Richards v. Direct Energy Servs., LLC

• Decision Date: 31 March 2017
• Docket Number: CASE NO. 3:14–cv–1724 (VAB)
• Citation: 246 F.Supp.3d 538
• Parties: Gary W. RICHARDS, Plaintiff, v. DIRECT ENERGY SERVICES, LLC, Defendant.
• Court: U.S. District Court — District of Connecticut

246 F.Supp.3d 538

Gary W. RICHARDS, Plaintiff,

v.DIRECT ENERGY SERVICES, LLC, Defendant.

CASE NO. 3:14–cv–1724 (VAB)

United States District Court, D. Connecticut.

Signed March 31, 2017

Robert A. Izard, Jr., Craig A. Raabe, Seth R. Klein, Izard, Kindall & Raabe, LLP, West Hartford, CT, for Plaintiff.

Hutson B. Smelley, Michael D. Matthews, Jr., Robert P. Debelak, III, Thomas F.A. Hetherington, Edison, McDowell & Hetherington LLP, Houston, TX, Joey Lee Miranda, Peter R. Knight, Robinson & Cole, LLP, Hartford, CT, for Defendant.

RULING ON DEFENDANT'S MOTION FOR SUMMARY JUDGMENT

VICTOR A. BOLDEN, UNITED STATES DISTRICT JUDGE

Plaintiff, Gary Richards, brings this putative class action against Direct Energy Services, LLC ("Direct Energy"), asserting claims that arise out of Direct Energy's business of supplying electricity to residential customers. Compl. ¶¶ 2–3, ECF No. 1. In his Complaint, Mr. Richards alleged that Direct Energy engaged in unfair and deceptive trade practices, in violation of the state unfair trade practices laws of Connecticut, the Connecticut Unfair Trade Practices Act ("CUTPA"), Conn. Gen. Stat. § 42–110a, et seq. , and Massachusetts, the Massachusetts Regulation of Business Practices for Consumers Protection Act, Mass. Gen. Laws Ann. ch. 93A, § 1, et seq. Compl. ¶ 54, ECF No. 1. He also made claims of unjust enrichment and breach of the covenant of good faith and fair dealing. Id. ¶¶ 57–63, 65–70.

In August 2015, the Court denied Direct Energy's motion to dismiss Mr. Richards's claims under CUTPA and the implied covenant of good faith and fair dealing. See Order, ECF No. 63. Now, Direct Energy has moved for summary judgment on the remaining claims. For the reasons that follow, the motion is GRANTED.

I. Factual Background

This case concerns a relationship between a consumer, Mr. Richards, and Direct Energy, the company that sold him electricity 2014 and 2015. Like many states, Connecticut restructured its electricity market almost 20 years ago. See Report of Adamson and Macan of Charles River Associates, Decl. of Seth Klein, Ex. A, ECF No. 137–1 ("CRA Report"); Report of Neil Fisher, Def.'s Mem., Ex. B, at II(A), ECF No. 119–2 ("Fisher Report"). This created "markets for wholesale and retail power where previously almost all decisions and prices had been closely regulated." CRA Report, 2.1.2. Connecticut's electric suppliers would, subject to limited oversight by the Public Utilities Regulatory Authority ("PURA"), offer electric service to customers at market rates. Id. Electricity customers in this deregulated landscape could select their supplier and enter into contracts for electricity service. Id.

Suppliers, like Direct Energy, sell power rather than generate it. The electricity that powers Connecticut's households is generated at high-voltage power plants and then pooled by the Independent System Operator ("ISO") New England. See Hay Dep., Decl. of Seth Klein, Ex. D, ECF No. 137–4, 11: 3–23; CRA Report, 1.5. This energy is distributed to local utilities and then to energy suppliers, who pass it on to consumers. Hay Dep., 13: 4–8. In other words, Direct Energy is a "middleman" in the state's electricity market: it purchases energy from suppliers or wholesalers and contracts with consumers to sell it to them at a certain price. Id.

All of Direct Energy's Connecticut consumers are charged one of two rates—the "fixed rate" or the "variable rate." This case concerns how Direct Energy sets its variable rates.

Initially, Direct Energy offers Connecticut customers "fixed rate" contracts, where the rate that the customer pays for energy is fixed for a certain term, usually between twelve and thirty-six months. Hay Dep., 37–38. At the end of the initial term, if the customer does not sign up for a new fixed rate contract, the customer's rate becomes "variable," meaning that it can change monthly. Id. According to James Hay, General Manager of U.S. Energy for Direct Energy, for fixed rate contracts, Direct Energy purchases power up to twelve months in advance. Id. at 15. For variable rate contracts, however, Direct Energy purchases power several months in advance. Id. at 16–19.

In early 2012, Mr. Richards signed up for a one-year fixed-rate electricity plan with Direct Energy. Def.'s L. R. 56(a) Stmt. ¶ 9. Under this plan, Mr. Richards would pay a fixed price for a year and then switch to the variable rate. The resulting contract stated that:

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 on business and market conditions.

