Stakeholders representing supply and load accused each other of refusing to compromise on changes to the $1,000 offer cap Thursday in one of the most acrimonious debates in the last year.
The Members Committee debate was sparked when Bob O’Connell of J.P. Morgan Ventures Energy proposed raising the cap for cost-based energy offers to $2,250/MWh from $1,000/MWh.
O’Connell, who said he was speaking on behalf of the PJM Supplier Caucus, said cost-based offers below $2,250/MWh — equivalent to a 15,000 Btu/kWh generator burning gas purchased at $150/MMBtu — should be allowed to set market-clearing prices. Cost-based offers above $2,250 would be reimbursed through uplift and not set LMPs. Price-based offers would be permitted to equal cost-based offers when the latter is more than $1,000/MWh.
The higher caps would be in effect until only June 2015, when O’Connell’s proposal would eliminate the cap altogether.
After natural gas prices spiked to more than $100/MMBtu at some pricing points in January, the Federal Energy Regulatory Commission ruled that generators could recover costs above $1,000.
PJM members agreed in April to form a task force to consider changes to the cap, but after eight meetings the group was unable to reach consensus. On Sept. 18, the Markets and Reliability Committee voted on proposals to lift the cap with none winning a two-thirds majority. (See Members Deadlock on Change to $1,000 Offer Cap.)
A proposal that would have eliminated the cap for cost-based offers and let them set LMPs was unanimously opposed by the Electric Distributor and End Use Customer sectors. An alternative that would have allowed cost-based offers above $1,000/MWh, but would not have allowed them to set LMPs, won unanimous support from the ED and EUC sectors but was opposed by most Transmission Owners and Generation Owners.
On Oct. 10, the task force met a final time, a session that PJM facilitator Adrien Ford said was marked by “long periods of silence.” The MRC voted Thursday to sunset the task force.
O’Connell said the suppliers hadn’t offered their proposal Oct. 10 because they didn’t want to negotiate in a public meeting and because the proposal “wasn’t formalized in its entirety until recently.”
Ed Tatum of Old Dominion Electric Cooperative (ODEC) said he was “disappointed” at suppliers’ characterization of load representatives as “intractable.” It was the suppliers, he contended, who had refused to negotiate.
Making a Case to the Board
O’Connell withdrew the proposal before bringing it to a vote, acknowledging that it lacked support from sectors representing load. But he said he wanted to make a case that the PJM Board of Managers — board members Sarah Rogers and Charles Robinson were in attendance — should seek FERC approval to lift the cap. Without stakeholder consensus, the only avenue for changes to the cap is a Section 206 filing by the board.
O’Connell said natural gas suppliers may refuse to provide generators with all the fuel they need to operate under PJM’s direction if they fear the cost won’t be recovered. “Keeping the cap at $1,000 is a threat to reliability,” he said. “If ever there was an issue that fell at the feet of the board this is one.”
“The principle here is very simple,” agreed Exelon’s Jason Barker. “Generators need to be guaranteed to recover costs when dispatched for reliability.”
Market Power
Load representatives said they agreed with suppliers that no generator complying with PJM dispatch instructions should be forced to do so at a loss. But they disagreed with generators over how high a new cap should be and with allowing the high offers to set clearing prices.
Susan Bruce of the PJM Industrial Customer Coalition said her group would oppose O’Connell’s proposal in part because it treated day-ahead and real-time offers the same. O’Connell said differentiating between the two offers would expose generators to potential market manipulation claims.
John Farber of the Delaware Public Service Commission said the cap functions as a “circuit breaker” to ensure ratepayers are not overcharged. Farber referenced a March report by the Independent Market Monitor, which concluded that only $9,118 of the nearly $584,000 in requested make-whole payments should be paid. (See Stakeholders Preview Offer-Cap Debate; Monitor: Generators Overstated Costs.)
O’Connell said the numbers cited by Farber do not reflect all the money at stake. He noted that Duke is seeking $9.8 million in “stranded” gas costs (EL14-45), and ODEC is seeking reimbursement of more than $15 million, including $2.7 million in excess costs incurred before FERC’s order temporarily lifted the $1,000 cap (ER14-2242). (See PJM Backs Duke’s $9.8M ‘Stranded Gas’ Claim.)
Counter by Load
Immediately after O’Connell withdrew the proposal, he engaged in a parliamentary skirmish with ODEC’s Steve Lieberman, who sought to describe an alternative load proposed Oct. 10. Committee Chairman Dana Horton of American Electric Power let Lieberman proceed over O’Connell’s objection.
This proposal would allow real-time cost-based offers between $1,000/MWh and $1,400/MWh to set LMP if the unit is instructed to run by PJM. Generation costs above $1,400/MWh in the real-time market would be recovered via uplift.
Dan Griffiths, executive director of the Consumer Advocates of PJM States (CAPS), said load representatives were unable to engage generators to discuss the proposal. “The other side wasn’t interested in talking,” he said.
Lieberman acknowledged his proposal also would not pass. Nevertheless, he said he wanted to present it for the board’s review.
Tatum said that O’Connell and other supplier stakeholders had refused to engage in dialogue with load representatives at the Oct. 10 meeting. “Not since high school have I had such trouble getting people to talk to me,” Tatum said.
