PJM Seeks Authority to Impose Late Payment Fees

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January 6, 2011

PJM has sought approval at FERC to impose late payment fees on members failing to pay invoices in a timely manner, effective April 1, 2011.

Specifically, the proposed tariff and operating agreement revisions provide that for those payments received from market participants one or more days subsequent to the stated due date of a weekly or monthly billing, in addition to interest, a penalty amount equal to the greater of $1,000 or 2% of the amount due may be assessed, subject to a maximum amount of $100,000 per each occurrence.  

The proposed revisions hold that, for purposes of the late payment penalty assessment only, the term "on time" shall mean payment received on the due date and the term "delinquent" shall mean any payment received subsequent to the due date.  "These clarifications are important because net amounts due pursuant to all weekly and monthly bills are due and payable by the member no later than noon on the due date.  This modification designates that payments made on the actual due date, regardless of time, will still be considered 'on time' for penalty purposes only, and will not subject the member to a late payment penalty assessment," PJM said.

Recognizing that circumstances beyond the control of a member might infrequently hinder timely payment, the tariff revisions provide that a late payment penalty would not be assessed for the first missed payment, and that a late payment penalty only applies on the second, and any subsequent, late payments made by a market participant in any rolling 12-month period.

While the tariff currently calls for interest to be assessed on late payments, at the rate set forth under 18 C.F.R. § 35.19(a)(2)(iii), the interest rate alone is, "generally not helpful in discouraging 'slow' payers," PJM said.

"To be sure, most Participants timely pay all obligations due and owing on the date specified, but, in recent experience, it has been identified that a handful of Participants regularly make late payments, in turn creating significant administrative burdens without corresponding recourse," PJM said.

"At a minimum, late payments require the preparation and processing of breach notices to non-paying Participants, additional verification to ensure that the Participant received its bill, checking whether the non-paying Participant has sufficient collateral posted to cover obligations, and verifying whether the non-paying Participant is a load serving entity, which would cause further administrative processing to prepare to return load customers to their respective Providers of Last Resort.  Moreover, late payments create substantial business uncertainty and are a well-accepted indicator of elevated counterparty risk," PJM added.

Any funds collected from the assessment of late payment penalties shall decrease PJM Settlement's net administrative costs.

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