FirstEnergy Solutions Reaches Settlement On Polar Vortex Pass-Through Claims

November 22, 2019

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Reporting by Paul Ring • ring@energychoicematters.com

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FirstEnergy Solutions has reached a settlement with a certain class concerning breach of contract claims arising from charges imposed after the polar vortex, and would establish a settlement fund valued at $12 million

Under the proposed Settlement filed with a bankruptcy court, in exchange for the release of the Class Members’ breach of contract claims, the Class will receive an allowed claim in the amount of $12,000,000 (the 'Allowed Claim'), with the distributions thereon to be paid, in the form of New Common Stock, into a Settlement Fund pursuant to the terms of the Stipulation and the provisions of Eighth Amended Joint Plan of Reorganization (the 'Plan').

After the settlement consideration is deposited into the Settlement Fund and converted into cash, the resulting cash (after deductions for Class Counsel’s attorneys’ fees and expenses, and for costs of notice and administration, as approved by the Court) will be distributed to Class Members pursuant to a Plan of Allocation.

The amount of the resulting Allowed Claim -- $12 million -- would represent roughly 54.5% of the maximum amount ($22.054 million) of damages that the Class could have established had it prevailed on all issues in this matter.

According to a court filing, based on the best available information, there are 36,345 putative Class Members who have been identified from FES’s records, and who are all similarly situated as they had common form contracts that FES allegedly breached in the same way when FES invoiced them for the Polar Vortex Surcharges at issue.

The claims arise under FES's billing after the 2014 polar vortex

A court filing describes the matter as follows, "In January 2014, FES’s service region experienced unusually cold 'Polar Vortex' weather conditions. As a result, PJM Interconnection LLC ('PJM'), the regional transmission organization ('RTO') that coordinates the supply of electricity on a wholesale basis within FES’s service region, purchased additional electricity generation capacity. PJM billed the costs of those purchases to 'retail' energy companies (such as FES), which supply electricity to actual end-users. FES, in turn, 'passed through' much of its share of the PJM charges to FES’s large or mid-sized industrial and commercial customers (the Class Members)."

Complainants allege that, by 'passing through' these PJM charges to the Class Members, FES breached the terms of the substantially similar form contracts that FES had with each Class Member. In particular, complainants allege that these contracts allowed FES to 'pass through' surcharges imposed by an RTO (such as PJM) only if they were due to an RTO imposing either 'new' charges or a new 'method or procedure for determining charges.' Complainants further allege that the PJM surcharges that FES 'passed through' to the Class Members were neither 'new' nor the result of a changed 'method or procedure for determining charges' – but instead simply reflected charges for customary RTO services that simply happened to be more expensive than had been expected due to unusually cold weather.

FES disputed the allegations from complainants and would have raised various defenses as part of litigation

The 'Settlement Class' includes, for the purposes of the Settlement only, a class consisting of all current or former Large and Mid-Sized Commercial or Industrial Business Customers of FES that (a) had one or more accounts with FES that were invoiced, by or on behalf of FES, for Polar Vortex Surcharges in 2014; and (b) paid all or a portion of such Polar Vortex Surcharges. Excluded from the Settlement Class is any Settlement Class Member that has settled or released any claims against the Debtors relating to its payment of all or any portion of its Polar Vortex Surcharges.

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