The Maryland Public Service Commission Wednesday grilled representatives of a third-party energy supplier that uses multilevel marketing over complaints of fraud and deceptive advertising.
The PSC held the hearing to address complaints against North American Power and Gas Inc., of Norwalk, Conn. The company has been accused of engaging in fraudulent activity and employing deceptive practices as well as not complying with consumer protection regulations.
“We need to be very clear that this is bad,” PSC Chairman Douglas R.M. Nazarian said.
North American Power was licensed to operate in the state in July by the PSC. 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 with North American.
One ad that was a point of contention appeared on placemats at an area diner and touted an up to 20 percent savings with no contract required, and implied that Baltimore Gas & Electric Co. was pushing people to find a new supplier.
North American Power CEO Kerry Breitbart said the ad, placed by an independent contractor, had been approved by the company based on information from the utility’s website that encouraged people to find the “best” electric choice for them. Nazarian took exception to the wording of the ad that he said seemed to imply people should not shop, but should actively switch from BGE.
“You’re not going to dispute that BGE wants people to change?” Nazarian said to Breitbart. “Really? That’s actually true?”
Another allegation was that one of North American’s representatives 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. The PSC employee who fielded the customer’s complaint said the resident had called because he was unsure when the commission started making house calls.
During two hours of questioning, Breitbart defended the company, accepted some blame and promised that changes would be made. He said that in response to the complaints, the company has suspended all telemarketing and door-to-door solicitation in Maryland until the matter is resolved.
Breitbart said the company has roughly 12,000 customers in Maryland, with 35 percent of those coming from cold-calling and telemarketing. During the hearing, he defended the company’s business model and said they were not “married” to the network marketing approach, but that it provided a simple approach where people were paid bonuses for doing the job.
“The pyramid structure is nothing inherently evil,” Breitbart said.
Breitbart said many of the issues stemmed from the company’s “explosive” growth, and that they had plans to ramp up hiring to address issues that have been raised in Maryland.
“We don’t want to do anything from this point forward unless I’m sure we have it right,” Breitbart said.
North American has until Feb. 11 to make a formal response to the PSC on how it will resolve the issues. The commission next meets March 3.
The North American matter comes as the PSC has undertaken a broader study of energy companies using the network marketing model. On Wednesday, the commission unanimously approved the license of Stream Energy, a Texas company that markets itself under the name Ignite, but cautioned there might be changes coming down the road.
“I continue to have concerns about this marketing approach, and I hope you prove me wrong,” Nazarian said to the Stream Energy representatives.