On January 19, 2017, FERC issued a Notice of Proposed Rulemaking (“NOPR”) proposing to reform approaches to real-time uplift cost allocation and transparency practices by Regional Transmission Organizations (“RTO”) and Independent System Operators (“ISO”). FERC stated that the proposed reforms to uplift cost allocation should incentivize market participants to schedule sufficient resources to satisfy the system’s real-time needs, thus avoiding RTO’s/ISO’s need to procure additional resources after the day-ahead market has cleared. Meanwhile, FERC stated that the proposed reforms to transparency practices will help market participants understand how prices reflect the actual marginal cost of serving load and the operational constraints of reliably operating the system.

In the NOPR, FERC notes that the proposed reforms address issues that arose from a price formation proceeding that FERC initiated in June 2014. In that proceeding, FERC convened technical workshops, solicited comments from industry stakeholders, and ordered RTOs/ISOs to submit reports related to various price formation issues, including uplift cost allocation and transparency practices.

With regard to uplift cost allocation, FERC concluded in the NOPR that certain practices of allocating the costs of real-time uplift to market participants who deviate from day-ahead market schedules are inconsistent with cost causation principles. In response, FERC proposed a four-part remedy. First, FERC proposed to require that RTOs/ISOs categorize real-time uplift costs allocated to deviations into at least two categories based on the cause of uplift costs: a system-wide capacity category and a congestion management category. Second, FERC proposed to require RTOs/ISOs to net a market participant’s harmful deviations against its helpful deviations within each uplift cost category. Third, FERC proposed to clarify that a resource responding to an RTO/ISO-initiated real-time dispatch instruction should not be allocated uplift costs. Fourth, FERC proposed that real-time uplift costs allocated to deviations must be settled using hourly uplift rate calculations.

In the NOPR, FERC seeks comment on whether additional uplift cost categories beyond the two proposed should be recognized, and whether there is a need for regional flexibility on uplift cost categories. FERC also seeks comment as to what, if any, advanced notification requirement should apply to helpful deviations, and how transactions related to real-time economic or reliability-related dispatch instructions should be used to determine a market participant’s net deviations. Additionally, FERC seeks comment on whether instructed deviations should be included in any netting calculations. Finally, FERC seeks comment on an appropriate methodology for dividing costs between uplift cost categories, and the process for netting transactions and deviations.

With regard to transparency practices, FERC found in the NOPR that current reporting practices related to uplift payments, operator-initiated commitments, and transmission constraint penalty factors are unjust and unreasonable. To remedy such practices, FERC proposed to require that each RTO/ISO: (1) report, within 20 days of the end of each month, total uplift payment for each transmission zone, broken out by day and uplift category; (2) report total uplift payments for each resource on a monthly basis; (3) report megawatts of operator-initiated commitments in or near real-time and after the close of the day-ahead market, broken out by transmission zone and commitment reason; and (4) define in its tariff the transmission constraint penalty factors, as well as the circumstances under which those factors can set locational marginal prices, and the process by which they can be changed.

FERC seeks comment on whether resource-specific reports should be broken out by uplift category, be reported using a different time duration, or contain additional details. FERC also seeks comment on the types of unity commitments that should be reported as operator-initiated commitments, and whether it should define a common set of operator-initiated commitment reporting categories for all RTOs/ISOs. Additionally, FERC seeks comment on whether transmission outage should be included in reporting requirements and whether certain classes of market participants should be excluded from obtaining network models that are released by RTOs/ISOs in compliance with reporting requirements. Finally, FERC seeks comment on the appropriate reporting timeframe for its proposed reporting requirements, and the appropriate compliance timeframe for RTOs/ISOs after issuance of a final rule.

The Notice of Proposed Rulemaking is available here.