PJM Prices Higher by At Least $141,000 Due to Exelon "Inadvertent" Error Resulting in Offers Above Stipulated Caps

Day-ahead and real-time energy prices in PJM were inflated by at least $141,000 during a two-week period in which mitigation was not applied to several Constellation Energy units as required under a Maryland PSC order, while total excess revenues to Exelon resulting from what the company called an "inadvertent error" totaled approximately $230,000.

As first reported by Matters, the Maryland PSC directed Exelon to show cause why the Commission should not conclude that Exelon violated the terms of the PSC's order approving its merger with Constellation after Exelon reported that it "inadvertently violated" (as the PSC described Exelon's characterization) market power mitigation commitments contained in the order over a two week period. Specifically, offers for certain units were submitted at levels above cost caps agreed to by Exelon as a condition of its merger with Constellation.

In response to the show cause order, Exelon said that the incorrect offers resulted from legacy computer software program code in Constellation's software. While Exelon said that the offers were entered into the software at levels that did not violate the offer cap commitments, the software code overestimated the costs at full load operating conditions and thus communicated the offers to PJM at levels that exceeded the offer cap commitments under maximum load operating conditions.

Exelon said that the extent to which the erroneous offers exceeded the offer cap commitments at maximum loads ranged from approximately 2% to 13% above the offer cap, depending on the unit and the date of the offer. The impact of the software error was limited to 10 of the units owned by Constellation prior to the merger.

While market prices were not affected in all instances in which a higher, incorrect offer curve was submitted (either because the affected unit was not marginal or because the unit did not clear and would not have cleared at the correct offer price), Exelon reported that in the Day-Ahead market, energy market prices were higher than they should have been as a result of incorrect offers for Brandon Shores 2 in 14 hours over the March 13-27 period.

Exelon said that, "[t]he IMM calculated the excess payments to the Applicants' units in the Day-Ahead market to be $136,000," in such instances [emphasis added]. Note that this represents the excess revenue to Exelon during this period from the Brandon Shores 2 day-ahead error, but does not, apparently, represent the total additional costs borne by the PJM market as a result of the higher clearing price paid to all generators.

Furthermore, in the balancing (real-time) market, energy market prices were higher than they should have been for "short periods" of time as a result of incorrect offers for Brandon Shores 2 and/or Wagner 3. The IMM calculated the excess payments to the Constellation units in the balancing market to be $5,000; again, this does not appear to take into account the total burden placed on load from the higher real-time prices applicable to all generators.

Exelon also reported that it received $88,000 in excess operating reserve payments to Brandon Shores 2 and Wagner 3 as a result of the incorrect offer curves.

Exelon said that it does not, "have the data necessary to determine whether the inadvertent error had any effect on Maryland ratepayers."

For those limited hours in which the affected units did affect the clearing price, Exelon said that, "most of the Applicants' [e.g. BGE] customers and most other Maryland ratepayers pay fixed electric rates that are not affected by short-term fluctuations in the PJM spot market price for energy."

However, Exelon did not opine on any long-term impacts from the inflated prices resulting from the error, such as uplift to forward curves or models which will be reflected in future retail rates, etc.

"The IMM provided the Applicants with a calculation showing the extent to which the Applicants' own units received energy revenues in excess of what they would have received if the offers for Brandon Shores 2 and Wagner 3 had not exceeded the Offer Cap Commitments. However, this calculation of effect on Applicants' units provided by the IMM does not contain the detail necessary to determine the extent to which any Maryland ratepayers may have paid higher rates. Without this information or any information regarding the extent to which Large C&I or other variable rate customers hedged against price increases, the Applicants are unable to determine whether, or by how much, any Maryland ratepayers paid higher rates than if the Offer Cap Commitments had not been exceeded," Exelon said.

As such, Exelon's response to the show cause order did not contain, "a plan for remedying any harm done to Maryland ratepayers," as directed by the show cause order.

The excess revenues are being returned to PJM.

Exelon said that, "[w]hat is clear, however, is that any increase in rates paid by any Maryland ratepayer did not result from the exercise of market power by the Applicants. For one thing, the Applicants did not even know until after the fact that their offers exceeded the Offer Cap Commitments, and thus the offers could not represent an attempt to exercise market power by increasing offers above costs. Furthermore, prior to the Merger when the Offer Cap Commitments were not in effect, Constellation's offers for the units subject to the Offer Cap Commitments tended to be higher than the offers for those units during the March 13-27 period."

Exelon also reported that it has discovered an error in the calculation of the transportation charge for fuel oil used to supply certain Exelon Units that are peakers located in the Philadelphia area. This error caused the bids for those peakers to exceed the offer cap commitments for those units. "However, the costs of those units were well in excess of market prices (by $300/MWh and more) for the entire period since the merger was closed, and thus the units were not committed. Therefore, the offers have had no effect on either the PJM energy market price or the Applicants' revenues," Exelon said.