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Court Dismisses Suit Against Ambit Energy Over Pricing; Finds Variable Rates Under Contract Not Required To Be Linked To Energy Markets

March 22, 2016

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Copyright 2010-16 EnergyChoiceMatters.com
Reporting by Paul Ring • ring@energychoicematters.com

A U.S. District Court has granted summary judgment in favor of Ambit Energy in a suit, which had sought class action status, brought against the company concerning variable rates, as the Court dismissed the suit

The suit had alleged that Ambit's charged variable rates breached a contract with the plaintiff based on allegations that the contract required such rates to be tied to market pricing, or to be otherwise, "competitive."

The United States District Court For The Eastern District Of Pennsylvania agreed with Ambit's interpretation of its contractual documents.

Two provisions formed the heart of the dispute. Ambit's Disclosure Statement provides that: "[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." Ambit's Terms of Service provides 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 plaintiff alleged that such language required that the variable rate be specifically linked to the prices from the referenced markets, and the plaintiff alleged that Ambit did not provide a competitive rate based on market factors as allegedly required

The Court disagreed and dismissed the suit.

"The provision in the Terms of Service reflects that Ambit has discretion in setting the rate it charges for electricity, limited only by the good faith requirement read into contracts," the Court ruled.

"The 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," the Court said.

The Court ruled that the plaintiff's argument that Ambit was required to charge rates based on market pricing is only arrived at by inserting the word "only" after "may" in the contract so that the provision reads that the rate, "may [only] vary dependent upon price fluctuations in the energy and capacity markets."

However, "[t]he word 'only' does not appear in the provision, and the Court may not read it into the unambiguous language thereof," the Court ruled

While the plaintiff also alleged that Ambit acted in bad faith by charging a rate that was not "competitive," the Court ruled that, "There is no express provision in the contract requiring Ambit to provide a competitive rate."

Given its interpretation of the Ambit contract, and that Ambit had discretion to charge rates reflective of conditions other than market pricing, the Court in granting summary judgment did not specifically address the merits of the plaintiff's comparison of Ambit rates to Penelec default service rates, as such evaluation of Ambit's rates to a potential benchmark of "market" pricing was rendered moot since Ambit was not limited to charging market prices. The Court did recite Ambit's arguments that the Penelec rate was a poor benchmark for pricing due to, among other reasons, the Penelec rate's lagging reflection of market conditions, in finding that the plaintiff had not presented any evidence that Ambit breached its implied covenant of good faith and fair dealing, but the Court did not specifically endorse, or reject, any view of the relevance of default service pricing in evaluating claims under retail supply contracts

The case was Silvis v. Ambit Energy, L.P. et. al., 2:14-cv-05005

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