Hit by the sales pitch
From Texas to Ontario, consumers have been stung. Signatures have been forged. False names have been used on contracts. And dead people have been billed for utility services.
The Direct Energy Story, part 1
Calgary Herald - Sunday, May 16, 2004
To his parishioners, Father Taras Dusanowskyj is a gentle, soft-spoken man. But the pastor showed a fiery side in April 2001 when he suspected the church was brazenly being taking advantage of by a billion-dollar company.
From his tiny office lined with scriptures at Saints Peter and Paul Ukrainian Catholic Church in Scarborough, Ont., Dusanowskyj penned an angry letter to Direct Energy, a natural gas and electricity supplier based in Toronto.
When he talks about it today, he still shakes his head.
It began with a visit from a young man in his 20s, a sales agent for Direct Energy.
The company, which is now expanding into Alberta, was canvassing homes and businesses across Ontario, offering discounts on heating bills to customers who switched over from their established utility company.
A secretary answered the door and listened politely to the pitch. Since the church wasn't looking to switch gas companies, she declined the offer and the salesman left.
Soon after, however, Direct Energy sent a letter thanking the priest for enrolling in the company's True Rate Price Protection Plan.
He was stunned to find out the church was on the hook for a five-year contract at rates more than double its annual $14,000 heating budget.
When the pastor phoned to complain, he was told there was a contract on file bearing his name. He demanded to see proof and, later that day, the signed pages buzzed across his fax machine.
"You can imagine my utter surprise and amazement to find that my signature had been forged not once, but six times," Dusanowskyj wrote in a letter to the company.
"You will appreciate that our parish is totally appalled at this kind of fraud."
Confronted with the allegations, Direct Energy seemed just as alarmed. This, they assured the church, was not how business was conducted.
The agent responsible for the forgeries would be investigated "to the fullest possible extent," the company vowed. "Allegations such as yours are taken seriously."
Based on the company's response, Dusanowskyj figured he was the victim of an isolated incident -- one unscrupulous agent breaking the rules. At least, that was how Direct Energy explained the situation.
But the pastor was far from alone. In several states and provinces in North America, Direct Energy and its U.S. affiliate have been blamed for extensive consumer problems.
Over the past three years, Direct Energy and its U.S. division, Energy America, have been caught employing unethical business practices in Michigan, Georgia, Texas, Ontario and Manitoba.
The concerns cover a broad spectrum, including deceptive sales pitches, forged documents, misrepresentation by agents and allegations that elderly and low-income consumers were exploited.
In Georgia, Direct Energy's U.S. counterpart was forced to pay more than half a million dollars in penalties last fall for enrolling customers without permission and using deceiving sales pitches.
It is the largest sanction the state has levied against a utility company.
The last straw came when the company said it sold a gas contract to the husband of an elderly Atlanta woman -- not knowing that her spouse, in fact, died in 1979.
"They were signing up dead people," said Robert Baker, chairman of the Georgia Public Service Commission.
"We had a real problem with that."
Direct Energy sees itself as a world leader in customer service.
The company promised as much in 2002 when Direct Energy and its owner, British-based utility giant Centrica, announced plans for a major expansion in Alberta.
"You will find us every day striving to provide world-class customer service," said Paul Massara, vice-president of Centrica's North American operations. "At the end of the day, that's our business model."
Direct Energy's move into Alberta's residential energy market is unlike any business deal the province has seen in recent memory.
The company bought a major stake in the household utility market with its $90 million purchase (all figures in Canadian dollars) of ATCO Ltd.'s electricity and natural gas business, a deal that closed this month.
Almost every Albertan will be affected by the deal -- whether they know it or not -- as Direct Energy automatically becomes the natural gas supplier to roughly four out of every five homes in the province.
Customers of ATCO Gas, about 840,000 households, are being transferred to Direct Energy this month.
From there, the company's strategy is to grow beyond the natural gas business by signing up Albertans for electricity service.
