By Rory Sweeney

VALLEY FORGE, Pa. — PJM’s effort to include variable operations and maintenance (VOM) costs in energy market cost-based offers appears to be on its way to FERC following a long-awaited vote to revise the current rules at last week’s meeting of the Markets and Reliability and Members committees.

Stakeholders rejected five proposals, including one of them twice, after which PJM’s Stu Bresler indicated the RTO might recommend its Board of Managers approve changes anyway. He said his starting point for the recommendation would be PJM’s proposal, which was twice rejected in its original form and also in a revised alternative motion.

Stakeholders said they would keep a close watch on what recommendation staff develop, and Brian Wilkie with Rockland Electric Co. (RECO) called Bresler’s plan “disappointing.”

PJM’s Melissa Pilong presented the issue and a comparison of the proposals. They had been put into a voting order based on how they came to be considered by the MRC. (See “VOM Update,” PJM Market Implementation Committee Briefs: July 11, 2018.)

The initial proposal was sponsored by American Electric Power and would allow use of default U.S. Energy Information Administration calculations for the amount of VOM costs allowed in offers. The proposal was rejected with a sector-weighted vote of 2.28 in favor and 2.72 opposed. Such sector-weighted votes have a threshold of 3.35 to be endorsed.

AEP’s Brock Ondayko had been promoting the proposal as preferable to a proposal from RECO because it used data that were independently developed and published.

“What we have proposed, and what was accepted earlier, is this concept of using data from an independent provider that has no agenda or opinion of PJM’s markets,” Ondayko said. “The point is there’s actual data. … Nothing is hidden from public view. … There’s no data with the potential defaults in the other package.”

PJM’s proposal remained unchanged from past discussions as the only one that would allow units to include fixed costs in their energy offers if they failed to clear in the year’s capacity auction. It was also rejected with 2.86 in favor and 2.14 opposed.

The Independent Market Monitor’s proposal would limit costs allowed in energy offers to “short-run marginal costs,” which would be defined. The proposal was rejected with 1.83 in favor and 3.17 opposed.

“This is about the prevention of market power,” Monitor Joe Bowring had said prior to the vote, noting that PJM’s manuals don’t clearly define several related components.

RECO’s proposal was meant to strike a compromise between generator-friendly and load-friendly proposals to ensure that stakeholders wouldn’t be stuck with the status quo if coalitions stood their ground and those proposals failed to win endorsement, Wilkie said. It would allow generators to recover VOM costs up to limits that would be posted into Manual 15. Almost all unit types would be capped at $3.50/MWh for the costs. Sub- and super-critical coal and biomass would be capped at $4/MWh; nuclear at $3/MWh; and wind, solar and hydro at $0/MWh.

“I agree. They’re not based on data,” Wilkie said in response to Ondayko’s comments. “They’re a compromise between the data the IMM thinks is reasonable and the data EIA thinks is reasonable.”

He said his customers would benefit most from the Monitor’s numbers, but he was particularly concerned with the appearance that generators were simply trying to increase revenues by moving the costs to the energy market as opposed to the capacity market, where they’re currently allowable.

“If it’s just and reasonable for these costs to be in the unit’s capacity offer, then it’s hard to understand how it can instead be just and reasonable for them to be in the energy offer. It can be one or the other, but toggling those costs back and forth based on where generators think there’s going to be the most money doesn’t seem like a sound market design principle,” Wilkie said.

Greg Poulos, the executive director of the Consumer Advocates of the PJM States (CAPS), agreed with that perception.

“I would call that market shopping. … That’s a concern,” he said.

However, Exelon’s Jason Barker said many asset owners agreed RECO’s proposal “parrots” the Monitor’s proposal.

The proposal had a similar voting result with 1.97 in favor and 3.03 opposed.

Stakeholders next voted on an alternative proposed by Adrien Ford with Old Dominion Electric Cooperative. Ford had offered a friendly amendment to the PJM proposal to remove the language that allowed units to include fixed costs in their energy offers if they failed to clear in that year’s capacity auction so that the package aligned with the other three.

Staff wanted to “get a read” on favorability for the package that was originally endorsed at the Market Implementation Committee meeting, so they did not consider it friendly. Because it was the motion endorsed by the lower committee, a stakeholder had to object to the motion being friendly, so Citigroup Energy’s Barry Trayers did so.

Ford then offered it as an alternative motion, but it too was rejected, receiving 2.65 in favor and 2.35 opposed.

American Municipal Power’s Steve Lieberman motioned for a revote of the original PJM proposal, which was seconded by Trayers, but that was also rejected, receiving 2.93 in favor and 2.07 opposed.

Following the vote, Bresler informed stakeholders that PJM may not be satisfied with retaining the status quo and might consider making its own recommendation to the Board of Managers. He said he would “start” with PJM’s proposal as the basis for the recommendation.

Susan Bruce, representing the PJM Industrial Customer Coalition, promised “robust oversight” of staff’s development of the potential recommendation.

Wilkie called Bresler’s announcement “disappointing.”

Asked to opine on PJM’s rules for such situations, CEO Andy Ott said he felt the board being informed of stakeholders’ voting record on the issue would provide enough evidence of their preferences so that the board would be properly informed before considering staff’s recommendation.

At the Members Committee meeting that followed the MRC, stakeholders voted to adopt the MRC votes so that the board would be informed.