By Tom Kleckner
LITTLE ROCK, Ark. — MISO said last week it may increase its energy market offer cap to $1,500/MWh this winter in response to expected FERC action.
Staff told the Market Subcommittee last week it is considering three interim energy offer cap options: 1) no change from current practices; 2) last winter’s revenue sufficiency guarantee (RSG) approach, which offered compensation through uplift; and 3) increasing the energy cap above the current $1,000/MWh.
Because MISO has increased its reliance on gas-fired generation, a repeat of the gas price spikes seen during the 2014 polar vortex could result in hundreds to thousands of megawatts of capacity exceeding the current cap, Markets System Analyst Chuck Hansen told the group.
MISO’s market engineering team has already tested systems for energy offers up to $3,000/MWh and found no issues that would prevent a higher cap. The team also simulated higher gas prices by increasing offer curves for gas plants and found that market signals became distorted as the price signals reached the cap, Hansen said.
Hansen said increasing the energy offer cap to $1,500/MWh would accommodate gas prices reaching $100/MMBtu, but studies show offers above that would increase the likelihood of the system marginal price being greater than the value of the lost load when operating reserves are scarce.
“Anything we do should not be considered permanent, given FERC’s pending action,” said Jeff Bladen, MISO’s executive director of market design.
FERC on Sept. 17 announced its intention to take action on offer caps and other price formation issues, though it offered no timeline. The statement came in a Notice of Proposed Rulemaking (RM15-24) that would require organized markets to settle real-time energy and operating reserve transactions financially at the same five-minute time interval that it dispatches those resources. (See NOPR Requires RTOs Switch to 5-Minute Settlements.)
MISO Market Monitor David Patton has been recommending five-minute settlements since his 2012 State of the Markets Report.
“Any time you’re selling a product,” Patton told the MSC, “I believe you should be paid for the value of the product in the time period it is being delivered.”
Some stakeholders expressed support for the 2014-15 winter solution and apprehension for raising the energy cap.
“We really want your feedback,” Bladen said, urging input on fixed-offer caps and whether generators should be able to recover verifiable fuel costs beyond the cap using uplift, as was the case last winter.
Based on the feedback (due Oct. 6), MISO will present and discuss its proposal at the Oct. 27 MSC meeting. It has targeted Nov. 1 for a FERC filing, with a Jan. 1 implementation date.
Hansen said FERC’s guidance will be incorporated into a permanent offer cap solution. He said MISO will continue to monitor neighboring RTO actions on offer caps and coordinate as appropriate.
On Thursday, two days after the MSC meeting, PJM stakeholders overwhelmingly approved increasing the RTO’s energy offer cap from $1,000/MWh to $2,000/MWh. (See related story, PJM Members OK $2,000/MWh Energy Market Offer Cap.)