January’s arctic cold lasted only a few days, but its impact could be felt for years depending on how the Federal Energy Regulatory Commission rules on the RTO’s request to waive its $1,000 price cap.

The commission agreed Jan. 24 that PJM could make whole natural gas generators that can prove that the spike in natural gas last month pushed their operating costs above the $1,000/MWh offer limit. (See FERC Lifts Price Cap as Cold Grips PJM.)

Still pending before the commission is PJM’s request to lift the price cap altogether for the remainder of the winter so that generators with costs over $1,000 set the PJM clearing price (ER14-1145). Among the factors the commission will consider in weighing the request to waive the PJM Tariff is whether the request is of “limited scope” and that it not harm third parties.

Windfall

Opponents told FERC in filings last week that PJM’s proposal would provide a windfall to generators at ratepayers’ expense.

“Tens of billions of dollars of obligations among sellers and buyers are committed every year on the basis of market rules, including the $1,000/MWh offer price cap,” NextEra wrote in opposition. “…This is precisely the circumstance in which market participants should be able to rely on a market rule that protects against unlimited price exposure. Indeed, the only time such a rule actually matters is when prices are extremely high.”

Opponents said the price cap was a trade-off consumers won in return for making capacity payments.

“The regulatory and pricing risk associated with exceptions to the offer-price cap rule will increase the cost of hedging instruments long after March 31, 2014,” wrote the PJM Industrial Customer Coalition and consumer advocates for seven states and the District of Columbia.

The consumers group said the waiver would gouge ratepayers as a result of bad business decisions by generators that failed to hedge gas prices or install dual fuel capability.

At the same time that operating costs for simple-cycle combustion turbines hit $1,200/MWh, generators with similar heat rates were producing power at about $310/MWh by burning oil.

The consumers said allowing “the least efficient generators that chose not to hedge” to set the market-clearing price will create undesirable incentives.

A company that owns four generation units — one fueled by natural gas purchased on the spot market and three that are not fueled by natural gas — could have an incentive to pay higher natural gas prices because of the potential gain to its other plants, they said.

Supporters

Among those who filed in support of the waiver were PJM generation owners and the Market Monitor.

“In a time of extreme cold weather events, it’s more important than ever that the market clearing prices reflect the value of resources that are needed to support reliable operations,” wrote Exelon. It said the commission should approve the waiver “to support accurate price formation and reliable operations going forward.”

The PJM Power Providers said the use of a single market-clearing price is a “fundamental tenet” of the PJM market. “Reflecting the marginal cost of fuel in uplift payments is a fundamentally flawed market design that must be stopped as soon as possible.”

It added: “the growth in demand response in PJM since 2002 suggests that there may be good cause to address whether an offer cap is even necessary in today’s market.”