By Suzanne Herel

WILMINGTON, Del. — PJM stakeholders last week approved tighter rules on generator lost opportunity costs but rejected a proposal to limit eligibility to the most flexible combustion units.

The rules concern compensation for combustion turbines that are scheduled in the day-ahead energy market but not committed in real time.

The vote by the Markets and Reliability Committee on Thursday was a partial setback for PJM and Independent Market Monitor Joe Bowring, who said current rules provide incentives for units to offer and clear in the day-ahead market but not in the real-time market.

PJM and the Monitor won a change preventing combustion turbines from receiving start-up and no-load costs when they do not run in real time — correcting what Bowring called “an algebra mistake” that resulted in generators receiving payments for costs they did not incur.

The change — including no-load and start-up costs as avoided costs in LOC calculations — was a reform the Monitor had sought since 2012. PJM has estimated the change could reduce LOC payments by about $40 million annually.

‘2×2’ Rule Rejected

The Energy Market Uplift Senior Task Force also had approved a proposal that would have allowed only the most flexible “2×2” CTs — those with start-up plus notification times and minimum run times of two hours or less — to receive lost opportunity costs if they are not dispatched in real time after clearing the day-ahead market.

Resources with start-up plus notification times or minimum run times of more than two hours would not have received lost opportunity payments unless PJM barred them from running in real time to avoid transmission overloads or other reliability problems.

But the task force’s proposal received less than 60% support in a sector-weighted vote of the MRC, short of the two-thirds minimum for passage.

An alternate motion that retained the current technology-specific LOC eligibility rules — combustion turbines and combined-cycle plants operating in simple-cycle mode — was then approved with nearly 92% support and a round of applause.

The MRC last month tabled the task force’s proposal, sending it back for more discussion, after some members, including Ed Tatum of Old Dominion Electric Cooperative (ODEC), complained that the 2×2 requirement was too restrictive. (See PJM Tables Rule Change on CT LOCs.)

Several proposed amendments emerged from the task force’s April 17 meeting: one by Dominion Resources, allowing for start-up costs to be paid if a unit operates in real time at PJM’s direction during any portion of its “temporally contiguous” commitment period; one from PJM clarifying the definition of “temporally contiguous”; and one from ODEC that would have extended LOC eligibility to 2×5 units with minimum run times of up to five hours.

Economic Choice

“We believe units with greater than a two-hour minimum run time are valuable to dispatch,” Tatum said. “We should be making decisions on units’ capability and not on an algorithm’s limitations.” (See PJM: New Rule on Lost Opportunity Costs Would Exclude 1/5 CTs.)

Bowring disagreed. “I don’t agree there is any physical basis for any minimum run time. It’s not required by manufacturers … it’s typically an economic choice,” he said. “I would suggest, if anything, that two hours is too long, not too short.”

Bowring added, “Part of the reason we got into this problem in the first place is PJM wasn’t really looking out four or five hours. Five hours is nowhere near flexible.”

Neither amendment by Dominion nor ODEC was cleared as “friendly,” so membership voted on the main EMUSTF proposal, which failed.

Susan Bruce of the PJM Industrial Customers Coalition then made what became the winning proposal, suggesting that the language regarding LOC eligibility be returned to the status quo and considered for approval along with Dominion’s amendment and PJM’s definitional clarification.

“My understanding is that [the 2×2 issue] was a bit of a surprise to some people,” she said. “That will move us past this issue.”

PJM’s Adam Keech, director of wholesale market operations, said that regardless of a mandated minimum run time, PJM will be making procedural changes “because we think we can do better,” noting that the RTO paid $25 million in lost opportunity costs in February. “We’re going to look at less flexible CTs, with lead times eight to 10 hours, and run them more often,” he said.

Because the less flexible units will retain their LOC eligibility, committing them in real time will ensure they are paid based on LMPs instead of being compensated via uplift.

Because the day-ahead payments to the units are a sunk cost, the less flexible units in many cases become essentially a “free resource” to PJM operators, Bowring explained.

After the meeting, Tatum said he was pleased with the vote. “We’re good for now — until the next shoe drops,” he said.