People’s Counsel asks federal agency to reject NRG’s bid to force customers to pay for sunk coal plant investment
BALTIMORE – Federal regulators should deny an NRG subsidiary’s effort to recover from utility customers about $22 million per year in sunk costs for a power plant that is retiring, the Office of People’s Counsel said yesterday in a filing with the Federal Energy Regulatory Commission. NRG is asking for permission to recover the costs as part of an arrangement to keep Indian River Unit 4—a 410-megawatt coal plant on the Delmarva Peninsula—operating to maintain system reliability until transmission is built. NRG wrote off these costs for investors in 2013 and 2017.
“NRG wrote off the plant’s sunk costs and profited by participating in the competitive market for two decades,” OPC’s filing said. “It would be unreasonable and unfair for customers to now pay costs that investors long ago had written off.”
The proposal relates to a “reliability must run” arrangement between NRG and PJM Interconnection LLC, the regional power market and transmission operator. In 2021, NRG notified PJM that it intended to shut down Indian River Unit 4. After NRG gave its notice, PJM determined that the plant was necessary to avoid reliability violations until a transmission solution could be completed by the end of calendar year 2026. That determination permitted NRG to seek cost recovery outside of the competitive market. OPC and others challenged NRG’s initial cost recovery proposal, and FERC agreed that NRG had not shown its proposal was just and reasonable and set the issue for hearing, pending possible settlement.
NRG and some parties agreed to settle on an amount that would allow NRG to recover about $22 million per year of its sunk investment. OPC’s filing yesterday contests the settlement for allowing NRG to recover any of its sunk investments, which NRG had previously taken as a “loss impairment” under general accounting standards while Indian River 4 was selling into the competitive wholesale market. PJM’s “Independent Market Monitor”—which is responsible for monitoring, investigating, and reporting on PJM’s markets—also filed in opposition to the settlement, challenging NRG’s recovery of the sunk investment.
NRG’s proposed settlement incentivizes power plant owners to manufacture greater profits than they can earn in the competitive market through “reliability must run” arrangements, especially in transmission-constrained areas like the Delmarva peninsula, according to OPC’s filing. The settlement, as proposed by NRG, would cause customers to annually pay for the Indian River 4 plant at a rate more than three times recent wholesale market clearing prices for generation capacity on the Delmarva peninsula, the filing explains.
“NRG’s sunk investments should not be reincarnated as part of a reliability arrangement to provide a windfall for shareholders,” People’s Counsel David Lapp said. “It’s a loss for consumers and for the competitiveness of the regional market.”
The Maryland Office of People’s Counsel is an independent state agency that represents Maryland’s residential consumers of electric, natural gas, telecommunications, private water and certain transportation matters before the Public Service Commission, federal regulatory agencies and the courts.
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