By Suzanne Herel

VALLEY FORGE, Pa. — Members debated four potential changes to the $1,000/MWh energy offer cap last week at a specially called meeting of the Markets and Reliability Committee, failing to agree on any one — or even which should be the main and alternate proposals.

Further discussion was deferred until Sept. 24, giving stakeholders only a few weeks to reach consensus before the Board of Managers takes the matter into its own hands before winter.

The proposals were presented by Direct Energy, Old Dominion Electric Cooperative, the Independent Market Monitor and — for the first time — Calpine and the PJM Power Providers Group (P3).

Supporters of an increase in the cap say it is necessary to ensure that gas-fired generators can recover their costs when fuel prices spike during periods of extreme temperatures, such as the 2014 polar vortex.

Direct Energy had kicked off the latest effort to reach agreement in July with its plan to raise the cap to $2,700/MWh for cost-based day-ahead offers and price-based real-time offers. The number is 50% more than the highest offers reported by PJM last winter. PJM said that it would support the Direct Energy proposal. (See PJM Stakeholders Struggle for Consensus on Offer Cap.)

Joe Wadsworth of Vitol reiterated his concern about potential unintended consequences inherent in applying different rules to the day-ahead and real-time markets. “We could be artificially creating arbitrage opportunities,” he said, adding that such a scenario might invite increased scrutiny from FERC enforcement.

“We need to ensure the day-ahead and real-time market parameters are the same whenever we can,” he said.

Jim Jablonski, of the Public Power Association of New Jersey, said that whatever the proposed offer cap is, it’s critical it be able to be supported by data. “We can’t get to FERC and say, ‘Oh, we just doubled the old one.’”

Jablonski asked Direct Energy’s Jeff Whitehead if he could estimate exactly how much uplift a higher cap might eliminate. “I’d love for somebody to say, ‘This is how much,’” he said.

Whitehead responded, “The higher the offer cap, the less uplift we’ll have.”

Steve Lieberman of ODEC called his plan “the only proposal that was a joint effort of load and supply.”

It would allow cost-based offers of up to $1,800/MWh and allow them to set LMPs.

And, he said, “Old Dominion firmly believes in the need for a cap that is the same in both markets.”

The Monitor’s proposal would allow cost-based offers to exceed $1,000/MWh when a unit’s short-run marginal costs exceed that cap. Price-based offers would have to be less than or equal to such cost-based offers. Monitor Joe Bowring said the approach addresses the issue of market power when the overall market is tight.

The P3 proposal was the only one that had not previously been presented.

In making the presentation, David “Scarp” Scarpignato of Calpine said that because generators have a must-offer requirement to enter into the day-ahead market, it’s essential they be able to recover their costs.

“The uplift method is a bad idea,” he said. “It’s unhedgeable, and there’s extra risks added to load prices. If you don’t put them into LMP, you lose a very important market signal.”

In allowing offers to set LMPs, according to the proposal, higher prices incent generators to perform.

Like Lieberman, Scarp said the day-ahead cap must equal the real-time cap. Under his proposal, cost-based offers for both markets would be capped at cost plus 10%; market-based offers would be capped at the higher of $2,700/MW or the cost-based offer.

The proposal also sets penalty factors of $1,350/MW for synchronized or primary reserves, and $750/MW for excess synchronized or primary reserves.