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PSC Staff Seeks Revocation Of Retail Supplier License, $500,000 Fine

Staff, OPC Allege Postcard Mailing Does Not Exempt Supplier From Wet Signature Requirement For Telephonic Enrollments

Staff Says 'Signed Contract' Required For Direct Mail Marketing, Citing COMAR's "Written Material" Language

February 3, 2020

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Copyright 2010-20
Reporting by Paul Ring •

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Staff of the Maryland PSC have recommended revocation of the electric supplier license of SmartEnergy Holdings d/b/a SmartEnergy and a civil penalty in the amount of $500,000, in testimony in a PSC complaint proceeding concerning SmartEnergy and alleged marketing violations

See background on the complaint proceeding here

Staff's testimony is notable because, while Staff had previously asked the PSC to issue an order to show cause to SmartEnergy as to why its license shouldn't be revoked, Staff had not previously recommended license revocation thus far in the proceeding

SmartEnergy issued the following statement concerning the matter: "SmartEnergy takes matters such as these very seriously. After review of the testimony, we do not agree with a number of the allegations made. That said, we very much appreciate the work done by the Maryland Public Service Commission. We have and will continue to cooperate with the Commission to resolve their concerns. Our common goal is the satisfaction of Maryland consumers through the provision of professional services and renewable energy."

Of most note in the proceeding is the applicability of the Maryland Telephone Solicitations Act (MTSA), which, as previously reported, requires a wet signature for telephonic enrollments unless one of of the statutorily enumerated exemptions is met.

One exemption of note is that the MTSA wet signature requirement does not apply to a sale, "In which the consumer purchases goods or services pursuant to an examination of a television, radio, or print advertisement or a sample, brochure, catalogue, or other mailing material of the merchant that contains: (i) The name, address, and telephone number of the merchant; (ii) A description of the goods or services being sold;  and (iii) Any limitations or restrictions that apply to the offer."

The MTSA wet signature requirement also does not apply to a sale in which the seller has a preexisting business relationship with the consumer.

As alleged by PSC Staff and OPC, SmartEnergy used a postcard to market to customers, then enrolled customers responding to such postcard via inbound call over the phone without a wet signature

A witness for PSC Staff said in testimony that, "I do not believe that sending a post card to customers meets the definition of a 'previous business relationship.'"

A witness for PSC Staff further alleged that even if the relevant contracts were not subject to the MTSA, they are subject to the provisions of COMAR which states, "If a supplier solicitation is in writing or a supplier contract is provided in response to documents submitted upon personal contact, a signed contract is required." [emphasis added]

"As these contracts were a customer response to written material sent by SmartEnergy, they would still require a written signature," PSC Staff alleged

Staff did not address the MTSA wet signature exemption related to a customer reviewing mailing material, but OPC did in separately filed testimony

OPC alleges, citing a data response that, "SmartEnergy has never obtained a wet signature from any consumer it enrolled."

OPC alleges that SmartEnergy uses direct mailing material sent to the consumer’s residential address, with such mailing material appearing to have been approximately the size of a postcard (referred to hereafter as 'postcards').

According to OPC, SmartEnergy has asserted that its telephone solicitations are not subject to the MTSA because it does not rely on outbound calls, but that, if they are, they fall under the exemption set forth in § 14-2202(a)(5).

OPC said that this exemption applies to a transaction in which the consumer purchases goods or services pursuant to an examination of a television, radio, or print advertisement or a sample, brochure, catalogue, or other mailing material of the merchant that contains (i) The name, address, and telephone number of the merchant; (ii) A description of the goods or services being sold; and (iii) Any limitations or restrictions that apply to the offer.

