By Rich Heidorn Jr.

WILMINGTON, Del. — Consumer representatives and the Independent Market Monitor expressed concern Thursday over PJM’s plans for vetting energy offers exceeding $1,000/MWh, with the Monitor seeking manual changes and consumer groups fearing excessive demand response costs.

The issues arose during a discussion at the Markets and Reliability Committee meeting on changes to Manual 11: Energy & Ancillary Services.

The manual changes, part of PJM’s implementation of FERC Order 831 (RM16-5), passed with 13 objections and two abstentions after Catherine Tyler, senior economist for Monitoring Analytics, reiterated complaints the Monitor filed with the commission in response to the RTO’s May 8 compliance filing on the order.

The order doubled the “hard” offer cap for day-ahead and real-time markets from $2,000/MWh — a response to the 2014 polar vortex, which caused natural gas price spikes that left some generators in the Northeast complaining they were unable to recover their costs. Incremental energy offers must be capped at the higher of $1,000/MWh or a resource’s cost-based energy offer, with $2,000/MWh being the maximum offer eligible for setting LMPs; approved offers over $2,000 are eligible for uplift payments.

The Monitor said PJM’s plan does not follow the order’s requirement that RTOs build on existing mitigation processes in verifying that offers above $1,000 are based on actual or expected costs and does not mention the Monitor’s role in that process.

“We will review offers over $1,000,” said Tyler. “The manual should make that clear.”

The Monitor told FERC that PJM instead “proposes to create a new cost-based offer verification process,” does not provide a way for verifying cost-based offers that fail its automated screen and lacks a process for verifying DR offers over $1,000. It said the commission should require “a new proposal that builds on existing cost verification processes, including the Market Monitor’s cost verification process and fuel cost policies.”

Greg Poulos, executive director of the Consumer Advocates of PJM States, requested the vote on Manual 11 be conducted separately from three other manual changes, saying the Monitor should have joint approval with PJM of energy offers over $1,000.

It was the DR issue that concerned Susan Bruce, of the PJM Industrial Customers Coalition. She said although her group is “a big supporter of demand response … we’re concerned we don’t have the same rigor” in ensuring the cost inputs in DR offers as for generation.

The lack of rules creates “opportunities for strategic behavior,” Bruce said.

PJM’s Pete Langbein said that although the RTO has considerable experience in verifying generation offers, “we’re a little bit in uncharted territory” for DR. He said PJM wants to analyze “what costs we see from DR in the next six to 12 months” before creating rules.

Bruce agreed it would be difficult to guess what costs DR providers will file but said that during the interim, “customers will be vulnerable” to potentially inflated and improper costs.

Langbein said PJM will address the issue in the stakeholder process and deal with offers in the interim on a “case-by-case basis.”

Bruce Campbell of CPower said he supported the RTO’s approach. “It’s difficult for me to imagine a standard that would be workable at this point beyond what PJM has outlined.”

PJM’s Chantal Hendrzak added that the RTO wants to wait for FERC’s response to its compliance filing before implementing standards. The rules will not go into effect until the RTO receives the commission’s response, she said.

Manual 11 also had been the subject of debate at the Market Implementation Committee meeting earlier in the month. (See “Debate Continues on Intraday Offers,” PJM Market Implementation Committee Briefs: Oct. 11, 2017.)

The New Jersey Board of Public Utilities filed comments supporting the Monitor, saying, “PJM’s filing appears to be yet another attempt by PJM to minimize the role of the IMM.” The Delaware Public Service Commission called on FERC to reject PJM’s filing, saying its formulaic screen is unsupported and would result in higher prices than verifying all offers above $1,000.

PJM responded to the Monitor’s comments in June, reassuring FERC that all cost-based offers must be in accordance with the market seller’s RTO-approved fuel-cost policy, “including the IMM’s review of such policies.” The RTO said the proposed screen is “an additional safeguard” to ensure only legitimate generation offers greater than $1,000 are eligible to set LMPs.