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Union Seeks Declaratory Order from Pa. PUC Finding FirstEnergy Solutions May Not Pass-On Higher Ancillary Costs to Fixed Price Customers
The Utility Workers Union of America sought a declaratory order from the Pennsylvania PUC finding that FirstEnergy Solutions' fixed price contract language does not permit FES to increase its bills to residential customers because of higher ancillary service costs.
UWUA has more than 7,700 members and retirees in the Commonwealth of Pennsylvania, many of whom, including several named petitioners, are customers of FES under "fixed price" contracts that were entered into prior to November 2013. On information and belief, UWUA believes that there are approximately 400,000 residential customers in Pennsylvania who purchase "fixed price" generation supply service from FES.
UWUA specifically sought a ruling from the PUC concerning the meaning of the provision in the FES "fixed price" contract that states that FES can increase its bills to residential customers if PJM, "imposes on FES new or additional charges or requirements" (as more fully quoted in context below)
ADVERTISEMENT The increased costs PJM billed to FES in January are, according to FES, related to ancillary services, UWUA said.
"[I]t does not appear that FES is claiming that any of these charges are 'new' or that any additional 'requirements' were imposed on FES," UWUA said.
"It appears that the higher costs from PJM to FES were for synchronized reserve. Importantly, though, FES (as a load-serving entity) is not required to purchase such services from PJM. Specifically, PJM states: 'Load-serving entities can meet their obligation to provide synchronized reserve to the grid by using their own generation, by purchasing it under contract with another party or by buying it on the Synchronized Reserve Market,'" UWUA said.
"In other words, PJM did not 'impose' a new requirement or charge on FES. PJM has for many years had a requirement for load-serving entities to provide spinning reserve, which is an essential service to maintain the stability of the grid. FES apparently made a business decision to not own or contract for enough generation to meet its reserve obligation. Consequently, FES ended up purchasing spinning reserves from PJM's Synchronized Reserve Market. This was not a new or additional requirement or charge 'imposed' on FES by PJM. Indeed, the cost was not 'imposed' at all: FES made a business decision to purchase the required reserves from PJM rather than providing those reserves itself or through a contract with a private party. That is, the cost was borne by FES due to its failure to meet its existing obligation through owned or contracted-for resources. Nothing new or different was 'imposed' on FES by PJM or anyone else," UWUA said.
UWUA said that there were two ways of interpreting the language that FES may pass-through costs when PJM, "imposes on FES new or additional charges or requirements."
The first interpretation, which UWUA said is unreasonable, would allow FES to increase the bills of customers any time any charge from PJM to FES is higher than FES anticipated when it entered into a contract to provide service at a "fixed price."
"Under this reading, any increase in an existing charge would be passed on to customers," UWUA said. "This would be true, under this reading, even if FES had the ability to completely avoid the charge by owning generation or contracting for generation from a private (non-PJM) party."
"If the first interpretation were accurate, then customers would not be agreeing to a fixed price at all. FES would have unfettered discretion to change the rates charged to customers each month, as charges from PJM and others varied from FES's expectation at the time the contract was entered into. Moreover, such an interpretation would effectively relieve FES of any business need to own or contract for generation resources to meet PJM's existing requirements, including the spinning reserve requirement. With due respect, that cannot possibly be the meaning of the agreement. First, the agreement does not place customers on notice of what the then-current level of such charges are from PJM. In fact, the agreement does not even identify the charges. It also does not provide for any mechanism by which FES must demonstrate that the actual charge is different from the level FES expected," UWUA said.
The second interpretation, and the correct one according to UWUA, would be that FES can increase the bills of customers only if a new or additional requirement or type of charge is imposed on FES by PJM.
"That is, the agreement states that the fixed price service is for those requirements (and associated charges) that currently are imposed on FES by PJM. But if new requirements are imposed after the agreement goes into effect, then FES can recover those costs from customers," UWUA said.
UWUA said that FES's standard residential disclosure statement in effect for "fixed price" contracts entered into prior to November 2013, including the contracts between each of the individual residential petitioners and FES, contains the following provision:
"2. Basic Service Prices. During the initial term of this Agreement, you agree to pay FES a fixed price of [rate] cents per kilowatt-hour for a total combined Transmission, Generation and Generation Related Charges ('Retail Electric Supply').
"In addition to FES' charges, you will be charged by your EDC for distribution and various other charges. FES' price includes gross receipts tax but not applicable Pennsylvania sales tax, including any and all local tax. Your Price to Compare consists of bypassable transmission, generation and transmission and generation related components, which are charges associated with the costs of purchased power and the cost to deliver the power through the transmission system. These are the charges you would avoid for that billing period when you switch to FES.
"In addition to the charges described above, if any regional transmission organization or similar entity, EDC, governmental entity or agency, North American Electric Reliability Corporation or other industry reliability organization, or court requires a change to the terms of the Agreement. or imposes upon FES new or additional charges or requirements, or a change in the method or procedure for determining charges or requirements. relating to your Retail Electric Supply under this Agreement (any of the foregoing, a 'Pass-Through Event'), which are not otherwise reimbursed to FES, Customer agrees that FES may pass through any additional cost of such Pass-Through Event, which may be variable, to Customer. Changes may include, without limitation, transmission or capacity requirements, new or modified charges or shopping credits, and other changes to retail electric customer access programs. If the Agreement is terminated, you can return to your EDC or select another EGS."
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April 9, 2014
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Copyright 2010-13 EnergyChoiceMatters.com
Reporting by Paul Ring • ring@energychoicematters.com
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