By Christen Smith

FERC last week denied a complaint from PJM’s Independent Market Monitor that alleged the RTO erred when it decided against penalizing Tenaska Power Services last year over supposed fuel-cost policy (FCP) violations (EL19-27).

The commission said it agreed with PJM’s interpretation of Tenaska’s FCP that allowed it to use third-party quotes for natural gas when the data it generally relies upon to calculate its energy offers are unavailable — as it was on Jan. 6, 2018.

“PJM reasonably found that Tenaska did not violate its FCP by using third-party quotes to develop natural gas costs when a lack of liquidity prevented the use of its more specific fuel-cost methodologies,” FERC wrote in its order. “The language in the Operating Agreement further supports the reasonableness of PJM’s conclusion that no violation of the FCP took place, as the lack of market liquidity is a market condition that permits the use of third-party quotes such as the [Intercontinental Exchange] data provided by Tenaska.”

The Monitor had interpreted the language of the FCP to prohibit Tenaska from making offers under such conditions — a choice that would leave the dual-fuel Brandywine Power Facility in Prince George’s County, Md., subject to nonperformance penalties should extreme weather conditions disrupt its fuel oil supply, Tenaska said. In defense of its actions, Tenaska had pointed to a statement from the FCP that says, “under a set of defined market conditions, natural gas costs may be based on independent third-party quotes.”

PJM asked FERC to dismiss the complaint in January 2019 on the grounds that the Monitor lacked the authority to override the RTO’s interpretation of Tenaska’s FCP. Ultimately, in a separate docket, FERC reaffirmed the Monitor’s right to protest FCPs. (See FERC Upholds Monitor’s Right to Protest Fuel-cost Policies and Another Win for PJM Monitor on Fuel-cost Policies.)

But FERC agreed with PJM’s decision not to penalize Tenaska, writing Thursday that the company “had a range of potential third-party quotes from which to choose and opted to rely on those on the lower end of the range.”

“The Market Monitor provides no basis for establishing this was an unreasonable choice under the circumstances presented in this case,” the commission wrote. “Thus, we conclude that PJM acted reasonably in finding that Tenaska acted in accordance with its FCP.

“We recognize that illiquid market conditions can present challenges in calculating accurate fuel costs,” the commission added. The ruling advised PJM stakeholders to continue to refine FCPs “to clarify processes for determining how a seller will develop its cost to address a wide array of market conditions, including illiquid conditions, consistent with PJM’s Operating Agreement requirements.”

The ruling comes just four days after the commission posted a mostly unredacted version of Tenaska’s January response to the Monitor’s complaint, including the FCP in use Jan. 5-6, 2018, when the alleged violations occurred. (See related story, FERC Releases Documents in PJM Fuel-cost Dispute.)