PJM officials told the Operating Committee last week that they are considering increased penalties to eliminate the current economic incentives for generators and demand response providers that fail to perform when called on to provide spinning reserve.

Providers of Tier 2 synchronized reserve are paid per MWH of reserves offered but are only called on to provide reserves for about three spinning events per month, most of them less than 20 minutes long.

“The result is that it is possible to provide the service profitably with a very low level of compliance,” the Market Monitor said in the 2011 State of the Market Report. “This behavior does exist in this market.”

The monitor repeated its call for increased penalties in the 2012 report with some additional observations: “Sometimes units do not achieve the ramp rate they have bid, sometimes units fail to follow PJM dispatch, sometimes system conditions change rapidly during the hour between a market solution and the actual hour.” The monitor noted that non-compliance “has never caused a reliability problem at PJM.”

Tom Blair, of Monitoring Analytics, told the Operating Committee that the market monitor studied three spinning events of more than 10 minutes in 2013 and compliance by demand response resources was “not good.”

David Pratzon, who represents generators at GT Power Source, supported the call for increased penalties. “Tier 2 resources can clear for hundreds of hours before they are called even once. There is a risk that someone can take the money and run.” The weighted average market price for synchronized reserve was $8 per MW last year.

However, Pratzon and representatives of other generators said the rules shouldn’t be so strict that they penalize providers that are doing their best to comply. For example, Pratzon said gas generators can hit “dead bands” during duct firing, and coal plants may underperform if their fuel is damp or of lower quality.

Pratzon, AEP, Exelon and Exelon joined to propose an alternative set of penalties that would not apply unless providers fall below 90% of their promised reserves. Blair said the market monitor also supports the 90% threshold.

Brock Ondayko, of AEP, said although the PJM dispatch system has improved, it still does not accurately model the behavior of coal-fired units.

He added that PJM should ensure that changes to the synchronized reserve rules do not have unintended consequences. “Adjusting ramp rates also impacts the amount of energy we’re awarded during the day,” he said.

PJM staffer Kim Warshel asked participants to submit proposed alternate solutions by July 16, in time for consideration at the next special meeting of the Operating Committee to discuss the issue, set for July 18.