Greater Than $1,000/MWh
Cost Offer
Revised Verification Procedure
Scott Benner
Sr. Engineer, Market Analysis
Market Implementation Committee
May 3, 2017
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PJM©2017
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
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PJM©2017
Technical Verification of the Cost Offer
“… required to verify that any incremental energy offer above
$1,000/MWh reasonably reflects the associated resource’s actual or
expected costs prior to using that offer to calculate LMPs.”
• Commodity (Fuel) Costs are usually estimated
– Market Sellers use long-term contracts, brokers, or spot market
– Depending on time of submittal, next gas day has not closed yet
• Member offer is always compliant with Fuel Cost Policy
– FCP defines the structure of the offer, and the procedure by which a
market seller determines fuel cost estimates
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PJM©2017
Purpose of Screening
• Offer Verification intended to timely screen energy offer for
reasonableness, not audit Fuel Cost Policy compliance
• Flag outliers and direct to Exception Process
– Brokers quotes, special rules, etc. will require manual review
– Market Seller’s “Estimated Total Fuel Cost” submittal may be
required
• Setting LMP with reasonable offers reduces uplift
• Fuel Cost Policy compliance & penalties still apply
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PJM©2017
Data Collection
Provided by Market Seller
Unit Data
Heat Input
• Input/Output
• Polynomial
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Bid Data
No Load
($/hr)
Performance
Factor
Price/MW
Pairs
Other
Adders
Emergency
Max MW
5
3rd Party source
referenced by PJM
Fuel Data
Fuel Price
($/MMBtu)
PJM©2017
Maximum Allowed Incremental Cost Process Flow
Energy Incrementals
($/MW, MW pairs)
Heat Input
Table/
Polynomial
Heat
Required
@ MW
Commodity Price
($/mmBTU)
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X
Energy
Up to
Costs X 10% Cost
($/hr)
Adder
Perf.
Factor
+
X
Fuel Variance
(10%)
Production Cost
@ MWi-1 ($/hr)
Operating
Rate
($/hr)
Energy No Load
($/hr)
Σ
+
6
-
Σ
+
+
Σ
/ Δ MW
Maximum Allowed
Incremental Cost
($/MW)
PJM©2017
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 $/MWh values will be capped at
limit, and used for dispatch
Price ($/MWh)
1400
Schedule used for Pricing & Dispatch
Schedule used for Make-Whole
1200
1000
Offer
Cap
800
600
400
200
0
0
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100
200
300
400
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PJM©2017
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
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PJM©2017
Verification Process
Submittal
Member
Submits >
$1,000/MWh
Offer to
Markets
Gateway
≤ $1,000/MWh
Offer
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Verification
results …
Incremental
Costs Less
Than
Est. Costs
Incremental
Costs Over
Est. Costs
Not Screened
ALL
Dispatch &
Set LMP
using …
Ex-Post
Review
Makewhole
Offer Capped at
$2,000/MWh
Yes
To Costs >
$2,000/MWh
Offer Capped at
Limit
Yes
To Costs >
Limit
Offer Capped at
$1,000/MWh
Yes
To Costs >
$1,000/MWh
Offer
No
To Offer
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Implementation
• May 8th, 2017 – FERC Filing
• November 1st, 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
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PJM©2017