Compl. ¶ 34 (the "Evergreen Clause"). Every variable rate contract includes this language. See id.

When Mr. Richards signed up for this plan, he knew about the application of the variable rate after the fixed rate expired. See Richards Dep., Def.'s Mot., Ex. A, ECF No. 118–4, at 46:7–48:6 ("All the energy suppliers that supplied third-party energy have a fixed and variable rate, so it was my assumption that Direct Energy was the same"). In April 2013, Mr. Richards's fixed rate expired and Direct Energy raised his electricity charges. Compl. ¶ 34. Mr. Richards paid the variable rate for three billing cycles and then switched to a different electricity service provider in August 2013. Def.'s L. R. 56(a) Stmt. ¶ 19.

Mr. Richards selected Direct Energy because of the "fixed rate price" and the fact that Direct Energy charged "no termination fee." See Richards Dep. 48:22–49:8 ("Q. When you decided to sign up with Direct Energy, what were the factors that you considered? A. Price. Q. Fixed rate price? A. Fixed rate price, no termination fee. Q. Anything else? A. No."). When asked if Direct Energy had made a misrepresentation to him, Mr. Richards replied that "I'm not sure what anybody represented to me or said to me that was wrong or misleading."Id. at 18:3–23 ("Q. Tell me, if you would, everything that you believe Direct Energy represented to you that was misleading. A. At the time that I signed up, my expectation was that I would shop for another provider at the end of the initial period or their fixed rate period, so to answer your question, I'm not sure what anybody represented to me or said to me that was wrong or misleading.")

A. Direct Energy's Pricing Strategy

This lawsuit concerns the prices that Direct Energy charges to fixed and variable rate customers and the margin of profit it makes from each. The company considers a variety of factors when setting the prices it charges to consumers. Mr. Hay, the General Manager, said that Direct Energy set an internal target gross margin for fixed rate customers, although he noted that the target varies by the length of the term of the customer's fixed rate contract. Hay Dep., 49: 23–25; 51:6–52:2. When it set that target, Hay testified, part of Direct Energy's goal was to "churn less," or to encourage customers to continue using Direct Energy's services. Id. at 53:23–25; see also id. at 56:1–8 (agreeing to question: "for your fixed price contracts, do you—in Connecticut for example, do you offer lower priced fixed price arrangements in order to capture new customers?").

For variable price customers, the target margin was much higher. According to Mr. Hay, Direct Energy expected to earn nearly three times as much per megawatt hour from customers with these contracts. Id. at 73:5–6. Direct Energy determined the specific target margin based on the projected "customer churn," the cost of energy on the wholesale market, and other incidentals. Id. at 73:9–13. Mr. Hay also testified that Direct Energy would sometimes increase the target margin on the variable rate to make up for lost profits from other variable rate customers at other points, but not to make up for losses from the "fixed book." Id. at 80: 13–25. Mr. Hay also agreed, however, that "if [Direct Energy] lost money ... on the megawatt hour margin when people rolled over from the fixed book to the variable book and the margin moved [up, it was] able to recoup some of the prior losses [from customers] when they were on the fixed price book." See Hay Dep., 102: 1–5. Generally, Direct Energy's variable rates often changed, and were always higher than the standard service rate. Fisher Dep., Klein Decl., Ex. H, at 90:20–92:17 (agreeing that "in every month from June of 2013 to August of 2015 Direct Energy's variable price was higher than CL&P's standard rate.").

B. Mr. Richards' Expectations

Mr. Richards alleges that Direct Energy was wrong to seek more profit from variable rate customers than it did from fixed rate customers. He argues that the difference in Direct Energy's target profit margins for the two types of customers reflected a desire to let the variable rate customers "subsidize" the fixed rate customers, who were charged a "teaser" rate that would lure them into business with Direct Energy. Pl.'s Mem., 31.

Mr. Richards claims that, by employing this pricing strategy, Direct Energy abused the discretion that it was given in the Evergreen Clause, which allowed it to vary rates according to "business and market conditions." Mr. Richards testified that, in his expectation, "market conditions" would "have to do with the wholesale rate and competitor's pricing" and business conditions "shouldn't be ... variable." Richards Dep., 71: 19–25; 72:2. Mr. Richards expected that "the variable rate would be based on business practices and market conditions," and that Direct Energy would be "looking out for [his] best interests" by changing the variable rate in accordance with the company's costs. Richards Dep., Ex. F, 99: 4–11 ("So I would have to say that, yeah, if their costs go down, [the variable rate would] reflect the savings. If their costs go up, you don't necessarily have to increase at the same rate, and you certainly don't have to increase at a higher rate."). Generally, Mr. Richards expected "that the variable rate shouldn't be an exorbitant rate above and...