On December 15, 2016, the Federal Energy Regulatory Commission (FERC) issued aNotice of Proposed Rulemaking (NOPR) in Docket No. RM17-3-000 regarding fast-start resources operating in markets run by independent system operators (ISOs) and regional transmission organizations (RTOs). Specifically, the NOPR addresses the manner in which ISOs and RTOs should incorporate offers from fast start-resources into their Day Ahead and Real Time energy prices. FERC claims that these efforts are another step to improve price formation in wholesale electricity markets.

The new NOPR defines a “fast-start resource” as one that can start up in 10 minutes or less, has a minimum run time of one hour or less, and submits economic energy offers to a market run by an RTO or an ISO. Fast-start resources can respond quickly to unforeseen system needs, but due to inflexible operating limits, some fast-start resources are not able to set locational marginal prices (LMPs). The NOPR proposes a method by which fast-start resources can factor into the determination of LMPs.

While the NOPR acknowledges that certain RTOs and ISOs have already developed some aspects of fast-start pricing, FERC believes that the current practices do not lead to energy prices that fully reflect the value of all resources used to serve load. Additionally, the NOPR states that failure to appropriately include costs associated with fast-start resources in energy market prices does not provide accurate incentives for investments and creates unnecessary uplift payments. Thus, FERC concludes that current ISO and RTO market prices may not be just and reasonable and should be revised to more fully account for fast-start resources.

The NOPR proposes that RTOs and ISOs apply certain fast-start pricing requirements in order to more accurately reflect the marginal costs of fast-start units needed to serve load. FERC seeks industry comment on its proposed definition of “fast-start resource.” In addition, the NOPR seeks input on its proposal to require RTOs and ISOs to do the following:

1. Incorporate commitment costs, including no-load and start-up costs, into prices for energy and operating reserve prices;
2. “Relax the economic minimum operating limit of fast-start resources and treat them as dispatchable from zero to the economic maximum operating limit, solely for the purpose of calculating prices”;
3. Allow offline fast-start resources to set prices under certain system conditions, if the resources are economic and feasible; and
4. Incorporate “fast-start pricing in both the day-ahead and real-time markets.”

Comments on the NOPR are due 60 days after publication in the Federal Register.

This post was written with contributions from Sylvia G. Bryant.