Price Formation in Energy and Ancillary Services Markets Operated by Regional Transmission Organizations and Independent System Operators; Notice Inviting Post-Technical Workshop Comments, 3580-3583 [2015-01139]
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Federal Register / Vol. 80, No. 15 / Friday, January 23, 2015 / Notices
Dated: January 15, 2015.
Kimberly D. Bose,
Secretary.
[FR Doc. 2015–01043 Filed 1–22–15; 8:45 am]
BILLING CODE 6717–01–P
DEPARTMENT OF ENERGY
Federal Energy Regulatory
Commission
[Project No. 14640–000]
tkelley on DSK3SPTVN1PROD with NOTICES
South Maui Pumped Storage, LLC;
Notice of Preliminary Permit
Application Accepted for Filing and
Soliciting Comments, Motions To
Intervene, and Competing Applications
On October 20, 2014, South Maui
Pumped Storage, LLC, filed an
application for a preliminary permit,
pursuant to section 4(f) of the Federal
Power Act (FPA), proposing to study the
feasibility of the South Maui Pumped
Storage Project (South Maui Project or
project) to be located on the Pacific
Ocean, in unincorporated Maui County,
Hawaii. The sole purpose of a
preliminary permit, if issued, is to grant
the permit holder priority to file a
license application during the permit
term. A preliminary permit does not
authorize the permit holder to perform
any land-disturbing activities or
otherwise enter upon lands or waters
owned by others without the owners’
express permission.
The proposed project would consist of
the following new features: (1) Four
400-foot-long, 200-foot-wide, 50-foothigh oval concrete storage tanks; (2) a
12,000-foot-long, 4.5-foot-diameter
buried steel penstock; (3) a 150-footlong, 68-foot-wide concrete
powerhouse; (4) two 15 megawatt (MW)
Pelton turbine/generators; (5) three 10
MW multi-stage variable speed pumps;
(6) an approximately 400-foot-wide,
450-foot-long tailrace/forebay; 1 (7) a
12,000-foot-long, 4.5-foot-diameter
buried steel supply pipeline; (8) two 28kilovolt transmission lines totaling
8,000 feet long, interconnecting with the
existing Sempra Gas and Power-owned
Auwahi wind turbine transmission line;
(9) a 5.6-mile-long paved access road;
and (10) appurtenant facilities. The
estimated annual generation of the
South Maui Project would be 5.2
gigawatt-hours.
Applicant Contact: Mr. Bart O’Keefe,
United Power Corporation, P.O. Box
1 The
tailrace/forebay would be a small
constructed inlet from the Pacific Ocean. Flows
from the turbines would discharge into the tailrace/
forebay. Return flows for filling of the storage tanks
would be pumped from the tailrace/forebay.
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1916, Discovery Bay, California 94505;
phone: (510) 634–1550.
FERC Contact: Sean O’Neill; phone:
(202) 502–6462.
Deadline for filing comments, motions
to intervene, competing applications
(without notices of intent), or notices of
intent to file competing applications: 60
days from the issuance of this notice.
Competing applications and notices of
intent must meet the requirements of 18
CFR 4.36.
The Commission strongly encourages
electronic filing. Please file comments,
motions to intervene, notices of intent,
and competing applications using the
Commission’s eFiling system at https://
www.ferc.gov/docs-filing/efiling.asp.
Commenters can submit brief comments
up to 6,000 characters, without prior
registration, using the eComment system
at https://www.ferc.gov/docs-filing/
ecomment.asp. You must include your
name and contact information at the end
of your comments. For assistance,
please contact FERC Online Support at
FERCOnlineSupport@ferc.gov, (866)
208–3676 (toll free), or (202) 502–8659
(TTY). In lieu of electronic filing, please
send a paper copy to: Secretary, Federal
Energy Regulatory Commission, 888
First Street NE., Washington, DC 20426.
The first page of any filing should
include docket number P–14640–000.
More information about this project,
including a copy of the application, can
be viewed or printed on the ‘‘eLibrary’’
link of Commission’s Web site at
https://www.ferc.gov/docs-filing/
elibrary.asp. Enter the docket number
(P–14640) in the docket number field to
access the document. For assistance,
contact FERC Online Support.
Dated: January 16, 2015.
Kimberly D. Bose,
Secretary.
[FR Doc. 2015–01140 Filed 1–22–15; 8:45 am]
BILLING CODE 6717–01–P
DEPARTMENT OF ENERGY
Federal Energy Regulatory
Commission
[Docket No. AD14–14–000]
Price Formation in Energy and
Ancillary Services Markets Operated
by Regional Transmission
Organizations and Independent
System Operators; Notice Inviting
Post-Technical Workshop Comments
On September 8, October 28, and
December 9, 2014, the Federal Energy
Regulatory Commission (Commission)
staff conducted a series of technical
workshops to evaluate issues regarding
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price formation in the energy and
ancillary services markets operated by
Regional Transmission Organizations
(RTOs) and Independent System
Operators (ISOs) (RTOs/ISOs).
All interested persons are invited to
file post-technical workshop comments
on any or all of the questions listed in
the attachment to this Notice. We
emphasize that commenters need not
answer all of the questions. Commenters
should organize responses consistent
with the structure of the attached
questions and take care to identify to
which RTO/ISO the comment applies.
Commenters are also invited to
reference material previously filed in
this docket, including technical
workshop transcripts. These comments
must be filed with the Commission no
later than 5:00 p.m. Eastern Standard
Time on February 19, 2015.
For more information about this
Notice, please contact:
Mary Wierzbicki (Technical
Information), Office of Energy Policy
and Information, Federal Energy
Regulatory Commission, 888 First
Street NE., Washington, DC 20426,
(202) 502–6337, mary.wierzbicki@
ferc.gov.
Joshua Kirstein (Legal Information),
Federal Energy Regulatory
Commission, 888 First Street NE.,
Washington, DC 20426, (202) 502–
8519, joshua.kirstein@ferc.gov.
Dated: January 16, 2015.
Kimberly D. Bose,
Secretary.
