The Federal Energy Regulatory Commission on Nov. 20 directed each RTO/ISO to file a report on the status of its efforts to address market and system performance associated with fuel assurance issues within 90 days of the date of this order.
The RTO/ISO report should describe the nature of fuel assurance concerns specific to its regions, FERC added. The report should also describe the comprehensive strategy or strategies the RTO/ISO has implemented or plans to implement to address market and system performance in light of each of its fuel assurance concerns. Finally, the report should detail the specific programs and mechanisms that the RTO/ISO will use to carry out its strategies. Following the submission of the RTO/ISO reports, there will be a 30-day public comment period.
“The Commission, through this order, is acting to address an issue that has been raised over the course of the last several months in various venues, including the Commission’s September 25, 2013 technical conference on centralized capacity markets in regional transmission organizations and independent system operators (RTO/ISO) (Capacity Markets Technical Conference) and the Commission’s April 1, 2014 technical conference on winter 2013/2014 operations and market performance in RTOs/ISOs (Polar Vortex Technical Conference),” FERC wrote. “Fuel assurance was a consistent theme at both technical conferences and has a direct and immediate impact on generator performance and thus, system reliability. Failure to address this issue can potentially lead to volatile and often high fuel prices or costly RTO/ISO actions to ensure reliability. In light of these potential risks to reliability and just and reasonable rates, the Commission believes it is appropriate at this time to initiate a review of how each RTO/ISO is addressing fuel assurance.
“Out of the set of issues explored in both conferences, generator performance and efficient market operations are among the most pressing concerns to the Commission. Throughout the conferences and subsequent post-technical conference comments, and in continued analysis by the RTOs/ISOs and the Commission, generator access to sufficient fuel supplies and the firmness of generator fuel arrangements (referred to generally here as ‘fuel assurance’) has been identified as a significant issue contributing to poor generator performance and inefficient market operations. For example, PJM Interconnection, L.L.C. (PJM) cited lack of fuel as a key reason for generator forced outages that occurred during January 2014 cold weather events. Commission staff further identified fuel deliverability and fuel handling problems as contributing to high levels of forced generation outages in several RTOs/ISOs. These issues were also identified as contributing to the stressed conditions in the markets that led operators to resort to out of market unit commitments and emergency actions, which contributed to higher prices and high levels of uplift during the same cold weather events.
“In addition, commenters in the Capacity Markets Technical Conference and Polar Vortex Technical Conference questioned whether the existing markets value fuel assurance. In particular, commenters raised concerns as to whether the current resource adequacy constructs in place in the RTOs/ISOs, including the eastern centralized capacity markets, can address these significant challenges effectively. Commenters raised specific concerns focused on the ability of capacity markets to address a range of reliability and operational needs, including valuing firmer fuel supplies. As currently designed, the eastern capacity market auctions establish capacity prices based on economic bids of sellers, but do not directly take into account generator type, fuel supply arrangements, or operational characteristics. The Midcontinent Independent System Operator, Inc.’s (MISO) resource adequacy construct operates similarly in that it does not directly account for fuel assurance concerns. Additionally, experiences in RTO/ISO regions without centralized capacity markets, such as the California Independent System Operator Corporation (CAISO) and the Southwest Power Pool, Inc. (SPP) suggest that similar fuel assurance concerns may exist in those regions. In addition, commenters in the Capacity Markets Technical Conference proceeding raised concerns regarding the performance of energy and ancillary services markets, including the effectiveness of the markets in setting prices during reserve shortage conditions. Following the severe cold weather events experienced during winter 2013-2014, concerns were raised regarding the impact of offer caps and other RTO/ISO practices on the ability of generators to recover their fuel costs.
“The Commission has also addressed incremental steps intended to provide generators with greater certainty of their ability to recover fuel costs. For example, the Commission issued an order conditionally accepting enhancements to ISO-NE’s energy market to provide greater flexibility for market participants to structure and modify their supply offers in the day-ahead and real-time markets. One of those enhancements will permit market participants the flexibility to update their offers on an hourly basis in real time, allowing them to reflect updated fuel costs in their offers. The Commission also granted a request by Dominion Energy Marketing, Inc. (Dominion) for the recovery of fuel costs incurred when generating units at one of Dominion’s facilities ran beyond their day-ahead schedules at the direction of ISO-NE. Further, during the severe cold weather events of last winter, the Commission granted several requests submitted by RTOs/ISOs to temporarily waive bid caps that could prevent generators from reflecting their full fuel costs in their offers, providing generators with greater certainty that they would be permitted to recover higher fuel costs caused by the extreme cold weather. Finally, the Commission has accepted two Winter Reliability Programs filed by ISO-NE to encourage generators to maintain onsite fuel inventories, addressing concerns about generator reliance on pipeline deliveries of fuel during periods of high natural gas demand and stresses on pipeline systems.”