By Michael Kuser, Tom Kleckner, Rory D. Sweeney and Rich Heidorn Jr.

FERC dropped its plan for a one-size-fits-all rule on fast-start pricing Thursday, instead issuing individual orders requiring PJM, SPP and NYISO to change their tariffs.

In December 2016, the commission issued a Notice of Proposed Rulemaking that would have set generic rules to ensure RTOs and ISOs incorporate fast-start resources into energy and ancillary services pricing. (See FERC: Let Fast-Start Resources Set Prices.)

But the commission said Thursday it was withdrawing the NOPR, persuaded by commenters who suggested the changes would be burdensome and that it would be better to allow RTOs to implement pricing practices tailored to their regions and generator types.

“Having considered these comments, we are persuaded to not require a uniform set of fast-start pricing requirements that would apply to all RTOs/ISOs. Instead, we will pursue the goals of the NOPR through Section 206 actions involving NYISO, PJM and SPP focusing on specific concerns with each RTO’s/ISO’s implementation of fast-start pricing consistent with the concerns outlined in the NOPR,” the commission said (RM17-3).

FERC said it had preliminarily concluded that the three regions did not adequately allow fast-start resources to set LMPs, resulting in prices that were not just and reasonable and that muted investment signals.

The commission spelled out about a half dozen tariff changes each that it seeks from PJM (EL18-34) and SPP (EL18-35), and two from NYISO (EL18-33).

Commissioner Robert Powelson called the orders an “appropriate balance.”

Commissioner Cheryl LaFleur said that NYISO “has been an early leader in fast-start pricing … but we still see the possibility through targeted reform to improve certain aspects of their Tariff.”

She added that the commission was not ignoring CAISO, MISO and ISO-NE “just because we were feeling charitable around the holidays.”

“MISO and ISO-NE have largely already implemented the best practices that are outlined in the” Section 206 orders, she said. “With respect to the California ISO, I at least, was persuaded … that this line of reform would provide limited benefit for them relative to their other priorities that are going on right now.”

The commission called on all three regions to relax fast-start resources’ economic minimum operating limits by up to 100% so that they are considered dispatchable from zero to their economic maximum operating limit for setting LMPs.

It also said the three RTOs must modify their pricing logic: PJM and SPP to allow the commitment costs of fast-start resources (start-up and no-load costs) to be reflected in prices, and NYISO to make changes capturing units’ start-up costs.

It also said PJM and SPP needed to spell out their rules and practices regarding fast-start pricing in their tariffs, and include in their definitions of quick-start resources a requirement that those resources have a minimum run time of one hour or less.

The commission ordered the regions and other interested parties to file initial briefs within 45 days after the notice of the Section 206 proceedings are published in the Federal Register. Reply briefs are due within 30 days after initial briefs.

The commission took issue with the way the three regions relax fast-start resources’ economic minimum operating limits to allow them to set prices, as detailed below.

PJM Order

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 price by relaxing the economic minimum operating limit of online block-loaded resources by up to 10%.

The commission said PJM’s practices may not be just and reasonable because they don’t allow block-loaded resources’ economic minimum to be relaxed by more than 10% and because they limit the relaxation to only block-loaded resources.

“We remain concerned that without allowing relaxation by up to 100%, prices will sometimes be set by the offers from lower-cost flexible units that are dispatched down in order to accommodate the output of fast-start resources,” FERC said. “As a result, PJM’s practices may not reflect the marginal cost of serving load when a fast-start resource is needed to quickly respond to unforeseen system needs, which may result in inaccurate price signals.”

The commission also found fault with PJM’s dispatch practices.

“An efficient dispatch can only be reliably determined by modeling the actual system costs and actual system constraints within a market run that minimizes production costs. That is, fast-start pricing logic would ideally not change the dispatch of resources away from the cost-minimizing dispatch but would only alter the manner by which prices are established. PJM does not appear to develop real-time dispatch instructions in this way.”

Because PJM’s practice does not respect the “power balance constraint,” FERC said, the RTO “unnecessarily increases the cost of serving load and puts stress on the frequency regulation resources that are necessary for maintaining system reliability.”