Post-Technical Conference Questions
for Comment
The goals of proper price formation
are to: Maximize market surplus for
consumers and suppliers; provide
correct incentives for parties to follow
commitment and dispatch instructions,
make efficient investments in facilities
and equipment, and maintain reliability;
provide transparency so that market
participants understand how prices
reflect the actual marginal cost of
serving load and the operational
constraints of reliably operating the
system; and ensure that all suppliers
have an opportunity to recover their
costs. With proper price formation, the
RTO/ISO would ideally not need to
commit any additional resources
beyond those resources scheduled
economically through the market
processes, and load would reduce
consumption in response to price
signals such that market prices would
reflect the value of electricity
consumption without the need to curtail
load administratively.
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In reality, RTO/ISO energy and
ancillary services market outcomes are
impacted by a number of technical and
operational considerations.1 At three
workshops on price formation—Uplift
Workshop, held September 8, 2014
(Uplift Workshop); Shortage Pricing,
Offer Price Mitigation, and Offer Price
Caps Workshop, held October 28, 2014
(Shortage Pricing/Mitigation Workshop);
and Operator Actions Workshop, held
December 9, 2014 (Operator Actions
Workshop)—panelists described
software limitations, operational
uncertainty, and limited flexibility of
resources as challenges to achieving
efficient price formation. These
limitations are to some extent inherent
in the complexity of the electric system
and the tools available today to
maintain reliable operations, and are
unlikely to be addressed fully for the
foreseeable future.2
Notwithstanding the foregoing
technical limitations and operational
realities, the Commission believes there
may be opportunities for RTOs/ISOs to
improve the energy and ancillary
service price formation process.
Based on discussions during the three
price formation workshops, Staff
developed the following questions to
better understand the ways in which to
improve price formation in RTOs/ISOs.
When responding to the questions
below, please also comment on any
relevant differences among RTOs/ISOs,
the time needed to implement any
potential solutions, and impediments to
implementing any potential solutions.
1. Offer Caps
High natural gas prices during the
winter of 2013–2014, as discussed at the
price formation workshops, indicated
that the current generic $1,000/MWh
cap on energy offers (‘‘offer cap’’) might
be insufficient to allow natural gas-fired
generators to recover their costs when
natural gas prices spike during
constrained winter periods.
a. Should the $1,000/MWh offer cap
be modified?
i. If the offer cap is modified, what
form should the offer cap take? For
instance, should a modified cap be set
at a level greater than the current
$1,000/MWh cap and apply even if a
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1 Although
the discussion herein focuses on RTO/
ISO markets, similar technical and operational
limitations impact the efficient commitment of
resources by electric utilities operating in other
market structures, such as vertically integrated
utilities.
2 Other efforts, like Staff’s annual meeting with
RTO/ISO operations staff and the annual market
software conference, are intended to make progress
on these longer term issues. See https://
www.ferc.gov/industries/electric/indus-act/marketplanning.asp.
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resource has costs greater than the new
cap or should the offer cap be replaced
with a structure that allows offers at the
higher of marginal cost or the existing
$1,000/MWh cap? Should it be a fixed
cap or a floating cap that varies with the
price of fuel (e.g., natural gas)? If a
modified cap were set as a fixed offer
cap, what should the new offer cap be?
What should be the basis for
determining the fixed offer cap?
ii. If the offer cap should not be
modified or set such that marginal costs
could be greater than $1000/MWh, how
should the Commission ensure that
suppliers with costs greater than the cap
have the opportunity to recover those
costs?
iii. Do the real-time and day-ahead
market clearing processes allow
sufficient time to verify the cost-basis of
the marginal resources that exceed the
offer cap? Does the settlement process
allow sufficient time to verify costs of
resources that receive uplift associated
with offers that exceed the offer cap?
b. What are the advantages and
disadvantages of having offer caps be set
at the same level across all RTOs/ISOs?
Would different offer caps across the
RTOs/ISOs exacerbate interface pricing
issues at RTO/ISO borders? If so, how?
Would an offer cap that takes the form
of the higher of marginal cost or $1,000/
MWh create the same issues as setting
different offer caps across RTOs/ISOs?
c. What impact would adjusting the
offer cap have on other aspects of RTO/
ISO price formation (e.g., mitigation
rules or shortage pricing rules)? Would
other market rule changes be necessary
if offer cap levels were adjusted? Do
other challenges associated with
modifying offer cap rules exist? If so,
what are they? If offer cap rules are
adjusted, how quickly could RTOs/ISOs
incorporate adjusted offer cap rules into
their software and the market clearing
process?
d. Should the same offer cap that
applies to generation also apply to load
bids? What are the advantages and
disadvantages of applying an offer cap
to load bids?
2. Transparency
At the Uplift and Operator Actions
Workshops, some panelists addressed
issues concerning insufficient
transparency of uplift and operator
actions.3 Improved transparency could
3 See, e.g., Operator Actions Workshop, Docket
No. AD14–14–000, Tr. 180:8–183:4 (Dec. 9, 2014);
Uplift Workshop, Docket No. AD14–14–000, Tr.
168:1–16 (Sept. 8, 2014). For this purpose we are
defining uplift credits as payments made to
resources whose commitment and dispatch by an
RTO/ISO result in a shortfall between the resource’s
offer and the revenue earned through market
clearing prices.
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inform resource entry and exit and
market rule discussions; improved
transparency could also improve market
understanding, predictability, and
confidence.
a. What should RTOs/ISOs do to
improve transparency of uplift credits
and charges, unit commitment, and
other operator actions? Please comment
on the type of information that would be
useful, why it is necessary, whether it
should be shared with specific resources
or available to all, the timing of its
release, and whether it is feasible to
release the information in real-time.
b. What types of information should
not be shared publicly? Why? What are
the concerns with commercially
sensitive information?
c. Commission Staff’s August 2014
report on uplift noted several issues
with the consistency and granularity of
uplift data provided as part of the
Electric Quarterly Reports.4 What steps
could be taken to improve the quality of
uplift data required to be reported as
part of the Electric Quarterly Reports?
3. Pricing Fast-Start Resources
Commission Staff’s December 2014
paper about operator-initiated
commitments discussed how RTOs/
ISOs relax the minimum operating level
of resources to make certain blockloaded fast-start resources appear
dispatchable to the pricing software,
and thus eligible to set the market
clearing price as the marginal resource.5
The paper also discussed how some
RTOs/ISOs have modified the locational
marginal price (LMP) framework to
include start-up and no-load costs of
certain fast start resources (e.g., New
York Independent System Operator,
Inc.’s (NYISO’s) Hybrid Pricing).6
a. During the Operator Actions
Workshop, panelists explained that
relaxing resource minimum operating
limits can lead to incentive and
operational issues such as overgeneration.7 What tradeoffs are involved
with relaxing the minimum operating
limits of block-loaded resources to zero
for purposes of price setting? Should
relaxing the minimum operating level
be limited to block-loaded fast-start
4 FERC, Staff Analysis of Uplift in RTO and ISO
Markets, Docket No. AD14–14–000, at 21–28 (Aug.
