VALLEY FORGE, Pa. — PJM staff told the Market Implementation Committee on Wednesday that they will not file waivers for upcoming capacity auction deadlines and will instead rely on FERC to issue an order on its minimum price offer rule (MOPR) before the end of the year.

Pat Bruno, senior engineer for PJM’s capacity market operations, said it’s unlikely the commission would respond in time even if staff submitted a waiver for the upcoming Sept. 1 deadline in the 2023/24 Base Residual Auction. The next round of deadlines comes in December, he said, at which point FERC will have “hopefully” issued a ruling.

Last month, FERC halted the 2022/23 capacity auction scheduled for this month, refusing to “rule prematurely” on PJM’s request for clarification that if it ran the BRA using the existing MOPR that the commission would also agree to enforce any new rates prospectively, saving the auction from being rerun (EL16-49).

The last-minute directive from FERC came just hours after PJM staff told the Markets and Reliability Committee they would move ahead with the auction as planned. The RTO confirmed it would comply with FERC’s guidance — though it was the commissioners themselves who expressed frustration about their role in creating market uncertainty for participants. (See FERC Halts PJM Capacity Auction.)

‘Winter is Coming’ … Along with Gas Contingency Plan (Hopefully)

Thomas DeVita, senior counsel for PJM, told stakeholders that staff are preparing to file a revised gas contingency proposal with FERC by October, with hopes that the commission will give its approval by December.

“Winter is coming,” he warned repeatedly, reiterating stakeholder concerns about surviving a third cold weather season without a cost recovery plan for generators forced to switch fuel supplies at PJM’s discretion.

On Feb. 19, FERC rejected the member-approved mechanism that would have implemented a process for market sellers seeking cost recovery for certain gas contingencies associated with the RTO’s instruction to temporarily switch to an alternative fuel or fuel source because of pipeline breaks or the loss of compressor stations (ER19-664). The proposal included nine categories of switching costs, such as park-and-loan service charges and overrun charges. (See FERC Rejects PJM’s Gas Pipeline Contingency Proposal.) The commission also argued that the conditions for switching belong in the Tariff — not just business manuals — and gave PJM a chance to revise the proposal over the spring and summer.

DeVita said FERC staff dropped some hints about how to tweak the filing for better success the second time around. (See PJM Revisits Gas Pipeline Contingency Plan.) He said staff discouraged the RTO from submitting an itemized list of switching costs, as it did in the first filing, and instead focused on procedures surrounding “explicit authorization” to switch between pipelines and any new limitations on the amount of gas burned after the switch occurs.

In the draft language presented Wednesday, staff added “pre- or post-contingency” into the switching process triggered by a manual load dump and removed a requirement that generators must have documentation of unauthorized switching costs before filing for cost recovery at FERC. A reference to opt-in and opt-out intraday offers was also removed.

Staff also added the following paragraph to the proposal, meant to ease members’ concerns about the vague definition of switching costs: “PJM will commit to analyze, assess and address through a stakeholder process whether adequate compensation exists for any future operating instructions associated with gas switching that fall outside of the criteria established in this Tariff filing. Such analysis will also consider the mechanisms through which such compensation shall be obtained.”

Independent Market Monitor Joe Bowring asked DeVita whether PJM’s proposed language would permit companies to include the cost of penalty gas in their offers and therefore charge customers for the much higher cost of power that would result. Bowring pointed out that if the pipeline approved the use of the gas, it should not be treated as penalty gas. PJM indicated that the issue needed to be clarified.

Bowring also noted that the gas contingency procedures did not have a clear requirement that PJM take other emergency actions prior to the contingency, including calling on demand-side resources.

DeVita said the language is on track for endorsement at the September MIC and MRC meetings, with filing scheduled for Oct. 15.

Opportunity Cost Calculator Vote Delayed

Stakeholders delayed votes on several options for a more unified opportunity cost calculator after confusion over the implications of proposed changes left many unsure of how to move forward — if at all.

Bob O’Connell, executive director of regulatory affairs and compliance for Panda Power Funds, sponsored a motion to vote on three packages, drafted in consultation with Dominion Energy, that would streamline PJM’s calculator to varying degrees. (See PJM Stakeholders Push Unified Opportunity Cost Calculator.)

During a first read of the plans last month, O’Connell said the first package makes small changes that don’t force PJM to rewrite its calculator. The second revises PJM’s modeling process to mimic the Monitor’s, which many stakeholders prefer for its reliability. The third consolidates the former package into one single calculator, “eliminating all compliance risk,” O’Connell said.

Under current procedure, market participants can either use PJM’s calculator in Markets Gateway or the Monitor’s modeling system to build energy cost offers with appropriate adders that help ensure a generator will recoup opportunity costs when its resources have limited run hours for environmental reasons and are scheduled outside of their most economic operating intervals. Some of these opportunity costs arise when regulatory agencies impose environmental run-hour restrictions, physical equipment limitations trigger operational restrictions and force majeure events constrain access to fuel.

