PJM will evaluate whether it’s time to end extra compensation for generators that frequently run on cost-based offers under market power mitigation rules.
The Market Implementation Committee approved an issue charge by Market Monitor Joseph Bowring to review the “adders” for frequently mitigated units (FMU). Bowring said the adders are no longer needed because of the introduction of the capacity market in 2007 and changes to scarcity pricing rules in 2012.
FMUs were allowed adders in 2006 to ensure that they cover their avoidable costs. The adders are graduated: Generators that are cost capped for 60% of their running hours receive an adder of either 10% of their cost-based offer or $20 per MWh; those capped for 80% or more of their hours can receive $40 per MWh. Similar rules apply to “associated units,” which share physical and economic characteristics to FMUs.
Bowring acknowledged that less than 1% of megawatts sold last year were offer capped. But Bowring said that because the affected units are concentrated in load pockets “it can have more significant impacts locally.” Of the 133 units eligible for FMU or AU status in at least one month during 2012, 25 (19%) were FMUs or AUs for all months.
The monitor won support for the issue charge after agreeing to modify it so that it won’t be pursued until the fourth quarter; some members wanted time to evaluate the impact of scarcity pricing during this summer. Bowring also agreed to remove from the issue charge his conclusion that the reasons for the creation of the adders no longer exists.
Dave Pratzon, who represents generators, said he believed the issue would prove more complicated and time consuming than Bowring suggested. “I think this issue has a lot more hair on it,” Pratzon said.
