Proposed Order Would Require Retail Supplier To Drop Customers To SOS Unless It Obtains Affirmative Consent From Customers To Continue Service

Draft Addresses Whether Wet Signature Required For Supplier's Inbound Telephonic Enrollments

Also Addresses Whether Recordings Met Standard For Enrollment Verification

December 17, 2020

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Reporting by Paul Ring • ring@energychoicematters.com

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A Maryland PSC Public Utility Law Judge has issued a proposed order in a proceeding addressing a complaint filed by Commission Staff against SmartEnergy Holdings d/b/a SmartEnergy

As first reported by EnergyChoiceMatters.com, PSC Staff had been seeking, among other relief, revocation of SmartEnergy's supplier license for various alleged violations, including the alleged lack of a wet signature for telephonic enrollments for situations which did not qualify for an exemption from such wet signature requirement under the Maryland Telephone Solicitations Act (MTSA). Staff and the Office of People's Counsel also alleged various other violations.

In brief, the proposed order would require that:

• SmartEnergy may only continue to serve its existing customers if such customers affirmatively consent to the continuation of such service. Customers not affirmatively electing to remain with SmartEnergy shall be returned to default service. In communicating with such customers concerning this matter, SmartEnergy must make the required RPS disclosures pursuant to COMAR 20.61.04.01B and C (which were not included in the company's contract). Additionally, customers must be informed of the renewable nature of SmartEnergy’s product, and the higher price associated therewith. Customer must also be informed that they will be re-rated and refunded the difference between the rate charged by SmartEnergy and the utility SOS rate for each month of service if they return to SOS.

• For former customers, SmartEnergy must re-rate and refund the difference between the rate charged by SmartEnergy and the utility SOS rate for each month of service, unless SmartEnergy has already done so as a result of a complaint

• At a minimum, a moratorium shall be imposed on SmartEnergy’s adding or soliciting additional customers in Maryland. This moratorium shall last at least until SmartEnergy has completed the communication and refund process described above.

• The Commission will, at a later date, address whether $300,000 or some other amount is the appropriate civil monetary penalty to be imposed, after it has an opportunity to review SmartEnergy’s compliance with the directives of the Commission’s final order

Broadly, the proposed order would find that, "SmartEnergy engaged in deceptive practices as part of its operations in Maryland. SmartEnergy engaged in a pattern or practice of systemic violations of the consumer protections contained in the Public Utilities Article and the Commission’s regulations."

SmartEnergy provided the following statement concerning the matter:

"We just received and are in the process of reviewing the proposed order. We are disappointed with the outcome and proposed remedy, and in the coming weeks, will consider whether to appeal it. Our intention has always been, and continues to be, to bring value to Maryland customers while complying with all Maryland regulations. We will continue to strive to do so on a go-forward basis."

--- Statement from SmartEnergy

The proposed order is not final and may be appealed by parties

Wet Signature Requirement

In addressing the alleged violations of the Maryland Telephone Solicitations Act, the proposed order notes that SmartEnergy contends that its telephone transactions do not constitute "telephone solicitations" because the transactions are not initiated by outbound calls from SmartEnergy; instead, the telephone calls are inbound from the consumers in response to direct mailings.

The Public Utility Law Judge agreed, stating that, "because the solicitations began with something other than a phone call to the consumer from SmartEnergy, the transactions do not constitute telephone solicitations within the purview of the MTSA."

