By Rory D. Sweeney

PJM is trying to usurp the Independent Market Monitor’s authority to regulate fuel-cost policies and consequently increasing market participants’ ability to exercise market power, the Monitor argued in a protest Friday (ER16-372).

PJM’s proposed plan for evaluating fuel-cost policies, filed Aug. 16, “would substantively change the roles of PJM and the Market Monitor in the review of offers for market power in a manner inconsistent with the Tariff’s specifications of roles,” IMM staff wrote. “Participants will have the ability and incentive to submit inaccurate cost-based offers.”

The debate over the rules governing fuel-cost policies stems from a 2015 FERC order requiring the RTO to allow day-ahead offers that vary by the hour and the ability of generators to update offers in real time. (See Heeding Stakeholders, PJM Reduces Proposed Fuel-Cost Penalties.)

The Monitor said that daily offers limited generators’ “ability to exploit real-time constrained conditions.” The switch to hourly offers, it said, requires “increased rigor” in mitigation design and the implementation of the three pivotal supplier test in addition to fuel-cost policies.

Other responses to PJM’s filing largely supported the RTO’s effort to develop hourly offer rules, but they differed on how fuel-cost policies should be handled and what role the Monitor should play.

‘Define the Roles’

The Pennsylvania Public Utility Commission and the Delaware Public Service Commission said in a joint filing that “PJM’s [fuel-cost policies] proposal undermines the Independent Market Monitor’s role in detecting and addressing market power concerns” and urged FERC to adopt the Monitor’s standards.

In a joint filing supporting PJM’s proposal, American Electric Power, Dayton Power and Light, FirstEnergy, Duke Energy, Buckeye Power and the East Kentucky Power Cooperative asked the commission to “plainly define the respective roles” of PJM and the Monitor in the process.

“Market sellers are squarely in the middle of a perfect storm created by ambiguous governing documents, new commission directives and a complete lack of clarity concerning the role of the IMM,” the group wrote. “The result is untenable risk associated with submitting cost-based offers without approved fuel-cost policies. Failing to act timely, or at a minimum to preserve the status quo while the commission deliberates, will perpetuate an already fraught state of affairs.”

Dominion Virginia Power reiterated those sentiments in its filing, asking “that the commission establish final authority with one entity.”

The Organization of PJM States Inc. asked FERC to view the docket in a larger context. “Discounting the IMM’s current role could provide a signal to resources that they would no longer be held fully accountable to IMM oversight, potentially eliminating the proper incentive to submit accurate cost-based offers,” OPSI wrote. “The commission should consider the broad implications of approving any filing that usurps the IMM’s existing market power authorities.”

The American Petroleum Institute focused on the structure of the policy itself, saying the rules “need to provide generators some degree of flexibility to procure fuel in the lowest cost manner.” Specific rules about how to procure fuel “may restrict generators in a way that could lead to higher consumer costs.”

API also protested PJM’s proposal that all policies on which the RTO and the Monitor can’t agree on should be referred to FERC’s Office of Enforcement. The group called for a dispute-resolution process instead.

No ‘Bright Line’

The PJM Power Providers Group agreed procurement practices shouldn’t be dictated. “The purchasing of fuel for power generation is a complicated and thoughtful piece of any generator’s business strategy,” P3 wrote. “PJM and the IMM should not attempt to replicate the market or impose a formulaic evaluation on generators, as such a task would prove nearly impossible and more likely lead to chaos during times of system stress.”

Dominion agreed that PJM’s proposal is too restrictive. Fuel-cost policies should not be “a pre-existing, bright-line formula for all market conditions,” Dominion wrote. “This expectation is unrealistic and made more unreasonable by PJM’s failure to first require consultation regarding suspect cost-based offers before they are deemed to be not in compliance with a resource’s fuel-cost policy.”

The company called for a system similar to ISO-NE’s, in which its Internal Market Monitor estimates a competitive offer that creates a “reference price” against which all market offers are compared. It also asked that PJM’s proposed penalty — requiring units without an approved policy to submit an offer of $0 — be replaced with a less punitive option and that companies not be required to submit a policy for each type of fuel at a unit, estimating it would need to maintain more than 100 separate policies.

No matter what FERC’s decision, it should be made quickly, P3 urged. “Every winter that passes without hourly offer flexibility is a winter in which the market is less efficient, suppliers are exposed to inadequate cost recovery and reliability is potentially” compromised, the group wrote.

Monitor’s Proposal

The Monitor proposed a clear delineation between the responsibilities of PJM, which would conduct a compliance review with IMM input, and the Monitor, which would conduct a market-power review without PJM involvement. The Monitor said its review will ask that policies are algorithmic, verifiable and systematic. They would need to show:

• a set of defined, logical steps;
• a fuel price that can be calculated by the Monitor after the fact with the same data available to the generation owner at the time the decision was made and documentation for that data from a public or a private source; and
• a standardized way for calculating fuel costs including “objective triggers” for each method.

PJM proposed a joint review that it would control with input from the Monitor. The RTO’s proposal creates “a critical flaw” because it doesn’t “preserve the Market Monitor’s role in market-power reviews and to tie the consequences for noncompliance to that review,” the Monitor said.