Lawsuit Seeking Class Action Status Filed Against Texas Retail Electric Provider Over Pass-Through Of Ancillary Service Costs From Winter Weather Event To Customers On Contracts Alleged To Be Fixed Price -- EnergyChoiceMatters.com

Lawsuit Seeking Class Action Status Filed Against Texas Retail Electric Provider Over Pass-Through Of Ancillary Service Costs From Winter Weather Event To Customers On Contracts Alleged To Be Fixed Price

Aggregator Files Complaint Against REP At Texas PUC Over Similar Issue

June 8, 2021

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Reporting by Paul Ring • ring@energychoicematters.com

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A North Texas plastics company (J&M Plastics, Inc., or 'Plaintiff') has filed a proposed federal class action lawsuit against MidAmerican Energy Services, alleging that, "the electricity supplier passed through unauthorized fees to commercial customers with contracts marketed as fixed-rate plans."

Separately, members of a Thigbe LLC commercial aggregation group have filed a formal complaint at the Texas PUC against Mid American [sic] Energy Services LLC [MES] concerning similar issues

PUC Complaint

Thigbe Members alleged, "Thigbe Members and MES entered into electric service agreements in March of 2019 in which the energy rate was supposed to be, and up to February of 2021 were, fixed for the duration of the agreements. In addition, the agreements make no provision for MES to unilaterally transform the fixed energy rate into a variable energy rate. Contrary to the terms of these agreements, MES has been charging and attempting to collect unauthorized charges from Thigbe Members for ancillary services that occurred during February, 2021."

Thigbe Members alleged as follows:

1) Thigbe requested firm fixed pricing with all cost components other than delivery tariff costs and taxes to be fixed with 100% swing for all 90 customers.
2) MES responded to said bid request and presented their pricing as fixed.
3) Of the 90 customers contracted with MES through the RFP process Thigbe Members alleged that MES is passing through additional costs only to those customers that are over 50 KW [sic]. All of the under 50 KW [sic] customers, that MES, based on their response to Thigbe Members' informal complaint, believes are more fully protected by the PUC's customer protection rules, are not being billed these allegedly unauthorized charges, Thigbe Members alleged. "The fact that MES is not charging these costs to smaller, presumably better protected, customers that have substantially the same contract language is, we believe, indicative of MES knowing that they cannot fully justify these unauthorized costs," Thigbe Members alleged
4) Appendix A to the complaint lists the "Billing Adjustments" being levied by MES against the 17 Thigbe Members that were over 50 KW [sic] out of the 49 customers in the actual bid group.
5) Thigbe Members alleged that Schedule A of the contract states that: "If the aggregate demand at all of Customer's commercial Facility(ies) is greater than fifty (50) kW, Customer understands that by signing this Agreement Customer is agreeing to materially different customer protections than those specified by the Customer Protection Rules (Subchapter R) of the Public Utility Commission of Texas Substantive Rules. These rules can be found at [PUC web address]. This agreement identifies the specific protections to which the Customer is agreeing, which include the protections as outlined in these sections of the Customer Protection Rules of the Public Utility Commission 25 495 [sic] (relating to Unauthorized Change of Retail Electric Provider), 25 481 [sic] (relating to Unauthorized Charges) and 25 485(a)-(b) [sic] (relating to Customer Access and Complaint Handling)"
Thigbe Members alleged, "The language above does not specify any portions of the customer protection rules that are being waved [sic]. It only states those portions of the rules to which the customer is specifically agreeing. Hence, all of the customer protection rules would still seem to apply. Specifically, section 25.481, relating to unauthorized charges, does apply."
6) Thigbe Members alleged, "With regards to all items included in the 'fixed cost'[,] the contract states in Schedule B, paragraphs 5, 6 and 7 ... that ancillary services are clearly included as fixed. The clear and implied meaning of including items in this section of the contract is that the pricing should not change, absent, as provided for elsewhere in the agreement, for reasons beyond the reasonable control of MES (force majeure, change in law, etc). It is incredulous at least, and deceptive or fraudulent at worst, to claim a price is fixed in the contract while having every intention of charging the customer a different price if you so desire."
Thigbe Members alleged that MES has cited the following contractual provision as allowing the pass-through, "Any future changes in the business practice or business protocols of the Delivery Company, RTO, or ISO,[sic] Ancillary charges or applicable Delivery charges or transmission tariffs that affect the items included in the applicable Fixed Price and/or Variable Price, as defined in this Schedule B, may be incorporated herein as a separate adjustment as of the effective date on which the change occurs or thereafter"
The Thigbe Members alleged, "The Thigbe Members have a very different interpretation of this paragraph given its context in the rest of the agreement and its construction in this paragraph. Our understanding, based on conversations with MES sales personell [sic], was that the listing of 'Ancillary charges or applicable delivery charges or transmission tariffs that affect the items.... ' were examples of the items that could be changed by 'Any future changes in the business practice or business protocols of the Delivery Company, RTO or ISO' from earlier in the sentence. This is how the paragraph was explained to Thigbe when we were negotiating the deal, making it essentially similar to, but slightly different from, a change in law. According to that interpretation we have asked MES what changes in 'business practice or business protocols' they believe justify passing through these additional costs and they have yet to respond with any justification other than repeatedly referencing this contract language."
8) The Thigbe Members alleged, "It is Thigbe Members' contention that there has been no change in law or change in protocol or business practice that would allow MES to pass through any additional costs."
9) The Thigbe Members alleged, "Thigbe Members' clear understanding of the contract was again expressed in Thigbe's awarding of the supply contract to MES in which we stated that: 'Mid-American is winner for the three year term (all contracts ending 4/2022) for the 90 accounts at $0.04583/kwh based on the assumption that this is an all in fixed price for the term for the various start dates and the price is to the LZ with unlimited swing. Please confirm.'"
The Thigbe Members alleged, "Mid American, if they believed this statement to be incorrect, made no indication of that in their acceptance of the contract award thereby calling into question again, whether or not there was an intention on MES's part to defraud Thigbe Members."

