PJM Presents Proposed Fuel Cost Policy Changes at Special MIC

At a special session of the Market Implementation Committee Wednesday, PJM presented the basics of its Aug. 16 hourly offers compliance filing with the Federal Energy Regulatory Commission.

The filing addresses the FERC’s order for changes in the implementation of hourly offers in the energy market, including cost-based offer requirements and a related new process for market participants to submit fuel cost policies.

At the commission’s direction and guidance, PJM is proposing market rules requiring each market seller to submit for PJM approval documentation detailing the manner in which it procures fuel for its generation resources.

The filing maintains the independent market monitor’s FERC-designated role in providing advice and input on fuel cost policies. PJM’s proposal expressly contemplates important input from the market monitor.

A June 17 FERC compliance order gave PJM specific direction for changes to its previous filing to implement hourly offers. The commission directed PJM to allow market participants to submit offers into the day-ahead energy market that vary by the hour and to be able to update their offers hourly in the real-time energy market.

PJM needed to enhance its current process to comply with the commission’s requirement that a fuel cost policy approved by PJM must be in place in order to submit hourly cost-based offers.

“The changes related to fuel cost policy are required to implement hourly offers,” said Stu Bresler, senior vice president – Operations and Markets. “With the FERC’s directive, the current fuel cost policy approval process is no longer just and reasonable, and the provisions in Manual 15 on Cost Development lack clarity on the process and the standard of review.

In PJM’s proposal, the market monitor has an important role in determining whether a cost-based offer is in compliance with the approved fuel cost policy. The filing explains that the current process does not detail the market monitor’s role, has led to confusion and is unclear without timelines and deadlines.

“Nothing in the proposed process is designed to interfere with the market monitor’s ability to make referrals to FERC for alleged exercise of market power,” Bresler said.

The filing also follows the FERC’s direction on assigning penalties for market sellers that do not have an approved fuel cost policy or that submit cost-based offers that do not comply with their approved fuel cost policies.

Bresler said the compliance filing establishes proper incentives for market sellers to submit accurate cost-based offers and greater offer flexibility and fully satisfies the commission’s directives.

Chronology for fuel cost policy filings
  • Nov. 20, 2015: PJM submitted its initial filing to the FERC, with proposed market rules changes.
  • Feb. 3, 2016: The FERC issued several questions to PJM regarding the November Filing.
  • March 4, 2016: PJM submitted detailed responses to the commission’s questions.
  • June 17, 2016: The commission issued the compliance order finding that “PJM’s current Tariff is unjust and unreasonable because it does not allow market participants to submit offers that vary by hour in the day-ahead energy market and to update their offers in real time.”