On September 17, 2015, the Commission issued a Notice of Proposed Rulemaking (“NOPR”) to address two existing practices that FERC believes result in distorted price signals. The NOPR proposes to address this problem by: (1) requiring that each organized market align settlement and dispatch intervals by settling real-time energy and operating reserves transactions financially at the same time interval that it dispatches energy and prices operating reserves; and (2) requiring that each organized market trigger shortage pricing for any dispatch interval during which a shortage of energy or operating reserves occurs.
The NOPR is comprised of two proposals. First, in order to remedy any potentially unjust and unreasonable rates caused by the use of hourly integrated prices for real-time settlement, the Commission proposes to require that each RTO/ISO settle energy transactions in its real-time markets at the same time interval it dispatches energy, and settle operating reserves transactions in its real-time markets at the same time interval it prices operating reserves. Second, in order to remedy the potentially unjust and unreasonable rates caused by restrictions on shortage pricing, the Commission proposes to require that RTOs/ISOs trigger shortage pricing for any dispatch interval during which a shortage of energy or operating reserves occurs.
The Commission described the NOPR as the first step to advancing the goals of the Commission’s price formation proceeding that was initiated on June 19, 2014 in Docket No. AD14-14-000. During the fall of 2014, Commission staff convened technical workshops and issued reports on price formation. The Commission subsequently solicited comments on specific questions that arose from the price formation workshops. The Commission stated that most of the comments received focused on the settlement intervals and shortage pricing issues that the Commission intends to address through the NOPR.
According to the Commission, the proposed reforms will help provide correct incentives for market participants to follow commitment and dispatch instructions, to make efficient investments in facilities and equipment, and to maintain reliability. The Commission further stated in the NOPR that the proposed reforms are intended to provide transparency and certainty so that market participants understand how prices reflect the actual marginal cost of serving load and the operational constraints of reliably operating the system. In the long-term, the Commission expects that appropriate price signals would produce prices that consistently reflect operating needs and system conditions which, in turn, would help to encourage efficient investments in facilities and equipment, enabling reliable service.
A copy of the NOPR is available here.