By Rich Heidorn Jr.
DALLAS — SPP will change the way it calculates offer caps for generators under market mitigation in a “design approach” approved last week by the Markets & Operations Policy Committee. The vote endorsed a proposed two-step transition to a methodology similar to that used by MISO.
The initiative was prompted by the Federal Energy Regulatory Commission’s October 2012 order, which encouraged the RTO to change its mitigation rules, and orders in 2013 and 2014 criticizing the lack of cost details in its Tariff. As stakeholders began examining the issue, said SPP’s Richard Dillon, it became clear “the solution needed to be a lot larger than just variable [operations and maintenance].”
The Board of Directors rejected an earlier proposal in December, directing the MOPC to find a change that would have broader support among members and the RTO’s Market Monitoring Unit.
The initial step would create a process for calculating a default variable operating and maintenance (VOM) component for mitigated offers and add Tariff language regarding the calculation of cost-based rates.
SPP will work towards replacing the term “short run marginal costs” with defined, individual cost components. “We have to get this written down,” Dillon said.
An adder would also be included for “outlier” generators, such as diesels that are seldom run but are necessary on occasion when there is market power.
The interim proposal will include a deadline for filing the long-term solution, which would adapt the methodology used by MISO, which determines its reference levels for mitigation based on accepted offers and market prices, before considering the unit’s costs.
The proposed rule would prevent generators from seeing their cost-based offer caps drop far below the market curves they were paid when operating without mitigation.
SPP staff will present an analysis of the cost impact of the changes at the April MOPC.
Said Dillon: “We want to get this right because, quite honestly, I don’t want to be doing this again in six months.”
Richard Ross of American Electric Power said he was concerned that the changes in the long-term solution “potentially could be very costly.”
“The majority of us could live with the interim solution,” he said.
But Doug Collins of the Omaha Public Power District said he didn’t think the proposed changes went far enough. The costs the Market Monitoring Unit wants to include are “one-tenth of 1% of the costs I want to include,” he said, hyperbolizing for emphasis.
The proposal was approved by voice vote with no opposition and several abstentions. Dillon will write draft language for review by the Mitigated Offer Strike Team and the Markets Working Group before the FERC filing. Dillon estimated it will take about a year to implement the final solution.
