Electricity Markets

PJM, NYISO ordered to revise pricing for fast-start resources

The Federal Energy Regulatory Commission on April 18 directed the PJM Interconnection and the New York Independent System Operator to implement tariff changes to ensure their pricing practices for fast-start resources are just and reasonable.

FERC noted that its action concludes the Commission’s Federal Power Act section 206 investigations for PJM and NYISO that were initiated in December 2017.

FERC has pursued reforms related to fast-start pricing as part of its broader price formation initiative. Fast-start resources are typically committed in real-time, very close to the interval when needed, and can respond quickly to unforeseen system needs. But without some form of fast-start pricing, some fast-start resources are ineligible to set market prices, often due to inflexible operating limits.

In the PJM and NYISO orders, the Commission found that the fast-start pricing practices of the grid operators are unjust and unreasonable because they do not allow prices to reflect the marginal cost of serving load.

To address these findings, the Commission directed the grid operators to change their fast-start pricing practices.

The Commission required NYISO to make two changes to its fast-start pricing rules. First, NYISO must modify its pricing logic to allow the start-up costs of fast-start resources to be reflected in prices. Second, the New York grid operator must relax the economic minimum operating limits of all fast-start resources, including dispatchable fast-start resources, by up to 100 percent for the purpose of setting price.

NYISO must make a compliance filing by December 31, 2019 and implement the tariff changes by December 31, 2020.

The Commission directed PJM to make the following tariff revisions:

  • Implement software changes so that fast-start resources are considered dispatchable from zero to their economic maximum operating limits for the purpose of setting prices;
  • Apply fast-start pricing to all fast-start resources;
  • Alter its real-time energy market clearing process to consider fast-start resources in a way that is consistent with minimizing production costs;
  • Restrict eligibility for fast-start pricing to fast-start resources that have a start-up time (including notification time) of one hour or less and a minimum run time of one hour or less;
  • Include commitment costs in energy prices for fast-start resources in both the day-ahead and real-time markets; and
  • Implement its proposal to use lost opportunity cost payments to offset the incentive for over-generation or price chasing.

PJM must make a compliance filing by July 31, 2019. It also must file a one-time informational report by August 30, 2019, explaining how the proposed tariff provisions do not raise new market power concerns.

FERC opened investigations in late 2017

The orders resulted from investigations that FERC initiated in December 2017 concerning the pricing of fast-start resources in NYISO, PJM, and the Southwest Power Pool.  In commencing the investigations, the Commission found that the existing fast-start pricing practices in those regions may be unjust and unreasonable because those practices did not allow prices to accurately reflect the marginal cost of serving load.

FERC pursued the individual proceedings involving NYISO, PJM and SPP in lieu of issuing a generic fast-start pricing rule.  At the time it opened the individual cases, the federal agency issued a notice withdrawing its Dec. 15, 2016 notice of proposed rulemaking (Docket No. RM17-3) that had proposed certain uniform price formation changes in regional transmission organization/independent system operator markets with respect to fast-start resources.

The American Public Power Association had filed joint comments with the National Rural Electric Cooperative Association on the NOPR urging the Commission not to proceed with a rule standardizing fast-start price formation rules in all RTOs/ISOs.

Consistent with the APPA/NRECA position, FERC opted not to proceed with standard requirements for all RTOs/ISOs, and instead announced that it was instituting the three separate investigations relating to fast-start price formation rules in NYISO (Docket No. EL18-33), PJM (Docket No. EL18-34), and SPP (Docket No. EL18-35).

FERC has yet to issue an order in the SPP proceeding.