Cost Development Task Force Unit Specific Opportunity Cost Calculation Proposal

PJM Market Reliability Committee Stan Williams July 30, 2009

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Background

FERC Order EL08-47-000 issued February y 19, , 2009 found:

There is not sufficient evidence to meet the Federal Power Act section 206 burden to show that the three-pivotal-supplier test, which PJM uses in its market power mitigation process, is unjust and unreasonable as it relates to assessing the structural competitiveness of the PJM energy market market. However, we find that the application of the related price mitigation measures is unjust and unreasonable because the measures do not clearly define and fully account for the inclusion of unit-specific opportunity costs in mitigated offer prices prices.

This order established a procedure to address this concern.

On or before July 31, 2009, PJM is to make a compliance filing that proposes an approach for addressing the incorporation of opportunity costs in mitigated offers. Within 30 days after that filing, other parties may provide comments on the PJM proposal or submit their own specific proposals for resolving this issue. PJM will then have 20 days from the date of filing to respond.

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MRC Directive to the CDTF

The PJM Market Reliability y Committee (MRC) ( ) directed the Cost Development Task Force (CDTF) to provide a recommendation, with majority and minority viewpoints as necessary, necessary to address the opportunity cost compliance obligation for the FERC TPS order at the MRC meeting on June 17, 2009.

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FERC Clarification Order Issued May 28, 2009

FERC Issued EL08 EL08-47-003 47 003 Order on clarification May 28, 28 2009:
PJM needs to consider all legitimate and verifiable opportunity costs as part of its stakeholder process and its compliance filing. We also find it reasonable for PJM to focus on opportunity costs related to energy and environmental limitations in the July 31, 2009 compliance filing and to include in that filing a plan for developing additional market rules for other types of opportunity costs. costs Parties will have an opportunity to comment on that compliance filing.

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CDTF Opportunity Cost Questionnaire Results

PJM staff p provided the results received from the Opportunity Cost Questionnaire provided to PJM members on June 23, 2009. The results of the survey are as follows:
20 companies responded Five companies reported they are directly affected by restrictions T Two companies i reported t d th they are not t currently tl facing f i any restrictions t i ti Four companies indicated they are facing restrictions, however, their operating practices will not be impacted in the short term. This could change as a result of additional legislative changes 43 units are facing limitations on their operating practices 75 units do have restrictions but these restrictions do not currently p the operation p of their units impact
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CDTF Recommendation

Recommendations from the CDTF were provided to the PJM MRC at their June 17 17, 2009 meeting with approval from the MRC being requested July 30, 2009. The proposal is as follows:
Implementation of a new procedure to calculate opportunity costs that occur as a result of an externally imposed run limitation.
PJM will incorporate a field in which owners of generation units with limited run hours due to environmental or regulatory restrictions will be able to record in eMkt their opportunity cost components embedded in their cost-based offers on or before January 1, 1 2010

By June 1, 2010, the CDTF will develop and implement proposals to address legitimate and verifiable opportunity costs that are for reasons other than externally imposed environmental restrictions
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Proposed Timeline for Implementation

Generation owners will be able to begin including opportunity costs in their cost-based cost based offers for units with limited run hours due to environmental or regulatory restrictions on or before January 1, 2010
Internal PJM discussions are taking place to determine the timetable reasonable for developing and implementing an opportunity cost calculator into eMkt PJM will post a template in which generators are responsible for data collection and maintenance as soon as FERC approves a method
Generation owners will be required to supply PJM and the IMM with all relevant data inputs
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Next Steps

PJM will submit the required compliance filing to FERC Order EL08-47-000 EL08 47 000 on or before the required date of July 31, 2009. PJM Member Committee and PJM Board Approval is required for Cost Development Task Force Manual 15 changes. g These approvals pp are anticipated p to be completed p in August 2009 yp of CDTF will continue discussions on additional types opportunity costs
Recommendations will be presented to the MRC, MC and PJM B d as appropriate. Board i
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