"Therefore, the requirements of Com.Law §14-2203(b) do not apply. The record reflects that on three occasions, the Commission’s Consumer Affairs Division (CAD) sent SmartEnergy letters reflecting this interpretation of Maryland law," the Public Utility Law Judge said

"COMAR 20.53.07.08B(2) provides that if a contract is exempt from the MTSA, the supplier shall send the Contract Summary with the contract to the customer; there is no requirement that a signed contract be returned, and thus no requirement to obtain the signature of the customer. Although the COMAR provision only uses the term exempt, the provision will be interpreted as intending the same result if the MTSA is not applicable to the contract. An exemption under Com.Law §14-2202(a)(5) in this instance would be based on the same facts as finding the MTSA not applicable -- that consumers purchased SmartEnergy’s services pursuant to an examination of a print advertisement or other mailing material -- supporting such an interpretation," the Public Utility Law Judge said

While the proposed order finds that a wet signature was not required for these enrollments, the proposed order finds other violations with respect to the enrollments

The proposed order notes that SmartEnergy’s primary method of contracting was to send postcards to prospective residential customers, and interested recipients called the telephone number on the postcard. SmartEnergy agents then used a sales script as an outline during the telephone transaction.

"Staff alleged that a written signature was required under COMAR 20.53.07.08C(2) because the contracts were in response to written material sent by SmartEnergy. The language of COMAR 20.53.07.08C(2) provides that a signed contract is required if a 'supplier solicitation' is in writing. This provision would be in seeming conflict with COMAR 20.53.07.08C(4)(b)(iv) (see following paragraph), as well as COMAR 23.53.07.08B(2), if what removes a transaction from the purview of the MTSA is prior written marketing material under Com.Law §14-2202(a)(5), unless the prior written marketing material is interpreted as something less than a complete 'supplier solicitation.' Thus, the initial marketing material combined with the subsequent telephone transaction together comprise a 'supplier solicitation.' A written signature was therefore not required under COMAR 20.53.07.08C(2) as alleged by Staff," the Public Utility Law Judge found

"COMAR 20.53.07.08C(4)(b) provides that, in the event a supplier is contracting with a customer as a result of a telephone solicitation that is exempt from all applicable State and federal law, including the MTSA, a supplier shall: (i) comply with this regulation; (ii) confirm that customer questions relating to the contract are answered; (iii) confirm that an independent third party verifies the contract or records the entire telephone conversation and maintains the recording for the duration of the contract; (iv) mail or otherwise transmit to the customer a complete written contract within 3 business days of the contracting conversation; and (v) disclose all material contract terms and conditions to the customer over the telephone. If SmartEnergy is correct that the telephone transactions do not constitute telephone solicitations under applicable State law such as the MTSA or applicable federal law, SmartEnergy was required to comply with COMAR 20.53.07.08C(4)(b)(ii)-(v)," the Public Utility Law Judge found

"On several of the calls for which recordings were provided, SmartEnergy agents did not confirm that customer questions relating to the contract were answered [as discussed below], in violation of COMAR 20.53.07.08C(4)(b)(ii)," the Public Utility Law Judge found

Notable are the Public Utility Law Judge's findings regarding the verification of the telephonic enrollments, and whether they met the standard required by rule

"SmartEnergy did not have an independent third party verify the contract. SmartEnergy’s phone conversation with consumers were recorded and these recordings were saved pursuant to SmartEnergy’s contract(s) with its telephone service provider and/or cloud space provider. However, SmartEnergy had access to the recordings, and could alter or delete recordings. The evidence in the record is that SmartEnergy edited the recordings and produced only the confirmation portions to CAD. A supplier’s ability to alter or delete recordings before producing them, regardless of whether there would be a trail that might be found during litigation, is contrary to the spirit if not the letter of the requirement that an independent third party record the entire telephone conversation and maintain the recording for the duration of the contract. The clear and convincing evidence is therefore that SmartEnergy violated COMAR 20.53.07.08C(4)(b)(iii)," the Public Utility Law Judge found

"On several of the calls for which recordings were provided, SmartEnergy agents did not disclose all material contract terms and conditions to the customer over the telephone (see Section D.2. below), in violation of COMAR 20.53.07.08C(4)(b)(v)," the Public Utility Law Judge found

"The violations of COMAR 20.53.07.08C(4)(b)(ii), (iii), and (v), and hence COMAR 20.53.07.08C(4)(b)(i), operated to invalidate SmartEnergy’s enrollments," the Public Utility Law Judge found

