PJM’s Members Committee Approves $2,000/MWh Cap Proposal

Wrapping up a complicated stakeholder process, the PJM Interconnection Members Committee at its October 1 meeting passed by acclamation a proposal to double the cap on offers in its regional energy market.

The proposal raises PJM’s $1,000 per megawatt-hour (MWh) energy offer cap, which was put in place 18 years ago. Under the new terms, incremental energy cost-based offers will be capped at $2,000/MWh and allowed to set pricing according to Manual 15 and a generator’s fuel cost policy. Costs in excess of $2,000/MWh will be recovered through make-whole payments. In addition, market-based offers for individual units will be allowed to rise in line with their cost-based offers.

The Members Committee decided that there would be no changes in the 10 percent adder; in shortage penalty factors; or in startup, no-load compensation.

The votes, PJM said, represented the culmination of a stakeholder process during which Direct Energy, Old Dominion Electric Cooperative, the Independent Market Monitor, and P3 Group (Peak Performance Project) each developed proposals; then, worked to achieve consensus.

“In January, I pleaded [for the stakeholders] to reach a consensus on pocketbook issues,” said PJM CEO Terry Boston. “I’m very pleased with the work done in the stakeholder process.” Boston added that the size and impact of the vote would “make a great impression” on the Federal Energy Regulatory Commission (FERC) when it is filed shortly.

In its recent Notice of Proposed Rulemaking on price formation, the FERC indicated that it is going to act on this issue for a long-term solution. During the 2014 Polar Vortex, some generators with a requirement to offer into the energy markets incurred verifiable costs in excess of the energy offer cap. FERC approved waivers from PJM to address the issue for the remainder of the 2013-2014 winter.

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