By Rory D. Sweeney

VALLEY FORGE, Pa. — PJM generators have had enough of a yearlong dispute between the RTO’s staff and its Independent Market Monitor that they say has put generators at risk of regulatory reprisals.

Bob O’Connell of Panda Power Funds led the charge at last week’s meeting of PJM’s Markets and Reliability Committee, introducing a proposal that would require the RTO to accept opportunity cost adders calculated by the IMM, Monitoring Analytics. PJM had announced in an Aug. 7 letter to generators that it would no longer accept adders developed by the Monitor’s calculator if they exceed the value developed by the RTO’s calculator because “PJM has not approved the methodology used by the Monitoring Analytics calculator.”

“I didn’t pick this fight. PJM did. All I’m trying to do is restore what existed before they picked this fight,” O’Connell said.

The adder allows generators who have operating limitations to remain revenue neutral if they are required to forego running at financially optimal times because they were dispatched by PJM at some other time.

PJM’s and the Monitor’s calculators use different methodologies and sometimes arrive at different results. PJM staff didn’t have “concrete proof” of the different results until two months ago, the RTO’s Stan Williams said. Generators are concerned the ban puts them in regulatory limbo because there is no option that is universally approved.

Old Dominion Electric Cooperative’s Adrien Ford said there’s “a lot of appeal” to the Monitor’s method, which provides a single number based on inputs provided by the generator, but that “it’s useless to us” if PJM won’t accept it. PJM’s method requires generators to use their discretion to choose which result they believe is most accurate.

O’Connell said he forced the vote because he needs a “safe harbor” from a FERC enforcement referral.

“We cannot continue in an environment where if I use Joe’s calculator, I’m at risk of being referred to FERC by PJM, and if I use PJM’s calculator, I’m at risk of being referred by Joe,” he said, referring to Monitor Joe Bowring.

O’Connell’s proposal had been up for introduction at the MRC meeting, but John Rohrbach, who represents ACES on behalf of the Southern Maryland Electric Cooperative, motioned for it to be up for voting consideration. He argued the immediate vote was necessary because PJM’s ban disrupted years of reliance on being able to use either calculator and “effectively short-circuited” an ongoing stakeholder process to review the calculators. (See “Stakeholders Approve Variety of Actions,” PJM Markets and Reliability and Members Committees Briefs.)

O’Connell seconded the motion but said that he would withdraw the proposal if PJM lifted the ban. He also suggested creating comparative tests using identical inputs to determine why results are different and identify the best practice.

“As long as that memo is out there, I have a commercial responsibility to my team to try to get that resolved,” he said, adding that he couldn’t accept a general agreement to continue looking at the issue without definitive timelines. “I’ve got to be able to negotiate with somebody; I can’t just concede the point.”

He stressed in his presentation that he was not simply shopping for the calculator that offers the higher price, offering to provide evidence to stakeholders. PJM attorney Chris O’Hara asked that O’Connell not do so because the evidence he was planning to provide could also create a competitive advantage for other generators by publicizing confidential details about Panda’s Stonewall plant.

O’Connell said he would be willing to “take the Market Monitor’s number and live with that” if PJM would accept it. He and Rohrbach agreed to add a friendly amendment that would require picking a calculator and sticking with it for at least a year at a time.

Other stakeholders were also displeased with the standoff, expressing surprise that the entities are able to share information on so many other issues but can’t come to agreement on this one.

“The two of you work hand in glove on so many issues it seems impossible to me that you can’t sign some [nondisclosure agreement] and work something out,” GT Power Group’s Dave Pratzon said.

They reiterated the offer of removing the vote if the two parties could commit to working out their differences.

“If somebody would back down from a position, we could be in a position to not force this [Operating Agreement] language. I think there’s an opportunity here that’s being missed,” said Carl Johnson, who represents the PJM Public Power Coalition.

PJM and Bowring refused to budge.

“We have the ultimate authority to say whether an opportunity cost is valid or not,” Williams said, adding that “this issue goes away once we have a chance to dig into the calculations” Bowring’s calculator provides.

Bowring accused PJM of “changing the rules” and said the ban “came as a surprise to us as well.” He said he was willing to submit his calculator to an independent audit because “we’re not saying ours is perfect,” but that he couldn’t provide PJM access to the code for the algorithm because it’s protected intellectual property.

Williams acknowledged that “it was a surprise from the standpoint that we put it into writing, but it is a consistent message that PJM has been telling participants for two years.”

Stakeholders generally supported generators’ desire for a risk-free calculator, endorsing the proposal at the MRC with 47 abstentions but no objections.

The proposal then moved to the Members Committee meeting that followed the MRC, where it required a two-thirds endorsement vote to be added to the agenda for voting. Several stakeholders became hesitant to vote on the proposal again at another senior committee on the same day.

The measure to take a vote on the issue received a 2.87 on a sector-weighted vote, which failed the necessary 3.34 threshold. However, FirstEnergy’s Jim Benchek noted that the end results didn’t add up to five, as the sector-weighted vote is designed to do. PJM staff explained that was because all six End-Use Customer sector members in attendance abstained, which was considered participation but recorded as a 0 for the purpose of the reaching the approval threshold.

Stakeholders warned PJM and Bowring that the measure would be on the agenda for the September meeting of the MC if the two parties hadn’t found agreement by then. At a previously scheduled special session of the Market Implementation Committee on the issue on the following day, Johnson said the avoided vote was a “conscious gift” to allow the parties to work out their differences.

He warned that his frustration is “growing” because IMM staff at the special session were unable to corroborate statements Bowring made at the MRC.

“I appreciate all of the frustration and history that goes into this, but we’ve got to get past it,” Johnson said.

Bowring later explained that the special session was billed as a discussion of technical topics rather than broader policy issues, so he did not attend and the staff that did were only familiar with the technical aspects of the issue. Monitoring Analytics’ John Hyatt said at the meeting that the Monitor has explained to PJM how its calculator works. It’s optimized to maximize profit while PJM uses “an ad hocestimate” to solve an optimization problem, he said.

It “baffles us” why PJM doesn’t use “more sophisticated mathematics,” Hyatt said. “We don’t know why you would want to do that. We’ve just taken it to the next level.”

Williams disputed Hyatt’s understanding of PJM’s methodology, saying that confusion is “part and parcel” to the disagreement. Hyatt acknowledged that PJM staff have “been very generous with sharing data and we have reproduced the results of the PJM calculator, and we know what the PJM calculator is doing.” PJM’s Tom Hauske acknowledged the RTO’s calculator hasn’t changed since 2010.

When asked whose intellectual property was at issue based on Bowring’s comments from the previous day, Hyatt said “my understanding is it’s the [Monitor’s] intellectual property,” which Bowring later confirmed.

As the tension continued, PJM staff appeared to back away from their demands.

“We’re just looking for reasonable assurance that the Market Monitor’s calculator is doing what they told us it does,” Hauske said.

“I could also live in a world where” the Monitor showed the outputs for a particular set of inputs, PJM’s Jeff Schmidt said.

“This whole situation is very dysfunctional, wasting stakeholder time and imposing compliance risk on members,” said Exelon’s Sharon Midgley, who asked if it could be included in the Monitor’s contract renewal, which is currently being considered by PJM’s Board of Managers.