By Rich Heidorn Jr.

FERC last week reversed its position in a more than decadelong dispute over line-loss refunds, ordering PJM to surcharge load to recover overpayments resulting from earlier commission rulings.

Acting on a voluntary remand of a case before the D.C. Circuit Court of Appeals, the commission’s ruling Thursday reversed orders it issued in 2011, 2012, 2015 and 2016. It ordered PJM to pay refunds of misallocated line-loss overcollections to some financial marketers and to surcharge load to recover refunds from parties that previously had received overpayments (EL08-14-012).

Last week’s ruling, which could require PJM to collect millions from load, was actually the third reversal by FERC in the complicated dispute.

The case originated from a complaint by financial marketers — including Black Oak Energy, EPIC Merchant Energy and SESCO Enterprises — who argued they weren’t getting their fair share of line-loss refunds for up-to-congestion (UTC) transactions. PJM includes line losses in its LMP calculations to ensure correct pricing signals and efficient dispatch, a procedure that results in the RTO collecting more in line losses than it pays to generators.

After initially ruling that the marketers were not entitled to line-loss refunds, the commission reversed itself, leading PJM to pay the marketers $37 million in 2010. FERC reversed itself again in orders in 2011 and 2012, leading PJM to issue invoices in 2012 requiring the marketers to repay the refunds. As of 2014, PJM told FERC, only $9 million of the $37 million had been returned.

The commission’s latest reversal came in response to a challenge by financial marketer Energy Endeavors to commission rulings in 2015 and 2016. During briefings before the D.C. Circuit, the commission submitted an unopposed motion for voluntary remand, citing court rulings finding that the Federal Power Act gives the commission “broad remedial authority, including the ability to act retroactively to correct unjust situations and to ensure that what ‘should have been done’ is done,” FERC explained.

“The commission in the past has referenced a general policy of not ordering refunds in cost allocation and rate design cases. However … we find that the commission has greater discretion with respect to this refund-related issue under sections 309 and 206b of the FPA than was indicated by those statements.

“In light of these precedents, the commission will consider whether to require refunds in cost allocation and rate design cases based on the specific facts and equities of each case, even where such refunds must be funded through surcharges on certain parties.”

In addition to directing PJM to pay line-loss overcollections to financial marketers for UTC transactions, FERC also ruled that the RTO should treat customers that export energy from it to MISO “on an equal basis to PJM load.”

It said PJM has authority to impose surcharges if needed to implement the refunds but should not surcharge the MISO exporters because the exporters had made business decisions based on “a reasonable expectation of receiving at least some credit for line losses.”

“Certain exporters pointed out that they would not have engaged in significant numbers of export transactions had they had notice that they would no longer be eligible for a pro rata share of marginal line-loss allocations,” the commission noted. “DC Energy, for example, calculated that it would not have engaged in 350,000 MWh of transactions.”

The commission directed PJM to calculate the refunds, with interest, owed to the financial marketers; the amounts of refunds previously paid, and not returned, that may be retained by the financial marketers; and the surcharges owed by PJM load and the exporters based on their proportionate share of the marginal line-loss allocations taking into account the payment of refunds.

“This resolution provides the most equitable result, as it permits those engaging in up-to-congestion transactions to participate equally in the distribution of line-loss credits while not unduly upsetting settled expectations,” the commission said.

Pierce Atwood attorney Randall S. Rich, who represents several of the financial marketers, declined to comment on the ruling and said he did not know how much money is at stake.

PJM spokesman Jeff Shields said the RTO will implement the order but does “not have an estimate of a dollar figure at this point.”

“There will be challenges associated with how many years have elapsed, during which time participants now deemed by FERC to owe money have left the market,” Shields said. “PJM is disappointed by the order for a number of reasons, not the least of which is the financial burden it will place on consumers who actually use the grid to buy and sell energy.”