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FERC Approves $8 Million Settlement With Power Marketer

April 26, 2018

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Copyright 2010-17 EnergyChoiceMatters.com
Reporting by Paul Ring • ring@energychoicematters.com

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FERC has approved a Stipulation and Consent Agreement (Agreement) between its Office of Enforcement (Enforcement) and PSEG Energy Resources & Trade, LLC (PSEG ERT) to resolve an investigation into whether PSEG ERT violated sections 1.2 and 6.4.2(a)(ii) of Schedule 1 of the PJM Operating Agreement (Operating Agreement) and Attachment K – Appendix of the PJM Open Access Transmission Tariff (PJM Tariff), and the Market Behavior Rule, 18 C.F.R. § 35.41(a) (2017), when, as stated in FERC's order, "it submitted incorrect cost-based offers into the PJM energy market between 2005 and 2014 (Applicable Period)."

According to FERC's order, "PSEG [ERT] admits to the facts set forth in the Agreement, but neither admits nor denies the violations."

Under the adopted settlement, PSEG ERT agreed to pay a civil penalty of $8,000,000, to pay PJM disgorgement of $26,905,736, plus $4,494,264 interest, and to submit annual reports designed to ensure compliance with applicable Commission regulations and jurisdictional tariffs

According to FERC's order, "Enforcement initiated a non-public preliminary investigation following PSEG [ERT]’s April 2014 self-report of inaccuracies in its cost-based offers for some of its fossil units related to the inclusion of incorrect environmental adders for the prior two years. PSEG [ERT] subsequently submitted a comprehensive written self-report and supplemental self-report providing the results of PSEG [ERT]’s internal investigation, which had identified additional errors in other cost-based offer components going as far back as 2005. In addition to responding to Enforcement’s data requests, PSEG [ERT] provided extensive data, conducted extensive data analyses regarding the cost-based offers, and demonstrated exemplary cooperation during the investigation."

As stated in FERC's order, "PSEG [ERT]’s cost-based offers included multiple types of errors: (1) inclusion of CO2 adders in its cost-based offers after the State of New Jersey withdrew from the Regional Greenhouse Gas Initiative; (2) inclusion of seasonal NOx adders in offers outside the NOx compliance season; (3) incorrect amounts of fuel required to maintain minimum operations for the Bergen 2 unit; and (4) inaccurate performance factor data, which affected the heat rate or fuel burned per unit of output, for some of its units. In addition, PSEG [ERT] did not regularly update emission allowance prices and ozone fees and did not update emission rates such as after the installation of back-end technology for environmental compliance. PSEG [ERT] also made errors in its variable operations and maintenance and other fuel-related cost components. Collectively, these errors resulted in over-statements and under-statements of the costs included in PSEG [ERT]’s cost-based offers."

As stated in FERC's order, "Following the self-report, PSEG [ERT] took a number of steps to improve its compliance program including, but not limited to: (1) PSEG [ERT] adopted new procedures requiring that daily offers be double-checked as to accuracy with a sign-off procedure; (2) PSEG [ERT] revised its fuel policy to more clearly articulate the calculation of cost-based offers in accordance with PJM’s rules; (3) PSEG [ERT]’s Enterprise Risk Management department now verifies calculations and confirms source data is updated and the fossil units have new procedures to verify the accuracy of the source data for the cost-based offers; (4) PSEG [ERT] added resources to its Internal Audit department dedicated to independent oversight of PSEG [ERT]’s improved processes; (5) PSEG [ERT] retained an independent audit company to develop a compliance matrix of all PJM requirements applicable to PSEG [ERT]’s trading operations and to assist in developing additional procedures to ensure compliance with these requirements; (6) acting on the recommendation of a different independent auditor, PSEG [ERT] enhanced its enterprise-wide compliance program; and (7) PSEG [ERT] made personnel changes in the trading and asset optimization groups to impose additional accountability and focus attention on compliance issues."

FERC's Enforcement Staff alleged that PSEG ERT submitted cost-based offers for some of its fossil units in the PJM energy market that contained impermissible and/or erroneous cost components and overcharged the market above the incremental cost + 10% offer cap in some hours, in violation of §§ 1.2 and 6.4.2(a)(ii) of the PJM Operating Agreement and PJM Tariff.

FERC's Enforcement Staff alleged that PSEG ERT violated section 35.41(b) of the Commission’s regulations because its cost-based offers into the PJM energy market did not accurately represent the cost-basis for these offers, in violation of the obligation to submit offers that reflect a unit’s incremental costs under §§ 1.2 and 6.4.2(a)(ii) of the PJM Operating Agreement and Tariff.

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