By Tom Kleckner

FERC last week sided with SPP’s Market Monitoring Unit in a long-running dispute with generators over what costs can be included in mitigated offers. The commission rejected SPP’s proposal to change the definition of costs allowed under mitigated energy offer curves, start-up offers and no-load offers (ER15-2268).

The commission said SPP’s proposal to describe mitigated offers in terms of variable cost rather than short-run marginal cost was “inconsistent” with the commission’s directive in its 2012 conditional acceptance of SPP’s Integrated Marketplace.

“We find that SPP’s proposal to base mitigated offers on variable costs may lead both to inefficient dispatch outcomes, characterized by higher production cost, and to distorted locational marginal prices that do not reflect competitive conditions,” the commission said.

Generators’ Complaints

Generators subject to mitigation had complained to SPP that they weren’t being paid enough because the Monitor refused to include certain expenses, such as long-term service agreements, in its definition of allowed costs. Generators subject to mitigation include those with local market power and those manually committed by SPP or a local transmission owner.

Among the complainants was Golden Spread Electric Cooperative, which said it was suffering losses under SPP’s frequent dispatch of their quick-start units. (See SPP Board Rejects Short-Term Study; Impact on Quick-Start Units Debated.)

After more than a year of stakeholder meetings failed to reach consensus on the definition of short-run marginal costs, SPP in July filed proposed Tariff changes that would replace references to the term with the variable cost components of mitigated offers. The proposal would have set default variable operations and maintenance (VOM) costs that generators could include and listed the types of costs eligible under resource-specific offers.

SPP Monitor Protests

SPP’s filing drew protests and interventions from nearly two dozen market participants and the SPP Monitor, which asked FERC to reject the change, saying it could result in VOM costs that exceed short-run marginal costs and lead to economic withholding.

The Monitor said short-run marginal cost is not a “nebulous term,” but rather a common economic phrase describing the incremental cost of production — in this case, those that vary by megawatt-hour output.

It said SPP’s proposal “attempts to fix a problem that may not exist,” noting that mitigation had decreased significantly since the Integrated Marketplace’s launch in 2014.

Independence Concerns

PJM’s Independent Market Monitor filed a protest supporting the MMU, noting that PJM recently eliminated long-term maintenance from mitigated offers.

The IMM said that the proposed changes raised questions about whether SPP was protecting its MMU’s independence. “When the SPP Market Monitor made interpretations with respect to mitigated offers that SPP market participants did not like, the response was that market participants initiated a stakeholder process to apply pressure on the SPP Market Monitor to compromise or change those interpretations,” FERC said, paraphrasing the IMM’s filing.

The New Jersey Board of Public Utilities also backed the monitors’ arguments, saying approval of SPP’s proposed changes would be “a regression from SPP’s current mitigation rules” and could create an “adverse precedent that spills over to other regions.”

Filing not Supported

In rejecting SPP’s proposal, FERC said SPP failed to define the term “variable cost” or to “describe with specificity what costs may be included in mitigated offers as variable costs that were not previously regarded as short-run marginal costs.

“As such,” the commission said, “SPP proposes to replace one phrase that SPP contends is undefined (short-run marginal cost) with another phrase that is not well defined (variable cost).”

The commission also rejected the proposed default VOM costs, saying SPP’s decision to use the 80th percentile value of costs submitted by market participants would result in figures representative of high-cost units.

The commission said the PJM Monitor’s call for an examination of whether SPP was protecting the independence of its Monitor was outside the scope of the docket. “We note, however, that the SPP Market Monitor’s participation in this case demonstrates the importance of having an independent market monitor … to ensure that markets are competitive.”