On November 19, 2015, the Federal Energy Regulatory Commission (“FERC”) issued an order (the “Order”) directing each regional transmission organization (“RTO”) and independent system operator (“ISO”) to publicly file reports related to (i) pricing of fast-start resources, (ii) commitments to manage multiple contingencies, (iii) look-ahead modeling, (iv) uplift allocation, and (v) transparency.¹ FERC’s stated goals of proper price formation are to:

(1) maximize market surplus for consumers and suppliers; (2) provide correct incentives for market participants to follow commitment and dispatch instructions, make efficient investments in facilities and equipment, and maintain reliability; (3) provide transparency so that market participants understand how prices reflect the actual marginal cost of serving load and the operational constraints of reliably operating the system; and (4) ensure that all suppliers have an opportunity to recover their costs.²

To achieve those goals, the Order seeks to elicit responses from market participants that will guide FERC’s decision to institute reforms by synthesizing best practices. Each RTO/ISO is to file a report consistent with the Order within 75 days of its issuance,³ and address the following areas:

Pricing of Fast-Start Resources. There is little consensus between RTOs/ISOs on how to best approach the pricing of block-loaded fast-start resources—and the Order seeks to explore each method to find a consensus.⁴

Commitments to Manage Multiple Contingencies. FERC recognizes that the commitment and dispatch of resources designed to address certain N-1-1 or N-2 contingencies (i.e., multiple contingencies) could lead to a resource operating at its minimum for extended periods—resulting in significant uplift payments.⁵ By reviewing RTO/ISO reports, FERC will determine whether and how to address multiple contingencies with an eye to reducing those uplift payments.

Look-Ahead Modeling. FERC requests look-ahead modeling implementation information from each RTO/ISO—including the full range of benefits such modeling provides to making actual commitment, dispatch, and pricing decisions (as opposed to use as a mere advisory tool).⁶

Uplift Allocation. Uplift refers to the payments that resources receive from RTOs/ISOs when their commitment and dispatch results in a shortfall between the resources’ offer costs and the revenue received through market clearing prices.⁷ Some RTOs/ISOs categorize uplift charges broadly, including whether uplift was incurred during day-ahead commitment, reliability unit commitment, or real-time dispatch.⁸ As uplift payments are socialized among market participants, FERC seeks to minimize their impact and increase the transparency and fairness of their allocation.⁹

Transparency. Price-development transparency enhances predictability, facilitates investment decisions, and identifies system needs.¹⁰ FERC recognizes that many causes of uplift and operator actions might not be visible to the market and requests information about how each RTO/ISO intends to release uplift data or other changes that can affect market clearing prices.¹¹

FERC requests data, plans, and discussion of a variety of RTO/ISO operational matters—many of which may be complex and/or proprietary in nature. Market participants subject to the Order should carefully review their obligations under the Order and be prepared to supplement their submissions in response to any public comment.

1. Price Formation in Energy and Ancillary Services Markets Operated by Regional Transmission Organizations and Independent System Operators, 153 FERC ¶ 61,221, 2015 WL 7345795 (Nov. 20, 2015).
2. Id. ¶ 2.
3. Id. ¶ 1.
4. See id. ¶ 29.
5. See id. ¶ 31.
6. Id. ¶ 48.
7. Id. ¶ 49.
8. Id. ¶ 67.
9. Id. ¶¶ 49-51.
10. Id. ¶ 65.
11. Id. ¶¶ 66, 80.

Client Alert 2015-331