PJM looks at variable operations & maintenance costs

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In advance of the May 24 Markets and Reliability Committee meeting, PJM is offering a synopsis of two issues expected to receive much stakeholder interest. This article is about Variable Operations and Maintenance (VOM) costs. Inside Lines previewed the other topic, Cost Caps, last week.

 The maintenance adders for generating resources cost-based offers  are developed in accordance with Manual 15: Cost Development Guidelines. These maintenance costs fall into three time periods – operating day, annual and longer-term.

For most generators, the longer-term (up to 20 years) maintenance costs, such as major inspections and turbine and boiler overhauls, may be included in the maintenance adder of the generator’s cost-based energy offer. However, combined cycle (CC) and combustion turbine (CT) units are treated differently – since 2015 their long-term overhaul and major inspections have been excluded from their energy market offers.

The reason for that is, on Oct. 17, 2011, the Cost Development Subcommittee endorsed a problem statement to expedite removal of CT and CC overhaul costs from VOM so these costs could be included in a unit’s avoidable cost rate as other unit types (such as steam) for the 2015 Base Residual Auction.

Because CCs and CTs offer these longer-term costs into the forward-looking capacity market, they must estimate what their costs might be three years into the future. Other generator types, such as coal, offer into the backward-looking energy market and include into the maintenance adder costs that actually have been incurred.

PJM prefers CCs and CTs to recover maintenance costs, incurred as a result of producing electricity, in the energy market as other generator types. PJM contends that maintenance costs should not be eligible for recovery until they are incurred. In the Capacity Market, a generator can include a forecasted cost that it may never incur if the unit does not run.

Allowing CCs and CTs to include major overhauls and inspections in their maintenance adder could lead to increased energy market prices, if the unit includes maintenance adder in its energy offer. However, it also could reduce the costs in the capacity offer, as the expense is shifted from the capacity market to the energy market.

It is also anticipated that the values for longer-term (maintenance costs will be more accurate since they will be based on actual costs incurred as opposed to forecasted values that may not be realized.

A conservative annual high-bound estimate (see slides 8-9) projects the potential increased cost in the energy market to be one penny per megawatt-hour.

Special sessions of the Market Implementation Committee discussed VOM and developed several packages that went before the MIC. Two similar packages passed with a greater than 50 percent approval at the April Market Implementation Committee meeting.

The default package, which will be the main motion at the Markets & Reliability Committee, received 81 percent of the vote at the MIC. This package would allow resources to utilize either actual maintenance costs (attributed to running the unit and directly tied to electric production in a unit’s incremental energy offer) or a default value for VOM (no greater than the new build data published by the U.S. Energy Information Administration).

Stakeholders also passed the PJM package in which only maintenance costs incurred as a direct result of electric production can be included in a unit’s cost-based incremental energy offer.