PJM Members OK $2,000/MWh Energy Market Offer Cap, Paving Way For FERC Filing

October 12, 2015

PJM’s Marketing and Reliability Committee voted to raise the energy market offer cap to $2,000 per MWh, and the grid operator will likely submit a tariff change to the Federal Energy Regulatory Commission sometime this month.

The proposal was first approved 84-17 by the committee and then by a voice vote of the Members Committee. The measure now goes to PJM’s full Board of Managers, which outgoing President Terry Boston predicted would approve it, paving the way for the FERC submission.

Under the proposal:

• Incremental energy cost-based offers would be capped at $2,000/MWh and allowed to set locational marginal prices according to Manual 15 – which is designed to instruct generating unit owners on how to develop their cost-based offers – and a generator’s fuel cost policy; 

• Costs in excess of the $2,000/MWh cap could be recovered through make-whole payments, also according to Manual 15 and the generator’s fuel cost policy; 

• Market-based offers for individual units would be allowed to rise with their cost-based offers.

No changes are being recommended related to the 10 percent adder, shortage penalty factors, and start-up and no-load compensation.

PJM’s plan would double the current $1,000 offer cap for generators that was put in place 18 years ago. Any offers above the new $2,000 cap would still be dispatched in merit order.

The higher offer cap, whose approval was generally expected, had nonetheless drawn both support and criticism during what Boston called “the stakeholder process at best.”

Backers believed it was needed to ensure that natural gas-fired generators could recover costs when extreme weather like the 2014 polar vortex caused prices to spike.

And while some generators were initially unhappy with earlier proposals, their opposition ebbed somewhat when the final plan emerged. One called it “an improvement over the status quo,” according to RTO Insider, but added that it hoped FERC would improve on the filing and recognize “the flaws inherent in this proposal.” State consumer advocates, however, maintained their opposition. 

The plan that won the marketing committee’s approval was a compromise that emerged when there was no consensus on four competing proposals that had been put forth previously. The effort had picked up some urgency after PJM said that in the absence of an agreed-to framework, the Board of Managers would have to take up the matter on its own in advance of winter season.

Adrien Ford, who chairs PJM’s Market Implementation, told RTO Insider last month that without a consensus, the grid operator’s staff was prepared to recommend a tariff change similar to the waiver it filed in 2014. That change would have allowed prices to increase up to $1,800/MWh.