2014), available at https://www.ferc.gov/legal/staffreports/2014/08-13-14-uplift.pdf.
5 FERC, Price Formation in Organized Wholesale
Electricity Markets: Staff Analysis of OperatorInitiated Commitments in RTO and ISO Markets,
Docket No. AD14–14–000, at 28–30 (Dec. 2014),
available at https://www.ferc.gov/legal/staff-reports/
2014/AD14-14-operator-actions.pdf.
6 Id.
7 Operator Actions Workshop, Docket No. AD14–
14–000, Tr. 282:9–25 (Dec. 9, 2014).
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resources, or should relaxation be
available to a larger set of resources?
b. What are the merits of expanding
the set of costs included in the energy
component of LMP (i.e., start-up and noload costs)? What factors should be
considered when expanding the set of
costs included in the energy component
of LMP? If the start-up and no-load costs
of block-loaded fast-start resources are
included in the LMP, how should they
be included? For example, should startup costs only be included during
intervals when the resource starts up?
c. Should off-line resources be eligible
to set the LMP? If so, should start-up
and no-load costs be included in the
price, or just incremental energy costs?
4. Settlement Intervals
Panelists at the Shortage Pricing/
Mitigation and Operator Actions
Workshops generally supported subhourly, rather than hourly, settlement
intervals as providing better incentives
for resources to perform during shortage
events and to make investments to
enhance resource flexibility.8
a. What are the advantages and
disadvantages of moving to sub-hourly
settlements for the real-time market as
they relate to price signals, market
efficiency, and operations?
b. What metering and RTO/ISO
software changes would be needed to
change settlement intervals from hourly
to sub-hourly for the real-time market,
and how long would these changes take
to implement? Are there significant
costs to RTOs/ISOs, and to market
participants, of such changes? Are there
any other impediments to adjusting
settlement intervals?
c. What are the advantages and
disadvantages of changing from hourly
to sub-hourly settlements in the dayahead market?
5. New Products To Incent Flexibility
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Flexible resources that are capable of
ramping up and down and/or starting
up quickly provide value to the electric
system. Panelists at the Operator
Actions Workshop said that market
designs which reward flexibility may
stimulate investment in flexible
capacity and provide resources more
incentive to submit flexible offers.9 One
panelist at the Operator Actions
Workshop commented that existing
8 See Operator Actions Workshop, Docket No.
AD14–14–000, Tr. 253:23–254:2 (Dec. 9, 2014);
Scarcity and Shortage Pricing, Offer Mitigation and
Offer Price Caps Workshop, Docket No. AD14–14–
000, Tr. 52:21–22, 53:11–16, 54:10–17 (Oct. 28,
2014).
9 Operator Actions Workshop, Docket No. AD14–
14–000, Tr. 149:7–11; 151:3–6; 291:6–8 (Dec. 9,
2014).
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market rules can create disincentives for
resources to submit supply offers that
reflect the full flexibility (for example,
ramp rate, minimum run time,
minimum operating level, maximum
operating level, minimum down time) of
their resources.10 In addition, panelists
at the workshops discussed the need for
locational reserve products to better
reflect local needs for flexibility.
a. How do RTOs/ISOs currently
ensure that they will have sufficient
flexibility during real-time? Specifically,
to what extent are residual unit
commitments used to acquire
anticipated needed flexibility?
b. How are flexible resources
compensated for the value that they
provide to the system? Does that
compensation reflect the value? Why or
why not? If compensation to flexible
resources does not reflect their value,
how should RTOs/ISOs compensate
flexible resources for the service they
provide?
c. What are the tradeoffs between
sending a price signal through a shortduration shortage event versus
establishing a ramping product that is
priced separately?
d. What are the tradeoffs among
procuring flexibility through unit
commitments (e.g., headroom
requirements) rather than through the
ten-minute reserve products or through
ramp products?
e. Does allowing combined-cycle
natural gas resources to submit different
offers for different configurations
facilitate more efficient price
formation? 11 What are the advantages
and disadvantages to generators of
bidding these configurations?
6. Operating Reserve Zones
A lack of sufficiently granular reserve
zones could be muting efficient price
signals. At the Shortage Pricing/
Mitigation workshop, the NYISO
panelist noted that NYISO is
considering establishing a new reserve
zone 12 and the PJM Interconnection,
L.L.C. (PJM) external market monitor
indicated that he believed PJM’s
shortage pricing rules were not
sufficiently locational. For instance, last
year PJM experienced shortages in the
American Transmission System, Inc.
(ATSI) footprint that did not trigger
shortage pricing because the ATSI zone
is not a reserve zone.13
10 See
id. at 291:9–22.
e.g., Cal. Indep. Sys. Operator Corp., 132
FERC ¶ 61,087, order on compliance filing, 132
FERC ¶ 61,273 (2010).
12 Scarcity and Shortage Pricing, Offer Mitigation
and Offer Caps Workshop, Docket No. AD14–14–
000, Tr.21:16–21 (Oct. 28, 2014).
13 Id. at 133:6–15.
11 See,
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a. How does the establishment,
elimination or reconfiguration of reserve
zones affect price formation? What
should the triggers be? From experience,
do the RTOs/ISOs have the appropriate
reserve zones defined? Are additional,
fewer, or different reserve zones
needed?
b. Are processes in place for adding,
removing, or changing reserve zones
adequate for efficient price formation?
7. Uplift Allocation
Uplift allocation rules might impact
resource participation decisions in
RTO/ISO markets. For example, uplift
allocation rules might incent
participation in day-ahead markets or
drive decisions on how to use financial
products.
a. Do uplift allocation rules reflect
cost causation or mute potential
investment signals? If so, how?
b. What philosophy should govern
uplift allocation? Do any of the RTOs/
ISOs have a best practice? What is it and
why is it a best practice?
c. Should uplift allocation categories
reflect the reasons for committing a unit
and incurring uplift? Would disclosing
these reasons through publicly available
data improve uplift transparency and
provide information to facilitate
modifications of the allocation of uplift
costs?
