By Michael Kuser, Christen Smith and Rich Heidorn Jr.

WASHINGTON — FERC on Thursday ordered PJM and NYISO to revise their tariffs to allow fast-start resources to set clearing prices, saying their current rules are not just and reasonable.

The order concludes investigations FERC began in December 2017 under Federal Power Act Section 206 and directs the grid operators to eliminate inflexible operating limits and other rules that the commission said are preventing prices from reflecting the marginal cost of serving load. (See FERC Drops Fast-Start NOPR; Orders PJM, SPP, NYISO Changes.)

“Fast-start resources are typically committed in real time, very close to the interval when needed, and can respond quickly to unforeseen system needs. But without some form of fast-start pricing, some fast-start resources are ineligible to set prices,” the commission said in a press release.

FERC said the changes it is requiring will more accurately reflect marginal costs when the dispatch of a fast-start resource is the next action taken to meet load. It said the new rules will provide more accurate and transparent price signals to influence investment decisions, minimize production costs and reduce uplift.

“We find that commitment costs for fast-start resources are marginal because they are generally incurred in coordination with the real-time dispatch,” the commission said.

FERC ordered NYISO to revise its pricing logic to reflect the start-up costs of fast-start resources and relax the economic minimum operating limits of all fast-start resources by up to 100% to allow them to set prices (ER18-33).

The commission gave PJM a longer list of changes, ordering it to make a compliance filing by July 31 (EL18-34).

In opening the investigations in 2017, the commission said MISO and ISO-NE have already implemented fast-start best practices and that CAISO would get limited benefit from such changes. The commission also opened a Section 206 investigation into SPP’s practices, which remains pending (EL18-35).

NYISO

The commission directed NYISO to make a compliance filing by Dec. 31 and implement the Tariff changes by Dec. 31, 2020.

NYISO currently applies fast-start pricing logic to online and offline fixed block units that can start in 10 minutes. The ISO defines a fixed block unit as one that, “due to operational characteristics, can only be dispatched in one of two states: either turned completely off, or turned on and run at a fixed capacity level.”

In the first step of its optimization process, NYISO establishes resources’ physical base points in their real-time energy schedules. In the second step, the pricing run, the ISO relaxes the economic minimum operating limit of fixed block units to allow them to be eligible to set prices. The price of offline fixed block units can include a unit’s start-up costs.

“However, NYISO neither relaxes the economic minimum operating limits of dispatchable resources (i.e., resources that are not block-loaded), nor does it include the start-up costs of these or any online resources for the purpose of setting prices,” the commission said.

FERC acknowledged that NYISO does have fast-start pricing rules and said it is not proposing that the ISO implement a new pricing concept, nor would it require it to change its offline fast-start pricing or its rules on overgeneration “at this time.”

The Electric Power Supply Association and the Independent Power Producers of New York filed comments in February 2018 supporting the changes, saying that “reflecting all resources which have fast-start capability in energy and operating reserve real-time pricing is a fundamental concept,” and “it is critical that fast-start pricing includes all commitment costs.”

NYISO’s Market Monitoring Unit also filed supportive comments last year, saying that, “We agree with this proposed change because it is fully consistent with the economic principle that the competitive price for any good should reflect the marginal cost of supplying the good. Hence, well-designed fast-start pricing rules allow real-time prices to include the cost of committing and running peaking units when they are the marginal source of energy.”

PJM

The commission identified six Tariff revisions needed to correct PJM’s rules.

First, the commission said PJM must update its software to consider fast-start resources dispatchable from zero to their maximum operating limits for the purpose of setting prices.

Fast-start pricing also must apply to all applicable resources, which FERC said should only include those with a start-up time of one hour or less and minimum run time of one hour or less. Currently, PJM identifies combustion turbines with a two-hour start-up time as fast-start resources.

FERC also required PJM to:

• Alter the real-time energy market clearing process to consider fast-start resources in a way that is consistent with minimizing production costs;
• Include commitment costs in energy prices for fast-start resources in both the day-ahead and real-time markets; and
• Implement its proposal to use lost opportunity cost payments to offset the incentive for overgeneration or price chasing.

In addition to submitting a compliance filing by July 31, PJM must make a one-time informational report by Aug. 30 explaining how the revisions do not raise new market power concerns.

FERC said PJM has special pricing rules only for block-loaded units — resources whose economic minimum operating limits equal their economic maximums, meaning they have no dispatchable range. The RTO seeks to let them set prices by relaxing the economic minimum operating limit of online block-loaded resources by up to 20% — increased from 10% in 2016.

“Even with this increase, we remain concerned that without allowing relaxation by up to 100%, marginal actions taken by system operators will not be reflected in prices,” FERC said.

The commission also said PJM’s limiting of applying fast-start pricing to block-loaded resources alone does not reflect the marginal cost of serving load when a dispatchable fast-start resource is needed. It said it agreed with commenters on “a technology-neutral approach [that] ensures that no resource that can perform the same service is unnecessarily excluded from fast-start pricing treatment.”

Commissioner Cheryl LaFleur noted that the order limits fast-start resources to those with start-up or minimum run times of one hour or less, rejecting PJM’s request for a two-hour threshold.

Daniel Kheloussi, of FERC’s Office of Energy Policy and Innovation, said the order finds that resources with start-up and minimum run times exceeding an hour “lack the flexibility to operate in a manner consistent with unforeseen and transient real-time needs, and therefore, commitment and dispatch of such resources are not analogous to a marginal decision.”