Richards v. Direct Energy Servs., LLC

• Decision Date: 04 February 2019
• Docket Number: August Term 2017,No. 17-1003-cv,17-1003-cv
• Citation: 915 F.3d 88
• Parties: Gary W. RICHARDS, on Behalf of Himself and All Others Similarly Situated, Plaintiff-Appellant, v. DIRECT ENERGY SERVICES, LLC, Defendant-Appellee.
• Court: U.S. Court of Appeals — Second Circuit

915 F.3d 88

Gary W. RICHARDS, on Behalf of Himself and All Others Similarly Situated, Plaintiff-Appellant,

v.DIRECT ENERGY SERVICES, LLC, Defendant-Appellee.

No. 17-1003-cv

August Term 2017

United States Court of Appeals, Second Circuit.

Argued: April 11, 2018

Decided: February 4, 2019

For Plaintiff-Appellant: Robert A. Izard (Craig A. Raabe, on the brief ), Izard, Kindall & Raabe LLP, West Hartford, CT, for Gary W. Richards.

For Defendant-Appellant: Michael D. Matthews (James M. Chambers, Hutson B. Smelley, Robert P. Debelak III, on the brief ), McDowell & Hetherington LLP, Houston, TX, for Direct Energy Services, LLC.

Before: Pooler, Parker, and Livingston, Circuit Judges.

Judge Pooler concurs in part and dissents in part in a separate opinion.

Debra Ann Livingston, Circuit Judge:

Plaintiff-Appellant Gary W. Richards ("Richards") entered into an electricity contract with Defendant-Appellee Direct Energy Services, LLC ("Direct Energy"). The contract provided that, for the first twelve months, Direct Energy would guarantee Richards a fixed electricity rate that was 10% below the state-approved rate. But if Richards did not leave the contract at the end of that year, Direct Energy would begin charging him a new variable rate. The variable rate, according to the contract, would be set on a month to month basis according to Direct Energy's "discretion" and would reflect "business and market conditions." J.A. 157. Richards was free to terminate the contract at any time without paying a penalty. After twelve months on the discounted fixed rate plan, Richards began paying the variable rate. During this time, the variable rate was two cents more per kilowatt hour ("kWh") than the state-approved rate. Richards switched electricity providers after fifteen months with Direct Energy (twelve on the discounted fixed rate, three on the variable rate), complaining that the variable rate was set too high. He then sued Direct Energy for breach of contract, deceptive and unfair trade practices, and unjust enrichment, and also sought to represent a class of all Direct Energy customers who paid the variable rate in Connecticut and Massachusetts. The district court dismissed several of his claims and granted summary judgment to Direct Energy as to the rest.

This is the latest in a line of class actions challenging consumer gas and electricity rates in the wake of market deregulation.¹ Richards's principal claim is that Direct Energy breached its contract with Richards and violated state unfair and deceptive trade practices law by not pegging its variable rate to Direct Energy's procurement costs. We disagree. By the contract's plain terms, Direct Energy promised that the variable rate would be set in its discretion and that it would reflect "business and market conditions," a phrase which encompasses more than just procurement costs. Accordingly, the judgment below is AFFIRMED.

BACKGROUND

I. Factual Background²

A

This is a contract dispute set in the context of Connecticut's electricity market. ISO New England, Inc. is responsible for administering a market in which local electricity distribution companies bid on electricity supplied by power generators. In Connecticut, two electric distribution companies, Eversource and United Illuminating, maintain monopoly control over electricity distribution systems within set geographic zones and are ultimately responsible for distributing electricity to consumers in those zones. Consumers may enter into electricity contracts with either company directly. All these contracts offer electricity at "Standard Service Rates," which Connecticut's Public Utilities Regulatory Authority ("PURA") approves in advance. See Conn. Gen. Stat. § 16-19(a).

In 2000, Connecticut deregulated its consumer electricity market. Consumers may still purchase electricity from either Eversource or United Illuminating at their PURA-approved Standard Service Rates (effectively a public option), but they may instead choose to contract with one of the forty PURA-licensed retail electricity suppliers (the private market), all of which piggyback on Eversource and United Illuminating's electricity distribution systems. These suppliers purchase power that they then sell to consumers at market-based, unregulated rates. Many offer variable prices, promotional rates, guarantees that energy will come from renewables, and incentives like cash rebates and gift cards. Some suppliers also include "guaranteed savings" provisions in their contracts, which ensure that consumers will save money compared to the Standard Service Rates. In general, the Standard Service Rates tend to adjust more slowly in response to changes in the wholesale electricity market than market rates.