8. Market and Modeling Enhancements
At the Uplift and Operator Actions
Workshops, panelists highlighted
various drivers of persistent,
concentrated uplift and operator
actions, including constraints that are
not incorporated into market models.14
Panelists also noted that certain
constraints are difficult to model
accurately or to incorporate into both
the day-ahead and real-time market
models.15 These include local voltage
constraints and reliability constraints
such as N–1–1 contingency
constraints.16
a. Assuming that RTOs/ISOs should
improve their market models to better
reflect the cost of honoring reliability
constraints in energy and ancillary
services market clearing prices, what
types of constraints should RTOs/ISOs
include in their market models, and
14 See, e.g., Uplift Workshop, Docket No. AD14–
14–000, Tr. 49:7–11 (Sept. 8, 2014); Operator
Actions Workshop, Docket No. AD14–14–000, Tr.
16:5–18 (Dec. 9, 2014).
15 See, e.g., Uplift Workshop, Docket No. AD14–
14–000, Tr. 192:12–18 (Sept. 8, 2014); Operator
Actions Workshop, Docket No. AD14–14–000, Tr.
21:7–23 (Dec. 9, 2014).
16 An N–1–1 contingency constraint is a
constraint to ensure that following any single
contingency (N–1), the system can withstand any
other contingency (N–1–1).
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what types of constraints should be
handled by manual commitments? Of
those reliability constraints that should
be in the market models, which
reliability constraints should RTOs/ISOs
prioritize?
b. In 2013, ISO New England Inc.
(ISO–NE) increased its replacement
reserve requirement to ‘‘reduce the need
to schedule additional resources above
the load and reserve requirements’’ in
its Reserve Adequacy Analysis.17 PJM
has a similar proposal to increase dayahead and real-time reserve
requirements when extreme weather is
expected.18 In what circumstances can
such practices improve efficiency of
price formation?
c. Do transmission constraint
relaxation penalty factors improve the
efficiency of price formation? 19 If so,
should these penalty factors be allowed
to set the energy price if a transmission
constraint is relaxed?
d. Are there any new constraints that
represent other physical characteristics
of the system (with corresponding
penalty factors), such as N–1–1
reliability constraints, that could be
included in the model to improve the
efficiency of price formation? If so, what
types of constraints should be included
and how should the penalty factors be
determined?
e. Should RTOs/ISOs create new
products that procure the capacity
necessary to address reliability
constraints that cannot be captured in
market models? If so, what should these
products look like, and what process
should RTOs/ISOs use to design these
products?
f. In some cases, creating new
products to satisfy system needs (e.g.,
ramp capability, local reliability
product, or additional reserves to
account for operational uncertainty)
may amount to procuring a level of
spinning or non-spinning reserves above
the mandatory reliability requirement. If
the ‘‘new product’’ can be satisfied by
an existing ancillary service product
(e.g., ten minute reserves), is it
necessary to create a new and separate
product with its own price and cooptimization? Rather than developing a
new product, could RTOs/ISOs change
the cost allocation of any additional
17 ISO–NE., Transmittal Letter, Docket No. ER13–
1736–000 at 10 (filed June 20, 2013).
18 PJM Tariff Filing, Docket No. ER15–643–000
(filed December 17, 2014).
19 Transmission constraint penalty factors are
parameters within the market model that place a
cost, known as a penalty factor, on a transmission
constraint. These parameters allow the model to
‘‘relax’’ the transmission constraint for a short time
at a cost equal to the penalty factor, allowing flow
over a given transmission element to exceed its
normal limit.
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ancillary services procured above the
mandatory reliability requirement?
9. Shortage Prices
In the questions below, the term
‘‘shortage pricing’’ refers generically to
any pricing action taken in response to
a shortage event. Not all RTOs/ISOs use
this phrase in the same way.20 In
responding to the questions below,
please define terms and distinguish
between ‘‘shortage pricing’’ and
‘‘scarcity pricing,’’ if such a distinction
is intended.
a. What principles should be used to
establish shortage price levels? Should
there be one price for any shortage or a
set of escalating prices for greater levels
of shortage? Is it important to have
shortage price levels consistent across
adjacent RTOs/ISOs to avoid seams
issues?
b. What are the advantages and
disadvantages of implementing shortage
pricing in the day-ahead market as well
as in the real-time market? If shortage
pricing is established only in the realtime market but not in the day-ahead
market, are other policies needed to
facilitate price convergence between the
day-ahead and real-time markets during
periods of shortage? If so, what are these
other policies? If not, why not?
10. Transient Shortage Events
At the Shortage Pricing/Mitigation
Workshop, panelists stated different
positions regarding pricing transient, or
short-duration, shortage events.21
Transient shortage events are shortage
events that last only a short time,
perhaps as short as one or two fiveminute dispatch intervals.22 For
instance, PJM’s market clearing process
will not invoke shortage pricing if it can
resolve the shortage within a certain
time.23 However, even transient
shortage events need a price signal to
provide incentives to develop
capabilities to respond to the shortage.24
a. Should there be a minimum
duration for a shortage event before it
triggers shortage pricing? Why or why
not? How would one determine that
minimum time, and how does it relate
to the settlement interval?
b. Do RTO/ISO rules regarding
transient shortage events result in
appropriate price signals? Why or why
not? To the extent possible, please
provide empirical evidence supporting
your answer.
20 See, e.g., Scarcity and Shortage Pricing, Offer
Mitigation and Offer Price Caps Workshop, Docket
No. AD14–14–000, Tr. 20:1–21:7 (Oct. 28, 2014).
21 Id. at 38:19–51:8.
22 Id. at 40:19–24; 41:7–10; 44:16–23; 46:1–6.
23 Id. at 48:5–12.
24 Id. at 47:7–11.
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c. Should treatment of transient
shortages be consistent across all RTOs/
ISOs? Why or why not?
