Proposed Order Would Not "Limit" PSC's Prior Finding That A Wet Signature Is Required For Inbound Telephonic Sales (PSC Had Only Spoken To Signature Requirement In Cases Of "Misleading" Marketing)

Proposed Order Would Find That Retail Supplier's Telephonic Enrollments Under Specific Mechanism Were Unlawful

January 17, 2022

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Copyright 2010-21 EnergyChoiceMatters.com
Reporting by Paul Ring • ring@energychoicematters.com

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A Maryland public utility law judge (PULJ) has issued a proposed order that would conclude that, under a specific marketing mechanism at issue in the proceeding, Direct Energy Services, LLC, "unlawfully enrolled customers by participation in telephone solicitations in violation of State consumer protection laws, namely, the MTSA, Commercial Law Article, Annotated Code of Maryland § 14-2201 et seq. and alternatively, violated Commission Regulations, namely COMAR 20.53.07.08(C)(4) and COMAR 20.59.07.08(C)(4)."

The proposed order would provide that, "Direct Energy shall obtain a signed written contract for all future telephonic sales in Maryland, whether outbound, or initiated by inbound calls in response to mailers or other marketing."

The proposed order would not impose any additional monetary fines on Direct Energy, or other further remedial actions, related to the issues in the current proceeding. As first reported by EnergyChoiceMatters.com, Direct Energy previously paid $125,000 under a settlement in the proceeding. The instant proposed order is addressing several discrete legal issues reserved for litigation as part of this settlement

As discussed further below, the proposed order is notable because the PULJ would not "limit" the requirement for a wet signature for inbound telephonic sales to instances specifically cited in a prior PSC order

Direct Energy provided the following statement on the proposed order:

"We are still reviewing the order of the Public Utility Law Judge. We disagree with any implication that past enrollments were not fully compliant with law or regulation. We have not ruled out further review or appeal."

--- Statement from Direct Energy

The proceeding generally involves enrollments completed by inbound telephone call to Direct Energy in response to mailers sent by Direct Energy. The proceeding also addresses certain outbound sales calls made in conjunction with the mailer

See our prior story here for more details on the alleged behavior

The proposed order addresses three issues reserved for litigation under the prior settlement, and are related to the Maryland Telephone Solicitations Act, Commercial Law Article, Annotated Code of Maryland (MTSA) as follows :

i. Whether inbound or outbound calls placed by or to customers who have received direct mail promotional materials and who agreed to enroll into Direct Energy’s electricity or natural gas supply service during the call, fall within the MTSA’s definition of 'telephone solicitation;'

ii. Whether Direct Energy’s telephone enrollments are exempt from the MTSA; and

iii. Whether Direct Energy complied with the Commission’s regulations on enrolling customers by telephone pursuant to COMAR 20.53.07.08.C(4) and COMAR 20.59.07.08.C(4), if applicable.

The PULJ said that, "The MTSA defines a '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.'"

Citing recent precedent from the PSC in another retail supplier case (see discussion here), the PULJ said that, "The Commission determined that both inbound calls resulting from materials sent by a supplier and outbound calls from the supplier fall within this definition. Regardless of whether there was an initial mailing of marketing materials to prompt a call from a potential customer to initiate the sale, the sale, itself, is made entirely by telephone. As such, I find that the MTSA applies."

The PULJ noted that in an appeal of this recent case involving another retail supplier, "The Circuit Court for Montgomery County issued a ruling in the SmartEnergy appeal of Order No. 89795, finding that the common sense reading of the MTSA was triggered by the facts in that case, that the MTSA addresses 'sales discussions made entirely by phone AND that were initiated by some means by the merchant.' The Circuit Court denied the argument that the mailed marketing materials created a preexisting business relationship with the customer." (see more discussion of the court's opinion here)

The PULJ would find that, "Direct Energy does not qualify for an exemption [of the MTSA] based on having a signed contract prior to enrollment of customers. The MTSA requires, among other things, that contracts made pursuant to telephone solicitations be reduced to writing and signed by the consumer, match the description of goods or services as that principally used in the telephone solicitation, contain the name, address, and telephone number of the seller, the total price of the contract, and a detailed description of the goods or services being sold. The record establishes that no signed contracts were produced with regards to the customers at issue in this proceeding."

The PULJ would find that, "Direct Energy also does not qualify for an exemption based on contracting via telephone solicitation with a customer with whom they have a prior business relationship. Mailed marketing materials initiate the request by Direct Energy to offer a good or service and request receipt of an inbound call from a customer in response to the mailer, in order to discuss the good or service being offered. The mailer, itself, does not constitute a prior business relationship with the customer. Although Direct Energy offered some evidence of some contracts with prior customers, the record does not contain evidence that any of the customers in the CAD [PSCs Consumer Affairs Division] complaints were previously in a contract with Direct Energy."

The PULJ would find that, "Direct Energy does not qualify for an exemption based on the marketing materials mailed out to initiate incoming calls from potential customers. MTSA Section 14-2202(a)(5) requires that transactions initiated by marketing materials contain all key terms of the contract, including (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."

