Monitoring Analytics Fuel Cost Policy Guidelines
General Instructions: The purpose of a fuel cost policy is to describe in detail the methodologies used by
the participant to develop cost-based energy offers for various unit types conforming to the guidelines
in PJM Manual 15. The fuel cost policy shall describe all components of the Total Fuel Related Cost
(TFRC) and how they are derived with particular attention to the pricing point source, the timing of its
determination and the process and timing of any revisions to said fuel price. Similar information is
required for the development of Emission Credit Allowance price assumptions. The goal is to allow the
MMU to verify the reasonableness and consistency of unit’s cost-based energy offers based on the
following formula.
M15 Cost Offer Function Example:
Company:
Description: This section identifies the market participant responsible for developing the cost-based
energy offer as well as the unit operator and/or owner. Since each unit or group of similar units will be
assigned a specific fuel cost policy, a participant could have multiple fuel cost policies tailored to
specific unit types. Contact information for the lead author of the fuel cost policy must be provided to
facilitate discussion during the approval process.
Fossil Fuel Cost:
For the fuel component of the offer cost, please include, for each fuel type:
 Units using this fuel
 Whether the fuel cost is based on replacement from the spot market, a fixed contract price
for a specified period, or an inventory accounting cost based on FIFO, LIFO, or WACOG.
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If a contract, please provide relevant contract terms and contract.
If inventory accounting cost, please provide method and relevant and verifiable sources of
such costs.
If replacement cost:
o Source of commodity fuel cost, for each fuel type for each unit. For example;
specify if index is NYMEX, Platts, Gas Daily, ICE, or a forward contract. Please
provide accurate verifiable links to the specific public indices or verifiable source if
not a public index.
o Source of fuel basis cost or specific transportation charges for fuel delivery, if any.
Methodology for converting fuel cost to $/MBtu.
Heat content of fuel (as fuel prices must be converted to $/MBtu).
Any additional information regarding fuel cost including:
o When prices are revised
o All additional charges
Verifiable fuel cost information and fuel pricing source used for intraday cost-based
offers.
o Source of commodity fuel cost, for each fuel type for each unit. For example;
specify if index is NYMEX, Platts, Gas Daily, ICE, or a forward contract. Please
provide accurate verifiable links to the specific public indices or verifiable source if
not a public index.
Additional Natural Gas-fired Unit Information
Gas-fired unit cost-based energy offers under adverse weather or pipeline operating
conditions often contain adjustments to the published or traded market gas price indices.
These modifiers must be developed in a consistent and quantifiable manner in order to avoid
cost-based energy offers based on fuel cost assumptions that fail to reflect actual prices paid
by the units. Participants shall develop a verifiable methodology for the gas pricing decision
making process and describe it here in detail. The many variables involved in natural gas
procurement must be converted into sensitivity factors affecting the gas market price index so
there is a clear understanding of how the gas price in a cost-based energy offer is developed.
Major variables driving gas price volatility which need to be considered are:
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Forecasted Temperatures
Pipeline restrictions
o Pipeline gas compressor outages
o Others
Gas Local Distribution Company (LDC) restrictions
Forecast of LMP to estimate dispatch likelihood
o Probability of unit receiving a DA award
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o Probability of unit receiving a RT commitment
Projected range of intraday gas pricing for next day
These and other variables need to be correlated to a unit’s gas price in a quantifiable manner
based on historical performance. It is essential that replacement fuel cost assumptions are
justified numerically and can be verified by the MMU based on a fuel index modified by
defined factors in a consistent manner.
Participants should provide web page addresses where pipelines and LDCs post Operational
Flow Orders (OFO) and Critical Day notices, or similar gas supply restriction warnings.
It is also required to describe the mechanism whereby the generator will notify PJM and the
MMU that gas availability and/or price fluctuations have become an issue.
If the strategy to cope with such issues relies on changing unit parameters by varying
notification time and/or filing Minimum Run Time (MRT) exceptions, the proposed method
must be documented here and clearly distinguish the response to physical as opposed to
financial risk.
