Load Overpays PJM Generators due to Software Error, Overpayments Extend Beyond Re-billing Limit

PJM has been over-paying Balancing Operating Reserve Lost Opportunity Cost credits to generators for an extended period of time which extends beyond the two-year limit for adjusting billing statements, it reported to FERC.

Specifically, a software coding error resulted in over-payments of Balancing Operating Reserve Lost Opportunity Cost credits to generators.

PJM could not provide prior to publication time the amount of overpayments to generators that cannot be recovered due to the two-year limit on re-billing.

Steam-electric, combustion turbine, and combined cycle generating units are entitled to Balancing Operating Reserve Lost Opportunity Cost credits when they clear PJM's Day-ahead Energy Market, but in real time are not dispatched or are directed by the system operator to reduce output.

A coding error led the software in PJM's system to not use the higher of the generator's price offer or cost-based schedule, as the tariff requires, in calculating Balancing Operating Reserve Lost Opportunity Cost credits. Instead, the software used the price offer in settlement calculations, even in instances where the generator owner had submitted to PJM a cost-based schedule that was higher than its price offer for the relevant generating unit.

As a result, PJM subtracted a lower price offer, rather than a higher cost-based offer, from LMPs in computing the Balancing Operating Reserve Lost Opportunity Cost. This resulted in over-payments in "limited instances" when the units cleared in the Day-ahead Energy Market, but either did not run, or were directed to reduce output, in real time.

PJM reported that the coding error has caused such overpayments of Balancing Operating Reserve Lost Opportunity Cost credits for "several years."

PJM confirmed to Matters that the error, and resulting overpayments, extend back beyond two years. By tariff, PJM is limited to adjusting billing statements to correct errors for a period of up to two years prior to discovery of the error.

As such, overpayments beyond this two-year limit are "lost," and in this instance essentially provide a windfall to generation at the expense of load and load serving entities.

PJM will retroactively re-calculate and re-bill Balancing Operating Reserve Lost Opportunity Cost charges and credits beginning with transactions that cleared in October 2009, with one exception. PJM will re-calculate and re-bill Balancing Operating Reserve Lost Opportunity Cost charges and credits for Dominion Virginia Power dating back to August 2009, as PJM notified Dominion Virginia Power of the error when PJM first discovered the error in August, and thus can re-bill for a longer period.