On November 9, 2017, FERC issued an order conditionally accepting proposed revisions to Attachment AE of the Southwest Power Pool, Inc. (“SPP”) Open Access Transmission Tariff (“Tariff”). SPP’s proposed Tariff revisions modify SPP’s so-called “scarcity pricing” methodology in response to FERC Order No. 825. Under this newly-approved methodology, SPP will institute variable demand curves that will more accurately reflect the value of resources during times of shortages, thereby reducing price signal distortions that can reduce incentives for resources to respond to dispatch signals. In its order conditionally accepting the Tariff revisions, FERC directed SPP to make a compliance filing to show that certain provisions be placed in SPP’s Tariff as opposed to its Marketplace Protocols.

In Order No. 825, FERC directed each regional transmission organization and independent system operator to institute mechanisms to trigger shortage pricing whenever resources for a particular timing interval are deemed to be scarce. Following Order No. 825, SPP filed the present proposal on March 2, 2017, which FERC staff accepted for filing subject to refund and other FERC action under the February 3, 2017 Order Delegating Further Authority to Staff in Absence of Quorum (see February 21, 2017 edition of the WER).

In its filing, SPP proposed variable demand curves that would set prices to reflect the severity of a shortage of operating reserve products, such as regulation and contingency reserves. According to the proposal, the demand curve for contingency reserves would be calculated based on projected resource availability in the SPP Balancing Authority Area for the operating day. The regulation demand curves, in turn, would be based on the greater of the marginal resource clearing cost or a newly-devised pricing methodology that considers historical data.

Various parties intervened, including Golden Spread Electric Cooperative, Inc. (“Golden Spread”), which protested SPP’s filing, arguing, among other things, that the regulation demand curves should be steeper to incentivize units providing regulation services earlier. Golden Spread also contended that SPP could avoid the actual costs of a shortage or constrained condition through non-market mechanisms such as the Reliability Unit Commitment or Manual Commitment options. In its answer, SPP argued that Golden Spread’s alternative proposals had not been vetted, were outside the scope of the proceeding, and in the case of the latter, could undermine SPP’s ability to maintain reliability.

In its order, FERC found that SPP supported the structure of its proposed demand curves and rejected Golden Spread’s argument that they should be steeper. However, FERC directed SPP to make a compliance filing within thirty days of the order to show that certain key definitions and provisions implementing SPP’s proposal be placed in SPP’s Tariff, as opposed to its Marketplace Protocols, because such provisions significantly affect rates, terms, and conditions of service. Finally, FERC dismissed Golden Spread’s non-market mechanism suggestions as outside the scope of the proceeding, but nonetheless urged SPP to consider such a proposal through its stakeholder process.

A copy of FERC’s order can be found here. FERC’s order can also be found in Docket No. ER17-1092.