FERC on Tuesday approved a PJM proposal to overhaul how generators can represent variable operating and maintenance (VOM) costs in their energy market offers (ER23-1138).

The proposal sought to divide generators’ maintenance adders into “major” and “minor” buckets and allow the owners to opt for newly created default values for minor maintenance. The proposal also would create default values for operating expenses, which — like minor maintenance — have a tendency to be fairly uniform year-over-year, PJM said. (See “MRC Approves VOM Package,” PJM MRC Briefs: Nov. 16, 2022.)

The April 18 order said the proposal streamlines the process for approving maintenance and operating costs, while retaining market power protections. The order granted PJM’s requested June 1 effective date.

“PJM’s proposal offers market sellers flexibility while maintaining essential safeguards to mitigate opportunities for market sellers to exercise market power,” the commission said.

Under the status quo rules, generators are required to submit documentation of any maintenance and operating expenses they’re seeking to include in their cost-based offers, which the filing said causes “significant administrative burdens for both market sellers and PJM.”

The maintenance history used to calculate corresponding adders includes costs going back 10 to 20 years, which results in time spent reviewing and approving those costs each year, PJM said. The proposal allows expenses for major maintenance to be approved with an “expiration date,” after which costs must be resubmitted.

Major maintenance expenses would also be required to be resubmitted if they are no longer accurate due to expenses rolling off the 10- or 20-year historical period.

Generators would still have the option to submit unit specific costs for minor maintenance and operating expenses. However, PJM argued that the process of submitting, reviewing and approving expenses typically takes several months on behalf of sellers, RTO staff and the Independent Market Monitor.

Default adders would not be created for nuclear and hydroelectric resources, which PJM said lack the historical data being used to create the adders for other resource types, nor for wind and solar, which the filing said typically don’t submit maintenance adders. PJM may seek to create those adders in the future.

The proposal defines major maintenance as “overhauls, repairs, or refurbishments that require disassembly to complete of boiler, reactor, heat recovery steam generator, steam turbine, gas turbine, hydro turbine, generator, or engine.” Minor maintenance is described as “typically performed when there is a component failure or prior to a component failure due to limited remaining component life” and that can be completed while the generator is operating or during short shutdowns.

Monitor Protests Inclusion of Avoidable Costs

The Monitor argued that PJM’s proposal incorrectly allows maintenance costs that are avoidable costs and should be included in capacity offers to be instead submitted as short-run marginal costs in the energy market.

The issue arises from a vague definition of maintenance costs, the protest states, allowing all costs “directly related to electricity production” to be included in energy offers.

To support its position that maintenance costs should be included in capacity offers, the Monitor pointed to a filing to allow the Indian River 4 coal-fired unit to provide service after its deactivation request, in which it seeks to receive a lump-sum payment for its maintenance-related investments rather than recovering those expenses through the energy market. The protest also states that 53% of marginal units in the energy market included maintenance costs in their 2022 energy market offers.

PJM responded that its proposal doesn’t seek to change the existing requirement that maintenance adders can only be recovered in the energy market and through the avoidable cost rate (ACR) in the energy market. It also argues that the Monitor’s objections have been raised in past dockets and constitutes a collateral attack on the commission’s 2019 order approving PJM’s maintenance adders revisions (EL19-8).

In this week’s order, the commission noted that it had addressed the concerns raised by the Monitor in 2019.

“The wear and tear of operating a resource is typically based on the number of starts or run hours, and the maintenance intervals can be influenced by resource output levels. As such, it is reasonable to assume that some maintenance costs are incurred as the result of operating the resource, even if such costs are not incurred immediately at the time of production,” the commission said in its 2019 order, cited in the recent finding.