FERC action addresses pricing in organized markets

The Federal Energy Regulatory Commission (FERC) on June 16 issued a final rule establishing settlement interval and shortage pricing requirements for organized markets.

The requirements will help ensure that rates for energy and operating reserves are just and reasonable, and will align prices with resource dispatch instructions and operating needs, provide appropriate incentives for resource performance and maintain reliability, FERC said in a news release.

FERC started its price formation proceeding in 2014, with staff convening workshops and issuing reports. FERC took comments on specific questions that arose from the workshops.

A September 2015 Notice of Proposed Rulemaking (NOPR) addressed two practices that fail to provide appropriate signals for resources to respond to the actual operating needs and properly reflect system conditions and costs to serve consumers when compensating resources in the organized markets.

The final rule largely adopts the NOPR by requiring that each organized market:

•Align settlement and dispatch intervals by settling real-time energy, operating reserves and intertie transactions financially at the same time interval that it dispatches energy, prices operating reserves and schedules intertie transactions.

•Trigger shortage pricing for any dispatch interval during which a shortage of energy or operating reserves occurs.

The final rule clarifies that the settlement interval applies to all supply resources, including demand response, but not to load. However, it does not prohibit settling load on a five-minute interval, and FERC will consider any such proposals on a case-by-case basis in separate proceedings under section 205 of the Federal Power Act.

The final rule is Docket No. RM15-24-000.

It takes effect 75 days after publication in the Federal Register, and each organized market must make a compliance filing 120 days after that. The settlement interval requirements must be implemented 12 months from the compliance filing date and the shortage pricing reforms within 120 days of that date.

Energy price formation rule praised by EPSA

Electric Power Supply Association (EPSA) President and CEO John  Shelk said the final rule should improve price formation by regional transmission organizations and independent system operators (RTOs/ISOs).

EPSA represents competitive power providers.

“EPSA commends FERC Commissioners and staff for today’s unanimous adoption of a two-part final rule to begin needed improvements to wholesale energy market price formation,” Shelk said.

“EPSA strongly supported both reforms in comments filed with FERC as part of EPSA’s priority efforts on energy price formation issues,” Shelk said.

The final rule’s so-called ‘five-minute’ pricing provisions will compensate generators based on more granular, actual market conditions within an hour as opposed to paying an hourly average, Shelk said.

The new pricing approach is particularly important as the nation’s resource mix continues to change dramatically, EPSA said.

Greater intermittent resources such as wind and solar require other resources to quickly respond to dispatch signals and do so flexibly to maintain reliability. This part of today’s final rule will increase transparency and compensate resources more appropriately going forward, EPSA said.

EPSA agrees with Chairman Norman Bay and his colleagues who indicated today that energy price formation is among the most important work FERC is doing and that more needs to be done.

About Wayne Barber 4201 Articles
Wayne Barber, Chief Analyst for the GenerationHub, has been covering power generation, energy and natural resources issues at national publications for more than 20 years. Prior to joining PennWell he was editor of Generation Markets Week at SNL Financial for nine years. He has also worked as a business journalist at both McGraw-Hill and Financial Times Energy. Wayne also worked as a newspaper reporter for several years. During his career has visited nuclear reactors and coal mines as well as coal and natural gas power plants. Wayne can be reached at wayneb@pennwell.com.