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PSC Orders Retail Supplier To Return Customers Enrolled Via Specific Sales Channel To Default Service

Reverses ALJ's Finding Concerning Whether Wet Signature Required For Supplier's Inbound Telephonic Enrollments

April 1, 2021

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Copyright 2010-21
Reporting by Paul Ring •

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The Maryland PSC ordered SmartEnergy Holdings, LLC to return all of its Maryland customers that were solicited and enrolled via telephone, in response to the supplier’s direct mail advertising, to utility standard offer service, as the PSC found that SmartEnergy failed to comply with the Maryland Telephone Solicitations Act's (MTSA) contracting requirements for contracts based on Telephone Solicitations

The Commission further directed SmartEnergy to re-rate and refund all Maryland customers solicited via telephone the difference between SmartEnergy’s supply charges and the applicable standard offer service (SOS) rate offered by the customer’s local utility for all periods these customers were served, whether the customer is an existing customer or a former customer

The PSC also ordered the continuation of a moratorium prohibiting SmartEnergy from adding or soliciting new customers in Maryland.

SmartEnergy Holdings provided the following statement concerning the matter:

"We are disappointed by the PSC’s Order. We will continue to thoughtfully analyze the Order, consult with legal and regulatory professionals, and decide the best path for the company. SmartEnergy remains committed to its customers and to consistently improving its services in Maryland and beyond."

--- Statement from SmartEnergy Holdings

In making its findings, the PSC reversed a public utility law judge's (PULJ) finding, from a proposed order, that the Maryland Telephone Solicitations Act (MTSA), Commercial Law ('Com. Law') § 14-2203(b) (requiring that a contract made pursuant to a telephone solicitation be reduced to writing and signed by the consumer) does not apply to SmartEnergy’s contracting with its Maryland customers, under the specific facts in the instant proceeding. As noted further below, the PSC refrained from broadly stating that all in-bound telephonic enrollments require a wet signature.

The PSC affirmed the PULJ’s findings that SmartEnergy violated PUA § 7-507(b)(7) by engaging in unfair, false, misleading and deceptive marketing, advertising and trade practices, and associated COMAR Title 20, Subsection 53 provisions.

The Commission will address arguments regarding the possibility of license suspension and/or revocation, and the assessment of a civil monetary penalty, after SmartEnergy has complied with the directives noted above, including making refunds to all customers that have what the PSC ruled are invalid contracts. SmartEnergy’s compliance with these directives will be considered in the assessment of any civil monetary penalty

Background on the alleged behavior and alleged violations by SmartEnergy can be found in our prior story here

The PSC in its order noted, "In its Answer to Staff’s Complaint, SmartEnergy stated that its primary method of marketing to Maryland residential customers was by direct mail to customers. It stated that customers could respond to these mailings by calling SmartEnergy’s toll-free number on the postcard sent by the Supplier to discuss SmartEnergy’s offer and to enroll. Additionally, in its Reply Testimony, [a] SmartEnergy witness stated that '[b]y sending a postcard and fielding an inbound call from the customer (or, in some cases, the customer leaves a voicemail and SmartEnergy returns the customer’s call), SmartEnergy has established a preexisting business relationship with the customer.' In this case, SmartEnergy’s customer enrollments were based on inbound calls to the Supplier from prospective customers in response to SmartEnergy’s direct mailings."

The PSC noted that, "The MTSA defines 'Telephone Solicitation' as 'the attempt by a merchant to sell or lease consumer goods, services, or realty to a consumer located in this state that is: (1) Made entirely by telephone; and (2) Initiated by the merchant.'" The PSC noted, "MTSA, Com. Law § 14-2202(a), exempts certain transactions, including transactions '[i]n 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 PULJ had found in a proposed order that the MTSA did not apply to 'in-bound' calls in response to the Supplier’s postcard, and therefore the PULJ determined that the MTSA did not govern the contractual requirements applicable to the Supplier under the Commission’s regulations.

Under the Proposed Order, contract summaries were required to be sent to the customers, but signed contracts -- with wet signatures returned by the customers -- were not required.

In overturning this proposed conclusion, the PSC said that, "However, the Commission has never ruled that the MTSA applies only to 'out-bound' calls."

