In a win for competitive suppliers entering into variable rate contracts, the U.S. District Court for the Eastern District of Pennsylvania last Friday granted summary judgment in favor of Ambit Energy in a suit brought by a former residential customer. And on March 16, 2016, the same court granted Starion Energy PA’s request to dismiss a potential class action suit brought by customers alleging that Starion’s rates were a breach of contract (Case 2:15-cv-00773-CDJ).

In the Ambit case, the judge found that Ambit’s contract language did not prevent it from taking various ‘legitimate’ factors into consideration when setting prices, and was not obligated to ‘only’ rely on market prices. In the Starion case,  the judge also relied on the contract language – which allowed Starion to vary pricing based on conditions in several markets – to hold that simply a price difference between Starion and the utility could not amount to a breach of contract.

These two decisions are especially significant in the light of the recent upheaval in New York’s market (the PSC issued an Order last month requiring all energy suppliers to match utility prices or ensure all customers receive 30% renewable energy, and increasing penalties for violations of marketing regulations). While they do not indicate the position of Pennsylvania’s Public Utility Commission, it is perhaps a signal that other states will not be so quick to follow the lead of New York’s Public Service Commission, which has become increasingly skeptical of the role and value of energy suppliers in the residential market. The cases are also important in that they rely on and uphold the contractual terms and conditions, even when they result in customers paying more than they would with their utility.

Ambit Energy

In the Ambit case, the plaintiff had alleged that there was a discrepancy in what Ambit said it would charge under the variable rate contract and what it actually billed. The suit also asserted that the contract language required her rates to be tied to market pricing, or to be otherwise “competitive.” The Court disagreed with the Plaintiff, and backed Ambit’s interpretation of its contractual documents. In reaching its decision, the Court looked at Ambit’s Disclosure Statement and the Terms of Service.

Disclosure Statement

The term at issue in the Disclosure statement read: “[y]our rate for the Initial Term and subsequent Renewal Terms may vary dependent upon price fluctuations in the energy and capacity markets, plus all applicable taxes.” In granting Ambit summary judgment, the Court held that, “[t]he provision in the Disclosure Statement merely informs the customer that her rate may vary dependent upon price fluctuations in the energy and capacity markets, but does not otherwise limit Ambit’s discretion in setting the rate based on other legitimate factors. . .”

Terms of Service

Ambit’s Terms of Service provided that: “[i]f you selected a variable rate plan, your initial rate will be shown at the time of your enrollment and thereafter rates are subject to change at the discretion of Ambit Energy.” The Court also agreed with Ambit that the language in the Terms of Service preserved its ability to change rates at will for variable price contracts. It confirmed that the standard for all contracts – good faith and fair dealing – was not violated by the company’s language. It further disagreed with the Plaintiff’s assertion that Ambit was obligated to charge prices based on the market rate. The court stated that it would have to insert the word “only” into the statement: “may [only] vary dependent upon price fluctuations in the energy and capacity markets” in order to find the Plaintiff’s argument conclusive.

Starion Energy

In 2015,  a former customer of Starion Energy filed suit, alleging that Starion breached the terms of the Variable Rate contract because it had not kept its pricing tied to market conditions, using as evidence the rates charged by Penelec, the local utility.

Starion’s Contract Lanuage

The portion of the contract at issue read: “the Variable Rate will be calculated monthly based on the following Starion variable price methodology. The Variable Rate may change in response to market conditions in any or all of the PJM, NEISO, NYISO, and MISO territories, including such factors as electricity market pricing, applicable taxes, transmission costs, utility charges, and other market price related factors, as determined by Starion’s discretion.”

Relying on this language, and in the absence of evidence to the contrary, the court found it could not reasonably infer that Starion had acted in bad faith, and thus breached the covenant of good faith and fair dealing.

52 Pa. Code  §54.5 (c)(2)(i)-(ii).

This code addresses pricing, and reads: “the contract’s terms of service shall be disclosed, including the following terms and conditions, if applicable: * * * * (2) The variable pricing statement, if applicable, must include: (i) Conditions of variability (state on what basis prices will vary). (ii) Limits on price variability.”

The court also found that Starion had not violated the regulatory requirement because the contract did outline the conditions of variability, and it was not a violation to include other markets and territories in their conditions