On September 7, 2021, FERC staff issued a whitepaper to frame discussions ahead of two technical conferences planning to discuss potential ancillary services reforms.  The whitepaper summarizes approaches that RTOs/ISOs are currently evaluating to reform energy and ancillary services markets to address the need for greater operational flexibility, including increasing shortage prices, procuring higher quantities of existing “traditional” ancillary services products (like an operating reserve demand curve), and creating new ancillary services products.

Since FERC issued Order No. 888, transmission providers have been required to provide six ancillary services pursuant to an Open Access Transmission Tariff (“OATT”).  RTOs and ISOs have implemented market-based mechanisms to procure four of these services, along with other market-based ancillary services.  RTO/ISO market clearing processes generally establish prices for these ancillary services based either on the highest marginal cost of producing energy or the highest marginal opportunity cost incurred by a resource to provide an ancillary service rather than energy.

As the whitepaper describes, however, recent changes in resource supply and system conditions have increased the need for operational flexibility.  In response, each FERC-jurisdictional RTO/ISO has either implemented or proposed to implement ancillary service reforms aimed to provide additional operational flexibility.  FERC staff notes that although the various proposals may define flexibility differently, they all generally focus on the need to change output or demand in a short timeframe.

According to FERC staff, most RTOs and ISOs have tended to focus on energy and ancillary services market reform as opposed to capacity or other RTO/ISO market reforms.  For example, the whitepaper notes that panelists participating in FERC’s March and May 2021 technical conferences concerning capacity markets emphasized the need to review energy and ancillary services markets in addition to capacity market reforms.  While capacity markets could also incent and reward flexibility, to date most RTOs and ISOs do not require capacity resources to be flexible.  The need for increased operational flexibility will be important, the whitepaper emphasizes, as the electricity system’s resource mix and load demands continue to evolve.

FERC held its first technical conference on energy and ancillary services market reforms on September 14, with a second conference scheduled for October 12.

A copy of the whitepaper is available here.