By Michael Brooks

PJM will forgo $10.2 million in balancing operating reserve (BOR) charges resulting from transactions that two trading companies characterized as internal bilateral transactions (IBTs) under a settlement approved by the Federal Energy Regulatory Commission.

PJM, which contended DC Energy and Scylla Energy mischaracterized the transactions to avoid paying the charges, collected $38.8 million in retroactive payments from the companies after it found in 2011 that the trades did not involve the physical transfer of energy and could not be classified as IBTs under PJM’s Tariff. Unlike increment offers (INCs) and decrement bids (DECs), IBTs are not subject to BOR charges.

Under the settlement, PJM will retain the money it has already collected while dropping its claim to the remaining $10.2 million. The companies, meanwhile, will withdraw their petition to the D.C. Circuit Court of Appeals to review FERC’s March 2012 order that forced the companies to pay the charges.

PJM and the companies said they settled “in order to bring certainty to the marketplace and avoid the costs, risks and uncertainties of continued litigation.”

‘Nonsense’

PJM’s Independent Market Monitor, however, said “the argument that the settlement brings certainty to the marketplace is nonsense.” The monitor said the settlement means that PJM members will not receive $10.2 million to which FERC has found they are entitled. It also said, however, that “more than $10.2 million is at stake in this proceeding. Full enforcement of the commission’s orders is important to discourage inappropriate market behavior.”

FERC ruled that the settlement doesn’t change the commission’s interpretation of PJM’s rules concerning IBTs. “PJM market participants, therefore, remain on notice that IBTs may not be used to avoid deviation charges,” FERC said.