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Direct Energy to Pay $1.65 Million (Canadian) Plus Interest in Cancellation Fee Reimbursements, Penalty
September 21, 2011
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Direct Energy Marketing Limited shall reimburse Ontario customers approximately $950,000, plus interest, and pay an administrative penalty of $700,000, under an Assurance of Voluntary Compliance with the Ontario Energy Board to resolve an investigation of customers who were charged an early termination fee above the amount called for in their contracts, for the period 2004-2010 (all figures Canadian).
During a 2009 Staff investigation, Direct Energy determined that the methodology it used to calculate early termination fees was at times inconsistent with its contractual terms with customers.
Starting in 2004, Direct Energy's contracts provided that Direct Energy would calculate a customer's early termination fee by reference to the customer's "Projected Consumption." The term Projected Consumption was defined in Direct Energy's contracts as a customer's, "average monthly natural gas or electricity consumption, as applicable (based on your most recent 12 months actual consumption as provided by your Utility)."
As developed in 2004, and through 2010, however, Direct Energy's early termination fee calculator determined Projected Consumption by reference to the average annual consumption of Direct Energy's residential customers in 2003 (which was the year prior to the implementation of the contractual definition of "Projected Consumption"), for that subset of customers for which it was unable to access actual consumption data.
Approximately 14,500 customers paid an early termination fee under the erroneous calculation during the relevant time period.
Invoices for 7,860 of these early termination fees resulted in overcharges to customers which totaled approximately $950,000.
Another 6,627 invoices resulted in undercharges to customers which totaled approximately $2.4 million.
In addition, Direct has determined that there may have been approximately 16,000 consumers who were quoted an overcharge for an early termination fee, with the same approximate number quoted an undercharge. However, these customers did not terminate their contracts and were not charged an early termination fee.
Under the accepted Assurance of Voluntary Compliance, Direct Energy will reimburse all of the overcharged customers with interest, with the interest accruing from the date of the overcharge using the Post-Judgment interest rates set out in the Courts of Justice Act.
To the extent any reimbursement checks are returned to Direct Energy and/or eventually pass their stale date, the funds will be aggregated and then made payable to the Board in two installments. The funds will be directed by the Board to support activities related to consumer education, outreach, and other activities in the public interest.
The administrative penalty of $700,000 will be used for the same activities.
Direct Energy will not pursue any recovery from the undercharged customers.
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