By Suzanne Herel

WILMINGTON, Del. — Stakeholders will continue to debate changing the $1,000/MWh energy offer cap at a special four-hour Markets and Reliability Committee meeting called for Sept. 9, but few who weighed in on the issue at last week’s meeting were hopeful that consensus would be reached before the RTO’s board makes a unilateral filing with FERC as early as October.

One proposal, presented by Marji Philips of Direct Energy, would raise the cap to $2,700/MWh for cost-based day-ahead offers and price-based real-time offers — 50% more than the highest offers reported by PJM last winter.

Independent Market Monitor Joe Bowring offered an approach that would allow cost-based offers to exceed $1,000/MWh when short-run marginal costs of a unit top that cap. Market- or price-based offers would have to be less than or equal to such cost-based offers.

“The IMM approach addresses the issue of market power when the overall market is tight,” Bowring said. “That is essential — to address market power — when modifying these rules, which were implemented to address market power concerns.”

Old Dominion Electric Cooperative backed a plan presented in November to the Members Committee that would allow cost-based offers up to $1,800/MWh and permit them to set LMPs.

David “Scarp” Scarpignato of Calpine said a group of suppliers also is drafting a proposal “to help get the discussion going even further” that is expected to be brought to the next Market Implementation Committee.

PJM Backs Proposal

PJM said last month that it would support the Direct Energy proposal. In March, the RTO proposed a $2,700 cap on price-based offers and removing the cap on cost-based offers in a FERC docket on price formation (AD14-14). (See PJM Stakeholders Seek ‘Miracle’ to Break Offer Cap Standoff.)

The effort to raise the cap is intended to ensure that gas-fired generators can recover costs above the cap when fuel prices spike during periods of extreme temperatures, like the polar vortex of 2014. That January, FERC granted a temporary waiver allowing make-whole payments for costs incurred above the $1,000/MWh cap. In January 2015, FERC granted the RTO another waiver that allowed it to compensate generators for offers of up to $1,800/MWh, but PJM made it through the winter without having to invoke it.

PJM’s Board of Managers asked stakeholders to make another attempt to reach consensus after efforts last year fell short.

Philips told the MRC the board wouldn’t wait forever for stakeholders to reach agreement. “The PJM board told stakeholders they were going to file something if we couldn’t get our act together. The last time we did that it was called [Capacity Performance]. As talented as the PJM staff is, we didn’t want them filing for us.”

Philips said the Direct Energy proposal contained “generous” numbers in a “desperate attempt to bring generators on board.”

She said the proposal would create “rational, transparent pricing. … Everyone’s a winner because the market produces the right results.”

Day-Ahead vs. Real-Time

Joe Wadsworth of Vitol said he supported the philosophy of the proposal but was concerned about having different rules for the day-ahead and real-time markets. “I would want to further explore: Does this present a market design issue? … Will having different offer caps have any adverse effects?”

Philips said the difference was justified. “There are very few reasons your gas prices should pop if you are chosen by day-ahead dispatch,” she said. “In real-time we’re willing to have no cost-cap on bids,” as long as everything is reviewed by the Market Monitor, she said.

Susan Bruce, representing the PJM Industrial Customer Coalition, urged caution.

“It is a daunting prospect here to think of two months and redesigning the energy market,” she said. “Our primary concern is market power being exercised during times of high demand. … That has to be addressed in order for us to get comfortable with it.”

John Farber, a staff member of the Delaware Public Service Commission, questioned the benefit to consumers of reducing uplift.

“Uplift serves as a circuit-breaker function for consumers that is worthwhile,” he said. “Bypassing that by putting all the costs in the LMP … the benefit is doubtful to consumers.”

Philips noted that because uplift is not hedgeable, it must be captured in risk premiums.

She also expressed frustration with members saying they appreciated her effort but hadn’t had time to consider the proposal.

“You’ve had over three weeks,” she said. “Coming here today and saying you’ll consider it — that’s a ‘no’ vote. You haven’t had a chance to think about it? We have one month, and you’ve had it for nearly a month.”

‘No Incentive to Compromise’

Gloria Godson of Pepco Holdings Inc. said the board’s intention to make a unilateral filing undermined the stakeholder process.

“The lack of willingness to negotiate is a sad commentary on what happens when the board steps in on issues like this,” she said. “There’s no incentive whatsoever for you to discuss with any other person if you like what the board plans to file. It breaks down the discussion — there is no incentive to compromise.”

Outgoing PJM CEO Terry Boston, ever an outspoken supporter of consensus, urged members to hash out the issue.

“We had this conversation last year, and summer’s almost gone and winter’s coming on,” he said. “We were sitting at this same place last fall, and it is a serious issue.

“I made this comment last year: The California energy crisis was a financial crisis first. … I think we have to get to a point where people know their costs are going to be recovered. It is not something that can just wait on the table, because of the potential of it causing a financial crisis.”