FERC Waives Electric Energy Price Caps in PJM and New York in Response to Natural Gas Price Spikes

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In late January and early February 2014, the Federal Energy Regulatory Commission ("FERC") issued a series of orders waiving the $1,000 per megawatt-hour offer caps imposed under tariffs of PJM Interconnection, L.L.C. ("PJM") and the New York Independent System Operator, Inc. ("NYISO") to ensure that suppliers will be able to recover their costs in light of gas prices that have soared due to extreme cold weather.

Under PJM's Tariff and Operating Agreement, suppliers are generally forbidden from submitting offers in excess of $1,000 per megawatt-hour. PJM explained, however, that with recent gas price increases, a simple-cycle combustion turbine's costs could reach $1,200 per megawatt-hour, and that PJM had seen a large amount of energy offered at a price of $999 per megawatt-hour, implying that the costs for such resources exceeded $1000 per megawatt-hour, but that the offers were constrained by the offer cap. On January 24, 2014, FERC granted PJM's request for a temporary tariff waiver to permit generators to recover the difference between their cost-based offers and the PJM market clearing price. Although allowing individual generators to recover their costs above the market clearing price as uplift (i.e., supplemental payments to individual generators), this temporary waiver did not allow generators with costs above $1,000 per megawatt-hour to set the clearing price.

The temporary waiver granted on January 24, 2014, was superseded on February 11, 2014, by another waiver permitting generators to submit cost-based offers in excess of the $1,000 per megawatt-hour offer cap and allowing such offers to set the clearing price. In the February 11 order, FERC explained that permitting generators to submit cost-based offers above $1,000 per megawatt-hour is preferable to the prior approach, which would only permit recovery of costs through out-of-market uplift payments and thereby "produce[] artificially suppressed market prices and inefficient resource selection." This waiver remains in effect through March 31, 2014, the end of the winter period.

Separately, FERC granted, on January 31, 2014, the NYISO's request to permit generators to recover demonstrated costs that they actually incur to operate that are in excess of the $1,000 per megawatt-hour offer cap imposed by the NYISO's Tariff. FERC declined to order the NYISO to allow generators with costs above $1,000 per megawatt-hour to set the clearing price, finding such requests to be beyond the scope of the proceeding. The NYISO waiver was in effect from January 22, 2014 through February 28, 2014.

 Neil L. Levy
 Washington, D.C.
 +1 202 626 5452

 nlevy@kslaw.com
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 David G. Tewksbury
 Washington, D.C.
 +1 202 626 5454

 dtewksbury@kslaw.com
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 Stephanie S. Lim
 Washington, D.C.
 +1 202 626 8991

 slim@kslaw.com
 View Profile »

 

Topics:  Consumer Utility Costs, FERC, Utilities Sector

Published In: Energy & Utilities Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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