On September 20, 2017, FERC rejected Southwest Power Pool, Inc’s (“SPP”) Order No. 825 compliance filing that would have created a demand curve to set scarcity prices for energy shortages. Specifically, FERC held that SPP’s establishment of a demand curve to set scarcity prices was outside the scope of Order No. 825, which required SPP to establish triggers for shortage pricing, rather than change the actual shortage pricing levels.

In Order No. 825, FERC, among other things, required regional transmission organizations (“RTOs”) and independent system operators (“ISOs”) to establish a mechanism to trigger scarcity pricing for intervals in which there is a shortage of energy or operating reserves. As noted by FERC, Order No. 825 did not require RTOs/ISOs to change the amount paid to resources when shortage pricing is triggered, but rather required RTOs/ISOs to establish triggers for scarcity pricing.

To comply with this directive, on January 11, 2017, SPP submitted to the Commission several revisions to its tariff to establish mechanisms that trigger scarcity pricing for intervals in which there is a shortage of energy or operating reserves. Among other revisions, SPP proposed to utilize a demand curve to set scarcity prices during energy or operating reserve shortages. In addition, SPP proposed to remove resource capacity constraints, resource ramp constraints, and global power balance constraints from its tariff “in order to establish scarcity pricing.”

In its order, while FERC found that SPP’s proposed scarcity pricing revisions partially complied with Order No. 825, FERC rejected SPP’s revisions that would set scarcity prices using a demand curve as outside the scope of Order No. 825’s requirements. In doing so, FERC found that Order No. 825 required SPP to establish a mechanism to trigger shortage pricing, but not to change shortage pricing levels. Moreover, FERC held that, to the extent SPP removed capacity constraints, resource ramp constraints, and global power balance from its tariff to facilitate the creation of the demand curve, SPP should reinsert those constraints or explain why their removal complies with Order No. 825. Finally, FERC concluded that if SPP wishes to change the level of scarcity prices, it may do so by making a separate filing pursuant to section 205 of the Federal Power Act.

A copy of FERC’s order is available here.