11. Interchange Uncertainty
Due to the lag between price signals
and interchange scheduling for import
and export transactions, trade between
RTOs/ISOs can result in volatile prices
and variable system conditions because
the ability of importers to schedule
flows across the seam can lag behind
actual system needs, creating
uncertainty in interchange and
contributing to operational issues.25
Several RTOs/ISOs have instituted new
rules, such as NYISO’s and PJM’s
Coordinated Transaction Scheduling
(CTS), which attempt to better
coordinate interchange schedules and
price signals in order to improve interRTO/ISO flows.
a. What can the RTOs/ISOs do to
reduce interchange uncertainty? Does
CTS help to reduce the uncertainty in
interchange created by the lag between
price posting and interchange
schedules? Does the ability to reduce
uncertainty depend on whether all
interchange spread bids are
incorporated into the RTO/ISO dispatch
model (as proposed for the CTS
implementation between NYISO and
ISO–NE) rather than simply allowing
interchange spread bids on a voluntary
basis (as proposed for the CTS
implementation between NYISO and
PJM)? Are there other steps that should
be taken to reduce interchange
uncertainty?
b. What information do market
participants need to better respond to
interchange price signals?
12. Next Steps
a. Are there other price formation
issues that, if addressed, would improve
energy and ancillary services price
formation in RTO/ISO markets? What
are they?
b. What are the highest-priority price
formation issues to address? Is the
priority of issues different in different
RTO/ISO markets? If so, what are the
priorities for each RTO/ISO and are the
RTOs/ISOs currently addressing those
issues sufficiently?
[FR Doc. 2015–01139 Filed 1–22–15; 8:45 am]
BILLING CODE 6717–01–P
25 See, e.g., the experience of Midcontinent
System Operator, Inc. and PJM on July 6, 2012 as
discussed in FERC, Price Formation in Organized
Wholesale Electricity Markets: Staff Analysis of
Shortage Pricing, Docket No. AD14–14–000, at 21–
22 (Oct. 2014), available at https://www.ferc.gov/
legal/staff-reports/2014/AD14-14-pricing-rto-isomarkets.pdf.
E:\FR\FM\23JAN1.SGM
23JAN1
Agencies
[Federal Register Volume 80, Number 15 (Friday, January 23, 2015)]
[Notices]
[Pages 3580-3583]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2015-01139]
-----------------------------------------------------------------------
DEPARTMENT OF ENERGY
Federal Energy Regulatory Commission
[Docket No. AD14-14-000]
Price Formation in Energy and Ancillary Services Markets Operated
by Regional Transmission Organizations and Independent System
Operators; Notice Inviting Post-Technical Workshop Comments
On September 8, October 28, and December 9, 2014, the Federal
Energy Regulatory Commission (Commission) staff conducted a series of
technical workshops to evaluate issues regarding price formation in the
energy and ancillary services markets operated by Regional Transmission
Organizations (RTOs) and Independent System Operators (ISOs) (RTOs/
ISOs).
All interested persons are invited to file post-technical workshop
comments on any or all of the questions listed in the attachment to
this Notice. We emphasize that commenters need not answer all of the
questions. Commenters should organize responses consistent with the
structure of the attached questions and take care to identify to which
RTO/ISO the comment applies. Commenters are also invited to reference
material previously filed in this docket, including technical workshop
transcripts. These comments must be filed with the Commission no later
than 5:00 p.m. Eastern Standard Time on February 19, 2015.
For more information about this Notice, please contact:
Mary Wierzbicki (Technical Information), Office of Energy Policy and
Information, Federal Energy Regulatory Commission, 888 First Street
NE., Washington, DC 20426, (202) 502-6337, mary.wierzbicki@ferc.gov.
Joshua Kirstein (Legal Information), Federal Energy Regulatory
Commission, 888 First Street NE., Washington, DC 20426, (202) 502-8519,
joshua.kirstein@ferc.gov.
Dated: January 16, 2015.
Kimberly D. Bose,
Secretary.
Post-Technical Conference Questions for Comment
The goals of proper price formation are to: Maximize market surplus
for consumers and suppliers; provide correct incentives for parties to
follow commitment and dispatch instructions, make efficient investments
in facilities and equipment, and maintain reliability; provide
transparency so that market participants understand how prices reflect
the actual marginal cost of serving load and the operational
constraints of reliably operating the system; and ensure that all
suppliers have an opportunity to recover their costs. With proper price
formation, the RTO/ISO would ideally not need to commit any additional
resources beyond those resources scheduled economically through the
market processes, and load would reduce consumption in response to
price signals such that market prices would reflect the value of
electricity consumption without the need to curtail load
administratively.
[[Page 3581]]
In reality, RTO/ISO energy and ancillary services market outcomes
are impacted by a number of technical and operational
considerations.\1\ At three workshops on price formation--Uplift
Workshop, held September 8, 2014 (Uplift Workshop); Shortage Pricing,
Offer Price Mitigation, and Offer Price Caps Workshop, held October 28,
2014 (Shortage Pricing/Mitigation Workshop); and Operator Actions
Workshop, held December 9, 2014 (Operator Actions Workshop)--panelists
described software limitations, operational uncertainty, and limited
flexibility of resources as challenges to achieving efficient price
formation. These limitations are to some extent inherent in the
complexity of the electric system and the tools available today to
maintain reliable operations, and are unlikely to be addressed fully
for the foreseeable future.\2\
---------------------------------------------------------------------------
\1\ Although the discussion herein focuses on RTO/ISO markets,
similar technical and operational limitations impact the efficient
commitment of resources by electric utilities operating in other
market structures, such as vertically integrated utilities.
\2\ Other efforts, like Staff's annual meeting with RTO/ISO
operations staff and the annual market software conference, are
intended to make progress on these longer term issues. See https://www.ferc.gov/industries/electric/indus-act/market-planning.asp.
---------------------------------------------------------------------------
Notwithstanding the foregoing technical limitations and operational
realities, the Commission believes there may be opportunities for RTOs/
ISOs to improve the energy and ancillary service price formation
process.
Based on discussions during the three price formation workshops,
Staff developed the following questions to better understand the ways
in which to improve price formation in RTOs/ISOs. When responding to
the questions below, please also comment on any relevant differences
among RTOs/ISOs, the time needed to implement any potential solutions,
and impediments to implementing any potential solutions.
