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Part Three: So many complaints, no quick fixes

Delays and limited resources have frustrated regulators. But Direct Energy says it reacts to complaints "swiftly and appropriately"

Calgary Herald - Sunday, May 16, 2004
by Grant Robertson

Detective Jack Gill's patience was wearing thin. His phone at the St. Catharines, Ont., police department was ringing daily with new complaints about Direct Energy, which was selling natural gas and electricity contracts in the area.

As a veteran of the city's fraud squad, Gill was no stranger to dealing with consumer complaints.

There's a rule in his business: When the numbers get big enough and the complaints start sounding the same, "you know you've got a problem."

By the spring of 2002, Gill and his colleagues across Ontario knew they had a problem with Direct Energy. Complaints about the company were flooding police stations throughout the province.

Angry callers told of agents giving confusing or misleading sales pitches and forging signatures on household utility contracts. The concerns easily outnumbered complaints against any other company in the market.

But Gill's police squad, lacking manpower and time, didn't have the resources to go chasing down each allegation. Cases took days, if not months, to settle and other work was piling up.

"At any given time, I'll have 35 files on my desk. Direct Energy was just one of them," said Gill.

Other police forces were seeing the same problems.

Faced with this deluge, fraud investigators from around the province called an emergency meeting with the Ontario Energy Board in the spring of 2002 to figure out a way to deal with the mounting concerns.

They decided to focus on the most glaring allegations: Direct Energy agents were forging consumers' signatures on utility contracts in order to claim new accounts.

Investigators gathered a stack of suspect Direct Energy contracts and shipped them off to Ontario's Centre for Forensic Science. The disputed signatures were going under the microscope.

It was an unusual, if not risky, move for the board. Calling on the province's crime laboratory wasn't something to be done lightly. The process was costly and time consuming.

"We went to them almost as a favour," said Paul Gasparotto, an investigator with the board's licensing division. "They have murders to investigate, so we knew we weren't the priority."

When the reports came back, though, most of the 50 questionable contracts sent to the lab showed signs of forgery. Of those, 21 were irrefutable fakes, displaying "differences in handwriting characteristics such as line quality, proportions, connections and letter design," the examiners said.

That determination was all the board would need to take action. The province issued a $157,500 penalty to Direct Energy.

The board acknowledged the company provided copies of its forged contracts to investigators and promised to retrain its sales agents. Direct Energy points to such recognition as evidence of its willingness to co-operate with regulators.

"We've done an awful lot of work and I think the board has recognized that," Paul Massara, vice-president of Direct Energy's parent company, Centrica, said last year.

Still, the Ontario process was onerous, taking months to complete. Sorting through similar problems in other markets has proved even more difficult for regulators.

When authorities in Michigan and Georgia launched investigations into similar complaints about Direct Energy's U.S. affiliate, Energy America, they were stunned by the company's response. Not only was Energy America breaking the rules, the company and its executives repeatedly aggravated state authorities by not co-operating. In the most disturbing examples of Energy America's disregard, the company was caught withholding evidence from regulators and ignoring orders to testify at state hearings.

Inside an Atlanta hearing room last year, sheltered from the heat of an early Georgia summer, investigators began delving into stacks of complaints about Energy America. The room's air conditioning did little to cool the frustrations of Georgia officials, who were in no mood to let Energy America off easy.

The state, which deregulated its natural gas market in the late-1990s, never thought it would have to discipline a gas company. Georgia believed it had the toughest laws in place to protect utility consumers.

"Joan of Arc might think she had it good compared to the first company found guilty," Stan Wise of the Georgia Public Service Commission proudly declared in 1998.

But the deregulated market was barely two years old when complaints began to mount about Energy America, which was selling gas contracts door-to-door.

"Agents were literally putting their legs in the doorway to keep people from closing the door," said Cynthia Johnson, Georgia's director of consumer affairs.

In 2000, state regulators forced the company to pay $136,000 in penalties and demanded its agents be retrained.

The complaints stopped for a while, but returned less than two years after.

By 2002, Georgia was probing hundreds of allegations that Energy America was using telemarketers to enrol consumers without their permission.

Despite the threat of stiff fines for reoffending, Georgia officials say Direct Energy's U.S. affiliate repeatedly stalled their investigation, failing to co-operate with the state's demands.