Just as consumers can switch phone companies or Internet providers, they can switch utility companies. Direct Energy is on doorsteps around the province starting this month, selling long-term contracts for household energy.
The contracts are a relatively new phenomenon in Alberta, resulting from the province's move to open the regulated electricity and natural gas markets to competition from other companies.
Direct Energy is the only newcomer to test the waters of the residential gas and power market. Perhaps no one has been happier to see the company arrive than the Alberta government, which views the expansion as an endorsement of its deregulation policies.
"It shows companies want to be in the Alberta market. It shows deregulation is working, in spite of all the naysayers," Alberta Energy Minister Murray Smith said in 2003.
"I think we're going to see a whole new emphasis on customer service."
But the way Direct Energy and Energy America approach consumers has been at the heart of their troubles. The companies have been sanctioned for abusing consumer laws in nearly every market they've entered.
In January, the U.S. affiliate was ordered to pay more than $1 million in Texas for repeatedly signing up customers without permission. Last summer, Ontario fined Direct Energy $157,500 after 21 contracts were discovered with forged consumer signatures.
Company officials aren't alarmed by such numbers.
Direct Energy and Energy America, along with their parent company, Centrica, serve millions of customers around the world, Massara said. "There are bound to be issues."
Nevertheless, issues began appearing in North America long before the company started touting itself in Alberta.
Regulators in Michigan had heard the promises of world-class customer service before. Despite the claims, Direct Energy's U.S. affiliate was setting records in the state for consumer complaints in 2001.
Retiree Lois Haywood was visited by two Energy America marketers at her home in St. John's, a scenic town in rural Michigan where people go to escape big city hassles and expensive urban living.
When the sales agents knocked on the door of Haywood's mobile home, she asked if they were from the gas company.
"They said, 'Oh, yes, we're from the gas company,' " Haywood said.
"I said, 'Are we going to get a rebate? I could use a rebate.'
"They said, 'Oh yes, you're going to get a big rebate.' "
The agents took down Haywood's account information. She doesn't remember talking about enrolling with a new gas company.
When she later learned that her signature was on an Energy America contract, Haywood phoned the company's headquarters -- located at Direct Energy's offices in Toronto -- to complain.
Energy America told Haywood to prove the signature wasn't hers.
It wouldn't be hard. The signature was forged as Lois Hayward -- not Haywood.
Aside from the extra costs she faced from higher gas prices in the forged contract, the pensioner from Michigan was most upset by the way she was treated.
"It took me months to get out of it. They made me feel so bad, like it was my fault," said Haywood, 72, who lives on a tight budget.
"It got to the point where I couldn't sleep at night, thinking about why that saleswoman would do that to me."
Haywood eventually got a cheque for $25 in the mail and a short letter from Energy America informing her that the account had been cancelled.
No apology was offered.
Today, Haywood estimates she's out a few hundred dollars, but maintains she'd rather forget the entire situation than pursue the fight further.
The Michigan Attorney General's office wasn't quite as forgiving. The state had already experienced problems with the company in 1999, shortly before Centrica bought Direct Energy and Energy America.
After a barrage of consumer complaints about contract forgeries that year, Energy America pledged to make things better.
The company was ordered to start double-checking all new contracts with customers, confirming that the deals were legitimate.
Two years later, however, the problems returned in full force.
"Consumers in Michigan have been outraged by Energy America's tactics, and rightly so," said Jennifer Gran- holm, Michigan's attorney general at the time.
Granholm, now the state's governor, ordered the company to pay a $340,000 penalty in July 2002 to cover the cost of Michigan's investigation. Energy America was also required to issue more than $34,000 in refunds to consumers.
"No competitor can be allowed to break the law to win new business," Granholm said.
Officials promised to institute new measures, including no longer using a contracted sales force.
"What was happening before was unacceptable, we've made improvements to make it right," Roger Martin, an Energy America spokesman from Toronto, told the Lansing State Journal in 2002.