"In this case, where the in-bound calls to SmartEnergy were initiated by the Supplier using false and misleading direct mail advertising, and where it was only during the call that the customer was made aware of all terms and conditions of the Supplier’s service, the Commission finds that the MTSA does apply to SmartEnergy’s solicitation practices," the PSC said

The PSC said, "The clear intent of the MTSA ... is 'to protect consumers who are subject to deceptive telemarketing tactics from being stuck with products or services that they ultimately do not want, or pursuant to terms that they did not understand or agree to.' SmartEnergy’s primary argument is that the MTSA somehow differentiates between inbound and outbound calls. However, the plain language of the MTSA does not express such a distinction. Rather, the MTSA defines 'Telephone Solicitation' as 'the attempt by a merchant to sell or lease consumer goods, services, or realty to a consumer located in this state that is: (1) Made entirely by telephone; and (2) Initiated by the merchant.' The inbound/outbound distinction conflates the 'initiation' of the telephone call and the initiation of the attempt by the merchant to sell or lease consumer goods. In this instance, it is clear that SmartEnergy initiated the attempt to sell its retail supply product to customers by sending the postcard to the customer. In addition, it is clear that the sales process selected by SmartEnergy was consummated entirely over the telephone without the customer receiving the core benefit of the MTSA - the ability to review and reject the contract without interference by a telephone sales agent. The MTSA also clearly contemplates inbound telephone calls within its scope. In fact, MTSA, Com. Law § 14-2202(b) (relating to credit services), mentions an offer where 'the customer is required to call a telephone number.' Thus it is clear that ...calls made by both the seller and the consumer are within the scope of the statute."

The PSC further said, "In addition to the clear inclusion of inbound calls in other sections of the statute, adopting the inbound/outbound distinction would render certain sections of the statute meaningless, contradictory and unenforceable. A cardinal rule of statutory interpretation is that no section of the statute should be read such that it renders another section without effect. First, the exception under MTSA, Com. Law § 14-2202(a)(5) would be rendered meaningless if written materials put into the marketplace by a seller rendered all subsequent sales outside the scope of the MTSA. If the provision of marketing materials via print media, television or mail is not initiating an attempt to sell or somehow negates the fact that a sale is consummated entirely by telephone then this exception would not be necessary. Effectively, if providing marketing materials removes sales from the scope of the MTSA, because the sale was therefore not 'initiated' by an outbound telephone call, then there is no need for this exception - all such sales would already be outside of the statute. Finally, as the CPD noted, it would be nonsensical for a postcard which manifestly fails to qualify for an exemption to the statute to make the statute inapplicable."

The PSC said, "In this case, SmartEnergy initiated the attempt to sell an energy supply product to Maryland consumers by sending postcards offering a month of free electricity. This postcard provided minimal information about the offer and did not include essential information such as price, renewal terms, or other items outlined in COMAR The postcard also failed to provide any of the limitations and restrictions on the free month of electricity, such as the length of service required to qualify or how the 'free month' would be calculated and provided. When customers called in response to this postcard they were subject to a sales pitch and entered into a contract for consumer goods. The Commission agrees with Staff, OPC, and the CPD that SmartEnergy’s sales process is within the definition of a telephone solicitation and that this type of sales process is precisely what the legislature intended to encompass within the legislation."

Notably, with respect to the broader retail market, the PSC noted that the Maryland Office of Attorney General, Consumer Protection Division ('the CPD') has argued that the MTSA’s definition of Telephone Solicitation includes sales in which the customer calls the merchant, and that the CPD interprets the plain language of this definition as including any situation in which "the merchant is the instigator of an effort to sell consumer goods, [or] services ... over the telephone, regardless of which party ultimately places the phone call."

However, the PSC said, "The Commission reads the CPD’s interpretation as applicable not necessarily to all in-bound sales calls by customers to competitive retail suppliers, but at a minimum to those 'instigated' by the supplier, especially those instigated by [as found by the PSC below] deceptive, false and misleading advertising."

Therefore, the Commission stressed that its reversal of the PULJ’s finding concerning a wet signature for in-bound telephone call enrollments is based on, "the fact-specific basis of this case."

Turning to the issue of whether SmartEnergy engaged in false or misleading advertising, the PSC said, "In this case, SmartEnergy sent over six million postcards to prospective Maryland customers, soliciting a call back from these customers by offering a 'free month of electricity,' and a six-month guaranteed rate protection plan. 'Free Month of Electricity' was prominent on these postcards, along with 'Important Notice,' 'Eligibility Code,' a 'Redeem Before Date,' and often 'Time Sensitive' and/or 'Act Now.' Over 100,000 prospective customers called SmartEnergy in response to these postcards, during which SmartEnergy’s 'attempt to sell … [its] services to a consumer located in this state' was 'Made entirely by the telephone', and was 'Initiated by the merchant.'"

