By Ted Caddell

PJM has asked the Federal Energy Regulatory Commission to untangle the question of how profits from trades that are determined to be illegal get calculated and refunded (IN15-5).

In a filing Wednesday, PJM Associate General Counsel Jacqulynn Hugee referenced a March 6 Order to Show Cause and Notice of Proposed Penalty requiring City Power Marketing and trader K. Stephen Tsingas to explain why they shouldn’t be sanctioned for up-to-congestion (UTC) trades investigators contend violate the Federal Power Act. Hugee filed a similar request in the case of hedge fund twins Rich and Kevin Gates and Houlian “Alan” Chen (IN15-3).

FERC Office of Enforcement staff alleges that the City Power trades resulted in profits of $1,278,358 and recommended that the profits be refunded. The staff also recommended that City Power be fined $14 million and Tsingas $1 million. The refunds and penalties are pending a final ruling by the commission. Tsingas and City Power have until April 6 to answer the charges.

PJM, in anticipation of a determination against Tsingas and City Power, wants to know just who gets the refunds and how they are to be calculated.

Handling the refunds, Hugee noted, could be complicated. She noted that although the March 6 orders don’t say so, usually it is the RTO involved that is tasked with refunding any profits to market participants.

If PJM is ordered to do so, Hugee wrote, the calculations necessary to complete the refunds through the usual month-end billing adjustments “can be very time consuming, taking weeks or months to complete.” She asked that the commission order the refunds be made based on Tsingas’ and City Power’s activity “on an hourly basis, per operating day,” rather than a lump sum that would have to be split up on a pro-rata basis. She asked FERC to do those calculations.

Hugee also sought direction on how refunds should be made to parties who are no longer PJM members and asked that if any former members are due refunds but still owe money to PJM, the refunds be used to clear that debt first.

She noted that there were six entities also alleged to have engaged in sham trades, who would also be considered victims of the City Power/Tsingas trades. “PJM asks that the commission indicate in its order whether these six entities are entitled to receive the portion of the disgorged funds that are due to be refunded to them or whether they should be excluded from any such refunds,” she wrote.