FERC issued Directions to NYISO and PJM to Implement Tariff Changes

FERC issued Directions to NYISO and PJM to Implement Tariff Changes

On April 18, the Federal Energy Regulatory Commission (FERC) directed the New York Independent System Operator (NYISO) and PJM Interconnection (PJM) to begin implementing tariff changes in order to ensure that their pricing for fast-start resources is both reasonable and just. This concludes FERC’s investigations into PJM and NYISO regarding section 206 of the Federal Power Act; these investigations began in December 2017.

In the preliminary findings, FERC found both NYISO and PJM’s current practices to be “unjust and unreasonable because those practices do not allow prices to accurately reflect the marginal cost of serving load when a fast-start resource is needed to quickly respond to unforeseen system needs.”

These reforms are part of FERC’s broader price formation initiative. “Fast-start resources are typically committed in real-time, very close to the interval when needed, and can respond quickly to unforeseen system needs.” However, when there is no fast-start pricing, “some fast-start resources are ineligible to set prices, often due to inflexible operating limits.”

They also found that “even when fast-start resources can set prices, they may not be able to recover their commitment costs, such as start-up and no-load costs, through prices.” Because of this, “prices may not reflect the marginal cost of serving load, muting price signals for efficient investments. Several RTOs and ISOs have already implemented fast-start pricing practices to address these issues.”

In the April 18 order, FERC found that PJM and NYISO’s “fast-start pricing practices are unjust and unreasonable because they do not allow prices to reflect the marginal cost of serving load.” FERC addressed these findings by directing the “grid operators to change their fast-start pricing practices.”

“Specifically, the Commission is directing NYISO to make the following tariff revisions to its fast-start pricing practices: 

  • Modify its pricing logic to allow the start-up costs of fast-start resources to be reflected in prices;
  • Relax the economic minimum operating limits of all fast-start resources, including dispatchable fast-start resources, by up to 100 percent for the purpose of setting price.”

NYISO is required to make a compliance filing by the end of 2019, and it has to implement the tariff changes by the end of 2020.

“The Commission is requiring PJM to make the following tariff revisions: 

  • Implement software changes so that fast-start resources are considered dispatchable from zero to their economic maximum operating limits for the purpose of setting prices;
  • Apply fast-start pricing to all fast-start resources;
  • Alter its real-time energy market clearing process to consider fast-start resources in a way that is consistent with minimizing production costs;
  • Restrict eligibility for fast-start pricing to fast-start resources that have a start-up time (including notification time) of one hour or less and a minimum run time of one hour or less;
  • Include commitment costs in energy prices for fast-start resources in both the day-ahead and real-time markets;
  • Implement its proposal to use lost opportunity cost payments to offset the incentive for over-generation or price chasing.”

PJM has to make their compliance filing by the end of July 2019. PJM also has to “file a one-time informational report by August 30, 2019, explaining how the proposed tariff provisions do not raise new market power concerns.”