Members agreed last week to consider cutting compensation for Tier 1 synchronized reserves, but PJM officials are likely to oppose a change they said could upset the balance of the RTO’s scarcity pricing scheme.

The Market Implementation Committee approved a problem statement from Market Monitor Joe Bowring, who said the current payment scheme is resulting in unnecessary payments of more than $85 million a year.

Tier 1 synchronized reserves, which are all on‐line resources following economic dispatch and able to ramp up at PJM’s request, are paid the Tier 2 synchronized reserve market clearing price whenever the non-synchronized reserve market clearing price is more than zero.

Bowring noted that Tier 1 is paid the same price as Tier 2, although the latter is subject to penalties for non-performance.

“Tier 1 is not doing anything [additional]. They’re not standing by. There’s no reason to pay it,” Bowring said. “Tier 1 is just available ramp room.”

Stu Bresler, vice president of market operations, said PJM “would have to think really hard about changing” the payment scheme. “This is the way the product was designed when we introduced shortage pricing,” he said.

Bresler said the pricing was intended to ensure Tier 1 reserves receive equal compensation to offline, unsynchronized reserves, a lower quality product. “I think it’s a question of consistency,” he said.

No Pay for Hydro, Others

The MIC also endorsed changes to Manuals 11 and 28 that will set the default Tier 1 estimates to zero MW for nuclear, wind, solar, batteries and hydro generators. The change means those resources will not receive compensation unless they actually produce during a spinning event.