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From the Introduction of the Commission Order:

“{***} [T]he Commission finds that SmartEnergy’s pattern of conduct in Maryland, is concerning enough to warrant denial of SmartEnergy’s application for eligibility.118 The Commission’s authority to make this finding is explicitly contemplated in the UBP and in the December 2019 Order that prompted this proceeding.119” {***}

To further bolster its conclusion the Order details Maryland court findings as well as SmartEnergy patterns of conduct settlement investigations identified in the States of Illinois and Ohio.

Excerpt From the Order denying Smart Energy’s ESCO Application:

{***} INTRODUCTION
To operate in New York State, every energy service company (ESCO) must file an application for eligibility with the Department of Public Service (DPS). Only after DPS approves such an application may an ESCO operate in New York and market its energy products to consumers. In response to a Commission order revising market access and eligibility conditions, SmartEnergy Holdings, LLC (SmartEnergy or the Company) filed its application for eligibility with DPS Staff (Staff) on November 17, 2020. The Commission initially denied the application in CASE 15-M-0127 et al. -1- September 2021. SmartEnergy filed a petition for rehearing, and upon rehearing, the Commission remanded SmartEnergy’s application to Staff for reconsideration in accordance with the Commission’s remand order. Thereafter, Staff reconsidered SmartEnergy’s application for eligibility and recommended that the Commission deny it. SmartEnergy opposed Staff’s recommendation, arguing that its application for eligibility should be granted. As discussed in this Order, the Commission finds that Staff, following the Commission’s earlier remand, has appropriately identified a concerning pattern in SmartEnergy’s out-of-state conduct and that a review of the record warrants denial of the Company’s application for eligibility to market electricity to mass market customers in New York. {***}

{***} “CONCLUSION
The Commission has long sought to protect consumers. The Commission implemented the review of ESCO eligibility in 2019.120 The review is the result of a process that began in 2016 to take a hard look at the retail electricity markets serving mass-market customers.121 The Commission responded to “specific concerns about reports of customer abuses in the retail access market, including overcharging, as well as the lack of innovation with respect to energy efficiency and energy management services.”122 In requiring every ESCO to reapply for eligibility, the Commission sought to “ensure that only the ESCOs that are prepared to comply with rules and regulations and uphold policy goals and expectations are participating in the retail access market.”123 In this way, the Commission intended to “[e]nhanc[e] the quality and trustworthiness of market participants” and “in turn, reduce the exposure to risk for customers and improve confidence in the marketplace.”124 The Commission stated that it would “retain discretion to consider complaint history in other states as a basis for denying or withdrawing ESCO eligibility.”125 Based upon the regulatory and judicial determinations concerning SmartEnergy’s conduct in Maryland, the Commission is convinced that SmartEnergy would be unlikely to comply with the UBP were it granted eligibility to operate in New York. Accordingly, for the reasons contained in this ruling, the Commission denies the eligibility application.

Excerpts from Illinois and Ohio portions of the Order:

{***} “Illinois and Ohio Staff noted and considered the stipulations of settlement entered into between SmartEnergy and regulatory authorities in Ohio and Illinois. We appreciate and acknowledge Staff’s thoroughness in identifying the Ohio and Illinois regulatory actions. Contrary to SmartEnergy’s arguments, this was proper. Here, as stated above, the Commission does not rely upon those two stipulations, finding instead that the Maryland regulatory action and subsequent court orders are sufficient for a determination to deny SmartEnergy’s application for eligibility. SmartEnergy argues that res judicata and collateral estoppel preclude Staff and Commission consideration of the underlying complaints in the Ohio and Illinois stipulations of settlement.63” {***} . . . 

{***} “Here, it is undisputed that neither Staff nor the Commission were parties to the Illinois or Ohio settlements. SmartEnergy also does not argue that either Staff or the Commission are in privity with the Illinois Attorney General, Public Utilities Commission of Ohio, or SmartEnergy itself. SmartEnergy states only that “Staff has not explained why it should be allowed to disregard a stipulation agreement that was entered into to the satisfaction of another state regulatory agency. Simply put, the PUCO stipulation should be given preclusive effect in this matter.”69 

