Greater Than $1,000/MWh Cost Offer Revised Verification Procedure

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1 Greater Than $1,000/MWh Cost Offer Revised Verification Procedure Scott Benner Sr. Engineer, Market Analysis Market Implementation Committee May 3, 2017

2 FERC Order 831 & Offer Capping PJM is already compliant with Allowing Generator Cost Offers above $1,000/MWh Allowing Virtual Transactions above $1,000/MWh Resource Neutrality (Generation or Demand Response) Capping Energy LMP at $2,000/MWh PJM needs work on Ex ante Verification of Cost Offers above $1,000/MWh before offer can be used to set Locational Marginal Price 2

3 Technical Verification of the Cost Offer required to verify that any incremental energy offer above $1,000/MWh reasonably reflects the associated resource s actual or expected costs prior to using that offer to calculate LMPs. Commodity (Fuel) Costs are usually estimated Market Sellers use long-term contracts, brokers, or spot market Depending on time of submittal, next gas day has not closed yet Member offer is always compliant with Fuel Cost Policy FCP defines the structure of the offer, and the procedure by which a market seller determines fuel cost estimates 3

4 Purpose of Screening Offer Verification intended to timely screen energy offer for reasonableness, not audit Fuel Cost Policy compliance Flag outliers and direct to Exception Process Brokers quotes, special rules, etc. will require manual review Market Seller s Estimated Total Fuel Cost submittal may be required Setting LMP with reasonable offers reduces uplift Fuel Cost Policy compliance & penalties still apply 4

5 Data Collection Provided by Market Seller 3 rd Party source referenced by PJM Unit Data Bid Data Fuel Data Heat Input Input/Output Polynomial No Load ($/hr) Fuel Price ($/MMBtu) Performance Factor Price/MW Pairs Other Adders Emergency Max MW 5

6 Maximum Allowed Incremental Cost Process Flow Energy Incrementals ($/MW, MW pairs) Production MW i-1 ($/hr) - Σ + Heat Input Table/ Polynomial Heat MW X Perf. Factor Energy Costs ($/hr) X Up to 10% Cost Adder Operating Rate ($/hr) + - Σ / Δ MW Commodity Price ($/mmbtu) X Fuel Variance (10%) + + Σ Energy No Load ($/hr) Maximum Allowed Incremental Cost ($/MW) 6

7 Verification Process The verified cost-based incremental offer limit will be a single calculated $/MWh limit, lesser of $2,000/MWh The greater of $1,000/MWh or highest validated price The submitted incremental $/MWh values will be capped at limit, and used for dispatch 1400 Schedule used for Make-Whole Schedule used for Pricing & Dispatch Price ($/MWh) Offer Cap

8 Screen to a Reference Cost PJM will administratively select a unit-specific natural gas trading hub as the reference price, as determined by the GECT PJM will use the hub WAP + 10% variance as reference price PJM will not use unit-specific fuel adders (transportation, etc.) Unit-specific Heat-input + PF values will be provided by the IMM or Market Seller, updated as specified in Fuel Cost Policy PJM will not use unit-specific VOM, Emissions, Other Adders PJM will use unit-specific 10% Cost Adder, as specified in Fuel Cost Policy 8

9 Verification Process Submittal Member Submits > $1,000/MWh Offer to Markets Gateway Verification results Incremental Costs Less Than Est. Costs Incremental Costs Over Est. Costs ALL Dispatch & Set LMP using Offer Capped at $2,000/MWh Offer Capped at Limit Offer Capped at $1,000/MWh Ex-Post Review Yes Yes Yes Makewhole To Costs > $2,000/MWh To Costs > Limit To Costs > $1,000/MWh $1,000/MWh Offer Not Screened Offer No To Offer 9

10 Implementation May 8 th, 2017 FERC Filing November 1 st, 2017 Proposed Implementation $1,000/MWh default cap, with unit-specific exceptions Markets Gateway submittal process unchanged Initial Screening & Exception processes will raise the cap To do: Formalize the Exception Procedure 10