Although PURA does not regulate suppliers' rates, it regulates the suppliers themselves. PURA licenses all private electricity suppliers, id. § 16-245(a)–(b), and reviews these licenses every five years, Conn. Agency Regs. § 16-245-2(f). It also polices how suppliers word their consumer contracts. Among other things, these contracts must contain:

• "all material terms of the agreement";

• "a clear and conspicuous statement explaining the rates that [ea]ch customer will be paying, including the circumstances under which the rates may change";

• "a clear and conspicuous statement ... describing any penalty for early termination of such contract"; and

• "a statement that provides specific directions to the customer as to how to compare the price term in the contract to the customer's existing ... charge on the electric bill and how long those rates are guaranteed."

Conn. Gen. Stat. § 16-245o(f)(2). Finally, Connecticut's state government helps maintain an electricity-comparison website that lists available electricity suppliers and compares electricity suppliers' rates and other relevant contract terms to each other and to the default Standard Service Rates.³

B

Direct Energy is a private electricity supplier that offers several different electricity plans to consumers in the private market. Some of its plans come with add-ons, like an Internet-connected Nest thermostat, a home warranty, or a guarantee that 100% of the energy will come from "green" sources. During the time at issue in this case, all of Direct Energy's plans were "Evergreen plans," meaning that Direct Energy would charge a fixed rate for a set time (between twelve and thirty-six months), and at the end of that period, if the customer took no action, Direct Energy would charge a variable rate that could change each month.

Direct Energy balanced several factors when setting the variable rate. In general, Direct Energy targeted a certain profit margin based on its own cost of energy while not setting the rate so high that customers would leave. Competitors' prices, market-share objectives, supply hedging strategies, legislative and regulatory requirements, and market risk helped inform these factors. Direct Energy's variable rate was higher than its fixed rate, so when a customer switched to the variable rate, Direct Energy often reduced the customer's variable rate for the first few months to smooth the transition. At one point, more than half of Direct Energy's Connecticut customers were paying the variable rate.

In March 2012, Gary Richards signed a two-page electricity contract with Direct Energy guaranteeing him a fixed electricity rate of 7.45 cents per kWh for one year. This was an Evergreen plan, so after the year expired, Richards's "service [would] automatically continue each month without additional notice, and [Richards] [would] pay a variable rate per kWh, which [could] be higher or lower each monthly billing cycle." J.A. 157. The contract further stated:

After the Initial Term and during the Renewal Period, the rate for electricity will be variable each month at Direct Energy's discretion. The rate may be higher or lower each month based upon business and market conditions.

Id. We refer to this as "the Evergreen clause." Richards could cancel the contract "at any time without an early cancellation fee." Id. These terms were all included on the first page of the contract, and PURA had earlier determined that this contract was sufficiently clear and fulfilled all the requirements mandated by Conn. Gen. Stat. § 16-245o(f)(2).

After using the Connecticut government's electricity-comparison website mentioned above, Richards chose Direct Energy because it promised "the best fixed rate that [he] could get at the time" and no termination fee. J.A. 121. He did not consider any other factors, nor did he have any expectations about how the variable rate would work. But he still paid attention to his electricity rate during the fixed-rate period and compared rates on the Connecticut electricity website several times. At one point, he tried to switch electricity providers to get a better fixed rate, but the new provider never followed up on his inquiries.

Richards ultimately stayed on the Direct Energy contract through the full twelve months, did not opt out at the end, and so was rolled over onto the variable rate, which he paid for three months starting in April 2013. For those three months, the variable rate stayed constant at 10.64 cents per kwH, or 2.36 cents per kWh higher than Eversource's PURA-approved Standard Service Rate during this time.⁴ There is no evidence in the record that Direct Energy's variable rate was higher than the rates charged by Direct Energy's market competitors. Direct Energy's procurement costs were also largely constant during this three-month period.

In August 2013, Richards noticed that his electricity bills had risen compared to previous months, so he canceled his contract with Direct Energy and switched electricity providers. Over the course of the fixed-rate period, Richards paid $114 less than he would have under Eversource's Standard Service Rate. But his three months on the variable rate eliminated those savings. In total, for the fifteen months he signed with Direct Energy, Richards, a...