OPC alleged that the postcard does not qualify for this exemption because the postcard does not include "a description of the goods or services being sold" or the disclosure of "any limitations or restrictions that apply to the offer"

OPC provided an example of the postcard content and relative font size (e.g. font size in relation to other text on the card, the image below is not a 1:1 scale reproduction) as follows:

OPC alleged "First of all, on the postcard, SmartEnergy goes out of its way to appear not to be selling anything, when, in fact, it is seeking to sign up consumers for retail electric supply. The emphasis of the postcard is definitely on the 'eligibility' to receive a 'free month.' The description of SmartEnergy’s fixed price offer is secondary, and it is not clear from the postcard that the free month is contingent on a consumer’s participating in the six-month plan (and remaining a SmartEnergy customer for at least one additional month). There is no disclosure of any actual fixed rate for electricity supply, which is certainly an important part of the description and also no disclosure that the customer will be converted to a variable rate after six months."

"[T]he timing of the 'free month' prominently advertised on the postcards – a highly relevant limitation/restriction – is not disclosed on any of the postcards," OPC alleged

OPC further alleged that MTSA applies to inbound calls, contrary to assertions by SmartEnergy

Apart from the MTSA issues, OPC alleged that the postcard referenced above is misleading.

"First and foremost, there is the representation that a call to SmartEnergy will result in the consumer receiving a free month of electricity. The 'free electricity' is promoted in large font and boldface type; it typically appears many times on the postcard ... but none of the following facts about the 'free month' is disclosed: That it is electric supply only, not the full amount of the consumer’s electric bill; That the 'free month' is contingent on the consumer purchasing electric supply from the supplier, SmartEnergy, rather than from the utility; That the 'free month' is not credited to the consumer’s utility bill but rather involves reimbursement of supply charges; That the 'free month' is based on the consumer’s 7th month of SmartEnergy retail supply and is reimbursed only after the consumer mails (or faxes) in a form (provided with the Welcome Kit), along with a copy of the 7th month bill (which the consumer would receive only after the 8th month of service had commenced)," OPC alleged

OPC also alleged that is it likely that a consumer could be deceived into believing that the offer originated with the utility "On the various postcards, the utility’s name always appears significantly more frequently than SmartEnergy’s. On some of the postcards, the return address is stated as 'SmartEnergy for BGE customers;' on other postcards, the non14 addressed side of the postcard has 'SmartEnergy for BGE customers' in the upper lefthand corner (in a location similar to where a return address would appear. SmartEnergy also provided a local address, which was in the area of Maryland served by the utility (e.g., Baltimore for BG&E). This coupling of the utility’s name with SmartEnergy’s would tend to mislead a consumer into thinking that the offer came from the utility or, at a minimum, that there was a utility-sanctioned connection," OPC alleged

OPC also alleged various violations by SmartEnergy in specific calls with customers.

As an example, OPC alleged that a SmartEnergy, "[r]epresentative says that price protection is for the upcoming months because 'the rates tend to go crazy high.'"

"There was no factual basis for this hypothetical; its sole purpose is to create a baseless concern. The use of the hyperbolic description 'crazy high' is particularly egregious. SOS rates for BG&E were known for the entire interval that [customer's] 'price protection' rate would be in effect and were known to be lower than the SE rate ($0.0927) at all relevant times. Moreover, the known BGE rate during that time was set to decrease twice during the 6-month period (it was $0.08218 in the month of SmartEnergy’s call but decreased to $0.08068 for months 1 through 4 and again to 7 $0.07642 for months 5 and 6)," OPC alleged

OPC also alleged that SmartEnergy was offering fixed rates as price protection for terms during which the utility SOS rate (typically meaning base energy) was already established, and that SmartEnergy's rates, which were in excess of such SOS rates, did not offer protection

"There was not a single instance in which the 'protected' rate offered to the consumer was less than the utility’s current rate for the month in which the sales call occurred or in any one of the six subsequent months. Again, these rates were fully knowable by SmartEnergy at the time of its sales contacts. Simply put, when the representatives were doing their best to attract consumers with a promise of a fixed rate, SmartEnergy could easily have confirmed that the rate SmartEnergy was offering consumers would never be equal to or less than what the consumer would pay by staying on the utility’s published standard offer service rate," OPC alleged

Case 9613

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