1. Offer Caps
High natural gas prices during the winter of 2013-2014, as
discussed at the price formation workshops, indicated that the current
generic $1,000/MWh cap on energy offers (``offer cap'') might be
insufficient to allow natural gas-fired generators to recover their
costs when natural gas prices spike during constrained winter periods.
a. Should the $1,000/MWh offer cap be modified?
i. If the offer cap is modified, what form should the offer cap
take? For instance, should a modified cap be set at a level greater
than the current $1,000/MWh cap and apply even if a resource has costs
greater than the new cap or should the offer cap be replaced with a
structure that allows offers at the higher of marginal cost or the
existing $1,000/MWh cap? Should it be a fixed cap or a floating cap
that varies with the price of fuel (e.g., natural gas)? If a modified
cap were set as a fixed offer cap, what should the new offer cap be?
What should be the basis for determining the fixed offer cap?
ii. If the offer cap should not be modified or set such that
marginal costs could be greater than $1000/MWh, how should the
Commission ensure that suppliers with costs greater than the cap have
the opportunity to recover those costs?
iii. Do the real-time and day-ahead market clearing processes allow
sufficient time to verify the cost-basis of the marginal resources that
exceed the offer cap? Does the settlement process allow sufficient time
to verify costs of resources that receive uplift associated with offers
that exceed the offer cap?
b. What are the advantages and disadvantages of having offer caps
be set at the same level across all RTOs/ISOs? Would different offer
caps across the RTOs/ISOs exacerbate interface pricing issues at RTO/
ISO borders? If so, how? Would an offer cap that takes the form of the
higher of marginal cost or $1,000/MWh create the same issues as setting
different offer caps across RTOs/ISOs?
c. What impact would adjusting the offer cap have on other aspects
of RTO/ISO price formation (e.g., mitigation rules or shortage pricing
rules)? Would other market rule changes be necessary if offer cap
levels were adjusted? Do other challenges associated with modifying
offer cap rules exist? If so, what are they? If offer cap rules are
adjusted, how quickly could RTOs/ISOs incorporate adjusted offer cap
rules into their software and the market clearing process?
d. Should the same offer cap that applies to generation also apply
to load bids? What are the advantages and disadvantages of applying an
offer cap to load bids?
2. Transparency
At the Uplift and Operator Actions Workshops, some panelists
addressed issues concerning insufficient transparency of uplift and
operator actions.\3\ Improved transparency could inform resource entry
and exit and market rule discussions; improved transparency could also
improve market understanding, predictability, and confidence.
---------------------------------------------------------------------------
\3\ See, e.g., Operator Actions Workshop, Docket No. AD14-14-
000, Tr. 180:8-183:4 (Dec. 9, 2014); Uplift Workshop, Docket No.
AD14-14-000, Tr. 168:1-16 (Sept. 8, 2014). For this purpose we are
defining uplift credits as payments made to resources whose
commitment and dispatch by an RTO/ISO result in a shortfall between
the resource's offer and the revenue earned through market clearing
prices.
---------------------------------------------------------------------------
a. What should RTOs/ISOs do to improve transparency of uplift
credits and charges, unit commitment, and other operator actions?
Please comment on the type of information that would be useful, why it
is necessary, whether it should be shared with specific resources or
available to all, the timing of its release, and whether it is feasible
to release the information in real-time.
b. What types of information should not be shared publicly? Why?
What are the concerns with commercially sensitive information?
c. Commission Staff's August 2014 report on uplift noted several
issues with the consistency and granularity of uplift data provided as
part of the Electric Quarterly Reports.\4\ What steps could be taken to
improve the quality of uplift data required to be reported as part of
the Electric Quarterly Reports?
---------------------------------------------------------------------------
\4\ FERC, Staff Analysis of Uplift in RTO and ISO Markets,
Docket No. AD14-14-000, at 21-28 (Aug. 2014), available at https://www.ferc.gov/legal/staff-reports/2014/08-13-14-uplift.pdf.
---------------------------------------------------------------------------
3. Pricing Fast-Start Resources
Commission Staff's December 2014 paper about operator-initiated
commitments discussed how RTOs/ISOs relax the minimum operating level
of resources to make certain block-loaded fast-start resources appear
dispatchable to the pricing software, and thus eligible to set the
market clearing price as the marginal resource.\5\ The paper also
discussed how some RTOs/ISOs have modified the locational marginal
price (LMP) framework to include start-up and no-load costs of certain
fast start resources (e.g., New York Independent System Operator,
Inc.'s (NYISO's) Hybrid Pricing).\6\
---------------------------------------------------------------------------
\5\ FERC, Price Formation in Organized Wholesale Electricity
Markets: Staff Analysis of Operator-Initiated Commitments in RTO and
ISO Markets, Docket No. AD14-14-000, at 28-30 (Dec. 2014), available
at https://www.ferc.gov/legal/staff-reports/2014/AD14-14-operator-actions.pdf.
\6\ Id.
---------------------------------------------------------------------------
a. During the Operator Actions Workshop, panelists explained that
relaxing resource minimum operating limits can lead to incentive and
operational issues such as over-generation.\7\ What tradeoffs are
involved with relaxing the minimum operating limits of block-loaded
resources to zero for purposes of price setting? Should relaxing the
minimum operating level be limited to block-loaded fast-start
[[Page 3582]]
resources, or should relaxation be available to a larger set of
resources?
---------------------------------------------------------------------------
\7\ Operator Actions Workshop, Docket No. AD14-14-000, Tr.
282:9-25 (Dec. 9, 2014).
---------------------------------------------------------------------------
b. What are the merits of expanding the set of costs included in
the energy component of LMP (i.e., start-up and no-load costs)? What
factors should be considered when expanding the set of costs included
in the energy component of LMP? If the start-up and no-load costs of
block-loaded fast-start resources are included in the LMP, how should
they be included? For example, should start-up costs only be included
during intervals when the resource starts up?
c. Should off-line resources be eligible to set the LMP? If so,
should start-up and no-load costs be included in the price, or just
incremental energy costs?
4. Settlement Intervals
Panelists at the Shortage Pricing/Mitigation and Operator Actions
Workshops generally supported sub-hourly, rather than hourly,
settlement intervals as providing better incentives for resources to
perform during shortage events and to make investments to enhance
resource flexibility.\8\
---------------------------------------------------------------------------
\8\ See Operator Actions Workshop, Docket No. AD14-14-000, Tr.
253:23-254:2 (Dec. 9, 2014); Scarcity and Shortage Pricing, Offer
Mitigation and Offer Price Caps Workshop, Docket No. AD14-14-000,
Tr. 52:21-22, 53:11-16, 54:10-17 (Oct. 28, 2014).
