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EPSA builds on MISO request to raise offer cap

When gas price soars, should market set power price?

Rockville, MD (January 16, 2015) -- Generators in MISO had to deal with high natural gas prices last winter, as did their counterparts to the east, but the grid operator did not end up having to call on them as more economic options were available, MISO noted is a FERC filing. The same might not be the case this year, so MISO asked FERC to let generators be paid above $1,000/MWH when their costs warrant it.

Comments on the waiver to the $1,000/MWH offer cap came into FERC last week and were generally supportive of the change.

When gas prices spike to $67/MMBTU as they did last year, they make around 1,000 MWs of generation uneconomic at the offer cap, so the problem is not huge in the context of MISO's 177,000-MW generation fleet. But if the fuel spikes above that, it would be more widespread and MISO might need to call on the small number of units that have costs above $1,000/MWH at $67/MMBTU gas.

MISO is worried that the same weather could happen again this year and it wants to pay generators their higher costs if they are needed to balance the grid, the filing said.

The ISO has a resource-adequacy system with must-offer requirements so generators could be placed in a position of having to submit uneconomic bids to comply with that rule. That said, MISO wants to use the higher cap for generators that do not have the must-offer requirement, too.

EPSA filed the lengthiest comments, saying it supports MISO's intention to provide make-whole payments for commitments from generators with actual costs above $1,000/MWH. But the change would not deal with the underlying market impacts of gas prices in MISO, it added.

The generator lobby would rather let the generators with costs above $1,000/MWH set the price in the day-ahead and real-time markets than deal with the costs through out-of-market, make-whole payments. MISO should also work with stakeholders to develop a long-term solution to remove the offer cap or set it high enough to deal with conditions similar to those seen last winter, EPSA said.

Not letting the higher-cost units set prices undermines efficient dispatch by not having the market price set by the marginal cost of generation, which provides an efficient price signal for both the short and long terms. Those signals are always important, but are more so when the market is dealing with high gas prices because they might prevent a market response to those situations.

FERC should require all ISO/RTOs to undertake such an effort. It should broadly issue specific guidance and require implementation for next winter, or by an earlier date, EPSA said.

A proceeding across all FERC-jurisdictional ISO/RTOs would remove any seams issues that could arise if only some regions change their offer cap, it added. If the price goes higher in one ISO/RTO but is capped lower in another, then power could flow inefficiently between them, the group warned.

This story was originally published in Utility Markets Today (http://ow.ly/Hs5iA) on January 12, 2015 and has been slightly edited for this format.

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