On September 8, 2014, FERC held a technical conference on the subject of “uplift payments” in Regional Transmission Organization (“RTO”)/Independent System Operator (“ISO”) markets. The conference was held several weeks after the release of Commission Staff’s preliminary analysis on the topic, and is the first of several technical conferences aimed at addressing the broader issue of improving price formation in energy and ancillary services markets. The next conference will convene on October 28, 2014, and address the issues of offer price mitigation and offer price caps.
“Uplift payments” are payments made to a generation resource for following the RTO/ISO dispatcher’s operation directive when issued in response to operational and technical challenges. These payments make the generation resource “whole” for the difference between the offer the generation resource submitted into the market, and the revenue it actually received by virtue of following the dispatcher’s directive. This difference in offer price and revenue received can be caused by a wide variety of operational and technical challenges, including:
- the inability of the submitted market price to accurately reflect the generation resources’ true costs and limitations;
- the inability of market software to fully model an RTO/ISO’s physical system constraints (e.g., voltage constraints), thereby producing prices that that do not reflect the true marginal costs of the generation resources needed to resolve the constraints; and
- the inherent inflexibility of certain generation resources (e.g., minimum run-time) that require the resource to operate when it is uneconomic to do so.
The day-long conference featured a diverse spectrum of industry panelists who shared their experiences with uplift payments in RTO/ISO markets, their thoughts on the root-causes of technical and operational challenges that necessitate the need for uplift payments, and how those challenges might be addressed so as to decrease the frequency and amount of uplift payments.
Previously, on August 14, 2014, FERC Staff released its preliminary analysis on the issue of uplift payments in RTO/ISO markets, which provided a framework for discussion at the September 8 technical conference. The Staff’s analysis concluded that uplift payments:
- have been highly concentrated and recurring on a geographic or resource basis;
- are closely related to market fundamentals, including energy and fuel costs;
- are closely related to price divergences between day-ahead and real-time markets;
- have uplift costs that vary across RTOs and ISOs and are trending upwards in three of the five markets studied; and
- lack transparency in terms of the payments themselves and the reasons they are incurred.
Additional information regarding the technical conference on uplift payments may be found in Docket No. AD14-14-000 at http://ferc.gov/. The August 14, 2014 preliminary analysis of FERC Staff may be found here. Official notice of the October 28, 2014 technical conference may be found here.