When asked recently about the performance of Direct Energy and its U.S. affiliate in other markets, Centrica vice-president Paul Massara said the companies have learned from those experiences.
"In Alberta, we will be in the market providing world-class customer service," he said.
"Will there be problems? Can I guarantee that there will not be one issue? No, I can't guarantee that there won't be one issue."
The situation was no different in Ontario than it was in Michigan.
When consumer complaints about Direct Energy began mounting across Ontario in 2002, the company pledged to make things better -- the same promise it made in the U.S.
Deryk King, chief executive officer of North American operations, said in a speech to the Toronto Board of Trade that Direct Energy had been unfairly tainted by a few "bad apple" sales agents.
"The overwhelming majority of Direct Energy's sales in Ontario have been conducted in a fair and professional manner," King said.
"But there have been some instances of unacceptable behaviour by field agents."
King said the company acted "swiftly and decisively" to correct the problems.
For a few bad apples, the problems covered a lot of territory.
An investigation by the Herald shows people in at least 24 cities and towns across Ontario complained about Direct Energy agents forging signatures, refusing to leave the doorstep, misrepresenting themselves or giving false information about contracts.
As Saints Peter and Paul Ukrainian Catholic Church in Scarborough was sorting out its contract problems in the spring of 2001, Antonio Boccia was going through a similar ordeal more than an hour away in St. Catharines.
When Boccia, owner of Antonio's Hairport, began receiving bills from Direct Energy instead of his old gas supplier, he insisted on knowing how the barber shop could have been switched over.
The signature on his contract showed the deal was approved by Don Wilson, manager of the shop.
"That's funny, there's no Don Wilson here," Boccia recalled. "I'm the manager. There's only one other person working here -- and her name isn't Don Wilson."
Across town, St. Catharines resident Harry McRiner was told by the company that his wife, Sue, signed up for gas service.
Her name is Ann.
Repeated phone calls by Anita Whelan, a 58-year-old widow in St. Catharines whose signature was forged, were ignored by the company.
"It just seemed that nobody gave a damn," she said.
"But I never sign my name with a capital A. It's definitely not mine."
In Brampton, Ont., Joe Rusinek's plastics recycling company was signed to a contract on which multiple signatures not only differed from his handwriting, they barely resembled each other.
"It was so poorly forged that, once I saw the contract, it was quite obvious it wasn't me," said Rusinek, vice-president of NuPlast Polymers Inc.
"I made a phone call and got a customer service person. They said, 'Well, you'll have to prove to us that this isn't your signature.'"
Rusinek demanded a refund of more than $700 for the extra costs that NuPlast incurred because of the fake contract, which carried a higher gas rate than the one he was charged by his former company.
The refund eventually came. He also wanted an apology.
Like the retiree in Michigan, he never got it.
"What upset me most is that they didn't sound too concerned about all of this," Rusinek said.
"If it was me, I would have been a little more flowery in my response -- telling the customer how sorry I was. They weren't very professional."
Soon after, Direct Energy was fined for forging 21 contracts in Ontario. Despite Direct Energy's insistence that the problems weren't widespread, neither Rusinek, Boccia, nor Whelan were part of the province's case against the company.
Direct Energy said it disciplined 17 agents in Ontario, from a sales force of 300 people. But regulators say the problems likely went further.
When the Ontario Energy Board was asked how many potential forgeries there could be, outside the 21 counterfeit contracts Direct Energy was penalized for, officials wouldn't wager a guess.
"There were more cases and allegations than the 21," said Brian Hewson, manager of energy licensing for the Ontario regulator.
"These were the ones that we were able to go through."-
Direct Energy maintains it has corrected problems once they were discovered.
After the company began drawing fire from the Ontario government in 2002, CEO Deryk King said Direct Energy would institute a number of changes. He pointed out the company had been using a sales force of contracted workers that belonged to a third-party employer, which limited Direct Energy's control over their actions.
