Md. OPC Calls for Licensing of Multi-Level Marketers, Sees No Need for Licensing Contracted Sales Channels

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December 13, 2010

Individuals selling either electricity or gas supply pursuant to multi-level marketing should be individually licensed by the Commission, the Office of People's Counsel said in comments in Case 9245, the Maryland PSC’s investigation of licensing requirements for agents and other non-traditional sales channels (see 11/9).

"Unlike an employee or direct contractor of a supplier/broker, multi-level marketers (MLMs) seem to exist in a regulatory netherworld," OPC said.

"[I]n the case of MLMs, the emphasis on independence of operations (despite strict restrictive terms in the contractual relationship with the corporate parent) leads to the conclusion that the independent representatives, who are interfacing with consumers and obtaining customer signatures on supply contracts, should be licensed," OPC said.

In contrast, OPC said that outside marketing contractors (whether for telemarketing efforts or for door-to-door solicitations), which are under contract to a licensed supplier, need not be licensed, since, through agency law, the supplier is responsible for such actions by these contracted marketers.

"Should the Commission have additional concerns related to the sales conduct of employees or contractors, one possible solution could be to provide clear rules on the conduct of marketing and door-to-door solicitations," OPC added.

"[T]he Commission should consider a rulemaking or other proceeding to adopt 'Codes of Conduct' for marketing practices," OPC continued.  As only noted in Matters, PSC Chairman Douglas Nazarian recently said that he expects the PSC to open further dockets on supplier issues in addition to the instant licensing docket (12/2).

The Maryland Attorney General also recommended the licensing of multi-level marketers.

The AG also favored exempting charitable and similar affinity-type programs from licensing.  OPC suggested such an exemption if, "the entity doing the [affinity] referrals performs this referral function and the group is the beneficiary of a discount and the referring party [is] not in the business of an energy supplier."

Pepco and Delmarva said that the licensing requirements should extend to any "independent contractor" used by a supplier which is not an employee.

Several retail suppliers endorsed licensing for certain types of independent contractors, but said that licensing should not be required if the contractor is marketing on behalf of a single supplier.

The National Energy Marketers Association argued that agents that, "transparently represent a supplier on an exclusive basis," should not need a separate license.

"In other words, an agent that is operating under the identity of an electric or gas marketer so that the consumer associates the transaction with that of the marketer, and that agent is operating under an exclusive agreement with the marketer, should not need to be licensed.  Any complaints or inquiries that the Commission might receive would be made under the name of the marketer and the agent's conduct would be actionable under the marketer's license with the Commission," NEM said.

Interstate Gas Supply suggested a similar mechanism, but with a more specific exclusivity test for a license exemption.  Under IGS Energy's recommendation, the exclusivity requirement would apply to both commodities; e.g. an agent selling electricity for only one supplier and gas for a single, but different, supplier would still need a license.

The Retail Energy Supply Association recommended that the PSC link the definition of broker, and the licensing requirement, to whether the entity is acting on behalf of the customer or supplier.  True brokers, RESA said, which are engaged in the business of matching the customer with one of several suppliers in order to best address the customer's needs should require a license, since no supplier would be responsible for the broker's actions.  In contrast, entities retained by or contracting with retail suppliers, to conduct campaigns on behalf of retail suppliers, should not be licensed, RESA said, since these entities' actions occur under the auspices of the supplier, and the PSC may hold the supplier accountable for such actions.

NEM added that it would be beneficial to clarify that website portals which permit consumers to do comparison shopping among multiple supplier offerings should not require a license.  "Website portals are distinguishable in that the consumer initiates the 'contact' by accessing the site and then independently evaluating the offers that are set forth," NEM said.

Though not quantifying the data, Allegheny Power said that it has experienced several waves of customer complaints with respect to door-to-door solicitors used by suppliers' contractors.  The complaints have concerned "multiple" instances of the following types of conduct:

• Solicitors falsely claiming to be utility employees or sub-contractors
• Solicitors wearing apparel such as shirts and hats with the utility logo on them
• Solicitors claiming they are conducting an "energy audit" and asking to see the customer's bill for that purpose
• Solicitors claiming that federal law has mandated that a discount be offered to electric customers (claimed amounts range from 5% to 20%), but that the customer has to affirmatively request the discount and can do so through the solicitor
• Solicitors claiming they are part of a group that is suing the utility over hidden charges and asking for the customer's account number so that the customer can save money through that action

Allegheny said that it has been subcontractors, and not suppliers themselves, which have apparently engaged in such behavior.

"We believe that the suppliers realize that such activities not only anger and potentially harm customers, but also harm the supplier themselves and retail choice in general.  It may be, however, that the suppliers need help from the Commission in policing the conduct of professional door-to-door solicitation firms, given the recurring nature of these problems," Allegheny said.

NEM President Craig Goodman stressed that retail suppliers have invested millions of dollars in their brands, and are not going to damage such investment through any endemic problems in marketing practices.  Goodman noted that complaints, both in Maryland and other states, represent a small fraction of the millions of customer contacts initiated by suppliers, and especially cited the marked decline in complaints in New York as the market has matured (with a complaints there representing only 0.00024% of migrated customers).

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