By Rich Heidorn Jr.

VALLEY FORGE, Pa. — Stakeholders on Thursday approved proposed changes to the RTO’s fuel-cost policy (FCP) despite concerns that new safe harbor provisions would create loopholes permitting the exercise of market power.

A proposal by the PJM Industrial Customer Coalition won a sector-weighted vote of 3.57 (71%), with majority support from all sectors except End Use Customers (EUC), where it was backed by seven of 14 voters.

The Markets and Reliability Committee approved the proposal after rejecting a “joint stakeholder” package that had been the top vote getter with 87% support at the Market Implementation Committee in December. (See “Fuel-cost Policies,” PJM MIC Briefs: Dec. 11, 2019.)

The MRC rejected the joint package with a sector-weighted vote of 1.91 (38%). It won majority support from only the Generation Owners sector and no votes from the EUC and Electric Distributors sectors.

Both proposals eliminate the annual FCP review and the FCP requirement for zero-marginal-cost offer units. They also would eliminate or adjust submission and review deadlines. The ICC proposal accepted a safe harbor provision proposed by the generators but modified the terms for imposing penalties for noncompliance.

The joint proposal would impose the full penalty if the unit clears in the day-ahead market or runs in real time on a cost-based offer and is paid DA/balancing operating reserves. The joint proposal also would apply the full penalty if the unit fails the three-pivotal-supplier (TPS) test for constraints or the cost offer is above $1,000/MWh.

The ICC proposal, which had won 81% support at the MIC, built on the joint proposal and would also apply the full penalty if the unit is marginal in DA or RT on its cost-based offer. It would not apply the full penalty if the unit failed the TPS test but was running on a price-based schedule because it passed the test at the time of commitment.

The vote followed a spirited debate over last-minute changes to a new safe harbor section in both the joint stakeholder and ICC proposals, which would allow a generator to avoid penalties if it deviates from its FCP because of a force majeure event.

MIC Chair Lisa Morelli said the joint proposal used North American Energy Standards Board’s definition of force majeure and would ensure the safe harbor would only be triggered by events beyond the control of the market seller and that its affiliates could not control and could not have contemplated.

PJM would determine if the generator provided sufficient evidence to avoid penalties following a review by the RTO and the Independent Market Monitor.

Greg Carmean, executive director of the Organization of PJM States Inc. (OPSI), questioned that the proposed Operating Agreement language lists pipeline interruptions as an “unforeseen event.” Carmean said state regulators care about FCPs when the system is strained, wanting a way to verify the high prices that result.

But Morelli said natural gas pipeline declarations of force majeure would not qualify for the safe harbor because generators can expect such actions. “It doesn’t mean that just because this condition exists that the exemption is automatically triggered,” she said.

The IMM’s Catherine Tyler said FCPs are a core part of market power mitigation and that the proposal would weaken protections.

Tyler said generators have exercised market power through weak FCPs in the past. “This makes it all quite a bit worse,” she said. It would “make legal market power abuses currently prohibited by the Tariff.”

Monitor Joe Bowring said flexible FCPs can address all of the force majeure events cited by generation owners. “PJM proposed and FERC adopted language requiring fuel-cost policies to be verifiable. With this loophole, fuel-cost policies are not and cannot be verifiable. There is simply no good reason to make this change.”

Greg Poulos, executive director of the Consumer Advocates of the PJM States, said he shared OPSI’s and the Monitor’s concerns.

Bob O’Connell, of Panda Power Funds, one of the companies that negotiated the joint proposal, said the Monitor “may not fully understand the challenge our gas traders face.” He cited an instance in which flooding in Houston disrupted the operations of pipelines on which his company had firm transportation.

The joint proposal “balances all the issues that need to be balanced,” he said.

Susan Bruce, representing the ICC, said the joint proposal has “very large hole in it. The marginal unit, by definition, is impactful.”

After the joint motion failed, O’Connell offered a friendly amendment to the ICC proposal requiring generators to file force majeure claims to PJM at least one hour prior to the deadline for submitting offers. They would be subject to the same verification process that applies to offers above $1,000/MWh.

But Calpine’s David “Scarp” Scarpignato objected to use of the verification process.

“I cannot vote for … that kind of material change [at the] last minute,” he said. “I’d have to work through it [with other Calpine officials]. … I’m not saying I’m against the idea, but I’m against putting it up on the fly.”

The approved ICC proposal, which will require changes to the Tariff and Manual 15, will go to a final vote by the Members Committee in March.