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FERC Continues Electric Market Reforms

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On January 19, 2017, the Federal Energy Regulatory Commission (“FERC”) continued its efforts to shape and reform organized energy markets by proposing new rules for uplift charges and setting forth new policies for payments to electric storage resources. The proposals represent a continuing effort by FERC to integrate new resources into the market and to eliminate market practices that are inconsistent with cost causation principles.

FERC Proposes New Requirements, More Transparency for Uplift in Electric Markets

In a Notice of Proposed Rulemaking (“NOPR”), FERC set forth preliminary new rules applicable to any Regional Transmission Organization (“RTO”) or Independent System Operator (“ISO”) that allocates real-time uplift costs to market participants’ deviations from day-ahead market schedules (“deviations”), while also proposing greater transparency for uplift in general. Uplift payments are make-whole payments that cover the difference between a given resource’s offer price and the revenue it earns in the market when it is committed or dispatched for non-economic reasons. Real-time uplift, as defined in the NOPR, is a subset of uplift that applies only to resources committed after the close of an ISO’s or RTO’s day-ahead market. As explained in the NOPR, most RTOs and ISOs allocate at least a portion of real-time uplift costs to deviations from day-ahead market schedules.

The NOPR proposes several new requirements for allocation of real-time uplift costs to better align with cost causation. First, RTOs and ISOs must distinguish between real-time uplift costs incurred for (1) system-wide capacity reasons; and (2) congestion management reasons. Within each of these real-time uplift categories, RTOs and ISOs must distinguish between deviations that help to address system needs and deviations that harm efforts to meet system needs, and then allocate costs to participants’ net harmful deviations. FERC also proposes that no real-time uplift costs be allocated to deviations that result from RTO- or ISO-initiated real-time dispatch instructions. Each real-time uplift allocation to deviations must be settled through hourly uplift calculations.

The NOPR also contains a series of requirements to improve transparency for uplift, as well as for operator-initiated resource commitments. FERC proposes that RTOs and ISOs (1) report uplift payments for each transmission zone by day and uplift category; (2) report, on a monthly basis, total uplift payments for each resource; and (3) report the megawatts of operator-initiated commitments in (or near) real-time and after the close of the day-ahead market, with commitments broken-out both by transmission zone and by the purposes for which the commitments were undertaken (including, for example, voltage-support and capacity-related purposes, among others). In addition, FERC proposes to require that RTOs and ISOs define in their tariffs any transmission-constraint penalty factors, including providing the circumstances under which penalty factors can set locational-marginal prices and the procedures for temporarily changing them. According to FERC, the transparency provided by these reforms will improve market efficiency and enhance the ability of market participants to assess RTO and ISO practices.

A copy of the NOPR is available here. Comments on the NOPR are due to FERC within 60 days of its forthcoming publication in the Federal Register.

New Policy Allows Concurrent Cost- and Market-Based Recovery for Electric Storage

In a policy statement issued the same day (“Policy Statement”), FERC provides guidance and clarifies precedent related to cost recovery for electric storage resources. The Policy Statement specifically establishes the ability of electric storage resources to concurrently provide separate services at—and seek to recover costs through—both cost-based and market-based rates. The Policy Statement also considers matters raised during and after a November 9, 2016, technical conference on that topic.

FERC’s Policy Statement addresses three main concerns raised in prior proceedings:

  • First, double recovery of costs by storage resources can be avoided by crediting market-based revenues back to cost-based ratepayers. This can be accomplished by either (1) recovering the full cost of the storage facility through the cost-based rate, but crediting all market-based revenues to cost-based customers; or (2) offsetting the revenue requirement used to develop the cost-based rate by the anticipated market-based revenues.
  • Second, FERC states that it does not share commenters’ concerns regarding adverse market impacts. Instead, it analogizes allowing multiple revenue streams for storage resources to the multiple revenue streams already available to generation resources and vertically integrated utilities. FERC also states that price-suppression concerns can be addressed either in the same manner as double recovery concerns or by determining which costs go into cost-based rates.
  • Third, regarding independence of market participants from RTOs and ISOs, FERC states that some amount of coordination between storage resource owners or operators and ISOs or RTOs will be necessary. When cost-based services must be provided, RTO or ISO dispatch should receive priority, with penalties for any failure to perform. However, market-based services should be implemented according to parameters provided by resource owners or operators, just as is the case for other market participants.

Commissioner LaFleur dissented from the Policy Statement. Although she remains open to storage resources receiving both cost-based and market-based revenues, LaFleur noted that the Policy Statement provides no guidance on how FERC will evaluate particular filings with respect to adverse market impacts. Moreover, she voiced concern that, although nominally limited to storage resources, the Policy Statement could be read to reflect FERC’s views on ongoing and complex discussions relating to broader multiple-payment-stream issues, including state policy initiatives.

A copy of the Policy Statement, including Commissioner LaFleur’s dissent, is available here.

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