PJM Procedure for Cost Adjustments
Attachment C of PJM Manual 11: Energy & Ancillary Services Market Operations describes
the process that can be used by market participants to request cost adjustments. This section
of the fuel cost policy is required to ensure PM’s proposed intraday cost-based offer
switching follows PJM Manual 15 guidelines.
In order to be eligible for compensation under this procedure, market participants must:
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Document the conditions under which the market participant cannot accurately estimate
intraday costs. For example, if there is no publicly traded commodity or index that could
be used to reflect the generation resource’s fuel cost and the fuel cost is only known at the
time of purchase.
Document a verifiable methodology to calculate intraday offers under these conditions.
These are the offers that are going to be used by PJM to operate the market. The market
participant’s final compensation may be adjusted after the fact based on actual costs as
described in Attachment C of PJM Manual 11: Energy & Ancillary Services Market
Operations.
Nuclear Fuel Cost:
For any units using nuclear fuel, please include:
 Units using this fuel
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Source of fuel cost
Any additional information regarding pricing fuel cost including;
o When prices are revised
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All additional charges
Other Fuel Related Costs:
Please include, for each fuel, any additional costs related to fuel or fuel handling.
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Additives such as ammonia, lime, activated carbon
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Water chemistry
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Catalyst gas consumption
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Fuel handling
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Disposal of coal ash or flue gas desulfurization waste
Wind Farm Costs:
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Units using this fuel
Source of cost basis components
o Renewable Energy Credits: specify pricing point (average of Class “n” RECs in
the wind farm’s region from Evolution broker sheet, for example)
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Federal Production Tax Credit (specify amount)
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Variable O&M adder if used
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Renewable Energy Power Purchase Agreement contract price
Any additional information regarding pricing fuel cost including;
o When prices are revised
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All additional charges
SO2 Emission Allowance Cost:
Please include:
 Units with SO2 emission allowance costs
 How SO2 emission data is collected
 How SO2 emission allowance is calculated in $/MBtu
 Source of Emission Credit Allowance replacement costs
 When costs are updated
NOx Emission Allowance Cost:
Please include:
 Units with NOx emission allowance costs
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How NOx emission data is collected
How NOx emission allowance is calculated in $/MBtu
Treatment of NOx Annual vs. Seasonal Allowances
Source of Emission Credit Allowance replacement costs
When costs are updated
CO2 Emission Allowance Cost:
Please include:
 Units with CO2 emission allowance costs
 How CO2 emission data is collected
 How CO2 emission allowance is calculated in $/MBtu
 Source of Emission Credit Allowance replacement costs
 When costs are updated
Maintenance Adder:
Please include:
 Units using a combination of Start Maintenance Adder and variable O&M
 Units placing all their variable maintenance expenses in the Start Maintenance Adder
 Units placing all their variable maintenance expenses in their variable O&M adder
 Rationale for the above choices in translating maintenance expenses into dispatch adders:
perceived benefit of one approach over another
 Are Long Term Service Agreement (LTSA) fixed contract payments included for any
CT/CC units?
FMU or Ten Percent Adder
Please specify for each unit inclusion of approved FMU adder or ten percent adder.
Unit Offer Numerical Example:
Provide the numerical calculation of a single historical cost-based offer for one unit showing
how said offer in eMKT was derived. Please select one unit for a given day that highlights the
typical role played by various possible inputs. Identify the unit and date and illustrate the
calculation, which should include:
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Separate calculations for the start-up cost offer, the no load cost, and the incremental rate
curve.
Start-up heat input, no load heat input, and segment incremental heat rates for the sample
unit on the sample day.
All components of the Total Fuel Related Cost (TFRC) as they were assumed for that day
must be detailed: the assumed commodity replacement fuel price, transportation and
other charges for delivery, and other fuel related costs.
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Start Maintenance Adder and/or variable O&M adder in effect.
Use of the 10 percent uncertainty adder or FMU adder if eligible.
Pollutant emission rates and assumed Emission Credit Allowance prices.
The example should clearly identify the value of the above components, if used, and their role
in the calculation that resulted in the historical eMKT cost-based offer chosen for the purpose.
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