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Lawsuit Filed Against Retail Supplier Solely Because Rates Exceed Utility Supply Rate

Danger: Suit Says Utility Rates An "Accurate Reflection" of "Prevailing Market Conditions"

October 29, 2014

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Copyright 2010-14 EnergyChoiceMatters.com
Reporting by Paul Ring • ring@energychoicematters.com

A lawsuit, seeking class action status, has been filed in United States District Court for the Northern District of Illinois, Eastern Division, against North American Power & Gas, LLC, and the sole allegation in the suit is that because North American Power's rates exceeded Commonwealth Edison's rates, North American Power "misled" customers because North American Power promised a market-based rate.

Unlike several other recent suits seeking class action status against retail suppliers, the complaint against North American Power does not make any allegations regarding North American Power's marketing materials, and does not allege that North American Power promised "low rates" or "savings."

The only specific fact alleged in the lawsuit is that North American Power informed a customer in a welcome letter that the customer would receive a, "market based variable rate," and informed the customer in a contract that, "rates shall be calculated in response to market pricing, transportation, profit and other market price factors, plus all applicable taxes."

Notably, unlike other recent lawsuits, the suit makes no allegation that North American Power ever promised a "competitive" rate -- only that North American Power promised a market-based rate.

The suit weakly alleges that, "North American Power's representation that its rates are calculated in response to market pricing is false and misleading."

"[T]here are periods of time during the class period and during the time Plaintiff was a North American Power customer in which the market price of electricity declined or remained steady while North American Power's prices rose ... Even when North American Power's price increases occur when market prices are also increasing, North American Power's price increases do not reflect market prices because North American Power prices rise substantially more than the rise in market prices justifies," the suit alleges.

However, the suit bases such allegations on comparisons to ComEd default service pricing, and ICE pricing, which, needless to say, are not accurate comparisons for the market cost for a competitive retail supplier which does not have guaranteed cost recovery.

The most dangerous allegation in the suit is:

"While local utilities' electricity rates may demonstrate less fluctuation over that of the wholesale market, over time, the rates utilities like ComEd charge are an accurate reflection of rates that are based on prevailing market conditions. In other words, the electricity rates that utilities charge are an accurate measure of what market based rates should be."

Heaven help retail suppliers if a court ever adopts this ridiculous position. While the argument would be strained even in states with full requirements utility supply procurements, it is a particularly absurd standard in a state such as Illinois where the utility supply portfolio is composed of block energy purchases procured up to three years in advance. We would also note that, at the time at issue in the suit, ComEd's reconciliation component of default service rates (the PEA) was voluntarily capped, further distorting any basis for calling the ComEd rate consistent with the market.

The suit also alleges that the monthly weighted average prices from the Intercontinental Exchange, "is a proper measure of wholesale prices," which may be true (for energy only, but not full requirements), but ICE data is wholly inapplicable to establishing retail rates unless making numerous adjustments, including costs the utility may not incur (or whose costs are not recovered in supply rates but distribution rates), including, most notably, collateral and credit costs for participation in PJM, and uplift.

The suit alleges North American Power rates varied from about 6¢ to 16¢, and while the suit alleges, "North American Power's rates are substantially higher than other ARES [alternative retail electric suppliers]," it offers no evidence to support this allegation. We make no averment as to whether North American Power's rates were indeed, "market-based," but the suit's attempt to reach a conclusion to the contrary based solely on comparisons to ComEd and ICE prices must be rejected.

North American Power provided EnergyChoiceMatters.com with the following statement:

"North American Power is firmly committed to providing our potential customers with clear terms of our product offerings before they choose to enroll with us. We have fully complied with Illinois law and ICC regulations, and look forward to demonstrating that this lawsuit is without merit."

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