Regulator's Staff Seeks Notice Of Violation Against Retail Supplier Over Use Of Force Majeure Clause To Cancel Contracts
April 10, 2023 Email This Story Copyright 2010-21 EnergyChoiceMatters.com
Reporting by Paul Ring • email@example.com
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The Office of Education, Outreach, and Enforcement (EOE) of the Connecticut Public Utilities Regulatory Authority (PURA) requested that PURA issue a Notice of Violation and Assessment of Civil Penalty (NOV) against Mega Energy of New England, LLC (Mega Energy or the Company) due to Mega Energy's use of a force majeure clause to cancel customer contracts and return customers to default service, which EOE alleged violates Conn. Gen. Stat. § 16-245o(h)(4)
As previously reported, Mega Energy New England, LLC in late 2022 and early 2023 returned nearly all of its Connecticut customers to default service, citing (in some instances) a Force Majeure provision in certain contracts, due to the expiration of the company's supply agreement and inability to secure an agreement with another wholesale supplier (see background here).
Mega sent a cancellation notice to 338 customers, all of which were non-residential. Some of the customers were allegedly being served under fixed term contracts that extended beyond December 31, 2022. Some customers were on rollover month-to-month agreements
As alleged by EOE, Mega Energy said in a recent interrogatory response to EOE that, "Mega Energy of New England, LLC ('Company') is no longer in a position to serve customers in Connecticut because, after December 31, 2022, it will no longer have a supply agreement. The Company’s current supplier decided not to renew the Company’s Preferred Supply Agreement ('PSA') ... When the Company went into the market to find an alternative supplier, it learned that the aftermath of Winter Storm Uri and commodity price increases resulting from the war in the Ukraine also tightened the market for alternative PSA providers... Despite numerous attempts to agree upon reasonable terms, the Company was unable to reach agreement with either of the two remaining suppliers."
As alleged by EOE, Mega Energy said in a recent interrogatory response to EOE that, "The Company’s Terms of Service include a Force Majeure provision that specifically indicates that events outside of the Company’s control may result in interruptions in service."
EOE alleged that the relevant Force Majeure provision states, "Mega Energy will make commercially reasonable efforts to provide service but does not guarantee a continuous electricity supply. Events outside of Mega Energy's control ("Force Majeure Events") may result in interruptions in service. These events include by way of example only: acts of God or any governmental authority, accidents, strikes or labor disputes, required maintenance, inability to access the EDC's facilities, EDC nonperformance including an outage, changes in laws of any governmental authority or any other cause beyond Mega Energy's control. Mega Energy shall not be liable to you for any interruptions caused by Force Majeure Events."
EOE alleged, "Although Mega provided a lengthy response explaining why it cancelled the customers’ contracts, the Authority believes the response can be summed up quite simply -- Mega entered into contracts with customers without the supporting energy in place to cover the full length of customers’ contracts. In December 2022 Mega could not obtain energy at a rate that allowed it to profit from the customers’ contracts, so it cancelled the contracts."
EOE alleged, "Mega’s Response to EOE-23(c) indicates that Mega had an existing energy procurement contract in place only through December 31, 2022. Yet, as Mega’s Responses to EOE-23,26, and 27 show, many of the contracts it had already executed with customers extended far past December 31, 2022. In short, the evidence indicates Mega entered into contracts with customers having not secured the energy to support those contracts for their full contract lengths. When Mega needed to procure the energy to support the contracts, it could not agree to 'reasonable terms' with sellers. See Response to Interrogatory EOE-23(c). Of note, Mega did not claim that it could not procure any energy, simply that it could not procure energy on 'reasonable terms.' The evidence indicates that, being unable to find energy offered at a price that allowed it to continue to make a profit when honoring customer contracts, Mega cancelled all of its customers’ contracts to avoid a financial loss."
EOE alleged, "Conn. Gen. Stat. § 16-245o(g)(2) states, 'An electric supplier shall not make a material change in the terms or duration of any contract for the provision of electric generation services by an electric supplier without the express consent of the customer.' In the present case, Mega unilaterally changed a material term of the contracts - the duration (it unilaterally shortened the duration of all of the contracts). Moreover, it could be argued that Mega made a material change to all of the terms of the contracts in that it cancelled the entire contract, thus changing every contract term. Mega did not seek any form of consent from customers to cancel the contracts. To the contrary, it told customers it was cancelling the contracts, giving only one week’s notice to some customers."
EOE alleged, "Mega may not cancel these contracts under their Force Majeure provision. First, the only portion of the contract mentioning the right to cancel is the section entitled 'Cancellation/Termination,' which states, 'Mega Energy reserves the right to cancel this agreement (i) if your EDC is unable to read your meter for three (3) consecutive months; (ii) if at any time you request separate bills from your EDC and Mega Energy…' Id. at p. 5. The contract does not state that Mega has any other cancellation rights and Mega did not claim it was cancelling under the Cancellation/Termination provision of its contracts. When contracting parties have negotiated termination provisions, the Authority should hesitate to excuse performance for reasons not detailed in the negotiated provision."
EOE alleged, "Second, the Force Majeure provision of Mega’s contract contemplates 'interruptions in service,' not a complete cancellation of the contract. Therefore, on its face it appears the Force Majeure provision does not apply to a contract cancellation. The Force Majeure provision addresses events that would interrupt 'a continuous supply of electricity,' and lists only examples that implicate the customer being prevented from receiving electrical supply. In the present case, there was no event that interrupted Mega’s supply of electricity to the customer. Mega voluntarily cancelled it."
