Behind the scenes at a troubled Texas electric company

How rare to see what goes on behind the scenes at a Texas electric company.

Watchdog Nation Staff is pleased to see that a smart blogger recognized this fact: On the behind-the-scenes nastiness, as alleged in a lawsuit, involving troubled Amigo Energy, the blogger notes that “the Star Telegram was the only media source” to report this.

Because the live link to Lieber’s column won’t last forever, here is what the founder of Watchdog Nation had to report:

There was the chief executive officer of Merrill Lynch who bought the $35,000 toilet for his office. Then we learned about the peanut butter company CEO who the Food and Drug Administration says knowingly shipped products tainted with salmonella.

The latest? The CEO at a Texas electricity provider who is accused of ignoring state regulators and trying to overcharge customers to save the company.

And who makes these allegations? None other than the company’s previous CEO, who says he was fired when he tried to blow the whistle.

Javier Vega, the former CEO and founder of Amigo Energy of Houston, filed a wrongful-termination lawsuit against Amigo’s current owner, Fulcrum Power, in Harris County district court in November.

His lawsuit is more than an employment dispute.

It says, “The case also involves the greed and corruption of certain individuals and legal entities that led to blatant and knowingly illegal efforts to collect improper rates from Texas retail electricity consumers.”

In a brief interview, Amigo’s current CEO said the allegations are false.

“We vehemently deny all of Mr. Vega’s claims,” Gerardo “G.P.” Manalac told me. “We intend to let the litigation go its course.”

He added: “Amigo, like any other retail electric provider, had a very difficult year. But we turned the corner on that and are back on track.”

He said his company is cooperating with an investigation by the Texas Public Utility Commission into allegations of overcharging.

The lawsuit offers a peek at the turmoil behind the scenes at Amigo last year, when hundreds of customers complained that they were overcharged. Many said the company refused to answer their complaints and sent a collection agency after them, sometimes within days of the first bill’s arrival.

The PUC reprimanded the company for violating state rules, but it has yet to levy fines or other penalties.

According to Vega’s lawsuit, the problems stemmed from his decision in 2007 to sell his company to Fulcrum Power of Houston, which was a wholesale electricity provider for Amigo. Vega stayed on as CEO.

The first year went smoothly, the lawsuit says. But last June, Manalac, Fulcrum’s co-founder, took day-to-day operations away from Vega, who kept the CEO title in name only.

Manalac, though, did not buy electricity at lower prices for future use to hedge against price jumps, the lawsuit contends, something that Vega handled when he ran the company. Vega claims that he repeatedly warned Manalac to stop selling fixed-rate contracts to customers because the company hadn’t bought enough electricity at lower prices to make a profit. If prices jumped, he warned, the company could find itself in severe trouble.

Prices did jump, and the company lost $15 million by “gross mismanagement in a mere five months” last year, Vega contends in the suit.

To make up for the loss, the suit says, the company turned to “aggressive price increase methods” aimed at former customers of National Power, which closed in May. Amigo bought National Power’s variable-rate customers, who suddenly found themselves paying higher prices with a new provider.

According to state rules, an electricity provider may not raise rates by more than 10 percent in one month unless a customer is properly notified. Rates for former National Power customers in Dallas went up to 16 cents per kilowatt-hour, and Houston-area customers were stunned to see their rates jump to 20 cents. That increase was handled with proper notification, the suit alleges.

A few weeks later, Amigo again raised the rates for former National Power customers, this time as high as the 24- to 25-cent range. There was no proper notice, and the increase was more than the allowed 10 percent, according to the suit.

Customers were also wrongly billed at the higher rate for a period before the rate took effect, the suit charges. When some customers received several months’ worth of bills at once, they were stunned by the higher rates and called to complain. But they couldn’t reach anyone at Amigo. More than 700 customers complained to the PUC, which launched an investigation. In September, the PUC ordered the company to “rerate” hundreds of customers – lower their bills to the proper amount.

The PUC also cited Amigo for numerous violations – not sending bills to customers, refusing to offer payment arrangements to shellshocked customers, not giving proper notice before an increase and not responding to customer complaints.

The suit contends that Fulcrum cut Amigo’s customer service staff, leaving angry customers with phone waits “in excess of one hour for tens of thousands of Amigo Energy customers.” There was also a backlog of 10,000 unanswered customer e-mails.

PUC staffers were coming down hard on Amigo because of the many complaints. One PUC official, the lawsuit says, asked an Amigo executive whether the company wanted “to continue to be in this business.”

Manalac insisted on a get-tough strategy aimed at customers who owed money, even if the charges were incorrect, the suit says.

He ordered that collection letters be sent to customers only days after their first bills arrived. And he refused the PUC’s directive that Amigo go back and rerate the bills, court papers say.

Manalac sent an e-mail, papers say, urging bill collectors to “to pester these people” to pay. In another e-mail, he wrote, “Allow them no negotiation the first or second round (and then we can go from there).”

Vega talked about quitting, but before he could, the suit says, Fulcrum executives told him he was fired for spreading harmful information about the company.

Vega’s lawyer did not return phone calls. Fulcrum’s lawyer declined to comment.

It may not be a good time for some chief executives, but it can be an even worse time for customers.

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Comments

  1. A few workers in our area got Salmonella poisoning. It is a good thing that they did not die and they have fully recovered. :