By Suzanne Herel
The Federal Energy Regulatory Commission on Friday granted PJM’s request to increase the cost-based energy offer cap to $1,800/MWh through March.
“We find that PJM has demonstrated that the current offer cap of $1,000/MWh in PJM is unjust and unreasonable for the winter months,” FERC said in its order, which became effective immediately (EL15-31). PJM had requested the Tariff revision go into effect Jan. 9.
Any cost-based offer, regardless of fuel type, will be eligible to set the LMP, the ruling said, rejecting a request by the Independent Market Monitor that it be restricted to natural gas.
“We find that restricting the proposal to natural gas costs alone would be unduly preferential to those sellers whose electricity is from natural gas-fired generation,” the order said.
Meanwhile, the commission said, it is “exploring potential improvements to market design and operational practices in order to ensure appropriate price formation in energy and ancillary service markets operated by ISOs/RTOs, which involved four staff papers and a series of workshops.”
The order included a request for comments as FERC seeks information on possible alternative offer caps and how it can mitigate seams issues among neighboring RTOs. (See PJM Seeking RTO Consensus on Offer Cap Increase.)
Responding to critics’ concerns, the commission said, “While PJM’s proposal may exacerbate seams issues by creating an incentive for external resources to attempt to sell into PJM when energy prices exceed $1,000/MWh, PJM is proposing only a short-term, temporary change applicable over the next few months.”
FERC also dismissed protesters’ assertions that the waiver would invite unsupported market-based offers above the $1,000/MWh cap.
“PJM’s proposal also provides additional protection to customers by requiring that market sellers provide cost justification for all bids above $1,000/MWh according to PJM’s cost development guidelines, in order to set the LMP,” it said.
Furthermore, it noted, “As we found in the February 2014 Waiver Order, allowing these offers to set LMP promotes efficient resource selection and sends clear market signals so that resource costs are reflected in transparent market prices.”
PJM’s proposal will allow generators to recover “justifiable costs” more than $1,800 through make-whole payments, but such offers would not set prices for other market participants.
The issue arose after a spike in gas prices last January pushed some generators’ costs to more than $1,000. At the time, FERC granted PJM’s request for a waiver from the cap to allow some gas-fired generators to cover their costs.
Because the proposal’s wording did not put a time limit on the price cap hike, FERC is requiring PJM to submit a filing by Feb. 27 to remove the waiver effective April 1. Because that change is ministerial, FERC said it will not entertain protests.
FERC also declined to establish hearing procedures, as some had requested. It also denied PJM Load Group’s motion for extension, saying that “the current situation requires immediate relief.” (See PJM Offer Cap Proposal Sparks Opposition.)
In addition, it disagreed with the Load Group that the proposal would result in retroactive ratemaking.
“The Tariff provisions revise offers solely in the energy market and are prospective, as of the date of this order. They, therefore, have no retroactive effect on past offers or energy prices,” the order said.
PJM’s Section 206 filing seeking the higher cap came after stakeholders failed over eight months to reach consensus on changes to the current $1,000/MWh cap. (See Last-Ditch Effort to Break PJM Offer Cap Deadlock Fails.)