Blaming exceptionally high ancillary service costs in the PJM market, FirstEnergy Solutions will be adding a surcharge to the bills of some 2 million of its 2.7 million electric customers, including many customers on fixed-priced electric contracts – and it has those customers furious.

Even though PJM has a "capacity market" that is supposedly meant to assure enough power during extreme weather events, up to 40% of PJM generators were unexpectedly offline during times of the January polar vortex – forcing more expensive emergency generators to run. This caused total operating reserve costs in PJM to top $600 million in January 2014, versus just $122 million in January 2013 and $39 million in January 2012.

To recover these higher costs, FirstEnergy Solutions said it is charging these costs to those customers "whose contracts treat these additional charges from PJM as a 'pass-through event.' "

"The amount of this one-time charge – called the RTO Expense Surcharge – will appear on your May, June or July bill," FES said.

For an average residential customer, the charge will be approximately $5 to $15. The charge for small business customers will be approximately 1 to 3 percent of the total amount spent on generation annually.

How can customers on fixed electric rates be subject to these surcharges? Isn't the fixed rate supposed to protect the customer from such surprises and volatility?

The FES fixed-rate contracts generally include a broad "pass-through event" clause, which allows, in addition to the fixed electric rate, the pass-through of costs beyond just simple changes in law or regulation such as a new tax (narrow simple change in law provisions are a standard part of contracts).

However, while individual FES contracts can vary significantly by customer, a current residential contract on FES' website broadly defines a "pass-through event" as follows:

"In addition to the charges described above, if any RTO or similar entity, EDU [utility], 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 Service 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."

Not everyone agrees that higher ancillary service costs in PJM – which are not new charges, simply higher charges than expected – qualify for the pass-through event under FirstEnergy Solutions' contracts.

The Cleveland Plain Dealer reports that the Ohio Manufacturing Association "is questioning the charge ... and may challenge the FirstEnergy Solutions' assertion that it can pass the extra charges to its customers."

"The Public Utility Commission of Ohio is also investigating FirstEnergy's decision to add the surcharge to customer bills," the Plain Dealer reports.

The bottom line is that it's yet another reason electric customers need to be diligent in choosing an energy provider and reviewing their terms and conditions.

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