By Michael Brooks

The Federal Energy Regulatory Commission said Tuesday that PJM should not have included a 10% adder in its calculation of make-whole payments to generators whose costs exceeded the $1,000/MWh offer cap last winter.

FERC granted a rehearing request to PJM’s Independent Market Monitor, agreeing that including the adder —  typically included in cost-based offers to account for the uncertainty of calculating operating costs for combustion turbines under changing ambient conditions — was a mistake.

FERC said that the generators subject to their Jan. 24 waiver of the offer cap would still “receive make-whole payments by documenting the cost and volumes of natural gas needed to generate electricity.”

But the commission said that because the generators’ actual costs are now known, including an adder meant to cover uncertainty was inappropriate.

“This type of ex post determination does not contain any inherent uncertainty that would warrant an adder whose purpose in ex ante offers is solely to enable resources to recover uncertain or difficult-to-quantify costs,” FERC said.

The Monitor had argued in a March report that the adder portion was “not an actual cost and the generation owners did not pay it.” (See Stakeholders Preview Offer-Cap Debate.)

Denied

In its rehearing request, the Monitor also argued that non-capacity natural gas-fired generation resources should receive relief so as not to deter them from participating with PJM. FERC, however, disagreed.

“PJM’s filing requested a temporary waiver only for generation capacity resources and, therefore, we will not extend the waiver to other generators,” FERC said. “Further, no party in this proceeding has presented evidence that natural gas-fired generators other than generation capacity resources had documented costs above the market-clearing price.”

FERC also denied requests for rehearing from the Maryland Public Service Commission and the PJM Industrial Customer Coalition.

The coalition said customers shouldn’t be forced to pay higher prices due to generators’ decisions not to hedge against price spikes in the natural gas market. The coalition also said the waiver should have been limited in scope to specific PJM zones rather than the entire footprint.

FERC countered that the events of late January amounted to an emergency that harmed confidence in the wholesale markets and threatened reliability. “Delaying the issuance of the order could have threatened reliability by discouraging generators from making their units available,” FERC said, adding that its broad waiver was consistent with past orders during emergencies.

FERC’s denial of the PSC’s request was mostly procedural: the PSC had requested a detailed report from the Monitor explaining the basis for determining make-whole payments. The PSC filed its request on Feb. 21; one month later, the Monitor filed its report.