Retail Supplier Likens Increased Use of "Pass-Throughs" in Customer Contracts to Airline Baggage Fees; Notes Looming $15/MWh Spike for N.Y. Customers Due to New Capacity Zone

ConEdison Solutions has issued a white paper examining the increasing use of pass-throughs in retail electric contracts for a host of components, including capacity, NITS, and Reliability Must-Run contracts, likening the increased reliance on pass-throughs to the "baggage fees" deplored by air travelers everywhere.

"The electricity equivalents of baggage fees and fuel assessments have started showing up on more and more customer bills," ConEdison Solutions said in a white paper authored by Rich Rathvon, Vice President of Retail Commodity Services for the supplier.

ConEdison Solutions listed typical pass-throughs as including the capacity obligation (both changes in capacity price and the customer's capacity tag), new capacity load zones, Network Integration Transmission Service (NITS), charges allocated to load for Reliability Must-Run contracts, and RPS.

However, other suppliers invoke pass-through clauses more broadly, and include any adverse change resulting from government or regulatory action or tariff modifications, ConEdison Solutions said.

Notably, ConEdison Solutions said that the FERC-approved Lower Hudson Valley new local capacity zone in the New York ISO could lead to an incremental pass-through of up to $15/MWh for customers, depending on load factor and current zone. The Lower Hudson Valley capacity zone is scheduled to be implemented in May 1, 2014; however, as reported in our related story today (click here), the New York ISO has now asked to phase-in implementation due to potential "rate shock."

ConEdison Solutions' discussion regarding Reliability Must-Run contracts is also illuminating, since customers are ostensibly already paying for "reliability" under PJM's mandated reserve margin and capacity market, and paying plants additional revenues through RMR contracts essentially charges the customer twice for the same product -- reliability.

ConEdison Solutions noted that there have recently been numerous planned retirements denied in PJM for reliability reasons, "especially in the PSEG market in New Jersey in the last six months, with many more plants likely to be reviewed over the next several years."

"RMR charges are being passed through by many suppliers in express contractual provisions or through Change in Law or Material Change clauses. Such charges can range from $0.50 to $3 per MWh in the PJM market and are a cause for concern for both customers and suppliers," ConEdison Solutions said

Link to ConEdison Solutions white paper