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PSEG Will Pay $39M for Bidding Errors to Power Grid Operator

Mistakes chiefly affect how much customers pay for electricity

PSEG Bergen

Public Service Enterprise Group will pay $39 million to settle allegations of numerous violations by a subsidiary concerning its bidding into the nation’s largest energy market.

In a consent agreement signed Monday and made public Wednesday with the Federal Energy Regulatory Commission, PSEG Energy Resources & Trade, LLC admitted to the facts set forth in the stipulation while neither admitting nor denying the violations.

The violations involved assorted errors in bids the company submitted to PJM Interconnection, the operator of the regional power grid, dating back to 2005. The bids largely determine how much consumers pay for electricity.

The notice of the investigation earlier this month came as PSEG is on the verge of gaining approval for a controversial bill (S-2313) to direct up to $300 million a year in subsidies from ratepayers to prop up three nuclear power plants in South Jersey. Without the subsidies, PSEG has threatened to close the plants because they are economically challenged.

Unproven claims

Critics of the bill, now awaiting action by Gov. Phil Murphy, contend the company has failed to prove its claim that the units will turn unprofitable within the next few years.

In the consent decree with FERC, the company, the trading arm of PSEG Power, which runs the plants, agreed to pay a civil penalty of $8 million. The company also will disgorge $26.9 million in unjust compensation for the incorrect bids, as well as $4.5 million in interest.

“It’s a lot of money,’’ noted Division of Rate Counsel Stefanie Brand. Most of it involves disgorgement, which is the profit the company should not have made, she noted.

The federal agency was made aware of the incorrect bids, which staff alleged were false and misleading, as a result of the company’s self-reporting of the problem in April 2014.

“PSEG is pleased that the matter has been resolved, which arose when we alerted FERC, PJM, and the PJM Independent Market Monitor about the issue,’’ said Michael Jennings, a spokesman for the company.

“In April of 2014, PSEG discovered that it had inadvertently miscalculated components of cost-based bids for its New Jersey fossil generating units,’’ Jennings said. “PSEG has been candid regarding the mistakes and has significantly enhanced its internal processes to prevent future errors.’’

Counting CO2

The errors cited in the consent agreement include factoring carbon dioxide CO2 adders into its bid offering after the state of New Jersey withdrew from the Regional Greenhouse Gas Initiative, a multistate effort to limit carbon pollution by attaching a surcharge to fossil-fuel emissions.

The company also included seasonal adders for nitrogen oxide (NOx) in its offers outside the NOx compliance season. The pollutant contributes to the formation of ground-level ozone in the summer. New Jersey has never achieved the federal health quality standard for ozone, or smog.

In other instances, PSEG overcharged the market above a cap set by the energy market and failed to update emission rates after installation of back-end technology to comply with environmental regulations. Finally, PSEG’s own compliance program did not detect the errors in its bids, in some cases for multiple years, according to facts outlined in the agreement.

The settlement of the case led critics of the nuclear subsidy deal to repeat their calls to the governor to at least conditionally veto the bill.

“Paying nearly $40 million to settle a case for allegedly providing misleading information to the PJM grid operators, and not contesting it, should be enough for policymakers to pause and re-evaluate the current nuclear subsidy bill,’’ said Dennis Hart, executive director of the New Jersey Chemistry Council.

“Gov. Murphy ought to conditionally veto the bill, and require a fully transparent process to review PSEG’s data, which includes New Jersey’s ratepayer counsel,’’ he said. “As written, the bill does not guarantee protections for ratepayers or taxpayers.’’

Brand said the agreement demonstrated the need for more oversight over the process. “I’m glad PSEG self-reported it, but I’m happier FERC held them accountable.’’

Doug O’Malley, director of Environment New Jersey, called the settlement “a slap on the wrist for PSEG,’’ which “raises larger questions on their credibility as they lobby for a nuclear bailout.’’

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