The Thigbe Members sought all appropriate relief within the PUC's jurisdiction for the matters alleged above. Thigbe Members specifically requested that Commission require MES and its employees and agents to remove any charges beyond the agreed to fixed prices from the winter event from customer accounts.

Docket 52221

Lawsuit

Citing the winter weather event in ERCOT, Plaintiff alleged that, "MidAmerican passed on additional ancillary and ERCOT-assessed charges directly onto customers with fixed price plans, resulting in grossly high electricity bills. MidAmerican minimized its own exposure to the Texas power grid's price spikes during the winter storm and took advantage of customers at a vulnerable time, as they experienced power outages and other hardships during the winter storm."

Plaintiff alleged that, "Nearly two months after the winter storm, J&M Plastics received a statement from MidAmerican that included several new and unusual line-items. The line-items, 'Supplemental Ancillary Services' dated the week of the winter storm, totaled $53,661.78. The charges for Supplemental Ancillary Services alone were nearly 3 times more than the amount of J&M Plastics' typical total monthly bill."

Plaintiff alleged that, in the initial billing of the charges, "MidAmerican neither defined Supplemental Ancillary Services in the Agreement nor provided any explanation of the additional charges."

Plaintiff alleged that its fixed price Agreement with MidAmerican, "specifies that not only will the Fixed Price 'be applied to all usage within the respective Pricing Period' but also: 'The Fixed Price and/or the variable Price Adder includes costs associated with line loss based on applicable transmission and delivery tariff loss factors, renewable compliance costs, all charges assessed by ERCOT, in addition to congestion (including local, inter-zonal and HUB-to-zone congestion charges) and Ancillary charges . . . . The term 'Ancillary' means wholesale electric services, capacity, Regulation Up Service Charges, Regulation Down Service Charges, Responsive Reserve Service Charges, Non-Spinning Reserve Service Charges, Reliability Unit Commitment Charges and other costs required to facilitate delivery of electricity to Customer's Delivery Points.'"

Plaintiff alleged that, in response to Plaintiff's request that the Supplemental Ancillary Services be removed from its bill, "MidAmerican replied with a boilerplate denial letter stating that the 'supplemental ancillary charges reflect additional ancillary costs assessed by . . . ERCOT[] for reliability functions performed during the February winter storm event.' MidAmerican cited a provision in the Agreement to allegedly justify the additional charges: 'Any future changes in the business practice or business protocols of the Delivery Company, RTO, or ISO; Ancillary charges or applicable Delivery charges or transmission tariffs that affect the items included in the applicable Fixed Price and/or Variable Price, as defined in this Schedule B, may be incorporated herein as a separate adjustment as of the effective date on which the change occurs or thereafter.'"

Plaintiff alleged that, "MidAmerican cannot now backtrack and attempt to justify a pass-through on ancillary and other costs when J&M Plastics and the proposed class agreed to a Fixed Price, inclusive of Ancillary and ERCOT-assessed charges."

