To: Direct Access Team "D"
From: Michael Shames
RE: Redress -- Second Drafts
Date: July 8, 1996
4.0 RIGHT OF REDRESS
4.1. CPUC REGISTRATION OF ENERGY SERVICE COMPANIES
Points: Any energy service provider interacting directly with retail
customers must be registered.
Registration requires filing of corporate information and posting
a bond with Commission. Upon satisfaction, the provider receives a
license.
The Commission is the logical lead agency for enforcement
The Commission can revoke a license if violations of CPUC
rules are proved.
The Commission can suspend a license or curtail solicitation
of new customers
if the likelihood of violations is established by staff or
customers.
4.1.1. Retail Customer Interaction Compels A License
Competition will engender the entry of a number of service
providers. Some will offer brokerage, some aggregation services, some
demand-side services and some will offer services that have not even
been envisioned at the moment. Such is a unfettered market.
The issue is whether the retail market will be entirely unfettered.
The answer is no. Any provider offering services directly to retail
customers will be required to register with the CPUC. That way, if any
service provider interacts with a retail customer, that provider will fall
under the jurisdiction of the CPUC. The purpose in such licensing is to
proactively ensure accountability by energy providers and to ensure that
customers have adequate recourse in the event that the provider fails to
perform.
Not all retail energy services will require registration. For
example, municipal or other public entities providing service within their
own franchise areas would not fall under CPUC jurisdiction and thus
would not be subject to licensing. However, if any such entity were to
offer services to non-franchise customers, then licensing and bonding is
warranted.
Also, energy service companies offering only demand-side
management, generation or other services unrelated to purchase of
energy would not be required to be licensed so long as those providers
are not participating in or benefitting from publicly-funded energy
programs, such as DSM or renewable credits. However, if
participating in a publicly-funded program or if bundling other energy
service with energy brokerage services, then licensing is warranted.
Other providers, such as brokers interacting with aggregators,
generators, companies offering ancillary services and scheduling
coordinators are not required to provide a filing or bond with the CPUC
so long as their interaction remains with other wholesalers. However,
these providers may have to fulfill registration requirements established
by the ISO.
The rationales for this licensing and bonding requirements are as
follows:
a. Retail customers must be able to learn about the owners,
location and financial viability of any prospective advisor. In order to
ensure uniformity, that information should be on file with a
clearinghouse. The CPUC fills that role.
b. In order to guard against undercapitalized or fly-by-night
companies, the CPUC must have a means of screening prospective
energy providers.
c. Retail customers, especially residential and small business
consumers, will not have the wherewithal to screen prospective
companies. The abuses of the solar hot water market and the long-
distance telecommunications companies have graphically demonstrated
the need for the ability to screen providers.
d. To proactively guard against unanticipated market abuses
and dissemination of misinformation to the marketplace.
4.1.1.1 RECIPROCITY
This is a placeholder for SDG&E to submit its argument about
disclosure by out-of-state energy service providers.
4.1.2. Registration Includes Licensure and Bonding
The registration process needs to be stringent enough to protect
customers but not so onerous as to create a barrier to entry. The
CPUC has developed a non-dominant carrier registration process for
local telecommunications companies that is not overly burdensome. It
requires filing with the CPUC the identities of the owners and officers of
the corporation, a description of services to be provided and basic
financial information to ensure economic viability.
However, the telecommunications registration does not require
bonding, and this is precaution that is necessary for electric service for
many reasons:
a. Electric service is a necessity and generally is more expensive than
phone service. Thus greater protection is warranted;
b. The upfront costs of entering the electric services market is fairly low.
Aggregators need only a computer and customer leads. Thus
bonding requirement will not put an undue burden on any prospective
new entrant, as its start-up costs are relatively low.
c. Without a bond, it is likely that complainants and their
attorneys/representatives will not be able to recover damages caused by
failed service providers.
d. The bonding process, itself, serves as a useful screen against
companies or individuals with questionable financial pasts who seek to
enter the electricity market. Bonding services will either decline to
bond or require higher deposits of entrants with questionable records.
The amount of the bond would be established based upon the
prospective number of customers to be served. e.g. a local community
aggregator planning to serve 50 residents could post a very modest
bond whereas a large aggregator planning to serve customers
throughout the state would require a more substantial bond.
4.1.3. Revocation and Suspension of Licenses is Within the
Purview of the CPUC
The CPUC's ability to revoke, suspend or limit a license is
absolutely necessary for adequate enforcement. In the initial 5-10
transitional years of electric competition, new entrants must be clearly
noticed that questionable business practices, undue risks and shabby
treatment of customers will not be tolerated. The potential for abuse
and the serious ramifications of that abuse mandate adequate
enforcement powers by the agency. The CPUC's staffing and its
expertise on energy matters positions it as the only logical state agency
charged with enforcement.
Consumers might also be able to look to civil courts for tortious
or statutory remedies (e.g. Business & Professions Code Section 17200
et seq). However, these cases would be expensive to pursue and the
civil courts are not equipped to handle the load of individual complaints
that will correlate with the advent of competition. Moreover, the courts
will not be well-positioned to establish uniform industry rules where
patterns of rule violations or shabby customer service are established.
Thus, the CPUC should continue its role as lead enforcement agency for
customer complaints about all retail energy services.
This enforcement power is anchored by the CPUC's ability to
license an energy service company. Without this ability, enforcement
of CPUC rules would be ineffectual. The CPUC rules would include a
code of conduct and a set of specific minimum standards of service as
described in the discussion on code of conduct.
The CPUC should have the ability to suspend, limit or revoke
licensure depending upon the gravity of provider malfeasance.