It is the Commission’s view that Staff’s consideration of the stipulations of settlement, and the circumstances that gave rise to them, is acceptable under current law. Staff’s only purpose in considering the allegations in those states was to determine whether a material pattern of complaints is apparent. Although relatively few authorities have dealt with a question of whether the existence of consent orders or stipulations of settlement, and the allegations that gave rise to them, are sufficient for an agency to deny an application, an Administrative Law Judge in the Department of Environmental Conservation, when faced with similar consent orders that did not represent adjudications, stated that “[t]here is no impediment to recognizing consent orders for what they are – agreements which normally embody a compromise.”70 The Department of Environmental Conservation ruling continued: “The existence of a number of consent orders, and multiple consent orders at certain facilities, establishes the likelihood of similar agency engagement in the future. It would not appear to be an abuse of discretion (or arbitrary and capricious) for the commissioner, after assessing his agency’s capabilities (as executive as opposed to legislative or judicial function), to conclude that the risks and burdens are too great for DEC to assume, and deny approval of the transfer on that basis.”71 Indeed, the Commission itself has considered debarments in other jurisdictions in the context of nuclear decommissioning.72 Nor would the Commission be the sole regulatory authority to consider an ESCO’s out-of-state settlements, enforcement orders, or complaints in its decision on eligibility.73 

Similarly, New York courts permit the consideration of consent orders and settlement agreements in limited circumstances. The rules of evidence prohibit the use of compromise agreements to prove the underlying facts of liability or the value of claims, but permit the use of consent orders and settlement agreements for other purposes.74 Staff did not err by identifying and considering the settlement agreements in Ohio and Illinois as evidence that SmartEnergy has been the subject of regulatory investigations and allegations in other states, and the Commission acknowledges that SmartEnergy admitted no wrongdoing in those settlement agreements, nor was any adjudication on the merits ever made.75”{***}

{***} “Maryland
The Commission now turns to the Maryland Public Service Commission proceeding against SmartEnergy, which forms the basis of this decision. SmartEnergy argues that “Staff’s suggestion that SmartEnergy’s alleged misconduct in Maryland has been subject to an ‘affirmance’ on judicial review is misleading” because “this case is currently pending on appeal before the Maryland Court of Special Appeals.”76 SmartEnergy next argues that the Maryland proceeding involves a novel interpretation of the Maryland Telephone Solicitations Act (MTSA).77 In addition, SmartEnergy argues that the actions at issue in Maryland would not be violations of the UBP were they to occur in New York.78 Finally, SmartEnergy argues that the relatively small number of complaints at issue in Maryland should not form a basis to deny eligibility in New York.79 

SmartEnergy’s appeal from the decision of the MPSC has since been resolved. SmartEnergy appealed from the MPSC Order to the Circuit Court for Montgomery County, which affirmed the MPSC Order.80 SmartEnergy then appealed from the Circuit Court’s decision to the Appellate Court of Maryland, which affirmed both the Circuit Court and the MPSC.81 SmartEnergy sought a writ of certiorari from the Supreme Court of Maryland, which granted SmartEnergy’s petition for certiorari to consider: (1) whether the Appellate Court of Maryland erred in finding that the MPSC had jurisdiction to interpret and enforce the MTSA; (2) whether the MPSC erred in determining that the MTSA applied to SmartEnergy’s electricity marketing and sales practices; (3) whether the MPSC’s decision was supported by substantial evidence; and (4) whether the MPSC’s remedies against SmartEnergy were arbitrary or capricious.82 

Of particular interest to the Commission, the Supreme Court of Maryland, that state’s highest court, rejected SmartEnergy’s contentions that the record lacked substantial evidence to support the MPSC’s findings.83 With regard to the postcards SmartEnergy sent to prospective customers, the Supreme Court of Maryland found that the record contained substantial evidence to support the MPSC’s finding that “SmartEnergy designed [its] postcards to misleadingly appear to have been sent by the customers’ utility.”84 The record also contained substantial evidence to support the MPSC’s finding that “the postcards failed to explain the basic facts that SmartEnergy is a third-party energy supplier selling electricity, and SmartEnergy was soliciting the consumer to switch energy suppliers from the consumer’s existing utility to SmartEnergy.”85 Finally, the Supreme Court of Maryland also held that the record contained substantial evidence to support the MPSC’s finding that “the postcards failed to provide any limitations or restrictions on SmartEnergy’s offer of ‘free electricity,’ as required to satisfy [Maryland regulations]” and “that the postcards failed to provide the length of service required to qualify or how the ‘free month’ would be calculated and provided.”86 

