By Suzanne Herel

The Markets and Reliability Committee last week failed to reach consensus on a way to reduce spending on Tier 1 synchronized reserves, with proposals by PJM and the Market Monitor both falling short.

PJM’s recommendation would have added an obligation for Tier 1 resources to respond in emergencies and make them subject to penalties if they couldn’t. They could opt out of that duty, but by doing so they would forfeit any credit they would have received outside of responding to a spinning event.

PJM estimated it would have reduced the RTO’s 2014 Tier 1 expense of $27 million by as much as $20.2 million if three-quarters of resources opted out (see chart).

The proposal retained a provision in the existing rules entitling Tier 1 to receive compensation outside of an event when the non-synchronous reserve market price is more than $0 — a concession that the Monitor opposed.

Monitoring Analytics’ Tom Blair said that the Monitor “remains opposed to paying for Tier 1 in any circumstance except when it responds to a spinning event, and then at the synch reserve price.” The PJM proposal, he said, “does not remediate or even address that concern.”

Howard Haas, also of Monitoring Analytics, added, “There’s no reason or rationale to compensate Tier 1 outside of a spinning event. There is no Tier 1-related cost that isn’t already included in the energy offer.”

The PJM proposal received only 54.4% support in a sector-weighted vote, with most Generation Owners (85%) and Transmission Owners (91%) in support and other sectors split or opposed.

Monitor’s Proposal

Steve Lieberman of Old Dominion Electric Cooperative introduced an alternate proposal based on a recommendation by the Monitor that would have eliminated compensation for Tier 1 resources except when responding to an event. It imposed no obligation to respond.

That proposal also failed, receiving 57.4% support, with virtually unanimous support from End Use Customers and Electric Distributors but little backing from Generation Owners (17%) or Transmission Owners (20%).

Tier 1 synchronized reserves are partially loaded generators that have room to increase their output in response to a spinning event, explained PJM’s Adam Keech. Tier 2 resources include demand response, synchronous condensers and generators that would otherwise be running at full output, meaning they incur lost opportunity costs.

Currently, Tier 1 carries no obligation to respond to spinning events, unlike Tier 2. Keech said the purpose of the proposal was to “make the resources that opt in identical to Tier 2 resources today.”

The issue of Tier 1 compensation stems from a problem statement introduced last fall by Monitor Joe Bowring, who referred to them as “available ramp room” that was standing by and doing nothing but costing the RTO more than $85 million per year. (See Monitor: Cut Pay for Tier 1 Synchronized Reserves.)

David “Scarp” Scarpignato of Calpine said that both proposals had their positive and negative sides.

“It doesn’t make sense to pay non-synch reserves payments and not Tier 1. [Non-synch reserves are] not anywhere close to being as valuable” as Tier 1 synch reserves, he said. “You might go so far as to say that Tier 1 should be paid all the time — PJM, while not demanding a response, is expecting a response.

“Tier 1 is providing value that PJM counts on,” he added.

‘Late’ Criticism?

Dave Pratzon of GT Power Group, which represents some generators, took issue with critics of the PJM proposal, which had cleared the Market Implementation Committee on Oct. 7. (See PJM Market Implementation Committee Briefs, Oct. 12.)

“None of these issues were voiced previously,” he said. “No one mentioned an alternative [during the first read at the last MRC meeting]. It’s a little disappointing that we have to wait until the 11th hour to hear that a different proposal will be put up.”

He cautioned his colleagues against ODEC’s recommendation, saying, “Accepting this proposal will open up a lot of other market issues that are unintended consequences.”

Carl Johnson of the PJM Public Power Coalition said his opposition to the PJM proposal was not an about-face.

“We opposed it in the subgroup, opposed it in the MIC and opposed the manual language,” he said. The MIC had approved the proposal with 28 opposed and 16 abstentions.

After both proposals failed, Bob O’Connell of Main Line Electricity Market Consultants, made a motion for a second vote on the PJM proposal. But MRC Chairman Mike Kormos said that under PJM rules, only a member who voted against a measure may ask for it to be reconsidered.

O’Connell acknowledged he had not voted against the proposal and no one else came forward to seek a second vote.