UPDATE 1-Some U.S. coal plants may have sharply hiked prices last winter -monitor

Fri May 16, 2014 3:37pm EDT

(Adds comment by FirstEnergy)

May 16 (Reuters) - Some coal-fired generators may have offered electricity at 22 times the average price for power last winter, making some plants too expensive to run, said the market monitor for PJM, the biggest power grid operator in the United States.

Monitoring Analytics said PJM was competitive overall during the first three months of the year, but noted that some coal-fired generators lifted prices in January, though their feedstock costs did not rise. The monitor, which tracks the market and can make recommendations to the U.S. Federal Energy Regulatory Commission, did not name the companies or identify any locations.

The monitor is investigating the price increases and will take appropriate actions, according to its quarterly report released Thursday.

PJM operates the grid serving 61 million people in 13 Mid-Atlantic and Midwest states from New Jersey to Illinois and the District of Columbia.

The biggest coal-fired generators in PJM include units of Duke Energy Corp, FirstEnergy Corp and PPL Corp .

In January, on the highest demand days, the monitor said several generators boosted offer prices for some of their gas-fired units to the market's price cap of $1,000 per megawatt hour due to the higher prices for gas at that time.

The average price of PJM power was $45 per MWh in 2013.

"That is expected behavior in a competitive market," the monitor said in the report. "But some coal units also increased their offer prices significantly, including offers at $1,000 per MWh, in anticipation that their generation would be committed regardless of their offer price," the monitor said.

"Given that coal costs did not increase," the monitor said, "this behavior is consistent with economic withholding."

Officials at PPL were not immediately available for comment. A spokesman at Duke declined to comment.

FirstEnergy said in an email the "economic withholding" issue does not apply at any of its facilities since they were net purchasers of power during that time due to outages at a few of their plants.

The monitor also recommended changes to PJM's capacity market, which pays generators for keeping their plants available, to reduce payments to units that are not able to run due to lack of fuel during the peak winter demand months.

From Jan. 6-8, a polar vortex caused extreme cold in PJM's region, forcing the grid operator to take several emergency measures and pay extremely high prices to buy power to make sure it had enough generation to keep the lights on.

On Jan. 7, when demand for power hit a winter record of 140,467 megawatts, the monitor said some 40,700 MW were out of service, of which 38,500 MW were "forced outages." Lack of gas caused about 10,400 MW of those forced outages at the peak hour. (Reporting by Scott DiSavino; Editing by Jeffrey Benkoe and Lisa Shumaker)