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Pa. Proposed Marketing Rules Change Verification Requirements, Include New Rules
for Agent Compensation
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February 15, 2011
Pennsylvania's proposed new electric and gas supplier marketing rules eliminate the
requirement for sales not resulting from contact with an agent to be verified, and
uses new language regarding the requirement that verification, when required, is
not conducted in the presence of the agent (L-
A new, vague obligation regarding permissible compensation plans for agents has also been proposed.
As expected (2/11), the proposed rules, announced last week but issued by the Secretary on Monday, largely track the interim marketing standards established late last year.
One notable, change, however, is eliminating the requirement for a customer enrollment conducted via mail or the internet, when not resulting from the interaction with an agent, to be verified. "Because the majority of the customer concerns about suppliers' marketing and sales practices involved the suppliers' use of agents, the verification of transactions completed by the customer that did not involve an agent at all seemed to be a redundant exercise, which would create unnecessary costs for suppliers," the proposed rulemaking order states.
Verification will still be required for all transactions that involve an agent. The supplier may use, but is not required to use, a third party for the verification.
The proposed rules state:
"The verification process shall be separate from the transaction process, and shall be initiated only after the transaction has been finalized.
(i) When verifying a transaction that resulted from an agent's in-
(ii) When verifying a transaction that resulted from an agent's contact with a customer at the customer's residence, the verification process shall be initiated only after the agent has physically exited the customer's residence.
The requirement under (i) was not contemplated under the interim guidelines, which only addressed the case of an agent physically separating themself from the customer by exiting the customer's residence.
The proposed rule also includes an explicit definition for agent. It largely tracks an informal definition provided in the interim guidelines, with a significant clarification.
Per the proposed rule, agent shall mean, "A person who conducts marketing or sales activities, or both, on behalf of a single licensed supplier. The term includes an employee, a representative, an independent contractor, or a vendor. For natural gas suppliers, the term 'agent' also includes 'marketing services consultant' or 'nontraditional marketer' as those terms are defined at 52 Pa. Code § 62.101 (relating to definitions)."
However, the proposed rulemaking order notes that some entities that provide marketing and sales support services may provide service to one supplier in one distribution company's service territory and another supplier in another distribution company's service territory. Also, there are some such entities that may have separate divisions that provide marketing and sales support service to different suppliers.
"Therefore, we propose that agents that provide marketing and/or sales support services to more than one supplier shall be included in our proposed definition of 'agent' and will be bound to follow these regulations when they are finalized," the proposed order states.
Also new to the proposed rule is the requirement that the, "supplier shall design its agent compensation program to ensure that it does not promote, encourage or reward behavior than runs counter to the practices established in these regulations and to the general obligation of fair dealing and good faith that a supplier should exercise when interacting with customers."
Aside from this language, the proposed rule offers no guidance on what compensation structures are acceptable, and how a supplier could comply with this indistinct requirement. For example, any compensation plan that pays a larger commission for enrollments (even when accompanied by smaller residual payments to incent satisfied customers to maintain an annuity stream) could arguably be considered a program that does not encourage "good faith" dealings due to its emphasis on enrollments.
The proposed rule maintains the interim standard that suppliers shall conduct background checks on, and provide training for, agents. A new proposed requirement is that the supplier shall ensure that its vendors and independent contractors provide the required training for its employees, agents or independent contractors.
Additionally, the proposed rule would make mandatory, rather than discretionary,
a requirement that suppliers provide the local distribution company with "general,
non-
Under the proposal, the supplier shall provide the general information to the distribution company no later than the morning of the day that the marketing or sales activities commence. The distribution company shall use this information only for acquainting its customer service representatives with marketing or sales activity occurring in its service territory so that they may knowledgably address customer inquiries, and a distribution company may not use the information for other purposes.
"In responding to a customer inquiry about price and service, a distribution company may provide information about its own price and terms, but shall refer the customer to the supplier for questions about the supplier's prices and terms," the proposed rule states.
The proposed rules otherwise mirror the interim standards. Provisions related to
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