November 22, 2024
PJM Monitor Holding Firm on Opportunity Cost Calculator
© RTO Insider
The PJM Independent Market Monitor has declined to budge from its position that the RTO allow market participants to use its opportunity cost calculator.

By Rory D. Sweeney

PJM’s Independent Market Monitor has declined to budge from its position that the RTO allow market participants to use its opportunity cost calculator, arguing that it would be consistent with other RTO verification processes.

pjm opportunity cost calculator
Bowring | © RTO Insider

The Monitor suggested that PJM has two options. The first is to maintain the status quo in which stakeholders are required to choose their own values using PJM’s calculators and risk being referred for disciplinary action at FERC — the situation that brought the issue to a boil in August

The Monitor’s preferred process would require market participants come to agreement with it on an opportunity cost that it verifies is competitive before submitting it for PJM approval. All parties retain the right to petition FERC if they don’t agree with the final result. That would result in a practice consistent with the process PJM already uses for verifying cost-based offers, the Monitor said.

“The IMM requests that PJM clarify its preferred review process for opportunity cost calculations,” the Monitor wrote. “The IMM recognizes that PJM can impose the first option. The IMM recommends the second option. … The IMM routinely informs market participants that if its use of the PJM calculator results in an opportunity cost greater than that calculated by the IMM that the IMM is required by the Tariff to raise the issue with FERC.”

The two parties’ yearlong standoff was brought to a head at the August 23 meeting of the Markets and Reliability and Members committees, where stakeholders threatened to advance Tariff revisions that would require PJM to accept the Monitor’s calculator. PJM had announced earlier in the month that it would only accept opportunity cost calculations using its calculator after staff realized that in “the latter part of 2016” results between the two calculators, which had produced consistent results since 2010, began to diverge substantially. (See Stakeholder Proposal Aimed at Ending PJM-IMM Dispute.)

The RTO responded Aug. 29 with a letter outlining its requirements for accepting the IMM’s calculator. (See PJM Sets Terms for Using IMM’s Cost Calculator.)

In its Sept. 16 response, the Monitor said that divergences likely began in 2011 when it “enhanced” its calculator with an “optimization solver … to correctly model rolling constraints.” The Monitor says it outlined the differences between the calculators in meetings with PJM and as part of special sessions of the Market Implementation Committee.

The Monitor’s response included its oft repeated criticism of PJM’s calculator.

“PJM’s opportunity cost calculator demonstrably does not produce accurate results over the entire range of possible scenarios faced by real units. … The IMM has discovered that market participants have made mistakes related to input assumptions that significantly affected the outcomes. … PJM does not review the inputs to its calculator used by participants,” the Monitor wrote. “PJM does not approve the results of its own calculator. Yet PJM states that PJM’s calculator is the standard for evaluating opportunity costs.”

The Monitor said it holds “detailed discussions” with market participants about opportunity cost calculation inputs and results and that it has modified its view of specific calculations considering details provided by participants.

“The IMM has made mistakes. The IMM does not claim that the IMM model is perfect,” the Monitor acknowledged. “While it is important to have a complete and accurate model, opportunity cost calculations require case-by-case analysis and are not a simple matter of just running a model.”

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