Suspension would be invoked only where due process had been
afforded to a provider. However, injunctive suspension or limits on a
license could be imposed upon a showing that the Commission rules
had likely been violated by a service provider and that significant
damage could be caused by a continuation of service by that provider.
4.2. READY ACCESS TO JUSTICE
Points: Consumers must have free or low-cost access to redress
The forum must be neutral
Mediation can be encouraged, but can't be compulsory
Penalties imposed upon providers must be used for consumer
education or advocacy
Complainants must have access to CPUC-compiled market
conduct data
The CPUC should refer patterns of abuses to consumer
attorneys for class action and
statutory remedies.
4.2.1. Consumers must have free or low-cost access to redress
Where complaints by consumers can not be readily resolved by
a service provider, an individual consumer must be afforded access to
regulatory redress at no cost to that consumer. This is the status quo
and it should be preserved during the transitional years, at the least.
Access to no-cost regulatory relief means that the consumer should not
be charged any filing fees or assessed any costs for pursuing regulatory
relief. It does not mean that the time spent pursuing a case or travel
and out-of-pocket costs will be necessarily recovered by the complainant
regardless of the outcome.
However, where an individual prevails in a regulatory complaint,
the damages awarded should include reimbursement of costs incurred in
pursuing an action in addition to restitution normally awarded by the
CPUC. This no-cost redress is essential if the Commission is to
encourage consumers to bring complaints to their attention. It is also
necessary to level the playing field advantage enjoyed by better
-resourced providers.
4.2.2. The forum must be neutral
The forum in which complaints are resolved must be neutral.
The arbitrators need not be Commission ALJs, but they can not be
representatives of or affiliated with energy service providers. Ideally,
the CPUC could enlist the use of trained, but local arbitrators, to conduct
formal hearings and render recommendations that would be reviewed by
the CPUC. An evidentiary record should be kept, but it can be taped,
rather than transcripted.
The Commission's current expedited complaint process is an
adequate process by which formal complaints can be cost-effectively
heard and decided.
4.2.3. Mediation can be encouraged, but can not be compulsory
Mediation and other alternative dispute resolution tools should be
encouraged. However, they can not be compulsory. Nor can a
consumer be penalized for not submitting to mediation.
As a means of encouragement, local mediation should be made
available to an individual complainant within two weeks of filing a
complaint. If mediation is chosen by both parties, the individual
consumer should have made available the presence of a CPUC staff
advocate or a qualified intervenor advocacy group representative at the
mediation to assist on behalf of that individual.
If the parties do not choose mediation, then the expedited
complaint process should be made available to the complainant.
4.2.4. Penalties imposed upon providers must be used for
consumer education or advocacy
Not all complaints will result in penalties imposed upon service
providers. Most complaints will either be found to be warrantless or will
result in restitution to the complainant. However, where a pattern of
abuses is discovered and proved, the Commission is empowered to
impose financial penalties upon a licensed service provider as a
condition for retainer of the license. Where a financial penalty is
assessed, the proceeds should be applied to promotion of consumer
education and/or consumer advocacy via the Electric Education Fund.
4.2.5. Complainants must have access to CPUC-compiled market
conduct data
As part of its on-going market conduct oversight responsibilities
and as part of its customer education duties (as discussed under
"Consumer Education) the CPUC staff will be compiling data about the
complaint records, financial viability, prices and service quality of any
and all service providers licensed to do business in California. Much
of this data will be made available to consumers who are shopping for
energy services. However, all of this data should be made available to
complainants that have filed formal complaints to the Commission about
an energy provider(s).
In assessing a complaint against an energy provider, the
Commission must consider not only an individual isolated complaint but
also whether a pattern of inappropriate business practices is extant.
Complainants must have access to such data and must be able to enter
it into an administrative record in order for the data to be fairly adjudged
by the Commission.
4.2.6. The CPUC should refer patterns of abuses to consumer
attorneys for class action and statutory remedies.
The Commission's market conduct duties will lead it to identify
patterns of abuse or misconduct by energy service providers. In order
to make maximum use of limited staff resources, the Commission should
share its market conduct findings with private consumer attorneys who
may wish to initiate civil class actions against one or more providers.
This frees the Commission from the burden of resource-draining
litigation where one or more providers is engaging in clearly
inappropriate behaviors. The civil courts share concurrent jurisdiction
with the Commission and are empowered to awarded specific and
general damages for tortious actions as well as general consumer-
related statutory damages.
The Commission's role would be to coordinate private and public
prosecution of misleading information. For example, when companies
engage in inappropriate marketing transactions, the state attorney
general, local district attorneys and consumer class-action attorneys can
utilize the state's Business & Professions Code to discourage such
behaviors and gain remedies for victimized consumers. The CPUC
should serve as a clearinghouse for complaints and references to such
attorneys. The CPUC's public intake functions are essential and low-
cost means of identifying such abuses. The private or prosecutorial
attorneys offices can expeditiously act once the CPUC alerts them to a
pattern of deceit. The CPUC should also be referring individual
consumers to private attorneys for fact-specific complaints; referral
panels could be readily established at little cost to the CPUC.
The Commission's resources are best utilized as a collector and
distributor of information first, and a prosecutor second. However,
where no private attorneys are willing or able to pursue case, the
Commission is obligated to self-initiate regulatory action or to instruct its
staff to pursue civil or criminal remedies, where warranted.
***********
Time is the best teacher. The only problem is she kills off all of her
students..
Michael Shames
mshames@ucan.org
UCAN
1717 Kettner Blvd. Suite 105
San Diego, CA 92101
(v) 619-696-6966
(f) 619-696-7477