The Cost of Reliability – Coming Next Month

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Energy policy in Ohio right now has more drama than a Spanish soap opera. Legal maneuvers by AEP Ohio and FirstEnergy regarding their guaranteed profit proposals coupled with the surprise resignations of both the PUCO Chairman and AEP Ohio President, not to mention the recent involvement by the Federal Energy Regulatory Commission, is bending the minds of even the most seasoned energy professional.  While this soap opera is providing little in the way of energy price certainty for consumers in Ohio, there is one new charge certainly coming for nearly all Ohio customers who shop for electricity supply. This charge will start with your June 2016 consumption and is in response to the polar vortex of 2014.

As you may recall, the extreme winter of 2014 tested the reliability of electric grid as demand increased by 25% and power plants unexpectedly dropped out of service by 22%. The lights stayed on but it became a dicey situation with short term electricity prices spiking to 10 times normal costs.

In response to this event, PJM, the transmission grid operator for Ohio, created new standards to improve the performance of power plants during extreme grid conditions. These new standards will be implemented June 1 and come at a cost to consumers. The cost structure for this reliability comes in the form of an increase to your existing capacity costs.  Capacity costs, which are charged by your supplier, are set through PJM auctions held three years in advance of the delivery year. Due to the change in performance standards, the original auction prices for the periods June 1, 2016 – May 31, 2018 were increased by as much as 66% in some parts of Ohio.

Standard in supplier contracts is a provision that allows them to pass through costs should a regulation or law change that impacts their costs to serve you. This capacity rule change by PJM falls into this category for those customers who contracted before the final increases were announced on September 9th, 2015. Any supply contract executed after this date should have the higher costs factored into the price.

Your pending cost increase depends on your metered load during the five highest peak hours for PJM last summer. Your supplier will calculate the impact based on the peak hours specific to your facility. Most customers will fall into the range of a $0.002 to $0.005 per kWh increase.  This increase will last until the earlier of May 31, 2018 or your contract end date.

If you would like to validate the accuracy of this increase from your supplier please reach out to the OMA and we can run through your specific calculations.