Washington (Platts)--9Jul2012/225 pm EDT/1825 GMT

Virtual traders in the PJM Interconnection must repay roughly $37 million of refunds issued in 2010 for marginal line loss surplus payments this week, after a federal appellate court on Friday denied a request to stay the repayment process pending legal challenges.

A group of nine financial marketers on June 27 asked the US Court of Appeals for the District of Columbia Circuit for a stay that would allow them to avoid repaying the refunds by July 13, the deadline set by PJM. The group said the immediate recovery of the refunds would cause "irreparable harm, force many companies to default and wreak havoc with the organized electricity market."

On Friday the court denied the request in a one-page order, finding that the financial marketers did not satisfy "the stringent requirements ... to stay agency action pending court review."

The group had also filed a stay request with the Federal Energy Regulatory Commission. FERC denied that request July 3, although the commission did say PJM could negotiate deferred payment schedules if doing so would help prevent potential defaults.

The dispute stems from a February 2009 FERC ruling that virtual traders should receive their fair share of the surplus resulting from PJM's overcollection of marginal line losses, which cover the actual power that is lost in the process of moving electricity from one point to another along a transmission line. Before the order, financial transactions such as virtual supply offers, virtual demand bids and up-to congestion trades were subject to marginal line loss charges but did not receive any portion of the surplus.

Following FERC's order, PJM issued about $39 million in refunds and associated interest payments to virtual traders. But after receiving rehearing requests related to the treatment of certain exports from PJM to the Midwest Independent Transmission system Operator, FERC in July 2011 found the refunds to be unnecessary, arguing that the line loss surplus question was a rate design issue rather than a case of overcollection and thus did not require a refund.

The financial marketers are continuing to challenge the merits of FERC's reversal of the refund, Carol Smoots, a lawyer with Pierce Atwood who represents the group, said Monday.

--Juliana Brint, juliana_brint@platts.com --Edited by Lisa Miller, lisa_miller@platts.com