On December 21, 2017, the Federal Energy Regulatory Commission (FERC or the Commission) withdrew proposed rules that would have reformed the currently disparate approaches that each Regional Transmission Organization (RTO) and Independent System Operator (ISO) take to address fast-start resources and improved pricing to better reflect marginal costs for those resources.

In place of the proposed rules, FERC opened investigations pursuant Federal Power Act (FPA) section 206 to examine whether changes to fast-start pricing are required for the markets administered by the New York Independent System Operator, Inc. (NYISO), PJM Interconnection, L.L.C. (PJM), and the Southwest Power Pool, Inc. (SPP). Under FPA section 206, if FERC finds that a jurisdictional rate, charge, or classification, or any rule, regulation, practice, or contract affecting such rate, charge, or classification is unjust, unreasonable, unduly discriminatory or preferential, the Commission shall determine and set the just and reasonable alternative.

FERC’s Notice of Proposed Rulemaking

FERC issued its Notice of Proposed Rulemaking addressing fast-start pricing in markets operated by RTOs and ISOs on December 15, 2016. FERC proposed that each RTO and ISO: (1) apply fast-start pricing to any committed resource that is able to start within 10 minutes, has a minimum runtime of one hour or less, and that submits economic energy offers to the market (i.e. that is not self-scheduling energy); (2) incorporate commitment costs (including start-up and no-load costs) of fast-start resources in both energy and operating-reserve prices; (3) treat fast-start resources as dispatchable from zero to their economic maximum operating limits when calculating prices (in order to remedy shortcomings in some markets that render fast-start units effectively unable to set prices); (4) ensure that only “feasible and economic” offline fast-start resources are permitted to set prices for addressing certain system needs; and (5) incorporate fast-start pricing in both day-ahead and real-time markets.

Although some commenters approved of FERC’s proposed rules, FERC was ultimately persuaded to withdraw the proposal by those that questioned whether the proposal would bring sufficient value in all RTOs/ISOs and argued for regional flexibility.

FERC’s New Path Forward

Rather than pursing a uniform set of fast-start pricing requirements, FERC opted to focus on specific concerns with the implementation of fast-start pricing in NYISO, PJM, and SPP. To accomplish this, FERC initiated three separate investigations under FPA section 206 to review and evaluate the NYISO, PJM, and SPP tariffs on an individual basis. Based on its initial review, FERC found that each of the three ISOs/RTOs’ tariffs may be unjust and unreasonable because they do not allow prices to reflect the marginal cost of serving load. However, different tariff changes may be required in each instance to alleviate this shortfall. As such, the investigations will examine the following preliminary determinations by FERC:

  • NYISO: Just and reasonable rates would result from (1) modifying pricing logic to allow the start-up costs of fast-start resources to be reflected in prices, and (2) relaxing the economic minimum operating limit of all dispatchable fast-start resources by up to 100 percent for the purpose of setting prices.
  • PJM: Just and reasonable rates would result from (1) allowing for relaxation of all fast-start resources’ economic minimum operating limits by up to 100 percent, such that the resources are considered dispatchable from zero to their economic maximum operating limit for the purpose of setting prices, (2) applying the relaxation of a resource’s economic minimum operating limit to all fast-start resources, not just block-loaded fast-start resources, (3) considering fast-start resources within dispatch in a way that is consistent with minimizing production costs, subject to appropriate operational and reliability constraints, (4) modifying pricing logic to allow the commitment costs of fast-start resources to be reflected in prices, (5) including in the definition of fast-start resources a requirement that those resources have a minimum run time of one hour or less, (6) including in the definition of fast-start resources a requirement that those resources be able to start up within one hour or less (including notification time), and (7) setting forth rules and practices regarding the pricing of fast-start resources.
  • SPP: Just and reasonable rates would result from (1) committing and dispatching quick-start (SPP’s “fast-start” equivalent) resources in real-time consistent with minimizing production costs, subject to appropriate operational and reliability constraints; and removing the option for enhanced energy offers for quick-start resources that incorporate commitment costs in the incremental energy curve, (2) modifying pricing logic to allow the commitment costs of quick-start resources (including all such resources even if they have not registered as quick-start resources) to be reflected in prices (3) including in the definition of quick-start resources a requirement that those resources have a minimum run time of one hour or less, (4) allowing for relaxation of all quick-start resources’ economic minimum operating limits by up to 100 percent, such that the resources are considered dispatchable from zero to their economic maximum operating limit for the purpose of setting prices, (5) considering both registered and unregistered quick-start resources in quick-start pricing to ensure prices reflect the cost of the marginal resource, and (6) setting forth rules and practices regarding the pricing of quick-start resources.

Next Steps

Although FERC issued three orders opening three separate dockets for the proceedings explained above – one for each ISO/RTO – FERC’s intent appears to be to keep the proceedings on similar timelines. In each instance, FERC provided that initial briefs are due no later than 45 days after publication of notice of the proceedings in the Federal Register, with reply briefs due 30 days thereafter. Similarly, all three orders state that FERC expects to issue a final order within six months of receiving reply briefs, or September 30, 2018.

FERC’s order withdrawing its proposed fast-start rulemaking is available here. FERC’s orders opening investigations pursuant to FPA section 206 into the fast-start pricing mechanisms employed by NYISO, PJM, and SPP are available here, here, and here, respectively.