In a blog posting, Direct Energy confirmed its support for a, "robust capacity market for reliability purposes."

Discussing higher prices and "operational challenges" from this winter, Direct concludes that, "It is Direct Energy's belief that investment in a robust capacity market for reliability purposes and updating RTO clearing engines to ensure bidding and release of dispatch schedules occurs when liquidity is highest in the gas market, will help prevent incurring the kind of costs seen in the winter of 2014."

Although Direct's blog post notes several proposed policy changes in play, such as better electric-gas coordination, modified RTO dispatch timelines, and supplemental capacity payments for firm fuel, Direct does not discuss the most important potential policy change for consumers, especially in a capacity market environment -- the potential increase in the FERC RTO price caps, or elimination of such price caps altogether (as supported by Exelon -- click here for discussion).

We will be very interested to see if Direct, as a capacity market advocate, holds firm against any increase in the FERC RTO energy market price caps above $1,000/MWh, since the existence of a capacity market to recover fixed costs means there is no need for scarcity pricing in the eastern RTOs (unlike Texas).

Indeed, Direct had been an opponent of higher price caps in ERCOT, noting the increased risk of default such higher caps created, along with the strain that higher caps placed on retail suppliers and market liquidity.

In June 2012 comments to the PUCT, Direct Energy said that, "Direct Energy is concerned that significantly higher HCAPs [than $4500] could expose retailers and consumers to unnecessary volatility that would lead to inefficient high prices for consumers and unstable wholesale and retail markets."

"Direct Energy is concerned that a significant increase in the HCAP level may actually have an adverse affect by increasing the risk profile to a level that requires capital that the industry can't consistently support. Inadequate capital resources in a market with extreme volatility could lead to under-collateralized risk that exposes market participants to cost exposure due to market participant defaults," Direct said in June 2012.

"Direct Energy shares the concerns expressed in the Brattle Report in regard to the increased risk of default as a result of higher offer caps, and urges the Commission to address in separate proceeding(s) whether or not all Commission Substantive Rules adequately address the risk created by increasing the HCAP including the POLR rules. For these reasons, Direct Energy does not have a final opinion as to the appropriate increase to the HCAP at this time," Direct said in June 2012

While in later comments to the PUCT Direct agreed with increasing the ERCOT cap to $9,000, Direct Energy said that higher levels (such as the uncapped levels now sought by some eastern generators) are not appropriate.

"Direct Energy does not support increasing the offer cap higher than $9000 per MWh due to concerns about the viability of an energy market with extreme volatility. Direct Energy is a market participant with a high credit rating, but Direct Energy is concerned that a market with offer caps higher than $9000 per MWh will create inefficient credit constraints in the industry," Direct said in September 2012.

Accordingly, as RTOs and FERC consider calls for higher price caps, we would expect Direct Energy to lead a charge against these unnecessary and market-harming higher price caps, for the reasons outlined in its 2012 Texas comments.