FERC Declines to Expand Case to Include Allocation of $100 Million in Overpayments by PJM Load

FERC has ordered hearing and settlement judge procedures regarding an error in PJM's calculation of Operating Reserve Lost Opportunity Cost credits paid to generators, which resulted in an overpayment of such credits funded by load, but declined to address in the instant proceeding any issues related to specific allocations PJM may ultimately be required to make, following its recoupment of any Opportunity Cost credits, to load (ER12-469).

As first reported by Matters, a software coding error resulted in over-payments of Balancing Operating Reserve Lost Opportunity Cost credits to generators.

The 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.

FERC agreed that under the tariff, Opportunity Cost credits are required to be calculated by subtracting from the real-time LMP the higher of the relevant market participant's price-based offer, or the cost-based schedule, as provided by the generator for the applicable generating unit. Therefore a billing adjustment to certain generators disputing the adjustment is required, FERC said.

PJM had previously said that total overpayments by load equaled nearly $100 million over a two-year period (2009-2011), which is the limit on back-billing (the error existed prior to 2009, and thus overpayments by load prior to that date cannot be clawed back).

Furthermore, FERC held that the two-year claim limitation period began on November 2, 2011, when PJM formally notified market participants in writing, and not in August 2011, when PJM informally discussed its discovery of the error with affected market participants.

Certain market participants had asked FERC to expand the proceeding to include consideration of the specific allocations that PJM may ultimately be required to make, including the determination of carrying charges, following its recoupment of any Opportunity Cost credits, i.e., the recalculation of Opportunity Cost charges paid by load as well as Opportunity Cost credits. Several financial marketers also argued that a repayment of Opportunity Cost charges should be denied to any entity who either directly, or through an affiliate, received an Opportunity Cost credit to which it was not entitled.

FERC denied these requests to expand the scope of the proceeding. "Issues relating to PJM's calculation of its Opportunity Cost charges are beyond the scope of this proceeding. In calculating these charges, PJM is required follow its tariff. We will not otherwise pre-judge any such issues here, or unnecessarily expand the scope of this proceeding to address these matters," FERC said.

After determining that billing adjustments for the erroneous Opportunity Cost credits provided to Dominion Virginia Power and Ingenco Wholesale Power LLC (the two generators contesting the adjustments sought by PJM) are required, FERC set the following issues for hearing and settlement judge procedures: (i) the specific billing adjustments PJM will be required to calculate and collect from Ingenco and Dominion; (ii) whether generators should be permitted to submit restated offers due to PJM's failure to apply its tariff correctly; (iii) whether generators reasonably relied upon PJM's course of conduct and manual and, if so, whether appropriate equitable consideration should be afforded in fashioning an appropriate remedy; and (iv) whether the cost-based offers can be restated with sufficient accuracy and if not, what other remedy should be adopted.