On April 18, 2019, FERC found that the fast-start pricing practices of New York Independent System Operator, Inc. (“NYISO”) and PJM Interconnection, L.L.C. (“PJM”) were unjust and unreasonable and directed NYISO and PJM to revise their tariffs to implement certain changes discussed in the orders (“2019 Orders”).  In doing so, FERC found that NYISO’s and PJM’s current fast-start tariff provisions do not allow prices to reflect the marginal cost of serving load.

Fast-start resources are resources capable of starting quickly and thus are often committed very close to when they are needed in real-time. However, according to FERC, without a proper fast-start pricing methodology in place, some fast-start resources are ineligible to set prices, often due to inflexible operating limits.  On December 21, 2017, FERC issued orders preliminarily finding that the fast-start pricing practices of NYISO, PJM, and Southwest Power Pool, Inc. were unjust and unreasonable (see December 22, 2017 edition of the WER).  The 2017 orders also initiated investigations into the grid operators’ fast-start pricing tariff provisions to examine whether FERC should require certain changes to their respective tariffs. FERC issued the 2019 Orders following these investigations.

With respect to PJM, FERC directed PJM to make eight changes to its tariff in a compliance filing due July 31, 2019.  Amongst those changes, FERC found that PJM must:

1. Improve its software so that, for the purpose of setting prices, the software considers fast-start resources to be dispatchable from zero to their economic maximum operating limits;
2. Include commitment costs in energy prices and energy offers for fast-start resources;
3. Revise its real-time energy market clearing process so that fast-start resources are considered in a way that is consistent with minimizing production costs;
4. Adjust its fast-start pricing to include all fast-start resources and not just “block-loaded resources,” defined as resources that have an economic minimum operating limit equal to their economic maximum output;
5. Include its fast-start pricing practices in its tariff; and
6. Restrict fast-start pricing eligibility to those resources that have a start-up time of one hour or less and a minimum run time of one hour or less.

FERC also directed PJM to file an informational report by August 30, 2019 that explains how the proposed fast-start pricing provisions will not raise new market power concerns.

Meanwhile, FERC directed NYISO to make two changes to its tariff and submit a corresponding compliance filing by December 31, 2019.  Specifically, FERC required NYISO to (1) update the pricing logic of the tariff to so that the start-up costs of fast-start resources are reflected in prices and (2) lower the economic minimum operating limit of all fast-start resources by up to 100 percent for the purpose of setting prices.

FERC’s order directing PJM to revise its tariff can be found here, and FERC’s order directing NYISO to revise its tariff can be found here.