81_FR_43008 81 FR 42882 - Settlement Intervals and Shortage Pricing in Markets Operated by Regional Transmission Organizations and Independent System Operators

81 FR 42882 - Settlement Intervals and Shortage Pricing in Markets Operated by Regional Transmission Organizations and Independent System Operators

DEPARTMENT OF ENERGY
Federal Energy Regulatory Commission

Federal Register Volume 81, Issue 126 (June 30, 2016)

Page Range42882-42910
FR Document2016-15196

The Federal Energy Regulatory Commission (Commission) is revising its regulations to address certain practices that fail to compensate resources at prices that reflect the value of the service resources provide to the system, thereby distorting price signals, and in certain instances, creating a disincentive for resources to respond to dispatch signals. We require that each regional transmission organization and independent system operator align settlement and dispatch intervals by: Settling energy transactions in its real-time markets at the same time interval it dispatches energy; settling operating reserves transactions in its real-time markets at the same time interval it prices operating reserves; and settling intertie transactions in the same time interval it schedules intertie transactions. We also require that each regional transmission organization and independent system operator trigger shortage pricing for any interval in which a shortage of energy or operating reserves is indicated during the pricing of resources for that interval. Adopting these reforms will align prices with resource dispatch instructions and operating needs, providing appropriate incentives for resource performance.

Federal Register, Volume 81 Issue 126 (Thursday, June 30, 2016)
[Federal Register Volume 81, Number 126 (Thursday, June 30, 2016)]
[Rules and Regulations]
[Pages 42882-42910]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2016-15196]



[[Page 42881]]

Vol. 81

Thursday,

No. 126

June 30, 2016

Part III





Department of Energy





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Federal Energy Regulatory Commission





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18 CFR Part 35





Settlement Intervals and Shortage Pricing in Markets Operated by 
Regional Transmission Organizations and Independent System Operators; 
Final Rule

Federal Register / Vol. 81 , No. 126 / Thursday, June 30, 2016 / 
Rules and Regulations

[[Page 42882]]


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DEPARTMENT OF ENERGY

Federal Energy Regulatory Commission

18 CFR Part 35

[Docket No. RM15-24-000; Order No. 825]


Settlement Intervals and Shortage Pricing in Markets Operated by 
Regional Transmission Organizations and Independent System Operators

AGENCY:  Federal Energy Regulatory Commission.

ACTION:  Final rule.

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SUMMARY:  The Federal Energy Regulatory Commission (Commission) is 
revising its regulations to address certain practices that fail to 
compensate resources at prices that reflect the value of the service 
resources provide to the system, thereby distorting price signals, and 
in certain instances, creating a disincentive for resources to respond 
to dispatch signals. We require that each regional transmission 
organization and independent system operator align settlement and 
dispatch intervals by: Settling energy transactions in its real-time 
markets at the same time interval it dispatches energy; settling 
operating reserves transactions in its real-time markets at the same 
time interval it prices operating reserves; and settling intertie 
transactions in the same time interval it schedules intertie 
transactions. We also require that each regional transmission 
organization and independent system operator trigger shortage pricing 
for any interval in which a shortage of energy or operating reserves is 
indicated during the pricing of resources for that interval. Adopting 
these reforms will align prices with resource dispatch instructions and 
operating needs, providing appropriate incentives for resource 
performance.

DATES:  This rule will become effective September 13, 2016.

FOR FURTHER INFORMATION CONTACT: 
Stanley Wolf (Technical Information), Office of Energy Policy and 
Innovation, Federal Energy Regulatory Commission, 888 First Street NE., 
Washington, DC 20426, (202) 502-6841, [email protected]
Pamela Quinlan (Technical Information), Office of Energy Market 
Regulation, Federal Energy Regulatory Commission, 888 First Street NE., 
Washington, DC 20426, (202) 502-6179, [email protected]
Alicia Cobb (Legal Information), Office of the General Counsel--Energy 
Markets, Federal Energy Regulatory Commission, 888 First Street NE., 
Washington, DC 20426, (202) 502-8501, [email protected]

SUPPLEMENTARY INFORMATION: 

Order No. 825

Final Rule

Table of Contents

 
                                                         Paragraph No.
 
I. Introduction......................................                  1
II. Background.......................................                  9
III. Discussion......................................                 13
    A. Settlement Interval Reform....................                 13
        1. Need for Reform...........................                 13
        2. Settlement Interval Reform for Energy                      17
         Transactions and Operating Reserves.........
            a. Proposal..............................                 17
                i. Energy Transactions...............                 17
                ii. Operating Reserves...............                 21
            b. Current Practices in the RTOs/ISOs....                 22
                i. Energy Transactions...............                 22
                ii. Operating Reserves...............                 23
            c. Comments on the Proposed Settlement                    27
             Interval Reform.........................
                i. Comments From the RTOs/ISOs.......                 28
                ii. Comments by Market Monitors......                 36
                iii. Comments Supporting the Proposed                 39
                 Settlement Interval Reform..........
                iv. Comments Opposed to the Proposed                  49
                 Settlement Interval Reform..........
            d. Commission Determination..............                 53
                i. Energy Transactions...............                 53
                ii. Operating Reserves...............                 69
        3. Interties.................................                 74
            a. Commission Request for Comments.......                 74
                i. Comments by RTOs/ISOs.............                 75
                ii. Comments by Market Monitors......                 80
                iii. Comments in Support of Applying                  82
                 Settlement Reform to Interties......
                iv. Comments Opposed To Applying                      86
                 Settlement Reform to Interties......
            b. Commission Determination..............                 88
        4. Demand Response Resources.................                 92
            a. Comments..............................                 92
            b. Commission Determination..............                 98
        5. Load......................................                100
            a. Comments..............................                100
            b. Commission Determination..............                104
    B. Shortage Pricing Reform.......................                105
        1. Need for Reform...........................                105
        2. NOPR Proposal.............................                109
        3. Comments on the Proposed Shortage Pricing                 110
         Reform......................................
            a. Comments by RTOs/ISOs.................                110
            b. Comments by Market Monitors...........                121
            c. Comments Supporting the Shortage                      127
             Pricing Reform..........................
            d. Comments Recommending Changes to the                  137
             Shortage Pricing Reform.................
            e. Comments Opposed to the Proposed                      141
             Shortage Pricing Reform.................
        4. Commission Determination..................                161
    C. Compliance and Implementation.................                181
        1. Commission Proposal.......................                181

[[Page 42883]]

 
        2. Comments..................................                182
            a. Comments From RTOs/ISOs...............                183
            b. Comments Urging Flexibility in                        188
             Implementation..........................
            c. Compliance Filing Deadline............                191
            d. Implementation Deadline...............                192
            e. Simultaneous Implementation...........                200
            f. Costs.................................                201
        3. Commission Determination..................                204
    D. Requests Beyond the Scope of This Proceeding..                211
        1. Comments..................................                211
        2. Commission Determination..................                230
IV. Information Collection Statement.................                231
V. Environmental Analysis............................                236
VI. Regulatory Flexibility Act.......................                237
VII. Document Availability...........................                240
VIII. Effective Date and Congressional Notification..                243
APPENDIX: List of Commenters.........................
 

I. Introduction

    1. In this Final Rule, we address certain practices that fail to 
compensate resources at prices that reflect the value of the service 
resources provide to the system, thereby distorting price signals, and 
in certain instances, creating a disincentive for resources to respond 
to dispatch signals. We require, pursuant to section 206 of the Federal 
Power Act (FPA),\1\ that each regional transmission organization (RTO) 
and independent system operator (ISO) align settlement and dispatch \2\ 
intervals by: (1) Settling energy transactions in its real-time markets 
at the same time interval it dispatches energy;
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    \1\ 16 U.S.C. 824e (2012).
    \2\ As mentioned in the Notice of Proposed Rulemaking, the 
Commission sometimes uses the term ``dispatch'' as shorthand when 
describing how RTOs/ISOs acquire and price energy and operating 
reserves. With respect to operating reserves, the Commission uses 
dispatch to describe the intervals at which they are acquired and 
priced. See Settlement Intervals and Shortage Pricing in Markets 
Operated by Regional Transmission Organizations and Independent 
System Operators, 80 FR 58,393 (Sept. 29, 2015), FERC Stats. & Regs. 
] 32,710, at P 1 (2015) (NOPR).
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    (2) settling operating reserves transactions in its real-time 
markets at the same time interval it prices operating reserves; \3\ and 
(3) settling intertie transactions \4\ in the same time interval it 
schedules intertie transactions (settlement interval requirements). We 
also require, pursuant to section 206 of the FPA, that each RTO/ISO 
establish a mechanism to trigger shortage pricing for any interval in 
which a shortage of energy or operating reserves is indicated during 
the pricing of resources for that interval (shortage pricing 
requirement).
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    \3\ Operating reserves refer to certain ancillary services 
procured in the wholesale market, although they are often defined 
differently in each RTO/ISO. Operating reserves typically include: 
(a) Regulating Reserve, used to account for very short-term 
deviations between supply and demand (e.g., 4 to 6 seconds); (b) 
Spinning, or Synchronous Reserve, which is capacity held in reserve 
and synchronized to the grid and able to respond within a relatively 
short amount of time (e.g., within 10 minutes), to be used in case 
of a contingency, such as the loss of a generator; and (c) Non-
Spinning Reserve, capacity that is not synchronized to the grid and 
which can take longer to respond (e.g., within 10-30 minutes) in 
case of a contingency. Federal Energy Regulatory Commission, Price 
Formation in Organized Wholesale Electricity Markets: Staff Analysis 
of Shortage Pricing, Docket No. AD14-14-000, at 3 n.7 (Oct. 2014), 
http://www.ferc.gov/legal/staff-reports/2014/AD14-14-pricing-rto-iso-markets.pdf (Shortage Pricing Paper).
    \4\ Intertie transactions are transactions across RTO/ISO 
borders, including imports, exports and wheel-through transactions.
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    2. Some current RTO/ISO settlement practices fail to reflect the 
value of providing a given service, thereby distorting price signals 
and failing to provide appropriate signals for resources to respond to 
the actual operating needs of the market. One such practice occurs when 
RTOs/ISOs dispatch resources every five minutes but perform settlements 
based on an hourly integrated price, or when RTOs/ISOs schedule 
intertie transactions every fifteen minutes, but perform settlements on 
an hourly integrated price. This misalignment between dispatch and 
settlement intervals distorts the price signals sent to resources and 
fails 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.
    3. We also find that a second problem occurs if there is a mismatch 
between the time when a system experiences a shortage of energy and 
operating reserves and the time when prices reflect the shortage 
condition. This can be particularly problematic when, for example, an 
RTO's/ISO's market rules require a shortage to last a minimum time 
period before triggering shortage pricing. In this instance, short-term 
prices fail to reflect system conditions and potential reliability 
costs, as well as the value of both internal and external market 
resources responding to a dispatch signal. In addition, inaccurate 
price signals are provided to market participants if shortage pricing 
is still in effect after the shortage has been resolved.
    4. To address these problems associated with differing dispatch 
intervals and settlement intervals, as well as with shortage pricing 
triggers, we are setting forth the settlement interval requirements and 
the shortage pricing requirement in this Final Rule.\5\ These 
settlement interval and shortage pricing requirements will help ensure 
that resources have price signals that provide incentives to conform 
their output to dispatch instructions, and that prices reflect 
operating needs at each dispatch interval.
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    \5\ We are not at this time proposing to change the price paid 
by any RTO/ISO when shortage pricing is triggered.
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    5. As set forth in the NOPR, we reiterate the goals of price 
formation are to: (1) Maximize market surplus for consumer and 
suppliers; (2) provide correct incentives for market participants to 
follow commitment and dispatch instructions, make efficient investments 
in facilities and equipment, and maintain reliability; (3) 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, (4) ensure that all 
suppliers have an opportunity to recover their costs.\6\
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    \6\ See Notice Inviting Post-Technical Workshop Comments, Docket 
No. AD14-14-000, at 1 (Jan. 16, 2015); Notice, Docket No. AD14-14-
000 (June 19, 2014).
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    6. As noted in the NOPR, the reforms adopted in this Final Rule 
advance at least two of the Commission's goals

[[Page 42884]]

with respect to price formation. First, the proposed reforms will help 
provide correct incentives for market participants to follow commitment 
and dispatch instructions,\7\ to make efficient investments in 
facilities and equipment, and to maintain reliability. Specifically, 
requiring RTOs/ISOs to align the settlement and dispatch intervals will 
more accurately reward resources that are providing energy and 
ancillary services in periods of the greatest need and will discourage 
provision of energy and ancillary services immediately following 
periods of system stress. Doing so will enhance the incentive to follow 
an RTO's/ISO's dispatch signal and thus help maintain system 
reliability. This reform will also reward resources that can flexibly 
respond to system needs, thus creating an incentive for resources to 
make efficient investments in facilities and equipment. Similarly, 
implementing shortage pricing for any dispatch interval during which a 
shortage of energy or operating reserves occurs will provide an 
incentive for resources to ensure that they are available to respond to 
high prices, which should help alleviate shortages and avoid shortage 
pricing during subsequent dispatch intervals. This reform would also 
ensure that resources operating during a shortage are compensated for 
the value of the service that they provide, regardless of whether the 
shortage is short-lived.
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    \7\ The Commission notes that the reforms proposed herein would 
further augment existing mechanisms in each RTO/ISO market that 
provide incentives to follow dispatch instructions, such as 
penalties for excessive or deficient energy and the allocation of 
commitment and dispatch costs to deviations from energy dispatch 
targets. See, e.g., MISO, FERC Electric Tariff, 40.3.3(a) (36.0.0) 
(allocating Revenue Sufficiency Guarantee costs to, inter alia, 
resources providing excessive or deficient energy), 40.3.4 (33.0.0) 
(charges for excessive or deficient energy deployment).
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    7. Second, the proposed reforms will also help provide transparency 
and certainty so that market participants understand how compensation 
and 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 will 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. Further, requiring RTOs/ISOs to 
trigger shortage pricing for an interval in which a shortage of energy 
or operating reserves is indicated during the pricing of resources for 
that interval will ensure that prices transparently reflect the 
operational constraints of reliably operating the system. This 
increased transparency, in turn, better informs decisions to build or 
maintain resources and enhances consumers' ability to hedge. The 
benefits summarized above and discussed in detail below would 
ultimately help to ensure just and reasonable rates.
    8. As discussed below, we require each RTO/ISO to submit a 
compliance filing with the tariff changes needed to implement this 
Final Rule within 120 days of the Final Rule's effective date. We will 
allow a further 12 months from the compliance filing date for the 
tariff changes implementing reforms to settlement intervals to be 
effective, and 120 days from that same compliance filing date for the 
tariff changes implementing shortage pricing reforms to be 
effective.\8\
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    \8\ The Commission has followed a similar approach with the 
timelines for compliance and implementation in the past. See, e.g., 
Frequency Regulation Compensation in the Organized Wholesale Power 
Markets, Order No. 755, FERC Stats. & Regs. ] 31,324, at P 201 
(2011), reh'g denied, Order No. 755-A, 138 FERC ] 61,123 (2012).
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II. Background

    9. The Commission has addressed price formation in organized 
markets on prior occasions. For example, in Order No. 719, the 
Commission addressed shortage pricing \9\ and required RTOs/ISOs to 
develop and implement shortage pricing rules that would apply during 
operating reserve shortages to ``ensure that the market price for 
energy reflects the value of energy during an operating reserve 
shortage.'' \10\ The Commission required such rules out of concern that 
inappropriate price signals during an operating reserve shortage would 
provide an insufficient incentive for market participants to take 
appropriate actions.
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    \9\ Wholesale Competition in Regions with Organized Electric 
Markets, Order No. 719, FERC Stats. & Regs. ] 31,281, at PP 192-194 
(2008), order on reh'g, Order No. 719-A, FERC Stats. & Regs. ] 
31,292, order on reh'g, Order No. 719-B, 129 FERC ] 61,252 (2009).
    \10\ Order No. 719, FERC Stats. & Regs. ] 31,281 at P 194.
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    10. In June 2014, the Commission initiated a proceeding, in Docket 
No. AD14-14-000, to evaluate issues regarding price formation in the 
energy and ancillary services markets operated by RTOs/ISOs (price 
formation proceeding). In the notice initiating that proceeding, the 
Commission stated that there may be opportunities for the RTOs/ISOs to 
improve the energy and ancillary services price formation process. As 
set forth in the notice, locational marginal prices (LMP) and market-
clearing prices used in energy and ancillary services markets ideally 
``would reflect the true marginal cost of production, taking into 
account all physical system constraints, and these prices would fully 
compensate all resources for the variable cost of providing service.'' 
\11\ Pursuant to the notice, staff conducted outreach and convened 
technical workshops on the following four general issues: (1) Use of 
uplift payments; (2) offer price mitigation and offer price caps; (3) 
scarcity and shortage pricing; and (4) operator actions that affect 
prices.\12\ The Commission also released staff reports on these topics. 
In one of those reports, issued in October 2014, staff analyzed 
shortage pricing issues.\13\
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    \11\ Notice, Docket No. AD14-14-000, at 2 (June 19, 2014).
    \12\ Id. at 1, 3-4.
    \13\ See Shortage Pricing Paper.
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    11. In its January 2015 Notice Inviting Comments, the Commission 
requested comments on questions that arose from the price formation 
technical workshops.\14\ In response, among other price formation 
issues, commenters addressed settlement intervals and shortage pricing.
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    \14\ Notice Inviting Post-Technical Workshop Comments, Docket 
No. AD14-14-000 (Jan. 16, 2015).
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    12. On September 17, 2015, the Commission issued a NOPR proposing 
to require that each RTO/ISO: (1) Settle energy transactions in its 
real-time markets at the same time interval it dispatches and prices 
energy, and settle operating reserves transactions in its real-time 
markets at the same time interval it prices operating reserves; and (2) 
trigger shortage pricing for any dispatch interval during which a 
shortage of energy or operating reserves occurs.\15\ The Commission 
sought comments on these proposals, and sought comment on: (1) Whether 
settlement interval reforms are appropriate for intertie transactions 
that are scheduled on intervals different from the intervals on which 
RTOs/ISOs dispatch internal real-time energy; and (2) whether it is 
appropriate to align the settlement interval for intertie transactions 
with external scheduling intervals, e.g., fifteen minutes.\16\ 
Additionally, the Commission sought comment on whether to require that 
RTOs/ISOs settle real-time operating reserves transactions at the same 
interval as real-time energy dispatch and settlement intervals or 
whether a settlement interval that differs from an RTO's/ISO's real-
time energy dispatch interval would be appropriate for some operating 
reserves transactions.\17\

[[Page 42885]]

Finally, the Commission sought comment on the implementation schedule 
and the costs of implementation.\18\ A list of commenters and the 
abbreviated names used for them in this Final Rule appears in the 
Appendix.
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    \15\ NOPR, FERC Stats. & Regs. ] 32,710 at P 14.
    \16\ NOPR, FERC Stats. & Regs. ] 32,710 at P 39.
    \17\ NOPR, FERC Stats. & Regs. ] 32,710 at P 40.
    \18\ NOPR, FERC Stats. & Regs. ] 32,710 at PP 56, 60.
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III. Discussion

A. Settlement Interval Reform

1. Need for Reform
    13. In the NOPR,\19\ the Commission preliminarily found that the 
current RTO/ISO settlement practice of using hourly integrated prices 
for real-time settlement and five-minute dispatch instructions may fail 
to reflect the value of providing a given service, and may contribute 
to lack of a response to the actual operating needs of those markets. 
In addition, the Commission stated that the use of hourly integrated 
prices for real-time settlement may discourage resources from following 
five-minute dispatch instructions, and may increase the need for uplift 
payments. Therefore, the Commission preliminarily found that the use of 
hourly integrated prices for real-time settlement may result in rates 
that are unjust and unreasonable.
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    \19\ NOPR, FERC Stats. & Regs. ] 32,710 at PP 26-33.
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    14. Commenters generally agree with the Commission's preliminary 
finding regarding the settlement interval proposal. For example, EPSA 
states that ``[w]hen real-time settlements for generation or 
dispatchable demand are calculated based on hourly prices that are the 
simple average of sub-hourly prices resulting from the actual dispatch, 
there is a distortion to the real-time price signal impacting both 
reliability and efficiency.'' \20\ Similarly, Potomac Economics states 
that the inconsistency between five-minute dispatch instructions and 
hourly-average price settlement intervals ``creates incentives for 
generators to not follow the dispatch signal or to simply be inflexible 
by (a) restricting dispatch range (the difference between a generator's 
minimum dispatch level and maximum dispatch level) or (b) offering a 
slower dispatch ramp rate.'' \21\ Potomac Economics notes that while 
MISO makes uplift payments to generators to alleviate these incentive 
issues, such payments are ``an inferior substitute for a true alignment 
where each generator, importer or exporter would settle based on the 
actual value of energy corresponding with its production or 
transactions in each five-minute interval.'' \22\ ELCON asserts that 
hourly prices do not ``reflect system needs and costs, and may result 
in over or under recovery of costs depending on how the shortage plays 
out during the hour. When SPP moved to sub-hourly settlements, overall 
system costs were lower.'' \23\
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    \20\ EPSA Comments, Pope Aff. at 2-3.
    \21\ Potomac Economics Comments at 4.
    \22\ Potomac Economics Comments at 4-5.
    \23\ ELCON Comments at 2.
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    15. In some instances, commenters assert that the Commission should 
not affirm its preliminary finding on the settlement interval proposal. 
APPA and NRECA assert that Commission approval of any five-minute 
settlement implementation process should require vetting and approval 
by the RTOs'/ISOs' stakeholders.\24\ Direct Energy asserts that the 
Commission should solicit further information from the RTOs/ISOs before 
determining whether or not to direct settlement interval reforms.\25\
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    \24\ APPA and NRECA Comments at 4.
    \25\ Direct Energy Comments at 6.
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    16. Based on analysis of the record, we adopt our preliminary 
findings, and, as described in detail below, conclude that certain RTO/
ISO settlement practices are not just and reasonable and are unduly 
discriminatory and preferential. Accordingly, we direct each RTO/ISO to 
align its settlement and dispatch intervals by settling energy 
transactions in its real-time markets at the same time interval it 
dispatches energy, settling operating reserves transactions in its 
real-time markets at the same time interval it prices operating 
reserves, and settling intertie transactions in the same time interval 
it schedules intertie transactions, as discussed further herein.
2. Settlement Interval Reform for Energy Transactions and Operating 
Reserves
a. Proposal
i. Energy Transactions
    17. In the NOPR, the Commission proposed to require that each RTO/
ISO settle energy transactions in its real-time markets at the same 
time interval it dispatches energy. The Commission preliminarily found 
the use of hourly integrated prices for real-time settlement may have 
the unintended effect of distorting price signals, and, in certain 
instances, contributing to market participants' failing to respond 
appropriately to operating needs.\26\ Specifically, the Commission 
stated that hourly integrated prices for real-time settlement may: (1) 
Not accurately reflect the value a resource provides to the system; (2) 
discourage resources from following dispatch instructions; and (3) 
cause increased uplift payments. Therefore, the Commission 
preliminarily found that the use of hourly integrated prices for real-
time settlement may result in rates that are unjust and unreasonable.
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    \26\ NOPR, FERC Stats. & Regs. ] 32,710 at PP 26-33.
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    18. To remedy any potentially unjust and unreasonable rates caused 
by the use of hourly integrated prices for real-time settlement, the 
Commission proposed in the NOPR to require that each RTO/ISO settle 
energy transactions in its real-time markets at the same time interval 
it dispatches energy.\27\
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    \27\ NOPR, FERC Stats. & Regs. ] 32,710 at P 34.
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    19. The Commission explained that in the short-term, the settlement 
interval proposal should improve incentives for resources to respond 
quickly to dispatch instructions, which should in turn lead to 
operators taking fewer out-of-market actions to ensure that supply 
meets demand. The Commission noted that by improving resources' 
response to dispatch instructions, the settlement interval proposal 
would result in a more efficient use of generation resources to the 
benefit of all consumers. In the long-term, the Commission maintained 
that these reforms should provide more accurate price signals, which 
should provide, together with other market price signals, the 
appropriate incentives to build or maintain resources that can respond 
to energy or operating reserve deficiencies.\28\
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    \28\ NOPR, FERC Stats. & Regs. ] 32,710 at P 35.
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    20. In addition, the Commission noted, where settlement and 
dispatch intervals are aligned, resources dispatched economically 
during high-priced periods would receive those higher prices rather 
than an hourly average of the dispatch interval LMPs, thereby reducing 
the need to make uplift payments.
ii. Operating Reserves
    21. The Commission proposed requiring that each RTO/ISO ``settle 
operating reserves transactions in its real-time markets at the same 
time interval it prices operating reserves.'' \29\ Although the 
Commission noted that dispatch and pricing of energy and operating 
reserves are closely linked through co-optimization in the real-time 
market, it also noted that certain RTOs/ISOs acquire operating reserves 
on a different time interval than they dispatch energy.\30\ The 
Commission sought comment on whether the Commission should require 
RTOs/ISOs to settle all real-time operating reserves transactions at 
the same time interval as real-time energy dispatch and

[[Page 42886]]

settlement intervals, or whether a settlement interval that differs 
from an RTO's/ISO's real-time energy dispatch interval would be 
appropriate for some operating reserves transactions.\31\
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    \29\ NOPR, FERC Stats. & Regs. ] 32,710 at P 34.
    \30\ NOPR, FERC Stats. & Regs. ] 32,710 at P 40.
    \31\ NOPR, FERC Stats. & Regs. ] 32,710 at P 40.
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b. Current Practices in the RTOs/ISOs
i. Energy Transactions
    22. The following table describes how each RTO/ISO currently 
dispatches and settles real-time energy transactions:

      Table 1--RTO/ISO Dispatch and Settlement Intervals for Energy
------------------------------------------------------------------------
                               Real-time
                                dispatch
                                  \32\       Real-time settlement \33\
                               (minutes)
------------------------------------------------------------------------
CAISO                                   5  5 minute.
ISO-NE                                  5  hourly average.
MISO                                    5  hourly average.
NYISO                                   5  5 minute.
PJM                                     5  hourly average.
SPP                                     5  5 minute.
------------------------------------------------------------------------

ii. Operating Reserves
    23. The RTOs/ISOs vary in how they settle and treat operating 
reserves. For example, CAISO represents that it settles its operating 
reserve transactions on fifteen-minute intervals and dispatches energy 
on five-minute intervals.\34\ MISO states that it currently calculates 
settlements for real-time operating reserves transactions at the same 
interval that they are dispatched, i.e., five minutes, but that actual 
settlements are on an hourly basis due to the specific calculations 
MISO makes.
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    \32\ See CAISO, eTariff, 34.5 (17.0.0); ISO-NE., Transmission, 
Markets and Services Tariff, Market Rule 1, III.2.3 (15.0.0); MISO, 
FERC Electric Tariff, 40.2 (34.0.0); NYISO Markets and Services 
Tariff, 4.4.2.1 (17.0.0); PJM OATT, Attachment K, Appendix, 2.3 
(2.0.0); SPP, OATT, Sixth Revised Volume No. 1, Attachment AE, 6.2.2 
(1.0.0).
    \33\ See CAISO, eTariff, 11.5 (2.0.0), Appendix A, Settlement 
Interval (2.0.0); ISO-NE., Transmission, Markets and Services 
Tariff, Market Rule 1, III.2.2(b) (15.0.0); MISO, FERC Electric 
Tariff, 40.3 (32.0.0), 40.3.1 (32.0.0), 40.3.3 (36.0.0); NYISO, 
NYISO Tariffs, NYISO Markets and Services Tariff, 4.4.2.1, 4.4.2.8 
(17.0.0); PJM, Intra-PJM Tariffs, OATT, Attachment K, Appendix, 
2.5(e), (4.0.0), 3.2.1(e), (f) (28.0.0); SPP, OATT, Sixth Revised 
Volume No. 1, Attachment AE, 8.6, 8.6.1 (2.1.0). The above tariff 
citations refer to internal transactions. CAISO settles its intertie 
interchange transactions on fifteen-minute intervals. See CAISO, 
eTariff, HASP Block Intertie Schedule (0.0.0).
    \34\ CAISO Comments at 8.
---------------------------------------------------------------------------

    24. The PJM Market Monitor explains that the synchronized and 
regulation reserves markets in PJM clear hourly but already incorporate 
five-minute LMP data for calculating opportunity costs. The PJM Market 
Monitor states that the offer price in PJM's synchronized reserve 
market includes both the direct short-run marginal cost of providing 
synchronized reserves, which does not vary every five minutes, and the 
opportunity cost of providing synchronized reserves, which does vary 
with five-minute LMPs. The PJM Market Monitor explains that PJM 
currently updates the opportunity cost every five minutes using five-
minute LMP data for the Tier 2 synchronized reserve market and 
recalculates the market clearing price every five minutes, with 
settlement based on the average of the five-minute clearing price.\35\
---------------------------------------------------------------------------

    \35\ PJM Market Monitor Comments at 8.
---------------------------------------------------------------------------

    25. The PJM Market Monitor explains that, in PJM's regulation 
market, the offer price includes both the direct short-run marginal 
cost of providing regulation, which does not vary every five minutes, 
and the opportunity cost of providing regulation, which varies with 
five-minute LMPs. The PJM Market Monitor adds that PJM currently 
updates the opportunity cost every five minutes using five-minute LMP 
data for the regulation market and recalculates the clearing price 
every five minutes, with settlement based on the average of five-minute 
clearing prices. The PJM Market Monitor also notes that PJM purchases 
other forms of operating reserves on a cost basis, including Tier 1 
synchronized reserves, non-synchronized reserves, and day-ahead 
scheduling reserves.\36\
---------------------------------------------------------------------------

    \36\ PJM Market Monitor Comments at 8.
---------------------------------------------------------------------------

    26. NYISO explains that it uses five-minute intervals to settle its 
real-time markets for energy, regulation service, and operating 
reserves.\37\ ISO-NE currently has hourly integrated settlement for its 
real-time energy transactions and its real-time operating reserves. 
However, ISO-NE states it intends to implement five-minute settlement 
of real-time operating reserves in connection with implementing five-
minute settlement of real-time energy transactions, which is a current 
discussion among ISO-NE stakeholders.\38\ SPP prices and settles 
operating reserve products in its real-time market on a dispatch 
interval, or five minute, basis.\39\
---------------------------------------------------------------------------

    \37\ NYISO Comments at 2-3.
    \38\ ISO-NE Comments at 2-3.
    \39\ SPP Market Protocols, Sections 4.5.4 and 4.5.9.
---------------------------------------------------------------------------

c. Comments on the Proposed Settlement Interval Reform
    27. Twenty-seven of the thirty commenters providing input on this 
issue generally support the NOPR's proposed settlement interval 
reform.\40\ As described below, many assert that the proposed reform 
will align the price signals with system conditions and provide 
accurate incentives for generation units to follow dispatch 
instructions.\41\ Others point to additional benefits.
---------------------------------------------------------------------------

    \40\ Ameren Comments at 1, 3-4; ANGA Comments at 2-5; CAISO 
Comments at 2; CEA Comments at 3-6; Dominion Comments at 1-2; DTE 
Comments at 3-4; EDP Renewables Comments at 2; EEI Comments at 2; 
ESA Comments at 2-4; Entergy Nuclear Power Marketing Comments at 2; 
EPSA Comments at 1-5; Exelon Comments at 4; Financial Marketers 
Coalition Comments at 1; Golden Spread Initial Comments at 1-3; 
Inertia Power and DC Energy Comments at 2; ISO-NE Comments at 1; 
MISO Comments at 2, 9; NEI Comments at 1; NGSA Comments at 2-5; ODEC 
Comments at 3; PJM Power Providers Comments at 2-5; Potomac 
Economics Comments at 2; Powerex Comments at 6; PSEG Comments at 3; 
Public Interest Organizations Comments at 5; SPP Market Monitor 
Comments at 2; Westar Comments at 1.
    \41\ Inertia Power and DC Energy Comments at 2; Potomac 
Economics Comments at 1; Westar Comments at 1; PSEG Comments at 3.
---------------------------------------------------------------------------

i. Comments From the RTOs/ISOs
    28. The ISO/RTO Council supports the Commission's goals of aligning 
prices with resource dispatch instructions and operating needs and 
specifically supports the settlement interval proposal for energy 
transactions. The ISO/RTO Council states that the proposed settlement 
interval reform will make resource compensation more transparent by 
increasing the proportion of payments to resources through the price 
paid for energy as opposed to uplift.\42\
---------------------------------------------------------------------------

    \42\ ISO/RTO Council Comments at 2.
---------------------------------------------------------------------------

    29. In separate comments, NYISO, ISO-NE., MISO, and PJM support the 
settlement interval proposal for both energy and operating reserve 
transactions. Likewise, in separate comments, CAISO supports the 
settlement interval proposal for energy transactions, but does not 
support requiring RTOs/ISOs to settle all real-time operating reserves 
transactions at the same interval as real-time energy dispatch and 
settlement intervals.
    30. CAISO states that the settlement interval proposal would 
improve market efficiency, and that accurate price signals provide 
market participants with incentives to develop needed capabilities and 
to offer those capabilities into the market.\43\ CAISO states that 
where settlement and dispatch intervals are aligned, resources 
dispatched economically during high-priced periods should receive high 
prices, thus reducing the need to pay uplift caused by non-alignment of 
settlement and dispatch intervals.\44\
---------------------------------------------------------------------------

    \43\ CAISO Comments at 7.
    \44\ CAISO Comments at 7.
---------------------------------------------------------------------------

    31. However, CAISO does not support requiring RTOs/ISOs to settle 
all real-time operating reserves transactions at the same interval as 
real-time energy dispatch and settlement intervals.

