail addressed as follows:

Jeffrey Chen AP Gas & Electric (PA), LLC 6161 Savoy Drive, Suite 500 Houston, TX 77036

Michael L. Swindler Prosecutor Attorney ID No. 43319 (Counsel for PA Public Utility Commission)

P.O. Box 3265 Harrisburg, PA (717) 783-6369

7105-3265

Dated: May 29, 2013

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