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FERC urged to act quickly on RTO/ISO price formation issues

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FERC urged to act quickly on RTO/ISO price formation issues

Nowthat FERC has received reports from all the nation's RTOs and ISOs on fiveissues related to their need to act outside the market and allocate associatedcosts, known as uplift, what should be the agency's next step?

Whilethe agency has been very deliberative up to this point in contemplating whetherand how to reform the grid operators' price formation policies, the ElectricPower Supply Association is insisting that the time for FERC to take decisiveaction is now.

"Thecommission has already held three lengthy technical conferences in this docket,compiled and published numerous staff reports and solicited extensive commentson these important price formation issues," EPSA recalled in a response tothe grid operator reports. "With these reports and corresponding comments,the record is complete. It is now time for the commission to meaningfully acton these important price formation issues."

Theagency first decided in June 2014 to consider a wide variety of topics relatedto price formation in RTO/ISO energy and ancillary services markets, such aswhether current practices need to be reformed. Pursuant to that initiative,FERC held three workshops on a series of related topics, including upliftpayments, shortage pricing, and operational and market issues related tooperator actions. FERC staff has also issued two reports — one discussingshortage pricing and the other describing energy offer mitigation in RTO/ISOmarkets.

Sincethe summer of 2015, FERC has initiated two related rulemakings tackling certainmatters some considered to be low hanging fruit. One (RM15-24) would requirethe grid operators to better coordinate the timing of the settling of real-timeenergy and operating reserves transactions with their energy dispatch and thepricing of operating reserves. The other (RM16-5) is focused on possiblymodifying the grid operators' offer caps.

However,the agency in November 2015 decided that it was not yet ready to release aproposed rule addressing five interrelated topics: the pricing of fast-startresources, commitments to manage multiple contingencies, look-ahead modeling,uplift allocation and transparency.

Instead,the commission askedthe six RTOs/ISOs to help it better understand how they currently deal withthose issues by detailing their current related practices. They were also askedto report on the status of any efforts to modify their approaches in any ofthose five areas, and respond to a series of questions on each topic.

Giventhat the commission has said the docket is among its highest priorities, EPSAinsisted that FERCneeds to act quickly now that it has those reports in hand.

"Puttingthis extensive record including the six recently-filed reports on the shelfdoes nothing to advance the commission's statutory obligation to ensure justand reasonable rates," EPSA stated. "Rather, the commission shouldfinish this important inquiry by requiring the RTOs and ISOs to develop workplans for market reforms that will better incorporate into the market clearingprices all actions necessary to reliably operate the system."

"Failureto do so soon, after years of study, will only make matters worse by signalingto the wholesale market and those who rely on it that flaws will be allowed tofester and identified improvements will not be implemented to positively impactpending investment decisions," EPSA added.

Thetrade group also asserted that the lack of concrete action by FERC and theISOs/RTOs is hurting consumers because it is incenting states to useinappropriate subsidies that distort wholesale markets. EPSA specificallyimplored the commission to direct all ISOs/RTOs to submit detailed work plansfor implementing market rule reforms to ensure that all costs to reliablyoperate the system are included in clearing prices and that price signalsaccurately reflect system conditions and operations, with milestones to be metat specific times in 2016.

"Itis FERC's responsibility and duty to ensure that needed near-term priceformation improvements are implemented as soon as possible so thatpolicymakers, industry and consumers can turn attention to longer-termfundamental changes to the economic regulation of the bulk power system thatwill likely be needed as the resource mix and the proportion of bulk power andnon-bulk power supplies and demand-side management shifts over time," EPSAconcluded.

Somewhatsimilarly, the Edison Electric Institute urgedFERC to require each RTO/ISO to file by a specified date a status reportlisting the price formation issues within their regions that have already beenaddressed and those that remain to be addressed. For the issues that remain tobe addressed, EEI said the grid operators should be made to provide work plansthat list the issues by priority along with possible solutions, cost ofimplementation and the timeframe in which the RTO/ISO could reasonably addresseach issue.

"Inthis way, the commission can encourage each region to move forwardexpeditiously on these issues without creating unnecessary duplication and/orre-prioritize other stakeholder approved efforts," EEI explained.

Ofthe five issues identified by FERC, EEI said reducing uplift and improvingtransparency should be the priorities given that they "are foundationalissues that lay the groundwork for other changes."

Withregard to uplift, the trade group acknowledged that those charges amounted toonly a small percentage the RTOs/ISOs' 2015 billings. However, EEI insistedthat uplift is still an important issue because it means that the grid operatorhad to act outside the market.

EEItherefore urged FERC to require the grid operators to evaluate why they had totake such actions and consider whether practices used by others may reducetheir need to act outside the market. For instance, it said small changes, suchas including start-up and no-load costs in the market price should certainfast-start resources be marginal, "could minimize uplift and provide morecomplete and accurate price signals."

Inaddition, EEI said uplift should be allocated, if at all possible, based on thecommission's cost causation principles — including up-to congestiontransactions in the PJMInterconnection LLC because they affect day-ahead unit commitmentand dispatch.

Asfor transparency, EEI noted that each RTO/ISO has different rules regardingwhen and how much generator information should be posted publicly, and suggestedthat the commission needs to ensure enough information is being provided. Italso said the RTOs/ISOs should be required to publish the criteria they use tomake certain operational decisions.

"Bymaking this suggestion, EEI is not suggesting that system operators should nothave the discretion and ability to operate the market. However, an after thefact review and discussion could help provide transparency into how thosedecisions may have affected energy prices in both the day-ahead and real-time markets,"EEI said. (AD14-14)