[[Page 42887]]

Instead, CAISO asserts that it is appropriate to maintain its current 
fifteen-minute procurement and settlement interval for operating 
reserves transactions, which differs from the five-minute real-time 
energy dispatch interval. CAISO explains that its current settlement 
methodology aligns ancillary services commitment with internal 
generation commitment and intertie transactions scheduling so that the 
market accurately reflects the overall amount of supply resources 
available to provide energy and ancillary services.\45\
---------------------------------------------------------------------------

    \45\ CAISO Comments at 17-18.
---------------------------------------------------------------------------

    32. NYISO supports the settlement interval proposal and asserts 
that its use of five-minute intervals to settle its real-time markets 
for energy, regulation service, and operating reserves, has provided 
significant incentives for resources to follow dispatch instructions 
and opportunities for supply resources to obtain full payment for their 
performance based on actual system conditions.\46\
---------------------------------------------------------------------------

    \46\ NYISO Comments at 2-3.
---------------------------------------------------------------------------

    33. ISO-NE contends that settling on sub-hourly or five-minute 
intervals would help to improve price signals and resource 
compensation.\47\ ISO-NE states that five-minute settlements will help 
improve price formation by ensuring that compensation for real-time 
performance sends more accurate market signals of power system 
conditions when energy is provided.\48\ ISO-NE supports the settlement 
interval proposal for operating reserve transactions. It asserts that 
settling all real-time operating reserves transactions at the same 
interval as real-time energy dispatch and settlement intervals would 
assist in aligning dispatch following incentives in markets that 
simultaneously co-optimize energy and reserve dispatch in real-time. 
ISO-NE states it intends to implement five-minute settlement of real-
time operating reserves in connection with implementing five-minute 
settlement of real-time energy transactions, which is a current 
discussion among ISO-NE stakeholders.\49\
---------------------------------------------------------------------------

    \47\ ISO-NE Comments at 2.
    \48\ ISO-NE Comments at 2.
    \49\ ISO-NE Comments at 2-3.
---------------------------------------------------------------------------

    34. MISO asserts that the inconsistency between dispatch and 
settlements may produce financial outcomes that do not align with the 
guiding principles of co-optimized (energy and ancillary services) 
security constrained economic dispatch.\50\ If the Commission requires 
five-minute settlements of operating reserves, MISO states that it 
would modify its operating reserves settlements from its current hourly 
method of settling operating reserves to align with real-time energy 
transactions.\51\
---------------------------------------------------------------------------

    \50\ MISO Comments at 2.
    \51\ MISO Comments at 7-8.
---------------------------------------------------------------------------

    35. PJM states that ancillary services, including operating 
reserves, should settle on the same interval as energy because they are 
co-optimized. PJM argues that not doing so could yield discrepancies 
between the prices used to settle each product and could therefore undo 
enhancements made since implementation of Order No. 719, reduce market 
efficiencies, disrupt operations, and hinder proper price 
formation.\52\ PJM states that it intends to change its market rules to 
settle energy and ancillary services transactions in its real-time 
energy market at the same interval on which it dispatches 
resources.\53\
---------------------------------------------------------------------------

    \52\ PJM Comments at 9.
    \53\ PJM Comments at 2.
---------------------------------------------------------------------------

ii. Comments by Market Monitors
    36. The PJM Market Monitor agrees that it would be appropriate to 
implement five-minute pricing for the reasons stated in the NOPR, and 
that implementing five-minute settlements will contribute significantly 
to reducing uplift payments in PJM, an ongoing goal in the PJM 
region.\54\ The PJM Market Monitor states that, while it is appropriate 
to include the impact of five-minute LMP changes on the cost of 
operating reserves in the form of synchronized reserves and regulation, 
the PJM design for these markets currently incorporates those impacts. 
The PJM Market Monitor asserts that no additional changes to PJM market 
and non-market mechanisms for acquiring operating reserves are 
currently necessary to incorporate changes in five-minute LMPs.\55\
---------------------------------------------------------------------------

    \54\ PJM Market Monitor Comments at 2, 4.
    \55\ PJM Market Monitor Comments at 8-9.
---------------------------------------------------------------------------

    37. Potomac Economics, which serves as the market monitor for ISO-
NE., MISO, and NYISO, argues that hourly settlements encourage 
resources not to follow dispatch instructions or to decrease their 
flexibility by restricting dispatch ranges and offering slower ramp 
rates, and states that MISO pays uplift to alleviate these issues. 
Potomac Economics cites its 2014 MISO State of the Market Report to 
show how five-minute settlements would change total payments to 
resources compared to current hourly settlements. This analysis showed 
that fossil-fueled resources in 2014 received settlements that were $35 
million less than they would have received if the settlement were based 
on five-minute prices and output, and that only one-fifth of this lost 
value was paid via uplift. In contrast, Potomac Economics represents 
that non-fossil resources were paid on net in hourly revenues slightly 
above what they would have received with five-minute settlements. 
Potomac Economics asserts that five-minute settlement provides greater 
compensation to fossil resources, more accurately representing the 
flexibility fossil resources provide to the system. In contrast, 
Potomac Economics argues that hourly settlement overvalues wind 
resources because such resources cannot ramp up in response to higher 
prices, are negatively correlated with load and contribute to higher 
congestion at higher output levels.\56\ Potomac Economics states that 
the settlement interval proposal will provide incentives for better 
resource performance, will improve price signals, and will improve 
markets' short-run commitment and dispatch of existing resources.\57\
---------------------------------------------------------------------------

    \56\ Potomac Economics Comments at 6.
    \57\ Potomac Economics Comments at 1.
---------------------------------------------------------------------------

    38. The SPP Market Monitor agrees with the Commission's preliminary 
finding that aligning settlement and dispatch intervals would make 
resource compensation more transparent by increasing the proportion of 
resource payments made through energy and operating reserve payments 
instead of uplift.\58\ The SPP Market Monitor states that aligning 
dispatch and settlement intervals in neighboring markets would enhance 
price signals at seams and enhance market efficiency.\59\
---------------------------------------------------------------------------

    \58\ SPP Market Monitor Comments at 2.
    \59\ SPP Market Monitor Comments at 2-3.
---------------------------------------------------------------------------

iii. Comments Supporting the Proposed Settlement Interval Reform
    39. Many commenters expressly support the NOPR's settlement 
interval proposal, citing many of the benefits that were outlined in 
the NOPR.\60\ They generally argue that the settlement interval 
proposal will provide incentives for generators to follow dispatch more 
precisely, thus leading to

[[Page 42888]]

better resource performance, and improved reliability.\61\ They also 
assert that the settlement interval proposal will properly compensate 
resources for the service they provide and will more fully recognize 
the value of flexible or fast-ramping resources.\62\ In addition, they 
generally state that the settlement interval proposal will lead to 
fewer out-of-market payments, will increase transparency, and will 
support more efficient market outcomes.\63\
---------------------------------------------------------------------------

    \60\ Ameren Comments at 1, 3-4; ANGA Comments at 2-5; CAISO 
Comments at 2; CEA Comments at 3-6; Dominion Comments at 1-2; DTE 
Comments at 3-4; EDP Renewables Comments at 2; EEI Comments at 2; 
ESA Comments at 2-4; Entergy Nuclear Power Marketing Comments at 2; 
EPSA Comments at 1-5; Exelon Comments at 4; Financial Marketers 
Coalition Comments at 1; Golden Spread Initial Comments at 1-3; 
Inertia Power and DC Energy Comments at 2; ISO-NE Comments at 1; 
MISO Comments at 2, 9; NEI Comments at 1; NGSA Comments at 2-5; PJM 
Power Providers Comments at 2-5; Potomac Economics Comments at 2; 
Powerex Comments at 6; PSEG Comments at 3; Public Interest 
Organizations Comments at 5; SPP Market Monitor Comments at 2; 
Westar Comments at 1; AEMA Comments at 2; XO Energy Comments at 1; 
PJM Market Monitor at 2; ODEC at 3.
    \61\ Inertia Power and DC Energy Comments at 2; Westar Comments 
at 1, 3; EEI Comments at 6-7; Exelon Comments at 4-5.
    \62\ Public Interest Organizations Comments at 2-3; ELCON 
Comments at 2-3; EDP Renewables Comments at 2-3; ESA Comments at 3; 
NEI Comments at 14.
    \63\ See supra note 60; ELCON Comments at 3; Exelon Comments at 
4-5.
---------------------------------------------------------------------------

    40. More specifically, Exelon asserts that the settlement interval 
proposal will support ongoing market improvements, such as ISO-NE's 
performance incentive mechanism, effective in June 2018, that will pay 
resources bonuses or impose penalties based on performance during 
operating reserve shortages that last five minutes or longer. Exelon 
argues that ISO-NE's market must settle at five-minute intervals to 
implement this mechanism completely.\64\
---------------------------------------------------------------------------

    \64\ Exelon Comments at 5.
---------------------------------------------------------------------------

    41. According to EDP Renewables, greater participation of fast 
ramping renewable resources will also enhance resource adequacy, 
produce cost savings for consumers, and improve grid resilience.\65\
---------------------------------------------------------------------------

    \65\ EDP Renewables Comments at 3.
---------------------------------------------------------------------------

    42. Some commenters also argue that the settlement interval 
proposal will reduce market inefficiencies and lead to greater 
investment. PSEG asserts that the proposed reforms correct market flaws 
that have caused inefficiencies in both price signals and resource 
dispatch decisions.\66\ ELCON states that the proposed settlement 
reform addresses an embedded inconsistency in market operation that 
promotes gaming and other forms of ill behavior or inefficiencies.\67\ 
EDP Renewables argues that the proposed reforms will also yield 
savings, remove opportunities for market manipulation, and encourage 
investment in new services and new technologies, all of which will 
result in a more robust and resilient grid and help both consumers and 
suppliers through more efficient market operation.\68\
---------------------------------------------------------------------------

    \66\ PSEG Comments at 3.
    \67\ Public Interest Organizations Comments at 2-3; ELCON 
Comments at 2-3.
    \68\ EDP Renewables Comments at 2.
---------------------------------------------------------------------------

    43. EPSA argues that implementing sub-hourly settlement intervals 
is needed to obtain the full benefits of other price formation reforms 
to improve the accuracy with which real-time prices communicate the 
time-dependent and location-dependent value of incremental energy and 
ancillary services.\69\
---------------------------------------------------------------------------

    \69\ EPSA Comments at 6-7, Pope Aff. at 4-5.
---------------------------------------------------------------------------

    44. TAPS does not oppose the settlement interval proposal, as long 
as it does not impose an undue burden on load serving entities.\70\
---------------------------------------------------------------------------

    \70\ TAPS Comments at 4.
---------------------------------------------------------------------------

    45. EPSA supports the settlement interval proposal for operating 
reserves. It argues that real-time operating reserves should be co-
optimized in the dispatch and settled with energy for every hourly sub-
interval (generally five minutes) to ensure that resources are 
compensated for following RTO/ISO instructions and are indifferent to 
providing either energy or operating reserves during periods of high 
energy or operating reserves prices.\71\ EPSA emphasizes the importance 
of sending sub-hourly price signals to ensure that operating reserves 
are available in sub-hourly intervals due to their contribution to 
maintaining reliability, further stating that sub-hourly settlements 
for operating reserves send information to the market relating to the 
potential profitability of incremental investments to enhance the sub-
hourly availability of such reserves.\72\ EPSA argues that to ensure 
accurate prices for both energy and operating reserves, RTOs/ISOs 
should be required to co-optimize these products in real-time because 
suppliers should be indifferent to providing incremental energy and 
operating reserves in each sub-hourly interval to allow the RTO/ISO to 
perform a reliable least-cost dispatch.\73\
---------------------------------------------------------------------------

    \71\ EPSA Comments, Pope Aff. at 11.
    \72\ EPSA Comments, Pope Aff. at 11.
    \73\ EPSA Comments, Pope Aff. at 12-13.
---------------------------------------------------------------------------

    46. Dominion supports the settlement interval proposal for 
operating reserves. However, Dominion argues that only specific reserve 
products should settle at the same interval that they are priced and 
that other types of settlement provisions, such as make-whole payments, 
should not.\74\ Dominion explains that, in PJM, for example, 
``balancing Operating Reserves'' includes the costs to dispatch 
resources out-of-merit for reliability or to cover deficiencies in the 
day-ahead market solution.\75\ According to Dominion, these resources 
do not provide a specific reserve product; rather, these resources are 
made whole when they are dispatched to address a mismatch between day-
ahead commitment and real-time requirements. Dominion therefore 
requests that the Commission not require the settlement intervals for 
these types of operating reserve to change.\76\
---------------------------------------------------------------------------

    \74\ Dominion Comments at 3.
    \75\ Dominion Comments at 3.
    \76\ Dominion Comments at 3.
---------------------------------------------------------------------------

    47. PSEG supports applying the proposed settlement intervals to 
both real-time energy transactions and real-time operating reserves. 
PSEG explains that given the linkage between energy transactions and 
reserve services, settling those products on different intervals would 
introduce dislocations, and incent resource actions that could disrupt 
these co-optimization objectives, essentially undermining the 
Commission's objectives in the NOPR.\77\
---------------------------------------------------------------------------

    \77\ PSEG Comments at 4-5.
---------------------------------------------------------------------------

    48. The New Jersey Board concurs with the PJM Market Monitor that 
no changes should be made in PJM's synchronized reserve and regulation 
markets given that the opportunity cost component in these ancillary 
services markets, which is the only cost component subject to five-
minute changes in LMP, already accounts for the five-minute interval 
changes.\78\ Duke acknowledges potential benefits from aligning 
operating reserve transactions with their respective settlement 
intervals but argues that stakeholders should consider whether 
operating reserves transactions should be aligned with settlement 
intervals for energy given the costs of doing so.\79\ Although it takes 
no position on the operating reserves proposal, EEI states that 
additional clarity from the Commission on the definition of operating 
reserve transactions would be helpful, given the varied definitions of 
reserve products among regions. EEI states that such regional variation 
warrants further consideration.\80\
---------------------------------------------------------------------------

    \78\ New Jersey Board Comments at 4.
    \79\ Duke Comments at 5.
    \80\ EEI Comments at 9-10 & n.16.
---------------------------------------------------------------------------

iv. Comments Opposed to the Proposed Settlement Interval Reform
    49. Several commenters oppose the settlement interval proposal. 
Direct Energy states that the Commission should solicit information 
from RTOs/ISOs to determine whether existing generation resources are 
able to respond effectively to five-minute price signals before 
determining whether any settlement interval reform is warranted.\81\ 
Direct Energy doubts the ability of longer lead-time resources to 
respond to five-minute price signals

[[Page 42889]]

during periods of extreme price volatility, and surmises that look-
ahead unit commitment and dispatch software results could exacerbate 
swings in generation and load balance. Direct Energy states that a 
high-priced dispatch interval could encourage dispatch of peaking 
generation, which would take several minutes with longer ramp times and 
cause other resources to ramp up more quickly. Direct Energy argues 
that this could lead to an oversupply and to depressed prices, thus 
making the longer-ramping resources responding to the original signal 
uneconomic by running below their costs and incurring uplift--the 
opposite of the goal of the settlement interval proposal.\82\
---------------------------------------------------------------------------

    \81\ Direct Energy Comments at 6.
    \82\ Direct Energy Comments at 3-5.
---------------------------------------------------------------------------

    50. Duke, APPA and NRECA, and Concerned Cooperatives argue that the 
Commission should refrain from requiring a one-size-fits-all 
approach.\83\ Duke, APPA and NRECA, and Concerned Cooperatives contend 
that RTO/ISO stakeholder processes should vet this issue and consider 
issues such as the costs, benefits, types of changes needed to 
implement this reform, price formation issues more generally, and 
unintended consequences.\84\ Duke states that this approach would 
notify the Commission with regard to possible solutions, cost of 
implementation, and the timeframe in which the RTO/ISO could reasonably 
address each issue.\85\ Additionally, Concerned Cooperatives disagree 
with the Commission's conclusion that reforming the settlement 
intervals will result in more efficient use of generating resources.
---------------------------------------------------------------------------

    \83\ Duke Comments at 2-3; APPA and NRECA Comments at 4-5; 
Concerned Cooperatives Comments at 4-5.
    \84\ Duke Comments at 4; APPA and NRECA Comments at 3; Concerned 
Cooperatives Comments at 1.
    \85\ Duke Comments at 4-5.
---------------------------------------------------------------------------

    51. Concerned Cooperatives argue that the benefits of moving to 
five-minute settlements will not offset the cost. They state that the 
Potomac Economics report cited in the NOPR shows that switching to 
matching intervals would force MISO market participants to expend 
millions of dollars on upgrades and operation and maintenance (O&M) 
costs, without realizing lower rates. Instead, those participants would 
face an annual increase of approximately $28 million, after netting the 
estimated $6.6 million system benefit from the increased payments to 
generators of about $35 million dollars.\86\
---------------------------------------------------------------------------

    \86\ Concerned Cooperatives Comments at 10 (citing Potomac 
Economics, 2014 State of the Market Report for the MISO Electricity 
Markets, at 43-44, Figure 19 (2015)).
---------------------------------------------------------------------------

    52. Concerned Cooperatives further argue that the Commission relies 
solely upon a letter filed in Docket No. AD14-14-000 \87\ to support 
its finding with no analysis as to whether the observed increase in 
capacity factors for internal combustion engines in SPP was the result 
of SPP's adoption of five-minute settlement intervals or other 
factors.\88\ Concerned Cooperatives argue that, even if there was some 
marginal benefit to the settlement interval proposal, many market 
participants would not benefit from the reform even though they would 
be responsible for funding it.\89\ Concerned Cooperatives represent 
that 90 to 95 percent of their transactions take place in the day-ahead 
market, which settles on an hourly basis, and that adopting five-minute 
settlement intervals in the real-time market does not help Concerned 
Cooperatives hedge prices.\90\ Concerned Cooperatives also state that 
the National Renewable Energy Laboratory study cited in the NOPR in 
support of adopting five-minute settlement intervals also recognizes 
that limiting market complexity may be a reason to maintain hourly 
settlements, and that RTOs/ISOs already have tools to encourage 
resources to follow efficient schedules, such as uninstructed deviation 
penalties and ex post pricing rules. Concerned Cooperatives recommend 
that the Commission instead identify objectives and allow RTOs/ISOs to 
pursue options for achieving those objectives.\91\
---------------------------------------------------------------------------

    \87\ Concerned Cooperatives Comments at 11 (citing Comments of 
W[auml]rtsil[auml] North America, Inc., Docket No. AD14-14-000, at 
1-2 (Mar. 6, 2015)).
    \88\ Concerned Cooperatives Comments at 11.
    \89\ Concerned Cooperatives Comments at 11.
    \90\ Concerned Cooperatives Comments at 11.
    \91\ Concerned Cooperatives Comments at 12.
---------------------------------------------------------------------------

d. Commission Determination
i. Energy Transactions
    53. We adopt the NOPR proposal to require that each RTO/ISO settle 
energy transactions in its real-time markets at the same time interval 
it dispatches energy, as discussed below.\92\ We find that the 
settlement interval requirement for energy transactions will meet the 
Commission's price formation goals by more accurately reflecting the 
value of the service a resource provides to the system, which, in so 
doing, helps to ensure that rates are just and reasonable and not 
unduly discriminatory or preferential.
---------------------------------------------------------------------------

    \92\ NOPR, FERC Stats. & Regs. ] 32,710 at P 34.
---------------------------------------------------------------------------

    54. As discussed below, providing the correct incentives for market 
participants to follow commitment and dispatch instructions, make 
efficient investments in facilities and equipment, maintain 
reliability, and increase transparency is fundamental to proper 
formation of energy prices, helping to ensure just and reasonable 
rates, terms and conditions of service.
    55. One important element of ensuring reliable grid operations is 
resources following dispatch instructions. The requirement that each 
RTO/ISO settle energy transactions at the same interval it dispatches 
energy sends accurate market signals of power system conditions, thus 
encouraging resources to follow commitment and dispatch instructions, a 
point noted by ISO-NE.\93\
---------------------------------------------------------------------------

    \93\ ISO-NE Comments at 2.
---------------------------------------------------------------------------

    56. The settlement interval requirement for energy transactions 
also provides an incentive to make efficient investments in facilities 
and equipment.\94\ In the long-term, we expect that appropriate 
compensation would help to encourage efficient investments in 
facilities and equipment, enabling reliable service. We also find that 
the settlement interval requirement will provide incentives to more 
flexible resources, thus leading to more efficient markets, as noted by 
several commenters.\95\ More flexible resources will help system 
operators address transient system conditions. We find that greater 
participation of these more flexible resources should generally enhance 
resource adequacy because it allows the participation of diverse 
resources and improves reliability, as noted by EDP Renewables.\96\
---------------------------------------------------------------------------

    \94\ EPSA Comments, Pope Aff. at 4.
    \95\ Public Interest Organizations Comments at 2-3; ELCON 
Comments at 2-3; EDP Renewables Comments at 2-3; ESA Comments at 3; 
NEI Comments at 14.
    \96\ EDP Renewables Comments at 2-3.
---------------------------------------------------------------------------

    57. The settlement interval requirement for energy transactions 
should help in maintaining reliability because resources will have a 
greater incentive to follow dispatch instructions, as noted by 
Exelon.\97\ In addition, these reforms will provide resource owners 
with a greater incentive to adequately maintain their equipment, 
conduct maintenance during non-peak periods, and invest in new and 
upgraded equipment. As noted by CAISO, linking prices with compensation 
will pay resources for providing needed flexibility to the market 
operator and would motivate these resources to improve their 
operational performance.\98\
---------------------------------------------------------------------------

    \97\ Exelon Comments at 4-5.
    \98\ CAISO Comments at 7.
---------------------------------------------------------------------------

    58. The settlement interval requirement for energy transactions 
also results in more accurate market prices, reducing the need for out-
of-market operator actions. Under an hourly

[[Page 42890]]

settlement system, resources do not have the same incentive to follow 
five-minute prices since compensation is based on an hourly average. 
Therefore, system operators are more likely to take out-of-market 
actions in real-time, such as increasing the use of regulating reserves 
or committing additional resources, to ensure that adequate resources 
are available to meet system needs. Such actions may result in uplift. 
By providing incentives to follow dispatch instructions, the settlement 
interval requirement should reduce such operator actions and, thereby, 
reduce uplift.\99\ When this occurs, energy prices are based on more 
observable market fundamentals--such as the marginal cost of serving 
load and the operational constraints of reliably operating the system--
and not on less observable operator action.\100\ As a result of a 
reduction in out-of-market uplift payments, resources will perceive 
stronger financial incentives to perform, especially during stressed 
system conditions, when the performance of all resources is paramount. 
Further, we note, this increased transparency, in turn, better informs 
decisions to build or maintain resources.
---------------------------------------------------------------------------

    \99\ Reducing out-of-market uplift payments can be beneficial to 
RTOs'/ISOs' market participants because, among other reasons, 
charges to market participants for uplift are often volatile. As a 
result, market participants may build risk premiums into their 
resource bids in the real-time energy market to shield them from the 
uncertainty associated with unexpected uplift charges. See Staff 
Analysis of Uplift in RTO and ISO Markets, Docket No. AD14-14-000, 
at 18 (Aug. 2014), http://www.ferc.gov/legal/staff-reports/2014/08-13-14-uplift.pdf. In addition, making system conditions and 
compensation more transparent through market prices will make that 
price apparent to all available resources and thus encourage them to 
fully participate in the market, which is likely to reduce 
generation costs incurred by load.
    \100\ In addition to greater transparency, reducing uplift is a 
goal generally. For example, ``[t]he implementation of five minute 
settlements would contribute significantly to the reduction of 
uplift payments, which is an ongoing goal of PJM, of the Market 
Monitor and of PJM members.'' PJM Market Monitor Comments at 4.
---------------------------------------------------------------------------

    59. Taken together, the benefits we expect as a result of this 
settlement reform will ensure that rates are just and reasonable and 
not unduly discriminatory or preferential.
    60. We are not persuaded by the arguments opposing the settlement 
interval proposal. Underlying much of the opposition is the assumption 
that many resources cannot take advantage of five-minute settlement 
intervals because they are not flexible enough to respond to five-
minute dispatch. For example, Direct Energy argues that RTOs/ISOs 
should report the types of resources able to effectively modify their 
output to respond to five-minute price signals.\101\ The concern Direct 
Energy identifies is, in fact, one of the objectives of this reform. 
Specifically, resources that are not able to respond quickly enough to 
address acute system needs should not receive the same level of 
compensation as those resources that are able to flexibly respond.\102\ 
Further, we note that all RTOs/ISOs have a combination of resources, 
some of which can respond within five minutes and some that cannot, and 
that knowing the exact percentages of resources available to respond to 
prices is not determinative of whether the reforms adopted here will 
prove beneficial. Instead, we believe it is important to ensure 
settlement practices do not distort existing five-minute pricing 
signals.
---------------------------------------------------------------------------

    \101\ Direct Energy Comments at 6.
    \102\ This rule does not require resources to be dispatched more 
quickly than they are now, but it does increase the incentive for 
those resources that can and do respond quickly.
---------------------------------------------------------------------------

    61. We are not persuaded by Concerned Cooperatives' argument that 
the settlement interval proposal should be rejected because market 
participants, such as Concerned Cooperatives, funding the reform do not 
have a large fraction of their positions in the real-time market and 
therefore will not benefit significantly from it.\103\ We find that 
aligning prices and settlement intervals will enhance the operation of 
markets by ensuring resources respond to actual system condition 
regardless of the percentage of resources that clear in the day-ahead 
market.
---------------------------------------------------------------------------

    \103\ Concerned Cooperatives Comments at 11.
---------------------------------------------------------------------------

    62. We also disagree with Concerned Cooperatives' statement that 
the Commission relied upon a single document to support its finding 
without additional analysis.\104\ Commenters supporting the reform have 
provided sound economic analysis and examples demonstrating the value 
of the proposed settlement reform.\105\ Though Concerned Cooperatives 
state that many market participants would not benefit from the reform 
even though they would be responsible for funding it,\106\ we believe 
that many market participants are likely to benefit from the reform 
through improved economic incentives to respond to system needs. 
Potomac Economics' analysis of fossil-fueled and non-fossil-fueled 
resources \107\ demonstrates that settlement reform will incentivize 
generator flexibility, improve generators' dispatch performance, and 
increase investments in more flexible resources.
---------------------------------------------------------------------------

    \104\ Concerned Cooperatives Comments at 11.
    \105\ EPSA Comments, Pope Aff. at 2-14; Potomac Economics 
Comments at 3-7; See also supra note 60.
    \106\ Concerned Cooperatives Comments at 11.
    \107\ Potomac Economics Comments at 5-6.
---------------------------------------------------------------------------

    63. Concerned Cooperatives express concern that adopting five-
minute settlement intervals could result in errors and disputes that 
could lead to resettlement and uncertainty for the market.\108\ All 
RTOs/ISOs currently compute five-minute LMPs. Therefore, there is no 
new data being generated or calculated that would lead to additional 
need for resettlement or increased uncertainty. Concerned Cooperatives 
have cited neither examples of more errors and disputes on RTO/ISO 
systems currently using five-minute settlement intervals, nor examples 
of additional resettlement and uncertainty for the market. Also, we 
find that, while administratively-determined uninstructed deviation 
penalties (which Concerned Cooperatives suggest could be used in lieu 
of settlement reform) are appropriate in certain contexts, settlements 
based on the actual value of energy corresponding with its production 
or transaction in each five-minute interval provide more accurate 
incentives for resources to respond to price signals.
---------------------------------------------------------------------------

    \108\ Concerned Cooperatives Comments at 12.
---------------------------------------------------------------------------

    64. Concerned Cooperatives also assert that the objective of 
incenting market participants to follow dispatch instructions or invest 
in upgrades must be considered in the context of existing market rules 
that already may provide incentives for investment in faster ramping 
capability.\109\ To the extent an RTO/ISO has a functional mechanism to 
encourage the installation of fast-ramping resources, this Final Rule 
will augment the existing RTO/ISO mechanisms.
---------------------------------------------------------------------------

    \109\ Concerned Cooperatives Comments at 6.
---------------------------------------------------------------------------

    65. Contrary to Concerned Cooperatives' argument, we are not 
persuaded to abandon the settlement interval proposal because a Potomac 
Economics report indicates that it would have resulted in an additional 
$28 million in increased energy costs on the MISO system in 2014.\110\ 
First, we recognize that that there could be higher revenues to 
generators, but we believe that this is the correct reflection of value 
provided in these circumstances and would send an improved signal for 
long-term investment and short-term performance, to the overall benefit 
of the market. Second, it is important to note that the Potomac 
Economics report indicates that for many settlement intervals during 
2014, MISO resources were paid an hourly settlement rate lower than 
what five-minute settlements would justify. Thus, the Potomac

[[Page 42891]]

Economics report should be viewed as indicating a need to correct 
settlement practices, rather than indicating a windfall to resources. 
Third, it is not clear that the proposal will result in generally 
increased energy payments to generators. For example, an ISO-NE study 
for the year 2013 found that the net increase in real-time energy 
credits on its system (once the decrease in real-time reserve credits 
was considered) would have been only $600,000.\111\ Finally, due to the 
increased efficiencies resulting from improving incentives to respond 
to market price signals, total costs to electric wholesale customers 
over time are likely to decrease.
---------------------------------------------------------------------------

    \110\ Concerned Cooperatives Comments at 10.
    \111\ ISO-NE., Subhourly Real-Time Market Settlements, A11 ISO 
Presentation 05-07-14 Revision 1, Matt Brewster, at 11 (May 8, 
2014), http://www.iso-ne.com/committees/key-projects/subhourly-real-time-settlement.
---------------------------------------------------------------------------

    66. Additionally, some commenters argue that other types of 
settlement provisions, such as make-whole payments, should not be 
subject to settlement interval reform. We would like to clarify that 
the Final Rule does not apply to make-whole payments for units 
dispatched out-of-merit.
    67. We disagree with the recommendation of some commenters that the 
decision to modify settlement intervals should be subject to a 
stakeholder process.\112\ RTOs/ISOs implementing this Final Rule are 
free to use a stakeholder process within the implementation timelines 
specified herein, but we see no need to further delay this reform. This 
does not limit stakeholders' input as RTOs/ISOs form their compliance 
filings in response to this aspect of the Final Rule.
---------------------------------------------------------------------------

    \112\ APPA and NRECA Comments at 4.
---------------------------------------------------------------------------

    68. We conclude that the settlement interval requirement for energy 
transactions should ensure that hourly settlement practices do not 
distort five-minute price signals in RTOs/ISOs. Instead, the 
compensation provided to resources must reflect the value of a resource 
providing given services to ensure appropriate economic incentives to 
meet system needs.
ii. Operating Reserves
    69. We adopt the proposal in the NOPR that RTOs/ISOs settle real-
time operating reserves transactions at the same time interval that 
they price operating reserves. This requirement for operating reserves 
will accomplish the Commission's price formation goals and thereby 
ensure just and reasonable rates, and will further preserve the co-
optimization of operating reserves with energy. Under the settlement 
interval requirement for operating reserves, to the extent that an RTO/
ISO prices operating reserves transactions at a different time interval 
than it prices internal real-time energy transactions, that RTO/ISO 
need only settle operating reserves transactions at the same time 
interval that they are priced. Thus, we will not require an RTO/ISO to 
settle operating reserves transactions on the same time interval as it 
settles energy transactions. This will preserve the existing energy and 
operating reserves co-optimization methodologies of the various RTOs/
ISOs.
    70. The settlement interval requirement increases transparency and 
provides the correct incentives to maintain reliability. It also meets 
the Commission's other price formation goals of encouraging resources 
to follow the RTO's/ISO's commitment and dispatch instructions and to 
make efficient investments. The reform to the settlement interval for 
operating reserves will increase reliability because resource owners 
will have a greater incentive to adequately maintain their equipment, 
conduct maintenance during non-peak periods, and invest in new and 
upgraded equipment. Similar to energy settlement intervals, requiring 
settlement intervals of operating reserves transactions to match the 
intervals upon which those reserves are priced will reduce the need for 
payments made through uplift, make resource compensation more 
transparent and help ensure that there are adequate operating reserves 
to maintain reliability. Finally, co-optimized energy and reserve 
prices are designed so that a resource is indifferent between providing 
energy or operating reserves. Ensuring that energy and operating 
reserve settlements are done on the same basis will preserve this 
indifference and create an incentive for a resource to provide the 
service the RTO/ISO has instructed it to provide. The reform to 
operating reserve settlements will, by achieving the Commission's price 
formation goals and preserving the co-optimization of energy and 
operating reserves, ensure that rates are just and reasonable.
    71. While, as discussed above, some commenters also support RTOs/
ISOs settling all real-time operating reserves transactions at the same 
time interval that they dispatch real-time energy,\113\ we are not 
requiring that these settlement intervals align. CAISO, in defending 
its current practices, states that it procures operating reserves and 
settles them on a fifteen-minute basis and distinguishes this type of 
ancillary service from five-minute real-time energy dispatch.\114\ 
However, CAISO, along with all of the other RTOs/ISOs, supports the 
requirement that they settle operating reserves transactions at the 
same time interval that they price these transactions, which 
accommodates both RTOs/ISOs that currently settle co-optimized reserve 
transactions on a five-minute basis and those that currently settle 
these transactions on a fifteen-minute basis. Accordingly, we clarify 
that CAISO's understanding in this regard is consistent with how 
operating reserves and energy on its system are ``priced,'' as 
contemplated by the wording of the settlement interval regulations 
adopted by this Final Rule.
---------------------------------------------------------------------------

    \113\ PSEG Comments at 4-5; EPSA Comments, Pope Aff. at 11-13.
    \114\ CAISO Comments at 17-18.
---------------------------------------------------------------------------

    72. NYISO states that, although it uses sub-hourly settlements in 
its real-time market, in certain cases, the Commission has approved 
NYISO performing settlements on an hourly basis, and NYISO argues it 
should not be required to bring those settlements into alignment with 
its normal dispatch intervals.\115\ NYISO cites limited energy storage 
resources as an example of services that currently settle hourly and 
yet follow dispatch instructions and provide resource response in real-
time. To the extent NYISO or other RTOs/ISOs seek to argue on 
compliance that their existing market rules are consistent with or 
superior to the Final Rule reforms adopted herein, the Commission will 
entertain those at that time.\116\
---------------------------------------------------------------------------

    \115\ NYISO Comments at 3-4.
    \116\ See, e.g., Demand Response Compensation in Organized 
Wholesale Energy Markets, Order No. 745, FERC Stats. & Regs. ] 
31,322, at P 4 & n.7, order on reh'g and clarification, Order No. 
745-A, 137 FERC ] 61,215 (2011), reh'g denied, Order No. 745-B, 138 
FERC ] 61,148 (2012), vacated sub nom. Elec. Power Supply Ass'n v. 
FERC, 753 F.3d 216 (D.C. Cir. 2014), rev'd & remanded sub nom. FERC 
v. Elec. Power Supply Ass'n, 136 S. Ct. 760 (2016).
---------------------------------------------------------------------------

    73. Although generally supporting the settlement interval 
requirement for operating reserves, some commenters question whether 
such a requirement should apply to all reserve products or assert that 
regional variations should be considered.\117\ We appreciate that 
regional variations may exist among the many different reserve products 
in the RTOs/ISOs and we clarify that all operating reserve products 
that have a market-based price are subject to the settlement interval 
reform.
---------------------------------------------------------------------------

    \117\ See, e.g., Dominion Comments at 3; EEI Comments at 10.
---------------------------------------------------------------------------

3. Interties
a. Commission Request for Comments
    74. The Commission sought comment on whether the proposed reforms 
are appropriate for intertie transactions scheduled on intervals 
different from

[[Page 42892]]

the intervals on which RTOs/ISOs dispatch internal real-time 
energy.\118\
---------------------------------------------------------------------------

    \118\ NOPR, FERC Stats. & Regs. ] 32,710 at P 39.
---------------------------------------------------------------------------

i. Comments by RTOs/ISOs
    75. The ISO/RTO Council asserts that aligning dispatch and pricing 
should also apply to intertie transactions, adding that this would 
prevent price discrepancies and may reduce uplift.\119\
---------------------------------------------------------------------------

    \119\ ISO/RTO Council Comments at 2.
---------------------------------------------------------------------------

    76. PJM asserts that intertie transactions should be included in 
the scope of the Final Rule, noting that it plans to settle intertie 
transactions on a five-minute basis, consistent with its proposal for 
its real-time energy market. PJM suggests that, where a transaction is 
curtailed or the MW quantity is reduced during a fifteen-minute 
interval due to a reliability directive, each five-minute interval in 
the transaction should settle on the integrated transaction MW quantity 
that flowed during the five-minute interval.\120\
---------------------------------------------------------------------------

    \120\ PJM Comments at 8.
---------------------------------------------------------------------------

    77. ISO-NE argues that external interties should settle no less 
often than the intervals for which they are scheduled. ISO-NE 
represents that its proposals to implement sub-hourly settlements would 
fully meet this objective at all its external interfaces.\121\ NYISO 
argues that intertie and internal transactions should have the same 
settlement interval because this alignment will promote competition, 
identify the most economic supply option, provide equal incentives to 
respond to the same operating conditions, and improve the efficiency of 
interregional transactions.\122\
---------------------------------------------------------------------------

    \121\ ISO-NE Comments at 2.
    \122\ NYISO Comments at 5.
---------------------------------------------------------------------------

    78. CAISO notes that it already schedules and settles intertie 
transactions and internal resources on a fifteen-minute basis.\123\ 
However, CAISO also provides three options for scheduling imports and 
exports on an hourly basis: (1) Economic-bid hourly block; (2) 
economic-bid hourly block with a single intra-hour schedule change that 
will be dispatched to zero within the hour if a fifteen-minute price is 
less than an import's bid price or greater than an export's bid price; 
and (3) self-scheduled hourly.\124\ CAISO requests that the Commission 
state that CAISO's current market design with granular dispatch and 
settlement of its real-time energy market is consistent with the 
settlement interval proposal.\125\
---------------------------------------------------------------------------

    \123\ CAISO Comments at 12.
    \124\ CAISO Comments at 9.
    \125\ CAISO Comments at 10.
---------------------------------------------------------------------------

    79. CAISO asserts that a blanket requirement that hourly intertie 
schedules revert to hourly pricing, as was previously the case under 
its prior market design, would result in the same adverse market 
outcomes it resolved through its fifteen-minute market 
enhancement.\126\ CAISO requests that the Commission clarify that the 
availability of hourly block intertie bidding options would not violate 
the settlement interval proposal because its current market design 
ensures all internal and external transactions are cleared and settled 
based on fifteen-minute market intervals that optimize all transactions 
in its markets.\127\
---------------------------------------------------------------------------

    \126\ CAISO Comments at 14.
    \127\ CAISO Comments at 15.
---------------------------------------------------------------------------

ii. Comments by Market Monitors
    80. The PJM Market Monitor asserts that intertie transactions in 
PJM cannot be measured accurately enough to support five-minute 
settlements, noting that accurate measurement is difficult because of 
differences between actual and scheduled flows. The PJM Market Monitor 
thus recommends that settlements be based on the same fifteen-minute 
interval used for external scheduling intervals. The PJM Market Monitor 
asserts that this approach would more accurately reflect LMP during the 
actual time period of the transaction and would make the period and 
settlement of the transaction consistent.\128\
---------------------------------------------------------------------------

    \128\ PJM Market Monitor Comments at 7.
---------------------------------------------------------------------------

    81. The PJM Market Monitor states that alternative settlement 
approaches include using the integrated price over the same fifteen-
minute interval used in scheduling and using five-minute interval 
settlements.\129\
---------------------------------------------------------------------------

    \129\ The PJM Market Monitor in its comments provides examples 
of these alternatives. PJM Market Monitor Comments at 5-7.
---------------------------------------------------------------------------

iii. Comments in Support of Applying Settlement Reform to Interties
    82. The New Jersey Board, EEI, EPSA, Dominion, and EDP Renewables 
concur with the PJM Market Monitor that intertie settlements should be 
at fifteen-minute intervals, the same interval as external 
scheduling.\130\
---------------------------------------------------------------------------

    \130\ New Jersey Board Comments at 3-4; EEI Comments at 9; EPSA 
Comments, Pope Aff. at 9; Dominion Comments at 4; EDP Renewables 
Comments at 5.
---------------------------------------------------------------------------

    83. Golden Spread states that alignment between dispatch and 
settlement intervals is generally desirable for the reasons listed in 
the NOPR, and notes that it believes SPP already aligns dispatch and 
settlement intervals for intertie transactions on a five-minute 
basis.\131\
---------------------------------------------------------------------------

    \131\ Golden Spread Initial Comments at 2.
---------------------------------------------------------------------------

    84. ANGA, PSEG, and the Financial Marketers Coalition assert that 
the logic underlying the proposed settlement reform as applied to 
internal transactions should apply equally to intertie transactions, 
and ANGA recommends that the Commission consider evolving these 
interfaces to five-minute dispatch and settlement, perhaps over the 
next three to five years.\132\
---------------------------------------------------------------------------

    \132\ ANGA Comments at 3-4; Financial Marketers Coalition 
Comments at 3-4; PSEG Comments at 5.
---------------------------------------------------------------------------

    85. Although it generally agrees that the settlement interval 
proposal should apply equally to internal and intertie transactions, 
Financial Marketers Coalition states that, in CAISO, clearing some 
transactions (such as load and generation) on a five-minute price and 
others (such as internal and intertie convergence bids) on a fifteen-
minute price has yielded price divergence instead of convergence.
iv. Comments Opposed To Applying Settlement Reform to Interties
    86. Inertia Power and DC Energy argue that intertie economic 
dispatch intervals cannot easily be aligned with internal real-time 
energy dispatch but emphasize the importance of maintaining the highest 
possible consistency across the seams to ensure a more efficient, 
resilient, and reliable electrical system.\133\
---------------------------------------------------------------------------

