By Suzanne Herel

VALLEY FORGE, Pa. — The Markets and Reliability Committee voted overwhelmingly Thursday to raise the energy market offer cap to $2,000/MWh in a move that outgoing CEO Terry Boston called “the stakeholder process at its best.”

The MRC approved the new cap by an unweighted 84-17 margin, after which the Members Committee gave final approval by voice vote.

Boston said the Board of Managers would approve the new framework and PJM would be filing a Tariff change with FERC within a couple of weeks.

He apologized for not having the Tariff language ready before the vote, saying, “We were not as optimistic as we should have been about this getting approved this morning and afternoon.” He said the language would be made available to members a few days before the FERC filing.

Boston appeared touched by the vote, which comes as his seven-year tenure nears its end. “In the first meeting of the year, after this was voted down last year, I begged for consensus,” he recalled.

There was a smattering of applause when the vote was revealed at the MRC, and many who had sparred this year over the issue offered praise to PJM staff, each other and the four entities who agreed to withdraw their own proposals in favor of the simplified plan: Direct Energy, Old Dominion Electric Cooperative, PJM Power Providers Group (P3) and the Independent Market Monitor.

“It’s really cool that we were able to pull this off given the short time frame,” said Marji Phillips of Direct Energy, which had initiated the first of the four proposals. “I want to compliment everyone who supported this — especially when I was yelling at you at the last meeting.”

Pepco Holdings Inc.’s Gloria Godson called the vote “a beautiful thing to behold.”

The Details

The proposal caps cost-based offers at $2,000/MWh and allows them to set LMPs, with market-based offers allowed to equal cost-based ones. Generators with approved fuel-cost policies claiming costs above $2,000/MWh would be compensated through after-the-fact review and subsequent make-whole payments.

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 extreme conditions such as the 2014 polar vortex.

Jeff Whitehead of Direct Energy, whose proposal would have raised the cap to $2,700/MWh for cost-based day-ahead offers and price-based real-time offers, said the company was willing to back the compromise because it ensures “that as much generator compensation cost is recovered as possible in energy prices, which are hedgeable, and something load servers can compete on.”

“Uplift is not [hedgeable] and is a cost that gets rolled into risk adders that get passed on to consumers,” he added.

Likewise, David “Scarp” Scarpignato of Calpine said P3 didn’t believe the consensus proposal offered the “proper price formation,” but the group was willing to support it because it does allow generators to recover costs and raises the level that can set LMPs.

Temporary Change; FERC Action Expected

Some of those who opposed raising the cap previously — or thought the compromise was insufficient — were willing to support what is now assumed to be a temporary solution. FERC on Sept. 17 announced its intention to take action on offer caps and other price formation issues. (See NOPR Requires RTOs Switch to 5-Minute Settlements.)

Exelon’s Jason Barker, who at the last meeting on the issue had criticized the framework, supported it Thursday as “an improvement over the status quo” and said he hoped FERC would improve on the filing. “We will look forward to FERC … recognizing flaws inherent in this proposal,” he said. (See Consensus Near on PJM Energy Market Offer Cap?)

Similarly, Dynegy’s Jason Cox said, “Dynegy reluctantly supports this compromise as a way to ensure that our costs are covered until FERC acts. We believe that we should not allow market distortions and continue to support potential massive uplift during critical periods.”

Susan Bruce of the PJM Industrial Customer Coalition said her group continued to have concerns over the proposal but offered support in return for a promise from the Market Monitor and PJM that there would be “robust reporting” on offers between $1,000, the current cap, and $2,000.

Delaware, Maryland Unconvinced

Representatives of state commissions generally opposed the proposal.

John Farber, public utility analyst for the Delaware Public Service Commission, asked that PJM consider releasing information about the heat rates of the generators setting the clearing price.

Walter Hall of the Maryland Public Service Commission said his agency remained unconvinced of a need to raise the cost cap.

Jim Jablonski of the Public Power Association of New Jersey pointed out that PJM fared better this past winter, which saw colder temperatures, than it had during the previous season’s polar vortex.

And, he said, “Capacity Performance is designed to provide a financial incentive to perform whenever needed and designed to eliminate future emergencies. Reliability, therefore, in our view is protected. We do not think a change is warranted. Two thousand dollars is not supportable except as a compromise, has no factual basis and definitely is going to be open to challenge.”