By the OGJ Online Staff
HOUSTON, Sept. 4 -- Over the objections of generators, federal regulators ruled PJM Interconnection LLC, the mid-Atlantic grid operator, can impose prices caps on must-run units in the real-time as well as day-ahead electricity markets.
Must-run units are plants the grid operator says need to operate to ensure reliability during a transmission constraint. When generation resources are dispatched out of economic order, to maintain system reliability, PJM presently caps the prices to prevent must-run units from exercising market power that comes from owning a necessary resource and charging an excessively high price for it.
In its Aug. 28 order, the Federal Energy Regulatory Commission said "absent the authority to cost-cap in real time, consumers would be subject to the exercise of market power by generators, and that PJM requires authority to cost-cap must-run units in real time to prevent the exercise of market power in real time."
PJM reported on several occasions, steam generators designated must-run units and cost capped in the day-ahead market were unable to provide energy, forcing the grid operator to designate higher-priced combustion turbine unit as must-run resources in real time, thus giving those units the opportunity to exercise market power in the real-time market.
Moreover, PJM reported to FERC that, in some instances, the lower-prices steam generators and higher-prices combustion turbine units were owned by the same entity, so that any market power that may have resulted from the steam generators' failure "could be viewed" as "intentional market manipulation by the owner of the two resources."
Reliant Energy Northeastern Generation Inc., a unit of Reliant Energy Inc., Houston, argued if PJM was permitted to cap prices in the real-time market, then the grid operator no longer needed to cap prices in the day-ahead market. FERC said the argument was without merit.
The grid operator's authority to cap prices in the real-time market is "simply" a different aspect of its authority to institute price caps in the day-ahead market to "protect consumers from must-run generators' exercise of market power," FERC said.
Moreover, FERC said the fact generators cannot predict exactly when they will be designated must-run resources doesn't eliminate the need for PJM to be able to cost-cap units in real time to prevent must-run generators from exercising market power.
PJM said it can be less conservative in cost-capping units in the day-ahead market because it will be able to make decisions to cap units in real time based on the most current data.