    \133\ Inertia Power and DC Energy Comments at 4-5.
---------------------------------------------------------------------------

    87. Duke states that the issue of whether to apply the settlement 
interval proposal to intertie transactions should be discussed in the 
RTO/ISO stakeholder processes and that they should be treated 
comparably to reforms to internal transactions.\134\
---------------------------------------------------------------------------

    \134\ Duke Comments at 5.
---------------------------------------------------------------------------

b. Commission Determination
    88. Based upon the comments received on this issue, we modify the 
regulatory text proposed in the NOPR to require each RTO/ISO to settle 
intertie transactions in the same time interval that it schedules 
intertie transactions. The settlement interval requirement for intertie 
transactions will facilitate the coordination of the scheduling and 
settlement of intertie transactions, and will discourage inefficient 
practices such as the chasing of inaccurate intertie prices. For 
example, if there are very high prices in the first fifteen minutes of 
an hour, resources will know that for that entire operating hour, there 
will be a high integrated hourly price. This provides an incentive for 
resources to increase the volume of intertie transactions for the 
remainder of the hour, even if the price for the subsequent fifteen-
minute interval is much lower reflecting that it may no

[[Page 42893]]

longer be efficient to schedule such intertie transactions. Most 
commenters, as described above, agree that such a requirement will aid 
in the achievement of these goals.
    89. However, a difference of opinion exists between PJM and the PJM 
Market Monitor. PJM supports moving to a five-minute settlement 
interval for intertie transactions while the PJM Market Monitor 
supports aligning the settlement interval for intertie transactions 
with the fifteen-minute scheduling interval for these transactions.
    90. If an RTO/ISO settles or proposes to settle intertie 
transactions using a shorter time interval than by which it schedules 
such transactions, the RTO/ISO may propose to do so in its compliance 
filing and demonstrate that such a proposal is consistent with or 
superior to the Commission's intertie reforms. The compliance filing 
proceeding will provide a forum in which to consider alternative 
practices and resolve disputes that may arise within regions, as well 
as provide for the development of a more complete record on these 
issues.
    91. We decline to clarify for CAISO that the availability of hourly 
block intertie bidding options would not violate the settlement 
interval requirement for interties. Such a determination is more 
appropriately made upon reviewing CAISO's compliance filing and CAISO 
should justify its proposed treatment for intertie transactions there.
4. Demand Response Resources
a. Comments
    92. Several commenters discuss the application of the settlement 
interval proposal to demand response resources even though the 
Commission did not specifically solicit those comments and did not make 
a separate proposal concerning demand response resources apart from 
other resources considered in the NOPR.
    93. The PJM Market Monitor, with the New Jersey Board concurring, 
recommends that five-minute pricing in energy markets explicitly cover 
all resources providing energy, including demand side and storage 
resources.\135\ PJM Market Monitor recommends that the Commission 
require any associated, necessary metering associated with applying the 
requirement to demand resources.\136\
---------------------------------------------------------------------------

    \135\ PJM Market Monitor Comments at 2; New Jersey Board 
Comments at 2.
    \136\ PJM Market Monitor Comments at 2; New Jersey Board 
Comments at 2.
---------------------------------------------------------------------------

    94. Public Interest Organizations also urge the Commission to make 
clear that its proposed reforms apply to all resources able to 
participate in wholesale energy markets.\137\ PSEG similarly supports 
the application of the settlement interval proposal to demand response 
resources. PSEG states that real-time settlements for demand response 
resources, or any other load-side resources that are price responsive 
in wholesale markets, should be based on five-minute intervals, in the 
same manner as the supply resources with which it competes.\138\ PSEG 
acknowledges that some demand resources will lack necessary meters and/
or communication, and states that it would be reasonable to allow these 
resources a transition period to install them without delaying overall 
implementation.\139\
---------------------------------------------------------------------------

    \137\ Public Interest Organizations at 5.
    \138\ PSEG Comments at 5.
    \139\ PSEG Comments at 5.
---------------------------------------------------------------------------

    95. AEMA states that it recommends that demand response resources 
have the option to continue to settle on the basis of one-hour meter 
readings. AEMA asserts that demand resources use hourly intervals 
because only hourly interval metering may be available and even new 
advanced metering infrastructure is only capable of fifteen minute 
interval data, whereas settling on five-minute intervals could entail 
adding an expense that is an economic barrier to entry for some 
resources.\140\
---------------------------------------------------------------------------

    \140\ AEMA Comments at 4.
---------------------------------------------------------------------------

    96. AEMA also states that few demand response resources have the 
operational communications to modify their demand at frequent intervals 
and that frequent demand changes would require more robust 
communications than may be economic.\141\ AEMA further states that the 
Net Benefits Price Threshold that many RTOs/ISOs established in 
response to FERC Order No. 745 is applied on an hourly basis and that 
the industry has universally adopted hourly baseline methodologies for 
demand response resources.\142\
---------------------------------------------------------------------------

    \141\ AEMA Comments at 4.
    \142\ AEMA Comments at 3-5 (citing Order No. 745, FERC Stats. & 
Regs. ] 31,322).
---------------------------------------------------------------------------

    97. AEMA explains that much of the current energy-related demand 
response participation relies on the commitment to dispatch for one or 
more hours and if the bid-offer is accepted for demand response 
resources, those resources are eligible for uplift payments if the 
energy prices fall below their bid-offer during their committed 
dispatch time. AEMA requests that these bid offer guarantees continue 
to be incorporated in the Final Rule.\143\
---------------------------------------------------------------------------

    \143\ AEMA Comments at 5.
---------------------------------------------------------------------------

b. Commission Determination
    98. In using the term ``resource'' in the NOPR, the Commission 
intended for the settlement interval proposal to apply to all supply 
resources, including demand response resources. We find that, as with 
other resources, aligning the price signal and dispatch signal provides 
demand response resources capable of following a given dispatch signal 
the incentive to do so, resulting in a more efficient use of demand 
response resources in the real-time energy and operating reserve 
markets. As stated above, all RTOs/ISOs have a combination of 
resources, some of which can respond within five minutes and some that 
cannot, and that includes demand response resources. It is important to 
provide a price signal to all resources, regardless of type or 
capability, as this will provide proper compensation to those resources 
capable of responding to five-minute dispatch signals, and will 
incentivize such capability to those resources that do not currently 
have it.
    99. In response to concerns about the need to upgrade metering 
technology for demand response resources, we note that this Final Rule 
does not contemplate requiring any new metering capability, such as 
five-minute revenue quality metering, and that such metering is not 
necessary for implementation given RTOs'/ISOs' ability to create five-
minute load and generation profiles using telemetry and hourly revenue 
quality data. We also do not require any changes to baseline 
methodologies. Although a more granular baseline may provide additional 
value, RTOs/ISOs need not change their baseline methodology to comply 
with this Final Rule. Finally, we find that AEMA's arguments regarding 
the Net Benefits Price Threshold \144\ and ``make whole'' rules are 
beyond the scope of this Final Rule because it does not require any 
changes to the Net Benefits Price Threshold or make-whole payments. 
Even if modest changes to these provisions were required for RTOs/ISOs 
to comply with this Final Rule, the benefits of this rule would justify 
such modifications.
---------------------------------------------------------------------------

    \144\ AEMA Comments at 3.
---------------------------------------------------------------------------

5. Load
a. Comments
    100. A number of commenters state the proposed rule did not specify 
whether the settlement interval proposal would apply to load,\145\ or, 
in other

[[Page 42894]]

words, whether it would change how load is settled and measured.
---------------------------------------------------------------------------

    \145\ For purposes of this Final Rule, the term ``load'' 
generally refers to consumption of electricity in the wholesale 
markets, but not to demand response acting as a supply resource in 
the wholesale markets.
---------------------------------------------------------------------------

    101. EEI, PSEG, SCE, AEMA, EPSA and CAISO recommend that the 
Commission not apply the settlement reform to load.\146\ The primary 
arguments these commenters cite against applying the settlement 
interval proposal to load include: (1) The benefit of settling load on 
an interval basis is not likely to outweigh the cost, which may include 
the need for new expensive metering; \147\ (2) settlement reform alone 
will not encourage price responsive load without corresponding changes 
to state-jurisdictional retail rate design; \148\ and (3) because load 
is not dispatchable, there is no dispatch interval that aligns with 
load.\149\ Direct Energy recommends either not applying the settlement 
reform to load or delaying implementation until the majority of load 
has the ability, incentive and information necessary to respond to 
five-minute settlements.\150\ EEI specifically requests that the 
Commission clarify that it is not proposing to change how load is 
metered.\151\
---------------------------------------------------------------------------

    \146\ EEI Comments at 8-9; PSEG Comments at 5-6; SCE Comments at 
2; AEMA Comments at 4-5; EPSA Comments, Pope Aff. at 6-7; CAISO 
Comments at 16-17.
    \147\ SCE Comments at 2.
    \148\ SCE Comments at 2.
    \149\ CAISO Comments at 16-17.
    \150\ Direct Energy Comments at 7. See also Supplemental 
Comments of Direct Energy (filed Mar. 4, 2016).
    \151\ EEI Comments at 8-9.
---------------------------------------------------------------------------

    102. PJM, however, states that it is advantageous to apply the 
proposed rule to load, and proposes to settle load on the same interval 
as dispatch intervals by using a combination of state-estimator and 
telemetry data for each settlement interval.\152\ PJM states that it 
thus does not foresee changes being required for market participants' 
metering.\153\
---------------------------------------------------------------------------

    \152\ PJM Comments at 5.
    \153\ PJM Comments at 5.
---------------------------------------------------------------------------

    103. Mr. Centolella states that advancing load settlements to 
reflect the actual interval demand of each load serving entity's 
customers could remove an important barrier to developing the next 
generation of responsive demand. Mr. Centolella also encourages the 
Commission to work with states to optimize collecting customer data, 
and to evaluate how to support efficient price formation related to the 
load data used in wholesale settlements.\154\
---------------------------------------------------------------------------

    \154\ Mr. Centolella Comments at 4-6.
---------------------------------------------------------------------------

b. Commission Determination
    104. We clarify that the Commission did not propose to apply the 
settlement interval proposal to load. We also clarify that adoption of 
the settlement interval requirements are not intended to change how 
load is metered. The Commission's basis for requiring changes to the 
settlement interval focused exclusively on supply resources rather than 
load. As a result, we have no record to require any changes to the 
settlement interval for load. However, we are not prohibiting settling 
load on a five-minute basis, and will evaluate any such proposals on a 
case-by-case basis in separate proceedings submitted pursuant to 
section 205 of the FPA.

B. Shortage Pricing Reform

1. Need for Reform
    105. In the NOPR, the Commission stated that shortage prices send a 
short-term price signal to provide an incentive for the performance of 
existing resources and help to maintain reliability. The Commission 
noted that some RTOs/ISOs currently restrict the use of shortage 
pricing to certain causes of shortages, or some RTOs/ISOs require a 
shortage to exist for a minimum amount of time before triggering 
shortage pricing.\155\ The Commission further noted that not invoking 
shortage pricing when there is a shortage (regardless of the duration 
or cause of that shortage) distorts price signals that are designed to 
elicit increased supply and to compensate resources for the value of 
the services they provide when the system needs energy or operating 
reserves. Because these price signals fail to reflect adequately the 
value that a resource provides to the system, the Commission 
preliminarily found in the NOPR that the resulting price is not just 
and reasonable.\156\
---------------------------------------------------------------------------

    \155\ NOPR, FERC Stats. & Regs. ] 32,710 at P 46.
    \156\ NOPR, FERC Stats. & Regs. ] 32,710 at P 47.
---------------------------------------------------------------------------

    106. The Commission also noted that its rationale regarding 
shortage pricing was similar to the rationale the Commission relied on 
in Order No. 719, in which the Commission determined that ``rules that 
do not allow for prices to rise sufficiently during an operating 
reserve shortage to allow supply to meet demand are unjust, 
unreasonable, and may be unduly discriminatory'' and that such rules 
``may not produce prices that accurately reflect the value of energy.'' 
\157\
---------------------------------------------------------------------------

    \157\ NOPR, FERC Stats. & Regs. ] 32,710 at P 48 (citing Order 
No. 719, FERC Stats. & Regs. ] 31,281 at P 192).
---------------------------------------------------------------------------

    107. Commenters generally support the rationale provided by the 
Commission in support of the need for reform. For example, as discussed 
below, MISO, NYISO and ISO-NE all support the need for reform, and 
CAISO supports the conceptual need, but requests further 
clarifications. EEI and EPSA also support the Commission's shortage 
pricing proposal. Conversely, SPP and PJM, in joint comments, oppose 
implementing shortage pricing in all dispatch intervals, and request 
revisions if the Commission adopts its proposed reforms.
    108. Based on analysis of the record, we adopt our preliminary 
findings and conclude that existing shortage pricing triggers that do 
not invoke shortage pricing when there is a shortage (regardless of 
duration or cause) are unjust and unreasonable and are unduly 
discriminatory and preferential. Thus, there is a need to reform the 
use of shortage pricing in RTO/ISO markets, as discussed further 
herein.
2. NOPR Proposal
    109. In order to remedy the potentially unjust and unreasonable 
rates caused by restrictions on shortage pricing, the Commission 
proposed to require that RTOs/ISOs institute mechanisms that trigger 
shortage pricing for any dispatch interval during which a shortage of 
energy or operating reserves occurs.
3. Comments on the Proposed Shortage Pricing Reform
a. Comments by RTOs/ISOs
    110. MISO states that it supports shortage pricing reform and 
maintains that MISO's current practices are already consistent with the 
Commission's proposal. Specifically, MISO states its operating reserve 
demand curve is used in the five-minute dispatch interval and triggers 
shortage pricing in any five-minute interval in which operating reserve 
requirements cannot be fully satisfied, regardless of duration or 
causation.\158\ MISO also states that its recent implementation of 
extended locational marginal pricing (ELMP) considers offline fast-
start resources in its price setting algorithm to more accurately 
reflect the cost of the next MW to meet demand during scarcity 
conditions.\159\ MISO notes that if no economic offline fast-start 
resources are eligible, it will rely upon the operating reserve demand 
curve values for shortage pricing. MISO states that it is already 
compliant with the proposed rule on shortage pricing.\160\
---------------------------------------------------------------------------

    \158\ MISO Comments at 10.
    \159\ See MISO, Extended Locational Marginal Pricing, Docket No. 
ER12-668-000 (filed Dec. 22, 2011).
    \160\ MISO Comments at 11-12.

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[[Page 42895]]

    111. ISO-NE supports the shortage pricing proposal and asserts that 
its current market rules and real-time pricing systems already comply 
with the proposed requirement.\161\
---------------------------------------------------------------------------

    \161\ ISO-NE Comments at 3.
---------------------------------------------------------------------------

    112. NYISO supports the shortage pricing proposal, and states that 
it uses demand curves to price all reserve shortages, regardless of 
their duration. NYISO adds that it currently implements shortage 
pricing in its day-ahead and real-time markets using various demand 
curves for operating reserves, regulating reserves, and transmission 
security, where the demand curves represent the escalating value of 
each product as the level of any shortage increases.\162\ NYISO also 
states that it does not interpret the NOPR to be addressing the use of 
offline resources in real-time pricing or to be implying that 
practices, such as the NYISO's ``Hybrid Pricing'' rules,\163\ are 
inconsistent with the NOPR.\164\
---------------------------------------------------------------------------

    \162\ NYISO Comments at 6.
    \163\ NYISO's Hybrid Pricing rules were adopted in 2001. See New 
York Indep. Sys. Operator, Inc., 95 FERC ] 61,121 (2001). The Hybrid 
Pricing rules apply to Real-Time Market pricing and relax the 
minimum operating limits of certain fast-start, block-loaded 
resources in order to permit them to be eligible to set price based 
on the incremental need that required their commitment.
    \164\ NYISO Comments at 7.
---------------------------------------------------------------------------

    113. CAISO agrees with the concept behind the shortage pricing 
reform and supports its implementation, subject to certain 
clarifications. CAISO expects that its existing tariff provisions 
implementing scarcity pricing for energy and ancillary services already 
comply with the NOPR's proposal. CAISO explains that, in any fifteen-
minute interval of the fifteen-minute market, it will co-optimize the 
procurement of energy and ancillary services based on submitted supply 
bids and the forecast of demand and its ancillary services 
requirements. CAISO further explains that, in any given fifteen-minute 
interval, if effective supply bids are insufficient to clear forecasted 
demand, scarcity pricing will trigger and thereby indicate a shortage 
of supply for that applicable fifteen-minute interval. CAISO states 
that, similarly, if ancillary services bids are not sufficient to meet 
the ancillary services procurement target, ancillary services scarcity 
pricing will trigger for that interval.\165\
---------------------------------------------------------------------------

    \165\ CAISO Comments at 20.
---------------------------------------------------------------------------

    114. CAISO notes that within a fifteen-minute operating interval it 
may need to deploy operating reserves to address a contingency in the 
case of operating reserves, or in the case of regulation to 
continuously balance supply and demand. CAISO states that it is 
important that the Final Rule clarify that the deployment of operating 
reserves or regulation does not necessarily mean a shortage exists. 
CAISO notes that in some cases the deployment of reserves is made 
through alternative deployment mechanisms and not in the co-
optimization function of the market.\166\ CAISO also explains that in 
any given fifteen-minute market interval, if a shortage is observed, 
shortage pricing will trigger within that interval and CAISO will not 
wait for the shortage to materialize beyond that interval before 
triggering shortage pricing. However, CAISO states that not all price 
signals triggered by ``transient shortages'' provide incentives to 
resources that have the capability to respond to brief-duration 
shortages.\167\
---------------------------------------------------------------------------

    \166\ CAISO explains that during each fifteen-minute interval in 
which the resources are deployed, the system is not actually short 
of supply bids when the operating reserves for that interval are 
procured. Also, CAISO states that once the reserves are deployed, to 
the extent that the market allows for full recovery of the required 
reserves, the contingency event itself does not trigger scarcity 
pricing for ancillary services. According to CAISO, this is because 
no actual shortage of operating reserves exists unless there are 
insufficient resources to meet operational needs for operating 
reserves in the next applicable fifteen-minute market interval. 
CAISO Comments at 21-22.
    \167\ CAISO Comments at 23.
---------------------------------------------------------------------------

    115. PJM and SPP filed joint comments opposing triggering shortage 
pricing in any dispatch interval in which a shortage of energy or 
operating reserves occurs. First, PJM and SPP state that they support 
shortage pricing only when ``a shortage of a particular product exists 
that presents reliability concerns.'' \168\ PJM and SPP argue that 
applying shortage prices to shortage events that do not cause 
reliability concerns allows price increases even when such events are 
transitory, do not pose reliability concerns, and cannot be addressed 
due to limitations on resource response. PJM and SPP maintain that 
applying shortage pricing to some transient shortages will give 
inaccurate prices and could potentially degrade system reliability, and 
may also result in market pricing and operations that are contrary to 
the Commission's stated goals.\169\
---------------------------------------------------------------------------

    \168\ PJM and SPP Comments at 1.
    \169\ PJM and SPP Comments at 1-2.
---------------------------------------------------------------------------

    116. PJM and SPP further state that they have in place rules 
related to this issue consistent with the principles and goals of 
shortage pricing. PJM and SPP urge the Commission to provide 
flexibility by allowing RTOs/ISOs to implement shortage pricing in the 
context of their regional rules. This, PJM and SPP assert, will ensure 
that inefficient pricing does not result.\170\
---------------------------------------------------------------------------

    \170\ PJM and SPP Comments at 2-3.
---------------------------------------------------------------------------

    117. PJM and SPP argue that allowing transient periods of shortage 
to trigger shortage pricing could overstate the severity of the 
operating condition and result in prices that do not accurately reflect 
operating conditions on the system, or last long enough to allow market 
participants responding to them to take meaningful action. In fact, PJM 
and SPP assert that responses may occur after the relevant interval has 
passed, which could be counterproductive operationally and 
economically. PJM and SPP pose two examples to illustrate this point. 
As the first example, they posit: PJM carrying the required amount of 
reserves when a market seller of a generation resource lowers the 
resource's economic maximum capability, for a brief time (ten minutes 
or less), causing PJM to have less reserves than its requirement. 
Currently, PJM can recover these reserves by re-executing its dispatch 
engine and re-dispatching its system; but under the shortage pricing 
reform, this could invoke shortage pricing, which would then attract 
more suppliers than needed and create disincentives for resources to 
back down once the event was over. In another example, they posit: PJM 
has scheduled a resource with a ten-minute start-up time to come online 
to provide energy so that another resource may be reduced to provide 
reserves; but if the resource scheduled to come online actually takes 
twenty minutes instead of ten, shortage pricing would be triggered 
under the shortage pricing proposal, and the second resource, instead 
of having its output reduced to provide reserves would now need to 
continue to provide energy, thus potentially leaving PJM short on 
reserves for a brief period.\171\
---------------------------------------------------------------------------

    \171\ PJM and SPP Comments at 4.
---------------------------------------------------------------------------

    118. PJM and SPP introduce another hypothetical scenario from the 
SPP region. PJM and SPP state that SPP can temporarily use operating 
reserves to meet energy requirements during transient periods when 
system conditions do not present reliability concerns. PJM and SPP 
argue that while this may technically compromise the operating reserve 
requirement, the condition is transient and is recovered in less than 
ten minutes. According to PJM and SPP, this is not an operating reserve 
shortage, but rather a transient reallocation of capacity to manage 
temporary energy needs caused by the operational characteristics of 
resources. PJM and SPP further state that the examples described above 
do not present emergency conditions or

[[Page 42896]]

reliability concerns that would justify shortage pricing.\172\
---------------------------------------------------------------------------

    \172\ PJM and SPP Comments at 5-6.
---------------------------------------------------------------------------

    119. In order to ``recognize and respect the fact that not all 
instances of shortages justify shortage pricing,'' PJM and SPP propose 
alternative language for any Final Rule on shortage pricing:

    Each RTO/ISO must establish tariff provisions that implement 
shortage pricing for pre-defined operating conditions related to a 
shortage of energy or operating reserves. The Commission will allow 
each RTO/ISO to develop those provisions based on their regional 
circumstances, provided that the rules are consistent with shortage 
pricing principles and are designed to facilitate the goals of this 
[Final Rule]. The Commission expects that each RTO/ISO will explain 
why their provisions, or why their current rules, comply with this 
rule.\173\
---------------------------------------------------------------------------

    \173\ PJM and SPP Comments at 7.

    120. PJM and SPP further assert that a universal shortage pricing 
rule requiring shortage pricing even for transient circumstances would 
require the implementation of operating reserve demand curves that 
distinguish prices relative to varying degrees of shortage. PJM and SPP 
explain further that in PJM's case, the current operating reserve 
demand curves are a step function, which would need to be changed, and 
in SPP's case it would likely consider the implementation of a pricing 
gradient demand curve based on different degrees of shortages and their 
impact on reliability, rather than steep step curves.\174\
---------------------------------------------------------------------------

    \174\ PJM and SPP Comments at 8.
---------------------------------------------------------------------------

b. Comments by Market Monitors
    121. Potomac Economics explains that all the markets that it 
monitors (ISO-NE, NYISO, and MISO) are designed to price all shortages, 
regardless of duration.\175\ Potomac Economics states that it strongly 
supports the shortage pricing reform and argues that pricing all 
shortages, regardless of duration, provides efficient incentives for 
resources to be flexible and to perform well, which ultimately lowers 
costs to consumers and improves reliability.\176\ Potomac Economics 
states that, together with the alignment of dispatch and settlement 
intervals, a requirement for RTOs/ISOs to price ``transitory 
shortages'' rewards units that can respond quickly to help the RTO/ISO 
remedy the shortage and, in doing so, addresses the diminished 
reliability caused by the shortage.\177\
---------------------------------------------------------------------------

    \175\ Potomac Economics Comments at 9.
    \176\ Potomac Economics Comments at 7.
    \177\ Potomac Economics Comments at 7.
---------------------------------------------------------------------------

    122. Potomac Economics states that transitory shortages typically 
occur when the system is ramp-constrained, and that these are true 
shortages, because if a large contingency occurs during this period 
(e.g., a generator tripping off-line), the RTO/ISO will not have the 
ability to replace the capacity because its other generators are 
already ramping as quickly as possible. Potomac Economics states that 
the Commission's proposal will lead to resources offering faster ramp 
rates, offering wider dispatch ranges and not self-scheduling 
resources, and offering shorter start times for natural gas turbines. 
Potomac Economics states that the proposal also has important long-term 
implications as it provides efficient incentives for participants to 
build more flexible, fast-ramping generating resources, and to make 
maintenance decisions on existing resources to increase their 
flexibility.\178\
---------------------------------------------------------------------------

    \178\ Potomac Economics Comments at 8.
---------------------------------------------------------------------------

    123. Potomac Economics also states that allowing offline resources 
to set real-time energy and ancillary services prices can be efficient, 
but there are also conditions under which the use of these resources 
can artificially lower energy prices and obscure shortages.\179\ 
Potomac Economics explains that if an RTO's/ISO's pricing model allows 
infeasible or uneconomic units to set prices, the offline units 
represent an artificial increase in real-time supply that will depress 
real-time prices. Further, Potomac Economics explains that the 
artificial increase in real-time supply can have a large effect when 
the system is experiencing an operating reserve or transmission 
shortage, which is ultimately not priced as a shortage because an 
offline unit has set the price.\180\
---------------------------------------------------------------------------

    \179\ Potomac Economics Comments at 9.
    \180\ Potomac Economics Comments at 10.
---------------------------------------------------------------------------

    124. Potomac Economics recommends that the Commission require RTOs/
ISOs to demonstrate that their real-time pricing models do not allow 
offline units to set prices in a manner that undermines its real-time 
shortage pricing. Potomac Economics believes that this can be 
demonstrated by the RTO/ISO describing how and when offline units set 
real-time prices and showing that when offline units have set price 
historically that they are generally committed and dispatched as well. 
Potomac Economics further asserts that if the RTOs/ISOs cannot 
demonstrate this in their compliance filing, then they may need to make 
changes to their pricing models to ensure that they satisfy the 
Commission's price formation goals.\181\
---------------------------------------------------------------------------

    \181\ Potomac Economics Comments at 9-11.
---------------------------------------------------------------------------

    125. The PJM Market Monitor states that five-minute shortage 
pricing would correctly reflect actual shortage conditions and should 
be implemented if PJM can accurately measure the level of reserves on a 
five-minute basis, which the PJM Market Monitor understands that PJM 
currently cannot do. The PJM Market Monitor asserts that, without 
accurate measurement of reserves at minute-by-minute granularity, 
system operators cannot know with certainty that a shortage condition 
exists, thus masking the trigger for five-minute shortage pricing. The 
PJM Market Monitor recommends that if PJM cannot measure operating 
reserves on a five-minute basis, the Commission should direct PJM to 
develop methods to do so. The PJM Market Monitor asserts that if RTOs/
ISOs cannot demonstrate that they can accurately measure reserves at 
minute-by-minute granularity, they should not implement five-minute 
shortage pricing until they have that capability.\182\
---------------------------------------------------------------------------

    \182\ PJM Market Monitor Comments at 9.
---------------------------------------------------------------------------

    126. The SPP Market Monitor supports the Commission's proposal to 
require RTOs/ISOs to trigger shortage pricing for any dispatch interval 
during which a shortage of energy and operating reserves occurs. The 
SPP Market Monitor states that SPP's Integrated Marketplace uses 
administratively-determined scarcity pricing demand curves to set 
prices during capacity shortages. The SPP Market Monitor explains that, 
during shortages, quick-start and fast-ramping resources--which 
generally have higher costs and low capacity factors--earn a 
significant portion of their annual revenue. The SPP Market Monitor 
asserts that scarcity pricing serves as an important mechanism for 
sending correct price signals to these resources; however, the SPP 
Market Monitor states that SPP is not sending this price signal during 
ramp-constrained operating reserve shortages since the SPP market rules 
do not allow insufficient ramping capability to trigger scarcity 
pricing of operating reserves.\183\ The SPP Market Monitor requests 
that the Commission address the ramp-constrained operating reserve 
shortage pricing issue in the Final Rule.\184\
---------------------------------------------------------------------------

    \183\ SPP Market Monitor Comments at 4 (citing SPP Tariff, 
Attachment AE 5.1.2.1 and 8.3.4.2).
    \184\ SPP Market Monitor Comments at 4-6.
---------------------------------------------------------------------------

c. Comments Supporting the Shortage Pricing Reform
    127. Several other commenters express support for shortage pricing 
reform. These commenters agree that the proposed shortage pricing 
reform will increase transparency, create incentives to trigger quick 
response from supply, promote investment in resources that

[[Page 42897]]

can respond to short duration shortages, and provide revenues to 
resources that reflect the value of the service provided.\185\ In 
addition, several commenters, including EPSA and Westar, support the 
shortage pricing proposal and state that it should apply to all 
shortages, regardless of duration.\186\
---------------------------------------------------------------------------

    \185\ Ameren Comments at 1, 3-4; ANGA Comments at 2-5; CAISO 
Comments at 2; CEA Comments at 3-6; Dominion Comments at 1-2; DTE 
Comments at 3-4; EDP Renewables Comments at 2; EEI Comments at 2; 
ESA Comments at 2-4; Entergy Nuclear Power Marketing Comments at 2; 
EPSA Comments at 1-5; Exelon Comments at 4; Financial Marketers 
Coalition Comments at 1; Golden Spread Initial Comments at 1-3; 
Inertia Power and DC Energy Comments at 2; ISO-NE Comments at 1; 
MISO Comments at 2, 9; NEI Comments at 1; NGSA Comments at 2-5; PJM 
Power Providers Comments at 2-5; Potomac Economics Comments at 2; 
Powerex Comments at 6; PSEG Comments at 3; Public Interest 
Organizations Comments at 5; SPP Market Monitor Comments at 2; 
Westar Comments at 1; Duke Comments at 7.
    \186\ EPSA Comments at 9; EPSA Comments, Pope Aff. at 15; Golden 
Spread Initial Comments at 6; PJM Power Providers Comments at 4; 
Powerex Comments at 6; EDP Renewables Comments at 5-6; Entergy 
Nuclear Power Marketing Comments at 2; Exelon Comments at 6; PSEG 
Comments at 13; Westar Comments at 5; NEI Comments at 14; CEA 
Comments at 4; NGSA Comments at 5.
---------------------------------------------------------------------------

    128. Several commenters support the Commission's shortage pricing 
proposal, arguing that market clearing prices should reflect shortage 
or emergency situations so that generators are provided transparent 
price signals that reflect the market conditions.\187\ EPSA and Westar 
note that reflecting a shortage price signal during transient shortage 
events will result in a price signal that incents resources to respond 
to real-time system constraints based on a price that reflects the 
value of loss of load even if the event is less than ten minutes in 
duration.\188\ Further, Westar states that if the ``steepness'' of 
regulation and operating reserve demand scarcity pricing curves is a 
concern then an RTO/ISO should create separate operating reserve 
scarcity demand curves for transitory periods versus periods lasting 
longer than ten minutes.\189\
---------------------------------------------------------------------------

    \187\ EEI Comments at 10; EPSA Comments at 9; PJM Power 
Providers Comments at 4; Westar Comments at 5; NEI Comments at 14.
    \188\ EPSA Comments at 9; Westar Comments at 5.
    \189\ Westar Comments at 5.
---------------------------------------------------------------------------

    129. Some commenters state that the shortage pricing proposal will 
provide an incentive for existing resources to offer their supply and 
to be available if shortages occur and will provide an incentive for 
incremental investments to enable existing or new generation or 
dispatchable demand to respond to shortages, regardless of 
duration.\190\ Further, CEA states that without appropriate 
compensation prices invariably become distorted insofar as they do not 
reflect the increased value of that resource with utmost accuracy and 
granularity.\191\ In addition, NGSA comments that the proposal will 
encourage investments by generators that allow them to more reliably 
perform, leading to greater regional fuel assurance.\192\
---------------------------------------------------------------------------

    \190\ EPSA Comments, Pope Aff. at 15; NEI Comments at 14; CEA 
Comments at 4; NGSA Comments at 5.
    \191\ CEA Comments at 4.
    \192\ NGSA Comments at 5.
---------------------------------------------------------------------------

    130. ANGA states that while a shortage may be transient and last 
only a single five-minute interval, some resources are able to move 
quickly enough to meet these shifts in demand and, hence, reduce 
overall system instability. Further, ANGA maintains, allowing prices to 
respond to these small shortages also sends a long-term price signal to 
the market, highlighting where and what types of resources are needed 
on the system, which improves overall system reliability. ANGA also 
agrees with EPSA's position, recorded in the NOPR, that all markets 
should prioritize establishing shortage pricing based on operating 
reserve demand curves and co-optimized with the energy market. ANGA 
states that this is a least-cost solution and recommends that the 
Commission direct the RTOs/ISOs to include in their compliance filing a 
plan for modifying their rules, to the extent necessary, to include 
these features in both the day-ahead and real-time markets.\193\
---------------------------------------------------------------------------

    \193\ ANGA Comments at 5.
---------------------------------------------------------------------------

    131. Powerex supports the Commission's proposal to require RTOs/
ISOs to apply shortage pricing for any dispatch interval during which a 
shortage of energy or operating reserves occurs.\194\ Powerex contends 
that shortage pricing mechanisms tied to real-time conditions provide 
revenues to generators and demand side resources that provide energy 
and reserves when needed, which is an advantage over the capacity 
markets long-term focus on load growth and reliability.\195\
---------------------------------------------------------------------------

    \194\ Powerex Comments at 6.
    \195\ Powerex Comments at 8.
---------------------------------------------------------------------------

    132. EDP Renewables states that the Commission's shortage pricing 
proposal would result in more accurate price signals than under 
existing market rules, and therefore would encourage greater investment 
in new production and storage technologies with the ability to respond 
quickly to shortages.\196\ Similarly, ESA asserts that the shortage 
pricing reform will improve the ability for a resource to be 
compensated based on the value of the service the resource 
provides.\197\ ESA maintains that, for energy storage resources to help 
ensure grid reliability, an economic incentive must exist to 
incorporate those resources onto the grid.\198\
---------------------------------------------------------------------------

    \196\ EDP Renewables Comments at 5-6.
    \197\ ESA Comments at 4.
    \198\ ESA Comments at 4.
---------------------------------------------------------------------------

    133. Exelon and Inertia Power assert that implementing shortage 
pricing for any interval during which a shortage could occur will 
provide the right incentives for generating resources and will promote 
adequate incentives for resource adequacy. Exelon and Inertia Power 
state that it is economically more efficient for prices to reflect the 
value of the marginal resource during shortage periods, and that this 
is particularly true in instances where generation resources must 
compete with alternatives, such as exporting power to a neighboring 
market or not consuming a scarce fuel.\199\
---------------------------------------------------------------------------

    \199\ Inertia Power and DC Energy Comments at 5; Exelon Comments 
at 6.
---------------------------------------------------------------------------

    134. PSEG states that it supports the shortage pricing proposal, 
that the proposal would address concerns about transparency, and that 
it would accomplish Order No. 719's objective of enhancing market 
efficiency by establishing a price that reflects the value of the loss 
of load and encourage resources to respond to shortage events.\200\ 
PSEG further states that the absence of shortage pricing in the 
appropriate intervals is inefficient within individual RTOs/ISOs as 
well as between them, and it can frustrate the objectives of 
Coordinated Transaction Scheduling, which is currently being deployed 
by several RTOs/ISOs.\201\
---------------------------------------------------------------------------

    \200\ PSEG Comments at 13.
    \201\ PSEG Comments at 14.
---------------------------------------------------------------------------

    135. Golden Spread supports the Commission's proposed shortage 
pricing reform and argues that even the smallest amount of operating 
reserve and energy shortage should be reflected in scarcity 
pricing.\202\ Golden Spread states that it has invested hundreds of 
millions of dollars in a fleet of new quick-start, fast-ramping 
generation resources in anticipation of the proper working of efficient 
marginal cost-based energy markets. Golden Spread states that to the 
extent these resources are not fully compensated because shortage 
pricing is masked, the value of these assets to Golden Spread's members 
and their consumers is diminished.\203\
---------------------------------------------------------------------------

    \202\ Golden Spread Reply Comments at 4.
    \203\ Golden Spread Reply Comments at 7.
---------------------------------------------------------------------------

    136. DTE states that, as a member of MISO, it has largely supported 
the changes MISO has made through ELMP to ensure that generators are 
provided

[[Page 42898]]

accurate price signals, akin to the shortage pricing proposal.\204\
---------------------------------------------------------------------------

    \204\ DTE Comments at 5.
---------------------------------------------------------------------------

d. Comments Recommending Changes to the Shortage Pricing Reform
    137. Several commenters propose changes to the shortage pricing 
reform, or identify implementation issues in specific RTOs/ISOs.
    138. Golden Spread, for example, states that the current SPP rules 
allow the temporary use of operating reserves to meet energy 
requirements during transient periods without invoking shortage 
pricing; in other words, SPP's rules encourage ``price manipulation'' 
undermining the transparency needed to incentivize longer term economic 
and reliable solutions.\205\
---------------------------------------------------------------------------

    \205\ Golden Spread Reply Comments at 5.
---------------------------------------------------------------------------