---------------------------------------------------------------------------
a. What are the advantages and disadvantages of moving to sub-
hourly settlements for the real-time market as they relate to price
signals, market efficiency, and operations?
b. What metering and RTO/ISO software changes would be needed to
change settlement intervals from hourly to sub-hourly for the real-time
market, and how long would these changes take to implement? Are there
significant costs to RTOs/ISOs, and to market participants, of such
changes? Are there any other impediments to adjusting settlement
intervals?
c. What are the advantages and disadvantages of changing from
hourly to sub-hourly settlements in the day-ahead market?
5. New Products To Incent Flexibility
Flexible resources that are capable of ramping up and down and/or
starting up quickly provide value to the electric system. Panelists at
the Operator Actions Workshop said that market designs which reward
flexibility may stimulate investment in flexible capacity and provide
resources more incentive to submit flexible offers.\9\ One panelist at
the Operator Actions Workshop commented that existing market rules can
create disincentives for resources to submit supply offers that reflect
the full flexibility (for example, ramp rate, minimum run time, minimum
operating level, maximum operating level, minimum down time) of their
resources.\10\ In addition, panelists at the workshops discussed the
need for locational reserve products to better reflect local needs for
flexibility.
---------------------------------------------------------------------------
\9\ Operator Actions Workshop, Docket No. AD14-14-000, Tr.
149:7-11; 151:3-6; 291:6-8 (Dec. 9, 2014).
\10\ See id. at 291:9-22.
---------------------------------------------------------------------------
a. How do RTOs/ISOs currently ensure that they will have sufficient
flexibility during real-time? Specifically, to what extent are residual
unit commitments used to acquire anticipated needed flexibility?
b. How are flexible resources compensated for the value that they
provide to the system? Does that compensation reflect the value? Why or
why not? If compensation to flexible resources does not reflect their
value, how should RTOs/ISOs compensate flexible resources for the
service they provide?
c. What are the tradeoffs between sending a price signal through a
short-duration shortage event versus establishing a ramping product
that is priced separately?
d. What are the tradeoffs among procuring flexibility through unit
commitments (e.g., headroom requirements) rather than through the ten-
minute reserve products or through ramp products?
e. Does allowing combined-cycle natural gas resources to submit
different offers for different configurations facilitate more efficient
price formation? \11\ What are the advantages and disadvantages to
generators of bidding these configurations?
---------------------------------------------------------------------------
\11\ See, e.g., Cal. Indep. Sys. Operator Corp., 132 FERC ]
61,087, order on compliance filing, 132 FERC ] 61,273 (2010).
---------------------------------------------------------------------------
6. Operating Reserve Zones
A lack of sufficiently granular reserve zones could be muting
efficient price signals. At the Shortage Pricing/Mitigation workshop,
the NYISO panelist noted that NYISO is considering establishing a new
reserve zone \12\ and the PJM Interconnection, L.L.C. (PJM) external
market monitor indicated that he believed PJM's shortage pricing rules
were not sufficiently locational. For instance, last year PJM
experienced shortages in the American Transmission System, Inc. (ATSI)
footprint that did not trigger shortage pricing because the ATSI zone
is not a reserve zone.\13\
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\12\ Scarcity and Shortage Pricing, Offer Mitigation and Offer
Caps Workshop, Docket No. AD14-14-000, Tr.21:16-21 (Oct. 28, 2014).
\13\ Id. at 133:6-15.
---------------------------------------------------------------------------
a. How does the establishment, elimination or reconfiguration of
reserve zones affect price formation? What should the triggers be? From
experience, do the RTOs/ISOs have the appropriate reserve zones
defined? Are additional, fewer, or different reserve zones needed?
b. Are processes in place for adding, removing, or changing reserve
zones adequate for efficient price formation?
7. Uplift Allocation
Uplift allocation rules might impact resource participation
decisions in RTO/ISO markets. For example, uplift allocation rules
might incent participation in day-ahead markets or drive decisions on
how to use financial products.
a. Do uplift allocation rules reflect cost causation or mute
potential investment signals? If so, how?
b. What philosophy should govern uplift allocation? Do any of the
RTOs/ISOs have a best practice? What is it and why is it a best
practice?
c. Should uplift allocation categories reflect the reasons for
committing a unit and incurring uplift? Would disclosing these reasons
through publicly available data improve uplift transparency and provide
information to facilitate modifications of the allocation of uplift
costs?
8. Market and Modeling Enhancements
At the Uplift and Operator Actions Workshops, panelists highlighted
various drivers of persistent, concentrated uplift and operator
actions, including constraints that are not incorporated into market
models.\14\ Panelists also noted that certain constraints are difficult
to model accurately or to incorporate into both the day-ahead and real-
time market models.\15\ These include local voltage constraints and
reliability constraints such as N-1-1 contingency constraints.\16\
---------------------------------------------------------------------------
\14\ See, e.g., Uplift Workshop, Docket No. AD14-14-000, Tr.
49:7-11 (Sept. 8, 2014); Operator Actions Workshop, Docket No. AD14-
14-000, Tr. 16:5-18 (Dec. 9, 2014).
\15\ See, e.g., Uplift Workshop, Docket No. AD14-14-000, Tr.
192:12-18 (Sept. 8, 2014); Operator Actions Workshop, Docket No.
AD14-14-000, Tr. 21:7-23 (Dec. 9, 2014).
\16\ An N-1-1 contingency constraint is a constraint to ensure
that following any single contingency (N-1), the system can
withstand any other contingency (N-1-1).
---------------------------------------------------------------------------
a. Assuming that RTOs/ISOs should improve their market models to
better reflect the cost of honoring reliability constraints in energy
and ancillary services market clearing prices, what types of
constraints should RTOs/ISOs include in their market models, and
[[Page 3583]]
what types of constraints should be handled by manual commitments? Of
those reliability constraints that should be in the market models,
which reliability constraints should RTOs/ISOs prioritize?
b. In 2013, ISO New England Inc. (ISO-NE) increased its replacement
reserve requirement to ``reduce the need to schedule additional
resources above the load and reserve requirements'' in its Reserve
Adequacy Analysis.\17\ PJM has a similar proposal to increase day-ahead
and real-time reserve requirements when extreme weather is
expected.\18\ In what circumstances can such practices improve
efficiency of price formation?