The Supreme Court of Maryland upheld the MPSC’s finding that SmartEnergy’s sales script had the tendency or capacity to mislead or deceive customers. In particular, the Supreme Court of Maryland held that “there is substantial evidence in the record to support the Commission’s finding that this portion of the script had the capacity or tendency to mislead customers into believing that the purpose of the recording was solely for quality or training purposes, rather than for purposes of verifying the caller’s ‘yes’ or ‘no’ response to SmartEnergy’s two-question confirmation questionnaire.”87 The Supreme Court of Maryland also found substantial evidence in the record to support the MPSC’s finding that the sales script and postcard had the tendency to mislead customers into believing they would remain with their utility company, that the language in the script tended to mislead customers into believing that their electricity rates would not increase from the current rate, and that SmartEnergy’s sales agents “failed to always disclose that the restriction on the free month was based upon the customer’s seventh month of SmartEnergy’s retail supply, which the [MPSC] determined to be a material term.”88 

The Supreme Court of Maryland upheld the remainder of the MPSC’s findings, which had also been upheld by both the Circuit and Appellate Courts. These included holding that the record contained substantial evidence for the MPSC’s findings that SmartEnergy failed to monitor its sales calls and that “it attempted to thwart customers’ efforts to cancel their service.”89 

These findings appear to go beyond a simple difference of interpretation in the MTSA, as SmartEnergy seeks to suggest here.90 Several of the violations found by the MPSC would be violations of the UBP were they to occur in New York. 

SmartEnergy had multiple issues with its contracts in Maryland, as detailed by the MPSC and affirmed by three separate judicial decisions in Maryland courts. First, the MPSC found, and the court affirmed, that SmartEnergy “neither sent its customers a written contract to sign and return, nor provided the customers with a contract summary on the form provided by the Commission” in the context of telephone solicitations.91 According to the Maryland trial court, “SmartEnergy failed to provide its 32,000 enrolled customers with contracts or contract summaries as required by [Maryland laws and regulations].”92 This is similar to the New York UBP requirement that agreements reached as a result of telephone solicitation must be provided to the customers in written form with a Customer Disclosure Statement, which must “state in plain language the terms and conditions” of the sales agreement.93 The apparent failure to provide any contract summaries, as noted by the Maryland courts, presents concerns for the Commission regarding SmartEnergy’s ability to abide by New York’s similar UBP requirements. The Commission acknowledges that SmartEnergy and the MPSC disputed whether this requirement applied to SmartEnergy, but this was not the only violation found by the MPSC. 

The allegations made in Maryland regarding the activity of SmartEnergy’s sales agents are also troubling. The MPSC detailed instances where sales agents obfuscated the relationship between the consumer’s utility and SmartEnergy. As the Appellate Court of Maryland wrote: “[D]uring the sales calls, the representatives did not inform customers that SmartEnergy was not affiliated with their then-current utility provider.”94 In response to customer confusion regarding the relationship between SmartEnergy and the customer’s utility, “SmartEnergy representatives did not provide any distinction, but instead dodged the questions.”95 The Appellate Court of Maryland also noted that SmartEnergy sales agents failed to clarify any distinction between SmartEnergy and a similarly named program from Baltimore Gas and Electric, a local utility; failed to affirmatively disclose that the customer would be required to leave the utility; failed to disclose the restrictions to qualify for the free month of electricity, specifically that the free month was only after six months of SmartEnergy’s service; and misled customers with the suggestion that, by opting into the six months of price protection, the price would not increase from their current rate.96 The Supreme Court of Maryland agreed with the Appellate Court of Maryland, finding substantial evidence in the record to support the MPSC’s findings that SmartEnergy’s sales scripts and sales agents engaged in deceptive and misleading conduct.97 

These activities of SmartEnergy’s sales agents would constitute violations of the UBP were they to occur in New York. The UBP prohibits ESCOs from “engag[ing] in misleading or deceptive conduct as defined by State or federal law, or by Commission rule, regulation, or Order.”98 The UBP also prohibits ESCOs from “represent[ing] that the ESCO marketing representative is an employee or representative or acting on behalf of a distribution utility.”99 The Supreme Court of Maryland specifically noted that substantial evidence in the record supported the conclusion that SmartEnergy’s postcards could and, in some cases, did lead customers to believe that the offer came from the utility and that SmartEnergy’s sales representatives further obscured the relationship between SmartEnergy and the local utility.100 That would be a clear violation of the UBP provisions forbidding such conduct were they to occur in New York and such conduct has given rise to Commission orders against other ESCOs.101 

