October 31, 2014

FERC Lifts Price Cap as Cold Grips PJM

The Federal Energy Regulatory Commission granted PJM’s request to lift the $1,000 offer cap as the RTO entered a second consecutive week of frigid temperatures that have strained generators and pushed natural gas prices to new records.

FERC’s order came as PJM issued alerts yesterday warning that resources would be increasingly strained Tuesday and Wednesday. PJM and state regulators also appealed to the public to reduce power use, particularly during today’s evening peak.

Low temperatures ending Jan. 28, 2014 (Source: NOAA)
Low temperatures ending Jan. 28, 2014 (Source: NOAA)

Load is projected to approach 140,000 MW tonight, just short of the 141,500 MW winter peak record set Jan. 7.

PJM requested a waiver to lift the cap last week after natural gas prices jumped to triple digits as heating and electrical demand for the fuel surged.

FERC’s order (ER14-1144) effectively lifts the cap on offers beginning Jan. 24 by allowing generators to seek make-whole payments for the difference between their costs and the clearing price.

The commission has not yet ruled on PJM’s separate request to allow generators to offer above the cap for future trading days through March 31, 2014 (ER14-1145). PJM asked FERC to rule by Feb. 10.

Spot prices at Transco Z-5 and Transco Z-6 (non-NY) averaged over $120/mmBtu on Jan. 21 and 22, with prices as high as $140/mmBtu. “These gas prices are record-setting for the PJM Region (if not for the nation), shattering even the records set just earlier this month during the `polar vortex’ extreme cold weather event,” PJM said.

PJM said simple-cycle combustion turbines buying gas at current prices would have marginal costs of about $1,200/MWh. On January 21, PJM said, about 5,000 MWs of generation made day-ahead offers of $999/MWh, indicating their costs were above $1,000. About 4,000 MWs were ordered to operate.

Historic Winter Peaks (Source: PJM Interconnection, LLC)In granting PJM’s waiver request, the commission noted that the Market Monitor reviews all cost-based offers to ensure they are legitimate. The commission ordered the Monitor to submit a report within 30 days of the expiration of the waiver on how much energy was accepted over the bid cap, the cost of that energy and any unverifiable bids that were rejected.

The RTO said it will ask stakeholders to consider changes to the Operating Agreement as a long-term fix for what it called the “unprecedented conflict” between the $1,000 offer cap and the generation must-offer requirement.

“The remarkable conditions present in the `polar vortex’ event less than two weeks ago gave the first clear indication that actual fuel costs could collide with the offer cap, but before PJM could take action to address that concern, this week saw an even greater leap in fuel prices that made this conflict concrete,” PJM said in its filing.

PJM did not ask FERC for relief for generators whose costs may have exceeded the cap before Jan. 24 but said it may make a supplemental filing to seek make-whole payments later.

In a letter to FERC in support of PJM’s request, Calpine Corp. CEO Thad Hill stated, in all capitals: “The stability of the power markets in the PJM region are dependent on the commission’s granting of PJM’s waiver today.”

The waivers will not affect demand response, which is limited to $1,800 ($1,000 plus two times the penalty factor). PJM called on DR several times last week to meet loads as arctic cold followed snow.

PJM’s Chris Pilong told members in a briefing yesterday that unplanned outages from last week’s arctic blast occurred most frequently in the eastern portion of PJM, unlike earlier this month, when outages  were more evenly spread across the RTO.

Commuters brave winds outside Union Station, Washington, D.C., yesterday.
Commuters brave winds outside Union Station, Washington, D.C., yesterday.

The cold is expected to continue throughout the PJM footprint most of this week.

PJM yesterday issued three alerts for Tuesday: a Voltage Reduction Alert, reporting that estimated operating reserves are less than the synchronized reserve requirement; a Primary Reserve Alert, warning that estimated primary reserves are only 1,000 MWs, half the 2,000 MW objective; and a Maximum Emergency Generation Alert, calling Maximum Emergency Generation into operating capacity.

PJM also issued a Cold Weather Alert for Wednesday.

Cleveland and Columbus, Ohio are expecting lows at or below zero through Wednesday. Below zero lows are also forecast for Chicago.

Lows in Washington, D.C. will be in the teens most of the week.

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