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PSC Sets Multi-Million Dollar Refund Amount For Retail Supplier Violations, Addresses Supplier's Argument That Jury Trial Needed For PSC To Impose Punitive Penalties
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The Maryland PSC has issued an order on refunds and penalties imposed on SmartEnergy Holdings, LLC ("SmartEnergy") related to a finding, affirmed by the Maryland Supreme Court, 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 SmartEnergy's marketing qualify for an exemption under the MTSA.
See background on the violation findings in our prior story here
SmartEnergy provided the following statement concerning the matter:
"SmartEnergy Holdings, LLC ('SmartEnergy') acknowledges the issuance of the Maryland Public Service Commission’s recent order concerning proceedings related to SmartEnergy's operations in Maryland.
"We are currently reviewing the Commission’s decision. As we always have, SmartEnergy remains committed to full compliance with applicable laws and regulatory requirements.
"Given this matter remains ongoing, SmartEnergy will have no further comment at this time."
Notably, in the penalty phase of the proceeding, SmartEnergy, citing a 2024 U.S. Supreme Court decision (Sec. & Exch. Comm’n v. Jarkesy), argued that SmartEnergy has the right to a jury trial for any adjudication of a punitive penalty for allegedly fraudulent conduct
Briefly, in Jarkesy, the U.S. Supreme Court (SCOTUS) held that the antifraud provisions of the SEC, "replicate common law fraud."
The Seventh Amendment of the U.S. Constitution provides the right to a trial by jury for, "[s]uits at common law".
SCOTUS ruled that the SEC's administrative proceedings, and by extension similar administrative tribunals, cannot impose punitive damages meant to address common law fraud, and that defendants before such administrative agencies are entitled to a jury trial for determination of any such penalty
Citing both Jarkesy and Maryland law, SmartEnergy argued that the PSC's imposition of any civil penalties for alleged fraud in the current complaint proceeding against SmartEnergy would violate Maryland law
See more discussion of SmartEnergy's application of Jarkesy here
Addressing these arguments, the PSC ruled that, "The Commission finds no merit in SmartEnergy’s argument that it has been unlawfully and unconstitutionally denied a jury trial and that, as a result, the judgment and refund order contained in the Order on Appeals and any civil penalty order are invalid."
The PSC said, "The Commission reaches this conclusion for three reasons: (a) because the civil jury trial rights under the United States Constitution have not been applied to the States, (b) because the Maryland Constitution does not recognize a right to a jury trial in administrative proceedings, and (c) because, even assuming a jury trial right existed, the issue was waived by SmartEnergy failing to raise it in a timely manner."
"Jarkesy does not control this case because the Commission is not a federal administrative agency," the PSC said
"Maryland does not recognize a State constitutional right to a jury trial where the Maryland General Assembly has committed to an administrative agency the initial decision-making function with respect to a particular class of disputes," the PSC said, citing several Maryland Court of Appeals (now named the Maryland Supreme Court) decisions
The PSC noted that the Maryland Supreme Court has held that, "[T]he General Assembly granted the Commission the express authority to determine whether electricity suppliers under its jurisdiction have violated Maryland’s consumer protection laws, including the MTSA, and to impose statutory remedies when it determines that the supplier has violated any applicable consumer protection law of this State."
"[N]otwithstanding SmartEnergy’s claim that Maryland’s civil jury trial rights -- contained in Article 23 of the Maryland Declaration of Rights -- are co-extensive with the Seventh Amendment, the sole 1978 decision cited by SmartEnergy for that proposition nowhere contains that conclusion. Similarly, SmartEnergy’s argument that Article 23 and the Seventh Amendment share common ancestry that should support the application of Jarkesy to Article 23 must be rejected because the Commission is bound by the decisions of the Maryland Court of Appeals (now the Maryland Supreme Court), cited above," the PSC said
"Because the Maryland General Assembly has committed to the Commission the initial decision-making function over the underlying dispute, the Maryland Constitutional right to a jury trial does not apply," the PSC said
The PSC, in its prior order finding violations by SmartEnergy, had ordered customer refunds to all customers enrolled in a manner which violated the Maryland Telephone Solicitations Act, with the refund equal to the difference between SmartEnergy's rate and the SOS rate. The PSC had also ordered the drop of relevant customers to default service
During an appeal of the PSC's order, SmartEnergy received a stay under which it continued to serve the relevant customers. As a result of the continued service, the refund amount has now grown to $15.97 million. Separately, SmartEnergy Holdings in spring 2024 surrendered its Maryland retail supplier license and dropped its customers to SOS, citing SB1 as prompting such action
In the penalty phase, SmartEnergy stated that it only has the ability to pay $3 million towards refunds and penalties, and sought to limit the aggregate of the refunds and penalties to such amount
The PSC summarized SmartEnergy's position thusly: "Regarding its inability to pay, SmartEnergy submitted financial reports and statements. Daniel Kern, SmartEnergy’s President, asserted that the financial statements submitted in support of its proposal were audited and prepared under generally accepted accounting principles ('GAAP'). SmartEnergy stated that after paying its other outstanding obligations, it has only a limited amount of equity available to pay its refund obligation to Maryland customers."
The PSC further summarized SmartEnergy's position thusly: "The sole sources of its ability to pay, according to SmartEnergy, are: the $2.5 million appeal bond posted by SmartEnergy in this case on April 19, 2021, which SmartEnergy stated it backed with cash, its current $250,000 financial integrity bond, and an additional $250,000 in cash."