"Additionally, SmartEnergy enrolled customers based on telephone transactions with persons who were not the account holder in violation of COMAR 20.53.07.08C(1) and COMAR 20.53.07.05A," the Public Utility Law Judge found

Misleading Practices

Of note, the Public Utility Law Judge found that, with respect to SmartEnergy's telephonic sales, as follows: "I find that use of the phrase 'as a [utility name] customer ... you are eligible to receive one free month of electricity' by SmartEnergy agents, especially when coupled with the promotional 'price protection' pursuant to which agents told customers their rate would not change, was deceptive, potentially misleading customers into believing that they were dealing with their utility company, not an electricity supplier. This finding is lent additional support by the testimony."

"Agents emphasized that the customer’s services would remain the same, furthering the potential deception," the Public Utility Law Judge said

"SmartEnergy did not always disclose the restriction that the free month was based on the consumer’s 7th month of SmartEnergy’s retail supply in the telephone transaction. As set forth above, this was a material condition. I thus find that SmartEnergy engaged in a pattern or practice of systemic violations of COMAR 20.53.07.08C(4)(b)(v)," the Public Utility Law Judge said

"Some callers had questions and/or were confused. SmartEnergy did not confirm that customer questions relating to the contract were answered in violation of COMAR 20.53.07.08C(4)(b)(ii)," the Public Utility Law Judge said

"The next part of the script had agents tell customers that they were eligible to receive one month of free electricity on their utility bill by using smart energy. With respect to BGE customers in particular, which has a Smart Energy Rewards program, I find that this statement (written in the script then spoken orally to customers) had the capacity or tendency to mislead, and, as such, constituted an unfair trade practice. The finding that the reference to smart energy had the capacity or tendency to mislead consumers into thinking they were being offered a utility product or service is based on a review of the script, however, testimony supports this finding as well," the Public Utility Law Judge said

"The script had SmartEnergy agents tell consumers that they would also get 6 months of price protection such that the price they were paying for the electricity would be protected and was not going to increase. Since the script did not have disclosure of the rate customers would pay once they switched to SmartEnergy as their supplier before that point in the script, I find that these statements had the capacity or tendency to mislead or deceive customers into thinking that the price that would not increase was the rate they were currently paying for electricity," the Public Utility Law Judge said

"The script contained a statement that implied that the customer’s current rate would go up during high usage periods like winter and summer which was false and deceptive with respect to actual trends in the SOS rate," the Public Utility Law Judge said

"Once SmartEnergy agents believed the customer had agreed to the promotion being offered, the agents proceeded to the confirmation questions portion of the script. The script had agents say, '[n]ow I just need to ask you two quick questions to confirm the information we’ve discussed.' However, other information was included at this point that was not previously discussed, rendering the agents’ statement false and misleading," the Public Utility Law Judge said

"SmartEnergy agents thwarted customers’ attempts to cancel their enrollments. This unfair trade practice was particularly egregious because during the contracting process when potential customers expressed doubts about enrolling, agents stressed the ability to cancel at any time," the Public Utility Law Judge said

Other Issues

The proposed order notes that summary judgment was entered against SmartEnergy for violations of COMAR 20.53.07.08B due to its failure to provide Contract Summaries from its start of business in Maryland in February 2017 until Staff filed its Complaint in May 2019. SmartEnergy’s failure to provide Contract Summaries during that timeframe constitutes a pattern or practice of systemic violations of COMAR 20.53.07.08B, the proposed order states

The proposed order states, "The contract that SmartEnergy sent to enrollees did not include the RPS (renewable portfolio standard) information required by COMAR 20.61.04.01B and C; The clear and convincing evidence in the record in this case shows that SmartEnergy engaged in a pattern or practice of systemic violations of COMAR 20.61.04.01B and C."

Case 9613

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