Plaintiff alleged breach of contract

Plaintiff further alleged violations of the Texas Deceptive Trade Practices Act (DTPA)

Plaintiff alleged that, "DTPA §§ 17.46(b)(2), (5), (7), (9), and (12) prohibit MidAmerican 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, "MidAmerican deceived customers as to its services when it sold a Fixed Price plan to J&M Plastics but added Supplemental Ancillary Services to its April 2021 invoice. MidAmerican never disclosed the additional costs to customers."

Plaintiff alleged, "MidAmerican represented and led J&M Plastics to believe its Fixed Price plan consisted of an electricity offering that would meet its needs. The plan would be reliable, easy, and simple to understand, meet budgetary constraints, and offer a Fixed Price for electricity. MidAmerican, through its advertising and marketing, misled J&M Plastics and Class Members. MidAmerican passed-through additional Ancillary and ERCOT-assessed charges on top of charging a Fixed Price (clearly intended to be inclusive of such costs). MidAmerican charged customers excessive prices during and because of the winter storm that was not in keeping with its promise to customers."

Plaintiff alleged that 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 that, "To acquire customers, MidAmerican advertised and marketed its service plans as Fixed Price plans that would be a reliable, easy, simple to understand, and meet budgetary constraints. Had they understood MidAmerican's pricing scheme and the possibility of additional Ancillary and ERCOT-assessed charges, J&M Plastics and Class Members would not have agreed to MidAmerican's services guised as Fixed Price plans."

Plaintiff alleged that DTPA § 17.46(b)(27) disallows price gouging during a disaster. Plaintiff alleged that DTPA 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

Plaintiff alleged that, "MidAmerican price gouged customers when passing on additional Ancillary and ERCOT-assessed charges related to the winter storm to customers. J&M Plastics and Class Members did not anticipate such increases to their Fixed Rate plans. They relied on MidAmerican's electricity supply and their Fixed Price plans to their detriment, particularly amidst a disastrous winter storm."

Plaintiff further alleged negligent misrepresentation

Plaintiff alleged, "MidAmerican failed to disclose the extent of risk associated with its Fixed Price plans. If its plans could result in outrageous price spikes from month to month, MidAmerican should have disclosed the possibility of such outcomes to J&M Plastics and Class Members. MidAmerican did not exercise sufficient care or competence when communicating to customers. The lack of explanation as to the charges and additional information given to customers was wholly inadequate to ascertain the risks associated with its electricity services."

Plaintiff further alleged negligence, alleging, "MidAmerican has a duty to apply a level of care commensurate with the foreseeable harm arising from its control and management of its services. This encompasses a duty to ensure, especially during a disaster, electricity is not sold via MidAmerican at additional costs and excessive prices to J&M Plastics and Class Members."

Plaintiff alleged, "As the winter storm emerged in February 2021, it was foreseeable to MidAmerican and the energy sector that there would be electricity price spikes. MidAmerican has acknowledged and posted on its website that '[a]ncillary costs are market driven and can increase significantly during extreme weather events.'"

Plaintiff alleged, "MidAmerican had the ability and contractual right to prevent charging customers additional costs and excessive prices during the disaster. MidAmerican controlled its services and platform, oversaw pricing, and should have refrained from overcharging customers. MidAmerican did not exercise ordinary care and comply with existing standards of care when it charged customers additional Ancillary and ERCOT-assessed charges. It failed to properly detect and react to the electricity market volatility and price increases ... MidAmerican's negligence proximately caused damage to its customers. Had MidAmerican exercised reasonable care, J&M Plastics and Class Members would not have incurred additional, excessive charges for electricity purchased from MidAmerican. J&M Plastics and Class Members are entitled to actual damages, costs, and interest."

In addition to damages, Plaintiff sought an injunction enjoining MidAmerican from (1) any engagement in the unlawful conduct of charging customers additional costs and excessive prices during and because of the winter storm; (2) from billing and collecting payments from customers charged with additional costs and excessive prices during and because of the winter storm and ordering MidAmerican to fully forgive any late or non-payments associated with such bills, including removing any negative credit reporting and penalties, and to refund any payments already made on such bills; and (3) from disconnecting electricity services due to non-payment of a bill charging additional costs and excessive prices during and because of the winter storm.

Plaintiff said that MidAmerican supplies electricity to approximately 60,000 customers nationwide, including about 15,000 in Texas.

The lawsuit is J&M Plastics, Inc. v. MidAmerican Energy Services, Case No.2:21-cv-00206, filed in the U.S. District Court for the Eastern District of Texas.

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