By Rory D. Sweeney

PJM’s Independent Market Monitor said last week that it has rejected fuel-cost policies for 11% of generating units for the review period ending May 15.

The Monitor said 22 of the 479 power supplier fuel-cost policies it evaluated — less than 5% of the policies, but representing 11% of units — failed to meet its standards for being algorithmic, verifiable and systematic.

Sellers must go through the process again starting June 15, when PJM’s annual review period begins. The annual review runs through Nov. 1.

The policies are important because sellers will be penalized if they choose to offer into PJM’s markets without them.

“Before you put an offer into Market Gateway, you need to have an approved fuel-cost policy,” PJM’s Jeff Schmitt said.

‘Ask Bob’

The initial review was the culmination of a long and often contentious coordination between the RTO and Monitor to get every market seller who must source fuel to submit a policy explaining how it developed the fuel costs included in its cost-based offers. PJM approved all offers submitted.

“We don’t actually agree with PJM that all of the policies that PJM agreed to were consistent with the Tariff,” Bowring said. There were several of the issues that caused his team to fail policies, including submission of unsupported cost adders and reliance on internal estimates.

“That’s what we refer to as ‘Ask Bob.’ So you go down the hall and ask your trader,” Bowring said, noting that the “probably 80%” of gas-fired units that used that method two years ago was “reduced dramatically.”

Some of the explanations shocked stakeholders.

“Someone for real submitted a gas hub that was not in any way, shape or form physically related to the unit that they were submitting it for and didn’t give an explanation as to why?” EnerNOC’s Katie Guerry asked. “You’re saying that someone submitted it without any sort of attempt at explaining it to you, knowing who you are?”

“Precisely,” Bowring responded. “Believe me, we understand all the nuance and subtleties about how it could be.”

Fatigue Among Stakeholders

The ongoing fuel-cost policy requirements have created fatigue among some stakeholders. During last week’s Market Implementation Committee meeting, Gabel Associates’ Mike Borgatti reconstructed the timeline.

“By May 15, we had to get our fuel-cost policies approved to resubmit them by June 15 to maybe get them approved again by Nov. 1, right?” he asked.

Sellers are required by June 15 to submit updated policies to PJM or confirm that their current policies remain compliant. The Monitor will make its determination on policy reviews by Aug. 1, which is also the deadline for sellers to provide policies and sample emissions, variable operations and maintenance calculations to PJM. The Monitor plans to have a fuel-cost policy template incorporating hourly offers available this week, and PJM expects to have its templates ready June 30.

PJM will make its determination on polices by Nov. 1. Schmitt said that review will capture any changes to ensure the policies allow for intraday offers.

“It’s not that we’re trying to recreate work. We just want to make sure that we’re good to go going forward for the winter,” he explained.

With the implementation of FERC Order 825, sellers will be able to update offers hourly to adjust for changing market and supply conditions.

“We know this process is not easy,” said Joel Romero Luna, who is part of Bowring’s team at Monitoring Analytics. “I’ll be surprised if anyone submits by June 15 a policy that captures hourly offers, so it’s my expectation that we’ll work through it, and hopefully we’ll get something acceptable by Nov. 1.”

Online Systems

Going forward, PJM and the Monitor will be using online systems for the process. The Monitor will require all market participants to use a new section on its Member Information Reporting Application (MIRA) for reporting cost-based offer data as of June 30.

The new “Cost Offer Assumptions” module was brought online June 12 with the expectation of having all market sellers transitioned by the end of June. The Monitor uses the inputs to verify sellers’ cost-based offers. Participants will need to verify that the data is correct because “incorrect or incomplete data in MIRA may trigger an evaluation of cost-based offers for potential penalties under Schedule 2 of the Operating Agreement,” the Monitor said.

PJM will also be using “a tool” to track policies, which Schmitt said could be MIRA — although that isn’t assured.

Bowring said one of his frustrations is securing PJM’s commitment on the topic.

“My read of what PJM has been telling us is that they don’t intend to rely on MIRA, but I’m not quite sure why. It’s going to cost them at least millions of dollars in order to replace it on their side,” he said. “Until PJM tells us they’re going to rely on it, we’re not making changes to make it work more smoothly for PJM.”