On October 21, 2014, FERC Staff released two reports entitled Shortage Pricing in RTO and ISO Markets, and Energy Offer Mitigation in RTO and ISO Markets.  The reports are intended to spur discussion at FERC’s October 28, 2014 workshop on scarcity and shortage pricing, offer mitigation, and offer caps in Regional Transmission Organizations (“RTOs”) and Independent System Operators (“ISOs”).

The reports and workshop are part of a FERC initiative to discuss with industry participants the current market rules and operational practices that impact price formation in energy and ancillary services markets operated by RTOs and ISOs.  The reports, specifically, review the tariff rules and operating procedures of RTOs and ISOs, describe how shortages are defined and what influence this has on prices, and evaluate what drivers affect price formation in the energy and ancillary markets.

The report titled Energy Offer Mitigation in RTO and ISO Markets reviews different approaches to market power mitigation that can be applied to incremental offers in the day-ahead and real-time energy markets in RTOs and ISOs.  It also analyzes the operation of market power mitigation rules during a representative peak hour in the year 2013 for ISO-New England Inc. and the California Independent System Operator Corporation.  The paper then offers initial observations based on the analysis of its data. 

The report titled Shortage Pricing in RTO and ISO Markets reviews how RTO and ISO tariffs govern what defines a shortage and when shortage pricing is invoked.  The report then reviews how shortage pricing reacts with different energy and operating reserve products in RTO and ISO markets.  The report then examines several different RTO and ISO experiences with reserve deficiencies and shortage pricing.  Finally, the report offers several preliminary observations based on the review of the RTO and ISO shortage pricing rules and the impacts that shortage events have had over the last several years.

FERC’s workshop on Price Formation in Energy and Ancillary Services Markets Operated by Regional Transmission Organizations and Independent System Operators will be held on Tuesday, October 28, 2014 from 8:45 a.m. to 5:00 p.m. at FERC headquarters.  Commission members may participate in the workshop.

Copies of the reports are available here and here.  A copy of the workshop notice is available here.