SPRINGFIELD, Ill. (CN) – Illinois is taking an electricity supply company to state court, claiming it jacked up customer rates after promising lower-than-average service costs.
Illinois Attorney General Lisa Madigan sued Palmco Power IL LLC in Sangamon County Circuit Court last week on behalf of citizens of the state, alleging violations of the Illinois Consumer Fraud and Deceptive Business Practices Act.
Brooklyn, N.Y.-based Palmco does not own any electricity generation plants or facilities, but instead operates as an electric supply reseller, purchasing electricity on the open market and then reselling it to Illinois consumers with the assurance of lower variable monthly rates, according to the lawsuit. The company has about 8,000 customers in Illinois.
Madigan claims customers are approached by the company with a “convoluted” pricing structure saying the price they pay for electricity will vary from month to month and will be based on “a monthly weighted average of locational marginal prices determined hourly on a day ahead of real time basis,” as well as Palmco’s unspecified operational costs and market conditions.
The company, while not guaranteeing electricity savings, allegedly creates the impression that customers will pay lower rates than they would through an already established provider by giving consumers a discounted rate for their first two months of service that is slightly below the market rate of their current electricity suppliers.
Once hooked in, however, customers experience a systematic raising of rates that is “sometimes as much as 4 times greater than what the consumer would have been paying their original electric provider if they had not switched to Palmco,” Madigan’s lawsuit states.
Telemarketing and door-to-door sales techniques are used to pitch Palmco’s services to unwitting consumers looking to lower their electricity bills, with sales agents telling potential customers that “electricity resellers like Palmco exist in hopes of reducing the overall cost of the utility bills for residents of Illinois,” the state claims.
An exclusive introductory rate slightly lower than that of customers’ current utility provider is offered, according to the lawsuit, with Palmco stating that after two months customer rates will vary but will be similar to that of other utilities.
The reality, Madigan says, is that after two months customers will experience a much higher rate for two additional months, then pay “astronomically” higher prices than their original utility rates.
According to the lawsuit, from January 2014 to July 2016, Palmco’s rate after its introductory period expired was never lower than that of a consumer’s original utility, and in fact significantly higher.
For example, consumer Timothy M.’s electricity rates tripled after his third month as a Palmco customer compared to his rate with his original electricity provider, and Joan M.’s fifth-month bill from the company was $383.32 higher than her previous year’s bill for the same month, the complaint states.
The unprecedented hikes resulted from Palmco’s “baiting in” of customers with artificially low initial rates followed by “staggering” increases afterward, Madigan says.
In addition, sketchy sales techniques were allegedly used to rope in customers at the onset of the process, with sales reps recording only automated phone verification confirming that customers were signing up to receive services.
The preceding sales pitch in which deceptive and abusive practices were used to secure contracts with customers was never recorded, the complaint states, and multiple consumers reported being signed up for Palmco’s services without even realizing they made the switch.
At least one elderly customer says he was falsely told over the phone that he was required to choose an electric supplier, and another consumer was reportedly told after receiving a call by a Palmco rep that the company would be the consumer’s new electric supplier, with the rep requesting a utility account number and birth date.
AG Madigan claims some Palmco reps even took the liberty of representing that they were employed by the consumers’ current utility provider during phone solicitations or door-to-door interactions, when they were actually trying to sign up consumers for Palmco services.
Other reps blatantly lied, the lawsuit states, claiming a current local energy provider was changing its name to Palmco or that it was soon planning to double energy costs, all violations of the Illinois Consumer Fraud and Deceptive Business Practices Act.
Palmco settled a similar fraud suit in New Jersey in June 2016, in which it agreed to pay $5.28 million to customers after that state’s attorney general filed suit against the company for engaging in aggressive and deceptive marketing practices.
A Palmco representative said in a statement about Madigan’s lawsuit that the company “is fully committed to addressing customer concerns in Illinois, and everywhere we do business."
“Over the past year, the company has made several changes to its operations,” Palmco said. “We have hired senior managers with extensive retail energy experience, and have focused on a number of cultural and operational improvements, including but not limited to, enhanced sales monitoring and oversight mechanisms, as well as new policies and procedures. Palmco is committed to a third-party compliance audit, where we will seek to identify further improvements in our training, compliance and marketing functions and to develop some of the best practices in the industry.”
Illinois seeks injunctive relief enjoining Palmco from engaging in deceptive and unfair practices, and an order that all company contracts entered into using such practices be rescinded, requiring unspecified restitution to customers.
In addition, the state seeks a civil penalty of $10,000 for each violation committed against any person over the age of 65, as well as attorney’s fees.
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