When asked by the commission for recordings of the telemarketing calls that led to the complaints, the company refused for months to produce the tapes.

After the hearings began, two company managers who were ordered to testify in Atlanta failed to show up, though they were served with subpoenas in Toronto several weeks before.

The commission knew it had a strong case because the violations discovered on the recordings were so glaring.

In one of the more bizarre recordings, Georgia consumer Frank Thomas told the telemarketer "No, thank you," and hung up the phone after listening to Energy America's sales pitch. But the agent continued talking after the line was disconnected, thanking Thomas for his time and signing him up for a natural gas contract.

What angered Georgia's public service commission most was the company's attitude towards the regulatory process.

"Getting them to co-operate was like banging your head against a wall," said Mike Nantz, assistant to the director of enforcement at the commission.

"There was a complete inability on the company's part to take responsibility for what was happening."

This time, the state forced the company to pay more than $680,000 in penalties, although regulators wanted more than just fines. Direct Energy's U.S. division was also ordered not to solicit new customers in Georgia for a year.

Like police in Ontario, Georgia regulators struggled with limited resources to investigate the company's actions.

The commission put more than a dozen people -- nearly its entire investigative staff -- on the case. It was an unusual effort, but a necessary one, officials said.

"The company had already been fined once," said Nantz. "The commission wanted to send a message."

Just as regulators have been pushed to great lengths to corral Direct Energy and its U.S. affiliate, consumers haven't fared much better in trying to resolve disputes.

By the spring of 2002, Michigan homeowner Jack Carmichael grew tired of waiting for the state to wade through allegations of forged contracts and deceptive sales pitches. Rather than fill out complaint forms down at the attorney general's office, Carmichael took Energy America to court on his own. He believed Direct Energy's U.S. affiliate didn't seem concerned when he told them his signature was forged on a gas contract.

On the day of his hearing, though, the judge delivered some unusual news. District Court Magistrate James Pahl said he couldn't hear the case. He, too, had been visited by an agent representing the company. And because Pahl questioned the sales pitch delivered on his own doorstep, the judge considered himself "a potential witness" in the case.

The publicity over Carmichael's story prompted more consumers to come forward with similar allegations.

However, before Carmichael's hearing could be rescheduled, the company offered to settle -- quietly.

He took the deal and was paid an undisclosed sum of money on the condition he no longer discussed his case publicly. When contacted for this article, Carmichael declined comment.

It would be up to the Michigan attorney general's office to have the last word a few months later.

In May 2002, the state forced Energy America to pay $340,000 in penalties to cover the cost of investigating the thousands of complaints registered against the company.

Michigan officials were particularly upset with the company's response to the mounting concerns.

"The bottom line was, they weren't responding," said Kathy Fitzgerald, Michigan's assistant attorney general. "They were doing nothing -- and the complaints kept piling up."

Back in Ontario, Det. Jack Gill's phone is quieter these days, leaving him time to work on other cases.

Consumer concerns about Direct Energy now go straight to the Ontario Energy Board.

Yet, there are still problems. In September, just three months after Ontario fined Direct Energy, new allegations emerged.

The complaints had a familiar ring to authorities. Five households in Ottawa told the board of a Direct Energy agent who was aggressive on their doorstep, trying to coerce consumers into signing a utility contract on the spot.

Such evidence contradicts numerous statements made by Direct Energy over the past year that the company has clamped down on its problems.

"Where issues have arisen in the past in other jurisdictions, the company has reacted swiftly and appropriately," Gary Newcombe, regional director of regulatory affairs for Direct Energy, told a conference in Calgary in October. "We've put stringent controls in place and have modified business practices and compliance measures as required."

Despite the spate of new consumer complaints, it's unlikely Direct Energy will soon face another in-depth probe like the one it saw in Ontario in 2003. Limited resources mean extensive investigations -- such as using forensic experts to prove a case -- aren't feasible whenever a company is suspected of breaking the rules.

"You can't do that every time you get complaints," said Gill, explaining what frustrates him about the job.

"There's just no way."

Visit the Calgary Herald newspaper.

Read the other 4 parts in this series about Direct Energy:

  Toronto apartments
  Ottawa apartments
  Oakville apartments
  Mississauga apartments
  Ontario Hydro
  Toronto Lawyers & Paralegals
  Ottawa Lawyers & Paralegals

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