    139. Golden Spread identifies examples of issues with certain SPP 
processes that it argues need to be addressed to comply with this 
reform and provides the following recommendations to resolve them: (1) 
Relax constraints to allow economic dispatch to solve when there is a 
resource capacity constraint, global power balance constraint, resource 
ramp constraint or operating constraint; \206\ (2) prevent insufficient 
ramping capability to be subject to scarcity pricing; \207\ (3) include 
fast-start technologies in a Reliability Unit Commitment action to 
avoid scarcity events, which then eliminates scarcity prices; \208\ and 
(4) use of the concept of ``head-room'' to not factor much-needed 
ramping capacity in the LMP, which is reducing transparency and 
creating large uplifts.\209\
---------------------------------------------------------------------------

    \206\ Golden Spread Comments at 8.
    \207\ Golden Spread Comments at 7-8.
    \208\ Golden Spread Comments at 9-10.
    \209\ Golden Spread Comments at 10.
---------------------------------------------------------------------------

    140. ELCON states that the shortage pricing proposal should be 
adopted only if the Commission promotes the development of technology-
neutral fast-ramp products paid to provide the specific shortage 
service, and for which compensation would not inflate real-time 
LMPs.\210\ ELCON asserts that it conditionally supports the provision 
on shortage price triggers when applied to technology-neutral fast-
ramping products--products it states could be provided by demand 
response, energy storage technologies, or generation--but not to real-
time shortage pricing in which every resource dispatched or called by 
the system operator during a dispatch interval is paid the same 
price.\211\
---------------------------------------------------------------------------

    \210\ ELCON Comments at 2.
    \211\ ELCON Comments at 3-6.
---------------------------------------------------------------------------

e. Comments Opposed to the Proposed Shortage Pricing Reform
    141. Several commenters oppose the shortage pricing proposal. 
Several commenters argue that while the NOPR does not address the price 
level of the shortage pricing, to the extent that RTOs/ISOs do change 
shortage pricing triggers, the RTOs/ISOs should also evaluate whether 
shortage pricing levels remain just and reasonable.\212\ For example, 
Concerned Cooperatives and APPA and NRECA argue that the NOPR will 
raise prices for consumers, but the Commission fails to quantify the 
cost impact of the shortage pricing proposal on consumers or the 
potential benefits to the market and consumers.\213\ Concerned 
Cooperatives add that any changes to the shortage pricing triggers in 
the RTO/ISO markets must be cost-justified on the basis of quantifiable 
improvements in market efficiencies and cost reductions. Furthermore, 
Concerned Cooperatives argue that the Commission's shortage pricing 
will raise prices for consumers and increase revenues to incumbent 
generators.\214\
---------------------------------------------------------------------------

    \212\ APPA and NRECA Comments at 12; TAPS Comments at 14-15; 
Concerned Cooperatives Comments at 13.
    \213\ Concerned Cooperatives Comments at 13-14; APPA and NRECA 
Comments at 6.
    \214\ Concerned Cooperatives Comments at 13.
---------------------------------------------------------------------------

    142. APPA and NRECA assert that it is important to understand how 
various resource types would respond to price signals created by the 
shortage pricing proposal. Specifically, they assert that the NOPR did 
not discuss whether a five-minute shortage pricing event would produce 
a sufficient response or only reflect a transient shortage resolvable 
without resorting to shortage pricing.\215\ APPA and NRECA reference 
PJM representative Adam Keech's comment at the October 28, 2014 
workshop on scarcity and shortage pricing, justifying PJM's current 
minimum duration of 30 minutes prior to triggering shortage pricing, 
and assert that the shortage pricing proposal runs the risk of 
rewarding generators that are already online just because another 
generator has not fully ramped up yet.\216\ APPA and NRECA state that 
the NOPR neither discussed the degree to which the RTOs/ISOs are 
already in compliance with the proposal, the extent to which 
implementation would impact the frequency of shortage pricing events or 
impact prices, nor did it require RTOs/ISOs to undertake this 
analysis.\217\ APPA and NRECA state that shortage pricing was triggered 
relatively infrequently in PJM and MISO, but more frequently in 
NYISO.\218\
---------------------------------------------------------------------------

    \215\ APPA and NRECA Comments at 6-7.
    \216\ APPA and NRECA Comments at 7.
    \217\ APPA and NRECA Comments at 9.
    \218\ APPA and NRECA Comments at 9-10.
---------------------------------------------------------------------------

    143. APPA and NRECA question the extent to which shortage pricing 
would improve short-term system efficiency. They comment that existing 
variations among RTOs/ISOs in shortage pricing approaches create an 
opportunity to analyze the efficacy of more frequent shortage events. 
They request that the Commission direct the RTOs/ISOs to provide 
evidence or examine whether the theoretical benefits of the shortage 
pricing proposal can be validated with actual resource decisions. APPA 
and NRECA caution that, without such analysis, entities, such as 
generators already online that cannot easily ramp up or down or 
financial marketers, could benefit financially without contributing to 
system efficiency.\219\ Concerned Cooperatives also note that the 
Commission's rationale that prices must rise to reflect the true value 
of generation offered during operational shortages for the market to 
function properly fails to consider that only half of the market, i.e., 
generators, may be able to respond to the price signal in real-
time.\220\
---------------------------------------------------------------------------

    \219\ APPA and NRECA Comments at 10-11.
    \220\ Concerned Cooperatives Comments at 14.
---------------------------------------------------------------------------

    144. On the topic of long-term incentives, several commenters 
assert that no evidence exists that price signals as volatile and 
transient as shortage prices would be the basis for capital 
investments, whether to improve flexibility, whether to delay or avoid 
retirements, and especially not for the construction of new resources. 
APPA and NRECA assert that, even with a slight uptick in merchant plant 
construction compared to prior years, 95 percent of new construction 
was built under contract in 2014, and 98 percent of new construction 
was built under contract in 2013.\221\ Further, Concerned Cooperatives 
argue that the evidence presented at the technical conferences 
preceding the NOPR demonstrate that short-term price signals from 
shortage pricing do not result in the long-term resource investment 
contemplated in the NOPR.\222\
---------------------------------------------------------------------------

    \221\ APPA and NRECA Comments at 11-12; TAPS Comments at 7-13; 
Concerned Cooperatives Comments at 15-16.
    \222\ Concerned Cooperatives Comments at 15-16.
---------------------------------------------------------------------------

    145. Concerned Cooperatives contend that the RTOs/ISOs could 
develop better products, such as a fast-ramping product, that could 
encourage investment in more flexible resources without having to pay 
every resource a high price during shortage intervals of short 
duration.\223\ Moreover, APPA and

[[Page 42899]]

NRECA encourage the Commission to examine alternative methods of 
achieving its stated goal of incentivizing the availability of 
resources during periods of shortage, such as separately priced ramping 
products. APPA and NRECA urge the Commission to also examine whether 
such methods might achieve this goal at a lower cost to consumers.\224\ 
Concerned Cooperatives further argue that the Commission's proposal is 
simply a transfer of wealth from consumers to generators without value 
to consumers, because, as the Commission admitted in the NOPR, some 
shortage events are so short that suppliers cannot react to the price 
signal.\225\
---------------------------------------------------------------------------

    \223\ Concerned Cooperatives Comments at 22-24.
    \224\ APPA and NRECA Comments at 12.
    \225\ Concerned Cooperatives Comments at 15-16.
---------------------------------------------------------------------------

    146. ODEC states that, in the example provided by PJM, if a unit is 
slow in coming online for a five-minute interval, it is not clear that 
shortage pricing would not over-compensate a resource, or if supply can 
even respond to such a short-term event in sufficient time for the 
price signal to create an incentive to change behavior. ODEC states 
that it therefore believes that shortage pricing during transient 
shortages may be unjust and unreasonable because it will increase 
prices paid by load without corresponding benefits.\226\
---------------------------------------------------------------------------

    \226\ ODEC Comments at 6.
---------------------------------------------------------------------------

    147. APPA and NRECA also express concern that more frequent 
shortage pricing creates incentives to exercise market power and game 
market rules due to the potential for higher energy and operating 
reserve prices. They assert that if the proposal moves forward, each 
RTO/ISO should be required to reevaluate its market power mitigation 
rules and propose new or additional mitigation measures if 
necessary.\227\ In addition, Concerned Cooperatives also argue that 
revising RTO/ISO tariffs to invoke shortage pricing more frequently is 
likely to increase opportunities for exploitation of consumers, but 
that the NOPR does not propose to require RTOs/ISOs to include in their 
compliance filings an analysis of needed reforms to ensure that 
consumers remain protected against the exercise of market power.\228\
---------------------------------------------------------------------------

    \227\ APPA and NRECA Comments at 15-16.
    \228\ Concerned Cooperatives Comments at 15.
---------------------------------------------------------------------------

    148. Concerned Cooperatives also argue that if the Commission 
issues a final rule in this proceeding, RTOs/ISOs must be required to 
demonstrate that their shortage pricing mechanisms comply with four 
overarching principles, by providing for (1) prices that reflect the 
marginal costs of meeting the shortage; (2) a cap that is designed to 
mitigate adverse financial impacts on parties who are short; (3) prices 
that escalate with greater levels of shortage, because marginal costs 
will vary by shortage; and (4) a mechanism to ensure that revenues 
earned through shortage pricing are not duplicated by capacity market 
revenues.\229\
---------------------------------------------------------------------------

    \229\ Concerned Cooperatives Comments at 24-25.
---------------------------------------------------------------------------

    149. The New Jersey Board urges the Commission to allow PJM to 
retain its current shortage pricing mechanism--a thirty-minute look-
ahead dispatch algorithm that identifies reserve shortages as only 
those lasting a minimum of thirty minutes. The New Jersey Board agrees 
with PJM that five-minute shortfalls are not necessarily symptomatic of 
system stress, but are merely transient shortfalls that can be quickly 
addressed through system re-dispatch.
    150. More broadly, TAPS argues that any price signal during 
transient scarcity events is meaningless because resources cannot 
respond in time to the higher prices.\230\ In addition, Direct Energy 
says that targeting transient shortages will create control issues and 
increase uplift, and the application of RTO/ISO shortage penalty 
factors to these transient situations will likely lead to higher prices 
than would otherwise be produced, creating unjust and unreasonable 
rates for generation compensation.\231\
---------------------------------------------------------------------------

    \230\ TAPS Comments at 7-13.
    \231\ Direct Energy Comments at 10-11.
---------------------------------------------------------------------------

    151. Regarding definitions, Direct Energy asserts that a true 
shortage implies that insufficient capacity exists on an RTO's/ISO's 
system to meet energy and reserve requirements. In contrast, Direct 
Energy argues, transient shortage conditions are not true shortages 
because they simply reflect the operating characteristics of the 
generators being used to meet energy and reserve targets. Direct Energy 
argues that in a transient shortage condition, the RTO/ISO has the 
capacity to meet energy and reserve requirements and the transient 
shortage period represents the period of time it takes to deploy 
generation resources to meet those targets.\232\
---------------------------------------------------------------------------

    \232\ Direct Energy Comments at 10-11.
---------------------------------------------------------------------------

    152. Direct Energy claims the response an RTO/ISO receives based on 
the shortage pricing signals sent during transient shortage conditions 
is likely to cause a control issue when generation already being ramped 
through RTO/ISO dispatch to resolve the shortage condition hits its 
dispatch targets. Further, Direct Energy argues unjust and unreasonably 
higher prices would result from targeting ``transient'' shortages 
because of the impact of shortage pricing penalty factors in transient 
shortage circumstances, because the shortage pricing reserve penalty 
factors would be applied to a marginal unit providing energy that is 
not the highest opportunity cost reserve unit. Thus, Direct Energy 
argues the Commission should either revise its proposal to reflect 
issues with transient shortages of operating reserves, or permit 
individual RTOs/ISOs to evaluate this proposal and consider tariff 
revisions to address true shortages and to send appropriate price 
signals.\233\
---------------------------------------------------------------------------

    \233\ Direct Energy Comments at 11-13.
---------------------------------------------------------------------------

    153. Concerned Cooperatives and APPA and NRECA argue that the NOPR 
does not account for differences among the RTOs/ISOs, maintaining that 
shortage pricing issues should be resolved through individual 
stakeholder processes.\234\ Alternatively, Concerned Cooperatives 
request that the Commission not implement shortage pricing reform until 
an RTO/ISO demonstrates that it has eliminated the conditions that 
cause ``artificial'' shortages (those arising from mathematical 
modeling when no actual operational shortage exists), adopts rules 
preventing shortage pricing from being applied during artificial 
shortages, and adopts rules ensuring that shortage price levels are 
reduced during artificial shortages to reflect that these are not real 
shortages.\235\
---------------------------------------------------------------------------

    \234\ APPA and NRECA Comments at 5; Concerned Cooperatives 
Comments at 18.
    \235\ Concerned Cooperatives Comments at 18.
---------------------------------------------------------------------------

    154. Concerned Cooperatives also note that the NOPR fails to 
provide a comparison of the market design in RTO/ISO-administered 
markets that trigger shortage pricing for a shortage event of any 
duration and those that use longer duration events as the trigger.\236\ 
Concerned Cooperatives argue that, before imposing a uniform rule, the 
Commission should determine whether these different shortage pricing 
rules have resulted in incremental resource development, improved 
generator response to shortage conditions, and/or reduced the need for 
uplift charges. Concerned Cooperatives state that in some cases, uplift 
payments may be the most cost-effective solution for consumers.\237\
---------------------------------------------------------------------------

    \236\ Concerned Cooperatives Comments at 26.
    \237\ Concerned Cooperatives Comments at 26.
---------------------------------------------------------------------------

    155. Several commenters point to various efforts in RTOs/ISOs that 
may impact shortage pricing. Concerned Cooperatives argue that the 
Commission should not address price formation issues in a piecemeal 
fashion, as changes to one element will impact the

[[Page 42900]]

need for other reforms. Concerned Cooperatives note that several RTOs/
ISOs already have rules providing adequate incentives for resource 
performance and investment, such as PJM's Reliability Pricing Model, 
ISO-NE's Forward Capacity Market, or MISO's ELMP.\238\ Concerned 
Cooperatives assert that the Commission provides no evidence that more 
frequent triggering of shortage pricing is necessary to ensure resource 
adequacy or improve resource performance and flexibility when RTOs/ISOs 
use other market tools to achieve the same objectives set forth in the 
NOPR.
---------------------------------------------------------------------------

    \238\ Concerned Cooperatives Comments at 18-21.
---------------------------------------------------------------------------

    156. The New Jersey Board, APPA and NRECA and ODEC all acknowledge 
PJM's Capacity Performance Program \239\ and argue to varying degrees 
that shortage pricing need not be considered here given this PJM reform 
or that the Commission should consider whether there would be overlap 
between this PJM reform and the shortage pricing proposal.\240\ 
Furthermore, APPA and NRECA state that another factor in determining 
whether the shortage pricing proposal would improve market efficiency 
and benefit consumers is the extent to which there is an overlap 
between this proposal and other RTO/ISO market rules.\241\ APPA and 
NRECA also point out that, in some RTOs/ISOs such as NYISO, scarcity 
pricing is an additional and separate revenue stream that can balance 
reliance on capacity market revenues.\242\ Further, ODEC suggests that, 
instead of requiring an expansion of scarcity pricing to transient time 
periods, the Commission require PJM to consider the need to reduce, if 
not eliminate, scarcity pricing in light of the new Capacity 
Performance construct.\243\
---------------------------------------------------------------------------

    \239\ See PJM Interconnection, L.L.C., 151 FERC ] 61,208 (2015).
    \240\ New Jersey Board Comments 4-6; APPA and NRECA Comments at 
14.
    \241\ APPA and NRECA Comments at 13.
    \242\ APPA and NRECA Comments at 14-15.
    \243\ ODEC Comments at 8.
---------------------------------------------------------------------------

    157. Concerned Cooperatives note that the NOPR fails to identify 
the number of additional shortages that would be triggered in RTO/ISO 
markets that do not invoke shortage pricing for a single settlement 
interval. They argue that the NOPR also fails to quantify what that 
cost might potentially be for consumers, particularly in PJM, which 
recently sought to increase its energy offer caps to $2,000 per MWh 
which could produce LMPs of $3,700 per MWh during shortage events. 
Concerned Cooperatives state that the NOPR provides no evidence that 
prices at this level are just and reasonable for a five-minute shortage 
where a resource cannot respond and/or the event is triggered by an 
artificial shortage.\244\
---------------------------------------------------------------------------

    \244\ Concerned Cooperatives Comments at 25.
---------------------------------------------------------------------------

    158. PG&E urges the Commission to examine transient shortages and 
their attendant price spikes, and resolve modeling issues that are 
causing these shortages. PG&E understands that shortage pricing might 
be appropriate to the extent that such pricing provides a meaningful 
price signal to resources. However, PG&E argues that most price spikes 
in the CAISO over the past five years have been so short that they have 
not provided a meaningful opportunity for resources to respond.\245\ 
For example, PG&E states that from 2012 through 2014, the CAISO five-
minute market saw positive price spikes (>$250/MWh) in approximately 
0.75 percent of the intervals. PG&E argues that transitory price spikes 
do not contribute to market efficiency, but result in increased market 
costs, and they give false signals to virtual participants, which can 
distort day-ahead awards and prices. PG&E also asserts that these 
transitory price spikes have contributed to price divergence between 
day-ahead and real-time and have resulted in significant uplift 
costs.\246\
---------------------------------------------------------------------------

    \245\ PG&E Comments at 1-2.
    \246\ PG&E Comments at 1-2.
---------------------------------------------------------------------------

    159. PG&E notes that CAISO is already taking significant steps to 
address modeling issues that create transient shortages and attendant 
transient price spikes. For example, PG&E states that CAISO is working 
to augment the real-time dispatch function with a Flexible Ramping 
Product which will help avoid ramp-induced shortages that cause 
scarcity conditions in real-time. PG&E also explains that CAISO is 
considering applying different penalty prices for infeasibilities 
depending on the level of constraint relaxation, which will more 
appropriately reflect the cost of constraint violations. PG&E asserts 
that a small violation of the power balance constraint may be covered 
by deploying regulation reserves at a smaller cost per megawatt-hour 
than a larger violation, which may require more costly load 
shedding.\247\
---------------------------------------------------------------------------

    \247\ PG&E Comments at 2.
---------------------------------------------------------------------------

    160. Dominion states that it is concerned that some shortages are 
merely transient in nature due to slight differences in modeling and 
the ramping of generation, and may not warrant sending a shortage price 
signal to the market. Dominion argues that issues regarding transient 
shortages should be addressed prior to implementation of the proposed 
reforms.\248\ Dominion states that the Commission should require RTOs/
ISOs to specifically explain how the RTOs/ISOs will address this issue 
as part of their compliance filings. Further, Dominion asserts that the 
modification of shortage pricing triggers to better correlate to 
dispatch intervals should coincide with implementation of the 
Commission's proposal to align settlement intervals with dispatch 
intervals. Dominion argues that this will align a resource's timely 
response to shortage pricing with payment for its response.\249\
---------------------------------------------------------------------------

    \248\ Dominion Comments at 4-5.
    \249\ Dominion Comments at 5.
---------------------------------------------------------------------------

4. Commission Determination
    161. For the reasons discussed below, we adopt the NOPR shortage 
pricing proposal and modify the regulatory text to clarify that 
shortage pricing is required only when a shortage of energy or 
operating reserves is indicated by the RTO's/ISO's software.
    162. Specifically, we require each RTO/ISO to trigger shortage 
pricing for any interval in which a shortage of energy or operating 
reserves is indicated during the pricing of resources for that 
interval. As stated in the NOPR, the shortage pricing requirement 
should ``ensure that a resource is compensated based on a price that 
reflects the value of the service the resource provides.'' \250\ This 
rationale applies to any shortage ``regardless of the duration or cause 
of [the] shortage.'' \251\ It thus would apply to ``transient 
shortages.'' Several commenters specifically agreed with this 
analysis.\252\ Under this requirement, whenever a shortage of energy or 
operating reserves is indicated in an RTO's/ISO's pricing run software 
for a particular pricing interval, shortage pricing should be invoked 
even if during that period resources are ramping up to a particular 
level they are likely to reach in a few minutes.
---------------------------------------------------------------------------

    \250\ NOPR, FERC Stats. & Regs. ] 32,710 at P 52.
    \251\ NOPR, FERC Stats. & Regs. ] 32,710 at P 47; see also id. P 
9 (``This reform would also ensure that resources operating during a 
shortage are compensated for the value of the service that they 
provide, regardless of whether the shortage is short-lived.'').
    \252\ See, e.g., Inertia Power and DC Energy Comments at 6 
(citing NYISO Comments, Docket No. AD14-14-000, at 28-29 (Mar. 6, 
2015), Potomac Economics Comments, Docket No. AD14-14-000, at 25-26 
(Mar. 6, 2015), and Calpine Comments, Docket No. AD14-14-000, at 20 
(Mar. 6, 2015)); SPP Market Monitor Comments at 3; Golden Spread 
Comments at 3-4.
---------------------------------------------------------------------------

    163. We find that the shortage pricing requirement will help ensure 
that prices rise sufficiently and appropriately to allow supply to meet 
demand during an operating reserve shortage, and thus will more 
accurately reflect the value a

[[Page 42901]]

resource provides.\253\ Better formed prices help ensure just and 
reasonable rates by providing appropriate incentives for market 
participants to follow commitment and dispatch instructions, maintain 
reliability, provide transparency of the underlying value of the 
service so that operational and investment decisions are based on 
prices that reflect the actual marginal cost of serving load and the 
operational constraints of reliable system operation, and encourage 
efficient investments in facilities and equipment.
---------------------------------------------------------------------------

    \253\ See NOPR, FERC Stats. & Regs. ] 32,710 at P 48 (citing 
Order No. 719, FERC Stats. & Regs. ] 31,281).
---------------------------------------------------------------------------

    164. As for incentives to follow dispatch, as noted in the NOPR, if 
a resource is compensated based on a price that reflects the value of 
the service the resource provides, the resource will have appropriate 
incentives to address energy or reserve shortages. As explained by 
Potomac Economics, the higher prices (relative to non-shortage price 
intervals) resulting from the shortage pricing proposal will enhance 
resource flexibility by leading to: (1) Faster resource ramp rates; (2) 
wider dispatch ranges and not self-scheduling resources; (3) shorter 
start times for natural gas turbines; and (4) an incentive to build 
more flexible, fast-ramping generating resources and to perform 
maintenance on existing resources that increases their 
flexibility.\254\ In addition, shortage pricing during all reserve 
deficiencies also sends the correct price signal to already operating 
resources to take any actions necessary to remain operational during 
the shortage event. For instance, a resource that is already operating 
but realizes it will need to take a forced outage in the near-term will 
receive a clear signal to delay that forced outage, to the extent 
possible, until the reserve shortage has been resolved.
---------------------------------------------------------------------------

    \254\ Potomac Economics Comments at 8.
---------------------------------------------------------------------------

    165. A number of commenters cite the role of appropriate shortage 
pricing in creating an incentive for market participants to make 
investments that will alleviate shortages in the future.\255\ EDP 
Renewables and ESA note that the shortage pricing proposal will 
encourage greater investment in new production and storage 
technologies.\256\ In response to commenters that assert that short 
duration shortage prices will not create a sufficient incentive for new 
entry, we agree with EPSA that appropriate shortage pricing will 
encourage more modest investments that can improve availability and 
response-time, such as weatherization of fuel supplies, heat tracing to 
reduce instrument failure during freezing temperatures, and completion 
of deferred maintenance such as burner upgrades.\257\ Investments of 
the nature identified by commenters should enhance reliability in the 
long-run as system resources are more able to perform during critical 
system conditions.
---------------------------------------------------------------------------

    \255\ NEI Comments at 14; NGSA Comments at 5; EPSA Comments, 
Pope Aff. at 15; Potomac Economics Comments at 8.
    \256\ EDP Renewables Comments at 5-6; ESA Comments at 4. ESA 
states that the shortage pricing reform will improve the ability for 
a resource to be compensated based on the value of the service the 
resource provides.
    \257\ EPSA Comments, Pope Aff. at 19.
---------------------------------------------------------------------------

    166. With regard to transparency, an RTO's/ISO's action to 
establish prices at the times of shortage, including transient 
shortages, makes the shortage apparent to all market participants. This 
maximizes the opportunities and incentives for all system resources to 
take actions to address the shortage.
    167. In response to commenters like CAISO, we clarify that we did 
not intend to impose shortage pricing if a shortage occurs during an 
interval for which the prices and dispatch decisions have already been 
set. We did not intend that, for example, ex post pricing should, after 
binding prices have been determined by the RTO/ISO software, invoke 
shortage pricing based upon a subsequent recognition that a shortage 
existed in a particular prior interval. Similarly, the shortage pricing 
proposal also did not intend to require any changes to the frequency of 
existing dispatch and pricing runs for energy or operating reserves. To 
the extent that operating reserves are priced at a different interval 
than energy resources are dispatched, as is the case in CAISO, this 
Final Rule applies to the interval that prices and co-optimizes both 
energy and operating reserves. Thus, an RTO/ISO need not trigger 
shortage pricing during a fifteen-minute operating reserve period if it 
becomes aware of a shortage within that interval, because reserve 
prices have already been set for that entire fifteen-minute period. 
Only if that shortage is projected to continue into the next reserve 
period and there is time to factor that shortage into the dispatch and 
pricing run for the next interval does the RTO/ISO need to trigger 
shortage pricing for that next interval.
    168. Also, the shortage pricing proposal did not intend to require 
any changes to existing pricing methods, such as ELMP in MISO that 
allows offline resources to set energy prices, and we agree that the 
use of offline resources can result in efficient pricing.\258\ However, 
we agree with Potomac Economics that if an RTO's/ISO's pricing model 
allows infeasible or uneconomic units to set prices, the offline units 
represent an artificial increase in real-time supply that will depress 
real-time prices. Therefore, for the purpose of this Final Rule, RTOs/
ISOs choosing to use offline resources to count towards energy and 
operating reserve requirements may not allow infeasible or uneconomic 
offline units to set prices through the real-time pricing model or to 
be counted as providing reserves.
---------------------------------------------------------------------------

    \258\ See Midcontinent Indep. Sys. Operator, Inc., 150 FERC ] 
61,143, at P 36 (2015) (``For the reasons discussed below, we 
conditionally accept MISO's Revised ELMP Filing, effective March 1, 
2015, subject to a further compliance filing. . . .''); Midcontinent 
Indep. Sys. Operator, Inc., Docket No. ER15-685-001 (Feb. 4, 2016) 
(delegated letter order accepting compliance filing).
---------------------------------------------------------------------------

    169. In opposing the proposal, PJM and SPP argue that an energy or 
operating reserve shortage that the RTO/ISO expects to be resolved 
quickly (e.g., within ten minutes), should not trigger shortage 
pricing. They note that, in PJM, for example, shortage pricing is not 
triggered until a shortage is projected to last at least thirty 
minutes.\259\
---------------------------------------------------------------------------

    \259\ NOPR, FERC Stats. & Regs. ] 32,710 at P 46 & n.70; PJM and 
SPP Comments at 5.
---------------------------------------------------------------------------

    170. We disagree that an energy or operating reserve shortage that 
the RTO/ISO expects to be resolved quickly should not trigger shortage 
pricing. Such a shortage presents exactly the type of mismatch between 
system conditions and pricing that the reform was meant to remedy. 
Thus, by adopting the proposed shortage pricing reform, we require PJM 
and SPP to modify their existing shortage pricing mechanisms.
    171. As summarized above, PJM and SPP provide three hypothetical 
situations in their joint comments to describe situations where they 
argue shortage pricing should not apply.\260\ In all of these 
scenarios, RTOs/ISOs are ``technically compromising the operating 
reserve requirement,'' as PJM and SPP concede,\261\ although such 
transient shortages may not violate NERC's reliability standards.\262\ 
However, we find that RTOs/ISOs should reflect these system conditions 
in the price. Using shortage pricing for a transient shortage situation 
reflects in

[[Page 42902]]

the price of operating reserves the current system conditions, which 
include the possibility of a contingency occurring--for which operating 
reserves were procured and designed to address. This is designed to 
appropriately value those resources that provide value to the system by 
their ability to respond quickly to changing prices. As Potomac 
Economics states,\263\ transient shortages, which typically occur when 
the system is ramp-constrained, are true shortages because, if a large 
contingency occurs during such a shortage (e.g., a generator trips off-
line), the RTO/ISO will not have the ability to replace the capacity 
because other generators are already ramping as quickly as possible. It 
is possible, as PJM and SPP state, that when a transient shortage is 
recognized, RTOs/ISOs can re-dispatch their system to eliminate the 
shortage quickly.\264\ However, until the shortage is resolved, prices 
should reflect the system conditions and the actions taken to resolve 
the shortage as much as possible.
---------------------------------------------------------------------------

    \260\ PJM and SPP Comments at 3-5.
    \261\ PJM and SPP Comments at 4.
    \262\ Requirement R6.2 of North American Electric Reliability 
Corporation's Reliability Standard BAL-002-1 requires restoration of 
contingency reserves within 90 minutes: ``The default Contingency 
Reserve Restoration Period is 90 minutes.'' In the Western Electric 
Coordinating Council (WECC), the reliability standards require 
restoration of contingency reserves within 60 minutes. WECC BAL-002-
WECC-2, R1.
    \263\ Potomac Economics Comments at 8.
    \264\ PJM and SPP Comments at 4.
---------------------------------------------------------------------------

    172. PJM, SPP, and Direct Energy have also not shown that applying 
shortage pricing to transient shortages will create control issues and 
increase uplift.\265\ In fact, there is evidence in this record that it 
will not. The RTOs/ISOs which currently invoke shortage pricing during 
relatively brief periods, i.e., MISO, NYISO and ISO-NE., do not appear 
to have these types of control issues. Further, we note that reflecting 
system conditions in prices should decrease uplift over time, as the 
costs of units committed, dispatched, or designated as reserves would 
be reflected in prices and those units would no longer need to be made 
whole through uplift payments.
---------------------------------------------------------------------------

    \265\ See PJM and SPP Comments at 3-5 (making this argument in 
the context of the hypotheticals discussed above); Direct Energy 
Comments at 10-11.
---------------------------------------------------------------------------

    173. PJM and SPP state that application of the shortage pricing 
reform to transient shortages would likely require the implementation 
of operating reserve demand curves that distinguish prices relative to 
varying degrees of shortage.\266\ In the NOPR, the Commission 
acknowledged that, as a result of the shortage pricing reform, ``an 
RTO/ISO may need to calibrate administrative shortage prices to better 
reflect the value of the service.'' \267\ Thus, if PJM or SPP believes 
that a modification of the applicable operating reserve demand curves 
is appropriate in light of the shortage pricing reform, the appropriate 
forum to make such is a change is through an FPA section 205 filing.
---------------------------------------------------------------------------

    \266\ PJM and SPP Comments at 7-8.
    \267\ NOPR, FERC Stats. & Regs. ] 32,710 at P 49.
---------------------------------------------------------------------------

    174. We disagree with TAPS, Concerned Cooperatives, APPA, and NRECA 
that the only effect of requiring RTOs/ISOs to trigger shortage prices 
in transient events is to provide extra revenue to generators already 
in the market.\268\ While extra revenue may result from prices 
accurately reflecting shortage conditions, we believe that is 
appropriate. The purpose for requiring the shortage pricing is to 
create transparent market prices that reflect system conditions. The 
benefit of triggering shortage prices for all shortages is that it 
gives all suppliers an incentive to do as much as they can, including 
investments and operational alterations, to be available the next time 
it appears that shortages may occur and shortage pricing may be 
invoked, even if such shortages last briefly. Further, as discussed 
above, shortage pricing during all reserve deficiencies also sends the 
correct price signal to already operating resources to take any actions 
necessary to remain operational during the shortage event.
---------------------------------------------------------------------------

    \268\ TAPS Comments at 9; APPA and NRECA Comments at 7; 
Concerned Cooperatives Comments at 16.
---------------------------------------------------------------------------

    175. We disagree with the views of those commenters \269\ who 
assert that the proposed rule is not justified because no evidence 
exists that price signals as volatile and transient as shortage prices 
would be the basis for capital investments. While shortage pricing 
revenues may not, by themselves, be enough to financially justify 
entirely new generation projects, commenters who are generation owners 
and project developers have indicated that triggering shortage prices 
during short duration shortages as proposed in the NOPR ``will provide 
an incentive for incremental investments to enable existing or new 
generation or dispatchable demand to respond to short-duration 
shortages.'' \270\ As to the amount of construction done recently by 
merchants as opposed to that done under long-term contracts, we note 
that RTOs/ISOs such as PJM have been able to maintain reliability with 
reliance primarily upon their capacity market and not long-term 
contracts for new generation.\271\
---------------------------------------------------------------------------

    \269\ APPA and NRECA Comments at 11-12; TAPS Comments at 7-13; 
Concerned Cooperatives Comments at 15-16.
    \270\ EPSA Comments, Pope Aff. at 15.
    \271\ See generally Monitoring Analytics, New Generation in the 
PJM Capacity Market: MW and Funding Sources for Delivery Years 2007/
2008 through 2018/2019 (May 4, 2016), http://www.monitoringanalytics.com/reports/Reports/2016/New_Generation_in_the_PJM_Capacity_Market_20160504.pdf.
---------------------------------------------------------------------------

    176. TAPS recommends that the Commission direct each RTO/ISO to 
propose new shortage prices for transient shortages that do not exceed 
the value of the incremental benefit (if any) provided by an additional 
megawatt in those circumstances, or to demonstrate that the RTO's/ISO's 
existing shortage prices applicable in such circumstances already meet 
that standard.\272\ We decline to require this in the Final Rule both 
because this was not originally proposed and because the record in this 
proceeding has not persuaded us that any RTO's/ISO's administrative 
shortage prices need to be modified. However, as discussed above, any 
RTO/ISO may file, pursuant to section 205 of the FPA, to propose a 
modification of any of the administrative shortage prices as a result 
of this Final Rule, as PJM and SPP indicate they might.
---------------------------------------------------------------------------

    \272\ TAPS Comments at 13. PJM and SPP indicate that they may 
need to file to modify their shortage prices. See PJM and SPP 
Comments at 8.
---------------------------------------------------------------------------

    177. The PJM Market Monitor identifies an implementation issue, 
which may be unique to PJM. The PJM Market Monitor asserts that PJM 
cannot accurately measure the actual level of operating reserves on a 
five-minute basis. To address this, the PJM Market Monitor and the New 
Jersey Board recommend that the Commission direct PJM to develop this 
measurement capability before it implements the shortage pricing 
proposal.\273\ To the extent that PJM or any other RTO/ISO believes it 
needs to enhance its measurement capabilities to implement the shortage 
pricing requirement, it should propose to do so in its compliance 
filing.
---------------------------------------------------------------------------

    \273\ PJM Market Monitor Comments at 9.
---------------------------------------------------------------------------

    178. Concerned Cooperatives maintains that the shortage pricing 
proposal may not achieve the price formation objective of increased 
transparency because generators may not be capable of responding fast 
enough to shortage pricing triggered during transient events.\274\ 
However, we find that the shortage pricing requirement will increase 
transparency because shortage prices provide a clear and public market 
signal, while compensation to resources provided through uplift 
provides a signal only to individual resources and after-the-fact. In 
addition, consistently sending a clear price signal during reserve 
deficiencies in real-time should encourage market participant behavior 
in the day-ahead market that translates into day-ahead

[[Page 42903]]

prices that better reflect expected system conditions.
---------------------------------------------------------------------------

    \274\ Concerned Cooperatives Comments at 6.
---------------------------------------------------------------------------

    179. Concerned Cooperatives, ODEC, ELCON, and PG&E suggest that the 
Commission should not adopt the shortage pricing proposal because other 
initiatives, such as PJM's Reliability Pricing Model modifications and 
fast ramping products, already provide adequate incentives for resource 
performance and send the signals needed for generation investment.\275\ 
We are not persuaded by these arguments. While other initiatives, such 
as PJM's Reliability Pricing Model modifications and additional fast-
ramping products, could decrease the occurrence of shortages and 
shortage pricing, an effective shortage pricing trigger is still 
required to ensure appropriate pricing when shortages occur. This is 
particularly important for incenting behavior by load in the day-ahead 
market that is consistent with expected system conditions in real-time. 
For instance, the Reliability Pricing Model modifications will send 
real-time price signals to encourage resource performance, but will not 
necessarily encourage accurate day-ahead load forecast for load.
---------------------------------------------------------------------------

    \275\ Concerned Cooperatives Comments at 18-25; ELCON Comments 
at 2; PG&E Comments at 2.
---------------------------------------------------------------------------

    180. Concerned Cooperatives express concern that the Commission 
does not require the RTOs/ISOs to include, in their compliance filings, 
an analysis to ensure that consumers remain protected against the 
exercise of market power when the proposed reforms are 
implemented.\276\ However, Concerned Cooperatives do not explain why 
the RTOs'/ISOs' existing market power mitigation methodologies would 
not prevent the exercise of market power during times of shortage 
pricing, under the proposed reforms or otherwise. Therefore, we do not 
require the RTOs/ISOs to provide a market power review and mitigation 
reforms in their compliance filings.
---------------------------------------------------------------------------

    \276\ Concerned Cooperatives Comments at 15.
---------------------------------------------------------------------------

C. Compliance and Implementation

1. Commission Proposal
    181. In the NOPR, the Commission proposed that RTOs/ISOs submit 
compliance filings on both the proposed settlement reform and the 
proposed shortage pricing reform four months from the effective date of 
the Final Rule; that the proposed settlement reform become effective 
twelve months from the date of the compliance filings for 
implementation of reforms to settlement systems; and that the shortage 
pricing proposal become effective four months from the date of the 
compliance filings for implementation of reforms to shortage pricing 
triggers.\277\
---------------------------------------------------------------------------

    \277\ NOPR, FERC Stats. & Regs. ] 32,710 at PP 38, 54-55.
---------------------------------------------------------------------------