The PSC said, "In finding that SmartEnergy’s sales attempts were made entirely by telephone, the Commission notes that ‒ only during the telephone calls did SmartEnergy sales agents (1) explain the terms and conditions of the service, (2) state the rate that would be charged during the six-month guaranteed rate protection plan, (3) explain the requirement that customers must remain on the Supplier’s fixed rate plan for the full six months before being eligible for one free month of electricity, (4) explain the method required for claiming the refund check for the free month of electricity, and (5) note the customer’s right to cancel the service and return to their utility supplier."

The PSC said, "In finding that the sales attempt was initiated by the merchant, the Commission notes that SmartEnergy solicited the customers’ calls using a postcard deceptively (1) using the phrase 'as a [utility] customer … you are eligible to receive one free month of electricity,' (2) implying that the offer was being made by the customer’s current utility, greeting customers with offering 'free' electricity with phrases such as 'yes, I see that as a [utility] customer, you are eligible to receive one free month of electricity,' reinforcing the implication that the customer is dealing with his or her current utility, (3) assisting and often times coaching customers through customer service calls with the customer’s utility to obtain the customer choice identification number needed by the Supplier in order to enroll the customer with SmartEnergy,111 and (4) suggesting electricity rates in an upcoming season will likely fluctuate, adding that what SmartEnergy is offering will give the customer 'peace of mind.'"

The PSC said, "Here, SmartEnergy’s postcards were not directed to customers with whom the Supplier had a pre-existing relationship, and its enrollments were not made under circumstances in which the customers had the opportunity to examine SmartEnergy’s services beforehand. As to the latter, it was only during the Telephone Solicitation and sale 'made entirely by telephone' that customers were apprised of: the terms and conditions of the service; the rate applicable to the 6-month guaranteed price protection plan; the requirement needed to obtain one free month of service; and the customer’s right to cancel. Under these circumstances, the exemptions under MTSA, Com. Law §§ 14-2202(a)(2)(ii) and 14-2202(a)(5), do not apply."

The PSC said, "SmartEnergy’s argument that a pre-existing business relationship (Com. Law § 14-2202(a)(2)(ii)) exemption was established between SmartEnergy and the customers in advance of the telephone contract is equally unavailing. Its assertion that customers had the opportunity to research SmartEnergy and then voluntarily call SmartEnergy, which it argues is distinct from a scenario where a supplier cold calls a customer that might have received some marketing collateral or visited the Supplier’s website in the past, contradicts the Supplier’s assertion that a pre-existing business relationship was established by virtue of both the mailing of the postcard advertisement (a marketing communication to the customer) and the customer calling SmartEnergy after reviewing the postcard to learn more about SmartEnergy’s offer and possible enrollment."

The PSC said, "Here, the Commission finds that the customers to whom SmartEnergy mailed postcards were not pre-existing SmartEnergy customers, which may have made the Supplier’s Telephone Solicitations exempt under MTSA, Com. Law § 14-2202(a)(2)(ii). Additionally, the postcards sent by SmartEnergy were so misleading that it would have been difficult -- if not impossible -- for customers to research the Supplier before calling to inquire about the 'free month of electricity' they were being offered 'as an 'eligible' '[utility'] customer,' which the Supplier asserts is a form of telephone solicitation that is exempt under MTSA, Com. Law § 14-2202(a)(5). The description 'SmartEnergy for [utility] Customers,' along with a 1-800 number to SmartEnergy would hardly lead to research beyond dialing the 1-800 number to SmartEnergy, where the telephone solicitation in this case occurred. Moreover, SmartEnergy failed to conspicuously include its supplier license number on its postcards (as is required by COMAR, which if this information had been included may have enabled customers to conduct the research that SmartEnergy argues they had the opportunity to conduct."

The PSC said, "For the foregoing reasons, the Commission finds that SmartEnergy’s telephone solicitations in this case are governed by the MTSA, and that the exemptions for purchasing goods or services pursuant to an examination of a print, advertisement, brochure or other mailing material, or the pre-existing business relationship do not apply. Therefore, the PULJ’s finding that 'because the solicitations began with something other than a phone call to the customer from SmartEnergy, the transactions do not constitute Telephone Solicitations within the purview of the MTSA,' under the facts of this case is reversed."