The problem for O’Connell and other stakeholders, however, is the riskiness associated with PJM’s calculator, which is designed to give market participants more control over submitted data and, therefore, more opportunity for operator error. PJM staff said the majority of stakeholders — perhaps up to 98% — use the Monitor’s calculator already, with just two choosing to use the RTO’s within the last year.

“When I look at the Market Monitor’s calculator, I view that as very little compliance risk,” O’Connell said. “The only issues we have are — are we being honest and forthright with the information we provide to the Market Monitor, and did we copy and paste correctly? From my [compliance] perspective, something like the IMM’s calculator is preferable.”

Glen Boyle, manager in PJM operations analysis and compliance, pushed back against the simplified explanation of the Panda/Dominion proposals, noting that the calculator changes being suggested raise “serious concerns” — including those that would set aside hours from the performance assessment interval.

“There’s already a process in [PJM Manual 13] where if you start to run out hours, you can put those remaining into max emergency,” he said. “FERC was very clear in its order on opportunity costs. Only things related to environmental, insurance carrier and [original equipment manufacturing] should be in the calculator. We agree with that, and some of these things shouldn’t be included.”

O’Connell said the changes deserved further consideration.

“If you look at the situation right now, there’s sort of a disconnect between actions a company takes to put a resource into max emergency versus assumptions that are made in the capacity market,” he said. “This serves to link them more closely. … [It’s] an expectation [of] how market participants should behave with respect to a decision that they are getting down to too few hours. Really, the status quo lacks that linkage.”

He did, however, agree that the goal of “getting to one calculator” took priority over approving changes and agreed to drop those elements from the third proposal in the interest of moving forward — prompting Bowring to question the necessity of voting on a plan that appears to require PJM to make its calculator mirror the Monitor’s.

“If the point is to force PJM to create a calculator exactly like ours, then I believe that’s a demonstrable waste of time and money,” he said. “It seems to me you have what you want here.”

O’Connell agreed that there was no reason to force PJM to spend money to modify their calculator and that the Monitor’s calculator addressed the requirements of members.

MIC Chair Lisa Morelli suggested delaying the votes until the September meeting so that stakeholders could take more time to review the changes contained within.

Modeling Units with Stability Limitations

Stakeholders unanimously endorsed a problem statement and issue charge from Panda that address concerns over proposed revisions to Manual 10 that would require generators to use outage tickets for stability-related limitations, possibly encouraging price distortion. (See “Generation Outage Revisions Delayed,” PJM OC Briefs: May 14, 2019.)

O’Connell told the MIC last month that PJM’s decision to remove supply from the market to address stability constraints will result in some units committing at price-based offers, rather than cost. (See “Modeling Units with Stability Limitations,” PJM MRC Briefs: July 10, 2019.) Under the RTO’s rules, only the affected generator would know of the constraint, O’Connell said, therefore gaining a competitive advantage over other units and possibly incorporating greater mark-ups into their offers.

As a solution, O’Connell suggested PJM implement a closed-loop interface around the affected resource that restricts the output to below the stated stability limit — and that it must be used in each of the RTO’s markets. He also encouraged PJM to publicize stability limits on OASIS prior to contacting the affected generator.

The MIC will work on possible solutions during the committee’s meetings over the next few months.

Price Formation

The MIC continues its review of how prices are formed every five minutes in PJM based on a problem statement and issue charge created by the Monitor and approved by the MIC in June.

Catherine Tyler of IMM Monitoring Analytics provided education on the relationship between the megawatt dispatch and price signals sent to generators by PJM systems for each five-minute interval. Tyler explained that the signals should be for the same point in time but are not. She said the practice is inconsistent with basic economic logic and creates incentive issues for generating units that are given price signals inconsistent with dispatch signals and are paid in a manner that does not match their dispatch instructions. This is the case for both energy and reserves.

Manual Revisions Endorsed

The MIC endorsed the following revisions to PJM manuals:

Manual 11 (Energy & Ancillary Services Market Operations): Revisions will document procedures for addressing missing historical performance scores in the regulation market and also clarify that the reserve requirements used in the market clearing process are based on the potential largest single contingencies that are communicated by PJM operations and modeled in the markets clearing software. Scheduled for MRC first read later this month and endorsement in September.

Manual 18B (Energy Efficiency Management & Verification): Updates to conform with Tariff revisions that detail energy efficiency rules issued by authorized relevant electric retail regulatory authorities and those dealing with seasonal capacity resources.

Manual 27 (Open Access Transmission Tariff Accounting and Manual 28 – Operating Agreement Accounting): Revisions include language to comply with electric storage participation mandates from FERC Order 841-A.

– Christen Smith