By Rory D. Sweeney
Stakeholders continue to react coolly to PJM’s proposed rules for generator fuel-cost policies, spending two and a half hours expressing their concerns at last week’s Market Implementation Committee meeting.
PJM has held three meetings in the past three weeks to explain the policy to stakeholders, several of whom said last week that the rules are more punitive than incentivizing. The RTO is due to make an interim compliance filing on the issue Aug. 16.
The rules have been revised so that sellers without approved fuel-cost policies are not required to submit cost-based offers. They can, however, submit negative price offers and are subject to the greater of their capacity resource’s deficiency charges or nonperformance charges — such as those from a performance hour assessment.
A seller would have 30 days to revise a rejected policy, during which time the seller would revert back to using a previously approved policy.
A seller deemed by PJM and the Independent Market Monitor to have violated its approved policy would be subject to a separate penalty. The amount would be calculated via a formula based on the unit’s capacity and the LMP at its bus. The penalties would begin five days after the seller is notified about the noncompliance.
The proposal has “significant problems and needs substantial rethinking,” said Monitor Joe Bowring, who distributed his own proposal that requires CP units that don’t have approved policies to make offers, but penalizes them in a way similar to the unit capacity/LMP formula.
“It sounds like one bad rule offset by another bad rule,” Bowring said of PJM’s proposal. “They all have unintended consequences. What that means is that the units aren’t going to offer in, which isn’t what you want. You want units to offer in.”
“Unless we’re just trying to find another way to penalize a generator, can we please rethink this?” asked Jason Cox of Dynegy. Instead, the lost opportunity created by holding sellers to a $0 offer “seems like a pretty efficient way to get them to get a policy done,” he said.
Stakeholders felt the policy lacked clarity. Bob O’Connell of Main Line Electricity Market Consultants said that it has no way to maintain compliance, no procedure for making necessary revisions while maintaining compliance and no timeline for that process.
Ed Tatum of American Municipal Power said stakeholders have expressed “grave concerns” that “this penalty is overly punitive, goes beyond the scope of the order and is generally bad market design.”
Under the proposal, if the Monitor disagreed with a PJM-approved policy, it could refer it to FERC’s Office of Enforcement.
That, said Tatum, is “unacceptable.”
The purpose of the policy is twofold, Bowring explained: to ensure compliance with all requirements to participate in the PJM market and that offers are consistent with competitive offers. Sellers need to document a verifiable and systematic method for calculating cost-based offers, he said.
“There has to be recognition that we’re changing the paradigm about fuel-cost policies; it makes sense to give everyone enough time to get there, but there have to be incentives to get there so people are not simply wasting time [and] everyone’s working toward that same objective,” he said.
Stakeholders questioned how the policies would be reviewed and whether the process or the result was the real focus.
“I’m just hopeful that in the final language, that we’re talking about the reasonableness of the process, not the reasonableness of the result and that that’s really clearly articulated to everybody,” said Mike Borgatti of Gabel Associates.
The proposal is scheduled to be brought to votes by the MIC, along with the Markets and Reliability and Members committees next month, with board approval targeted for October before a filing with FERC.