By Suzanne Herel
The authors of four competing proposals to change the $1,000/MWh energy market offer cap have agreed to put forward one plan for consideration by the PJM Markets and Reliability Committee on Thursday — the last chance stakeholders will have to come to consensus before the Board of Managers takes the issue into its own hands.
The proposal outlined during a special MRC meeting last week would cap cost-based offers at $2,000/MWh and allow them to set LMPs, with market-based offers allowed to equal cost-based. Generators with approved fuel-cost policies claiming costs above $2,000/MWh would be compensated through make-whole payments.
There would be no change to the treatment of the 10% adder, shortage penalty factors and start-up or no-load compensation. Cost-based offers would be considered to include the 10% adder.
The framework was hammered out during a conference call last week attended by Direct Energy, Old Dominion Electric Cooperative, PJM Power Providers Group (P3), the Independent Market Monitor — jokingly dubbed “the four horsemen”— and PJM staff.
“I think it’s fair to say that none of the four proposers who participated in the call felt it was their home run,” said committee secretary Dave Anders. “But it was something they looked at as a bridge that, should the stakeholders come to consensus on it or something close to it, it could work for this winter and until FERC” takes action.
Stakeholders already had been rushing to reach consensus after being told in July at the Liaison Committee meeting that the Board of Managers planned to take up the issue in time for winter.
Then, on Sept. 17, FERC announced its intention to take action on offer caps and other price formation issues. The commission made the statement as it issued a proposed rule requiring RTOs and ISOs to align their settlement and dispatch intervals (RM15-24). It gave no timeline for future action. (See NOPR Requires RTOs Switch to 5-Minute Settlements.)
PJM Approves
PJM’s Adrien Ford said the new framework “is something PJM staff can fully support” to the board.
Absent consensus, she said, staff is prepared to recommend a Tariff change similar to the waiver it filed last year, which allowed prices to rise as high as $1,800/MWh. PJM made it through the winter without having to invoke it.
Staff would recommend, however, that the increased cap remain beyond the winter and would clarify in its transmittal note that any FERC action would supersede the new language, Ford said. “We view it as an interim solution for a winter or two,” she said.
PJM staff hasn’t finalized exactly what it would recommend if consensus can’t be reached, she said. One outstanding issue is whether to eliminate the cap altogether. Any solution supported by PJM would allow generators full cost recovery, she said.
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.
On Thursday, ODEC, Direct Energy and the Market Monitor said they would withdraw their proposals to support the new framework. David “Scarp” Scarpignato of Calpine, which is a member of P3, said he hadn’t had time to canvass the group to guarantee they would do the same, but he said initial feedback from the P3 members he reached during a break in the meeting pointed in that direction. (See PJM Stakeholders Weigh 4 Options on Offer Cap; No Agreement in Sight.)
“We see there are some areas we’re not going to come to agreement in the time we have to do so,” said Steve Lieberman of ODEC. “But we’re probably not as far apart as we may have thought. Is it perfect? Absolutely not. We shouldn’t let that get in the way of an incremental improvement.
“It’s hard to argue that this is not an improvement. It does allow generators to recover their costs. It does offer load the security blanket of a cap, albeit higher than we otherwise would wish to support.”
Susan Bruce, representing the PJM Industrial Customer Coalition, agreed.
While noting that she had not reviewed the proposal with her clients, Bruce called it “a good-faith effort at compromise.”
She said she was pleased that market-based bids above $1,000/MWh must be below the cost-capped bids and that a hard cap will remain at $2,000/MWh.
“It addresses — maybe not ideally, but practically — many of the concerns that have been raised. While there are areas of this that would give customers pause, I think it’s hard to view this as anything but a good workable framework around consensus,” she said.
“It addresses my clients’ particular concerns about our aggregate market power. … The 10% adder is problematic, but if we’re looking for consensus, it will necessarily involve compromise.”
Exelon, Maryland Balk
Not everyone was on board, however.
“It falls woefully short of correct market principles that PJM should be endorsing and has endorsed in the past,” said Exelon’s Jason Barker. Payments to individual units, recovered in uplift, fail to send clear market signals, he said.
Walter Hall of the Maryland Public Service Commission said that the state would be unlikely to support an offer cap as high as $2,000.
“We have not been persuaded that there is a need at this time [for] a raising of the offer cap; however, we do agree that generator cost recoveries are important and would be willing to see some mechanism added to the PJM Tariff that would provide that, but without setting [LMPs],” he said. “We’re willing to discuss some alternative to that, some higher level of offer cap, but unlikely to be willing to go as far as $2,000.”
Hall also asked for more information regarding the generators most likely to be on the margin and setting the highest costs.
“We would have some concern that perhaps there are very inefficient units being maintained here that would be providing the last megawatt of electricity,” he said.