The advantage of using contracted agents was that Direct Energy could avoid paying benefits to its sales staff.
That approach would end, King said. Direct Energy would also introduce a certification program to weed out problem agents.
"We fully understand the importance of earning the trust and the confidence of every one of our customers," King added.
Yet, as the company expanded into new territories in its quest for new customers, it also found more problems, more fines, more regulatory battles and more complaints.
That year in Manitoba, Direct Energy's subsidiary, Municipal Gas, was caught using scare tactics in its brochures, warning homeowners that natural gas prices would soar if they didn't sign a utility contract.
And despite being called on the carpet for deceiving consumers in Ontario and Michigan in 2001 and 2002, further concerns later emerged in Georgia and Texas.
Direct Energy and Energy America blamed their problems on independent third-party contractors who acted improperly. The companies insisted those practices would stop.
But little changed in other markets.
In February 2003, a month after Massara gave a speech in Calgary outlining Direct Energy's plans to set the standard for customer service in Alberta, Georgia authorities launched an investigation into its U.S. counterpart.
A complaint registered by Rebay Fielder against Energy America in Atlanta was one of 14 cases that would prompt the most extensive probe yet into that company's operations.
Fielder called Energy America to find out how her 92-year-old grandmother became a customer of the company.
She was told her grandfather authorized the switch to Energy America from another Georgia utility.
"That's impossible," Fielder said. "He's been dead for more than 20 years."
It wasn't the first time Energy America had been investigated in the Peach State.
In 2000, shortly before Centrica bought Energy America, the company paid more than $136,000 to settle allegations of deceptive door-to-door selling in Georgia.
This time, in late 2002 and early 2003, the company was marketing over the phone.
Georgia officials demanded recordings of the telemarketing tapes to hear how the calls were being conducted.
At first, Energy America said the recordings either didn't exist or had been destroyed. It was only after the state threatened to subpoena the tapes that the evidence turned up.
The call to Rebay Fielder's grandmother was one of more than 1,400 recordings Georgia investigators began wading through.
On that particular recording, Fielder's grandmother, Ozella Abbott, was told about the terms of the company's gas contracts after hearing a sales pitch on reducing her heating bills.
"OK, Mrs. Abbott," the sales agent asked. "You do understand and agree to the disclosure I've just read to you, right?"
"No, I don't," the elderly woman responded.
"No you don't what? You don't understand?" the agent replied.
"I don't understand," Abbott said.
"Well, everything that I just stated to you will be sent to you in the mail," the telemarketer said. "You do have the opportunity to look over everything in writing."
Though Abbott agreed to nothing, only to read a company brochure that would be sent in the mail, Energy America bills soon began arriving.
Georgia investigators consider the tape a blatant example of the company taking advantage of an elderly consumer.
Listening to other tapes, the state discovered a trend of elderly and non-English-speaking consumers who were targets of the suspect sales pitches.
"We noticed there were a lot of senior citizens showing up on the tapes," said Mike Nantz, assistant to the director of enforcement at Georgia's Public Service Commission.
"One thing we were concerned about was the southern culture down here. You call some of these people up and they'll talk to you no matter who you are because they're so welcoming."
Other tapes revealed flagrant examples of agents refusing to take no for an answer.
In a phone call to Georgia resident William Bailey, the telemarketer told the 41-year-old factory worker, "I would like to tape record the enrolment, is that OK with you?"
"I'm not interested in enrolling right now," Bailey responded, in the fall of 2002.
The agent explained the company only wanted to send out the terms and conditions for a gas contract so Bailey and his wife could read it over. After that, the family had three business days to stop the enrolment.
"We just want to get the terms and conditions out at this time, OK?" the telemarketer told Bailey.
"OK," he responded.
The telemarketer then went on to ask Bailey, "Do you agree to enter into an agreement for Energy America to supply your gas and to authorize Energy America to switch your gas service?"
"Not right now, I don't," he said.
The telemarketer explained once more that he'd have three days to cancel the deal, then read the terms and conditions again.
