Independent power producer Nautilus Power asked FERC to dismiss PJM’s penalties against three of its generators that failed to operate during the December 2022 winter storm, saying two of the units were not needed to address capacity shortages and that the RTO failed to implement processes to address natural gas supply constraints.
In a complaint filed March 30, the company argues that the generators had not been properly notified that they would be required to go online and that the penalties would not incentivize any behavior that could avoid future charges.
The company wholly owns Essential Power, which owns a 383-MW natural gas generator in Lakewood, New Jersey, and Essential Power Rock Springs, which owns a 773-MW gas-fired generator in Rising Sun, Maryland. It has majority ownership of Lakewood Cogeneration, which owns a 237-MW generator with dual fuel capability. All three plants were hit with penalties related to Winter Storm Elliott on Dec. 23 and 24 (EL23-53).
“Under these circumstances, where the adverse impact to PJM was minimal, where the Nautilus Entities were not needed by PJM during many intervals of both [performance assessment intervals], where PJM itself failed to follow its own emergency procedures and therefore prejudiced the Nautilus Entities’ ability to respond to PJM directives, and where the imposition of nonperformance charges on the Nautilus Entities will impose a significant economic burden on the Nautilus Entities, the nonperformance charges that PJM intends to impose on the Nautilus entities are unjust and unreasonable,” the complaint states.
PJM has stated that it expects at least $1 billion in capacity performance penalties to be assigned to generators following a peak of 46,000 MW of outages during Winter Storm Elliott, with the single largest cause being gas-fired generators being unable to procure fuel. PJM and stakeholders have raised concern that the scale of the penalties could lead to widespread defaults, leading PJM to ask FERC to permit a longer payment period of up to nine months. (See PJM Weighs Options for Winter Storm Elliott Follow-up.)
All three generators listed in the complaint had not cleared in the day-ahead market and were not listed as being required in the reliability assessment and commitment (RAC) period and were unable to obtain fuel when they were called on by PJM to operate during the storm. Though the Lakewood generator possesses dual fuel capability, it was not able to procure the natural gas it needs for startup.
The complaint requests that FERC prevent PJM from assessing nonperformance charges to Essential Power and Rock Springs after 12 p.m. on Dec. 24, arguing that they were not needed during those periods. It also requests that Rock Springs not be subject to charges on Dec. 23 and for the first two hours of the Dec. 24 performance assessment interval (PAI), during which it states that it was not scheduled to operate.
As an alternative remedy, the complaint asks that all three generators be relieved of penalties for settlement intervals in which they were not running during both the Dec. 23 and 24 PAIs.
The argument that Essential Power and Rock Springs were not needed for reliability stems from LMPs falling around noon on the 24th, with prices being half what they were earlier in the day by 1 p.m. The complaint argues this shows that shortage conditions had alleviated and the maximum generation emergency and corresponding PAIs should have been lifted. However they remained in place until 10 p.m.
“Imposing substantial nonperformance charges on OPP and Rock Springs for nonperformance during intervals when they were not needed by PJM is highly unreasonable and arbitrary,” the complaint states.
The complaint also states that Rock Springs was not contacted for dispatch for two hours after the maximum generation emergency was initiated at 4:25 a.m. on Dec. 24, which it argued was an intentional decision by PJM dispatchers due to the likelihood that the generator coming online would have exacerbated a constraint and could have led to an outage. It noted that PJM has previously rejected self-schedule requests for that reason.
Nautilus argued that PJM failed to provide enough notice for generators to procure fuel by not declaring a winter weather alert giving generators 24 hours’ notice that they would be expected to be available. Instead it said the RTO “abruptly” jumped into emergency conditions and left gas generators to compete for limited pipeline capacity with elevated fuel costs. It argued the justification for high nonperformance penalties when the construct was proposed in 2015 was that generators would be given sufficient ability to prepare for emergencies and the risk would incentivize behaviors to avoid being charged.
“In its initial filing of the nonperformance charge proposal, PJM itself cited this progression of incremental steps as a justification for the severity of the proposal … However, in the course of the two days at issue in this complaint, PJM skipped right over these interim steps, going from a preliminary notice that a cold weather alert might be needed (that is, the cold weather advisory) straight to an emergency action,” the complaint argues.
It also said that due to firm day-ahead fuel service being sold in a package over weekends and the timing of the holiday weekend, generators would have had to purchase four days’ worth of fuel or vie for scarce single-day packages that might not be filled by pipeline operators giving preference to residential and commercial customers. Since both the PJM dispatch and the forecast the RTO relies upon, as well as pipeline operator practices, are outside of the control of generation owners, the complaint argues that the charges don’t incentivize any behavior other than potentially exiting the capacity market.
“The existing rules allow burdensome nonperformance charges to be imposed on natural gas-fired generators in circumstances where those generators have no reasonable opportunity to avoid those charges,” the complaint says.
