PJM defends plan to include key gas-plant costs in offers
Washington — PJM Interconnection is standing behind its plan to allow natural gas-fired plants to include maintenance expenses in their cost-based energy market offers, saying the change is needed to put the plants on an equal footing with other types of generators that already put such costs into their offers.
The plan is significant because the grid operator’s market monitor has warned that it could boost energy prices. The proposal also failed to win support in PJM’s stakeholder process, but PJM decided to move forward anyway.
At issue is PJM’s so-called Manual 15, which outlines the costs that can be included in a generator’s cost-based offer. If a generator fails a market power test, PJM can replace the generator’s price-based offer with the generator’s cost-based offer.
The manual forbids combined cycle and combustion turbine plants from including plant maintenance costs in their energy market offers. CC plants are usually fired by natural gas. PJM added this provision to the manual in 2012 because PJM believed that nuclear and fossil-steam plants did not include these costs in their energy market offers.
The grid operator in 2017 discovered that coal and nuclear plants do, in fact, include these costs in their cost-based offers. So PJM in October proposed to allow CC and CT plants to include major maintenance expenses in their cost-based offers, as long as those expenses are incurred as a result of electric production.
“There is no justification for this disparate treatment, which unfairly disadvantages sellers of energy from CC and CT plants by raising a risk of under-recovery of costs that all other sellers are permitted to include in their cost-based offers in the energy markets,” PJM said.
But PJM’s market monitor said that no maintenance costs belong in cost-based offers. “PJM proposes a set of ad hoc rules designed to increase energy offers above the competitive level,” Monitoring Analytics said. The IMM said FERC should require cost-based offers to equal short-run marginal costs, and argued that generators do not perform maintenance in the short run.
PJM is now defending its proposal, saying FERC does not distinguish between short-run and other types of variable costs that can be recovered in energy or capacity markets. Maintenance expenses fluctuate based on how often a CT or CC plant is started and how long it runs after each start, making such costs variable in nature and eligible for recovery, PJM explained in a filing Friday.