By Steve Daniels March 25, 2014
Residents of Rockford and 97 other municipalities in northern Illinois will be charged extra on their electric bills to cover unexpected costs incurred during the polar vortex by their supplier, FirstEnergy Solutions.
Akron, Ohio-based FirstEnergy has contracts to supply electricity to about 180 villages and cities in Commonwealth Edison Co.’s service territory. It is by far the largest area supplier to seek to pass through the financial pain tied to the unusually harsh cold snap in January, when energy costs briefly spiked. Rockford is the state’s third-largest city, after Chicago and Aurora.
A FirstEnergy spokeswoman said the surcharge will affect 220,000 of its 670,000 Illinois customers.
The company confirmed that it will impose a one-time charge of between $5 and $15 on customer bills in June to recover a portion of its power-purchasing costs made through PJM Interconnection LLC’s regional grid, which serves 61 million people in all or part of 13 states from northern Illinois to the Mid-Atlantic, as well as Washington. In January, PJM — which acts as a market referee for power generators — lifted caps on the price natural gas-fired power plant operators could charge as the cost of gas soared due to record demand, and electricity consumption likewise spiked.
Suppliers like FirstEnergy, as well as utilities, which distribute electricity to users, had to bear those costs, which totaled about $500 million. Some are choosing to pass them along to retail customers.
FirstEnergy is taking advantage of provisions in contracts with municipalities that it says permit it to pass along such surprise costs. The extra charges illustrate how “fixed-rate” deals municipalities negotiated in recent years on behalf of their residents to provide savings versus ComEd rates are only as fixed as the fine print allows.
“We thought it was necessary to pass through these costs to customers where contracts allow,” FirstEnergy spokeswoman Diane Francis said.
As to the $5 to $15 per customer, she said, “We consider that pretty nominal.”
Many pacts allow suppliers to change pricing or pass through costs caused by “regulatory events.” Last month, Oakbrook Terrace-based Nordic Energy Services LLC notified officials in west suburban Hinsdale that it intended to recover the same costs FirstEnergy is now seeking. There’s been no word yet on how much Nordic might try to charge.
Not all major local suppliers are following suit, however. Constellation, owned by Chicago-based nuclear giant Exelon Corp., and Chicago-based Integrys Energy Services, which provides electricity to the city of Chicago, both said they don’t intend to pass along PJM-imposed costs tied to the harsh weather.
Ms. Francis declined to say how much in unanticipated vortex-related costs FirstEnergy Solutions must pay, saying that figure was confidential. FirstEnergy will know next month precisely how much the surcharge will be, she said.
WHICH TOWNS WILL BE CHARGED?
She declined to identify the 97 communities other than Rockford whose residents and small businesses will see the charges. She said FirstEnergy is in the process of notifying them.
Aurora, also a FirstEnergy customer, isn’t getting the charge, according to the company.
One consultant, who negotiated deals with FirstEnergy on behalf of 80 Chicago suburbs, including suburbs like Tinley Park, Flossmoor and Hoffman Estates, said FirstEnergy has assured him that only one of his clients will see the surcharges thanks to how the contracts were worded. He declined to identify which one.
“I’m pleased that 95 percent of my communities were sheltered from this,” said David Hoover, executive director of Prospect Heights-based NIMEC, which advises municipalities on electricity deals.
Another municipal consultant, former Illinois Power Agency Director Mark Pruitt, has two clients served by FirstEnergy, south suburban Orland Hills and west suburban La Grange.
He said FirstEnergy hadn’t yet contacted him about the surcharge. When it does, he said, he’ll demand an accounting from the company on how it determined the amount.
“This is part of being in the utility business,” Mr. Pruitt said. “This is why the municipalities are there. They’re in a position to demand an explanation and an accounting. That’s one of the benefits of municipal contracting.”