Members last week approved rule changes to reduce “adder” payments to frequently mitigated generation units (FMUs), after rejecting a joint proposal from the RTO and the Independent Market Monitor.
The PJM-IMM proposal won only 43% support in a vote of the Market Implementation Committee. It would have limited adders to units whose net revenues are not covering their avoidable cost rate (ACR).
Three generator-backed proposals won at least 60% support from the MIC and are eligible to be considered by the Markets and Reliability Committee on May 29.
Topping the voting with 65% support was a proposal (Package G) to cap adders at 12% of the gross Cost of New Entry (CONE). It will be the primary proposal considered by the MRC — where, unlike the MIC, the voting will be sector-weighted.
Another proposal (Package H) would change adders only for Tier 2 FMUs — units that are offer-capped between 70% and 80% of their run hours over the prior 12 months. The units currently receive $30/MWh, or 15% of the cost offer, not to exceed $40. The revision would eliminate the 15% option, leaving only the $30 adder.
The final proposal (Package F prime) would restrict the adder to a percentage of the cost offer for units with more than 500 run hours in a rolling 12-month calculation period. The cap would be 15% for Tier 1 units (60% – 70% mitigated hours), 20% for Tier 2 units (70% – 80% mitigated hours) and 25% for Tier 3 units (over 80% mitigated hours). Adders would be unchanged for units with less than 500 run hours.
Packages H and F prime will be considered only if the primary proposal fails to win a two-thirds sector-weighted vote at the MRC.
Market Monitor Joe Bowring says the adders are no longer needed because of PJM’s capacity market. Had the PJM-IMM proposal been in effect in 2013, PJM said it would have reduced the number of units receiving adders from 112 to only 28 — 23 of which are scheduled to retire. (See Increased FMU Costs Lend Urgency to Fix.)
But Dave Pratzon of GT Power Group, which represents generators, said the PJM-IMM proposal was “too extreme a screen.”
“It’s like a homeowner saying to their mortgage company, ‘You should be happy because I’m covering the insurance and taxes. Don’t worry about the principal and interest,’” he said. “You can’t stay in your house that way. A unit owner can’t run their unit that way.”
Bowring said the adders were intended to ensure generators earn enough to cover their going-forward costs. “It’s not intended to provide a return on fixed costs,” he said.
The failure of the PJM-IMM proposal was not a surprise. It won support from little more than one-quarter of those polled in a generation-heavy MIC subgroup that has been considering alternatives.
