By Suzanne Herel

PJM’s request to raise the cost-based energy cap to $1,800/MWh through March (EL15-31) drew a flurry of comments and protests in the days before the Christmas holidays.

Load representatives generally opposed the proposal, warning it could result in windfalls to generators at ratepayers’ expense. Suppliers told FERC that PJM’s proposal didn’t go far enough and that marginal costs more than $1,800 should be able to set market-clearing prices. Other commenters offered limited support for the idea, suggesting tweaks to the language or recommending that FERC simply extend the waiver it granted last year to allow gas-fired generators to cover their costs.

The proposal to boost the cap from $1,000/MWh — prompted by natural gas price spikes last winter — was made in a Section 206 filing to the Federal Energy Regulation Commission after members failed to reach consensus over the past eight months. (See PJM Board to Seek $1,800 Offer Cap.)

Load: ‘Profit Opportunities’

The PJM Load Group — consumer advocates and state regulators for West Virginia, Delaware, Illinois, Maryland, New Jersey and D.C., along with several other load-serving entities and groups representing load – was among those who urged FERC to reject PJM’s proposal outright. If the cap is raised, the group wants payments in excess of $1,000/MWh refunded to ratepayers through a credit against capacity charges.

The Pennsylvania Public Utility Commission said a higher cap is unnecessary, saying “other equally effective mechanisms exist to address the issue of unexpected spikes in fuel costs or other weather-related events.”

Likewise, the Maryland Public Service Commission rejected the proposal, saying, “It is clear that the purpose is to create profit opportunities for generators whose costs do not exceed the offer cap.”

Suppliers: Too Late, Too Little

The PJM Power Providers Group said PJM should have filed much earlier than it did, on Dec. 15, noting that last year’s polar vortex struck in the first week of January. “This filing leaves PJM and the commission exposed to the same ‘relative frenzy’ that both PJM and the commission experienced last winter,” the group said.

While the group agreed the current tariff is unreasonable, it said, “The proposed $1,800/MWh is not supported by any evidence. PJM appears to pick a number out of thin air with the only justification being that the number was part of a failed stakeholder compromise that was never voted upon by the PJM stakeholders.”

It suggested the commission set PJM’s filing for a paper hearing and establish procedures to develop an “appropriate energy market offer cap” by Aug. 1, in time for next winter.

PPL said PJM’s compromise — limiting offers that may set LMPs to $1,800/MWh and providing compensation for marginal costs above that through uplift payments — is “bad policy.”

“The proposal departs unreasonably from past commission and court precedent and from sound economic theory, sound principles of market design and PJM’s own expressed views as to the benefits of an LMP-based system and the harmful effects of payments needlessly being made via uplift,” PPL said.

Public Service Enterprise Group agreed that capacity resources should be able to bid their marginal costs into the market and set price.

It also called on FERC to prevent seams issues among neighboring markets with different policies, saying the commission should order PJM to adopt rules allowing generators to update their offers on an hourly basis to reflect real-time fuel costs. “Given the overwhelming benefits of hourly reoffers, we respectfully request that FERC direct PJM to begin a stakeholder process to develop rules similar to those already implemented in New York and New England,” PSEG said.

Coordination of comparable offer caps also was the concern of NYISO. “Offer caps must be discussed at a regional level in order for all interested parties to evaluate the potential for seams issues that could arise from different offer caps. … Materially different offer caps in neighboring regions that depend on the same natural gas supply could require operator actions to avoid electric system reliability impacts during periods of cold weather and high gas prices. NYISO is concerned that a number of markets in the Mid-Atlantic and Northeast are competing for the same supply of gas and generators subject to lower offer caps could be denied access to fuel.”

PJM CEO Terry Boston said last month he is seeking to reach a consensus with the RTO’s neighbors on a common offer cap. (See PJM Seeking RTO Consensus on Offer Cap Increase.)

Monitor Suggests Changes

Independent Market Monitor Joe Bowring expressed general support for the proposal, but he challenged some of the details, saying the highest valid cost-based offer the Monitor reviewed last winter was less than $1,500, not the $1,724/MWh cited by PJM.

He also advised that because it was natural gas spikes that prompted the filing, the cap should be restricted specifically to the cost to procure gas.

Bowring also expressed concern that the proposal not affect the maximum system scarcity price. “PJM does not explain what would happen if cost-based offers between $1,000 and $1,800 [were] applied during scarcity conditions,” he said. “The Market Monitor requests clarification that the maximum price would never be greater than the current maximum scarcity price even if cost-based offers exceed $1,000/MWh.”