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PSC Staff Seek Enforcement Of Judgment Against Retail Supplier Under Which Supplier's Liability Now Exceeds $15 Million
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Staff of the Maryland PSC have recommended that, pursuant to prior PSC orders, SmartEnergy Holdings, LLC d/b/a SmartEnergy ("SmartEnergy" or "the company") again be ordered to refund to Maryland customers all charges in excess of the default service rate which were collected by SmartEnergy from customers under contracts that were found by the PSC (and affirmed by the state's supreme court) to be invalid
Staff said that the amount due to Maryland customers under this previously ordered re-rate now stands at $15.97 million. SmartEnergy had served approximately 32,000 Maryland accounts which are subject to the PSC-ordered re-rate.
As more fully described below, SmartEnergy has moved to limit the payment required under the PSC's order to $3 million.
SmartEnergy provided the following statement concerning the matter:
"SmartEnergy has proposed a fair resolution that requires the company to pay five and a half times more than any supplier has previously paid in the State of Maryland.
"This case was a test case of the Commission's authority under the Maryland Telephone Solicitations Act ('MTSA'). Unlike similar cases pending before the Commission, which have been settled, our case progressed after SmartEnergy successfully addressed the MTSA issue before the Commission's Public Utility Law Judge.
"It is also important to note that the PSC's Consumer Affairs Division confirmed on three separate occasions, including one after the complaint was filed, that SmartEnergy complied with Maryland Law.
"SmartEnergy is evaluating its options for further legal review and will, therefore, refrain from making additional comments at this time."
As more fully discussed in our prior story (click here), SmartEnergy had been ordered to drop its customers to default service in April 2021 due to the violations determined by the PSC, but enforcement was stayed pending an appeal. SmartEnergy returned its Maryland customers to SOS in February 2024
As a result of continued service to customers during the appeal process, the amount owed to customers under the Commissioned-ordered re-rates has grown from about $6 million in April 2021, at the time the PSC issued a stay of its order pending the appeals process, to be, as of April 26, 2024, $15.97 million
Staff alleged that that SmartEnergy has not issued any re-rates to date
Citing financial information provided by SmartEnergy under seal, Staff alleged that SmartEnergy is a, "financially healthy and profitable company," which continues to operate in 15 states
Citing annual reports filed with the PSC, Staff alleged that, "SmartEnergy was extracting substantial revenues from Maryland," even after a moratorium on SmartEnergy's marketing was affirmed by the PSC in 2021. The amounts of such Maryland revenues was marked confidential in Staff's brief
While the specific amount was not disclosed, Staff alleged that, while the order requiring re-rates was pending appeal, SmartEnergy reaped "millions of dollars" from Maryland customers
Staff alleged, "Rather than reserving its profits as a contingency against an ultimate unfavorable decision in the appellate courts, SmartEnergy rewarded its owners and managers with large salaries, bonuses, and buy-outs."
Staff urged the PSC to immediately draw upon SmartEnergy's security on file with the PSC, which includes a $2.5 million appeal bond, and a $250,000 security bond posted as a condition of licensure
Staff further said that the PSC should order SmartEnergy to process the refunds due to customers within 30 days
Staff recommended that a civil penalty be levied against SmartEnergy, with the civil penalty amount set equal to the amount of any unpaid refunds
Staff said that, if no refunds are paid, then the civil penalty should be set at $15.97 million, in addition to the remaining refund obligation of $15.97 million
Staff averred that, "SmartEnergy has been judicially determined in this case to have breached Maryland consumer law and defrauded its Maryland customers repeatedly," and that, "SmartEnergy was found to have committed violations in the enrollment of tens of thousands of accounts."
As more fully discussed in our prior story from February, the Maryland Supreme Court found that SmartEnergy's telephonic enrollments, even though the call was inbound from a customer, were still subject to the wet signature requirement of the Maryland Telephone Solicitations Act (MTSA), and that SmartEnergy did not obtain such signature, nor did its marketing qualify for an exemption under the MTSA.
SmartEnergy had issued marketing postcards to potential customers to generate the inbound calls.
The Court specifically held that, "The MTSA applies to sales made over the telephone where the consumer places the telephone call to the merchant in response to a merchant’s marketing materials unless the transaction falls within one of the statutory exemptions outlined in CL § 14-2202."
The Court further said that an MTSA interpretation that excludes telephonic sales arising from a consumer placing a call to a merchant in response to marketing material, "would create an irrational loophole."
While the MTSA includes an exemption for telephonic sales conducted in response to the customer's review of marketing materials that meet certain standards (including a mandate that the materials must include a, "description of the goods or services being sold"), the Court found that SmartEnergy’s marketing materials failed to qualify for this exemption, as the Court said that SmartEnergy’s marketing materials failed to describe SmartEnergy’s services, including the company's status as a third-party retail supplier and the fact that the customer would be switched from their current supplier
SmartEnergy on August 5 filed a motion with the PSC requesting that the PSC set SmartEnergy's maximum payment, including re-rates, at $3 million
SmartEnergy has shared various financial information with PSC Staff and OPC under seal, and alleged that, "the financial information objectively supports SmartEnergy’s
position that it does not have the financial ability to pay $15.97 million in refunds."
SmartEnergy alleged that a higher payment amount would compel SmartEnergy and its secured creditors to make, "hard
financial choices," with SmartEnergy also citing the possibility of default and/or bankruptcy arising from a violation of a minimum liquidity covenant in its agreement with its secured lender, which would be implicated by a higher payment amount
SmartEnergy alleged, "At most,
SmartEnergy can pay $3 million, which is more than the combined bond amounts of $2,750,000
which are backed by the company’s balance sheet, and more than what customers would receive
were SmartEnergy forced to file for bankruptcy protection."
SmartEnergy stated, "a $3 million payment would enable SmartEnergy to avoid being placed in a precarious
financial situation that might limit the company’s ability to make any payments, afford customers the certainty of receiving more money than they might otherwise receive, and bring an
end to this proceeding after more than five years of litigation."
With the exact amounts filed under seal, SmartEnergy alleged that the assets available to the company to pay any re-rate or fine must be discounted by a minimum liquidity covenant which is contained
in a global agreement with SmartEnergy's secured lender, which provides to SmartEnergy a
secured line of credit in addition to other wholesale market services
SmartEnergy alleged that its secured lender would have the right to call a default and cease financing
SmartEnergy’s continued operations if SmartEnergy’s net worth falls below a required
minimum threshold
SmartEnergy alleged that, in the alternative, if the PSC ordered a higher payment and, as part of such, sought to draw upon SmartEnergy's bond, "the bond proceeds could be
subject to a clawback because [SmartEnergy's] Secured Lender, as a secured creditor, would have the first claim
in SmartEnergy’s assets over unsecured claims lacking priority."
In support of its sought lower payment amount, SmartEnergy averred that only 32 out its 32,000 Maryland customers filed complaints with the PSC's Consumer Affairs Division, which the company averred is a, "lower ratio than that of other suppliers[.]"
SmartEnergy also averred that its proposed payment amount of $3 million is 5.5 times larger than the amount of any prior penalty payment which has been successfully collected by the PSC in the 25 years of retail choice in Maryland
Case 9613
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Staff Would Add Further $15 Million Penalty If Supplier's Current Obligations Not Met
Retail Supplier Moves To Limit Payment To $3 Million
Supplier Raises Potential For Default, Bankruptcy If Higher Payment Ordered
August 5, 2024
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Copyright 2024 EnergyChoiceMatters.com
Reporting by Paul Ring • ring@energychoicematters.com
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