‘Passing through’ the polar vortex?
By Daniel Moore
But for a diverse group of 14 large commercial and industrial customers — including the likes of the University of Pittsburgh, Pittsburgh Glass Works, Indiana Regional Medical Center and Sheetz Corp. — the real fight has just begun.
While much of the rancor following the polar vortex involved customers who were not aware that their variable rate contracts could rise and fall so dramatically with energy prices, this case is different. The customers, who were all on fixed-rate plans from FirstEnergy Solutions Corp., claim the electric retail supplier deceptively billed them a fee to compensate for “extremely high ancillary services costs” during a cold stretch in January 2014.
The supplier, the retail subsidiary of Akron, Ohio-based FirstEnergy Corp., characterized of the polar vortex as a “pass-through event,” a legal justification that suppliers and utilities can use to add surcharges to fixed price contracts to pay for certain unexpected costs, typically associated with an unforeseen change in law or regulation.
With the fee, FirstEnergy included unprecedented weather conditions under that umbrella. During the cold weather, the regional grid operator was forced to purchase reserve electric generation and invoiced that purchase to all retail suppliers.
But lawyers for the customer group argued that a sharp rise in energy prices simply represents market forces at work — a risk that, in fixed price contracts, should fall upon the electric retailer and not the customers who often pay more for the certainty of a stable rate.
“That’s sort of why customers enter into a fixed price contract,” said Charis Mincavage, an attorney with McNees Wallace & Nurick in Harrisburg. “You’re paying that premium to ensure that if the prices go up and down, you’re protected by it.”
Between January and March 2014, the average total price of wholesale power per megawatt-hour was $112.62, up 123 percent from $50.49 during that same time period in 2013, according to PJM Interconnection, the Valley Forge-based regional grid operator that manages the flow of electricity through Pennsylvania and surrounding states.
Ms. Mincavage noted that while the costs increased year-over-year, the list of 20 individual charges billed to FirstEnergy Solutions remained identical. PJM did not impose an additional line-item charge from 2013 to 2014; it simply increased the billed amount for existing charges.
Diane Francis, spokeswoman for FirstEnergy Solutions, called the fixed-rate contract “more of a shared risk” between the supplier and customer. FirstEnergy Solutions offered customers a lower fixed rate than other competitive suppliers, she said, so it could include a “pass-through” clause.
“Other suppliers were including that risk premium in that price, so actually [our] customers received a lower price,” Ms. Francis said. “This unprecedented event occurred, and we had to pass it through. But customers paid this charge to other suppliers” within a higher fixed rate.
“The vast majority of customers who did receive this charge did pay,” she added.Read more