By Christen Smith
VALLEY FORGE, Pa. — Consensus on fuel-cost policies (FCPs) may elude PJM stakeholders as the Market Implementation Committee prepares for a vote on three divergent plans to restructure penalties and annual reviews.
The Independent Market Monitor and a collection of stakeholders want the RTO to ditch its yearly evaluation of unchanged FCPs and to consider extenuating circumstances when calculating fines for sellers who break those policies by failing “aggregate” market power tests.
“We are trying to go back to the way we did things before,” said Joel Romero Luna of Monitoring Analytics. “PJM or the IMM approved a fuel-cost policy and that remained in place until one of those parties or the participant said it was not good enough anymore.”
PJM argued that eliminating the annual review could allow ineffective policies to slip through the cracks, though it would consider a truncated analysis process as part of a compromise.
“We don’t want them [FCPs] to become stale,” said Glen Boyle, PJM’s manager of system operations analysis and compliance. “We want them reviewed once a year.”
When it comes to implementing an aggregate market power test, however, RTO staff said adopting such a process was “out of scope” of the MIC special session for retooling FCP rules.
PJM’s existing rules went into effect more than two years ago after months of contentious debate. In June 2017, the Monitor announced that it had rejected fewer than 5% of 479 FCPs during its annual review, accounting for roughly 11% of generating units. (See PJM Monitor Rejects Fuel-Cost Policies for 11% of Units.) Sellers without approved FCPs who offer into PJM’s markets currently face a penalty for doing so — though the Monitor proposes no longer allowing generators without an approved FCP to submit nonzero cost-based offers.
The Monitor wants to keep the current penalty factor when a unit fails the local/aggregate three-pivotal-supplier (TPS) test or submits an offer above $1,000/MWh. Romero Luna said the penalty should double when the unit either clears the day-ahead market or runs in real time on an incorrect cost-based offer and sets the marginal LMP, receives make-whole payments or offers above $1,000/MWh. Penalties would decrease to 10% when those two conditions don’t apply.
If a generator “self-identifies” the error and neither of the impact conditions apply, the penalty would drop 50%. If one or both of the situations occur, the penalty is reduced just 25%.
“We heard the current penalty didn’t have an incentive for people to self-identify errors that they made and that the penalties were too high,” Romero Luna said.
Under the Monitor’s plan, a self-identifying generator with a 500-MW output and average real-time LMP of $40/MWh would see its existing $24,000 penalty reduced to as little as $1,200.
Adrien Ford of Old Dominion Electric Cooperative said a joint proposal from stakeholders shares a lot of similarities with the Monitor’s plan — except that self-identified errors reduce penalties to 25% and it creates a “safe harbor” policy for “unusual situations not contemplated by the FCP.”
“We followed the IMM framework while adjusting the value and adding a cap,” she said. More specifically, the joint stakeholder plan applies the current penalty factor if a unit clears the day-ahead market or runs in real time on cost-based offers and is paid a balancing operating reserve or the cost offer is above $1,000/MWh — or a unit fails the TPS test for constraints. If none of these conditions apply, the full penalty is reduced 90%.
The penalty calculation is assessed for each hour of the invalid offer and is capped at the calculated net energy margin for any impacted hour, Ford said.
The MIC will vote on the packages at its August meeting, just in time for the self-imposed Aug. 7 deadline set for the special session.