FERC on Thursday ordered PJM to make an additional compliance filing on its rules for fast-start resources, saying the RTO’s proposal gave itself too much discretion (ER19-2722).

The commission found that PJM partially complied with its April 2019 ruling following a paper hearing, which concluded that the RTO’s fast-start pricing practices were unjust and unreasonable because they did not allow prices to reflect the marginal cost of serving load. (See FERC Orders Fast-start Rules for PJM, NYISO.)

FERC ordered PJM to submit an additional compliance filing within 60 days and a one-time informational report within five months on its progress on addressing long-term pricing and dispatch issues.

The paper hearing order contained eight directives, including that PJM implement software changes so that fast-start resources are considered dispatchable from zero to their economic maximum operating limits for the purpose of setting prices. It also required the RTO to apply fast-start pricing to all fast-start resources instead of only block-loaded resources and to revise its real-time energy market clearing process to consider fast-start resources consistent with minimizing production costs.

The commission accepted PJM’s responses on six of the directives, which were not challenged by intervenors.

More Detail Needed

But FERC said the RTO failed to provide sufficient detail in its proposed Tariff changes on its process for determining eligibility for fast-start resources.

The commission agreed with commenters that PJM’s proposed definition, which would have allowed the RTO’s Office of the Interconnection to deem a resource capable of meeting eligibility criteria based on its operating characteristics, would give PJM too much discretion.

“Specifically, PJM must provide the standards and process by which the PJM Office of Interconnection will deem a resource capable of meeting eligibility criteria including, for example, which operational characteristics may be considered as well as the conditions under which PJM may change a resource’s status as a fast-start resource,” FERC said. “While we acknowledge that PJM may need some amount of discretion in determining eligibility in order to prevent sellers from erroneously triggering fast-start pricing, the criteria and process that PJM uses to exercise this discretion should be transparent and clearly defined in the Tariff.”

It rejected PJM’s contention that its proposal was appropriate because it has broad authority to determine which units are physically capable of providing synchronized reserves. “Because fast-start resources are often the marginal unit and the eligibility to be considered a fast-start resource changes how that resource will affect prices, we find that fast-start resource eligibility is distinct from synchronous reserves in PJM,” FERC said.

‘Price Chasing’

The commission accepted PJM’s proposal to use lost-opportunity-cost payments to offset the incentive for over-generation or “price chasing,” rejecting protests by the Independent Market Monitor and consumer advocates from Illinois, Maryland, New Jersey, D.C., West Virginia and the PJM Industrial Customer Coalition (filing together as Joint Customer Advocates).

“PJM’s proposed Tariff revisions ensure that resources do not have an incentive to deviate from PJM’s dispatch instructions” to take advantage of higher prices that result from fast-start pricing, FERC said. “We are not persuaded by arguments made by Joint Customer Advocates and the Market Monitor that PJM’s proposal to pay dispatch differential lost opportunity credits would do so on a five-minute basis without regard to the overall profitability of the resource. We find that PJM’s proposal ensures that resources follow dispatch instructions and do not deviate for financial gain.”

The commission said it agreed with PJM that the introduction of distinct dispatch and pricing runs in the day-ahead market could result in cases in which the day-ahead scheduling reserve clearing price credit may not fully cover the opportunity cost associated with the day-ahead scheduling reserve commitment obtained from the dispatch run. It also agreed that fast-start pricing may change the incentives for virtual transactions, price-sensitive demand and dispatchable exports.

But it rejected as beyond the scope of the proceeding PJM’s proposal to provide additional uplift payments to address those issues. Instead, it said the RTO should “monitor these issues and work with its stakeholders to address whether uplift payments for virtual transactions, price-sensitive demand and dispatchable exports may be needed in the future.”

It also directed PJM to include in its compliance filing a proposed effective date for its Tariff changes that reflected its estimate of when software changes will be completed to implement the changes.

Offer Cap

The commission rejected PJM’s proposal to apply the offer cap requirements of Order 831 to the composite energy offers under its fast-start pricing proposal. (See New FERC Rule Will Double RTO Offer Caps.)

“We recognize, as PJM states, that such a proposal may be complex and may require an administrative solution. However, PJM must propose a solution that complies with Order No. 831’s requirements.”

It ordered PJM to provide Tariff revisions capping composite energy offers at the higher of $1,000/MWh or a resource’s verified composite energy offer and capping composite energy offers at $2,000/MWh for purposes of setting LMPs.

It accepted PJM’s proposal to trigger shortage pricing based on the results of the pricing run, rejecting the Monitor’s contention that it will result in false negatives. It agreed with PJM that its approach could introduce false positives, “but we find that the likelihood of such positives to be de minimis given the commission’s recent approval of PJM’s reforms to its reserve penalty factor provisions.”