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Court Rules Looking At Default Service Rate Not Reasonable In Evaluating Supplier's "Market" Pricing, Dismisses Suit Against Starion Energy

March 23, 2016

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

A U.S. District Court has granted a motion to dismiss filed by Starion Energy PA, Inc. and dismissed a suit, which had sought class action status, brought against the company concerning variable rates and whether such rates were obligated to reflect "market" pricing.

Unlike a recent summary judgment granted in favor of Ambit Energy concerning a similar suit (where the issue was rendered moot, click here for story), the United States District Court for the Eastern District Of Pennsylvania specifically addressed in the Starion case the issue of whether the default service rate is an appropriate benchmark for claims related to variable pricing based on (among other factors) market conditions, in light of the specific language in Starion's contract

Starion's terms provided that, "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."

The plaintiff alleged that variable rates charged by Starion from December 2013 until April 2014 breached the contract because such rates, which exceeded the Penelec default service rate, amounted to a breach of contract, as the plaintiff alleged such Starion rates did not fulfill the company's obligation to keep the variable rate tied to market conditions

The Court disagreed, and dismissed the suit.

The Court noted that the plaintiff's support for their allegation stems solely from the fact that the Starion rate was substantially higher than the Penelec default service rate

"The contract makes clear, however, that the rate could change based on conditions in several other territories; namely, NEISO, NYISO and MISO. Additionally, the contract states that items other than market pricing, such as transmission costs, taxes, utility charges and other market price-related factors would be used to determine the rate," the Court said

"Because the contract provided that pricing and market conditions in other specific territories -- as well as additional factors listed in the contract -- could potentially play a part in pricing, it is not possible to draw a reasonable inference that Defendant breached same just by looking at how Defendant’s price varied from the local supplier during a particular period of time when Starion’s rates were lower at other times," the Court ruled (emphasis added).

The Court further dismissed the plaintiff's claims because the facts do not show that Starion acted unreasonably.

"Plaintiff’s allegations simply indicate that Defendant’s prices are higher than those of the local competitor. Because the contract stated that the price could be related to various market conditions in several territories, the difference in price alleged by Plaintiff does not permit the court to conclude that the price was set unreasonably ... [A]n action for breach of contract under the theory of good faith and fair dealing cannot be sustained," the Court said

While the plaintiff alleged that the contract at issue violated 52 Pa. Code § 54.5 (c)(2)(i)-(ii), alleging that Starion's rates were not "based on" or "related to" market conditions, as described in the Disclosure Statement and Terms of Service, the Court noted that the plaintiff omitted any reference to the contractual language directly applicable to changes in the rate

The Court said that the conditions of variability under the contract are clear -- "The Variable Rate may change in response to market conditions" -- and therefore the plaintiff’s breach of contract claim fails on that basis.

Starion is represented by Keith Smith, Charles Zdebski, Casey Coyle and Dan Clearfield of Eckert Seamans, which said that the Court's ruling is "significant" given other similar pending litigation concerning similar issues

Case 2:15-cv-00773-CDJ

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