Energy Companies Face Lawsuits for Deceptive Overbilling

With the weather getting colder and heating bills rising, it’s a bad time to find out you may have been charged more than you owed. Yet, that’s exactly what four energy companies in Connecticut may have done – at least, according to a lawsuit filed last week. The suit, which names Direct Energy, North American Power and Gas, Viridian Energy, and Discount Power, claims that the companies charge customers per kilowatt hour regardless of wholesale electricity prices, even though their contracts promise variable rates (meaning that prices are tied to wholesale electricity prices, going up when costs rise and going down when costs decrease). If this is true, the suit says, then customers may have, at times, been charged as much as five times the wholesale price – and all without realizing energy companies were failing to adhere to their own contracts.

It’s an interesting accusation, complicated in part by the fact that most customers don’t pay particular attention to the wholesale price of electricity of how much they’re being charged per kilowatt. Let’s be honest – when’s the last time you sat down and actually read through your electricity bill, paying attention to the rates? It’s easy to see how, if rates rose with wholesale prices and then simply stayed there, customers would be none the wiser. (If you do want to know the price of electricity in your area, the U.S. Energy Information Administration provides data on its website. You can also access natural gas data for corresponding locations).

In the Connecticut lawsuit, lawyers claim that customers were attracted to Direct Energy, North American Power and Gas, Viridian Energy, and Discount Power because of low “teaser” rates that lasted only a few months before higher rates were introduced. According to the suit, when the “teaser” rates expired, customers were pushed into the variable rate plan and that’s when they saw “big prices jumps.” The lawsuit alleges that the energy companies’ rates went up to match spikes in the market, but, when wholesale prices went down, their rates allegedly remained inflated.

This was apparently made possible due to a change in the way electricity was regulated over the last couple of decades:

“In the late 90s and early 2000s, many states moved to deregulate at least part of the electricity supply services then performed by large public utilities. Delivery of electricity to a consumer requires both the creation of electricity and the transmission of that electricity from the power plant to the consumer. The typical pattern was to require the public utilities to divest their power generation assets such as coal, gas and nuclear power plants. But, the regulated utilities continued distributing power from these power plants to consumers through transmission lines. When deregulation occurred, the business of power supply was opened to competition and consumers were allowed to select the companies from whom they would purchase their power.

Electric Suppliers merely buy electricity at the wholesale rate and then sell that power to end-users with a mark-up.

However, DirectEnergy's prices are not approved by states' regulatory authorities.”

The lawsuit, classified by Truth in Advertising as a “bait and switch,” is not the first of its kind. Along with the four companies named in the new suit, Hiko Energy, Smart One Energy, LLC, Ambit Energy, and Energy Plus have all faced lawsuits over misleading pricing schemes. The new suit, filed in Connecticut District Court under Judge Jeffrey A. Meyer, accuses Direct Energy et al of:

• Unfair and deceptive practices
• Breaching good faith agreements with customers
• Unjustly profiting from its variable rates policy

As such, the suit seeks damages for customers affected by the variable rates and that the energy companies surrender any profits derived from their allegedly misleading policies.

It’s a good warning to us all to make sure we know exactly what we’re paying and why when it comes to utility bills. There’s still a long winter ahead of us, and no one needs the extra chill of unexpected costs.