2. Comments
    182. As described below, some commenters sought more time to submit 
compliance filings and questioned (1) whether the Commission provided 
enough time to implement the settlement proposal; and (2) whether the 
Commission should extend implementation of the shortage pricing 
proposal to allow for simultaneous implementation of shortage pricing 
proposal with the settlement proposal.
a. Comments From RTOs/ISOs
    183. The ISO/RTO Council argues that the Commission should not 
force the RTOs/ISOs to substantially reform their existing market 
structure to comply with the shortage pricing proposal.\278\ PJM, MISO, 
and ISO-NE either support the compliance deadline or believe that they 
can meet the compliance deadline once a Final Rule is published in the 
Federal Register.\279\
---------------------------------------------------------------------------

    \278\ ISO/RTO Council Comments at 3.
    \279\ PJM Comments at 7; MISO Comments at 13; ISO-NE Comments at 
1.
---------------------------------------------------------------------------

    184. ISO-NE supports the implementation timeline for the shortage 
pricing proposal because it believes that its market already meets the 
NOPR proposal.\280\ Similarly, ISO-NE states that it has already 
engaged its participants to discuss tariff changes to settle the real-
time markets in five-minute intervals, and is therefore not concerned 
with the implementation timeline because it anticipates tariff changes 
will be filed with the Commission in mid-2016, to be effective in 
2017.\281\
---------------------------------------------------------------------------

    \280\ ISO-NE Comments at 3.
    \281\ ISO-NE Comments at 2. ``ISO-NE plans to implement five-
minute settlement of real-time reserves as part of the 
implementation of five-minute settlement of real-time energy 
transactions, which is currently being discussed with 
stakeholders.'' Id. at 3.
---------------------------------------------------------------------------

    185. MISO states that it already has a project in progress to 
replace the current software systems that perform market and 
transmission settlements processing,\282\ and it estimates that an 
additional eight months would be required to mitigate any issues 
related to the new software and complete development of the revised 
settlement system, allowing implementation by the fourth quarter of 
2017.\283\ MISO states that the Commission should allow each RTO/ISO to 
propose, in its compliance filing, what it believes is a reasonable 
implementation schedule.\284\
---------------------------------------------------------------------------

    \282\ MISO Comments at 3.
    \283\ MISO Comments at 6.
    \284\ MISO Comments at 12.
---------------------------------------------------------------------------

    186. PJM asserts that it can make a compliance filing four months 
after the date of the Final Rule, but is concerned that insufficient 
time was suggested for implementation.\285\ PJM hopes to complete an 
evaluation of what changes are needed in its settlement system around 
April 2016, but, depending upon on the outcome of that analysis, it 
estimates that revising the settlement process will require between 
fifteen to thirty-eight months.\286\ PJM also states that, though it 
opposes the shortage pricing proposal, if the Commission orders some 
version of shortage pricing reform, the Commission should consider 
simultaneous implementation of shortage pricing with the settlement 
interval proposal.\287\
---------------------------------------------------------------------------

    \285\ PJM Comments at 7.
    \286\ PJM Comments at 3-4.
    \287\ PJM addresses its objections to the shortage pricing 
proposals in the PJM and SPP Comments.
---------------------------------------------------------------------------

    187. CAISO also states that, depending upon the specifics of the 
Final Rule, extra time may be necessary for a complete compliance 
filing.\288\
---------------------------------------------------------------------------

    \288\ CAISO Comments at 25. CAISO has asked for certain 
clarifications as part of its comments, and states that if the 
Commission does not make the necessary clarifications, CAISO will 
need extra time to consider what changes would need to be made to 
its systems, and to develop implementing tariff language along with 
the supporting filing. Id.
---------------------------------------------------------------------------

b. Comments Urging Flexibility in Implementation
    188. Several commenters urge flexibility in the implementation 
timelines.\289\ The New Jersey Board concurs with PJM that, given the 
technical uncertainties involved, the Commission, in the Final Rule, 
should provide flexibility in the implementation timeline.\290\ Duke 
states that the RTOs/ISOs should determine the implementation timeline 
after first exploring system design options, cost impacts to market 
participants, and approaches to reduce cost impacts.\291\ EEI and APPA 
and NRECA contend that not only is a flexible implementation timeline 
necessary, but RTOs/ISOs should also be encouraged to work with market 
participants to ensure they have the necessary systems and metering in 
place in advance.\292\
---------------------------------------------------------------------------

    \289\ ISO/RTO Council Comments at 3; New Jersey Board Comments 
at 3; PJM Comments at 4; EEI Comments at 8; NEPOOL Comments at 1; 
Golden Spread Comments at 7-8.
    \290\ New Jersey Board Comments at 3 (citing PJM Comments at 4).
    \291\ Duke Comments at 6.
    \292\ EEI Comments at 8; APPA and NRECA Comments at 4-5.
---------------------------------------------------------------------------

    189. NEPOOL, Golden Spread, and TAPS echo the statements of EEI,

[[Page 42904]]

contending that implementation should account for specific differences 
between the RTOs/ISOs instead of imposing a rigid standard.\293\
---------------------------------------------------------------------------

    \293\ NEPOOL Comments at 5; Golden Spread Comments at 7-8; TAPS 
Comments at 14-15.
---------------------------------------------------------------------------

    190. Although TAPS argues against the proposed shortage pricing 
rule, it states that if the rule is adopted, then needed administrative 
shortage pricing level modifications should become effective when other 
shortage pricing modifications become effective.\294\ Golden Spread 
also identifies issues it believes need to be addressed before the 
proposed shortage pricing requirement can be properly implemented in 
SPP.\295\
---------------------------------------------------------------------------

    \294\ TAPS Comments at 13.
    \295\ Golden Spread Comments at 8-10.
---------------------------------------------------------------------------

c. Compliance Filing Deadline
    191. Some commenters commented on the amount of time allowed to 
submit a compliance filing. With regard to the settlement interval 
proposal, Concerned Cooperatives state that because it could take over 
a year to determine what market rules may need modification and to 
subsequently implement those changes, the Commission should require a 
compliance filing after one year so that RTOs/ISOs can discuss 
implementation issues with stakeholders.\296\ TAPS states that the 
four-month compliance deadline proposed in the NOPR is too short 
because a rule adjusting shortage pricing triggers needs to be 
accompanied by an adjustment to shortage pricing levels.\297\
---------------------------------------------------------------------------

    \296\ Concerned Cooperatives Comments at 12.
    \297\ TAPS Comments at 14.
---------------------------------------------------------------------------

d. Implementation Deadline
    192. PSEG states that, in markets where the current equipment can 
be utilized, the twelve-month implementation timeline proposed by the 
NOPR would be reasonable.\298\ However, PSEG notes that the Commission 
must take into account the time it will take the individual RTOs/ISOs 
to implement computer system changes.\299\ Several commenters assert 
that the timelines for implementation mentioned in the NOPR may be too 
short.
---------------------------------------------------------------------------

    \298\ PSEG Comments at 8.
    \299\ PSEG Comments at 15; Inertia Power Comments at 9.
---------------------------------------------------------------------------

    193. ODEC asserts that, instead of requiring implementation within 
twelve months of the compliance filings, if the Commission determines 
PJM must settle resources at the same interval those resources are 
dispatched, then the Commission should require each RTO/ISO to submit a 
proposed plan for compliance and implementation of the Final Rule.\300\
---------------------------------------------------------------------------

    \300\ ODEC Comments at 5.
---------------------------------------------------------------------------

    194. Exelon maintains that the implementation period for the five-
minute settlement interval proposal should be 18 months because of the 
equipment changes that will be necessary for generators in the RTOs/
ISOs that do not currently use five-minute pricing.\301\
---------------------------------------------------------------------------

    \301\ Exelon Comments at 5.
---------------------------------------------------------------------------

    195. Ameren argues the timeline proposed in the NOPR is too short 
and could potentially increase both costs and risks to the detriment of 
their customers.\302\ As for the settlement interval proposal, Ameren 
states that the implementation timeline developed from its internal 
assessment is at least 24 months to 29 months, with a possible 
implementation date of June 1, 2018 if a Final Rule is issued in early 
2016.\303\
---------------------------------------------------------------------------

    \302\ Ameren Comments at 6.
    \303\ Ameren Comments at 6-7. Ameren also suggests ``aligning 
the implementation of a final rule with the beginning of the MISO 
Planning Year, i.e. June 1, in order to facilitate a more seamless 
transition.'' Id.
---------------------------------------------------------------------------

    196. Dominion and IPL point out that implementation timing and 
specifics for market participants will depend upon when the RTOs/ISOs 
finalize their own implementation details, and it argues that the 
proposed twelve-month implementation period for settlement interval 
reforms does not appropriately take this factor into account.\304\
---------------------------------------------------------------------------

    \304\ Dominion Comments at 2; IPL Comments at 2-3.
---------------------------------------------------------------------------

    197. DTE states that it would need a minimum of eighteen months and 
``several million dollars'' to implement necessary changes to its 
settlement system,\305\ and Duke is concerned that twelve months will 
not be enough time.\306\ DTE and Duke emphasize that it is essential 
for the Commission to encourage RTOs/ISOs to work with stakeholders and 
market participants in order to facilitate the most cost-effective and 
timely implementation.\307\ Commenting on the shortage pricing 
proposal, Concerned Cooperatives, who also contend stakeholders need to 
work cooperatively with RTOs/ISOs, assert that the implementation 
timeline is not long enough, and that the Commission should allow at 
least a year for the RTOs/ISOs to vet the shortage pricing 
implementation details with their stakeholders.\308\
---------------------------------------------------------------------------

    \305\ DTE Comments at 4-5. DTE explains that these changes would 
include, among other things, evaluating its meters and computer 
systems, as well as re-evaluating many of its current contracts. Id.
    \306\ Duke Comments at 6-7; DTE Comments at 4-5. DTE explains 
that these changes would include, among other things, evaluating its 
meters and computer systems, as well as re-evaluating many of its 
current contracts. Id.
    \307\ DTE Comments at 5; Duke Comments at 6-7.
    \308\ Concerned Cooperatives Comments at 26-27.
---------------------------------------------------------------------------

    198. APPA and NRECA request that RTOs/ISOs ensure all market 
participants either have the necessary metering and billing systems in 
place or have sufficient time to add required systems.\309\
---------------------------------------------------------------------------

    \309\ APPA and NRECA Comments at 4-5.
---------------------------------------------------------------------------

    199. Only one entity, Direct Energy, requested an indefinite delay 
of implementation: Specifically, for the five-minute settlement 
proposal, arguing that the underlying technology of many supply 
resources is not advanced enough to ensure the efficiency the 
Commission states it seeks in the NOPR.\310\
---------------------------------------------------------------------------

    \310\ Direct Energy Comments at 6.
---------------------------------------------------------------------------

e. Simultaneous Implementation
    200. Some commenters argue that the Commission should synchronize 
implementation of the shortage pricing reform with the settlement 
interval proposal due to their interrelated nature.\311\
---------------------------------------------------------------------------

    \311\ PJM Comments at 10; EEI Comments at 10-11; DTE Comments at 
6; EPSA Comments at 8; PSEG Comments at 15-16; Inertia Power and DC 
Energy Comments at 8-9.
---------------------------------------------------------------------------

f. Costs
    201. In the NOPR, the Commission noted that while adopting the 
proposed reforms might provide significant benefits, implementing and 
modifying settlement systems can be complex and costly.\312\ Various 
commenters provided settlement implementation cost estimates: PJM ($3 
to $5.6 million),\313\ Ameren ($3 million, plus an additional $13 to 
$20 million if the settlement interval proposal is applied to 
load),\314\ Duke ($1 to $3.25 million, plus an additional $4 million if 
the settlement interval proposal is applied to load),\315\ and 
Concerned Cooperatives ($1.5 to $2 million capital costs and $300,000 
to $600,000 annual costs).\316\
---------------------------------------------------------------------------

    \312\ NOPR, FERC Stats. & Regs. ] 32,710 at P 60.
    \313\ PJM Comments at 3-4.
    \314\ Ameren Comments at 5-6.
    \315\ Duke Comments at 6.
    \316\ Concerned Cooperatives Comments at 9.
---------------------------------------------------------------------------

    202. While the NOPR did not propose that a cost-benefit analysis 
must be performed in conjunction with the proposed reforms, some 
commenters discuss whether a formal cost-benefit analysis is necessary 
prior to implementation of the proposals. APPA and NRECA, Concerned 
Cooperatives, Ameren, and IPL claim that a cost-benefit analysis is 
necessary before implementation.\317\ IPL asserts this

[[Page 42905]]

analysis will prove that market benefits will be small in comparison to 
the costs of implementation.\318\ Conversely, EPSA and the PJM Market 
Monitor state that they should not be required to do a cost-benefit 
analysis (specifically in reference to sub-hourly pricing) because it 
would be too difficult to accurately measure or approximate the 
potential long-term benefits.\319\
---------------------------------------------------------------------------

    \317\ APPA and NRECA Comments at 4-5; Concerned Cooperatives 
Comments at 12; Ameren Comments at 4; IPL Comments at 2.
    \318\ IPL Comments at 2.
    \319\ EPSA Comments, Pope Aff. at 13-14; PJM Market Monitor 
Comments at 2-3.
---------------------------------------------------------------------------

    203. Some commenters opine on how they perceive the costs relate to 
the benefits of the proposed reforms. Duke expresses concerns that the 
costs of aligning dispatch and settlement intervals will exceed the 
benefits. Duke acknowledges that the potential impact of these reforms 
is not currently knowable, given that MISO and PJM have not proposed 
new market rules and system changes.\320\ However, Duke states that if 
RTOs/ISOs determine that costs associated with the proposed reform will 
not exceed the benefits, stakeholder discussions could involve software 
system changes and relevant costs and impacts on market 
participants.\321\ In contrast, Inertia Power states that, although the 
long-term benefits are not quantifiable, the direct savings to 
consumers and market participants will warrant the costs. Inertia Power 
suggests that the Commission should consider the ``immeasurable cost of 
muted price signals'' when comparing costs to benefits.\322\
---------------------------------------------------------------------------

    \320\ Duke Comments at 6.
    \321\ Duke Comments at 5.
    \322\ Inertia Power Comments at 7.
---------------------------------------------------------------------------

3. Commission Determination
    204. Because the reforms required in this Final Rule are targeted 
and specific, we believe RTOs/ISOs will have sufficient time to develop 
and file tariff changes to adopt these limited reforms, contrary to the 
concerns of commenters such as Concerned Cooperatives and TAPS. In the 
NOPR, the Commission recognized that implementation of the settlement 
reform could take up to a year after the compliance filings were 
submitted.\323\ With regard to shortage pricing, any revisions an RTO/
ISO may propose to shortage pricing levels (which are not required by 
this Final Rule) must be filed under section 205 and could be submitted 
prior to the actual implementation of the shortage pricing provisions 
of this Final Rule, thereby permitting stakeholders and the RTO/ISO 
additional time to work through the implementation details.
---------------------------------------------------------------------------

    \323\ NOPR, FERC Stats. & Regs. ] 32,710 at P 55.
---------------------------------------------------------------------------

    205. Of the entities required to submit a compliance filing, PJM, 
MISO, and ISO-NE either support the compliance deadline or believe that 
they can meet the compliance deadline once a Final Rule is published in 
the Federal Register. Further, neither SPP nor NYISO submitted comments 
opposing the compliance deadline. CAISO expressed concern about its 
ability to submit a compliance filing within 120 days of the effective 
date of this Final Rule. We believe that, with the various 
clarifications provided in this Final Rule, CAISO should be able to 
submit a compliance filing within four months of the effective date of 
the Final Rule. Accordingly, we adopt the proposal in the NOPR and 
require each RTO/ISO to submit, within 120 days of the effective date 
of this Final Rule, a compliance filing that includes tariff changes 
that adopt the requirements in this Final Rule, or demonstrates how the 
RTO/ISO already complies. We will allow a further 12 months from the 
compliance filing date for the tariff changes implementing reforms to 
settlement intervals to be effective, and 120 days from that same 
compliance filing date for the tariff changes implementing shortage 
pricing reforms to be effective.\324\
---------------------------------------------------------------------------

    \324\ The Commission has followed a similar approach with the 
timelines for compliance and implementation in the past. See, e.g., 
Order No. 755, FERC Stats. & Regs. ] 31,324 at P 201, reh'g denied, 
Order No. 755-A, 138 FERC ] 61,123.
---------------------------------------------------------------------------

    206. As previously noted, comments on the implementation schedule 
focused on two areas: (1) Whether the Commission provided enough time 
to implement the settlement reform proposal; and (2) whether the 
Commission should extend implementation of the shortage pricing reform 
proposal to allow for simultaneous implementation of shortage pricing 
with settlement reform. Based upon the comments received, we retain the 
current implementation schedule, but will consider requests for 
extensions of time to extend the implementation dates when the RTOs/
ISOs submit their compliance filings. The RTOs/ISOs will have had 120 
days as they prepare their compliance filings to assess the feasibility 
of implementing the reforms set forth in this Final Rule. It is 
premature at this time to extend the implementation timelines when 
affected parties are only just starting to analyze what actions they 
must take in order to implement the requirements of the Final Rule.
    207. Moreover, when the RTOs/ISOs submit their respective 
compliance filings, we will consider whether it is appropriate to 
permit the RTO/ISO to synchronize implementation of shortage pricing 
with the settlement interval based upon the facts presented at that 
time. We expect that any RTO/ISO seeking to synchronize shortage 
pricing with the settlement interval will set forth compelling reasons 
as to why it is necessary based upon the unique nature of the RTO/ISO.
    208. We will not dictate how RTOs/ISOs must implement the reforms 
set forth in the Final Rule from a technical perspective. Nevertheless, 
we recommend that wherever possible, the RTO/ISO should consider using 
existing metering equipment and current data collection processes, such 
as the process currently being explored by PJM.\325\
---------------------------------------------------------------------------

    \325\ PJM Comments at 3.
---------------------------------------------------------------------------

    209. With regard to the comments concerning the costs of 
implementing the NOPR proposals, we find that some of these costs 
appear to be overstated, taken as a whole. For example, PJM's use of 
its state estimator and telemetry may reduce, if not eliminate, the 
need for new five-minute revenue quality meters; and it is unclear, in 
the case of the Concerned Cooperatives, why costs equal to several more 
full-time employees would need to be incurred on an annual basis as a 
result of the NOPR reform. In any event, we find that the value of the 
benefits of more accurate pricing under the proposed rule described in 
the NOPR, as recognized by the vast majority of commenters in this 
proceeding, and the net present value of the future increases in market 
surplus, although difficult to quantify with precision, are likely to 
outweigh any one-time implementation costs.
    210. We reject the proposal to require RTOs/ISOs to conduct a cost-
benefit analysis before implementing the settlement reform.\326\ The 
Commission has not previously conducted such analyses when it has 
considered whether to require various market reforms.\327\ Also, since 
many of the expected benefits will occur in the long-run due to changes 
in marginal investments and enhancements resulting from other price 
formation reforms, there is limited ability to quantify the short-run 
benefits before adopting these reforms.\328\ We agree with the PJM 
Market Monitor's assertion that, while the costs of implementation

[[Page 42906]]

may be approximated, calculating the efficiency benefits of 
implementing five-minute settlements is effectively impossible.\329\
---------------------------------------------------------------------------

    \326\ APPA and NRECA Comments at 4.
    \327\ Cf. Order No. 719-A, FERC Stats. & Regs. ] 31,292 at P 179 
(``For instance, although we believe that cost-benefit analyses can 
be useful in analyzing new projects, we are unconvinced that the 
Commission should mandate cost-benefit analyses in all circumstances 
where an RTO or ISO engages in a major initiative'').
    \328\ EPSA Comments, Pope Aff. at 13-14.
    \329\ PJM Market Monitor Comments at 2-3.
---------------------------------------------------------------------------

D. Requests Beyond the Scope of This Proceeding

1. Comments
    211. Commenters raised issues that are not discussed above and that 
are outside of the scope of this rulemaking. EPSA states that the 
Commission and RTOs/ISOs must move expeditiously on the reforms 
proposed in the NOPR as well as others identified in the price 
formation proceeding that encourage economically efficient decisions 
about resource entry and exit.\330\
---------------------------------------------------------------------------

    \330\ EPSA Comments at 11.
---------------------------------------------------------------------------

    212. PJM Power Providers and Exelon urge the Commission to focus on 
reducing uplift and remedying its causes as well as market power 
mitigation, operator actions, and other issues.\331\ PJM Power 
Providers, Exelon, EPSA, and NGSA also encourage Commission action on 
reforming the energy offer cap.\332\
---------------------------------------------------------------------------

    \331\ PJM Power Providers Comments at 7; Exelon Comments at 8.
    \332\ PJM Power Providers Comments at 6; EPSA Comments at 13-15; 
Exelon Comments at 8-9; NGSA Comments at 6 (citing NGSA Comments, 
Docket No. ER15-623-000 (filed Jan. 20, 2015)).
---------------------------------------------------------------------------

    213. ELCON, Westar, TAPS, and Inertia Power and DC Energy recognize 
the interconnected nature of the issues in the price formation 
proceeding. ELCON urges the Commission to consolidate any additional 
price formation proposals into a single NOPR.\333\ Westar states that 
the Commission should consider the NOPR in conjunction with other items 
identified in the price formation proceedings.\334\ TAPS states that 
RTOs/ISOs should have the flexibility to comply with all price 
formation rulemakings in a way that coordinates implementation and 
reduces the possibility of overlapping modifications of software and 
hardware.\335\ Inertia Power and DC Energy asks the Commission to be 
mindful of other system benefits that may result from the required 
software and hardware upgrades in the RTO/ISOs.\336\
---------------------------------------------------------------------------

    \333\ ELCON Comments at 7.
    \334\ Westar Comments at 2-3.
    \335\ TAPS Comments at 6.
    \336\ Inertia Power and DC Energy Comments at 8.
---------------------------------------------------------------------------

    214. EEI and EPSA reiterate their prior comments regarding common 
principles that should guide the discussion of price formation: (1) 
Dispatch-based pricing; (2) efficient commitment that will provide 
accurate day-ahead and real-time price signals; and (3) transparency 
with regard to out-of-market actions and payments.\337\ EEI further 
states that the Commission should consider issues related to improving 
the transparency of LMPs by addressing the treatment of start-up and 
no-load costs, and operator actions that result in out-of-market 
payments.\338\
---------------------------------------------------------------------------

    \337\ EEI Comments at 4-5 (citing EEI Comments, Docket No. AD14-
14-000, at 2 (filed Mar. 6, 2015)); EPSA Comments at 12 and Att. B.
    \338\ EEI Comments at 6.
---------------------------------------------------------------------------

    215. Westar requests that the Commission encourage RTOs/ISOs to 
clarify what costs may constitute marginal costs.\339\ Additionally, XO 
Energy lists many benefits of a day-ahead transmission product, and 
recommends the implementation of such a product across all RTOs/
ISOs.\340\
---------------------------------------------------------------------------

    \339\ Westar Comments at 3.
    \340\ XO Energy Comments at 2-3 (citing MISO, Virtual Spread Bid 
Proposal Stakeholder Workshop, at 10 (Nov. 18, 2013)).
---------------------------------------------------------------------------

    216. Financial Marketers Coalition and XO Energy assert that while 
the NOPR addresses settlement intervals for generation (supply), 
similar reforms are needed for the intervals in which load is 
forecasted, bid and settled in order to eliminate the mismatch between 
generation and load.\341\
---------------------------------------------------------------------------

    \341\ Financial Marketers Coalition Comments at 4-6; XO Energy 
Comments at 3-4.
---------------------------------------------------------------------------

    217. Entergy Nuclear Power Marketing and NEI state that although 
the reforms proposed in the NOPR will improve price formation for 
resources operating in real-time, they will not improve the outlook for 
baseload resources such as nuclear plants typically fully committed in 
the day-ahead market.\342\
---------------------------------------------------------------------------

    \342\ Entergy Nuclear Power Marketing Comments at 2-3; NEI 
Comments at 15.
---------------------------------------------------------------------------

    218. NEI recommends various changes to price formation to better 
ensure that the market clearing price reflects all of the costs 
associated with reliably providing service to the market.\343\
---------------------------------------------------------------------------

    \343\ NEI Comments at 15-16.
---------------------------------------------------------------------------

    219. With respect to other issues, DTE requests clarification from 
the Commission that market participants will not have to change the 
manner in which they currently net purchases and sales for purposes of 
FERC Form No. 1.\344\ The SPP Market Monitor raises look-ahead modeling 
concerns.\345\ Powerex has concerns regarding steps CAISO takes to 
minimize the occurrence of shortages (as opposed to when shortage 
pricing occurs) \346\ and Public Interest Organizations have a concern 
regarding possible barriers to the participation of demand response in 
RTO/ISO markets.\347\
---------------------------------------------------------------------------

    \344\ DTE Comments at 6.
    \345\ PSEG Comments at 14; SPP Market Monitor at 4-7; Westar 
Comments at 3.
    \346\ Powerex Comments at 9-13.
    \347\ Public Interest Organizations Comments at 4-5.
---------------------------------------------------------------------------

    220. Referencing the NOPR's discussion of the role that look-ahead 
tools can play in mitigating seemingly artificial shortages, the SPP 
Market Monitor also requests the Commission clarify that look-ahead 
models incorporate administrative pricing in their least cost 
evaluation before choosing unit commitments to relieve shortages.\348\
---------------------------------------------------------------------------

    \348\ SPP Market Monitor Comments at 7.
---------------------------------------------------------------------------

    221. Powerex argues that further Commission action is necessary to 
ensure that RTOs/ISOs refrain from using more general tariff provisions 
and non-tariff protocols, including out-of-market procurement and other 
operator interventions, to prevent shortage pricing from being 
triggered or otherwise prevent scarcity from being reflected in market 
prices.\349\
---------------------------------------------------------------------------

    \349\ Powerex Comments at 9.
---------------------------------------------------------------------------

    222. Dominion questions if the proposed settlement reforms require 
further consideration of the interactions between the day-ahead and 
real-time markets. Specifically, Dominion suggests that changes may be 
necessary to how the RTOs/ISOs calculate generator deviations in the 
real-time market from their day-ahead schedules.\350\
---------------------------------------------------------------------------

    \350\ Dominion Comments at 3-4.
---------------------------------------------------------------------------

    223. ESA requests that the Commission consider five-minute 
scheduling once it implements five-minute intervals to better access 
the greater operational flexibility of fast-ramping resources like 
energy storage.\351\
---------------------------------------------------------------------------

    \351\ ESA Comments at 4-5.
---------------------------------------------------------------------------

    224. Powerex requests that the Commission require each RTO/ISO to: 
(1) Identify all out-of-market actions or procurement tools that it 
uses, or is authorized to use, to manage its system; and (2) propose 
tariff amendments to ensure that these actions are appropriately 
reflected in prices or, alternatively, demonstrate that its existing 
tariff provisions already achieve such a result.\352\
---------------------------------------------------------------------------

    \352\ Powerex Comments at 12-13.
---------------------------------------------------------------------------

    225. Appian Way states that the instant proposals encompassed by 
this NOPR are insufficient to ensure proper shortage pricing. Appian 
Way adds that some RTOs/ISOs will continue to have defective pricing 
unless and until the Commission requires them to establish pricing 
rules that ensure prices rise to scarcity levels when shortage 
conditions occur that require the RTO/ISO to call

[[Page 42907]]

demand response in order to serve load.\353\
---------------------------------------------------------------------------

    \353\ Appian Way Comments at 2.
---------------------------------------------------------------------------

    226. Inertia Power and DC Energy state that when operating reserves 
and other ancillary services are priced ``out of market,'' it prevents 
the triggering of shortage pricing and circumvents the intent of the 
NOPR.\354\
---------------------------------------------------------------------------

    \354\ Inertia Power Comments at 5-6.
---------------------------------------------------------------------------

    227. Potomac Economics states that the Commission's focus on 
shortage pricing should extend to transmission shortages.\355\
---------------------------------------------------------------------------

    \355\ Potomac Economics Comments at 11.
---------------------------------------------------------------------------

    228. Public Interest Organizations state that if the Commission 
carries out the shortage pricing proposal as set forth in the NOPR, it 
should simultaneously ensure that demand-side resources can respond to 
those prices to reduce the potential for unjust and unreasonable 
rates.\356\
---------------------------------------------------------------------------

    \356\ Public Interest Organizations Comments at 3-5.
---------------------------------------------------------------------------

    229. Mr. Lively maintains that shortages should be viewed as a 
continuum, not as a shortage versus non-shortage issue. Mr. Lively 
cites a paper he wrote that discusses using Area Control Error (ACE) in 
a pricing mechanism to adjust the nominal price of electricity to 
determine a settlement price.\357\
---------------------------------------------------------------------------

    \357\ Mr. Lively Comments at 3-4 (filed Nov. 23, 2015).
---------------------------------------------------------------------------

2. Commission Determination
    230. We appreciate the concerns raised by numerous commenters 
requesting that the Commission undertake various initiatives, as set 
forth above. However, we find that the requested initiatives go beyond 
the scope of this rulemaking. Many of the issues raised by commenters 
may be relevant in other price formation proceedings,\358\ but they go 
beyond the limited issues in this proceeding, which deals only with the 
settlement interval proposal and the trigger for shortage pricing. 
Accordingly, we will not address those issues here.
---------------------------------------------------------------------------

    \358\ See, e.g., Offer Caps in Markets Operated by Regional 
Transmission Organizations and Independent System Operators, Notice 
of Proposed Rulemaking, 81 FR 5591 (Feb. 4, 2016), FERC Stats. & 
Regs. ] 32,714 (2016), Price Formation in Energy and Ancillary 
Services Markets Operated by Regional Transmission Organizations and 
Independent System Operators, 153 FERC ] 61,221 (2015).
---------------------------------------------------------------------------

IV. Information Collection Statement

    231. The Paperwork Reduction Act (PRA) \359\ requires each federal 
agency to seek and obtain Office of Management and Budget (OMB) 
approval before undertaking a collection of information directed to ten 
or more persons or contained in a rule of general applicability. OMB's 
regulations,\360\ in turn, require approval of certain information 
collection requirements imposed by agency rules. Upon approval of a 
collection(s) of information, OMB will assign an OMB control number and 
an expiration date. Respondents subject to the filing requirements of a 
rule will not be penalized for failing to respond to these 
collection(s) of information unless the collection(s) of information 
display a valid OMB control number.
---------------------------------------------------------------------------

    \359\ 44 U.S.C. 3501-3520 (2012).
    \360\ 5 CFR part 1320 (2015).
---------------------------------------------------------------------------

    232. In this Final Rule, we are amending the Commission's 
regulations to improve the operation of organized wholesale electric 
power markets operated by RTOs and ISOs. We require that each RTO/ISO 
align settlement and dispatch intervals by: (1) Settling energy 
transactions in its real-time markets at the same time interval it 
dispatches energy; (2) settling operating reserves transactions in its 
real-time markets at the same time interval it prices operating 
reserves; and (3) settling intertie transactions in the same time 
interval it schedules intertie transactions. We also require that each 
RTO/ISO trigger shortage pricing for any interval that prices both 
energy and operating reserves in which a shortage of energy or 
operating reserves is indicated during the pricing of resources for 
that interval. The reforms required in this Final Rule require a one-
time tariff filing due 120 days after the effective date of this Final 
Rule. With regard to those RTOs/ISOs that believe that they already 
comply with the reforms required here, they can demonstrate their 
compliance in their compliance filing. The Commission will submit the 
proposed reporting requirements to OMB for its review and approval 
under section 3507(d) of the Paperwork Reduction Act.\361\
---------------------------------------------------------------------------

    \361\ 44 U.S.C. 3507(d).
---------------------------------------------------------------------------

    233. Although the Commission stated in the NOPR that it expects the 
adoption of the reforms proposed to provide significant benefits,\362\ 
the Commission solicited comments on the accuracy of provided burden 
and cost estimates set forth in the NOPR and any suggested methods for 
minimizing the respondents' burdens, including the use of automated 
information techniques. Specifically, the Commission sought detailed 
comments on the potential cost and time necessary to implement aspects 
of the reforms proposed in the NOPR, including (1) hardware, software, 
and business processes changes; (2) increased data storage and 
validation; (3) changes to market participant metering or other 
equipment; and (4) processes for RTOs/ISOs to vet proposed changes 
amongst their stakeholders. The Commission also sought comment on 
whether changes in settlement systems would disrupt existing 
contractual relationships and, if so, what burdens this might impose 
and how the Commission should address any potential issues resulting 
from such disruption.
    234. The Commission received responses regarding the costs of 
implementing the reforms described in the NOPR; \363\ however we find 
that those costs do not fall under the definition of ``burden'' as 
defined by OMB's regulations.\364\ Therefore, an analysis of those 
costs is not relevant to our analysis under the PRA.
---------------------------------------------------------------------------

    \363\ See supra PP 201-203.
    \364\ ``Burden'' is defined as ``the total time, effort, or 
financial resources expended by persons to generate, maintain, 
retain, or disclose or provide information to or for a Federal 
Agency, including . . . (ii) Developing, acquiring, installing, and 
utilizing technology and systems for the purpose of collecting, 
validating, and verifying information; (iii) Developing, acquiring, 
installing, and utilizing technology and systems for the purpose of 
processing and maintaining information; (iv) Developing, acquiring, 
installing, and utilizing technology and systems for the purpose of 
disclosing and providing information. . . .'' 5 CFR 1320.3(b)(1) 
(2015). We respond to comments regarding other costs not related to 
``burden'' (such as hardware and software) in PP 209-210 above.
---------------------------------------------------------------------------

    Burden Estimate and Information Collection Costs: We believe that 
the burden estimates below are representative of the average burden on 
respondents. The estimated burden and cost \365\ for the requirements 
contained in this Final Rule follow.\366\
---------------------------------------------------------------------------

    \365\ The estimated hourly cost (salary plus benefits) provided 
in this section are based on the salary figures for May 2015 posted 
by the Bureau of Labor Statistics for the Utilities sector 
(available at http://www.bls.gov/oes/current/naics2_22.htm#00-0000) 
and scaled to reflect benefits using the relative importance of 
employer costs in employee compensation from December 2015 (released 
March 10, 2016 and available at http://www.bls.gov/news.release/ecec.nr0.htm). The hourly estimates for salary plus benefits are:
    Legal (code 23-0000), $128.94
    Computer and Mathematical (code 15-0000), $60.54
    Information Security Analyst (code 15-1122), $57.99
    Accountant and Auditor (code 13-2011), $53.78
    Information and Record Clerk (code 43-4199), $37.69
    Electrical Engineer (code 17-2071), $64.20
    Economist (code 19-3011), $74.43
    Computer and Information Systems Manager (code 11-3021), $91.63
    Management (code 11-0000), $88.94
    The average hourly cost (salary plus benefits), weighting all of 
these skill sets evenly, is $73.13. For the calculations here, the 
Commission rounds it to $73 per hour.
    \366\ The RTOs/ISOs (CAISO, ISO-NE., MISO, NYISO, PJM, and SPP) 
are required to comply with the reforms in this Final Rule. Three 
RTOs/ISOs (ISO-NE., MISO, and PJM) currently do not align real-time 
settlement with dispatch intervals and thus likely would be burdened 
more by that aspect of the reforms in this Final Rule.

[[Page 42908]]



 
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                         Annual number of
FERC 516D,\367\ as implemented in       Number of         responses per     Total number of    Average burden hours & cost   Annual burden hours & total
    final rule in RM15-24-000          respondents          respondent         responses              per response                   annual cost
                                   (1)................                (2)    (1) x (2) = (3)  (4).........................  (3) x (4) = (5)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Tariff filings one-time in Year    3 RTOs or ISOs.....                  1                  3  80 hrs; $5,840..............  240 hrs; $17,520.
 1, for RTOs/ISOs that currently
 align real-time settlement with
 dispatch intervals.
Tariff filings one-time in Year    3 RTOs or ISOs.....                  1                  3  160 hrs; 11,680.............  480 hrs; 35,040.
 1, for RTOs/ISOs that do not
 currently align real-time
 settlement with dispatch
 intervals.
                                                       -------------------------------------------------------------------------------------------------
    Total (one-time in Year 1)     6..................  .................                  6  ............................  720 hrs.; 52,560.
     \368\.
--------------------------------------------------------------------------------------------------------------------------------------------------------

    Title: FERC-516D, Electric Rate Schedules and Tariff Filings in 
Docket RM15-24.
    Action: A new information collection.
    OMB Control No.: To Be Determined.
    Respondents for This Rulemaking: RTOs and ISOs.
    Frequency of Information: One-time during Year one.
    Necessity of Information: The Federal Energy Regulatory Commission 
implements this rule to improve competitive wholesale electric markets 
in the RTO and ISO regions.
---------------------------------------------------------------------------

    \367\ The information collection requirements and related burden 
for the NOPR in Docket No. RM15-24 were submitted to OMB under FERC-
516 (Electric Rate Schedules and Tariff Filings, OMB Control No. 
1902-0096). Currently, there is an unrelated package (in Docket No. 
PL15-3) pending OMB review under FERC-516. Because only one item per 
OMB Control No. can be pending OMB review at a time, the reporting 
requirements in the Final Rule in RM15-24 are being submitted to OMB 
for review under FERC-516D (a temporary `placeholder' collection 
number, OMB Control No. to be determined). Long-term, the staff 
expects to transfer administratively the requirements and burden of 
this final rule to FERC-516 (OMB Control No. 1902-0096) from FERC-
516D.
    \368\ The burden costs (one-time in Year 1) consist of filing 
proposed tariff changes to the Commission within four months of the 
effective date of the Final Rule.
---------------------------------------------------------------------------

    Internal Review: The Commission has reviewed the changes and has 
determined that such changes are necessary. These requirements conform 
to the Commission's need for efficient information collection, 
communication, and management within the energy industry. The 
Commission has specific, objective support for the burden estimates 
associated with the information collection requirements.
    235. Interested persons may obtain information on the reporting 
requirements by contacting the following: Federal Energy Regulatory 
Commission, 888 First Street NE., Washington, DC 20426 [Attention: 
Ellen Brown, Office of the Executive Director], email: 
[email protected], Phone: (202) 502-8663, fax: (202) 273-0873. 
Comments concerning the collection of information and the associated 
burden estimate(s) may also be sent to the Office of Information and 
Regulatory Affairs, Office of Management and Budget, 725 17th Street 
NW., Washington, DC 20503 [Attention: Desk Officer for the Federal 
Energy Regulatory Commission]. Due to security concerns, comments 
should be sent electronically to the following email address: 
[email protected]. Comments submitted to OMB should refer to 
FERC-516D and OMB Control No. To Be Determined.

