Troutman Sanders LLP: FERC Denies Request for Refund on Polar Vortex Costs

On October 15, 2015, FERC denied Champion Energy Marketing LLC’s (“CEM”) request for a $3.1 million refund of balancing operating reserve (“BOR”) costs assessed by PJM Interconnection, LLC and PJM Settlement, Inc. (collectively “PJM”) related to the polar vortex of January 2014. In the order denying CEM’s request, FERC held that “PJM’s actions that caused real-time BOR costs in January 2014 benefited all real-time load, including [CEM], by ensuring the continued operation and reliability of the system.”

The proceeding commenced in February 2015 when CEM filed a complaint against PJM related to the actions PJM took to address system reliability issues caused by the January 2014 polar vortex. CEM explained that it had hedged 98.75 percent of its load through forward contracts for that month, and it was even long on physical power on some days relative to cleared day-ahead load. CEM was nevertheless assessed approximately $3.8 million total in real-time BOR deviation and reliability charges.

CEM asserted that the application of the relevant PJM Tariff provisions to CEM was unjust and unreasonable because CEM had covered nearly 100 percent of its load for January 2014 through forward contracts. CEM requested a waiver of the PJM Tariff provisions related to BOR costs, asserting that PJM should have allocated such costs only to load serving entities that did not hedge their loads with forward contracts and thereby failed to manage their generation and supply obligations as required by PJM market rules. CEM argued further that PJM’s Tariff is unjust and unreasonable because it allocates BOR costs for reliability to all load serving entities when these costs should be allocated only to those market participants that were short supply.

FERC rejected CEM’s claims. In denying CEM’s request, FERC explained that, despite the fact that CEM was long on an aggregate daily basis, as a load serving entity with real-time load, CEM participates with other customers as part of an integrated grid and therefore relies on PJM to assure that its transactions can be delivered as scheduled. FERC continued that “CEM, like all PJM customers, therefore relies upon, and benefits from, PJM’s actions to maintain grid reliability,” and that PJM’s real-time BOR charges are driven by such actions, including those that caused real-time BOR costs in January 2014. FERC also found that CEM’s claim that the PJM Tariff provisions on BOR costs are unjust and unreasonable was not supported by any evidence.

Commissioner Philip Moeller dissented in part. He concluded that the record in the proceeding was sufficient to find that the PJM Tariff Provisions governing the allocation of BOR costs are unjust and unreasonable. Nonetheless, he joined the majority in denying CEM’s request for waiver on grounds that granting retroactive relief would “unfairly shift the associated BOR costs to third parties, potentially including other, similarly-situated load-serving entities.”

A copy of the order can be found here.

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