In re Smartenergy Holdings, LLC

• Decision Date: 31 October 2022
• Docket Number: 1675, Sept. Term, 2021
• Citation: 256 Md.App. 20,284 A.3d 1065
• Parties: In the MATTER OF SMARTENERGY HOLDINGS, LLC
• Court: Court of Special Appeals of Maryland

256 Md.App. 20

284 A.3d 1065

In the MATTER OF SMARTENERGY HOLDINGS, LLC

No. 1675, Sept. Term, 2021

Court of Special Appeals of Maryland.

October 31, 2022

Argued by: Douglas Gansler, Partner (Cadwalader, Wickersham & Taft LLP, Washington, D.C., Brian Greene, Greene, Hurlocker, PLC, Richmond, VA., H. Russell Frisby, Jr. (Law Office of H. Russell Frisby, Jr., Columbia, MD), all on the brief, for Appellant.

Argued by: William F. Fields, Deputy People's Counsel (Juliana Bell, David S. Lapp, People's Counsel, Maryland Office of People's Counsel, on the brief), Baltimore, MD, Miles H. Mitchell, Deputy General Counsel (H. Robert Erwin, Jr., General Counsel, Maryland Public Service Commission, on the brief), Baltimore, MD, for Appellee.

Panel: Zic, Ripken, Irma S. Raker (Senior Judge, Specially Assigned), JJ.^{* ,**}

Ripken, J.

Following the receipt of numerous customer complaints by the Public Service Commission ("Commission"), a complaint was filed against SmartEnergy Holdings, LLC ("SmartEnergy") contending that it systematically violated consumer protection laws. The complaint alleged, among other charges, that SmartEnergy sent misleading and deceptive mailing materials to customers wherein phone calls were solicited, that it utilized a misleading sales script over the phone, that it failed to monitor its agents’ phone calls, and that SmartEnergy enrolled customers without reducing the agreement to a written contract signed by the customer.

Following an evidentiary hearing, a Public Utility Law Judge ("PULJ") proposed an order to the Commission finding that SmartEnergy engaged in unfair, false, misleading, and deceptive marketing, advertisement, and trade practices. SmartEnergy appealed that proposed order, and the Commission affirmed the PULJ's findings of violations, in addition to finding that the Maryland Telephone Solicitations Act ("MTSA") was applicable. The Commission ordered SmartEnergy to refund all of its Maryland retail supply customers, that were enrolled during the violation time period, the difference between the rates charged by SmartEnergy and the applicable utility Standard Offer Service rate. SmartEnergy petitioned for judicial review in the Circuit Court for Montgomery County. That court affirmed the Commission's findings. SmartEnergy now appeals to this Court. For the reasons that follow, we shall affirm.

ISSUES PRESENTED

SmartEnergy presents six questions for our review, which we have condensed and rephrased as follows:¹

I. Did the Commission have jurisdiction to levy penalties for violations of the MTSA?

II. Did the Commission err in finding that the MTSA applied and that SmartEnergy did not otherwise satisfy an exemption?

III. Was the penalty for those violations of the MTSA arbitrary and capricious?

For the reasons to follow, we hold that the Commission had jurisdiction to levy penalties for MTSA violations, the MTSA applied to SmartEnergy's conduct and there was substantial evidence to support the Commission's findings of violations. Finally, we hold the Commission's penalty was not arbitrary and capricious

FACTUAL AND PROCEDURAL BACKGROUND

SmartEnergy is a retail supplier selling energy to consumers in Maryland. From February 2017–May 2019, SmartEnergy mailed six million postcards to Marylanders advertising their services. Those postcards informed consumers that they were "eligible" for a "free month of electricity" and a six-month guaranteed rate protection plan. They further indicated that the eligibility for the free month was linked to the customers’ status with their then-current electricity utility: "As a [utility] customer from [city], you are eligible to receive one free month of electricity." The postcards stated that the offer was "time-sensitive," so customers should "respond by [date]" to receive the offer. In small print at the bottom of the postcard, customers were informed that to receive the free month of electricity, the customer must "select SmartEnergy," that SmartEnergy was not affiliated with the then-current utility but is a licensed supplier, and a license number was provided.