---------------------------------------------------------------------------
\17\ ISO-NE., Transmittal Letter, Docket No. ER13-1736-000 at 10
(filed June 20, 2013).
\18\ PJM Tariff Filing, Docket No. ER15-643-000 (filed December
17, 2014).
---------------------------------------------------------------------------
c. Do transmission constraint relaxation penalty factors improve
the efficiency of price formation? \19\ If so, should these penalty
factors be allowed to set the energy price if a transmission constraint
is relaxed?
---------------------------------------------------------------------------
\19\ Transmission constraint penalty factors are parameters
within the market model that place a cost, known as a penalty
factor, on a transmission constraint. These parameters allow the
model to ``relax'' the transmission constraint for a short time at a
cost equal to the penalty factor, allowing flow over a given
transmission element to exceed its normal limit.
---------------------------------------------------------------------------
d. Are there any new constraints that represent other physical
characteristics of the system (with corresponding penalty factors),
such as N-1-1 reliability constraints, that could be included in the
model to improve the efficiency of price formation? If so, what types
of constraints should be included and how should the penalty factors be
determined?
e. Should RTOs/ISOs create new products that procure the capacity
necessary to address reliability constraints that cannot be captured in
market models? If so, what should these products look like, and what
process should RTOs/ISOs use to design these products?
f. In some cases, creating new products to satisfy system needs
(e.g., ramp capability, local reliability product, or additional
reserves to account for operational uncertainty) may amount to
procuring a level of spinning or non-spinning reserves above the
mandatory reliability requirement. If the ``new product'' can be
satisfied by an existing ancillary service product (e.g., ten minute
reserves), is it necessary to create a new and separate product with
its own price and co-optimization? Rather than developing a new
product, could RTOs/ISOs change the cost allocation of any additional
ancillary services procured above the mandatory reliability
requirement?
9. Shortage Prices
In the questions below, the term ``shortage pricing'' refers
generically to any pricing action taken in response to a shortage
event. Not all RTOs/ISOs use this phrase in the same way.\20\ In
responding to the questions below, please define terms and distinguish
between ``shortage pricing'' and ``scarcity pricing,'' if such a
distinction is intended.
---------------------------------------------------------------------------
\20\ See, e.g., Scarcity and Shortage Pricing, Offer Mitigation
and Offer Price Caps Workshop, Docket No. AD14-14-000, Tr. 20:1-21:7
(Oct. 28, 2014).
---------------------------------------------------------------------------
a. What principles should be used to establish shortage price
levels? Should there be one price for any shortage or a set of
escalating prices for greater levels of shortage? Is it important to
have shortage price levels consistent across adjacent RTOs/ISOs to
avoid seams issues?
b. What are the advantages and disadvantages of implementing
shortage pricing in the day-ahead market as well as in the real-time
market? If shortage pricing is established only in the real-time market
but not in the day-ahead market, are other policies needed to
facilitate price convergence between the day-ahead and real-time
markets during periods of shortage? If so, what are these other
policies? If not, why not?
10. Transient Shortage Events
At the Shortage Pricing/Mitigation Workshop, panelists stated
different positions regarding pricing transient, or short-duration,
shortage events.\21\ Transient shortage events are shortage events that
last only a short time, perhaps as short as one or two five-minute
dispatch intervals.\22\ For instance, PJM's market clearing process
will not invoke shortage pricing if it can resolve the shortage within
a certain time.\23\ However, even transient shortage events need a
price signal to provide incentives to develop capabilities to respond
to the shortage.\24\
---------------------------------------------------------------------------
\21\ Id. at 38:19-51:8.
\22\ Id. at 40:19-24; 41:7-10; 44:16-23; 46:1-6.
\23\ Id. at 48:5-12.
\24\ Id. at 47:7-11.
---------------------------------------------------------------------------
a. Should there be a minimum duration for a shortage event before
it triggers shortage pricing? Why or why not? How would one determine
that minimum time, and how does it relate to the settlement interval?
b. Do RTO/ISO rules regarding transient shortage events result in
appropriate price signals? Why or why not? To the extent possible,
please provide empirical evidence supporting your answer.
c. Should treatment of transient shortages be consistent across all
RTOs/ISOs? Why or why not?
11. Interchange Uncertainty
Due to the lag between price signals and interchange scheduling for
import and export transactions, trade between RTOs/ISOs can result in
volatile prices and variable system conditions because the ability of
importers to schedule flows across the seam can lag behind actual
system needs, creating uncertainty in interchange and contributing to
operational issues.\25\ Several RTOs/ISOs have instituted new rules,
such as NYISO's and PJM's Coordinated Transaction Scheduling (CTS),
which attempt to better coordinate interchange schedules and price
signals in order to improve inter-RTO/ISO flows.
---------------------------------------------------------------------------
\25\ See, e.g., the experience of Midcontinent System Operator,
Inc. and PJM on July 6, 2012 as discussed in FERC, Price Formation
in Organized Wholesale Electricity Markets: Staff Analysis of
Shortage Pricing, Docket No. AD14-14-000, at 21-22 (Oct. 2014),
available at https://www.ferc.gov/legal/staff-reports/2014/AD14-14-pricing-rto-iso-markets.pdf.
---------------------------------------------------------------------------
a. What can the RTOs/ISOs do to reduce interchange uncertainty?
Does CTS help to reduce the uncertainty in interchange created by the
lag between price posting and interchange schedules? Does the ability
to reduce uncertainty depend on whether all interchange spread bids are
incorporated into the RTO/ISO dispatch model (as proposed for the CTS
implementation between NYISO and ISO-NE) rather than simply allowing
interchange spread bids on a voluntary basis (as proposed for the CTS
implementation between NYISO and PJM)? Are there other steps that
should be taken to reduce interchange uncertainty?
b. What information do market participants need to better respond
to interchange price signals?
12. Next Steps
a. Are there other price formation issues that, if addressed, would
improve energy and ancillary services price formation in RTO/ISO
markets? What are they?
b. What are the highest-priority price formation issues to address?
Is the priority of issues different in different RTO/ISO markets? If
so, what are the priorities for each RTO/ISO and are the RTOs/ISOs
currently addressing those issues sufficiently?
[FR Doc. 2015-01139 Filed 1-22-15; 8:45 am]
BILLING CODE 6717-01-P