PJM averts use of higher energy offer cap

OREANDA-NEWS. The PJM Interconnection made it through last winter without needing to use a temporary waiver that allowed generators' energy offers to increase up to \$1,800/MWh, the grid's market monitor reported yesterday.

The waiver had assured generator owners that they would not have to operate at a loss if gas prices spiked again this winter and pushed generators' costs above a longstanding \$1,000/MWh offer cap. PJM requested the waiver because of problems in the 2013-14 winter related to spiking fuel prices. But the operator of the largest US power grid restricted the waiver to only apply to cost-based energy offers.

PJM's market monitor yesterday said none of the 54 cost-based offers this winter that were above the \$1,000/MWh offer cleared, meaning that the waiver was never actually used. Natural gas prices this winter were lower and less volatile than the 2013-14 winter, which analysts attribute to robust supply from Appalachian shale formations, a later onset of cold weather, a jump in LNG imports in the northeast US and other factors.

Natural gas prices at Tetco zone M-3, a key benchmark in the mid-Atlantic region, peaked at \$20/mmBtu in winter 2014-15, down from a high of \$94/mmBtu last winter. PJM West peak dailies reached a high of \$230/MWh, down from \$683/MWh a year earlier.

The locational marginal price for energy this winter did at times exceed the longstanding offer cap, at one point hitting \$3,001/MWh during one five-minute interval. But the market monitor said these price spikes were not related to generator offers and instead reflected penalty factors and other normal components of how the grid sets energy prices.

The Federal Energy Regulatory Commission approved the PJM waiver early this year, with its requested sunset date of 31 March and a requirement for the grid's market monitor to provide an informational filing within a month. The agency had indicated it might try to address offer caps through its broader effort to improve energy price formation.

The Midcontinent Independent System Operator received a similar waiver for its \$1,000/MWh offer cap, which expired late last month. That grid's market monitor will file a similar informational report later this month.