By Suzanne Herel

PJM will ask the Federal Energy Regulation Commission this week to raise the cost-based energy offer cap to $1,800/MWh through March 2015, CEO Terry Boston said in a letter to members Tuesday.

The proposal, authorized by the Board of Managers, would let offers up to $1,800 set clearing prices. Generators could recover “justifiable costs” above $1,800 through make-whole payments, but such offers would not set prices for other market participants.

The Section 206 filing comes after stakeholders failed over eight months to reach consensus on changes to the current $1,000/MWh cap.

The issue resulted from the spike in gas prices last January, which pushed some generators’ costs above $1,000.  FERC granted PJM’s request for a waiver from the cap to allow some gas-fired generators to cover their costs.

“We believe this action is prudent preparation for the possibility of high fuel costs that could result in generating sources not recovering their costs despite producing power when most needed to meet high demand,” Boston wrote.

Although PJM is not expecting the same weather extremes this winter, Boston wrote, “seeking approval for a higher cap through this winter [allows PJM] to avoid any possibility of having to scramble to submit waivers that seek FERC decisions in 24 hours.”

Boston noted that the concept of allowing cost-based offers in the energy market to set prices up to $1,800/MWh mirrors the proposal presented at the Nov. 20 Members Committee. Old Dominion Electric Cooperative’s Ed Tatum — who negotiated the proposal with Gabel Associates’ Mike Borgatti — withdrew it after it became clear it had little support from members representing load. (See Last Ditch Effort to Break PJM Offer Cap Deadlock Fails.)

Boston said PJM limited its proposed change to the coming winter “in anticipation of FERC developing a longer-term solution to offer cap issues from a national perspective over the next year.”