The Federal Energy Regulatory Commission will convene workshops beginning this fall to consider rule changes regarding uplift, price caps and other issues affecting price formation in PJM and other RTOs and ISOs.

The commission said its inquiry was prompted by comments made at recent technical conferences on capacity markets and the grid’s response to the recent severe winter.

The workshops will consider ways to address limitations in RTO market software that prevent RTOs from modeling all system parameters, such as voltage constraints and generator operating constraints. “While these limitations are to some extent inherent in the complexity of the electric system, staff believes it is worth exploring whether there may be opportunities for RTOs and ISOs to improve their energy and ancillary services price formation processes,” FERC staff said in a presentation announcing the initiative (AD14-14).

Acting Chair Cheryl LaFleur said ancillary service markets are growing in importance because of the need to balance the increasing volume of intermittent resources.

The first of three workshops will be in early September and will focus on uplift, which can mute price signals. “Sustained patterns of specific resources receiving a large proportion of uplift payments over long periods of time raise additional concerns that those resources are providing a service that should be priced in the market or opened to competition,” the commission said.

Subsequent sessions will focus on:

• Offer price mitigation and offer price caps. RTO rules designed to limit generator market power assume the ability of resources to fully reflect their marginal costs in their bids, but $1,000/MWh price caps in PJM and elsewhere prevented some operators from doing so during the gas price spikes in January. “To the extent existing rules on marginal cost bidding do not provide for this, bids and resulting energy and ancillary service prices may be artificially low,” the commission said.
• Scarcity and shortage pricing. RTOs may dispatch emergency demand response and order voltage reductions to avoid reserve deficiencies, actions often tied to administrative pricing rules designed to reflect scarcity. “To the extent that actions taken to avoid reserve deficiencies are not priced appropriately or not priced in a manner consistent with the prices set during a reserve deficiency, the price signals sent when the system is tight will not incent appropriate short- and long-term actions by resources and loads,” the commission said.
• Unpriced operator actions. RTO operators regularly commit uneconomic resources to ensure reliability or respond to un-modeled system constraints. “To the extent RTOs/ISOs regularly commit excess resources, such actions may artificially suppress energy and ancillary service prices,” the commission said.

Commissioner Philip Moeller predicted the discussion over price caps will be “contentious and long.” In response to a question from Moeller, Jamie L. Simler, director of the Office of Energy Policy and Innovation (OEPI), acknowledged it was “fairly unlikely” that the commission would be able to craft new rules before next winter.

OEPI staffer Mary Cain said one of the goals of the workshops will be to identify best practices among RTOs.

In May, stakeholders approved PJM’s short-term plan for capturing reserve costs in energy prices. (See PJM Reserve Proposal Gets OK for Trial Run.) PJM stakeholders also are considering whether to change the $1,000/MWh offer price cap. (See Effort to Lift Offer Cap Advances After Debate.)