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Edelson Lechtzin LLP Files Class Action Against Deceptive Energy Supply Companies

by | Aug 11, 2022 | Class Actions, Consumer Protection

Consumers have filed a class action lawsuit against NRG Energy, Inc. and its subsidiary Direct Energy Services, LLC in the U.S. District Court for the District of New Jersey. The lawsuit alleges that Direct Energy engages in “bait-and-switch” schemes by offering consumers low-cost, purportedly fixed “teaser rates” for energy consumption, which later change to higher-cost variable rates. The action was filed by Edelson Lechtzin LLP, a national class action law firm with offices in Pennsylvania and California. Here is a link to the Class Action Complaint filed in the case entitled Gant v. Direct Energy Services LLC, et al., Case No. 1:22-cv-04906 (D.N.J. Aug. 4, 2022).  

Background on Energy Deregulation

Prior to 1997, energy utility companies sold electricity and natural gas and delivered it through their infrastructure to individuals and businesses. Thus, consumers did not have a choice to buy energy from alternative suppliers. In 1997, seventeen states began to deregulate energy, which allowed independent energy supply companies (“ESCOs”) or Third-Party Suppliers (“TPSs”) to supply electricity and natural gas to homes and businesses at prices based on current market values. The goals of deregulation were increased competition within the industry, greater consumer choice, and reduced energy rates.

In a deregulated state, the utility company, or “LDC”, is not allowed to profit from buying or selling energy. Whatever the energy costs the utility company to produce or procure is what they may charge the customer. They can profit only from the delivery. They own the wires and pipelines the energy is sent through and get paid for the delivery of the energy no matter where it comes from. Of course, utilities still must cover operating expenses, such as rent, payroll, supplies, marketing, and overhead. Thus, local utilities cannot simply buy electricity and natural gas at the wholesale market rate and sell it to their customers at that same rate.   

How Do Energy Supply Companies (“ESCOs”) Make Money?

In contrast to local utility companies, ESCOs can profit from buying and selling energy to customers, because they are not subject to the same regulations as utility companies. So, deregulation enables energy customers to shop for electric and natural gas services by separating the supply and delivery portion of these services and opening up the supply portion to competition from ESCOs. This supposedly enables consumers to shop around for the best price on their energy suppliers and, in turn, save money on their energy bills.

In deregulated states, ESCOs may compete to supply energy services. Still, the local electric and natural gas companies continue to deliver power through their wires and pipelines regardless of which company supplies them. In addition, the local public utility may continue to supply metering, billing, and related administrative services to the consumer, regardless of who supplies the energy services. Thus, the public utility continues to generate and send periodic bills directly to the consumer for the energy it supplies, even after a consumer has enrolled in or “switched” to an ESCO. The fact that an ESCO is now providing the energy services for which the customer is being billed is noted on the bill, often in very fine print that is easily overlooked. The bill otherwise looks substantially the same as it did before the switch.

Are Energy Supply Companies (“ESCOs”) Regulated?

Yes. ESCOs are required to abide by the laws of the state in which they operate. For example, in New Jersey, an ESCO must abide by the N.J. Admin. Code § 14:4-7.1 et seq. (“The Marketing Regulation”)

The Marketing Regulation provides, in part, that “If a TPS does not offer a fixed price or guaranteed price electric generation service or gas supply service, the TPS shall describe in clear and conspicuous language the mechanism or formula by which the price is determined, and provide a detailed customer bill comparison[.]” N.J.A.C. § 14:4-7.4(b)(2).

The Pricing Regulation requires that “if a fixed pricing arrangement is not made” in the terms and conditions of a TPS contract, “a clear and unambiguous statement of the precise mechanism or formula by which the price will be determined” must be included. N.J.A.C. § 14:4-7.6(b)(2). This is typically not done as the TPS generally sets forth an ambiguous pricing mechanism.

Why is There a Class Action Lawsuit?

ESCOs have exploited the deregulation of the retail electricity and natural gas markets by luring consumers into switching electricity and natural gas suppliers using a bait-and-switch pricing scheme designed to deceive reasonable consumers. These companies entice customers into switching to their electricity supply services by offering, for a limited period of time, teaser rates that are initially lower than the local (or “public”) utilities’ market rates. Once the initial rate expires, however, ESCOs typically automatically switch their customers over to its more costly variable rate.  

Usually, these variable rates are substantially higher than the competing local utilities’ market rates and are invariably higher than the ESCO’s own initial teaser rates. Many ESCOs have already been sued over these deceptive practices. However, there are many companies that are suspected of engaging in these unfair tactics, including the following: 

  • U.S. Gas & Electric, Inc.
  • Ambit Northeast, LLC
  • Stream Energy Pennsylvania, LLC
  • Viridian Energy, LLC
  • Gateway Energy Services Corporation
  • Kiwi Energy NY, LLC
  • Verde Energy USA
  • Just Energy
  • Gateway Energy, LLC
  • PALMco Energy
  • Greenlight Energy

Think You’re Being Ripped Off?

If you believe that your ESCO has wrongfully charged you for electricity or natural gas, please contact us at 844-895-4899 or you can fill out the form on this page.