The PSC further summarized SmartEnergy's position thusly: "SmartEnergy argued that committing to or being obligated to pay more than $3 million in refunds would jeopardize its credit position and subject the company to potential default with its secured lender, which requires SmartEnergy to maintain a minimum monthly net worth in order for SmartEnergy to remain in good standing."
Staff and the Maryland OPC opposed SmartEnergy's request to limit the refunds
The PSC summarized Staff's position thusly: "Staff noted that during the appeal period, SmartEnergy continued to draw revenues from its Maryland customers, therefore 'knowingly inflat[ing]' its refund liability from approximately $6 million to $15.97 million, while simultaneously draining those assets out of the company and into the pockets of shareholders."
The PSC rejected SmartEnergy's argument that a $16 million refund requirement is excessive in comparison to penalties imposed on other retail suppliers
The PSC said, "The full refund amount of $15.97 million is not excessive but rather directly proportional to the harm caused by SmartEnergy’s unlawful customer marketing and contracting practices that resulted in customers overpaying SmartEnergy by that amount compared to utility default service."
Regarding SmartEnergy's position that SmartEnergy is unable to pay a penalty/refund above $3 million, the PSC said, "SmartEnergy has access to sufficient resources to satisfy the full $15.97 million refund requirement, were it required to do so," with the PSC also noting that, "although it might take several years to do so[.]"
The PSC said, "SmartEnergy’s claims of poverty are also undercut by the evidence of its payments to company insiders and investors of millions of dollars during the period in question. During the August 14, 2024, hearing, Staff argued that, while knowing of its liability to Maryland customers, SmartEnergy's investors continued to profit and made no provision for its customer refund obligation. Instead, SmartEnergy continued to pay out millions in distributions, salaries, and bonuses, while at the same time ignoring the company's 'huge contingent liability' to Maryland consumers."
The PSC said, "These distributions show complete indifference with regard to the company’s duty to preserve funds to ensure full refunds to its Maryland customers. These actions perfectly demonstrate SmartEnergy’s predatory practices toward Maryland customers in order to illegally stuff the pockets of the companies’ insiders."
While believing that the full $16 million refund is justified, the PSC expressed concern about compliance during a protracted refund period, and thus suspended a portion of the refund liability, ordering that customer refunds shall be in the amount of $6.5 million (with $9.47 million suspended), subject to certain conditions being met by SmartEnergy
The PSC said, "The Commission is concerned, however, that a protracted refund process over years would add uncertainty and delay, risk non-compliance, and create challenges to administering refunds to customers, factors which are not in the public interest. Accordingly, while the Commission finds that the full $15.97 million refund amount is correct and appropriate, the Commission will suspend all but $6.5 million of that amount, subject to SmartEnergy’s full and timely satisfaction of the compliance directives set forth herein."
SmartEnergy is directed to make full refunds, less the amount suspended, to all affected customers, "within no less than 90 days."
The PSC further ruled that interest shall accrue on the refund balance owed after 30 days, as follows: "The Commission further directs that beginning 30 days after this Order, partial refunds that remain unpaid shall accrue interest at the rate set forth in Md. Courts and Judicial Proceeding Code Ann. § 11-107(a)."
The PSC said, "In the event of non-compliance, this [$9.47 million] suspension shall be rescinded, and the Commission will utilize any means necessary to collect full refunds for SmartEnergy’s Maryland customers, including the transfer of any unpaid refunds to the Maryland Office of Attorney General for enforcement and the State’s collection agency for collection, as well as the possible imposition of an additional civil penalty."
With regards to the amount of the civil penalty, the PSC noted that while a focus of the case has been the lack of MTSA-compliant contracts (with SmartEnergy arguing that the MTSA hasn't previously been applied in the manner that the MTSA was applied in this case), the case also addressed other violations that the PSC found against SmartEnergy, with the PSC describing such behavior as including, "false and misleading marketing documents and sales scripts; enrollment of non-account holders; [and] unlawful attempts to thwart customers’ attempts to cancel service[.]"
The PSC said, "The Commission gives limited weight to SmartEnergy’s argument that the Maryland Telephone Solicitation Act was applied in a novel way in this case, given the other widespread and persistent violations..."
In a post-hearing brief, SmartEnergy had proposed a civil penalty of $300,000; Staff had recommended a civil penalty in the amount of $500,000; while OPC had recommended a civil penalty in the amount of $3,158,900, representing a civil penalty of $100 per day for 31,589 then-current SmartEnergy customers enrolled in a non-compliant manner.
As a civil penalty, the PSC ruled that SmartEnergy shall forfeit SmartEnergy’s financial security bond, which is in the amount of $250,000
A penalty in the amount of $250,000, "is consistent with the civil penalty imposed by the Commission in other supplier enforcement proceedings," the PSC said
Subject to the suspended refund amount described above, the amount of the required customer refunds along with the civil penalty to be paid by SmartEnergy total $6.75 million in aggregate
Frederick H. Hoover, Jr., Chair of the PSC said in a news release, "This case predates the enactment of Senate Bill 1 last year, but underscores the importance of the retail supply reforms ushered in by the passage of Senate Bill 1, which was designed to protect consumers against excessive charges by retail suppliers, require licensing of retail supply salespersons, and capping retail supply charges more closely to the actual cost of the services they provide."
Case 9613
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Payments Required By PSC Exceed Amount Supplier Had Warned Could Lead To Potential Default With Supplier's Secured Lender
April 28, 2025
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Copyright 2025 EnergyChoiceMatters.com
Reporting by Paul Ring • ring@energychoicematters.com
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