NOPR Requires PJM, MISO, ISO-NE Switch to 5-Minute Settlements
FERC issued a preliminary order Thursday that would require RTOs and ISOs to align their settlement and dispatch intervals, saying it was the first of a number of proposals the commission plans to act on based on what it learned from the price formation proceeding it began last year.
The Notice of Proposed Rulemaking (RM15-24) would require organized markets to settle real-time energy and operating reserve transactions financially at the same five-minute time interval that it dispatches those resources. It would also require the markets to eliminate any lag between declaring a shortage and beginning shortage pricing.
FERC’s price formation proceeding included workshops and staff reports touching on a variety of obscure — but often controversial — issues, including offer caps and uplift allocation. (See FERC Sets Feb. 19 Deadline on Price Formation Comments.)
Inaccurate Price Signals
The commission said current practices in some markets are not resulting in appropriate price signals.
Although all organized markets dispatch resources in five-minute intervals, ISO-NE, MISO and PJM settle those transactions based on the average price for all dispatch intervals during the hour (“hourly integrated prices”).
“This misalignment between dispatch and settlement intervals may distort the price signals sent to resources and fail to reflect the actual value of resources responding to operating needs because compensation will be based on average output and average prices across an hour rather than output and prices during the periods of greatest need within a particular hour,” the commission said.
In addition, some markets do not trigger shortage pricing unless the shortage lasts a minimum time — resulting in a delay before prices begin reflecting the shortage. The rule would require a shortage of any duration to be reflected in prices.
FERC said the changes “will help provide correct incentives for market participants to follow commitment and dispatch instructions, to make efficient investments in facilities and equipment, and to maintain reliability. The proposed reforms will also help provide transparency and certainty so that market participants understand how prices reflect the actual marginal cost of serving load and the operational constraints of reliably operating the system.”
“Requiring settlement intervals to match dispatch intervals would make resource compensation more transparent by, among other things, increasing the proportion of resource payment provided through payments of energy and operating reserves rather than uplift,” the commission continued. “This increased transparency, in turn, better informs decisions to build or maintain resources and enhances consumers’ ability to hedge.”
Comments on the proposed rule will be due 60 days after its publication in the Federal Register.