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PJM proposes rate recovery mechanism for gas contingency switching costs

The PJM Interconnection has its eye on closing a gap in its tariff and operating agreement that has prevented generators from recovering costs associated with a grid operator-directed switch to an alternative fuel or fuel source.

PJM, in a tariff filing submitted to the Federal Energy Regulatory Commission on Dec. 21 (ER19-664), proposed terms and conditions market sellers would need to follow to recover so-called gas contingency switching costs incurred during extraordinary operational circumstances.

Relatively low natural gas prices in recent years have boosted the share of gas-fired electricity generation in PJM, making gas-fired generators the fastest-growing segment of capacity resources in the region.

With increased reliance on gas, the grid operator set up protocols for assessing gas infrastructure contingencies and their impact on PJM's electric system.

These contingencies involve gas infrastructure component failures, such as pipeline breaks or the loss of compressor stations caused by weather events, cyber threats or physical attacks. The contingencies are "identified through simulations of the impact of gas infrastructure component failures on PJM gas-fired generation resources based on pipeline connectivity," the grid operator said in its filing.

To ensure reliability and mitigate the need to shed load or take other emergency actions, PJM has a system in place by which it can determine which generators are capable of switching to other pipelines or fuel sources when gas infrastructure is compromised and, if warranted, "issue an operating instruction related to such gas infrastructure contingency to safely switch the identified generators to their alternate fuel or alternate fuel sources," according to the filing.

That system, however, has no "rate recovery mechanism by which entities can recover costs associated with an operating instruction to temporarily switch to an alternative fuel or alternative fuel source, or by which PJM stakeholders can be given statutorily compliant prior notice of such costs prior to recovery," the grid operator said.

PJM said its proposed tariff and operating agreement revisions "address that gap by establishing a filed rate pursuant to which market sellers can in turn seek compensation for specific costs incurred as a result of a gas infrastructure contingency-related operating instruction to switch fuel type or source, so long as such cost recovery request is adequately supported through an individual [Federal Power Act] Section 205 filing."

PJM laid out why the proposed revisions, in its view, were just and reasonable. Among its arguments were that it would eliminate the financial discouragement generators face when asked to switch fuels, knowing they cannot recover those switching costs.

Such a "disincentive to act is unnecessary and may, under certain circumstances, result in market sellers hesitating to act during gas infrastructure contingencies, when decisive action may be critical," PJM said.

The grid operator asked the commission to approve its proposal with a Dec. 22 effective date, which would require a waiver of FERC's prior notice requirements that typically mandate at least 60 days' notice before new rate schedules and tariffs can take effect.

PJM said "good cause exists to grant waiver" as it would allow the grid operator's proposed compensation mechanism "to be available to market sellers as soon as possible during the winter operating season, when such gas contingency switching costs are most likely to be incurred in the unlikely event that conditions require gas-fired generation resources with the appropriate capability to temporarily transition to an alternative fuel or alternative fuel source."

Jasmin Melvin is a reporter for S&P Global Platts, which, like S&P Global Market Intelligence, is owned by S&P Global Inc.