On June 12, 2019, FERC issued an order on paper hearing (“June 12 Order”) finding that Southwest Power Pool, Inc.’s (“SPP”) quick-start pricing practices are unjust and unreasonable and directing SPP to revise its Open Access Transmission Tariff (“Tariff”) to: implement quick-start pricing provisions in order to more accurately reflect the marginal cost of serving load; provide clear and transparent price signals that better reflect investment decisions; minimize production costs; and reduce uplift. Quick-start resources (also referred to as “fast-start resources”) are able to start within ten minutes or less to meet transient or unforeseen system needs. Previously, energy supply from quick-start resources had not necessarily been included in SPP’s unified pricing and dispatch run, but after the June 12 Order, quick-start resources in SPP may participate in setting market-clearing energy prices under certain circumstances.
The June 12 Order follows an investigation into SPP’s quick-start pricing practices, initiated after FERC issued a series of orders in December 2017 that preliminarily found the quick-start pricing practices in New York Independent System Operator, Inc., PJM Interconnection, L.L.C., and SPP to be unjust and unreasonable because they failed to reflect the marginal cost of serving load (see December 22, 2017 edition of the WER). In the June 12 Order, FERC directed SPP to make six changes to its tariff to ensure that its quick-start pricing practices result in just and reasonable rates:
1. Commit and dispatch quick-start resources in real time, subject to appropriate operational and reliability constraints. While SPP previously used an initial “screening run” to exclude quick-start resources that would be dispatched below their minimum economic operating limit from the subsequent unified dispatch and pricing run, FERC required that SPP remove the initial “screening run” and explained that screening out quick-start resources increases production costs, creates risks to system reliability, and may unnecessarily increase the cost of serving load.
2. Allow quick-start resources’ commitment costs (i.e., start-up and no-load costs) to be reflected in prices, in both the day-ahead and real-time markets. FERC explained that quick-start resources are often committed on short notice to meet some unforeseen system condition or market need over a short period of time and that incorporating these costs into prices will more accurately represent the marginal cost of serving load when a quick-start resource is needed.
3. Include in the definition of quick-start resources a requirement that those resources have a minimum run time of an hour or less. According to FERC, allowing resources with minimum run times of more than one hour to receive quick-start pricing results in prices that do not reflect the marginal cost of serving load because such resources lack the ability to respond quickly to unforeseen, real-time operating needs.
4. Relax quick-start resources’ economic minimum operating limits by up to 100 percent, such that the resources are considered dispatchable from zero to their economic maximum operating limit for the purpose of setting prices.
5. Apply quick-start pricing treatment to both registered and unregistered quick-start resources. FERC explained that quick-start pricing is not an optional benefit, but rather an approach to sending proper price signals to the entire market; allowing some resources to opt out of quick-start pricing would therefore result in the costs of those resources not being properly reflected in market prices.
6. Include its quick-start pricing practices in its Tariff.
FERC directed SPP to submit a compliance filing by December 31, 2019 with proposed Tariff changes reflecting the above requirements and a proposed effective date.
FERC’s June 12 Order can be found here.