"All Direct Energy mailers offered as evidence in this matter did not contain the Company’s address. Direct Energy argues that there is nothing in the record to prove that its address was not on return labels on envelopes, but there is nothing in the record to show that it does. The record clearly shows that the Company’s address is not on the materials themselves, which are what was provided in discovery and offered into the record. Furthermore, all Direct Energy mailers offered as evidence in this matter failed to contain the term of the contract. Some Direct Energy mailers offered as evidence in this matter do not contain the initial rate to be charged. I find that some Direct Energy mailers offer misleading statements, whether or not those statements were combined with distinct points of the contract lacking. None of the Direct Energy mailers offered as evidence in this matter specify what happens after the initial term, i.e. customers to be transitioned to a variable rate," the PULJ would find

One key conclusion from the PULJ concerns application of the PSC's recent SmartEnergy decision and whether inbound calls require a signature under the MTSA

As previously reported, the PSC in SmartEnergy found that, "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."

Notably, in the SmartEnergy decision, the PSC refrained from broadly stating that all in-bound telephonic enrollments require a wet signature

As summarized by the PULJ, Direct Energy argued that, "Direct Energy insists that the Commission, in SmartEnergy, found that where inbound calls were initiated by deceptive and misleading mailers and other advertisement, only then does the MTSA apply."

The PULJ said that, "I specifically reject Direct Energy’s interpretation of the Commission’s ruling on the applicability of the MTSA on inbound calls in that I do not limit the applicability of MTSA to inbound calls based only on deceptive or misleading mailers or other advertisements."

The PULJ noted that, "COMAR 20.53.07.08(C)(4) and COMAR 20.59.07.08(C)(4) apply to suppliers contracting with customers as a result of telephone solicitation exempt from all applicable State and federal law. Thus, should the MTSA not apply, these regulations require gas and electric suppliers to mail or otherwise transmit to customers a complete written contract within three business days of the contracting conversation."

The PULJ further said, "The stipulation of facts states that upon enrollment, Direct Energy provided the customers at issue in this matter a welcome letter, terms and conditions, and a contract summary. Direct Energy argues that these three electronic or print mailings satisfy the requirements of disclosure of material contract terms and conditions. Staff and OPC argue the opposite. Direct Energy argues that OPC misconstrued this point and should be bound by the agreed stipulations of fact. Direct Energy then argues that it provided a welcome letter, the complete contract, and a contract summary, which is very different from what it agreed to in the stipulation of facts. OPC argues that the Terms and Conditions sent subsequent to enrollment states that it 'supersedes any oral representations made in connection with the sale,' separating itself from the telephone solicitation. All parties are bound by the agreed stipulations of fact."

"I find, as the Commission has previously found, that a contract summary, as evidenced by the specific facts in evidence in this case, is insufficient to meet the requirements of disclosure of material contract terms and conditions," the PULJ said

In terms of whether any further penalties should apply, the PULJ said, "Finding that Direct Energy is in violation of the terms of terms of the MTSA, in that it engaged in telephone solicitations, enrolling customers without a signed contract and without qualifying under any other exemption under the MTSA, and also finding separate from any MTSA violation, that Direct Energy is in violation of COMAR 20.53.07.08(C)(4) and COMAR 20.59.07.08(C)(4), having not providing customers with a written contract within three business days of contracting with customers, I turn now to what remedy is appropriate. PUA Section 7-507(k)(1) allows the Commission, after a determination of 'just cause' upon investigation by the Commission, OPC, the Attorney General, or an affected party, to revoke or suspend the license of a gas or electricity supplier, to impose a civil penalty or other remedy, to order a refund or credit to a customer, and/or to impose a moratorium on adding or soliciting additional customers. Just cause is evident in this matter based on engaging in deceptive marketing practices by contracting via telephone solicitation without written signature on a full contract or disclosure of full terms and conditions. I also find just cause based on contracting via telephone solicitation outside of the parameters and protections of the MTSA. Finally, I find just cause based on violation of Commission Regulation or Order, namely, COMAR 20.53.07.08(C)(4) and COMAR 20.59.07.08(C)(4), if the MTSA has not applied, as discussed above."

"I agree with Staff and find that no further monetary penalty is required, as the previous penalty paid by Direct Energy is in scope with payments imposed on other suppliers for similar violations. However, having found just cause, and refraining from revoking or suspending Smart Energy’s licenses in Maryland, or imposing a moratorium on adding or soliciting additional customers, I do find, pursuant to PUA Section 7-507(k)(1), that a remedy is required to protect Maryland consumers from misleading telephone solicitations," the PULJ said

"Therefore, Direct Energy is directed to obtain a signed written contract for all future telephonic sales in Maryland, whether outbound, or initiated by inbound calls, and in response to mailers or other marketing, regardless of whether an exemption would be allowed based on the MTSA," the PULJ said

Case 9614

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