United States: FERC Approves Settlement With PSEG Subsidiary Over Allegations Of Inaccurate Cost-Based Offers In PJM Energy Market

On April 25, 2018, FERC approved a Stipulation and Consent Agreement ("Settlement") between the Office of Enforcement ("OE") and PSEG Resources & Trade, LLC ("PSEG).  The Settlement resolves an investigation into whether PSEG violated certain sections of the PJM Interconnection, L.L.C. ("PJM") Tariff, Operating Agreement, and FERC's Market Behavior Rule, when PSEG submitted incorrect cost-based offers into the PJM energy market between 2005 and 2014.  FERC determined that the Settlement was a fair and equitable resolution of the matter, and that the penalty imposed upon PSEG reflected the nature and seriousness of the violations. 

The PJM Tariff and Operating Agreement allow market participants like PSEG to submit cost-based offers into the PJM energy market, so long as those offers are based on costs that are permissible under the PJM Tariff, Operating Agreement, and Manuals.  Additionally, the Market Behavior Rule in the Commission's regulations states in part that a "[s]eller must provide accurate and factual information and not submit false or misleading information, or omit material information" when communicating with the Commission or with any Commission-approved organization.

OE initiated a preliminary non-public investigation following an April 2014 PSEG self-report describing errors in PSEG's cost-based offers for some of its fossil units.  PSEG subsequently submitted a comprehensive written self-report and supplemental self-report providing the results of PSEG's internal investigation, which had identified additional errors in other cost-based offer components going as far back as 2005.  OE and PSEG ultimately identified multiple types of errors in PSEG's cost-based offers, such as: (1) inclusion of CO₂ adders in its cost-based offers after the State of New Jersey withdrew from the Regional Greenhouse Gas Initiative; (2) inclusion of seasonal NO_X adders in offers outside the NO_X compliance season; (3) incorrect amounts of fuel required to maintain minimum operations for the Bergen 2 unit; and (4) inaccurate performance factor data, which affected the heat rate or fuel burned per unit of output, for some of its units.

In the Settlement, PSEG stipulated to certain facts but neither admitted nor denied that it violated sections of the PJM Tariff, PJM Operating Agreement, or the Market Behavior Rule.  PSEG did, however, agree to pay a civil penalty of $8,000,000 to the United States Treasury and $26,905,736 in disgorgement, plus $4,494,264 in interest to PJM.  PSEG also agreed to provide to OE annual compliance reports on the progress of recently-implemented compliance measures.

In its April 25, 2018 Order approving the Settlement, FERC noted that OE, in recommending the appropriate remedy, had recognized that "PSEG self-reported the violations, cooperated fully and comprehensively throughout the investigation, and has no prior history of violations," and that the remedy also reflected the determination that "although PSEG had a compliance program in place, it was not sufficiently robust to detect or prevent the violations."

FERC's order approving the Settlement can be found here.

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