Washington — A change sought by the Electric Power Supply Association to the penalty structure tied to intraday offers in PJM Interconnection's energy market could open that arena up to gaming, the grid operator warned, as it also continued to push the US Federal Energy Regulatory Commission to limit the ability of the regional transmission organization's independent market monitor to file complaints.

The grid operator's comments, filed with FERC, respond to pleas for the commission to rethink aspects of an April order (ER16-372) that approved a batch of changes to PJM's implementation of hourly offers and calculation of penalties for market sellers that do not follow PJM-approved fuel cost policies.

Those pleas included a rehearing request from EPSA that argued for removal of the one-day minimum of penalties for submitting non-compliant cost-based offers.

EPSA said automatic imposition of a penalty prior to notification of an infraction was "unduly punitive." It added that such retroactive penalties were otherwise prohibited by FERC, and capping such penalties at one day did not make the practice any less unlawful.

UNREASONABLE, CREATES GAMING OPPORTUNITIES

But PJM countered that "EPSA's position that market sellers should never be penalized if a non-compliant cost-based offer is corrected prior to PJM notifying such market seller is unreasonable and would create potential gaming opportunities."

Specifically, it would allow sellers to knowingly submit non-compliant offers for brief periods with no penalty, potentially raising locational marginal prices and disrupting proper dispatch of resources, PJM asserted.

"A one-day penalty strikes the appropriate balance between unduly penalizing a market seller of a non-compliant cost-based offer prior to being notified of the offending offer, while maintaining an effective deterrent against potential gaming behavior that could adversely impact the markets," the grid operator said.

PJM's filing also took aim at a motion for clarification, or alternatively rehearing, submitted by PJM's IMM, Monitoring Analytics, to broaden the IMM's recourse when it disagrees with the grid operator over whether a cost-based offer is non-compliant.

COMPLAINTS, OTHER ACTION

The IMM would like PJM's operating agreement amended to replace language that directs it to refer such disagreements to FERC's Office of Enforcement with language explicitly permitting the IMM to file a complaint or take other regulatory action.

PJM, however, contends that the enforcement office "is the proper branch of the commission to address allegations of rule violations or improper market seller offers."

"The market monitor's authority to file complaints or initiate other regulatory proceedings, while still being part of the PJM organization, presents broad legal and policy questions," the grid operator added. "Until the commission is prepared to resolve these issues, it would be inappropriate to expand the wording of the existing tariff as requested by the market monitor here."

PJM is separately seeking rehearing of the April order over FERC's denial of its request for clarification that the IMM is not authorized to file fuel cost policy-related complaints against the grid operator.

The IMM has said in the FERC docket that PJM's arguments on this matter have no merit.

-- Jasmin Melvin, jasmin.melvin@spglobal.com

-- Edited by Keiron Greenhalgh, newsdesk@spglobal.com