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Power Marketer Slams PJM's "Objectionable" Request to Lift $1,000/MWh Price Cap "On The Fly"

January 29, 2014

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Copyright 2010-13 EnergyChoiceMatters.com
Reporting by Karen Abbott • kabbott@energychoicematters.com

NextEra Energy Power Marketing, LLC (NEPM) has slammed PJM's "on the fly" request to allow offers in excess of the $1,000/MWh cap to set the market-clearing price, as granting PJM's request would mean that customers would, "pay billions for capacity and pay unlimited energy prices whenever energy prices explode."

Aside from PJM's unjustified bypass of the stakeholder process and request for expedited consideration, "NEPM's basic objection to granting PJM a waiver 'on the fly' is that market participants have made contractual commitments based on established market rules."

"Tens of billions of dollars of obligations among sellers and buyers are committed every year on the basis of market rules, including the $1,000/MWh offer price cap," NextEra said in comments to FERC.

"The $1,000/MWh offer price cap is a longstanding and original element of the PJM energy market upon which market participants have reasonably relied in committing to fixed prices for services such as default supply service (a.k.a. basic generation service). If there was no fixed offer price cap, suppliers would need to reflect that additional price risk in supply offers and would engage in different hedging strategies. This would have cost load more in the past and surely would cost load more in the future if this market rule is to be suspended whenever prices are extremely high (the only time the rule actually matters)," NextEra said.

"The unprecedented nature of the 'polar vortex' is all the more reason not to change market rules on the fly. This 1-in-10 weather event, coupled with high levels of forced outages, has created extremely high prices and given sellers of natural gas the upper hand in gas markets ... This is precisely the circumstance in which market participants should be able to rely on a market rule that protects against unlimited price exposure. Indeed, the only time such a rule actually matters is when prices are extremely high," NextEra said (all emphasis in original).

"[M]arket participants make commitments based on the established market rules, and NEPM has undertaken substantial supply commitments based on the $1,000/MWh offer price cap preventing unlimited price exposure," NextEra said.

NextEra notes that PJM claims that: "Finally, no market participants can claim any legitimate harm because the PJM market always has been premised on seller recovery of marginal costs, and on clearing prices based on marginal costs."

"This ignores the fact that the PJM market has been as much premised on the longstanding and original $1,000/MWh offer price cap as on any other market element," NextEra rebutted.

"The $1,000/MWh offer price cap is so fundamental to PJM markets that PJM's capacity market, the Reliability Pricing Model ('RPM'), is premised in large part on the fact that the offer price cap prevents energy market prices from clearing at levels that alone would sustain long-term reliability," NextEra said. "As the Commission observed in approving the original RPM settlement: 'The Settlement submitted to the Commission by PJM and the Settling Parties provided for a capacity market for PJM, and the Commission has found this capacity market to be just and reasonable. In theory an energy-only and ancillary services market could also produce sufficient capacity, but for such markets to succeed, PJM would have to relax its offer caps and make less stringent its mitigation provisions – positions for which there does not appear to be broad regional support.'"

"Thus, a decision that customers should pay billions for capacity and pay unlimited energy prices whenever energy prices explode would be harmful and unfair to customers and to market participants like NEPM which supply customers," NextEra said

NextEra said that as FERC has granted make-whole payments to generators with verifiable costs in excess of $1,000/MWh, there is no longer any emergency which needs to be resolved by eliminating the $1,000/MWh cap on market-clearing prices.

Docket No. ER14-1145-000

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