Yesterday, TXU Energy filed a lawsuit against Duncanville Independent School District, and the lawsuit has generated a number of questions and media interest. Because the subject matter can be complex, some context and background may be helpful to understand the issue.
TXU Energy has been engaged in an ongoing dispute with Duncanville ISD since 2012, centered on an item in the contract called a “swing charge.” The dispute later expanded to include a liquidation claim after the district switched providers before the contract with TXU Energy had expired.
TXU Energy is a strong advocate for energy efficiency and has a number of programs to help customers use less electricity. However, “swing” represents a significant risk to retail electricity providers because consumption that is significantly above or below the contracted level requires a provider, like TXU Energy in this instance, to purchase additional electricity or sell excess electricity on the spot market. Large and commercial businesses often choose contracts that include swing charges because they can help secure lower overall rates. In fact, swing charges have been a component in every contract between Duncanville ISD and TXU Energy since 2007.
With respect to Duncanville ISD, TXU Energy acquired the electricity necessary to meet its full contractual obligations to the district. The district breached its agreements by not paying swing charges for consumption outside of agreed levels; by terminating the contract early; and by switching to another provider before the end of its contract.
TXU Energy’s official statement about its dispute with Duncanville ISD is as follows:
This is an unfortunate situation that we tried to prevent. Ultimately, the district decided not to pay charges that it had previously agreed to, and has walked away from its contract with us. That has caused substantial harm to our company. We strive to honor our commitments, and we expect all of our customers to do the same.
It is important to note that electricity consumption that is significantly above or below contracted amounts represents a significant risk for retail electricity providers. That is why swing bands are regularly agreed upon and included in the contracts between large commercial and industrial customers and retail electricity providers.
Duncanville ISD specifically chose a plan with swing bands because it offered them a lower overall rate. In fact, swing charges have been included in every contract the district has signed with TXU Energy since 2007. The district did not dispute that part of the contract until 2012. We hope the district will realize its mistake and will not add to the cost of that by forcing this lawsuit to proceed through the court system.