During this timeframe, SmartEnergy received approximately 104,000 calls from prospective customers who received the postcards. Each call was recorded by SmartEnergy, and SmartEnergy telephone operators were directed to follow a script. Generally, the phone calls were conducted as follows: First, the representative greeted and informed the customer that the representative was with SmartEnergy and frequently "congratulated" the customer on the free month of energy. The representative stated that, in addition to the free month, the customer also qualified for the price protection plan, wherein the rate would remain the same for six months. The representative further suggested that the fixed rate provided more security compared to utilities’ variable rates, particularly during the high usage months. At that point, the representative requested information from the customer including the electric choice ID that appeared on the utility bill and confirmation of the account holder status. The representative then indicated that the representative had "confirmation questions" that the customer was required to answer in order to receive the free month and price protection. Pursuant to the sales script, those questions were:

Confirmation question #1: [customer], do you understand that by enrolling in SmartEnergy's Price Protection Plan, you'll receive a fixed rate of [rate] for 6 months and then a competitive market based rate that may change from month-to-month, and as mentioned, [Utility] will continue to deliver your electricity, send your bill, and respond to emergencies?

***

Confirmation question #2: SmartEnergy will send you a Welcome Kit confirming everything we have discussed today, and [Utility] will send you a letter confirming that you have selected SmartEnergy. When you receive the SmartEnergy Welcome Kit, you'll be able to review all the terms of our agreement and if you change your mind you can cancel and return to [Utility] standard rate at any time. Do you understand your right to cancel?

Of the 104,000 prospective callers from February 2017–May 2019, 32,000 callers enrolled in SmartEnergy's service. SmartEnergy did not provide written contracts or contract summaries to those who enrolled.

In some cases,² SmartEnergy sent customers a Welcome Kit. That kit contained a letter, which stated:

Welcome and congratulations for choosing SmartEnergy.

We want to remind you of the key benefits of your plan, and make sure you understand what to expect. At SmartEnergy we will strive to provide you with the lowest possible rate, cleaner electricity, and the same reliable service.

You have selected our 6 month fixed product with a fixed price of 11.20 cents per kilowatt hour. Your electricity rate will appear on the supply portion of your bill. Your agreement and other materials are enclosed.

Here's what to expect:

[Utility] will still deliver your electricity, read your meter and respond to emergencies just like they always have. Your choice of SmartEnergy will be processed by [Utility] within one or two billing cycles.

After that, you will see SmartEnergy listed in the electricity supply portion of your [Utility] bill. You'll continue to receive one bill and make one payment to [Utility] every month. Nothing else will change.

Thereafter, the Commission's Consumer Assistance Division received 34 complaints of service regarding SmartEnergy. The basis of those complaints included that the customers’ utility switch was done without their authorization, that SmartEnergy portrayed themselves as being affiliated with the customers’ then-current provider, that the bills were excessive, and that the customers were unable to cancel their service.³

On May 10, 2019, Office of Staff Counsel of the Commission ("Staff") filed an initial complaint against SmartEnergy, asserting SmartEnergy violated Maryland law governing retail supplier activities by engaging in deceptive practices. The Commission delegated the complaint to a PULJ to determine whether a pattern or practice of violations of consumer protections existed. Staff filed an amended complaint in July 2019, as well as a second amended complaint in September 2019. The Maryland Office of People's Counsel ("OPC") also filed a third-party complaint against SmartEnergy asserting it violated consumer protection laws in engaging in fraud and deceptive practices.

In January 2020, OPC filed the testimony of Susan Baldwin ("Baldwin") and Harold Muncy ("Muncy"). Baldwin, a specialist in economics, regulation, and public policy of utilities, testified regarding the consumer issues related to SmartEnergy's electric supply. Baldwin reviewed all the filings and supporting exhibits, as well as the relevant Maryland laws and regulations. In reviewing the postcards sent to consumers and audio recordings of the phone calls between SmartEnergy sales representatives and those customers who filed a complaint, Baldwin opined that SmartEnergy used mail materials and telephone contracts that were misleading, deceptive, and filled with incomplete information. Baldwin further opined that SmartEnergy failed to adequately supervise and train its sales representatives, and that those patterns documented in the complaints received likely extended to the other Maryland enrollments.

Muncy testified regarding what utility electric supply rate information would have been available on the dates the consumers who filed complaints had signed up. He specifically testified as to the comparison between the SmartEnergy rates and other utility rates. Based on this analysis, Muncy opined that there was no lack of certainty with utility rates, and that SmartEnergy's six-month fixed rate program was of no monetary value to any of those customers who filed a complaint.

Staff filed the testimony of Kevin Mosier ("Mosier"). Mosier testified that based on a review of the complaints and associated audio recordings, SmartEnergy...