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Texas Business Customer Files Suit Against Large Retail Provider Alleging "Price Gouging"

--- Alleges "Duty" To Protect Customer Against "Foreseeable" Winter Weather Event Price Spike

May 5, 2021

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Copyright 2010-21
Reporting by Paul Ring •

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The owner of a North Texas Harley-Davidson dealership has filed a lawsuit in Harris County, Texas, district court against Direct Energy Business, LLC and affiliates, alleging that, "Direct Energy price gouged AEHD when it excessively raised electricity prices," after the winter weather event in ERCOT

In brief, the plaintiff was being served on a rollover index rate after expiration of a fixed price agreement. Among other things, Plaintiff alleges that the index pricing did not comport to representations alleged to have been made at the time of marketing the initial fixed price plan, and alleges that Direct Energy had a duty under the contract to prevent plaintiff from being charged excessive prices and to take aggressive steps to prevent the charging of such excessive prices, "[g]iven the foreseeability of excessive prices."

A Direct Energy spokesperson stated that, "It is Direct Energy’s policy not to comment on ongoing litigation."

Plaintiff American Eagle Harley-Davidson (AEHD), located in Denton County, alleged that it received an invoice for February electricity service of almost $277,000, approximately 55 times more than the dealership's typical monthly bill.

Plaintiff alleged that it had a fixed price electricity supply agreement (CSA) with Direct Energy which had expired.

Plaintiff alleged that, "The Agreement included a Holdover provision that stated: If the Supply Term of any CSA expires without renewal or terminates for any reason where, in either case, Seller continues to supply electricity to Buyer then Seller will calculate Buyer's invoice(s) as follows: ((ISO Published Index-Rate plus $0.020/kWh) multiplied by the applicable metered usage, adjusted for Line Losses)) plus (all other retail cost and charges incurred by Seller in supplying electricity to Buyer's Account(s) reasonably calculated). plus TDU charges and Taxes. This holdover supply service will continue to be governed by this Agreement on a month to month basis until either Party terminates the Agreement. Ex. A, Terms and Conditions, p. 5. The Agreement defined the 'ISO Published Index-Rate' as 'ERCOT's applicable, published Real-Time Index rate.' Ex. A, Schedule A, p. 3 (emphasis excluded)."

Plaintiff alleged, "In April 2020, prior to the expiration of the rate plan per the Agreement, Direct Energy Business sent a reminder email to AEHD of the upcoming expiration. In the last line of the email, with the smallest font, Direct Energy Business stated, 'If your rate plan expires before you renew, Direct Energy Business will continue to serve you on a monthly variable rate.' Ex. B, Renewal Notice. Direct Energy Business did not provide any further explanation of the change."

Plaintiff alleged, "On April 1, 2021, nearly a month after the winter storm, AEHD received Direct Energy Business's February 2021 invoice. AEHD was charged a total of $276,905.41. Ex. D, February 2021 Invoice. For the billing period, Direct Energy Business applied a market-based rate of $2.820873 per kWh to 87,900 kWh of usage."

Plaintiff alleged, "The service plan offered to AEHD from Direct Energy Business did not appreciate the risk entailed with it, particularly when an index rate was to be applied after nonrenewal. AEHD had not comprehended the type of exposure, liability, and risk. If it had understood the service plan, it would have shopped around and reassessed the plan's competitiveness. Additionally, Direct Energy Business did not provide adequate notice before, during, or after the storm to inform its index rate customers of price spikes."

Plaintiff alleged violations of Texas's Deceptive Trade Practices Act (DTPA)

Plaintiff alleged, "DTPA §§ 17.46(b)(2), (5), (7), (9), and (12) prohibit Direct Energy from: causing confusion as to the source of services; representing services have characteristics, uses, benefits or quantities that it does not have; representing services are of a particular standard if they are of another; advertising services with the intent not to sell as advertised; and representing an agreement confers rights, remedies, or obligation that it does not have."

Plaintiff alleged, "Direct Energy represented and led AEHD to believe its service plan consisted of an energy solution that met its dealership's needs. The plan would be reliable, easy and simple to understand, meet budgetary constraints, offer competitive pricing, and reflect a reasonable price range, i.e., not be subject to severe fluctuations. Direct Energy, through its advertising and marketing, misled AEHD when it failed to disclose the true risks of its plan that passed through excessive electricity prices. Instead, Direct Energy charged AEHD inflated and excessive prices during and because of the winter storm."

Plaintiff alleged, "DTPA § 17.46(b)(24) prohibits failing to disclose information concerning a service, which was known at the time of the transaction, if intended to induce the consumer into a transaction into which the consumer would not have entered."

Plaintiff alleged, "To acquire AEHD as a customer, Direct Energy advertised and marketed its service plan as offering unique and reliable solutions and competitive pricing to meet AEHD's needs. Had it understood Direct Energy's pricing scheme and the possibility of inflated and excessive prices, AEHD would not have agreed to Direct Energy's services."

Plaintiff alleged, "DTPA § 17.46(b)(27) disallows price gouging during a disaster. It prohibits taking advantage of a disaster, as declared under Chapter 418 of the Texas Government Code, by: (A) selling or leasing fuel, food, medicine, lodging, building materials, construction tools, or another necessity at an exorbitant or excessive price; or (B) demanding an exorbitant or excessive price in connection with the sale or lease of fuel, food, medicine, lodging, building materials, construction tools, or another necessity; Tex. Bus. & Com. Code § 17.46(b)(27)."

Plaintiff alleged, "Direct Energy price gouged AEHD when it excessively raised electricity prices. AEHD did not anticipate such increases to its electricity services. It relied on Direct Energy's electricity supply to its detriment, particularly amidst a disastrous winter storm."

Plaintiff alleged, "Negative Option Marketing. The Federal Trade Commission has identified negative option marketing features on the Internet to be an unfair or deceptive act or practice unless the person: (1) clearly and conspicuously discloses terms prior to obtaining billing information, (2) obtains express informed consent before charging the consumer, and (3) provides a simple means by which to stop recurring charges. 15 U.S.C. § 8403. Direct Energy has not met the requirements to automatically switch rates for AEHD upon the expiration of the renewal date. A nonrenewal cannot be equated to an acceptance of an index rate."

Plaintiff alleged, "Direct Energy had the ability, capacity, and contractual right to prevent charging AEHD excessive prices and costs during the disaster. Direct Energy controlled its services and platform and oversaw pricing and contracting and may alter its electricity pricing. Direct Energy did not exercise ordinary care and comply with existing standards of care when it charged AEHD excessive electricity prices and failed to properly detect and react to the electricity market volatility and price increases. Given the foreseeability of excessive prices during the winter storm, a reasonable electricity provider in Direct Energy's position would have implemented measures to prevent AEHD from being charged excessive prices and taken aggressive steps to prevent it. Direct Energy did not do so, and instead, responded in an ineffective manner."

The suit seeks an injunction to prevent Direct Energy from billing and collecting payment for what the suit alleges are excessive prices, and demands the forgiving of any late or unpaid bills.

AEHD seeks monetary relief of $1 million

The suit is Wilpwr Rides LLC d/b/a American Eagle Harley Davidson v. Direct Energy et al, No. 2021-26741, filed in the 295th District Court in Harris County, Texas.

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