EOE alleged, "Third, the Force Majeure provision applies to events beyond Mega’s control, such as acts of God or acts of outside entities, which prevent Mega from offering continuous service ... The present event was entirely within Mega’s control. Mega chose to enter into contracts with customers without energy contracts in place to support the full length of the customers’ contracts. Nothing prevented Mega from procuring sufficient energy when it entered into contracts with customers. Mega knew it was required to procure energy to perform its part of its contractual obligation. Securing the energy when entering contracts with customers would have been an advisable business practice and demonstrated competent managerial capabilities. It appears, however, that when entering contracts with customers Mega gambled that it could eventually procure energy to support the contracts at a rate that made the contracts financially beneficial to Mega. That gamble did not materialize in Mega’s favor, making it a bad business decision. A bad business decision is not an act of God."
EOE alleged, "Mega may not use the Force Majeure provision in its contract to shield it from its own bad business decision. Performance of a contract may not be excused under the Force Majeure provision simply because performance is no longer economically advantageous," citing several cases including AGW Sono Partners, LL v. Downtown Soho, LLC, 343 Conn. 309, 330-31 (2022)
EOE alleged, "If Mega were allowed to escape its contractual responsibilities by causing a Force Majeure event, then it never had a true contractual obligation on which customers could rely. Nissho-Iwai Co, Ltd., 729 F.2d at 1540 ('[A] party may not affirmatively cause the event that prevents his performance. The rationale behind this requirement is obvious. If a contractor were able to escape his responsibilities merely by causing an excusing event to occur, he would have no effective 'obligation to perform.'). It would be anathema to the supplier market if customers could not rely on the contracts they enter with suppliers."
"Business customers, unlike residential customers, do not have the freedom to cancel their own contracts without penalty. If a right to cancellation does not explicitly exist, the Authority will not read such a right into a contract in favor of a supplier," EOE alleged
EOE noted that Conn. Gen. Stat. § 16-245o(h)(4) precludes suppliers from engaging in, "any deceptive acts or practices, in the marketing, sale or solicitation of electric generation services."
EOE alleged, "Mega’s reliance on the Force Majeure provision to cancel its contract meets all criteria of deceptive marketing. The Authority has reason to believe Mega made a representation that it would provide energy supply to its customers at a contracted rate for a specified time. Based on the contract terms, customers would have reasonably believed that Mega was required to honor its contract unless the specified actions in the Cancellations/Terminations provision occurred, which would have cancelled the contract, or unless an event outside of Mega’s control occurred, which would have interrupted the contract. Customers would not have a reason to believe, based on the contract terms, that Mega could unilaterally cancel the contract simply because the contract was no longer lucrative. Such an action is antithetical to the concept of a contract. Mega deceived customers into entering contracts thinking they would receive energy supply at a fixed price for a defined term, and those customers forewent other supply contracts to contract with Mega. In December 2022, those customers found themselves with no fixed rate contract and an energy supply market that Mega’s own actions prove was more costly to navigate than when the customers entered the contracts with Mega."
EOE also alleged that Mega's alleged behavior violates the Connecticut Unfair Trade Practices Act (CUTPA)
EOE alleged, "CUPTA [sic] is designed to deter abhorrent marketing practices. In the present case, a reasonable customer would interpret Mega’s contract as applying for the full contract length unless the specific provisions contained therein were triggered. Such an interpretation would affect consumer decisions and conduct because the customer would choose whether or not to enter the contract with Mega for the specified rate for the specified length by comparing it to other contracts’ rates and lengths. If such a comparison is wholly unreliable, a customer deserves to calculate that unreliability into their decision to enter the contract. A customer reading Mega’s contract would never have known by the contract terms they could not rely on Mega to continue the contract if the contract became financially unviable, thereby overvaluing the contract with Mega."
EOE alleged, "Likewise, Mega’s actions were unfair. Cancelling a contract simply because it no longer renders as great a profit is not only illegal, but it offends the very policies behind the statutes. It is both unscrupulous and unethical to lure in customers into contracts and then misuse contractual provisions to render the contracts meaningless. The statutory scheme of Conn. Gen. Stat. § 16-245o is meant to protect customers from unscrupulous acts of suppliers. Mega’s actions injure the very customers the statutory scheme was meant to protect."
EOE asked that PURA order Mega to provide restitution to customers equal to the amount of the customers’ average usage multiplied by the difference between the rate for which Mega contracted with the customer and the current standard service rate, for the time remaining in the contract as of December 2022. For example, if a customer’s average usage was 1000 kWh, the customer contracted with Mega for 10 cents per kWh through December 2023, and the customer was in the Eversource territory, Mega would owe the customer $1,809.36 (standard service rate of $0.23031 minus $0.10 rate with Mega = $0.13031 x 1000 kWh usage = $130.31 x 12 months remaining on the contract = $1563.72).
EOE sought that PURA find as follows, "To be clear, the Authority recognizes that these customers may have contracted with other suppliers after Mega cancelled their contracts and may not be served on standard service at this time. Further, the Authority recognizes that the standard service rate might change in the future. Nonetheless, these customers should not have had to negotiate new contracts with new suppliers at all, and the time in which they had to do that forced them to negotiate the contracts based on the standard service rate going into effect as of January 1, 2023."
EOE sought a PURA order suspending Mega’s electric supplier license for three years
EOE said that PURA should not permit Mega to serve any customers while its license is suspended. EOE said that data from Docket No. 06-10-22 (the migration reports) indicates that Mega has four remaining customers.