By Rich Heidorn Jr.

BALTIMORE — PJM Market Monitor Joe Bowring said last week that the RTO must include strong market-power protections in rules allowing generators to change their offers hourly.

Bowring also told a meeting of the Organization of PJM States Inc. Advisory Committee that he is concerned that the Monitor has no defined role in screening generator offers under the new Capacity Performance rules.

The annual meeting of the OPSI Advisory Committee is the one time per year that the Monitor and the PJM Board of Managers meet publicly face-to-face. Both Bowring and PJM Chairman Howard Schneider agreed that their relationship is strong despite their frequent disagreements on Tariff filings.

“I think part of maintaining the positive relationship we’ve had with PJM over the years is understanding exactly what our roles are,” Bowring said.

And that, he said, is why he is raising his concerns that the CP rules give the Monitor no formal role in evaluating physical parameters in offers from generators.

Although the process approved by FERC requires PJM to consider the Monitor’s input, Bowring said he would prefer a parallel review process similar to that used in determining generators’ avoidable cost rate, with PJM ensuring compliance with its Tariff and the Monitor screening for market power. (The ACR of a generation resource is the fixed costs necessary to allow a generation resource to remain in commercial operation.)

“Our process can be much more contentious than PJM’s. It’s a very different standard,” he said.

If the Monitor disagrees with PJM on physical parameters under CP, Bowring said, “it could get messy.”

“I think it’s better to have a clear process where everyone understands what will happen in the event there’s a disagreement. And it’s highly likely there will be one — there are different standards being applied.”

Board Member Jean Kinsey said she thinks the process proposed by PJM and accepted by FERC should be given time to work.

“The process that’s being used for PJM and the Market Monitor to jointly sit down and see the physical parameter data that’s being submitted simultaneously is, it seems to me, a very good process because … you’re collaborating on your thoughts about whether it’s good, bad or indifferent,” Kinsey said. “These are physical parameters. They’re more engineering-centric than the cost-based [parameters]. … If a year from now, a year and a half, it seems not to be working, we will re-address it just like we do everything else.”

Market Power Concerns

Bowring also said that while he supports a move to allow generators to change their offers hourly, he is concerned that it could lead some to exploit weaknesses in PJM’s market power mitigation rules.

In June, FERC ordered PJM to change its Tariff to allow generators to submit day-ahead offers that vary by hour and to update their offers in real time (EL15-73). PJM is the only RTO that doesn’t allow such variable offers. (See Duke, ODEC Denied ‘Stranded’ Gas Compensation.)

PJM must make a compliance filing spelling out how it will implement the change by Nov. 1. The Generator Offer Flexibility Senior Task Force will be meeting Wednesday to discuss the proposal.

He said the introduction of hourly offers has impacts on both local market power — which PJM polices through the three pivotal supplier test — and aggregate market power.

“There are various ways to game the three pivotal supplier test and the impact of that is going to be made much worse with hourly flexibility and hourly offers unless they’re addressed,” he said.

Aggregate market power concerns arose during the January 2014 polar vortex, when Bowring said “just a couple” of generation owners were pivotal — PJM needed their output in order to clear the market.

“In PJM there is no rule governing aggregate market power,” Bowring said. “That’s been fine to date, but with the hourly market flexibility it’s not going to be fine anymore.”

Bowring’s suggestion: “If you change your offer in midday to reflect gas costs, that’s fine. But you should not be allowed to increase your markup from $10 to $500 because you think the market is tight, you’re pivotal and you can get away with it.”