RTOs should retain a "hard" cap on both cost- and market-based energy offers in any change to the current $1,000/MWh offer cap in place in most FERC-jurisdictional RTO markets, Direct Energy Business, LLC said in comments to FERC

FERC has proposed that each jurisdictional RTO/ISO cap a resource's incremental energy offer used for purposes of setting LMPs to the higher of $1,000/MWh or that resource's verified cost-based incremental energy offer. See EnergyChoiceMatters.com's story on FERC's proposal for more specifics

Direct Energy said that it supports the Commission’s recommendation to include a "hard cap" on cost and market based incremental energy offers as a proxy for lack of demand elasticity at extremely high prices, but believes each RTO/ISO should set the dollar/MWh value of such hard cap

Direct Energy generally favors the reduction of uplift through the use of appropriate offer caps that allow generator costs to be recovered via LMP.

However, Direct Energy stressed the continued need for a hard cap

"Direct Energy believes a cap would ensure that generators could recover their operating expenses through LMP under most operating scenarios and conditions, especially if appropriately set at the historic maximum observed fuel prices and generator heat rates in the RTO/ISO. Experience shows that it is the rare occasion when the use of a cap is likely to be triggered -- most often because of tight availability of fuel. Under the even rarer circumstances when a generator’s verified costs exceed a cap, generators should still be afforded full recovery of their RTO/ISO approved costs through up-lift," Direct Energy said

"Most electric consumers do not have the ability or incentive to see or respond to extremely high wholesale prices in real time or near real time, due to existing metering infrastructure (i.e. a lack of smart meter deployments), utility meter data processing practices, and retail rate structures," Direct Energy said

"Thus, the hard cap provides a general protection for the majority of electric consumers, who have an inelastic demand for electricity. Direct Energy suggests that the hard cap on cost based incremental energy offers be reevaluated when these barriers (or a critical mass thereof) have been removed, such that a majority of electric consumers have the ability and incentive to respond to real time or near real time prices. This ability and incentive to respond to prices will allow consumers to opt out of consuming during high priced periods and, in turn, act to discipline market outcomes," Direct Energy said

Direct Energy said that it believes each RTO/ISO should be given discretion to set the hard cap on cost based offers in excess of $1000 based on their specific proposals to FERC. Direct Energy noted pros and cons of having a uniform cap across RTOs versus a cap that reflects the uniqueness of each market.

Tags:
FERC   Wholesale   Price Caps   Offer Caps  

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