The PSC said, "In reversing the Proposed Order regarding the applicability of the MTSA, the Commission preserves the PULJ’s finding that SmartEnergy failed to provide contract summaries to 100% of its customers, the Commission -- however -- finds further; i.e., that SmartEnergy violated the contracting requirements of the MTSA by failing to send contracts ‒ inclusive of all material terms and conditions ‒ to customers, obtaining the customer’s wet signature, and having a signed contract returned to the supplier."

The PSC said, "Pursuant to MTSA, Com. Law § 14-2203(a) a contract made pursuant to a telephone solicitation is not valid and enforceable against a consumer unless made in compliance with MTSA, Com. Law § 14-2203(b). Having failed to comply with these requirements, the Commission hereby finds SmartEnergy’s contracts with all of its Maryland customers invalid. Subject to the additional findings below, SmartEnergy is directed to refund all of its Maryland retail supply customers the difference between the rates charged by SmartEnergy and the applicable utility’s SOS rate."

Concerning the sales call language, the PSC said, "There is substantial evidence in the record to support the PULJ’s finding that the portion of SmartEnergy’s sales script pertaining to recording the call had the 'capacity, tendency, or effect of deceiving or misleading customers,' whether or not any customer was in fact misled, deceived, or damaged as a result of the agent following the script. In many cases, the sales agent began the call with a phrase such as 'this call is being recorded for quality and training purposes,' when in fact the calls were being recorded by the Supplier as a means of verifying the contract that SmartEnergy was seeking to confirm through its two-question confirmation questionnaire. Often the Supplier’s sales agent began the call as noted, but would later restate other phrases such as 'now I’m going to place this call on a recorded line' or 'do I have permission to record this call for quality and training purposes,' immediately before asking the contract confirmation questions."

The PSC said, "The Commission finds that this portion of the written sales script had the capacity or tendency to mislead customers into believing that the purpose of the recording was solely for quality and training purposes, rather than for purposes of verifying the caller’s 'yes or no' response to the Supplier’s two-question confirmation questionnaire. The PULJ’s finding is affirmed."

The PSC said, "With regard to the PULJ’s finding that SmartEnergy’s sales script instructing agents to tell customers that they were eligible to receive one month of free electricity on their bill by using SmartEnergy had the capacity, tendency, or effect of deceiving or misleading customers – whether or not any consumer in fact was misled, deceived or damaged ‒ there is substantial evidence in the record to support this finding. While SmartEnergy’s postcards note that the Supplier is not affiliated with the utility, during its sales calls SmartEnergy’s agents did not reiterate the Supplier’s non-affiliation with 'the' utility. Even when customers expressed confusion, SmartEnergy’s sales agents only responded with a phrase such as 'you must remain with the utility' in order to guarantee the price protection plan"

The PSC said, " As to SmartEnergy’s suggestion that it predated BGE’s Smart Energy Rewards® Program, noting that SmartEnergy was formed in 2012 before BGE’s Smart Energy Rewards® Program existed, this is false. The Commission first approved BGE’s Peak Rewards and Smart Energy Savings Programs as pilot programs in August 2008, and later reapproved these programs as part of BGE’s implementation efforts in response to the EmPOWER Maryland Act. In many of the audio recordings produced in this case, customers were repeatedly confused by SmartEnergy’s price protection plan (fixed rate) offer, many asking whether they were being asked to switch from their utility. In response, while the Supplier assured customers that they must in fact remain with their current utility in order to participate in SmartEnergy’s price protection plan, the Supplier dodged the question of whether the customer was being asked to switch to a competitive electricity supplier. As supported by the record in this case, the PULJ’s finding is affirmed."

With regard to SmartEnergy’s description of the SOS rate to customers, the PSC said, "SmartEnergy’s postcard, which emphasized a 'free month of electricity,' included the Supplier’s reference to a '6-month guaranteed rate protection' plan. As noted above, the Commission finds that the postcards mailed by SmartEnergy to solicit customer calls were deceptive and misleading. While during the SmartEnergy sales calls, the Supplier’s agents disclosed the fixed rate that customer would pay during the six-month guaranteed protection plan period, sales agents often characterized the future energy usage period as highly volatile -- using such terminology as 'crazy high' -- to describe variable electricity rates during winter and summer months, thus, projecting higher rates for customers who chose not to switch, while not disclosing that SmartEnergy’s six-month guaranteed price protection plan fixed rate would result in an increase from what many customers were currently paying."

