Duke seeks recovery for high natgas costs on cold winter day

Mon May 5, 2014 2:32pm EDT

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May 5 (Reuters) - Duke Energy Corp, the biggest U.S. power company, filed a complaint on Monday with federal energy regulators seeking recovery from its power grid operator of monies spent to buy natural gas for a power plant on a brutally cold day this winter.

This could be the first of many complaints filed by U.S. generators seeking recovery for fuel bought at extremely high cost to run power plants to meet grid operator demands to ensure there was enough generation was available to keep the lights on during some of the coldest days of the winter.

On Jan. 27, officials at PJM, the power grid operator for the U.S. Mid Atlantic and Midwest regions, told Duke to buy gas to fuel the company's 568-megawatt Lee power plant in Illinois for the next day, Duke said in its complaint.

PJM expected extremely cold conditions on Jan. 28 and high demand for power that could require load shedding and the possible loss of customer service due to projected low reserves needed to cover unexpected plant or transmission line outages, Duke said.

PJM was not the only power grid operator that ordered generators to buy fuel at extremely high prices for power plants during this past cold winter. New York's grid operator did the same thing and has also been dealing with some complaints from its members since.

Most generators do not buy gas to fuel their power plants under long-term contracts. Instead, they wait to buy the fuel until a day or so before planning to run the unit, basing their decision on whether they can make money buying the fuel for the plant and selling the power produced.

Duke said the economics of paying an "extraordinarily high" price to buy gas to run the Lee combustion turbines on Jan. 28 without a guarantee from PJM that the facility would actually run "simply made no sense."

"It would be a money-losing proposition," Duke said.

PJM, however, ordered Duke and other generators to buy the gas in case the plants were needed to run for reliability reasons.

Duke said it paid about $12.5 million to buy the gas, but noted PJM did not call on the Lee plant to run that day.

Duke said it was able to recoup about $2.6 million of its gas purchase costs through various mitigation efforts, leaving the company with unrecovered gas costs of about $9.8 million.

Duke said the PJM tariff, the rules governing the PJM grid, provides for compensation for the company's loss but PJM has declined the requests.

PJM spokesman Ray Dotter, however, told Reuters the grid operator has no authority under its tariff to compensate market sellers for their unrecovered gas costs.

"If the market seller believes their gas costs should be recovered, they have to file with FERC to receive a waiver of the tariff," Dotter said. (Reporting by Scott DiSavino; Editing by Bernard Orr)

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