PJM officials said last week that the RTO’s payments to frequently mitigated units (FMUs) jumped significantly over the winter, lending urgency to efforts to reduce the number of such units receiving “adder” payments.
Adder payments “suddenly became a much larger problem than it was before as a result of conditions that occurred in the winter,” PJM’s Tom Zadlo told the Markets and Reliability Committee Thursday. “We have seen a lot more units being frequently mitigated not because of thermal problems but for units running for reactive and automatic load rejection [black start] support.”
As a result, instead of the typical FMU profile — a combustion turbine running 300 hours per year — payments are going increasingly to generators running 1,000 to 3,000 hours yearly, which are operating “more like intermediate units,” Zadlo said.
PJM Executive Vice President for Operations Mike Kormos said the dynamics changed because rising gas prices made coal units more competitive.
The disclosure came on the first read of a proposal by PJM and the Independent Market Monitor that would limit the adders to units whose net revenues are not covering their avoidable cost rate (ACR). Had the proposal been in effect in 2013, it would have reduced the number of units receiving adders from 112 to only 28 — 23 of which are scheduled to retire.
Zadlo said the proposal will be flexible enough to “self-correct” if capacity market revenues increase, reducing the need for adders.
FMUs were allowed adders of $20 to $40/MWh to ensure that they cover their avoidable, or going-forward, costs. Market Monitor Joe Bowring said the adders became unnecessary for most units since the introduction of the capacity market in 2007 and changes to scarcity pricing rules in 2012.
The PJM-IMM proposal will be brought to a vote at the MRC’s next meeting. It appears to face strong opposition from generators, having won only 27% support in a poll of a generation-heavy Market Implementation Committee subgroup that has been considering alternatives. (See PJM-IMM Plan on FMUs Faces Generator Opposition.)
Ed Tatum, of Old Dominion Electric Cooperative, said the change in the FMU profile suggested a need to consider transmission upgrades.
“We are,” responded Kormos. “Unfortunately, transmission is always playing catch up.”
The proposal would eliminate all adders for fixed resource requirement (FRR) units, which prompted a protest from Dana Horton of AEP. “Why are FRRs getting picked on?” he asked.
The fixed revenue requirement allows load-serving entities to meet their capacity obligations by using their own resources rather than participating in the capacity auction. PJM officials said FRRs get going-forward costs from another revenue stream.
The PJM/IMM proposal is one of six packages on which the MIC subgroup — 22 responders representing 138 members — were polled. Two of the proposals (packages D and E) have since been withdrawn, Zadlo said.
The remaining three alternatives to the PJM/IMM plan each received support of at least two-thirds of those polled.
Package F has been “slightly tweaked” since the polling, Zadlo said.
