FERC Seeks To Raise Wholesale Market Electric Energy Rates Via Shortage Pricing, Under Guise of "Reform"

FERC proposed two measures meant to raise electric rates in wholesale energy markets, under the pretext that the markets are not properly reflecting scarcity when warranted (Docket RM15-24)

Of course, FERC's action is largely applicable to RTOs with centralized capacity markets, whose justification (and cost to customers) is premised on the elimination of scarcity and scarcity pricing -- particularly with new, more expensive "performance" requirements implemented in PJM and ISO-NE. Therefore, if such capacity markets functioned correctly, FERC's concerns and actions would appear to be moot; the fact that neither are in another indictment in such mandatory capacity purchases.

Specifically, FERC issued a notice of proposed rulemaking that would:

• Require that each organized market align settlement and dispatch intervals by settling real-time energy and operating reserves transactions financially at the same time interval that it dispatches energy and prices operating reserves, and

• Require that each organized market trigger shortage pricing for any dispatch interval during which a shortage of energy or operating reserves occurs.

One problem, FERC said, is that while all markets dispatch resources sub hourly, some settle those transactions based on an hourly integrated price – a price that equals the average price for all individual dispatch intervals across an hour.

Also, in some markets a shortage is required to last a minimum time period before shortage pricing is triggered. As a result, there is a delay between the time when a system experiences a shortage of energy and operating reserves and the time when prices reflect those shortages, FERC said