SmartEnergy sales representatives engaged in other misleading conduct that would, in New York, violate the UBP’s prohibition on false and misleading conduct. The UBP prohibits ESCOs from “mak[ing] false or misleading representations including misrepresenting rates or savings offered by ESCOs.”102 The Supreme Court of Maryland found substantial evidence to support the findings that SmartEnergy’s sales script “had the tendency to mislead customers into thinking that the price they were paying for electricity would not increase from the current rate,”103 “failed to always disclose that the restriction on the free month [of electricity] was based upon the customer’s seventh month of SmartEnergy’s retail supply”,104 and misled customers into believing that the call was being recorded for training purposes instead of compliance with the law.105 The New York UBP prohibits such conduct, which has been the source of Commission orders in the past.106 

ESCOs must honor customer’s cancellation requests in New York. The UBP specifically requires “[a]n ESCO contacted by the customer shall, within one business day, process the customer’s request to return to full utility service.”107 In Maryland, SmartEnergy sales representatives “frequently made it difficult for customers to cancel” SmartEnergy service.108 Sales representatives “told customers that their reasons for cancelling were insufficient, customers often had to go through numerous sales representatives to process cancellations, and many expressed confusion throughout the cancellation process.”109

The Supreme Court of Maryland upheld these findings.110 Again, the Commission has issued orders regarding ESCO attempts to thwart customer cancellations in the past.111 

Finally, the Supreme Court of Maryland found substantial evidence to support the Commission’s findings that SmartEnergy failed to monitor its sales calls as required.112 While this does not appear to have a direct analogue in the UBP, it does present concerns that SmartEnergy may not act to “ensure that the training of [its] marketing representatives” is up to standard and, thereby, maintained.113 

As mentioned previously, the total number of complaints in Maryland is not necessarily the relevant inquiry for approval of an ESCO application. Rather, the key inquiry is whether the complaints constitute a “material pattern,” which is defined as “a continuing volume of the same category of complaints, such as slamming or deceptive marketing” in the states in which SmartEnergy operates.114 Moreover, while 34 complaints from Maryland consumers formed the beginning of the MPSC investigation, the finding of that investigation was that SmartEnergy engaged in a pattern and practice of violating numerous Maryland regulations.115 At the same time, and in addition to a material pattern of complaints, the Commission also notes that the MPSC and Maryland courts determined that SmartEnergy did not comply with applicable Maryland rules on numerous occasions.116 

The Commission acknowledges that Staff has received no complaints from SmartEnergy’s customers in New York.117 The Commission must balance this consideration with SmartEnergy’s conduct in Maryland that has given rise to regulatory investigations and actions against it there. In light of the findings that prompted the December 2019 Order, the Commission finds that SmartEnergy’s pattern of conduct in Maryland, is concerning enough to warrant denial of SmartEnergy’s application for eligibility.118 The Commission’s authority to make this finding is explicitly contemplated in the UBP and in the December 2019 Order that prompted this proceeding.119

{***} “The Commission orders:
1. SmartEnergy Holdings, LLC’s application for eligibility to serve mass-market customers in New York State is denied consistent with the discussion in the body of this Order and with the obligations described in Ordering Clause 2. 

2. SmartEnergy Holdings, LLC shall, within 60 days from the effective date of this Order, return each of its mass-market customers to full distribution utility service in the utility service territories it operates, with transfers occurring on the customers’ regularly scheduled meter readings dates. 
3. SmartEnergy Holdings, LLC shall, at least 15 calendar days before the effective date of the transfer, notify each customer in writing of the planned return to full utility service, as required by Section 5.H.4 of the Uniform Business Practices. 
4. To further facilitate compliance, the distribution utilities in whose service territories SmartEnergy Holdings, LLC operates – Consolidated Edison Company of New York, Inc., KeySpan Gas East Corporation d/b/a National Grid, Orange and Rockland Utilities, Inc., Rochester Gas and Electric Corporation, New York State Electric & Gas Corporation, Central Hudson Gas & Electric Corporation, Niagara Mohawk Power Corporation d/b/a National Grid, and Long Island Power Authority – shall, as of 60 days from the effective date of this Order, switch any mass-market customers who remain with SmartEnergy Holdings, LLC to full distribution utility service. 
5. The Secretary is directed to provide notification of this Order to each distribution utility included within the scope of Ordering Clause 4, above. 
6. In the Secretary’s sole discretion, the deadlines set forth in this Order may be extended. Any request for an CASE 15-M-0127 et al. -31- extension must be in writing, must include a justification for the extension, and must be filed at least five days prior to the affected deadline. 
7. These proceedings are continued.” {***} 

Order Denying SmartEnergy Holdings, LLC’s Eligibility Applications  (12/24/2024)
12-M-0476
ESCO Eligibility Application