In addition, it said PJM should:

• Include in its definition of fast-start resources a requirement that those resources be able to start up within one hour or less (including notification time);
• Apply the relaxation of a resource’s economic minimum operating limit to all fast-start resources, not just block-loaded units; and
• Dispatch fast-start resources “consistent with minimizing production costs, subject to appropriate operational and reliability constraints.”

PJM stakeholders briefly discussed the order at Thursday’s Markets and Reliability Committee meeting. When members considered a proposal from the RTO to evaluate its energy market price formation procedures, American Electric Power’s Brock Ondayko asked if the fast-start order would be part of that evaluation.

Adam Keech, PJM’s executive director of market operations, noted the order’s short window for reply comments and said, “Certainly from our perspective, we would prefer discussion [on that issue] earlier [rather] than later.”

He said he had not been able to digest the order and had “no idea” if any of the procedures agreed upon for the evaluation are “at odds” with it.

Keech urged stakeholders to endorse the evaluation “to get the discussion started.” The proposal received significant revisions but was eventually endorsed.

SPP Order

The commission found SPP’s approach to pricing quick-start resources to be “inconsistent with minimizing production costs.”

FERC said SPP’s real-time balancing market practices for quick-start resources begins with a “screening run” that identifies a set of resources to be excluded from the binding solution. The screening run identifies an economic dispatch solution under the assumption that quick-start resources may be dispatched below their economic minimum operating limit, the commission said.

Any resources that are dispatched below their economic minimum operating limit are treated as “off” and excluded from consideration in the binding pricing and scheduling run. “This means quick-start resources are only considered for dispatch in the pricing and scheduling run if they are dispatched to at least their economic minimum operating limit in the screening run,” FERC said.

A second optimization pass (pricing and scheduling run) is used to determine both the binding resource dispatch levels and energy and operating reserve prices.

The commission noted two other rules that distinguish SPP’s treatment of quick-start resources from other RTOs’ fast-start pricing practices:

• It provides an option for quick-start resources to submit an enhanced energy offer that includes commitment costs (start-up and no-load costs) as part of the incremental cost curve to be used both in the screening run and in the real-time balancing market’s pricing and scheduling run.
• SPP does not have any minimum run time requirement for eligibility as a quick-start resource.

The commissioners said SPP’s practices are not in its Tariff, pointing to the Federal Power Act’s requirement that all practices significantly affecting rates, terms and conditions of service be on file with FERC and included in a commission-accepted Tariff.

“For example, the Tariff does not describe the process by which quick-start resources are screened out within the screening run from participating in dispatch, which appears to have a material effect on electric power rates,” the commission said. “Therefore, our preliminary review indicates that SPP’s practices related to quick-start pricing significantly affect the rates, terms and conditions of service and as such, must be filed with the commission as part of the SPP Tariff.”

The commission said SPP should:

• Commit and dispatch quick-start resources in real time consistent with minimizing production costs, subject to operational and reliability constraints;
• Remove the option for enhanced energy offers for quick-start resources that incorporate commitment costs in the incremental energy curve; and
• Consider both registered and unregistered quick-start resources in quick-start pricing to ensure prices reflect the cost of the marginal resource.

NYISO Order

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.”

The commission noted that in the first pass of the optimization process, NYISO establishes a resource’s physical base points (i.e., real-time energy schedules). In the second pass, also called the pricing run, the ISO relaxes the economic minimum operating limit of fixed block units in order to allow them to be eligible to set prices. When pricing offline fixed block units, the price can also 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 preliminarily found that NYISO’s practice of “differentiating between dispatchable fast-start resources and fixed block units appears to be arbitrary and may result in prices that do not reflect the marginal cost of serving load. NYISO’s practice of allowing only fixed block units to participate in fast-start pricing may also create incentives favoring development of block-loaded resources over dispatchable resources. Furthermore, the practice may create incentives for dispatchable resources to withhold their flexibility from the market.”

While finding that such practices may be unjust and unreasonable, the commission noted that there are methods to address concerns about the “potential consequences of relaxing the economic minimum operating limit of fast-start resources” by up to 100%.