V. Environmental Analysis

    236. The Commission is required to prepare an Environmental 
Assessment or an Environmental Impact Statement for any action that may 
have a significant adverse effect on the human environment.\369\ We 
conclude that neither an Environmental Assessment nor an Environmental 
Impact Statement is required for this Final Rule under section 
380.4(a)(15) of the Commission's regulations, which provides a 
categorical exemption for approval of actions under sections 205 and 
206 of the FPA relating to the filing of schedules containing all rates 
and charges for the transmission or sale of electric energy subject to 
the Commission's jurisdiction, plus the classification, practices, 
contracts and regulations that affect rates, charges, classifications, 
and services.\370\
---------------------------------------------------------------------------

    \369\ Regulations Implementing the National Environmental Policy 
Act of 1969, Order No. 486, 52 FR 47897 (Dec. 17, 1987), FERC Stats. 
& Regs., Regulations Preambles 1986-1990 ] 30,783 (1987).
    \370\ 18 CFR 380.4(a)(15) (2015).
---------------------------------------------------------------------------

VI. Regulatory Flexibility Act

    237. The Regulatory Flexibility Act of 1980 (RFA) \371\ generally 
requires a description and analysis of rules that will have significant 
economic impact on a substantial number of small entities. The RFA does 
not mandate any particular outcome in a rulemaking. It only requires 
consideration of alternatives that are less burdensome to small 
entities and an agency explanation of why alternatives were rejected.
---------------------------------------------------------------------------

    \371\ 5 U.S.C. 601-612 (2012).
---------------------------------------------------------------------------

    238. This rule applies to six RTOs/ISOs (all of which are 
transmission organizations). The three RTOs/ISOs that do not currently 
align real-time settlement with dispatch intervals will have to incur a 
one-time cost to upgrade their hardware and software. These 
enhancements will be needed to allow the RTOs/ISOs to process 
settlement data on a more granular level. That one-time cost (spread 
over Years 1 and 2) for hardware and software for each of those three 
RTOs/ISOs is estimated to be an average of $3 million (a total of $9 
million for those three RTOs/ISOs). The average estimated burden cost 
(one-time in Year 1) to each of the RTOs/ISOs is $8,760 (total of 
$52,560 for all six RTOs/ISOs). Therefore the estimated total cost 
(burden, hardware, and software) over Years 1 and 2 for all six RTOs/
ISOs is $9,052,560.

[[Page 42909]]

    239. The RTOs/ISOs, however, are not small entities, as defined by 
the RFA.\372\ This is because the relevant threshold between small and 
large entities is 500 employees and the Commission understands that 
each RTO/ISO has more than 500 employees. Furthermore, because of their 
pivotal roles in wholesale electric power markets in their regions, 
none of the RTOs/ISOs meet the last criterion of the two-part RFA 
definition of a small entity: ``Not dominant in its field of 
operation.'' As a result, we certify that the reforms required by this 
Final Rule would not have a significant economic impact on a 
substantial number of small entities.
---------------------------------------------------------------------------

    \372\ The RFA definition of ``small entity'' refers to the 
definition provided in the Small Business Act, which defines a 
``small business concern'' as a business that is independently owned 
and operated and that is not dominant in its field of operation. The 
Small Business Administration's regulations at 13 CFR 121.201 (2015) 
define the threshold for a small Electric Bulk Power Transmission 
and Control entity (NAICS code 221121) to be 500 employees. See 5 
U.S.C. 601(3) (2012) (citing to section 3 of the Small Business Act, 
15 U.S.C. 632 (2012)).
---------------------------------------------------------------------------

VII. Document Availability

    240. In addition to publishing the full text of this document in 
the Federal Register, the Commission provides all interested persons an 
opportunity to view and/or print the contents of this document via the 
Internet through FERC's Home Page (http://www.ferc.gov) and in FERC's 
Public Reference Room during normal business hours (8:30 a.m. to 5:00 
p.m. Eastern time) at 888 First Street NE., Room 2A, Washington, DC 
20426.
    241. From FERC's Home Page on the Internet, this information is 
available on eLibrary. The full text of this document is available on 
eLibrary in PDF and Microsoft Word format for viewing, printing, and/or 
downloading. To access this document in eLibrary, type the docket 
number excluding the last three digits of this document in the docket 
number field.
    242. User assistance is available for eLibrary and the FERC's Web 
site during normal business hours from FERC Online Support at (202) 
502-6652 (toll free at 1-866-208-3676) or email at 
[email protected], or the Public Reference Room at (202) 502-
8371, TTY (202) 502-8659. Email the Public Reference Room at 
[email protected].

VIII. Effective Date and Congressional Notification

    243. These regulations are effective September 13, 2016. The 
Commission has determined, with the concurrence of the Administrator of 
the Office of Information and Regulatory Affairs of OMB, that this rule 
is not a ``major rule'' as defined in section 351 of the Small Business 
Regulatory Enforcement Fairness Act of 1996.

List of Subjects in 18 CFR Part 35

    Electric power rates, Electric utilities, Reporting and 
recordkeeping requirements.

    By the Commission.
    Issued: June 16, 2016.
Kimberly D. Bose,
Secretary.

    In consideration of the foregoing, the Commission amends part 35, 
chapter I, title 18, Code of Federal Regulations, as follows:

PART 35--FILING OF RATE SCHEDULES AND TARIFFS

0
1. The authority citation for part 35 continues to read as follows:

    Authority: 16 U.S.C. 791a-825r, 2601-2645; 31 U.S.C. 9701; 42 
U.S.C. 7101-7352.


0
2. Amend Sec.  35.28 as follows:
0
a. Revise paragraph (g)(1)(iv)(A).
0
b. Add paragraph (g)(1)(vi).


Sec.  35.28  Non-discriminatory open access transmission tariff

* * * * *
    (g) * * *
    (1) * * *
    (iv) * * *
    (A) Each Commission-approved independent system operator and 
regional transmission organization must modify its market rules to 
allow the market-clearing price during periods of operating reserve 
shortage to reach a level that rebalances supply and demand so as to 
maintain reliability while providing sufficient provisions for 
mitigating market power. Each Commission-approved independent system 
operator and regional transmission organization must trigger shortage 
pricing for any interval in which a shortage of energy or operating 
reserves is indicated during the pricing of resources for that 
interval.
* * * * *
    (vi) Settlement intervals. Each Commission-approved independent 
system operator and regional transmission organization must settle 
energy transactions in its real-time markets at the same time interval 
it dispatches energy, must settle operating reserves transactions in 
its real-time markets at the same time interval it prices operating 
reserves, and must settle intertie transactions at the same time 
interval it schedules intertie transactions.
* * * * *
    Note: The following appendix will not be published in the Code of 
Federal Regulations.

Appendix: List of Commenters

    The following is a list of the entities that filed comments in 
this proceeding, along with the short name/acronym used in this 
Final Rule. Unless otherwise noted, all comments were submitted on 
November 30, 2015.

Comments

------------------------------------------------------------------------
               Short name/acronym                       Commenter
------------------------------------------------------------------------
AEMA...........................................  Advanced Energy
                                                  Management Alliance.
Ameren.........................................  Ameren Services Company
                                                  (on behalf of Ameren
                                                  Illinois Company and
                                                  Union Electric
                                                  Company).
ANGA...........................................  America's Natural Gas
                                                  Alliance.
APPA and NRECA.................................  American Public Power
                                                  Association and
                                                  National Rural
                                                  Electric Cooperative
                                                  Association.
Appian Way.....................................  Appian Way Energy
                                                  Partners.
CAISO..........................................  California Independent
                                                  System Operator
                                                  Corporation.
CEA............................................  Canadian Electricity
                                                  Association.
Concerned Cooperatives.........................  Hoosier Energy Rural
                                                  Electric Cooperative,
                                                  Inc., Kansas Electric
                                                  Power Cooperative,
                                                  Inc., and North
                                                  Carolina Electric
                                                  Membership
                                                  Corporation.
Delaware Commission............................  Delaware Public Service
                                                  Commission.
Direct Energy..................................  Direct Energy Business,
                                                  LLC and Direct Energy
                                                  Business Marketing,
                                                  LLC.
Dominion.......................................  Dominion Resources
                                                  Services, Inc.
DTE............................................  DTE Electric Company.

[[Page 42910]]

 
Duke...........................................  Duke Energy
                                                  Corporation, Duke
                                                  Energy Progress, LLC,
                                                  Duke Energy Carolinas,
                                                  LLC, Duke Energy
                                                  Kentucky, Inc., Duke
                                                  Energy Indiana, Inc.,
                                                  and Duke Energy Ohio,
                                                  Inc.
EDP Renewables.................................  EDP Renewables North
                                                  America LLC.
EEI............................................  Edison Electric
                                                  Institute.
ELCON..........................................  Electricity Consumers
                                                  Resource Council.
ESA............................................  Energy Storage
                                                  Association.
EPSA...........................................  Electric Power Supply
                                                  Association.
Entergy Nuclear Power Marketing................  Entergy Nuclear Power
                                                  Marketing, LLC.
Exelon.........................................  Exelon Corporation.
Financial Marketers Coalition..................  Financial Marketers
                                                  Coalition.
Golden Spread..................................  Golden Spread Electric
                                                  Cooperative, Inc.
Inertia Power and DC Energy....................  Inertia Power, LP and
                                                  DC Energy, LLC.
IPL............................................  Indianapolis Power &
                                                  Light Company.
ISO/RTO Council................................  ISO/RTO Council.
ISO-NE.........................................  ISO New England Inc.
Mr. Lively.....................................  Mark B. Lively, Utility
                                                  Economic Engineers.
MISO...........................................  Midcontinent
                                                  Independent System
                                                  Operator, Inc.
NEPOOL.........................................  New England Power Pool
                                                  Participants
                                                  Committee.
NEI............................................  Nuclear Energy
                                                  Institute.
New Jersey Board...............................  New Jersey Board of
                                                  Public Utilities.
NGSA...........................................  Natural Gas Supply
                                                  Association.
NYISO..........................................  New York Independent
                                                  System Operator, Inc.
ODEC...........................................  Old Dominion Electric
                                                  Cooperative.
Mr. Centolella.................................  Paul Centolella and
                                                  Associates, L.L.C.
PG&E...........................................  Pacific Gas & Electric
                                                  Company.
PJM............................................  PJM Interconnection,
                                                  L.L.C.
PJM Market Monitor.............................  Monitoring Analytics,
                                                  LLC, Independent
                                                  Market Monitor for
                                                  PJM.
PJM Power Providers............................  PJM Power Providers
                                                  Group.
Potomac Economics..............................  Potomac Economics, Ltd.
Powerex........................................  Powerex Corp.
PSEG...........................................  PSEG Companies (Public
                                                  Service Electric and
                                                  Gas Company, PSEG
                                                  Power LLC, and PSEG
                                                  Energy Resources &
                                                  Trade LLC).
Public Interest Organizations..................  Acadia Center,
                                                  Americans for a Clean
                                                  Energy Grid, Climate +
                                                  Energy Project, Great
                                                  Plains Institute,
                                                  Natural Resources
                                                  Defense Council,
                                                  Sierra Club,
                                                  Sustainable FERC
                                                  Project, Union of
                                                  Concerned Scientists,
                                                  and Wind on the Wires.
SCE............................................  Southern California
                                                  Edison Company.
SPP............................................  Southwest Power Pool,
                                                  Inc.
SPP Market Monitor.............................  Southwest Power Pool,
                                                  Inc. Independent
                                                  Market Monitoring
                                                  Unit.
TAPS...........................................  Transmission Access
                                                  Policy Study Group.
Westar.........................................  Westar Energy, Inc.
XO Energy......................................  XO Energy, LLC.
------------------------------------------------------------------------


                                         Reply or Supplemental Comments
----------------------------------------------------------------------------------------------------------------
             Short name/acronym                         Commenter                       Date submitted
----------------------------------------------------------------------------------------------------------------
Golden Spread..............................  Golden Spread Electric          December 14, 2015.
                                              Cooperative, Inc.
Direct Energy..............................  Direct Energy Business, LLC     March 4, 2016.
                                              and Direct Energy Business
                                              Marketing, LLC.
----------------------------------------------------------------------------------------------------------------


                                                  Late Comments
----------------------------------------------------------------------------------------------------------------
             Short name/acronym                         Commenter                       Date submitted
----------------------------------------------------------------------------------------------------------------
New Jersey Board...........................  New Jersey Board of Public      December 3, 2015.
                                              Utilities.
----------------------------------------------------------------------------------------------------------------

[FR Doc. 2016-15196 Filed 6-29-16; 8:45 am]
BILLING CODE 6717-01-P



                                               42882                     Federal Register / Vol. 81, No. 126 / Thursday, June 30, 2016 / Rules and Regulations

                                               DEPARTMENT OF ENERGY                                                       dispatch signals. We require that each                                      FOR FURTHER INFORMATION CONTACT:
                                                                                                                          regional transmission organization and                                      Stanley Wolf (Technical Information),
                                               Federal Energy Regulatory                                                  independent system operator align                                             Office of Energy Policy and
                                               Commission                                                                 settlement and dispatch intervals by:                                         Innovation, Federal Energy Regulatory
                                                                                                                          Settling energy transactions in its real-                                     Commission, 888 First Street NE.,
                                               18 CFR Part 35                                                             time markets at the same time interval                                        Washington, DC 20426, (202) 502–
                                               [Docket No. RM15–24–000; Order No. 825]                                    it dispatches energy; settling operating                                      6841, Stanley.Wolf@ferc.gov
                                                                                                                          reserves transactions in its real-time                                      Pamela Quinlan (Technical
                                               Settlement Intervals and Shortage                                          markets at the same time interval it                                          Information), Office of Energy Market
                                               Pricing in Markets Operated by                                             prices operating reserves; and settling                                       Regulation, Federal Energy Regulatory
                                               Regional Transmission Organizations                                        intertie transactions in the same time                                        Commission, 888 First Street NE.,
                                               and Independent System Operators                                           interval it schedules intertie                                                Washington, DC 20426, (202) 502–
                                                                                                                          transactions. We also require that each                                       6179, Pamela.Quinlan@ferc.gov
                                               AGENCY:  Federal Energy Regulatory                                         regional transmission organization and
                                               Commission.                                                                independent system operator trigger                                         Alicia Cobb (Legal Information), Office
                                               ACTION: Final rule.                                                        shortage pricing for any interval in                                          of the General Counsel—Energy
                                                                                                                          which a shortage of energy or operating                                       Markets, Federal Energy Regulatory
                                               SUMMARY:   The Federal Energy                                                                                                                            Commission, 888 First Street NE.,
                                               Regulatory Commission (Commission) is                                      reserves is indicated during the pricing
                                                                                                                          of resources for that interval. Adopting                                      Washington, DC 20426, (202) 502–
                                               revising its regulations to address                                                                                                                      8501, Alicia.Cobb@ferc.gov
                                               certain practices that fail to compensate                                  these reforms will align prices with
                                               resources at prices that reflect the value                                 resource dispatch instructions and                                          SUPPLEMENTARY INFORMATION:
                                               of the service resources provide to the                                    operating needs, providing appropriate
                                                                                                                                                                                                      Order No. 825
                                               system, thereby distorting price signals,                                  incentives for resource performance.
                                               and in certain instances, creating a                                       DATES: This rule will become effective
                                                                                                                                                                                                      Final Rule
                                               disincentive for resources to respond to                                   September 13, 2016.                                                         Table of Contents

                                                                                                                                                                                                                                                 Paragraph No.

                                               I. Introduction ...............................................................................................................................................................................                1
                                               II. Background ...............................................................................................................................................................................                 9
                                               III. Discussion ...............................................................................................................................................................................               13
                                                     A. Settlement Interval Reform ..............................................................................................................................................                            13
                                                         1. Need for Reform .........................................................................................................................................................                        13
                                                         2. Settlement Interval Reform for Energy Transactions and Operating Reserves ......................................................                                                                 17
                                                              a. Proposal ...............................................................................................................................................................                    17
                                                                   i. Energy Transactions .....................................................................................................................................                              17
                                                                   ii. Operating Reserves ......................................................................................................................................                             21
                                                              b. Current Practices in the RTOs/ISOs ..................................................................................................................                                       22
                                                                   i. Energy Transactions .....................................................................................................................................                              22
                                                                   ii. Operating Reserves ......................................................................................................................................                             23
                                                              c. Comments on the Proposed Settlement Interval Reform .................................................................................                                                       27
                                                                   i. Comments From the RTOs/ISOs .................................................................................................................                                          28
                                                                   ii. Comments by Market Monitors ..................................................................................................................                                        36
                                                                   iii. Comments Supporting the Proposed Settlement Interval Reform ..........................................................                                                               39
                                                                   iv. Comments Opposed to the Proposed Settlement Interval Reform ..........................................................                                                                49
                                                              d. Commission Determination ................................................................................................................................                                   53
                                                                   i. Energy Transactions .....................................................................................................................................                              53
                                                                   ii. Operating Reserves ......................................................................................................................................                             69
                                                         3. Interties .......................................................................................................................................................................                74
                                                              a. Commission Request for Comments ..................................................................................................................                                          74
                                                                   i. Comments by RTOs/ISOs .............................................................................................................................                                    75
                                                                   ii. Comments by Market Monitors ..................................................................................................................                                        80
                                                                   iii. Comments in Support of Applying Settlement Reform to Interties .......................................................                                                               82
                                                                   iv. Comments Opposed To Applying Settlement Reform to Interties ..........................................................                                                                86
                                                              b. Commission Determination ................................................................................................................................                                   88
                                                         4. Demand Response Resources ....................................................................................................................................                                   92
                                                              a. Comments ............................................................................................................................................................                       92
                                                              b. Commission Determination ................................................................................................................................                                   98
                                                         5. Load ............................................................................................................................................................................               100
                                                              a. Comments ............................................................................................................................................................                      100
                                                              b. Commission Determination ................................................................................................................................                                  104
                                                     B. Shortage Pricing Reform ...................................................................................................................................................                         105
                                                         1. Need for Reform .........................................................................................................................................................                       105
                                                         2. NOPR Proposal ...........................................................................................................................................................                       109
                                                         3. Comments on the Proposed Shortage Pricing Reform .............................................................................................                                                  110
sradovich on DSK3GDR082PROD with RULES2




                                                              a. Comments by RTOs/ISOs ...................................................................................................................................                                  110
                                                              b. Comments by Market Monitors ..........................................................................................................................                                     121
                                                              c. Comments Supporting the Shortage Pricing Reform ........................................................................................                                                   127
                                                              d. Comments Recommending Changes to the Shortage Pricing Reform .............................................................                                                                 137
                                                              e. Comments Opposed to the Proposed Shortage Pricing Reform .......................................................................                                                           141
                                                         4. Commission Determination .......................................................................................................................................                                161
                                                     C. Compliance and Implementation .....................................................................................................................................                                 181
                                                         1. Commission Proposal ................................................................................................................................................                            181



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                                                                        Federal Register / Vol. 81, No. 126 / Thursday, June 30, 2016 / Rules and Regulations                                                                                        42883

                                                                                                                                                                                                                                              Paragraph No.

                                                         2. Comments ...................................................................................................................................................................                 182
                                                             a. Comments From RTOs/ISOs ..............................................................................................................................                                   183
                                                             b. Comments Urging Flexibility in Implementation .............................................................................................                                              188
                                                             c. Compliance Filing Deadline ...............................................................................................................................                               191
                                                             d. Implementation Deadline ...................................................................................................................................                              192
                                                             e. Simultaneous Implementation ...........................................................................................................................                                  200
                                                             f. Costs .....................................................................................................................................................................              201
                                                         3. Commission Determination .......................................................................................................................................                             204
                                                    D. Requests Beyond the Scope of This Proceeding .............................................................................................................                                        211
                                                         1. Comments ...................................................................................................................................................................                 211
                                                         2. Commission Determination .......................................................................................................................................                             230
                                               IV. Information Collection Statement ..........................................................................................................................................                           231
                                               V. Environmental Analysis ..........................................................................................................................................................                      236
                                               VI. Regulatory Flexibility Act ......................................................................................................................................................                     237
                                               VII. Document Availability ..........................................................................................................................................................                     240
                                               VIII. Effective Date and Congressional Notification ...................................................................................................................                                   243
                                               APPENDIX: List of Commenters.


                                               I. Introduction                                                           intertie transactions 4 in the same time                                  pricing. In this instance, short-term
                                                  1. In this Final Rule, we address                                      interval it schedules intertie                                            prices fail to reflect system conditions
                                               certain practices that fail to compensate                                 transactions (settlement interval                                         and potential reliability costs, as well as
                                               resources at prices that reflect the value                                requirements). We also require,                                           the value of both internal and external
                                               of the service resources provide to the                                   pursuant to section 206 of the FPA, that                                  market resources responding to a
                                               system, thereby distorting price signals,                                 each RTO/ISO establish a mechanism to                                     dispatch signal. In addition, inaccurate
                                               and in certain instances, creating a                                      trigger shortage pricing for any interval                                 price signals are provided to market
                                               disincentive for resources to respond to                                  in which a shortage of energy or                                          participants if shortage pricing is still in
                                               dispatch signals. We require, pursuant                                    operating reserves is indicated during                                    effect after the shortage has been
                                               to section 206 of the Federal Power Act                                   the pricing of resources for that interval                                resolved.
                                               (FPA),1 that each regional transmission                                   (shortage pricing requirement).                                              4. To address these problems
                                               organization (RTO) and independent                                           2. Some current RTO/ISO settlement                                     associated with differing dispatch
                                               system operator (ISO) align settlement                                    practices fail to reflect the value of                                    intervals and settlement intervals, as
                                               and dispatch 2 intervals by: (1) Settling                                 providing a given service, thereby                                        well as with shortage pricing triggers,
                                               energy transactions in its real-time                                      distorting price signals and failing to                                   we are setting forth the settlement
                                               markets at the same time interval it                                      provide appropriate signals for                                           interval requirements and the shortage
                                               dispatches energy;                                                        resources to respond to the actual                                        pricing requirement in this Final Rule.5
                                                  (2) settling operating reserves                                        operating needs of the market. One such                                   These settlement interval and shortage
                                               transactions in its real-time markets at                                  practice occurs when RTOs/ISOs                                            pricing requirements will help ensure
                                               the same time interval it prices                                          dispatch resources every five minutes                                     that resources have price signals that
                                               operating reserves; 3 and (3) settling                                    but perform settlements based on an                                       provide incentives to conform their
                                                                                                                         hourly integrated price, or when RTOs/                                    output to dispatch instructions, and that
                                                 1 16  U.S.C. 824e (2012).                                               ISOs schedule intertie transactions                                       prices reflect operating needs at each
                                                 2 As  mentioned in the Notice of Proposed                               every fifteen minutes, but perform                                        dispatch interval.
                                               Rulemaking, the Commission sometimes uses the                             settlements on an hourly integrated                                          5. As set forth in the NOPR, we
                                               term ‘‘dispatch’’ as shorthand when describing how                        price. This misalignment between                                          reiterate the goals of price formation are
                                               RTOs/ISOs acquire and price energy and operating
                                               reserves. With respect to operating reserves, the                         dispatch and settlement intervals                                         to: (1) Maximize market surplus for
                                               Commission uses dispatch to describe the intervals                        distorts the price signals sent to                                        consumer and suppliers; (2) provide
                                               at which they are acquired and priced. See                                resources and fails to reflect the actual                                 correct incentives for market
                                               Settlement Intervals and Shortage Pricing in                                                                                                        participants to follow commitment and
                                               Markets Operated by Regional Transmission
                                                                                                                         value of resources responding to
                                               Organizations and Independent System Operators,                           operating needs because compensation                                      dispatch instructions, make efficient
                                               80 FR 58,393 (Sept. 29, 2015), FERC Stats. & Regs.                        will be based on average output and                                       investments in facilities and equipment,
                                               ¶ 32,710, at P 1 (2015) (NOPR).                                           average prices across an hour, rather                                     and maintain reliability; (3) provide
                                                  3 Operating reserves refer to certain ancillary
                                                                                                                         than output and prices during the                                         transparency so that market participants
                                               services procured in the wholesale market, although                                                                                                 understand how prices reflect the actual
                                               they are often defined differently in each RTO/ISO.                       periods of greatest need within a
                                               Operating reserves typically include: (a) Regulating                      particular hour.                                                          marginal cost of serving load and the
                                               Reserve, used to account for very short-term                                 3. We also find that a second problem                                  operational constraints of reliably
                                               deviations between supply and demand (e.g., 4 to                          occurs if there is a mismatch between                                     operating the system; and, (4) ensure
                                               6 seconds); (b) Spinning, or Synchronous Reserve,                                                                                                   that all suppliers have an opportunity to
                                               which is capacity held in reserve and synchronized                        the time when a system experiences a
                                               to the grid and able to respond within a relatively                       shortage of energy and operating                                          recover their costs.6
                                               short amount of time (e.g., within 10 minutes), to                        reserves and the time when prices                                            6. As noted in the NOPR, the reforms
                                               be used in case of a contingency, such as the loss
                                                                                                                         reflect the shortage condition. This can                                  adopted in this Final Rule advance at
                                               of a generator; and (c) Non-Spinning Reserve,                                                                                                       least two of the Commission’s goals
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                                               capacity that is not synchronized to the grid and                         be particularly problematic when, for
                                               which can take longer to respond (e.g., within 10–                        example, an RTO’s/ISO’s market rules
                                                                                                                                                                                                      5 We are not at this time proposing to change the
                                               30 minutes) in case of a contingency. Federal                             require a shortage to last a minimum
                                               Energy Regulatory Commission, Price Formation in                                                                                                    price paid by any RTO/ISO when shortage pricing
                                               Organized Wholesale Electricity Markets: Staff
                                                                                                                         time period before triggering shortage                                    is triggered.
                                               Analysis of Shortage Pricing, Docket No. AD14–14–                                                                                                      6 See Notice Inviting Post-Technical Workshop

                                               000, at 3 n.7 (Oct. 2014), http://www.ferc.gov/legal/                      4 Intertie transactions are transactions across                          Comments, Docket No. AD14–14–000, at 1 (Jan. 16,
                                               staff-reports/2014/AD14-14-pricing-rto-iso-                               RTO/ISO borders, including imports, exports and                           2015); Notice, Docket No. AD14–14–000 (June 19,
                                               markets.pdf (Shortage Pricing Paper).                                     wheel-through transactions.                                               2014).



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                                               42884              Federal Register / Vol. 81, No. 126 / Thursday, June 30, 2016 / Rules and Regulations

                                               with respect to price formation. First,                  reliably operating the system. This                    ‘‘would reflect the true marginal cost of
                                               the proposed reforms will help provide                   increased transparency, in turn, better                production, taking into account all
                                               correct incentives for market                            informs decisions to build or maintain                 physical system constraints, and these
                                               participants to follow commitment and                    resources and enhances consumers’                      prices would fully compensate all
                                               dispatch instructions,7 to make efficient                ability to hedge. The benefits                         resources for the variable cost of
                                               investments in facilities and equipment,                 summarized above and discussed in                      providing service.’’ 11 Pursuant to the
                                               and to maintain reliability. Specifically,               detail below would ultimately help to                  notice, staff conducted outreach and
                                               requiring RTOs/ISOs to align the                         ensure just and reasonable rates.                      convened technical workshops on the
                                               settlement and dispatch intervals will                      8. As discussed below, we require                   following four general issues: (1) Use of
                                               more accurately reward resources that                    each RTO/ISO to submit a compliance                    uplift payments; (2) offer price
                                               are providing energy and ancillary                       filing with the tariff changes needed to               mitigation and offer price caps; (3)
                                               services in periods of the greatest need                 implement this Final Rule within 120                   scarcity and shortage pricing; and (4)
                                               and will discourage provision of energy                  days of the Final Rule’s effective date.               operator actions that affect prices.12 The
                                               and ancillary services immediately                       We will allow a further 12 months from                 Commission also released staff reports
                                               following periods of system stress.                      the compliance filing date for the tariff              on these topics. In one of those reports,
                                               Doing so will enhance the incentive to                   changes implementing reforms to                        issued in October 2014, staff analyzed
                                               follow an RTO’s/ISO’s dispatch signal                    settlement intervals to be effective, and              shortage pricing issues.13
                                               and thus help maintain system                            120 days from that same compliance                        11. In its January 2015 Notice Inviting
                                               reliability. This reform will also reward                filing date for the tariff changes                     Comments, the Commission requested
                                               resources that can flexibly respond to                   implementing shortage pricing reforms                  comments on questions that arose from
                                               system needs, thus creating an incentive                 to be effective.8                                      the price formation technical
                                               for resources to make efficient                                                                                 workshops.14 In response, among other
                                                                                                        II. Background
                                               investments in facilities and equipment.                                                                        price formation issues, commenters
                                               Similarly, implementing shortage                            9. The Commission has addressed                     addressed settlement intervals and
                                               pricing for any dispatch interval during                 price formation in organized markets on                shortage pricing.
                                               which a shortage of energy or operating                  prior occasions. For example, in Order                    12. On September 17, 2015, the
                                               reserves occurs will provide an                          No. 719, the Commission addressed                      Commission issued a NOPR proposing
                                               incentive for resources to ensure that                   shortage pricing 9 and required RTOs/                  to require that each RTO/ISO: (1) Settle
                                               they are available to respond to high                    ISOs to develop and implement shortage                 energy transactions in its real-time
                                               prices, which should help alleviate                      pricing rules that would apply during                  markets at the same time interval it
                                               shortages and avoid shortage pricing                     operating reserve shortages to ‘‘ensure                dispatches and prices energy, and settle
                                               during subsequent dispatch intervals.                    that the market price for energy reflects              operating reserves transactions in its
                                               This reform would also ensure that                       the value of energy during an operating                real-time markets at the same time
                                               resources operating during a shortage                    reserve shortage.’’ 10 The Commission                  interval it prices operating reserves; and
                                               are compensated for the value of the                     required such rules out of concern that                (2) trigger shortage pricing for any
                                               service that they provide, regardless of                 inappropriate price signals during an                  dispatch interval during which a
                                               whether the shortage is short-lived.                     operating reserve shortage would                       shortage of energy or operating reserves
                                                  7. Second, the proposed reforms will                  provide an insufficient incentive for                  occurs.15 The Commission sought
                                               also help provide transparency and                       market participants to take appropriate                comments on these proposals, and
                                               certainty so that market participants                    actions.                                               sought comment on: (1) Whether
                                               understand how compensation and                             10. In June 2014, the Commission                    settlement interval reforms are
                                               prices reflect the actual marginal cost of               initiated a proceeding, in Docket No.                  appropriate for intertie transactions that
                                               serving load and the operational                         AD14–14–000, to evaluate issues                        are scheduled on intervals different
                                               constraints of reliably operating the                    regarding price formation in the energy                from the intervals on which RTOs/ISOs
                                               system. Requiring settlement intervals                   and ancillary services markets operated                dispatch internal real-time energy; and
                                               to match dispatch intervals will make                    by RTOs/ISOs (price formation                          (2) whether it is appropriate to align the
                                               resource compensation more                               proceeding). In the notice initiating that             settlement interval for intertie
                                               transparent by, among other things,                      proceeding, the Commission stated that                 transactions with external scheduling
                                               increasing the proportion of resource                    there may be opportunities for the                     intervals, e.g., fifteen minutes.16
                                               payment provided through payments of                     RTOs/ISOs to improve the energy and                    Additionally, the Commission sought
                                               energy and operating reserves rather                     ancillary services price formation                     comment on whether to require that
                                               than uplift. Further, requiring RTOs/                    process. As set forth in the notice,                   RTOs/ISOs settle real-time operating
                                               ISOs to trigger shortage pricing for an                  locational marginal prices (LMP) and                   reserves transactions at the same
                                               interval in which a shortage of energy or                market-clearing prices used in energy                  interval as real-time energy dispatch
                                               operating reserves is indicated during                   and ancillary services markets ideally                 and settlement intervals or whether a
                                               the pricing of resources for that interval                                                                      settlement interval that differs from an
                                                                                                          8 The Commission has followed a similar
                                               will ensure that prices transparently                    approach with the timelines for compliance and
                                                                                                                                                               RTO’s/ISO’s real-time energy dispatch
                                               reflect the operational constraints of                   implementation in the past. See, e.g., Frequency       interval would be appropriate for some
                                                                                                        Regulation Compensation in the Organized               operating reserves transactions.17
                                                  7 The Commission notes that the reforms               Wholesale Power Markets, Order No. 755, FERC
                                               proposed herein would further augment existing           Stats. & Regs. ¶ 31,324, at P 201 (2011), reh’g          11 Notice, Docket No. AD14–14–000, at 2 (June 19,
                                               mechanisms in each RTO/ISO market that provide           denied, Order No. 755–A, 138 FERC ¶ 61,123
                                                                                                                                                               2014).
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                                               incentives to follow dispatch instructions, such as      (2012).                                                  12 Id. at 1, 3–4.
                                                                                                          9 Wholesale Competition in Regions with
                                               penalties for excessive or deficient energy and the                                                               13 See Shortage Pricing Paper.
                                               allocation of commitment and dispatch costs to           Organized Electric Markets, Order No. 719, FERC
                                                                                                                                                                 14 Notice Inviting Post-Technical Workshop
                                               deviations from energy dispatch targets. See, e.g.,      Stats. & Regs. ¶ 31,281, at PP 192–194 (2008), order
                                               MISO, FERC Electric Tariff, 40.3.3(a) (36.0.0)           on reh’g, Order No. 719–A, FERC Stats. & Regs.         Comments, Docket No. AD14–14–000 (Jan. 16,
                                               (allocating Revenue Sufficiency Guarantee costs to,      ¶ 31,292, order on reh’g, Order No. 719–B, 129         2015).
                                                                                                                                                                 15 NOPR, FERC Stats. & Regs. ¶ 32,710 at P 14.
                                               inter alia, resources providing excessive or deficient   FERC ¶ 61,252 (2009).
                                                                                                                                                                 16 NOPR, FERC Stats. & Regs. ¶ 32,710 at P 39.
                                               energy), 40.3.4 (33.0.0) (charges for excessive or         10 Order No. 719, FERC Stats. & Regs. ¶ 31,281 at

                                               deficient energy deployment).                            P 194.                                                   17 NOPR, FERC Stats. & Regs. ¶ 32,710 at P 40.




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                                                                   Federal Register / Vol. 81, No. 126 / Thursday, June 30, 2016 / Rules and Regulations                                                42885

                                               Finally, the Commission sought                           minute interval.’’ 22 ELCON asserts that               and (3) cause increased uplift payments.
                                               comment on the implementation                            hourly prices do not ‘‘reflect system                  Therefore, the Commission
                                               schedule and the costs of                                needs and costs, and may result in over                preliminarily found that the use of
                                               implementation.18 A list of commenters                   or under recovery of costs depending on                hourly integrated prices for real-time
                                               and the abbreviated names used for                       how the shortage plays out during the                  settlement may result in rates that are
                                               them in this Final Rule appears in the                   hour. When SPP moved to sub-hourly                     unjust and unreasonable.
                                               Appendix.                                                settlements, overall system costs were                    18. To remedy any potentially unjust
                                                                                                        lower.’’ 23                                            and unreasonable rates caused by the
                                               III. Discussion                                             15. In some instances, commenters                   use of hourly integrated prices for real-
                                               A. Settlement Interval Reform                            assert that the Commission should not                  time settlement, the Commission
                                                                                                        affirm its preliminary finding on the                  proposed in the NOPR to require that
                                               1. Need for Reform                                       settlement interval proposal. APPA and                 each RTO/ISO settle energy transactions
                                                  13. In the NOPR,19 the Commission                     NRECA assert that Commission                           in its real-time markets at the same time
                                               preliminarily found that the current                     approval of any five-minute settlement                 interval it dispatches energy.27
                                               RTO/ISO settlement practice of using                     implementation process should require                     19. The Commission explained that in
                                               hourly integrated prices for real-time                   vetting and approval by the RTOs’/ISOs’                the short-term, the settlement interval
                                               settlement and five-minute dispatch                      stakeholders.24 Direct Energy asserts                  proposal should improve incentives for
                                               instructions may fail to reflect the value               that the Commission should solicit                     resources to respond quickly to dispatch
                                               of providing a given service, and may                    further information from the RTOs/ISOs                 instructions, which should in turn lead
                                               contribute to lack of a response to the                  before determining whether or not to                   to operators taking fewer out-of-market
                                               actual operating needs of those markets.                 direct settlement interval reforms.25                  actions to ensure that supply meets
                                               In addition, the Commission stated that                     16. Based on analysis of the record,                demand. The Commission noted that by
                                               the use of hourly integrated prices for                  we adopt our preliminary findings, and,                improving resources’ response to
                                               real-time settlement may discourage                      as described in detail below, conclude                 dispatch instructions, the settlement
                                               resources from following five-minute                     that certain RTO/ISO settlement                        interval proposal would result in a more
                                               dispatch instructions, and may increase                  practices are not just and reasonable and              efficient use of generation resources to
                                               the need for uplift payments. Therefore,                 are unduly discriminatory and                          the benefit of all consumers. In the long-
                                               the Commission preliminarily found                       preferential. Accordingly, we direct                   term, the Commission maintained that
                                               that the use of hourly integrated prices                 each RTO/ISO to align its settlement                   these reforms should provide more
                                               for real-time settlement may result in                   and dispatch intervals by settling energy              accurate price signals, which should
                                               rates that are unjust and unreasonable.                  transactions in its real-time markets at               provide, together with other market
                                                  14. Commenters generally agree with                   the same time interval it dispatches                   price signals, the appropriate incentives
                                               the Commission’s preliminary finding                     energy, settling operating reserves                    to build or maintain resources that can
                                               regarding the settlement interval                        transactions in its real-time markets at               respond to energy or operating reserve
                                               proposal. For example, EPSA states that                  the same time interval it prices                       deficiencies.28
                                               ‘‘[w]hen real-time settlements for                       operating reserves, and settling intertie                 20. In addition, the Commission
                                               generation or dispatchable demand are                    transactions in the same time interval it              noted, where settlement and dispatch
                                               calculated based on hourly prices that                   schedules intertie transactions, as                    intervals are aligned, resources
                                               are the simple average of sub-hourly                     discussed further herein.                              dispatched economically during high-
                                               prices resulting from the actual                                                                                priced periods would receive those
                                               dispatch, there is a distortion to the real-             2. Settlement Interval Reform for Energy
                                                                                                        Transactions and Operating Reserves                    higher prices rather than an hourly
                                               time price signal impacting both                                                                                average of the dispatch interval LMPs,
                                               reliability and efficiency.’’ 20 Similarly,              a. Proposal                                            thereby reducing the need to make
                                               Potomac Economics states that the                        i. Energy Transactions                                 uplift payments.
                                               inconsistency between five-minute
                                               dispatch instructions and hourly-                           17. In the NOPR, the Commission                     ii. Operating Reserves
                                               average price settlement intervals                       proposed to require that each RTO/ISO
                                                                                                                                                                  21. The Commission proposed
                                               ‘‘creates incentives for generators to not               settle energy transactions in its real-time
                                                                                                                                                               requiring that each RTO/ISO ‘‘settle
                                               follow the dispatch signal or to simply                  markets at the same time interval it
                                                                                                        dispatches energy. The Commission                      operating reserves transactions in its
                                               be inflexible by (a) restricting dispatch                                                                       real-time markets at the same time
                                               range (the difference between a                          preliminarily found the use of hourly
                                                                                                        integrated prices for real-time settlement             interval it prices operating reserves.’’ 29
                                               generator’s minimum dispatch level and                                                                          Although the Commission noted that
                                               maximum dispatch level) or (b) offering                  may have the unintended effect of
                                                                                                        distorting price signals, and, in certain              dispatch and pricing of energy and
                                               a slower dispatch ramp rate.’’ 21                                                                               operating reserves are closely linked
                                               Potomac Economics notes that while                       instances, contributing to market
                                                                                                        participants’ failing to respond                       through co-optimization in the real-time
                                               MISO makes uplift payments to                                                                                   market, it also noted that certain RTOs/
                                               generators to alleviate these incentive                  appropriately to operating needs.26
                                                                                                        Specifically, the Commission stated that               ISOs acquire operating reserves on a
                                               issues, such payments are ‘‘an inferior                                                                         different time interval than they
                                               substitute for a true alignment where                    hourly integrated prices for real-time
                                                                                                        settlement may: (1) Not accurately                     dispatch energy.30 The Commission
                                               each generator, importer or exporter                                                                            sought comment on whether the
                                               would settle based on the actual value                   reflect the value a resource provides to
                                                                                                        the system; (2) discourage resources                   Commission should require RTOs/ISOs
                                               of energy corresponding with its                                                                                to settle all real-time operating reserves
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                                               production or transactions in each five-                 from following dispatch instructions;
                                                                                                                                                               transactions at the same time interval as
                                                 18 NOPR,   FERC Stats. & Regs. ¶ 32,710 at PP 56,
                                                                                                          22 Potomac  Economics Comments at 4–5.               real-time energy dispatch and
                                                                                                          23 ELCON   Comments at 2.
                                               60.
                                                 19 NOPR,                                                 24 APPA and NRECA Comments at 4.                      27 NOPR, FERC Stats. & Regs. ¶ 32,710 at P 34.
                                                            FERC Stats. & Regs. ¶ 32,710 at PP 26–
                                               33.                                                        25 Direct Energy Comments at 6.                       28 NOPR, FERC Stats. & Regs. ¶ 32,710 at P 35.
                                                 20 EPSA   Comments, Pope Aff. at 2–3.                    26 NOPR, FERC Stats. & Regs. ¶ 32,710 at PP 26–       29 NOPR, FERC Stats. & Regs. ¶ 32,710 at P 34.
                                                 21 Potomac  Economics Comments at 4.                   33.                                                     30 NOPR, FERC Stats. & Regs. ¶ 32,710 at P 40.




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                                               42886              Federal Register / Vol. 81, No. 126 / Thursday, June 30, 2016 / Rules and Regulations

                                               settlement intervals, or whether a                       synchronized reserves, which does not                   As described below, many assert that
                                               settlement interval that differs from an                 vary every five minutes, and the                        the proposed reform will align the price
                                               RTO’s/ISO’s real-time energy dispatch                    opportunity cost of providing                           signals with system conditions and
                                               interval would be appropriate for some                   synchronized reserves, which does vary                  provide accurate incentives for
                                               operating reserves transactions.31                       with five-minute LMPs. The PJM Market                   generation units to follow dispatch
                                                                                                        Monitor explains that PJM currently                     instructions.41 Others point to
                                               b. Current Practices in the RTOs/ISOs                                                                            additional benefits.
                                                                                                        updates the opportunity cost every five
                                               i. Energy Transactions                                   minutes using five-minute LMP data for
                                                                                                                                                                i. Comments From the RTOs/ISOs
                                                  22. The following table describes how                 the Tier 2 synchronized reserve market
                                                                                                        and recalculates the market clearing                       28. The ISO/RTO Council supports
                                               each RTO/ISO currently dispatches and
                                                                                                        price every five minutes, with                          the Commission’s goals of aligning
                                               settles real-time energy transactions:
                                                                                                        settlement based on the average of the                  prices with resource dispatch
                                                                                                        five-minute clearing price.35                           instructions and operating needs and
                                                 TABLE 1—RTO/ISO DISPATCH AND
                                                                                                           25. The PJM Market Monitor explains                  specifically supports the settlement
                                                SETTLEMENT INTERVALS FOR ENERGY                                                                                 interval proposal for energy
                                                                                                        that, in PJM’s regulation market, the
                                                                                                        offer price includes both the direct                    transactions. The ISO/RTO Council
                                                                Real-time             Real-time         short-run marginal cost of providing                    states that the proposed settlement
                                                                dispatch 32          settlement 33                                                              interval reform will make resource
                                                                 (minutes)                              regulation, which does not vary every
                                                                                                        five minutes, and the opportunity cost                  compensation more transparent by
                                               CAISO                       5   5 minute.                of providing regulation, which varies                   increasing the proportion of payments
                                               ISO–NE                      5   hourly average.                                                                  to resources through the price paid for
                                               MISO                        5   hourly average.
                                                                                                        with five-minute LMPs. The PJM Market
                                                                                                        Monitor adds that PJM currently                         energy as opposed to uplift.42
                                               NYISO                       5   5 minute.                                                                           29. In separate comments, NYISO,
                                               PJM                         5   hourly average.          updates the opportunity cost every five
                                                                                                        minutes using five-minute LMP data for                  ISO–NE., MISO, and PJM support the
                                               SPP                         5   5 minute.
                                                                                                        the regulation market and recalculates                  settlement interval proposal for both
                                                                                                        the clearing price every five minutes,                  energy and operating reserve
                                               ii. Operating Reserves                                                                                           transactions. Likewise, in separate
                                                                                                        with settlement based on the average of
                                                  23. The RTOs/ISOs vary in how they                                                                            comments, CAISO supports the
                                                                                                        five-minute clearing prices. The PJM
                                               settle and treat operating reserves. For                                                                         settlement interval proposal for energy
                                                                                                        Market Monitor also notes that PJM
                                               example, CAISO represents that it                                                                                transactions, but does not support
                                                                                                        purchases other forms of operating
                                               settles its operating reserve transactions                                                                       requiring RTOs/ISOs to settle all real-
                                                                                                        reserves on a cost basis, including Tier
                                               on fifteen-minute intervals and                                                                                  time operating reserves transactions at
                                                                                                        1 synchronized reserves, non-
                                               dispatches energy on five-minute                                                                                 the same interval as real-time energy
                                                                                                        synchronized reserves, and day-ahead
                                               intervals.34 MISO states that it currently                                                                       dispatch and settlement intervals.
                                                                                                        scheduling reserves.36
                                               calculates settlements for real-time                                                                                30. CAISO states that the settlement
                                                                                                           26. NYISO explains that it uses five-
                                               operating reserves transactions at the                                                                           interval proposal would improve market
                                                                                                        minute intervals to settle its real-time
                                               same interval that they are dispatched,                                                                          efficiency, and that accurate price
                                                                                                        markets for energy, regulation service,
                                               i.e., five minutes, but that actual                                                                              signals provide market participants with
                                                                                                        and operating reserves.37 ISO–NE
                                               settlements are on an hourly basis due                                                                           incentives to develop needed
                                                                                                        currently has hourly integrated
                                               to the specific calculations MISO makes.                                                                         capabilities and to offer those
                                                                                                        settlement for its real-time energy
                                                  24. The PJM Market Monitor explains                                                                           capabilities into the market.43 CAISO
                                                                                                        transactions and its real-time operating
                                               that the synchronized and regulation                                                                             states that where settlement and
                                                                                                        reserves. However, ISO–NE states it
                                               reserves markets in PJM clear hourly but                                                                         dispatch intervals are aligned, resources
                                                                                                        intends to implement five-minute
                                               already incorporate five-minute LMP                                                                              dispatched economically during high-
                                                                                                        settlement of real-time operating
                                               data for calculating opportunity costs.                                                                          priced periods should receive high
                                                                                                        reserves in connection with
                                               The PJM Market Monitor states that the                                                                           prices, thus reducing the need to pay
                                                                                                        implementing five-minute settlement of
                                               offer price in PJM’s synchronized                                                                                uplift caused by non-alignment of
                                                                                                        real-time energy transactions, which is a
                                               reserve market includes both the direct                                                                          settlement and dispatch intervals.44
                                                                                                        current discussion among ISO–NE
                                               short-run marginal cost of providing                                                                                31. However, CAISO does not support
                                                                                                        stakeholders.38 SPP prices and settles
                                                                                                                                                                requiring RTOs/ISOs to settle all real-
                                                 31 NOPR,
                                                                                                        operating reserve products in its real-                 time operating reserves transactions at
                                                              FERC Stats. & Regs. ¶ 32,710 at P 40.
                                                 32 See  CAISO, eTariff, 34.5 (17.0.0); ISO–NE.,
                                                                                                        time market on a dispatch interval, or                  the same interval as real-time energy
                                               Transmission, Markets and Services Tariff, Market        five minute, basis.39                                   dispatch and settlement intervals.
                                               Rule 1, III.2.3 (15.0.0); MISO, FERC Electric Tariff,
                                               40.2 (34.0.0); NYISO Markets and Services Tariff,        c. Comments on the Proposed
                                               4.4.2.1 (17.0.0); PJM OATT, Attachment K,                Settlement Interval Reform                              Nuclear Power Marketing Comments at 2; EPSA
                                               Appendix, 2.3 (2.0.0); SPP, OATT, Sixth Revised                                                                  Comments at 1–5; Exelon Comments at 4; Financial
                                               Volume No. 1, Attachment AE, 6.2.2 (1.0.0).
                                                                                                           27. Twenty-seven of the thirty                       Marketers Coalition Comments at 1; Golden Spread
                                                  33 See CAISO, eTariff, 11.5 (2.0.0), Appendix A,      commenters providing input on this                      Initial Comments at 1–3; Inertia Power and DC
                                               Settlement Interval (2.0.0); ISO–NE., Transmission,      issue generally support the NOPR’s                      Energy Comments at 2; ISO–NE Comments at 1;
                                                                                                                                                                MISO Comments at 2, 9; NEI Comments at 1; NGSA
                                               Markets and Services Tariff, Market Rule 1,              proposed settlement interval reform.40                  Comments at 2–5; ODEC Comments at 3; PJM Power
                                               III.2.2(b) (15.0.0); MISO, FERC Electric Tariff, 40.3
                                               (32.0.0), 40.3.1 (32.0.0), 40.3.3 (36.0.0); NYISO,                                                               Providers Comments at 2–5; Potomac Economics
                                                                                                          35 PJM  Market Monitor Comments at 8.
                                               NYISO Tariffs, NYISO Markets and Services Tariff,                                                                Comments at 2; Powerex Comments at 6; PSEG
                                                                                                          36 PJM  Market Monitor Comments at 8.                 Comments at 3; Public Interest Organizations
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                                               4.4.2.1, 4.4.2.8 (17.0.0); PJM, Intra-PJM Tariffs,
                                               OATT, Attachment K, Appendix, 2.5(e), (4.0.0),
                                                                                                           37 NYISO Comments at 2–3.                            Comments at 5; SPP Market Monitor Comments at
                                               3.2.1(e), (f) (28.0.0); SPP, OATT, Sixth Revised            38 ISO–NE Comments at 2–3.                           2; Westar Comments at 1.
                                                                                                                                                                   41 Inertia Power and DC Energy Comments at 2;
                                               Volume No. 1, Attachment AE, 8.6, 8.6.1 (2.1.0).            39 SPP Market Protocols, Sections 4.5.4 and 4.5.9.

                                               The above tariff citations refer to internal                40 Ameren Comments at 1, 3–4; ANGA Comments          Potomac Economics Comments at 1; Westar
                                               transactions. CAISO settles its intertie interchange     at 2–5; CAISO Comments at 2; CEA Comments at            Comments at 1; PSEG Comments at 3.
                                                                                                                                                                   42 ISO/RTO Council Comments at 2.
                                               transactions on fifteen-minute intervals. See CAISO,     3–6; Dominion Comments at 1–2; DTE Comments
                                               eTariff, HASP Block Intertie Schedule (0.0.0).                                                                      43 CAISO Comments at 7.
                                                                                                        at 3–4; EDP Renewables Comments at 2; EEI
                                                  34 CAISO Comments at 8.                               Comments at 2; ESA Comments at 2–4; Entergy                44 CAISO Comments at 7.




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                                                                  Federal Register / Vol. 81, No. 126 / Thursday, June 30, 2016 / Rules and Regulations                                              42887

                                               Instead, CAISO asserts that it is                       states that it would modify its operating              were based on five-minute prices and
                                               appropriate to maintain its current                     reserves settlements from its current                  output, and that only one-fifth of this
                                               fifteen-minute procurement and                          hourly method of settling operating                    lost value was paid via uplift. In
                                               settlement interval for operating                       reserves to align with real-time energy                contrast, Potomac Economics represents
                                               reserves transactions, which differs from               transactions.51                                        that non-fossil resources were paid on
                                               the five-minute real-time energy                           35. PJM states that ancillary services,             net in hourly revenues slightly above
                                               dispatch interval. CAISO explains that                  including operating reserves, should                   what they would have received with
                                               its current settlement methodology                      settle on the same interval as energy                  five-minute settlements. Potomac
                                               aligns ancillary services commitment                    because they are co-optimized. PJM                     Economics asserts that five-minute
                                               with internal generation commitment                     argues that not doing so could yield                   settlement provides greater
                                               and intertie transactions scheduling so                 discrepancies between the prices used                  compensation to fossil resources, more
                                               that the market accurately reflects the                 to settle each product and could                       accurately representing the flexibility
                                               overall amount of supply resources                      therefore undo enhancements made                       fossil resources provide to the system.
                                               available to provide energy and                         since implementation of Order No. 719,                 In contrast, Potomac Economics argues
                                               ancillary services.45                                   reduce market efficiencies, disrupt                    that hourly settlement overvalues wind
                                                  32. NYISO supports the settlement                    operations, and hinder proper price                    resources because such resources cannot
                                               interval proposal and asserts that its use              formation.52 PJM states that it intends to             ramp up in response to higher prices,
                                               of five-minute intervals to settle its real-            change its market rules to settle energy               are negatively correlated with load and
                                               time markets for energy, regulation                     and ancillary services transactions in its             contribute to higher congestion at higher
                                               service, and operating reserves, has                    real-time energy market at the same                    output levels.56 Potomac Economics
                                               provided significant incentives for                     interval on which it dispatches                        states that the settlement interval
                                               resources to follow dispatch                            resources.53                                           proposal will provide incentives for
                                               instructions and opportunities for                                                                             better resource performance, will
                                                                                                       ii. Comments by Market Monitors                        improve price signals, and will improve
                                               supply resources to obtain full payment
                                               for their performance based on actual                      36. The PJM Market Monitor agrees                   markets’ short-run commitment and
                                               system conditions.46                                    that it would be appropriate to                        dispatch of existing resources.57
                                                  33. ISO–NE contends that settling on                 implement five-minute pricing for the                     38. The SPP Market Monitor agrees
                                               sub-hourly or five-minute intervals                     reasons stated in the NOPR, and that                   with the Commission’s preliminary
                                               would help to improve price signals and                 implementing five-minute settlements                   finding that aligning settlement and
                                               resource compensation.47 ISO–NE states                  will contribute significantly to reducing              dispatch intervals would make resource
                                               that five-minute settlements will help                  uplift payments in PJM, an ongoing goal                compensation more transparent by
                                               improve price formation by ensuring                     in the PJM region.54 The PJM Market                    increasing the proportion of resource
                                               that compensation for real-time                         Monitor states that, while it is                       payments made through energy and
                                               performance sends more accurate                         appropriate to include the impact of                   operating reserve payments instead of
                                               market signals of power system                          five-minute LMP changes on the cost of                 uplift.58 The SPP Market Monitor states
                                               conditions when energy is provided.48                   operating reserves in the form of                      that aligning dispatch and settlement
                                               ISO–NE supports the settlement interval                 synchronized reserves and regulation,                  intervals in neighboring markets would
                                               proposal for operating reserve                          the PJM design for these markets                       enhance price signals at seams and
                                               transactions. It asserts that settling all              currently incorporates those impacts.                  enhance market efficiency.59
                                               real-time operating reserves transactions               The PJM Market Monitor asserts that no                 iii. Comments Supporting the Proposed
                                               at the same interval as real-time energy                additional changes to PJM market and                   Settlement Interval Reform
                                               dispatch and settlement intervals would                 non-market mechanisms for acquiring
                                                                                                       operating reserves are currently                          39. Many commenters expressly
                                               assist in aligning dispatch following
                                                                                                       necessary to incorporate changes in five-              support the NOPR’s settlement interval
                                               incentives in markets that
                                                                                                       minute LMPs.55                                         proposal, citing many of the benefits
                                               simultaneously co-optimize energy and
                                                                                                          37. Potomac Economics, which serves                 that were outlined in the NOPR.60 They
                                               reserve dispatch in real-time. ISO–NE
                                                                                                       as the market monitor for ISO–NE.,                     generally argue that the settlement
                                               states it intends to implement five-
                                                                                                       MISO, and NYISO, argues that hourly                    interval proposal will provide
                                               minute settlement of real-time operating
                                                                                                       settlements encourage resources not to                 incentives for generators to follow
                                               reserves in connection with                                                                                    dispatch more precisely, thus leading to
                                               implementing five-minute settlement of                  follow dispatch instructions or to
                                               real-time energy transactions, which is a               decrease their flexibility by restricting                56 Potomac  Economics Comments at 6.
                                               current discussion among ISO–NE                         dispatch ranges and offering slower                      57 Potomac  Economics Comments at 1.
                                               stakeholders.49                                         ramp rates, and states that MISO pays                     58 SPP Market Monitor Comments at 2.

                                                  34. MISO asserts that the                            uplift to alleviate these issues. Potomac                 59 SPP Market Monitor Comments at 2–3.

                                               inconsistency between dispatch and                      Economics cites its 2014 MISO State of                    60 Ameren Comments at 1, 3–4; ANGA Comments

                                               settlements may produce financial                       the Market Report to show how five-                    at 2–5; CAISO Comments at 2; CEA Comments at
                                                                                                       minute settlements would change total                  3–6; Dominion Comments at 1–2; DTE Comments
                                               outcomes that do not align with the                                                                            at 3–4; EDP Renewables Comments at 2; EEI
                                               guiding principles of co-optimized                      payments to resources compared to                      Comments at 2; ESA Comments at 2–4; Entergy
                                               (energy and ancillary services) security                current hourly settlements. This                       Nuclear Power Marketing Comments at 2; EPSA
                                               constrained economic dispatch.50 If the                 analysis showed that fossil-fueled                     Comments at 1–5; Exelon Comments at 4; Financial
                                                                                                                                                              Marketers Coalition Comments at 1; Golden Spread
                                               Commission requires five-minute                         resources in 2014 received settlements                 Initial Comments at 1–3; Inertia Power and DC
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                                               settlements of operating reserves, MISO                 that were $35 million less than they                   Energy Comments at 2; ISO–NE Comments at 1;
                                                                                                       would have received if the settlement                  MISO Comments at 2, 9; NEI Comments at 1; NGSA
                                                 45 CAISO Comments at 17–18.                                                                                  Comments at 2–5; PJM Power Providers Comments
                                                 46 NYISO Comments at 2–3.                               51 MISO Comments at 7–8.                             at 2–5; Potomac Economics Comments at 2;
                                                 47 ISO–NE Comments at 2.                                52 PJM
                                                                                                                                                              Powerex Comments at 6; PSEG Comments at 3;
                                                                                                                Comments at 9.                                Public Interest Organizations Comments at 5; SPP
                                                 48 ISO–NE Comments at 2.                                53 PJM Comments at 2.
                                                                                                                                                              Market Monitor Comments at 2; Westar Comments
                                                 49 ISO–NE Comments at 2–3.                              54 PJM Market Monitor Comments at 2, 4.
                                                                                                                                                              at 1; AEMA Comments at 2; XO Energy Comments
                                                 50 MISO Comments at 2.                                  55 PJM Market Monitor Comments at 8–9.               at 1; PJM Market Monitor at 2; ODEC at 3.



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                                               42888              Federal Register / Vol. 81, No. 126 / Thursday, June 30, 2016 / Rules and Regulations

                                               better resource performance, and                        needed to obtain the full benefits of                  between day-ahead commitment and
                                               improved reliability.61 They also assert                other price formation reforms to                       real-time requirements. Dominion
                                               that the settlement interval proposal                   improve the accuracy with which real-                  therefore requests that the Commission
                                               will properly compensate resources for                  time prices communicate the time-                      not require the settlement intervals for
                                               the service they provide and will more                  dependent and location-dependent                       these types of operating reserve to
                                               fully recognize the value of flexible or                value of incremental energy and                        change.76
                                               fast-ramping resources.62 In addition,                  ancillary services.69                                     47. PSEG supports applying the
                                               they generally state that the settlement                   44. TAPS does not oppose the
                                                                                                                                                              proposed settlement intervals to both
                                               interval proposal will lead to fewer out-               settlement interval proposal, as long as
                                                                                                                                                              real-time energy transactions and real-
                                               of-market payments, will increase                       it does not impose an undue burden on
                                               transparency, and will support more                                                                            time operating reserves. PSEG explains
                                                                                                       load serving entities.70
                                               efficient market outcomes.63                               45. EPSA supports the settlement                    that given the linkage between energy
                                                  40. More specifically, Exelon asserts                interval proposal for operating reserves.              transactions and reserve services,
                                               that the settlement interval proposal                   It argues that real-time operating                     settling those products on different
                                               will support ongoing market                             reserves should be co-optimized in the                 intervals would introduce dislocations,
                                               improvements, such as ISO–NE’s                          dispatch and settled with energy for                   and incent resource actions that could
                                               performance incentive mechanism,                        every hourly sub-interval (generally five              disrupt these co-optimization objectives,
                                               effective in June 2018, that will pay                   minutes) to ensure that resources are                  essentially undermining the
                                               resources bonuses or impose penalties                   compensated for following RTO/ISO                      Commission’s objectives in the NOPR.77
                                               based on performance during operating                   instructions and are indifferent to                       48. The New Jersey Board concurs
                                               reserve shortages that last five minutes                providing either energy or operating                   with the PJM Market Monitor that no
                                               or longer. Exelon argues that ISO–NE’s                  reserves during periods of high energy                 changes should be made in PJM’s
                                               market must settle at five-minute                       or operating reserves prices.71 EPSA                   synchronized reserve and regulation
                                               intervals to implement this mechanism                   emphasizes the importance of sending                   markets given that the opportunity cost
                                               completely.64                                           sub-hourly price signals to ensure that                component in these ancillary services
                                                  41. According to EDP Renewables,                     operating reserves are available in sub-               markets, which is the only cost
                                               greater participation of fast ramping                   hourly intervals due to their                          component subject to five-minute
                                               renewable resources will also enhance                   contribution to maintaining reliability,               changes in LMP, already accounts for
                                               resource adequacy, produce cost savings                 further stating that sub-hourly                        the five-minute interval changes.78 Duke
                                               for consumers, and improve grid                         settlements for operating reserves send                acknowledges potential benefits from
                                               resilience.65                                           information to the market relating to the              aligning operating reserve transactions
                                                  42. Some commenters also argue that                  potential profitability of incremental
                                               the settlement interval proposal will                                                                          with their respective settlement
                                                                                                       investments to enhance the sub-hourly                  intervals but argues that stakeholders
                                               reduce market inefficiencies and lead to                availability of such reserves.72 EPSA
                                               greater investment. PSEG asserts that                                                                          should consider whether operating
                                                                                                       argues that to ensure accurate prices for              reserves transactions should be aligned
                                               the proposed reforms correct market
                                                                                                       both energy and operating reserves,                    with settlement intervals for energy
                                               flaws that have caused inefficiencies in
                                                                                                       RTOs/ISOs should be required to co-                    given the costs of doing so.79 Although
                                               both price signals and resource dispatch
                                                                                                       optimize these products in real-time                   it takes no position on the operating
                                               decisions.66 ELCON states that the
                                                                                                       because suppliers should be indifferent                reserves proposal, EEI states that
                                               proposed settlement reform addresses
                                                                                                       to providing incremental energy and                    additional clarity from the Commission
                                               an embedded inconsistency in market
                                                                                                       operating reserves in each sub-hourly                  on the definition of operating reserve
                                               operation that promotes gaming and
                                                                                                       interval to allow the RTO/ISO to                       transactions would be helpful, given the
                                               other forms of ill behavior or
                                                                                                       perform a reliable least-cost dispatch.73              varied definitions of reserve products
                                               inefficiencies.67 EDP Renewables argues                    46. Dominion supports the settlement
                                               that the proposed reforms will also yield                                                                      among regions. EEI states that such
                                                                                                       interval proposal for operating reserves.              regional variation warrants further
                                               savings, remove opportunities for                       However, Dominion argues that only
                                               market manipulation, and encourage                                                                             consideration.80
                                                                                                       specific reserve products should settle
                                               investment in new services and new                      at the same interval that they are priced              iv. Comments Opposed to the Proposed
                                               technologies, all of which will result in               and that other types of settlement                     Settlement Interval Reform
                                               a more robust and resilient grid and                    provisions, such as make-whole
                                               help both consumers and suppliers                       payments, should not.74 Dominion                          49. Several commenters oppose the
                                               through more efficient market                           explains that, in PJM, for example,                    settlement interval proposal. Direct
                                               operation.68                                            ‘‘balancing Operating Reserves’’                       Energy states that the Commission
                                                  43. EPSA argues that implementing                                                                           should solicit information from RTOs/
                                                                                                       includes the costs to dispatch resources
                                               sub-hourly settlement intervals is                                                                             ISOs to determine whether existing
                                                                                                       out-of-merit for reliability or to cover
                                                                                                       deficiencies in the day-ahead market                   generation resources are able to respond
                                                  61 Inertia Power and DC Energy Comments at 2;
                                                                                                       solution.75 According to Dominion,                     effectively to five-minute price signals
                                               Westar Comments at 1, 3; EEI Comments at 6–7;
                                               Exelon Comments at 4–5.                                 these resources do not provide a specific              before determining whether any
                                                  62 Public Interest Organizations Comments at 2–
                                                                                                       reserve product; rather, these resources               settlement interval reform is
                                               3; ELCON Comments at 2–3; EDP Renewables                are made whole when they are                           warranted.81 Direct Energy doubts the
                                               Comments at 2–3; ESA Comments at 3; NEI                                                                        ability of longer lead-time resources to
                                               Comments at 14.                                         dispatched to address a mismatch
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                                                  63 See supra note 60; ELCON Comments at 3;
                                                                                                                                                              respond to five-minute price signals
                                                                                                         69 EPSA Comments at 6–7, Pope Aff. at 4–5.
                                               Exelon Comments at 4–5.
                                                                                                         70 TAPS                                               76 Dominion  Comments at 3.
                                                  64 Exelon Comments at 5.                                       Comments at 4.
                                                  65 EDP Renewables Comments at 3.                       71 EPSA Comments, Pope Aff. at 11.                    77 PSEG  Comments at 4–5.
                                                  66 PSEG Comments at 3.                                 72 EPSA Comments, Pope Aff. at 11.                    78 New Jersey Board Comments at 4.

                                                  67 Public Interest Organizations Comments at           73 EPSA Comments, Pope Aff. at 12–13.                 79 Duke Comments at 5.

                                               2–3; ELCON Comments at 2–3.                               74 Dominion Comments at 3.                            80 EEI Comments at 9–10 & n.16.

                                                  68 EDP Renewables Comments at 2.                       75 Dominion Comments at 3.                            81 Direct Energy Comments at 6.




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                                                                  Federal Register / Vol. 81, No. 126 / Thursday, June 30, 2016 / Rules and Regulations                                                 42889

                                               during periods of extreme price                         upon a letter filed in Docket No. AD14–                transparency is fundamental to proper
                                               volatility, and surmises that look-ahead                14–000 87 to support its finding with no               formation of energy prices, helping to
                                               unit commitment and dispatch software                   analysis as to whether the observed                    ensure just and reasonable rates, terms
                                               results could exacerbate swings in                      increase in capacity factors for internal              and conditions of service.
                                               generation and load balance. Direct                     combustion engines in SPP was the                         55. One important element of
                                               Energy states that a high-priced dispatch               result of SPP’s adoption of five-minute                ensuring reliable grid operations is
                                               interval could encourage dispatch of                    settlement intervals or other factors.88               resources following dispatch
                                               peaking generation, which would take                    Concerned Cooperatives argue that,                     instructions. The requirement that each
                                               several minutes with longer ramp times                  even if there was some marginal benefit                RTO/ISO settle energy transactions at
                                               and cause other resources to ramp up                    to the settlement interval proposal,                   the same interval it dispatches energy
                                               more quickly. Direct Energy argues that                 many market participants would not                     sends accurate market signals of power
                                               this could lead to an oversupply and to                 benefit from the reform even though                    system conditions, thus encouraging
                                               depressed prices, thus making the                       they would be responsible for funding                  resources to follow commitment and
                                               longer-ramping resources responding to                  it.89 Concerned Cooperatives represent                 dispatch instructions, a point noted by
                                               the original signal uneconomic by                       that 90 to 95 percent of their                         ISO–NE.93
                                               running below their costs and incurring                 transactions take place in the day-ahead                  56. The settlement interval
                                               uplift—the opposite of the goal of the                  market, which settles on an hourly                     requirement for energy transactions also
                                               settlement interval proposal.82                         basis, and that adopting five-minute                   provides an incentive to make efficient
                                                  50. Duke, APPA and NRECA, and                        settlement intervals in the real-time                  investments in facilities and
                                               Concerned Cooperatives argue that the                   market does not help Concerned                         equipment.94 In the long-term, we
                                               Commission should refrain from                          Cooperatives hedge prices.90 Concerned                 expect that appropriate compensation
                                               requiring a one-size-fits-all approach.83               Cooperatives also state that the National              would help to encourage efficient
                                               Duke, APPA and NRECA, and                               Renewable Energy Laboratory study                      investments in facilities and equipment,
                                               Concerned Cooperatives contend that                     cited in the NOPR in support of                        enabling reliable service. We also find
                                               RTO/ISO stakeholder processes should                    adopting five-minute settlement                        that the settlement interval requirement
                                               vet this issue and consider issues such                 intervals also recognizes that limiting                will provide incentives to more flexible
                                               as the costs, benefits, types of changes                market complexity may be a reason to                   resources, thus leading to more efficient
                                               needed to implement this reform, price                  maintain hourly settlements, and that                  markets, as noted by several
                                               formation issues more generally, and                    RTOs/ISOs already have tools to                        commenters.95 More flexible resources
                                               unintended consequences.84 Duke states                  encourage resources to follow efficient                will help system operators address
                                               that this approach would notify the                     schedules, such as uninstructed                        transient system conditions. We find
                                               Commission with regard to possible                      deviation penalties and ex post pricing                that greater participation of these more
                                               solutions, cost of implementation, and                                                                         flexible resources should generally
                                                                                                       rules. Concerned Cooperatives
                                               the timeframe in which the RTO/ISO                                                                             enhance resource adequacy because it
                                                                                                       recommend that the Commission
                                               could reasonably address each issue.85                                                                         allows the participation of diverse
                                                                                                       instead identify objectives and allow
                                               Additionally, Concerned Cooperatives                                                                           resources and improves reliability, as
                                                                                                       RTOs/ISOs to pursue options for
                                               disagree with the Commission’s                                                                                 noted by EDP Renewables.96
                                                                                                       achieving those objectives.91                             57. The settlement interval
                                               conclusion that reforming the settlement
                                               intervals will result in more efficient                 d. Commission Determination                            requirement for energy transactions
                                               use of generating resources.                                                                                   should help in maintaining reliability
                                                                                                       i. Energy Transactions
                                                  51. Concerned Cooperatives argue that                                                                       because resources will have a greater
                                               the benefits of moving to five-minute                      53. We adopt the NOPR proposal to                   incentive to follow dispatch
                                               settlements will not offset the cost. They              require that each RTO/ISO settle energy                instructions, as noted by Exelon.97 In
                                               state that the Potomac Economics report                 transactions in its real-time markets at               addition, these reforms will provide
                                               cited in the NOPR shows that switching                  the same time interval it dispatches                   resource owners with a greater incentive
                                               to matching intervals would force MISO                  energy, as discussed below.92 We find                  to adequately maintain their equipment,
                                               market participants to expend millions                  that the settlement interval requirement               conduct maintenance during non-peak
                                               of dollars on upgrades and operation                    for energy transactions will meet the                  periods, and invest in new and
                                               and maintenance (O&M) costs, without                    Commission’s price formation goals by                  upgraded equipment. As noted by
                                               realizing lower rates. Instead, those                   more accurately reflecting the value of                CAISO, linking prices with
                                               participants would face an annual                       the service a resource provides to the                 compensation will pay resources for
                                               increase of approximately $28 million,                  system, which, in so doing, helps to                   providing needed flexibility to the
                                               after netting the estimated $6.6 million                ensure that rates are just and reasonable              market operator and would motivate
                                               system benefit from the increased                       and not unduly discriminatory or                       these resources to improve their
                                               payments to generators of about $35                     preferential.                                          operational performance.98
                                               million dollars.86                                         54. As discussed below, providing the                  58. The settlement interval
                                                 52. Concerned Cooperatives further                    correct incentives for market                          requirement for energy transactions also
                                               argue that the Commission relies solely                 participants to follow commitment and                  results in more accurate market prices,
                                                                                                       dispatch instructions, make efficient                  reducing the need for out-of-market
                                                 82 Direct Energy Comments at 3–5.                     investments in facilities and equipment,               operator actions. Under an hourly
                                                 83 Duke  Comments at 2–3; APPA and NRECA              maintain reliability, and increase
                                               Comments at 4–5; Concerned Cooperatives                                                                          93 ISO–NE    Comments at 2.
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                                               Comments at 4–5.                                          87 Concerned
                                                  84 Duke Comments at 4; APPA and NRECA                                Cooperatives Comments at 11              94 EPSA   Comments, Pope Aff. at 4.
                                                                                                       (citing Comments of Wärtsilä North America, Inc.,       95 Public Interest Organizations Comments at 2–
                                               Comments at 3; Concerned Cooperatives Comments
                                               at 1.                                                   Docket No. AD14–14–000, at 1–2 (Mar. 6, 2015)).        3; ELCON Comments at 2–3; EDP Renewables
                                                                                                          88 Concerned Cooperatives Comments at 11.
                                                  85 Duke Comments at 4–5.                                                                                    Comments at 2–3; ESA Comments at 3; NEI
                                                                                                          89 Concerned Cooperatives Comments at 11.           Comments at 14.
                                                  86 Concerned Cooperatives Comments at 10
                                                                                                          90 Concerned Cooperatives Comments at 11.              96 EDP Renewables Comments at 2–3.
                                               (citing Potomac Economics, 2014 State of the
                                                                                                          91 Concerned Cooperatives Comments at 12.              97 Exelon Comments at 4–5.
                                               Market Report for the MISO Electricity Markets, at
                                               43–44, Figure 19 (2015)).                                  92 NOPR, FERC Stats. & Regs. ¶ 32,710 at P 34.         98 CAISO Comments at 7.