"Do you understand and agree to this disclosure I have just read to you?" the telemarketer asked.
"Yes," answered Bailey. "But I'm still not interested in switching my gas right now."
"OK," the sales agent replied. "But do you agree to receive our terms and conditions and look it over for the next three days?"
Bewildered, Bailey responded: "Yes, uh-huh, I will look it over."
"OK, well thank you again for selecting Energy America," the telemarketer said.
"Energy America is really excited about the opportunity to serve you and we promise we will do our very best to deliver top value for your energy dollar and provide you with the very best in customer service."
Bailey thought he'd made himself clear. When bills began arriving from the company, he alerted the state. Thinking back to the conversation, he's still confounded by the phone call.
"I may as well have been talking to my dog," Bailey said in an interview.
Georgia investigators couldn't believe what they had been hearing. Armed with 14 recordings that officials considered glaring examples of the company acting improperly -- including the phone calls to William Bailey and Ozella Abbott -- the state instigated hearings.
The company was put on alert that further recordings would be added to the state's case against Energy America as investigators made their way through the 1,400 subpoenaed tapes -- a process that took weeks.
Eventually, the number of recordings used in the hearings ballooned to 138. At that point, investigators stopped gathering new tapes, believing they had more than enough evidence to support their arguments.
"In order to take the case forward, we wanted to get the best of the best," said Cynthia Johnson, Georgia's director of consumer affairs.
"They were not the only ones we could have used, they were just the slam dunks."
Johnson now estimates more than half the recordings investigators listened to showed signs of illegal behaviour by the agents.
The responses out of the company's Toronto headquarters and from Energy America's offices in Georgia were the same as in other jurisdictions.
While the method was different in Georgia -- selling by phone rather than on the doorstep -- the company again blamed contracted employees for the mess.
Even though Direct Energy and Energy America had acknowledged problems with that approach in Ontario and Michigan as far back as 2001, and vowed to change their ways, the same strategy was used in Georgia in 2002 and 2003.
The state refused to accept the company's argument that it was not responsible for the actions of agents who were third-party contractors.
"It doesn't matter who you hire and how many levels or layers you have between corporate headquarters and the actual entity that does the selling," said Baker, chairman of the commission.
"You are responsible for monitoring and supervising whoever you hire or whoever you employ to represent the company."
Last September, Georgia officials ordered the company to pay $544,000 into a fund for low-income utility customers. As well, the company had to issue refunds and compensation to affected customers.
In all, the sanctions totalled more than $680,000. In an extraordinary step, the commission also barred the company from soliciting new customers for a year.
A few weeks later, Energy America announced it was pulling out of the state. Not being able to pursue new customers made it hard for the company to grow.
"The decision to exit Georgia was made in the context of a challenging business environment," the company said in a brief statement.
But the problems didn't end there.
Despite the repeated promises to improve, the company was then fined more than $1 million in January by regulators in Texas, a staggering amount by industry standards.
Energy America -- operating in Texas under the name Republic Power -- was found to be using deceptive tactics in door-to-door sales, during a telemarketing campaign and through a website promotion.
Specific details of the case have not been made public by the state.
Republic Power continues to operate in Texas but has since changed its name to Direct Energy.
When British-based Centrica, which made $1.2 billion in profits last year, bought Direct Energy and Energy America in 2000, it promised shareholders big results from the expansion.
The acquisitions gave the company a base in Canada and the U.S. from which it could grow as North American utility markets opened to competition.
Centrica executives set an objective of serving 10 million customers by the end of 2003.
But the pace of growth turned out to be sluggish. By the end of 2002, the company was barely halfway to its goal and there was pressure to deliver results.
In Centrica's 2002 annual report, the company cited "slower organic growth" -- its term for signing up new customers -- as a reason for lagging North American results.
British newspapers reported investors were disappointed by the company's North American performance.
In Georgia, investigators believed the company had found a lucrative business signing up consumers without their permission.
