By Rich Heidorn Jr. and Tom Kleckner

The U.S. Energy Department grid study released Wednesday added no new information to debates that have been going on for months at FERC technical conferences and RTO/ISO stakeholder meetings.

The report also acknowledged that the department has virtually no authority over generation or wholesale markets, leaving it to FERC and RTOs to act on its recommendations. (See Perry Grid Study Seeks to Aid Coal, Nuclear Generation.)

On Thursday, FERC and several RTOs responded. Their message: We’re already working on it.

Acting FERC Chairman Neil Chatterjee issued a statement saying the report “highlights many activities that the commission is carefully considering, including examining ways to enhance wholesale electric capacity markets and improve price formation in those markets, to increase electric and gas coordination, and to assure bulk power system reliability and resilience. The commission will remain focused on these and other issues that are critical to maintain the nation’s competitive wholesale electric markets and keep the lights on.”

PJM, ISO-NE, MISO, CAISO and SPP also issued statements assuring DOE that they are addressing the issues and that — despite the ominous warning Secretary Rick Perry used in his April 14 memo ordering the study — that there are no imminent risks to grid reliability.

Price Formation

Among the report’s recommendations were a call for FERC to “expedite its efforts with states, RTO/ISOs and other stakeholders to improve energy price formation in centrally organized wholesale electricity markets.”

“After several years of fact finding and technical conferences, the record now supports energy price formation reform, such as the proposals laid out by PJM and others,” it said, citing PJM’s June report, “Energy Price Formation and Valuing Flexibility,” and MISO’s extended LMP initiative. (See PJM Making Moves to Preserve Market Integrity.)

The report says that although all RTOs/ISOs have some type of shortage pricing, the designs differ, a “variance [that] could present challenges to market participants who require a threshold level of certainty to make an investment decision.” Although it acknowledged that FERC Order 831 doubled energy offer caps in the organized markets to $2,000/MWh, it cited concerns expressed by Market Monitors Joe Bowring and David Patton over the volatility of shortage pricing revenue. (See Lawyers Take an Economics Class: Capacity Markets vs. Scarcity Pricing.)

It also called for mitigating negative prices “to the broadest extent possible,” quoting from the department’s January Quadrennial Energy Review report that “price suppression is occurring in RTO/ISO wholesale markets with noticeable amounts of wind and solar generation (and low-cost gas generation).”

Essential Reliability Services

The department also urged FERC to require valuation of “essential reliability services” through fuel- and technology-neutral markets or regulatory mechanisms. The report includes in that description ancillary services such as frequency and voltage support, and ramping capability.

A table in the report shows that only MISO and CAISO have any product in the “ramp reserve” category. SPP’s David Kelley said the RTO is evaluating the benefits of a ramping product for the Integrated Marketplace and is exploring designs deployed in other markets. It has no current timeline for implementation.

Resilience

The report also called for further study on mandatory capacity markets, which it noted have “been the subject of near-constant debate” and the development of metrics and tools for evaluating “resilience.”

The department said NERC “should consider adding resilience components to its mission statement and develop a program to work with its member utilities to broaden their use of emerging ways to better incorporate resilience.”

“RTOs and ISOs should further define criteria for resilience, identify how to include resilience in business practices and examine resilience-related impacts of their resource mix,” it continued.

The report acknowledged that while wholesale markets “do not explicitly recognize or compensate system resilience,” PJM and ISO-NE have changed their capacity market rules to incentivize generator performance during scarcity conditions. It notes that only some RTOs — naming PJM, ISO-NE and NYISO — value onsite fuel storage, a characteristic of coal and nuclear plants that natural gas plants without oil-fired back-up lack.

Quoting PJM, the report notes that “criteria for resilience are not explicitly defined or quantified today.”

“Each RTO/ISO should strive to explicitly define resilience on its system and conduct resource diversity assessments to more fully understand the resilience of different resource portfolios,” the department said. “Federal, state and local work to define and support systemwide resilience is also needed.”

NERC issued a statement saying that reliability and resiliency “are key priorities for NERC and we appreciate the recognition of our work on these matters.”

ISO-NE

ISO-NE spokeswoman Marcia Blomberg said the RTO is reviewing the study. “However, in the two decades since their creation, competitive wholesale electricity markets in New England have achieved what they were designed to accomplish, including power system reliability supported by an adequate resource base, competitive wholesale power prices that accurately reflect the cost of reliable power production and a shift in resource investment risk from ratepayers to investors.

“As the energy landscape evolves, ISO New England will continue working with industry stakeholders and state policymakers to ensure that the markets can adapt to changing industry dynamics, such as state environmental policies and fuel security challenges, while continuing to produce competitive prices that support the resources needed to reliably meet consumer demand for power.”

PJM

PJM called the report “thoughtful” and “comprehensive.”

“The report acknowledges that wholesale power markets are working and providing reliability at the lowest possible cost and that power supply resources are more diverse than they have ever been. It also highlights the importance of expediently addressing needed reforms in energy price formation followed by a focus on grid resilience. These issues are a top priority.”

The RTO noted that it has posted discussion papers on price formation and capacity market reform to accommodate state policies. “Earlier this year, we published a paper, ‘PJM’s Evolving Resource Mix and System Reliability,’ which demonstrated that the PJM region has remained reliable throughout the rapid changes in the resource mix. PJM’s analysis also indicated a need to focus on fuel assurance and resilience to take into account the changing operational risks that the industry faces.” (See PJM: Increased Gas Won’t Hurt Reliability, Too Much Solar Will.)

CAISO

CAISO said it has “experienced success in integrating large amounts of renewable resources without threatening grid reliability. There’s no doubt that energy markets are evolving as the fundamental resource mix changes. The ISO will continue to operate a reliable grid that can capture the benefits of this transformation.”

MISO

MISO said it “has been preparing for the challenges of the evolving resource mix, and we will continue to ensure that planning constructs, market designs and operational practices are in place to support the reliability of the electric grid across our footprint. We look forward to continuing our work with DOE, regulators, policymakers and stakeholders as that effort continues.”

SPP

SPP spokesman Derek Wingfield said the RTO “is pleased the report acknowledges the value of transmission investments in enabling ‘an array of benefits’ including reliability, congestion relief, market competition, diversity of fuel sources and more, and that our own Value of Transmission study had some influence on the Department of Energy’s analysis. The report’s recommendation to further study market structures and the impacts of renewable integration is also welcome, and we pledge to assist the DOE and FERC with such analyses should the opportunity arise.” (See SPP Begins Promotional Campaign to Tout Transmission Value.)

Last month, SPP stakeholders approved recommendations from a study on how much wind energy the RTO’s system can safely and reliably absorb. The RTO has routinely broken the 50% penetration level for wind energy, and has said it can go even higher. The recommendations include the installation of online transient-stability and voltage-stability analysis tools. (See “Wind Integration Study’s Recommendations Move On,” SPP Markets and Operations Policy Committee Briefs: July 11-12, 2017.)

ERCOT

ERCOT, which is not subject to FERC jurisdiction, held a discussion with the Texas Public Utility Commission on Aug. 11 on price-formation issues including scarcity pricing and marginal losses. (See ERCOT, Regulators Discuss Need for Pricing Rule Changes.)

ERCOT has also successfully integrated renewables at 50% penetration levels.

NYISO officials had no immediate comment, saying they were digesting the report.