The Federal Energy Regulatory Commission on Dec. 18 signed off on Southwest Power Pool's proposed tariff changes governing the participation of jointly owned units in its market to eliminate gaming opportunities and market inefficiencies.
Jointly owned units, including those with leasehold interests, interests conveyed under power purchase agreements and other interests, are currently modeled in SPP's market as "pseudo-generation" that allows each owner of a unit to independently submit offers for their pseudo-generator.
For units whose shares could be committed independent of one another, owners submitted separate offers for their shares under a so-called individual resource option. When a unit's shares could not operationally be committed separately, owners used the combined resource option to submit separate offers only for offer parameters that were not dependent on unit commitment.
This process was modified in 2017 to address a design loophole that allowed a minority share owner to inflate their offer and receive unjust make-whole payments. But the reforms brought with them their own set of flaws that created "additional market inefficiencies and complex gaming opportunities," SPP said in a Nov. 1 filing.
Those flaws involved "misallocation of self-committed [jointly owned unit] costs during periods of uneconomic production; a gap in real-time make-whole payments for [jointly owned units]; and inaccurate allocation of real-time make-whole payment charges," SPP said.
The grid operator's independent market monitoring unit told FERC on Nov. 16 that SPP's previous market designs were premised on committing units as if they had a single owner, but dispatching them as if they had several owners. "Every design possibility that was discussed involving this concept created either inefficiencies or gaming opportunities," the market monitor said. It commended SPP's Nov. 1 proposal for going "a different route."
FERC Tuesday approved SPP's proposal to nix the combined resource option.
New tariff language, effective July 1, 2019, adopts the concept of a combined interest resource, which is a jointly owned unit modeled as a single resource for market clearing and reliability purposes but settled after the fact by ownership share.
"Rather than entertaining multiple offers from the various owners, the modified design requires that a single designated asset owner submit all of the [unit] offer data as a single resource, and SPP’s market clearing engines will treat the combined interest resource as a single resource for commitment and dispatch," SPP explained in its November filing.
"At the same time, SPP’s creation of the combined interest resource concept will enable SPP to continue to settle market charges and credits for each individual [unit] owner based on ownership share," SPP said. "This design also removes the need to model these [units] as pseudo-generation and instead substitutes a static split of the revenues among the [unit] owners based on their share of interest."
The tariff changes did not alter the individual resource option, and units that qualify to use that option may still do so to participate in SPP's markets.
Some SPP stakeholders raised concerns that a unit's individual owners would have to share cost data with each other to craft a single offer to submit to the market. SPP's market monitor agreed that such sharing would likely need to occur, but concluded that it would not be considered "a collusive act" as the joint owners would no longer be competitors in SPP's market with respect to the jointly owned unit.
Further, "treating the plant as a single resource in the market optimization process and addressing the different joint ownership shares as part of the settlements process alleviates the gaming opportunities identified by the [market monitoring unit] and corrects the market inefficiency described by SPP stakeholders," the market monitor found. (FERC docket ER19-261)