Of the 138 recordings the state used to build its case, roughly 70 per cent of the consumers ended up staying with the company; they either didn't bother to complain or had no idea they'd been switched.
Georgia's director of consumer affairs, Cynthia Johnson, attributes that statistic to the nature of the utility business. Most homeowners don't necessarily track their bills closely or understand the fine print.
People just pay them and forget about it, she said.
Investigators argued Energy America knew what its agents were doing in the state and employed illegal marketing techniques as part of their strategy.
"You do it to hundreds of people and a few dozen of them will complain -- so you get to keep the rest of them. That's what was happening here," Johnson said.
Agents who worked for the company selling contracts door-to-door say there was pressure to sign up large numbers of new customers.
"When they first came into the market, they were going for a lot of penetration quickly," said Hugh Williams, who sold Direct Energy contracts in Kingston, Ont.
"They were very much high pressure. Get people in, get them trained, get them out there, get them signing people up.
"The whole point was everyone you signed up, you got paid a certain amount for. So you just went and signed people up as quickly as you could."
Direct Energy is vowing to operate differently in Alberta, employing its own sales force. However, as in Ontario, a significant portion of the company's wages are paid through commission, putting pressure on agents to move high volumes of contracts.
"They're offering something like $7 an hour as a base. The contracts are worth another $30," said Glen Farquhar, a veteran salesman who logged 30 years in the wholesale food industry before retiring.
Farquhar considered applying for a job with Direct Energy last fall, but scrapped those plans when he heard about the pay scale.
"Who the hell can live on that without moving 20 to 30 contracts minimum a week?" he said.
Direct Energy won't say how many consumers the company thinks it can sign to energy contracts in Alberta.
However, a former employee at Direct Energy's head office in Toronto said the company's projections for the Alberta market in 2002 were overly ambitious, calling for several hundred thousand new contracts. The strategy relies on customers of Enmax and Epcor, the province's incumbent power utilities, to switch over to Direct Energy in significant numbers.
As well, Direct Energy wants to sign the bulk of ATCO's former customers -- who buy their natural gas at fluctuating rates -- to long-term contracts at fixed prices.
"The numbers are very aggressive," said the former employee, who spoke on condition of anonymity.
Direct Energy does not downplay the significance of its Alberta expansion.
During the necessary regulatory hearings in 2003 to approve the ATCO deal -- which cleared the way for Direct Energy to enter the market -- Massara acknowledged the company has a lot riding on the province.
"We're obviously at risk here if we perform badly," he told the Alberta Energy and Utilities Board.
Despite the fraud and forgery committed against Saints Peter and Paul Ukrainian Catholic Church in Scarborough, Father Taras Dusanowskyj has tried to forgive and forget.
That approach would be a lot easier had the same problem not happened a second time.
In February 2002, nearly a year after the pastor penned his first angry letter to Direct Energy, another envelope from the company arrived in his mailbox.
"When you decided to make Direct Energy your supplier of electricity, you made a smart decision," the letter said.
Of course, Dusanowskyj hadn't done anything of the sort.
The same agent who forged his signature on a gas contract a year earlier, had falsified the paperwork for an electricity deal.
Since Ontario's electricity market was only beginning to open up to competition in 2002, the paperwork was now being processed.
"We want you to know that we truly value your business and we thank you for choosing us," the letter said.
Once more, Dusanowskyj sat down and wrote a letter to the company.
This time, he typed an entire paragraph in bold letters.
"Please be advised that we absolutely and categorically reject any claim by Direct Energy to be our electricity provider," Dusanowskyj wrote. "We demand that our electricity accounts be expunged from your files before we are forced to endure with you the same fiasco that we had with our gas accounts."
Soon after, the church received a response.
"This letter is to verify that we have received your request to cancel," the company said.
"If in the near future you choose to reconsider and remain a Direct Energy customer, we will be glad to continue to serve you."
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See the other 4 parts in this series about Direct Energy: