On September 23, 2021, FERC issued an order rejecting a unilateral offer of settlement regarding the compensation for reactive power by Panda Hummel Station LLC (“Panda”) under Schedule 2 of the PJM Interconnection LLC (“PJM”) OATT, remanding the proceeding to the Chief Administrative Law Judge (“Chief ALJ”) to resume hearing procedures.  FERC found Panda’s proposed methodology flawed and inconsistent with FERC policy. 

Panda filed a proposed rate schedule to receive compensation for the provision of reactive service in late 2018, which was accepted by FERC on January 22, 2019, pending either settlement or a hearing.  On July 20, 2020, Panda unilaterally filed the proposed settlement, which was opposed by FERC Trial Staff and PJM’s Independent Market Monitor (“IMM”).  The settlement judge certified the settlement to the Commission as uncontested, ruling that the comments did not meet the Rule 602 standard to render the settlement contested because Trial Staff is only a participant to the proceeding, not a party, and the IMM failed to file an affidavit or any supporting evidence regarding its challenges to Panda’s revenue requirement.

FERC found that settlements would not automatically be approved just because Trial Staff was the only participant to object, and agreed with the settlement judge that the IMM failed to raise an issue of material fact.  FERC recognized the importance of the comments submitted by Trial Staff, who represents the public interest in settlement and hearing proceedings, and explained that it had previously rejected settlements where Trial Staff was the only participant to object.  FERC also explained that it could approve a settlement contested by Trial Staff upon a finding that the settlement is fair and reasonable and in the public interest.

On the merits, FERC found that Panda had failed to show that its proposed settlement was fair and reasonable and in the public interest.  First, FERC pointed out that Panda’s proposal was not a “black box” settlement negotiated between parties but a unilateral offering based on Panda’s own methodology.  In addition, FERC found Panda’s proposed methodology flawed because it relied upon plant costs from an unrelated settlement that is not precedential.  FERC also found Panda’s unilateral settlement inconsistent with FERC policy because it relied upon the 2014 PJM CONE Study as a proxy for return on equity and capital structure, which FERC has previously found inappropriate for a cost-of-service rate like reactive power.  FERC also rejected Panda’s attempt to recover its firm fuel gas transportation costs as a fixed operations and maintenance expense rather than through a heating losses calculation.  Accordingly, FERC directed the Chief ALJ to resume hearing procedures and encouraged participants to continue to engage in settlement discussions should they wish to do so.

A copy of the order is available here.