NRG claims Duquesne Light's rider is not 'just and reasonable'

One electricity company claims it has overpaid two small hydroelectric generator firms more than $2.5 million over a five-year period because of what it calls an unjust tariff imposed by Duquesne Light.

Now, NRG Energy Inc. is trying to eliminate a rider in Duquesne Light’s tariff that has existed for 33 years.

The complaint forced Pennsylvania’s Public Utility Commission to separate "Rider No. 18" from Duquesne Light’s recent rate plan increase, which the state commission approved late last month.

Rider No. 18 in Duquesne Light’s tariff sets rates for the purchase of electricity from customer-owned renewable energy generators. Under the rider, companies must pay 6 cents per kilowatt-hour purchased from qualifying small electricity generators.

But since the rider was first introduced in 1981, Pennsylvania’s marketplace has changed. No longer are utilities such as Duquesne Light the sole suppliers of electricity. Deregulation has allowed dozens of companies, including Newark, N.J.-based NRG Energy, to buy power and sell it to consumers in a competitive marketplace.

While the nature of the marketplace has changed, so, too, have prices.

The average annual locational marginal price between 2009 and 2013, as set by grid operator PJM, ranged from 3.15 cents per kilowatt-hour to 3.89 cents per kilowatt-hour.

In testimony submitted to the PUC in November, Judith Lagano, vice president of NRG Power Midwest GP LLC, a subsidiary of NRG Energy, said the 6 cent per kilowatt-hour price is “no longer just and reasonable.”

“The 6 cents-per-kilowatt price has remained stagnant for the past 32 years and was set during the time of a pre-restructured market,” Ms. Lagano said. “Further, NRG Midwest is not aware that Duquesne Light has ever undertaken to analyze or otherwise consider whether such an update is appropriate.”

NRG Energy asked that Duquesne Light restructure rates set forth in Rider No. 18 or eliminate it entirely.

As part of a 2012 merger with GenOn Energy Inc., NRG Energy assumed control of a purchase agreement with two small hydroelectric plants in Duquesne Light’s territory. As part of a qualifying facility agency agreement, first signed by GenOn Energy in 2001 and amended in 2005, NRG Energy now acts as a purchasing agent for Duquesne Light for those two hydroelectric plants.

Between 2008 and 2012, NRG Energy said average annual electricity output at those facilities has been about 21,350 megawatt-hours, and the company has paid those generators an average of $1.2 million per year.

“NRG Midwest believes that it is over-paying for the cost of electricity under the [power purchase agreements] by approximately double a just and reasonable energy price,” Ms. Lagano said.

She added that Rider No. 18 may violate Pennsylvania law because the price might “present an indirect form of rate discrimination benefiting certain customer-generators at the expense of electric generation market participants.”

An NRG spokeswoman said the dispute was “pretty obscure and procedural” and likely “would have very little, if any, impact on price” that customers see in their bills.

Duquesne Light officials declined to be interviewed for this story.

“Our policy is to not comment on matters pending before the PUC,” Duquesne Light spokesman Brian Knavish said.

But in a motion filed to the PUC in December seeking to sever Rider No. 18 from Duquesne Light’s rate increase proposal, David B. MacGregor, an attorney for Philadelphia-based Post & Schell, P.C., representing Duquesne Light, said NRG’s arguments are “novel and complex” and worthy of further consideration.

“By severing the Rider No. 18 portion of the NRG Companies’ Complaint, all interested and necessary parties will be able to avoid the time constraints of a base rate case and, as a result, have the opportunity to fully and adequately examine the issues and develop their respective positions,” Mr. MacGregor wrote.

There is no timetable for resolution, though NRG Energy unsuccessfully petitioned the PUC to address the matter at its June meeting. 

Michael Sanserino:, 412-263-1969 and Twitter @msanserino.

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