The PSC said, "SmartEnergy is not obligated to advise a customer of the utility’s SOS rate during a marketing call. However, the Supplier may not falsely portray its rates as a non-increase in rates from those charged by the customer’s utility or current supplier. In addition, by characterizing seasonal changes in usage rates as 'crazy high' SmartEnergy does misrepresent the nature of the utility SOS offering. The PULJ’s finding is affirmed."

The PSC said that the PULJ also noted that once SmartEnergy agents believed the customer had agreed to the promotion being offered, the agents proceeded to the confirmation questions which included information pertaining to: (1) the fixed rate being offered by SmartEnergy and; (2) the customer’s right to cancel -- two pieces of information that frequently were not previously discussed, therefore, in the PULJ's view, rendering the agents’ statement false and misleading.

The PSC said that, "The audio recordings produced in this case reveal instances in which SmartEnergy’s sales agents proceeded to the contract confirmation questions without ever mentioning SmartEnergy’s per-kWh rate prior to the 'Do you understand? Yes or no?' confirmation question. As OPC witness ... testimony suggests, the occasions in which the per-kWh rate was discussed before the 'yes or no' confirmation question was asked were rare. Therefore, the PULJ’s finding is affirmed."

The PSC said, " The audio recordings produced in this case reveal instances in which customer questions were not answered, or responses were given by SmartEnergy’s sales agents that deflected the customer’s questions. In some cases, SmartEnergy’s agents defected the customer’s question by restating (and emphasizing) the six-month guaranteed price protection plan – when the upcoming seasonal usage would typically be 'crazy high.' In other instances, rather than attempt to answer a customer’s questions, SmartEnergy’s sales agent simply emphasized calling the Customer Service Center with any questions."

The PSC said, "Having found SmartEnergy’s postcard to be deceptive and misleading for purposes of soliciting sales calls and that the MTSA applies to the Supplier’s telephone solicitations, COMAR is inapplicable. The PULJ’s finding with regard to COMAR is therefore reversed. However, the PULJ’s discussion with regard to this issue supports the finding that SmartEnergy engaged in a pattern and practice of false and misleading conduct in violation of Com. Law §§ 13- 301(1)(3) and 13-303, prohibiting false and misleading practices which have the capacity, tendency, or effect of deceiving or misleading consumers."

Turning to alleged enrollments of non-account holders, the PSC concluded, "In reviewing the record, the Commission found no more than two direct instances in which non-account holders were enrolled by SmartEnergy, and in reviewing the audio recordings provided by SmartEnergy, and the Commission notes that the Supplier was fastidious in confirming that callers were either themselves, the account holder, or had the authority to make decisions on the customer’s account. Although confirming the caller’s authorization to make decisions on the account was not among the 'confirmation' questions to which callers were asked to provide a clear 'yes or no,' the Commission does not find that the Supplier’s call script reflects a tendency to enroll persons other than the customer. However, the violation of COMAR and COMAR found by the PULJ for the two instances for which SmartEnergy admits enrolling persons other than the customer is affirmed."

The PSC said, "The license number provided on SmartEnergy's postcards is placed on the last line at the bottom of the cards in font significantly smaller than that used for the 'FREE MONTH OF ELECTRICITY.' COMAR requires that the suppliers’ Maryland license number on all marketing or solicitation materials in a 'clear and conspicuous manner.' Com. Law § 1-201(b)(10) defines 'conspicuous' as whether it is noticeable using a reasonable person standard. The statute includes examples such as using capital letters in font sizes larger or the same size font as surrounding text or using contrasting type, colors or fonts to surrounding text of equal or lesser size, or using symbols or marks to draw attention from the surrounding text. The determination of whether text is 'conspicuous' is a matter for the court to decide. In this case, the Supplier’s license number is smaller than the text in the main portion of the solicitation. It is placed at the bottom of the postcards within the "fine print" and is less noticeable than the offer of 'FREE ELECTRICITY' and SmartEnergy’s toll-free 1-800 phone number."

The PSC said, "The Commission finds that SmartEnergy’s supplier license number is not provided in a 'conspicuous' manner as defined in Com. Law § 1-201(b)(10) and that SmartEnergy therefore violated the requirements of COMAR"

The PSC also affirmed the finding that SmartEnergy’s sales agents, "regularly thwarted customers’ attempts to cancel the Supplier’s service."

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