Wednesday, April 25, 2018

FERC Investigation Shows PSEG Violated PJM Bidding Rules

By Rory D. Sweeney

FERC said yesterday that a preliminary investigation indicates that Public Service Enterprise Group committed multiple violations of PJM market-bidding rules and made “false and misleading statements” to RTO staff, stemming from issues PSEG says it self-reported in 2014 and has since set aside $35 million to address.

The “notice of alleged violations” charged PSEG Energy Resources & Trade, which markets the output of PSEG Power’s generation fleet, with violating both PJM’s Tariff and FERC regulations. PSEG’s trading arm submitted incorrect cost-based bids into PJM’s daily energy market from as early as 2005 through 2014 and lied to PJM regarding costs associated with certain units, commission staff alleged.

The notice also said the determinations were preliminary and provided few additional details about the confidential investigation. It did not indicate when or whether any definitive action would be taken against PSEG.

PSEG PJM market-bidding rules

PSEG’s Sewaren 7 natural gas generator is expected to go into operation in summer 2018. | PSEG

PSEG Power reported in May 2014 through PSEG’s first-quarter financial results that it had “discovered that it incorrectly calculated certain components of its cost-based bids for certain generating units in the PJM energy market, with resulting over-collection of revenues related to its fossil fleet.” It said the issue had been reported to FERC, PJM and PJM’s Independent Market Monitor, Monitoring Analytics, and recorded a $25 million charge to its income to account for potential financial repercussions.

In PSEG’s 2014 second-quarter results, PSEG Power announced that a subsequent internal investigation performed by outside counsel found “additional pricing errors in the cost-based bids” and “that the quantity of energy that Power offered into the energy market for its fossil peaking units differed from the amounts for which Power was compensated in the capacity market for those units.”

The company said it corrected the errors and revised processes “to ensure that the pricing errors identified in the calculations of the bids and differences in quantities offered into the energy market from those in the capacity market have been corrected” and “to help mitigate the risk of similar issues occurring in the future.” It said it doesn’t have access to PJM data “to determine if the differences in quantity had any impact, and if so, the level of that impact.”

FERC in September 2014 opened its investigation into PSEG’s fossil-fuel fleet in New Jersey, which includes the 1,229-MW Bergen combined cycle gas turbine, 1,566-MW Linden CCGT, 81-MW Essex simple cycle gas combustion turbine, 168-MW Burlington CT and the Sewaren facility, which was a 445-MW gas-fired plant at the time but was damaged during Hurricane Sandy in 2012 and is being rebuilt as a 540-MW CCGT. It also includes the 456-MW Kearny CT, but that unit wasn’t brought online until 2012.

In its 2017 10K report filed with the Securities and Exchange Commission, PSEG said it “believes the disgorgement and interest costs related to the cost-based bidding matter may range between approximately $35 million and $135 million, depending on the legal interpretation of the principles under the PJM Tariff, plus penalties.” It has accounted for the low end of that estimate “since no point within this range is more likely than any other.”

“Power continues to believe that it has legal defenses that it may assert in a judicial challenge, including the legal defense that its cost-based bidding in a substantial majority of the hours was below the allowed rate under the Tariff and therefore any errors in those hours did not violate the Tariff or were immaterial,” PSEG said in the filing. “Furthermore, it is unclear whether the quantity of energy offered violated any legal requirement.”

In an email to RTO Insider, PSEG spokesman Michael Jennings confirmed the company has set aside $35 million over the issue, adding that “we are not discussing the particulars.” Representatives for PJM and Monitoring Analytics confirmed that they could not discuss details of the investigation.

PSEG says its trading arm, based at its corporate headquarters in Newark, N.J., is “among the nation’s first and most successful energy trading organizations.” In addition to marketing PSEG Power’s output, it acquires and hedges fuel and power, dispatches plants, manages gas supply and trades energy-related products.

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