VALLEY FORGE, Pa. — Tier 1 synchronized reserve resources would be obligated to respond in emergencies and subject to penalties if they couldn’t, under a PJM-backed proposal approved Wednesday by the Market Implementation Committee.
The proposal retains Tier 1’s ability to receive compensation outside of synch reserve events whenever the non-synch reserve market price is more than $0. Units could opt out of the performance obligation, but by doing so they would forfeit any credit they would have received outside of responding to an event.
Estimated Tier 1 megawatts would still be considered when clearing the synch reserve market so that opting out could not be used to withhold supply from the market and drive up prices.
In addition, units would be made whole for the cost of responding to a spin event. However, that would apply only to units scheduled by PJM to provide energy or self-scheduled resources that are dispatched by PJM to run above their minimum rate.
The PJM proposal was one of three presented to address a problem statement raised last fall by Independent Market Monitor Joe Bowring, who estimated that the payment scheme dating to 2012 results in about $85 million in unnecessary expenditures each year. (See Monitor: Cut Pay for Tier 1 Synchronized Reserves.)
The other plans were crafted by Bowring’s Monitoring Analytics and PJM’s Industrial Customer Coalition.
Bowring’s proposal would have eliminated the compensation Tier 1 resources receive when they’re not responding to an event — what he classified as an unearned “windfall” — and would not have imposed a performance obligation. It failed, garnering just 29% of the vote.
Bowring said Tier 1 resources already can offer as Tier 2. “All of the functionality that PJM wants to add through these complicated changes are already there,” under current rules, Bowring said, sparking a brief debate with Adam Keech, PJM‘s director of wholesale market operations.
Keech said it is up to PJM to decide whether to accept Tier 1 resources seeking Tier 2 status.
“No one can force PJM to buy Tier 2 it doesn’t need,” Bowring agreed.
The proposal from the ICC would have compensated Tier 1 resources outside of an event, but at the non-synchronized reserve price.
The ICC’s Susan Bruce said the proposal was a compromise between the approaches of PJM and the Monitor. “The Industrial proposal is smack dab in the middle between the two.” It was rejected with a favorable vote of just 23%.
PJM’s scarcity pricing scheme was created in 2012 to accurately price energy and reserves when reserves are short — defined as less than the largest generating unit that is on-line. The mechanism allows the market clearing price to rise, creating an incentive for resources to respond in an emergency.
PJM’s proposal, which passed with 64% approval, will be heard at the Markets and Reliability Committee next month. If approved there, it will be presented to the Members Committee in October and implemented shortly thereafter. Manual language will be presented at the August MIC.
Earlier Replacement Capacity Transactions Approved
Market participants would be able to enter replacement capacity transactions earlier than Nov. 30 prior to the start of the delivery year if the need is linked to a physical reason that would prevent a participant from meeting its commitment, according to manual changes approved last week.
To prevent the opportunity for financial arbitrage between auctions, the changes prohibit generation that is replaced early from being recommitted for the delivery year.
The motion passed with 81% support, trumping an alternate measure introduced by Tom Rutigliano on behalf of EMC Development. That proposal, which would have placed no restrictions on what capacity could be replaced or on it being re-entered into the market, received 28% support.
Under the approved changes, replacements would be permitted when the owner could show the expected final physical position of the resource at the time of the request.
Existing generators could engage in such transactions if they are being deactivated, while new generators could replace themselves if their project was canceled or delayed.
Demand response or energy efficiency resources could be replaced due to the permanent departure of their loads.
Package Calls for Notice on Pricing Interfaces
PJM would be required to provide more public notice before it creates “closed-loop” pricing interfaces under a proposal approved by the committee.
Under the changes, the RTO would announce the implementation of such interfaces at least five days before the close of the next monthly financial transmission rights auction. Currently, there are no notice requirements except for sub-zonal demand response, which is announced the previous day.
The RTO also will provide notice when it begins studying a potential new interface that will be defined and able to be used, such as looking into modeling the interface. Notices will be posted on the OASIS site, triggering an email to stakeholders. The rule will allow an exception to the advance notice requirements for planned, emergency or maintenance outages of less than 10 days.
The proposal is the product of a problem statement introduced by DC Energy late last year calling for more operational transparency. (See PJM MIC to Consider Earlier Notice on Pricing Interfaces.)
PJM uses closed-loop interfaces to capture operator actions in LMPs rather than in uplift because its modeling software is unable to set prices for voltage problems.
The change was approved by acclamation with 10 members voting in opposition.
— Suzanne Herel