A PJM task force has recommended lifting the $1,000 cap on cost-based energy offers, but the margin suggests the proposal may have a tough time winning final stakeholder approval.
The proposal would limit cost-based incremental energy offers to production costs allowed under the cost development guidelines plus a 10% adder up to a maximum of $90/MWh. Adders for frequently mitigated units (FMU) and associated units (AU) would not apply above $1,000/MWh.
To mitigate market power, market-based or price-based offers would be required to be less than or equal to cost-based offers when cost-based offers are greater than $1,000/MWh.
The proposal was the only one of three to win majority support in a vote of the Cap Review Senior Task Force. But its 57% support is below the two-thirds threshold needed to win endorsement by the Markets and Reliability Committee, where sector-weighted voting often results in less support than in lower committees.
Two other proposals failed to win backing from more than 25% of the task force.
One would keep the $1,000 offer cap but create a review process allowing PJM and the Independent Market Monitor to approve costs above it without a waiver from the Federal Energy Regulatory Commission. Cost offers exceeding $1,000 would be compensated via uplift with no 10% adder.
The third proposal would allow recovery of incremental, start-up and no-load costs and day-ahead gas costs based on an index. All offers would be reviewed after the fact. The 10% adder would decline as the cost offer rises, being eliminated above $1,000/MWh. Cost-based offers greater than $1,000/MWh also would not include FMU/AU adders.
Stakeholders agreed to consider lifting the cap after some gas-fired generators reported that their operating costs exceeded $1,000/MWh when natural gas prices spiked during January’s extreme weather. (See Effort to Lift Offer Cap Advances After Debate.)
At a presentation before the MRC Thursday, Carl Johnson, representing the PJM Public Power Coalition, expressed concern that two of the proposals, including the one recommended by the task force, propose using a gas index instead of actual gas costs.
“One or two units with higher prices because of pipeline constraints could set LMPs,” he said. “When we take the $1,000 [cap] away we have the opportunity to exacerbate the error.”
Raghu Sudhakara of Rockland Electric said eliminating the cap would raise market power concerns. “It incentivizes generators to move away from dual-fuel capability and more to spot gas pricing because they are guaranteed cost recovery,” he said.
Jim Benchek of FirstEnergy said he’d like to see the task force continue to work on a rule change that applies to market-based offers, even if it is unable to reach consensus for the coming winter.
Market Monitor Joe Bowring said he believed the task force’s proposal addressed market-based offers by saying they cannot exceed cost-based offers.
The Monitor’s proposal, which failed to win consensus in the task force, would have permitted cost-based offers to exceed $1,000 while excluding the 10% adder. Price-based offers would be limited to no more than cost-based offers.
