The Maryland Public Service Commission has levied a $100,000 fine against a third-party energy supplier that uses multilevel marketing.
The commission handed down the fine against North American Power and Gas Inc., of Norwalk, Conn., on Thursday. The fine stems from hearings held in January over accusations the company engaged in fraudulent activity and employed deceptive practices as well as not complying with consumer protection regulations.
The PSC found that North American Power violated state law and the commission’s regulations with 19 “deceptive practices.” In addition to the fine, the company was ordered to take remedial action including a ban on further door-to-door solicitation in order to keep its license.
“This case should be read to stand emphatically for the proposition that this Commission cannot and will not tolerate misleading or deceptive advertising or sales tactics in the retail electricity space, and that we intend to react severely when we find that they have occurred,” the commission wrote.
The commission began an investigation and held hearings with company officials after receiving complaints about a North American Power sales person who passed himself off as a representative of the PSC when he cold-called a Pikesville resident in December. The representative told the man he was there to get him lower rates on his utilities.
Also among the problems the commission uncovered was that North American Power made deceptive statements in placemat advertisements, which were placed by the company’s independent salespeople. Additionally, the company failed to give a “complete and accurate” price description in its terms and conditions sections.
North American Power CEO and founder Kerry Breitbart said the company would take the fine and remedial measures to heart and use them as learning tools.
“We are so pleased to have resolved this issue to the satisfaction of the Commission and to our internal standards of doing business,” Breitbart said in a statement. “While the fine is significant, we are grateful to the PSC staff for bringing our attention to these matters and for acknowledging that this was not intentional — it was the result of an early stage company experiencing rapid growth. This process has caused us to re-examine our practices and hire some of the best compliance and energy experts in the business — we are a better company because of it.”
The company sells its service through what is known as multilevel, or networking, marketing. North American Power recruits independent contractors as salespeople to tap into their network of associates, friends and family members. The contractors earn more money as the network grows and more customers sign up for power service.
The sales model has been criticized by the PSC, which has expressed concern over the actions of sales people representing the power company but not directly employed by it. In addition to the North American Power case, the PSC also initiated an investigation into a second multilevel marketing power company Viridian Energy of Norwalk, Conn., over concerns of deceptive advertising.
A formal order from the PSC is pending, but the commission staff and the company reached a preliminary agreement in March. If accepted by the commission, the company would undertake remedial measures and pay a $20,000 civil penalty.
On a larger scale, the commission opened an inquiry in November 2010 to look at the role of power suppliers using independent contractors. The commission is considering whether contractors selling on behalf of a company, but not directly employed by the company, should be licensed individually. The investigation is continuing.