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                                               42890               Federal Register / Vol. 81, No. 126 / Thursday, June 30, 2016 / Rules and Regulations

                                               settlement system, resources do not                        price signals.101 The concern Direct                   performance, and increase investments
                                               have the same incentive to follow five-                    Energy identifies is, in fact, one of the              in more flexible resources.
                                               minute prices since compensation is                        objectives of this reform. Specifically,                 63. Concerned Cooperatives express
                                               based on an hourly average. Therefore,                     resources that are not able to respond                 concern that adopting five-minute
                                               system operators are more likely to take                   quickly enough to address acute system                 settlement intervals could result in
                                               out-of-market actions in real-time, such                   needs should not receive the same level                errors and disputes that could lead to
                                               as increasing the use of regulating                        of compensation as those resources that                resettlement and uncertainty for the
                                               reserves or committing additional                          are able to flexibly respond.102 Further,              market.108 All RTOs/ISOs currently
                                               resources, to ensure that adequate                         we note that all RTOs/ISOs have a                      compute five-minute LMPs. Therefore,
                                               resources are available to meet system                     combination of resources, some of                      there is no new data being generated or
                                               needs. Such actions may result in uplift.                  which can respond within five minutes                  calculated that would lead to additional
                                               By providing incentives to follow                          and some that cannot, and that knowing                 need for resettlement or increased
                                               dispatch instructions, the settlement                      the exact percentages of resources                     uncertainty. Concerned Cooperatives
                                               interval requirement should reduce                         available to respond to prices is not                  have cited neither examples of more
                                               such operator actions and, thereby,                        determinative of whether the reforms                   errors and disputes on RTO/ISO systems
                                               reduce uplift.99 When this occurs,                         adopted here will prove beneficial.                    currently using five-minute settlement
                                               energy prices are based on more                            Instead, we believe it is important to                 intervals, nor examples of additional
                                               observable market fundamentals—such                        ensure settlement practices do not                     resettlement and uncertainty for the
                                               as the marginal cost of serving load and                   distort existing five-minute pricing                   market. Also, we find that, while
                                               the operational constraints of reliably                    signals.                                               administratively-determined
                                               operating the system—and not on less                          61. We are not persuaded by                         uninstructed deviation penalties (which
                                               observable operator action.100 As a                        Concerned Cooperatives’ argument that                  Concerned Cooperatives suggest could
                                               result of a reduction in out-of-market                     the settlement interval proposal should                be used in lieu of settlement reform) are
                                               uplift payments, resources will perceive                   be rejected because market participants,               appropriate in certain contexts,
                                               stronger financial incentives to perform,                  such as Concerned Cooperatives,                        settlements based on the actual value of
                                               especially during stressed system                          funding the reform do not have a large                 energy corresponding with its
                                               conditions, when the performance of all                    fraction of their positions in the real-               production or transaction in each five-
                                               resources is paramount. Further, we                        time market and therefore will not                     minute interval provide more accurate
                                               note, this increased transparency, in                      benefit significantly from it.103 We find              incentives for resources to respond to
                                               turn, better informs decisions to build or                 that aligning prices and settlement                    price signals.
                                               maintain resources.                                        intervals will enhance the operation of                  64. Concerned Cooperatives also
                                                  59. Taken together, the benefits we                     markets by ensuring resources respond                  assert that the objective of incenting
                                               expect as a result of this settlement                      to actual system condition regardless of               market participants to follow dispatch
                                               reform will ensure that rates are just and                 the percentage of resources that clear in              instructions or invest in upgrades must
                                               reasonable and not unduly                                  the day-ahead market.                                  be considered in the context of existing
                                               discriminatory or preferential.                               62. We also disagree with Concerned                 market rules that already may provide
                                                  60. We are not persuaded by the                         Cooperatives’ statement that the                       incentives for investment in faster
                                               arguments opposing the settlement                          Commission relied upon a single                        ramping capability.109 To the extent an
                                               interval proposal. Underlying much of                      document to support its finding without                RTO/ISO has a functional mechanism to
                                               the opposition is the assumption that                      additional analysis.104 Commenters                     encourage the installation of fast-
                                               many resources cannot take advantage                       supporting the reform have provided                    ramping resources, this Final Rule will
                                               of five-minute settlement intervals                        sound economic analysis and examples                   augment the existing RTO/ISO
                                               because they are not flexible enough to                    demonstrating the value of the proposed                mechanisms.
                                               respond to five-minute dispatch. For                       settlement reform.105 Though                             65. Contrary to Concerned
                                               example, Direct Energy argues that                         Concerned Cooperatives state that many                 Cooperatives’ argument, we are not
                                               RTOs/ISOs should report the types of                       market participants would not benefit                  persuaded to abandon the settlement
                                               resources able to effectively modify                       from the reform even though they would                 interval proposal because a Potomac
                                               their output to respond to five-minute                     be responsible for funding it,106 we                   Economics report indicates that it
                                                                                                          believe that many market participants                  would have resulted in an additional
                                                 99 Reducing out-of-market uplift payments can be
                                                                                                          are likely to benefit from the reform                  $28 million in increased energy costs on
                                               beneficial to RTOs’/ISOs’ market participants
                                                                                                          through improved economic incentives                   the MISO system in 2014.110 First, we
                                               because, among other reasons, charges to market                                                                   recognize that that there could be higher
                                               participants for uplift are often volatile. As a result,   to respond to system needs. Potomac
                                               market participants may build risk premiums into           Economics’ analysis of fossil-fueled and               revenues to generators, but we believe
                                               their resource bids in the real-time energy market         non-fossil-fueled resources 107                        that this is the correct reflection of value
                                               to shield them from the uncertainty associated with
                                                                                                          demonstrates that settlement reform will               provided in these circumstances and
                                               unexpected uplift charges. See Staff Analysis of                                                                  would send an improved signal for long-
                                               Uplift in RTO and ISO Markets, Docket No. AD14–            incentivize generator flexibility,
                                               14–000, at 18 (Aug. 2014), http://www.ferc.gov/            improve generators’ dispatch                           term investment and short-term
                                               legal/staff-reports/2014/08-13-14-uplift.pdf. In                                                                  performance, to the overall benefit of
                                               addition, making system conditions and                       101 DirectEnergy Comments at 6.                      the market. Second, it is important to
                                               compensation more transparent through market                 102 This                                             note that the Potomac Economics report
                                                                                                                    rule does not require resources to be
                                               prices will make that price apparent to all available
                                               resources and thus encourage them to fully
                                                                                                          dispatched more quickly than they are now, but it      indicates that for many settlement
                                                                                                          does increase the incentive for those resources that   intervals during 2014, MISO resources
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                                               participate in the market, which is likely to reduce
                                                                                                          can and do respond quickly.
                                               generation costs incurred by load.                           103 Concerned Cooperatives Comments at 11.
                                                                                                                                                                 were paid an hourly settlement rate
                                                 100 In addition to greater transparency, reducing
                                                                                                            104 Concerned Cooperatives Comments at 11.
                                                                                                                                                                 lower than what five-minute settlements
                                               uplift is a goal generally. For example, ‘‘[t]he                                                                  would justify. Thus, the Potomac
                                                                                                            105 EPSA Comments, Pope Aff. at 2–14; Potomac
                                               implementation of five minute settlements would
                                               contribute significantly to the reduction of uplift        Economics Comments at 3–7; See also supra note
                                               payments, which is an ongoing goal of PJM, of the          60.                                                     108 Concerned Cooperatives Comments at 12.
                                                                                                            106 Concerned Cooperatives Comments at 11.            109 Concerned Cooperatives Comments at 6.
                                               Market Monitor and of PJM members.’’ PJM Market
                                               Monitor Comments at 4.                                       107 Potomac Economics Comments at 5–6.                110 Concerned Cooperatives Comments at 10.




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                                                                  Federal Register / Vol. 81, No. 126 / Thursday, June 30, 2016 / Rules and Regulations                                                42891

                                               Economics report should be viewed as                    operating reserves transactions at a                   energy dispatch.114 However, CAISO,
                                               indicating a need to correct settlement                 different time interval than it prices                 along with all of the other RTOs/ISOs,
                                               practices, rather than indicating a                     internal real-time energy transactions,                supports the requirement that they settle
                                               windfall to resources. Third, it is not                 that RTO/ISO need only settle operating                operating reserves transactions at the
                                               clear that the proposal will result in                  reserves transactions at the same time                 same time interval that they price these
                                               generally increased energy payments to                  interval that they are priced. Thus, we                transactions, which accommodates both
                                               generators. For example, an ISO–NE                      will not require an RTO/ISO to settle                  RTOs/ISOs that currently settle co-
                                               study for the year 2013 found that the                  operating reserves transactions on the                 optimized reserve transactions on a five-
                                               net increase in real-time energy credits                same time interval as it settles energy                minute basis and those that currently
                                               on its system (once the decrease in real-               transactions. This will preserve the                   settle these transactions on a fifteen-
                                               time reserve credits was considered)                    existing energy and operating reserves                 minute basis. Accordingly, we clarify
                                               would have been only $600,000.111                       co-optimization methodologies of the                   that CAISO’s understanding in this
                                               Finally, due to the increased efficiencies              various RTOs/ISOs.                                     regard is consistent with how operating
                                               resulting from improving incentives to                     70. The settlement interval                         reserves and energy on its system are
                                               respond to market price signals, total                  requirement increases transparency and                 ‘‘priced,’’ as contemplated by the
                                               costs to electric wholesale customers                   provides the correct incentives to                     wording of the settlement interval
                                               over time are likely to decrease.                       maintain reliability. It also meets the                regulations adopted by this Final Rule.
                                                  66. Additionally, some commenters                    Commission’s other price formation                        72. NYISO states that, although it uses
                                               argue that other types of settlement                    goals of encouraging resources to follow               sub-hourly settlements in its real-time
                                               provisions, such as make-whole                          the RTO’s/ISO’s commitment and                         market, in certain cases, the
                                               payments, should not be subject to                      dispatch instructions and to make                      Commission has approved NYISO
                                               settlement interval reform. We would                    efficient investments. The reform to the               performing settlements on an hourly
                                               like to clarify that the Final Rule does                settlement interval for operating                      basis, and NYISO argues it should not
                                               not apply to make-whole payments for                    reserves will increase reliability because             be required to bring those settlements
                                               units dispatched out-of-merit.                          resource owners will have a greater                    into alignment with its normal dispatch
                                                  67. We disagree with the                             incentive to adequately maintain their                 intervals.115 NYISO cites limited energy
                                               recommendation of some commenters                       equipment, conduct maintenance                         storage resources as an example of
                                               that the decision to modify settlement                  during non-peak periods, and invest in                 services that currently settle hourly and
                                               intervals should be subject to a                        new and upgraded equipment. Similar                    yet follow dispatch instructions and
                                               stakeholder process.112 RTOs/ISOs                       to energy settlement intervals, requiring              provide resource response in real-time.
                                               implementing this Final Rule are free to                settlement intervals of operating                      To the extent NYISO or other RTOs/
                                               use a stakeholder process within the                    reserves transactions to match the                     ISOs seek to argue on compliance that
                                               implementation timelines specified                      intervals upon which those reserves are                their existing market rules are consistent
                                               herein, but we see no need to further                   priced will reduce the need for                        with or superior to the Final Rule
                                               delay this reform. This does not limit                  payments made through uplift, make                     reforms adopted herein, the
                                               stakeholders’ input as RTOs/ISOs form                   resource compensation more                             Commission will entertain those at that
                                               their compliance filings in response to                 transparent and help ensure that there                 time.116
                                               this aspect of the Final Rule.                          are adequate operating reserves to                        73. Although generally supporting the
                                                  68. We conclude that the settlement                  maintain reliability. Finally, co-                     settlement interval requirement for
                                               interval requirement for energy                         optimized energy and reserve prices are                operating reserves, some commenters
                                               transactions should ensure that hourly                  designed so that a resource is indifferent             question whether such a requirement
                                               settlement practices do not distort five-               between providing energy or operating                  should apply to all reserve products or
                                               minute price signals in RTOs/ISOs.                      reserves. Ensuring that energy and                     assert that regional variations should be
                                               Instead, the compensation provided to                   operating reserve settlements are done                 considered.117 We appreciate that
                                               resources must reflect the value of a                   on the same basis will preserve this                   regional variations may exist among the
                                               resource providing given services to                    indifference and create an incentive for               many different reserve products in the
                                               ensure appropriate economic incentives                  a resource to provide the service the                  RTOs/ISOs and we clarify that all
                                               to meet system needs.                                   RTO/ISO has instructed it to provide.                  operating reserve products that have a
                                               ii. Operating Reserves                                  The reform to operating reserve                        market-based price are subject to the
                                                                                                       settlements will, by achieving the                     settlement interval reform.
                                                  69. We adopt the proposal in the                     Commission’s price formation goals and
                                               NOPR that RTOs/ISOs settle real-time                                                                           3. Interties
                                                                                                       preserving the co-optimization of energy
                                               operating reserves transactions at the                  and operating reserves, ensure that rates              a. Commission Request for Comments
                                               same time interval that they price                      are just and reasonable.                                  74. The Commission sought comment
                                               operating reserves. This requirement for                   71. While, as discussed above, some                 on whether the proposed reforms are
                                               operating reserves will accomplish the                  commenters also support RTOs/ISOs                      appropriate for intertie transactions
                                               Commission’s price formation goals and                  settling all real-time operating reserves              scheduled on intervals different from
                                               thereby ensure just and reasonable rates,               transactions at the same time interval
                                               and will further preserve the co-                       that they dispatch real-time energy,113                  114 CAISO    Comments at 17–18.
                                               optimization of operating reserves with                 we are not requiring that these                          115 NYISO    Comments at 3–4.
                                               energy. Under the settlement interval                   settlement intervals align. CAISO, in                     116 See, e.g., Demand Response Compensation in

                                               requirement for operating reserves, to                  defending its current practices, states                Organized Wholesale Energy Markets, Order No.
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                                                                                                                                                              745, FERC Stats. & Regs. ¶ 31,322, at P 4 & n.7,
                                               the extent that an RTO/ISO prices                       that it procures operating reserves and                order on reh’g and clarification, Order No. 745–A,
                                                                                                       settles them on a fifteen-minute basis                 137 FERC ¶ 61,215 (2011), reh’g denied, Order No.
                                                 111 ISO–NE., Subhourly Real-Time Market
                                                                                                       and distinguishes this type of ancillary               745–B, 138 FERC ¶ 61,148 (2012), vacated sub nom.
                                               Settlements, A11 ISO Presentation 05–07–14                                                                     Elec. Power Supply Ass’n v. FERC, 753 F.3d 216
                                               Revision 1, Matt Brewster, at 11 (May 8, 2014),         service from five-minute real-time                     (D.C. Cir. 2014), rev’d & remanded sub nom. FERC
                                               http://www.iso-ne.com/committees/key-projects/                                                                 v. Elec. Power Supply Ass’n, 136 S. Ct. 760 (2016).
                                               subhourly-real-time-settlement.                           113 PSEG Comments at 4–5; EPSA Comments,                117 See, e.g., Dominion Comments at 3; EEI
                                                 112 APPA and NRECA Comments at 4.                     Pope Aff. at 11–13.                                    Comments at 10.



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                                               42892              Federal Register / Vol. 81, No. 126 / Thursday, June 30, 2016 / Rules and Regulations

                                               the intervals on which RTOs/ISOs                        was previously the case under its prior                underlying the proposed settlement
                                               dispatch internal real-time energy.118                  market design, would result in the same                reform as applied to internal
                                                                                                       adverse market outcomes it resolved                    transactions should apply equally to
                                               i. Comments by RTOs/ISOs
                                                                                                       through its fifteen-minute market                      intertie transactions, and ANGA
                                                  75. The ISO/RTO Council asserts that                 enhancement.126 CAISO requests that                    recommends that the Commission
                                               aligning dispatch and pricing should                    the Commission clarify that the                        consider evolving these interfaces to
                                               also apply to intertie transactions,                    availability of hourly block intertie                  five-minute dispatch and settlement,
                                               adding that this would prevent price                    bidding options would not violate the                  perhaps over the next three to five
                                               discrepancies and may reduce uplift.119                 settlement interval proposal because its               years.132
                                                  76. PJM asserts that intertie                        current market design ensures all                         85. Although it generally agrees that
                                               transactions should be included in the                  internal and external transactions are                 the settlement interval proposal should
                                               scope of the Final Rule, noting that it                 cleared and settled based on fifteen-                  apply equally to internal and intertie
                                               plans to settle intertie transactions on a              minute market intervals that optimize                  transactions, Financial Marketers
                                               five-minute basis, consistent with its                  all transactions in its markets.127                    Coalition states that, in CAISO, clearing
                                               proposal for its real-time energy market.                                                                      some transactions (such as load and
                                               PJM suggests that, where a transaction is               ii. Comments by Market Monitors                        generation) on a five-minute price and
                                               curtailed or the MW quantity is reduced                    80. The PJM Market Monitor asserts                  others (such as internal and intertie
                                               during a fifteen-minute interval due to                 that intertie transactions in PJM cannot               convergence bids) on a fifteen-minute
                                               a reliability directive, each five-minute               be measured accurately enough to                       price has yielded price divergence
                                               interval in the transaction should settle               support five-minute settlements, noting                instead of convergence.
                                               on the integrated transaction MW                        that accurate measurement is difficult
                                               quantity that flowed during the five-                                                                          iv. Comments Opposed To Applying
                                                                                                       because of differences between actual                  Settlement Reform to Interties
                                               minute interval.120                                     and scheduled flows. The PJM Market
                                                  77. ISO–NE argues that external                      Monitor thus recommends that                             86. Inertia Power and DC Energy
                                               interties should settle no less often than                                                                     argue that intertie economic dispatch
                                                                                                       settlements be based on the same
                                               the intervals for which they are                                                                               intervals cannot easily be aligned with
                                                                                                       fifteen-minute interval used for external
                                               scheduled. ISO–NE represents that its                                                                          internal real-time energy dispatch but
                                                                                                       scheduling intervals. The PJM Market
                                               proposals to implement sub-hourly                                                                              emphasize the importance of
                                                                                                       Monitor asserts that this approach
                                               settlements would fully meet this                                                                              maintaining the highest possible
                                                                                                       would more accurately reflect LMP
                                               objective at all its external interfaces.121                                                                   consistency across the seams to ensure
                                                                                                       during the actual time period of the
                                               NYISO argues that intertie and internal                                                                        a more efficient, resilient, and reliable
                                                                                                       transaction and would make the period
                                               transactions should have the same                                                                              electrical system.133
                                                                                                       and settlement of the transaction
                                               settlement interval because this                                                                                 87. Duke states that the issue of
                                                                                                       consistent.128
                                               alignment will promote competition,                                                                            whether to apply the settlement interval
                                                                                                          81. The PJM Market Monitor states
                                               identify the most economic supply                                                                              proposal to intertie transactions should
                                               option, provide equal incentives to                     that alternative settlement approaches                 be discussed in the RTO/ISO
                                               respond to the same operating                           include using the integrated price over                stakeholder processes and that they
                                               conditions, and improve the efficiency                  the same fifteen-minute interval used in               should be treated comparably to reforms
                                               of interregional transactions.122                       scheduling and using five-minute                       to internal transactions.134
                                                  78. CAISO notes that it already                      interval settlements.129
                                               schedules and settles intertie                                                                                 b. Commission Determination
                                                                                                       iii. Comments in Support of Applying
                                               transactions and internal resources on a                Settlement Reform to Interties                            88. Based upon the comments
                                               fifteen-minute basis.123 However,                                                                              received on this issue, we modify the
                                               CAISO also provides three options for                      82. The New Jersey Board, EEI, EPSA,                regulatory text proposed in the NOPR to
                                               scheduling imports and exports on an                    Dominion, and EDP Renewables concur                    require each RTO/ISO to settle intertie
                                               hourly basis: (1) Economic-bid hourly                   with the PJM Market Monitor that                       transactions in the same time interval
                                               block; (2) economic-bid hourly block                    intertie settlements should be at fifteen-             that it schedules intertie transactions.
                                               with a single intra-hour schedule                       minute intervals, the same interval as                 The settlement interval requirement for
                                               change that will be dispatched to zero                  external scheduling.130                                intertie transactions will facilitate the
                                               within the hour if a fifteen-minute price                  83. Golden Spread states that                       coordination of the scheduling and
                                               is less than an import’s bid price or                   alignment between dispatch and                         settlement of intertie transactions, and
                                               greater than an export’s bid price; and                 settlement intervals is generally                      will discourage inefficient practices
                                               (3) self-scheduled hourly.124 CAISO                     desirable for the reasons listed in the                such as the chasing of inaccurate
                                               requests that the Commission state that                 NOPR, and notes that it believes SPP                   intertie prices. For example, if there are
                                               CAISO’s current market design with                      already aligns dispatch and settlement                 very high prices in the first fifteen
                                               granular dispatch and settlement of its                 intervals for intertie transactions on a               minutes of an hour, resources will know
                                               real-time energy market is consistent                   five-minute basis.131                                  that for that entire operating hour, there
                                               with the settlement interval proposal.125                  84. ANGA, PSEG, and the Financial                   will be a high integrated hourly price.
                                                  79. CAISO asserts that a blanket                     Marketers Coalition assert that the logic              This provides an incentive for resources
                                               requirement that hourly intertie                                                                               to increase the volume of intertie
                                                                                                         126 CAISO  Comments at 14.
                                               schedules revert to hourly pricing, as                                                                         transactions for the remainder of the
                                                                                                         127 CAISO  Comments at 15.                           hour, even if the price for the
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                                                                                                         128 PJM Market Monitor Comments at 7.
                                                 118 NOPR, FERC Stats. & Regs. ¶ 32,710 at P 39.         129 The PJM Market Monitor in its comments
                                                                                                                                                              subsequent fifteen-minute interval is
                                                 119 ISO/RTO Council Comments at 2.
                                                                                                       provides examples of these alternatives. PJM Market    much lower reflecting that it may no
                                                 120 PJM Comments at 8.
                                                                                                       Monitor Comments at 5–7.
                                                 121 ISO–NE Comments at 2.
                                                                                                         130 New Jersey Board Comments at 3–4; EEI              132 ANGA Comments at 3–4; Financial Marketers
                                                 122 NYISO Comments at 5.
                                                                                                       Comments at 9; EPSA Comments, Pope Aff. at 9;          Coalition Comments at 3–4; PSEG Comments at 5.
                                                 123 CAISO Comments at 12.
                                                                                                       Dominion Comments at 4; EDP Renewables                   133 Inertia Power and DC Energy Comments at
                                                 124 CAISO Comments at 9.                              Comments at 5.                                         4–5.
                                                 125 CAISO Comments at 10.                               131 Golden Spread Initial Comments at 2.               134 Duke Comments at 5.




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                                                                  Federal Register / Vol. 81, No. 126 / Thursday, June 30, 2016 / Rules and Regulations                                                    42893

                                               longer be efficient to schedule such                       94. Public Interest Organizations also              b. Commission Determination
                                               intertie transactions. Most commenters,                 urge the Commission to make clear that                    98. In using the term ‘‘resource’’ in
                                               as described above, agree that such a                   its proposed reforms apply to all                      the NOPR, the Commission intended for
                                               requirement will aid in the achievement                 resources able to participate in                       the settlement interval proposal to apply
                                               of these goals.                                         wholesale energy markets.137 PSEG                      to all supply resources, including
                                                  89. However, a difference of opinion                 similarly supports the application of the              demand response resources. We find
                                               exists between PJM and the PJM Market                   settlement interval proposal to demand                 that, as with other resources, aligning
                                               Monitor. PJM supports moving to a five-                 response resources. PSEG states that                   the price signal and dispatch signal
                                               minute settlement interval for intertie                 real-time settlements for demand                       provides demand response resources
                                               transactions while the PJM Market                       response resources, or any other load-                 capable of following a given dispatch
                                               Monitor supports aligning the                           side resources that are price responsive               signal the incentive to do so, resulting
                                               settlement interval for intertie                        in wholesale markets, should be based                  in a more efficient use of demand
                                               transactions with the fifteen-minute                    on five-minute intervals, in the same                  response resources in the real-time
                                               scheduling interval for these                           manner as the supply resources with                    energy and operating reserve markets.
                                               transactions.                                           which it competes.138 PSEG                             As stated above, all RTOs/ISOs have a
                                                  90. If an RTO/ISO settles or proposes                acknowledges that some demand                          combination of resources, some of
                                               to settle intertie transactions using a                 resources will lack necessary meters                   which can respond within five minutes
                                               shorter time interval than by which it                  and/or communication, and states that it               and some that cannot, and that includes
                                               schedules such transactions, the RTO/                   would be reasonable to allow these                     demand response resources. It is
                                               ISO may propose to do so in its                         resources a transition period to install               important to provide a price signal to all
                                               compliance filing and demonstrate that                  them without delaying overall                          resources, regardless of type or
                                               such a proposal is consistent with or                   implementation.139                                     capability, as this will provide proper
                                               superior to the Commission’s intertie                      95. AEMA states that it recommends                  compensation to those resources
                                               reforms. The compliance filing                          that demand response resources have                    capable of responding to five-minute
                                               proceeding will provide a forum in                      the option to continue to settle on the                dispatch signals, and will incentivize
                                               which to consider alternative practices                 basis of one-hour meter readings. AEMA                 such capability to those resources that
                                               and resolve disputes that may arise                     asserts that demand resources use                      do not currently have it.
                                                                                                       hourly intervals because only hourly                      99. In response to concerns about the
                                               within regions, as well as provide for
                                                                                                       interval metering may be available and                 need to upgrade metering technology for
                                               the development of a more complete
                                                                                                       even new advanced metering                             demand response resources, we note
                                               record on these issues.
                                                                                                       infrastructure is only capable of fifteen              that this Final Rule does not
                                                  91. We decline to clarify for CAISO                  minute interval data, whereas settling
                                               that the availability of hourly block                                                                          contemplate requiring any new metering
                                                                                                       on five-minute intervals could entail                  capability, such as five-minute revenue
                                               intertie bidding options would not                      adding an expense that is an economic
                                               violate the settlement interval                                                                                quality metering, and that such metering
                                                                                                       barrier to entry for some resources.140                is not necessary for implementation
                                               requirement for interties. Such a                          96. AEMA also states that few
                                               determination is more appropriately                                                                            given RTOs’/ISOs’ ability to create five-
                                                                                                       demand response resources have the                     minute load and generation profiles
                                               made upon reviewing CAISO’s                             operational communications to modify
                                               compliance filing and CAISO should                                                                             using telemetry and hourly revenue
                                                                                                       their demand at frequent intervals and                 quality data. We also do not require any
                                               justify its proposed treatment for intertie             that frequent demand changes would
                                               transactions there.                                                                                            changes to baseline methodologies.
                                                                                                       require more robust communications                     Although a more granular baseline may
                                               4. Demand Response Resources                            than may be economic.141 AEMA                          provide additional value, RTOs/ISOs
                                                                                                       further states that the Net Benefits Price             need not change their baseline
                                               a. Comments                                             Threshold that many RTOs/ISOs                          methodology to comply with this Final
                                                 92. Several commenters discuss the                    established in response to FERC Order                  Rule. Finally, we find that AEMA’s
                                               application of the settlement interval                  No. 745 is applied on an hourly basis                  arguments regarding the Net Benefits
                                               proposal to demand response resources                   and that the industry has universally                  Price Threshold 144 and ‘‘make whole’’
                                               even though the Commission did not                      adopted hourly baseline methodologies                  rules are beyond the scope of this Final
                                               specifically solicit those comments and                 for demand response resources.142                      Rule because it does not require any
                                               did not make a separate proposal                           97. AEMA explains that much of the
                                                                                                                                                              changes to the Net Benefits Price
                                               concerning demand response resources                    current energy-related demand response
                                                                                                                                                              Threshold or make-whole payments.
                                               apart from other resources considered in                participation relies on the commitment
                                                                                                                                                              Even if modest changes to these
                                               the NOPR.                                               to dispatch for one or more hours and
                                                                                                       if the bid-offer is accepted for demand                provisions were required for RTOs/ISOs
                                                 93. The PJM Market Monitor, with the                                                                         to comply with this Final Rule, the
                                               New Jersey Board concurring,                            response resources, those resources are
                                                                                                       eligible for uplift payments if the energy             benefits of this rule would justify such
                                               recommends that five-minute pricing in                                                                         modifications.
                                               energy markets explicitly cover all                     prices fall below their bid-offer during
                                               resources providing energy, including                   their committed dispatch time. AEMA                    5. Load
                                               demand side and storage resources.135                   requests that these bid offer guarantees
                                                                                                                                                              a. Comments
                                               PJM Market Monitor recommends that                      continue to be incorporated in the Final
                                                                                                       Rule.143                                                  100. A number of commenters state
                                               the Commission require any associated,                                                                         the proposed rule did not specify
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                                               necessary metering associated with                        137 Public                                           whether the settlement interval proposal
                                                                                                                   Interest Organizations at 5.
                                               applying the requirement to demand                        138 PSEG Comments at 5.                              would apply to load,145 or, in other
                                               resources.136                                             139 PSEG Comments at 5.
                                                                                                         140 AEMA Comments at 4.                                144 AEMA    Comments at 3.
                                                 135 PJM Market Monitor Comments at 2; New               141 AEMA Comments at 4.                                145 For  purposes of this Final Rule, the term
                                               Jersey Board Comments at 2.                               142 AEMA Comments at 3–5 (citing Order No.
                                                                                                                                                              ‘‘load’’ generally refers to consumption of electricity
                                                 136 PJM Market Monitor Comments at 2; New             745, FERC Stats. & Regs. ¶ 31,322).                    in the wholesale markets, but not to demand
                                               Jersey Board Comments at 2.                               143 AEMA Comments at 5.                                                                           Continued




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                                               42894              Federal Register / Vol. 81, No. 126 / Thursday, June 30, 2016 / Rules and Regulations

                                               words, whether it would change how                      b. Commission Determination                            reform. For example, as discussed
                                               load is settled and measured.                              104. We clarify that the Commission                 below, MISO, NYISO and ISO–NE all
                                                  101. EEI, PSEG, SCE, AEMA, EPSA                      did not propose to apply the settlement                support the need for reform, and CAISO
                                               and CAISO recommend that the                            interval proposal to load. We also clarify             supports the conceptual need, but
                                               Commission not apply the settlement                     that adoption of the settlement interval               requests further clarifications. EEI and
                                                                                                       requirements are not intended to change                EPSA also support the Commission’s
                                               reform to load.146 The primary
                                                                                                       how load is metered. The Commission’s                  shortage pricing proposal. Conversely,
                                               arguments these commenters cite
                                                                                                       basis for requiring changes to the                     SPP and PJM, in joint comments,
                                               against applying the settlement interval
                                                                                                       settlement interval focused exclusively                oppose implementing shortage pricing
                                               proposal to load include: (1) The benefit                                                                      in all dispatch intervals, and request
                                               of settling load on an interval basis is                on supply resources rather than load. As
                                                                                                       a result, we have no record to require                 revisions if the Commission adopts its
                                               not likely to outweigh the cost, which                                                                         proposed reforms.
                                               may include the need for new expensive                  any changes to the settlement interval
                                                                                                       for load. However, we are not                             108. Based on analysis of the record,
                                               metering; 147 (2) settlement reform alone                                                                      we adopt our preliminary findings and
                                                                                                       prohibiting settling load on a five-
                                               will not encourage price responsive load                                                                       conclude that existing shortage pricing
                                                                                                       minute basis, and will evaluate any
                                               without corresponding changes to state-                                                                        triggers that do not invoke shortage
                                                                                                       such proposals on a case-by-case basis
                                               jurisdictional retail rate design; 148 and              in separate proceedings submitted                      pricing when there is a shortage
                                               (3) because load is not dispatchable,                   pursuant to section 205 of the FPA.                    (regardless of duration or cause) are
                                               there is no dispatch interval that aligns                                                                      unjust and unreasonable and are unduly
                                               with load.149 Direct Energy recommends                  B. Shortage Pricing Reform                             discriminatory and preferential. Thus,
                                               either not applying the settlement                      1. Need for Reform                                     there is a need to reform the use of
                                               reform to load or delaying                                                                                     shortage pricing in RTO/ISO markets, as
                                                                                                          105. In the NOPR, the Commission                    discussed further herein.
                                               implementation until the majority of
                                                                                                       stated that shortage prices send a short-
                                               load has the ability, incentive and                                                                            2. NOPR Proposal
                                                                                                       term price signal to provide an incentive
                                               information necessary to respond to                     for the performance of existing
                                               five-minute settlements.150 EEI                                                                                   109. In order to remedy the
                                                                                                       resources and help to maintain                         potentially unjust and unreasonable
                                               specifically requests that the                          reliability. The Commission noted that
                                               Commission clarify that it is not                                                                              rates caused by restrictions on shortage
                                                                                                       some RTOs/ISOs currently restrict the                  pricing, the Commission proposed to
                                               proposing to change how load is                         use of shortage pricing to certain causes              require that RTOs/ISOs institute
                                               metered.151                                             of shortages, or some RTOs/ISOs require                mechanisms that trigger shortage pricing
                                                  102. PJM, however, states that it is                 a shortage to exist for a minimum                      for any dispatch interval during which
                                               advantageous to apply the proposed rule                 amount of time before triggering                       a shortage of energy or operating
                                               to load, and proposes to settle load on                 shortage pricing.155 The Commission                    reserves occurs.
                                               the same interval as dispatch intervals                 further noted that not invoking shortage
                                               by using a combination of state-                        pricing when there is a shortage                       3. Comments on the Proposed Shortage
                                               estimator and telemetry data for each                   (regardless of the duration or cause of                Pricing Reform
                                               settlement interval.152 PJM states that it              that shortage) distorts price signals that             a. Comments by RTOs/ISOs
                                               thus does not foresee changes being                     are designed to elicit increased supply
                                                                                                       and to compensate resources for the                       110. MISO states that it supports
                                               required for market participants’                                                                              shortage pricing reform and maintains
                                               metering.153                                            value of the services they provide when
                                                                                                       the system needs energy or operating                   that MISO’s current practices are
                                                  103. Mr. Centolella states that                      reserves. Because these price signals fail             already consistent with the
                                               advancing load settlements to reflect the               to reflect adequately the value that a                 Commission’s proposal. Specifically,
                                               actual interval demand of each load                     resource provides to the system, the                   MISO states its operating reserve
                                               serving entity’s customers could remove                 Commission preliminarily found in the                  demand curve is used in the five-minute
                                               an important barrier to developing the                  NOPR that the resulting price is not just              dispatch interval and triggers shortage
                                               next generation of responsive demand.                   and reasonable.156                                     pricing in any five-minute interval in
                                               Mr. Centolella also encourages the                         106. The Commission also noted that                 which operating reserve requirements
                                               Commission to work with states to                       its rationale regarding shortage pricing               cannot be fully satisfied, regardless of
                                               optimize collecting customer data, and                  was similar to the rationale the                       duration or causation.158 MISO also
                                               to evaluate how to support efficient                    Commission relied on in Order No. 719,                 states that its recent implementation of
                                               price formation related to the load data                in which the Commission determined                     extended locational marginal pricing
                                               used in wholesale settlements.154                       that ‘‘rules that do not allow for prices              (ELMP) considers offline fast-start
                                                                                                       to rise sufficiently during an operating               resources in its price setting algorithm
                                               response acting as a supply resource in the             reserve shortage to allow supply to meet               to more accurately reflect the cost of the
                                               wholesale markets.                                      demand are unjust, unreasonable, and                   next MW to meet demand during
                                                  146 EEI Comments at 8–9; PSEG Comments at 5–         may be unduly discriminatory’’ and that                scarcity conditions.159 MISO notes that
                                               6; SCE Comments at 2; AEMA Comments at 4–5;             such rules ‘‘may not produce prices that               if no economic offline fast-start
                                               EPSA Comments, Pope Aff. at 6–7; CAISO                                                                         resources are eligible, it will rely upon
                                               Comments at 16–17.
                                                                                                       accurately reflect the value of
                                                  147 SCE Comments at 2.                               energy.’’ 157                                          the operating reserve demand curve
                                                  148 SCE Comments at 2.                                  107. Commenters generally support                   values for shortage pricing. MISO states
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                                                  149 CAISO Comments at 16–17.                         the rationale provided by the                          that it is already compliant with the
                                                  150 Direct Energy Comments at 7. See also            Commission in support of the need for                  proposed rule on shortage pricing.160
                                               Supplemental Comments of Direct Energy (filed
                                               Mar. 4, 2016).                                            155 NOPR,  FERC Stats. & Regs. ¶ 32,710 at P 46.       158 MISO  Comments at 10.
                                                  151 EEI Comments at 8–9.                                                                                      159 See
                                                                                                         156 NOPR,  FERC Stats. & Regs. ¶ 32,710 at P 47.               MISO, Extended Locational Marginal
                                                  152 PJM Comments at 5.                                  157 NOPR, FERC Stats. & Regs. ¶ 32,710 at P 48      Pricing, Docket No. ER12–668–000 (filed Dec. 22,
                                                  153 PJM Comments at 5.                                                                                      2011).
                                                                                                       (citing Order No. 719, FERC Stats. & Regs. ¶ 31,281
                                                  154 Mr. Centolella Comments at 4–6.                  at P 192).                                               160 MISO Comments at 11–12.




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                                                                  Federal Register / Vol. 81, No. 126 / Thursday, June 30, 2016 / Rules and Regulations                                             42895

                                                  111. ISO–NE supports the shortage                    it is important that the Final Rule clarify                 117. PJM and SPP argue that allowing
                                               pricing proposal and asserts that its                   that the deployment of operating                         transient periods of shortage to trigger
                                               current market rules and real-time                      reserves or regulation does not                          shortage pricing could overstate the
                                               pricing systems already comply with the                 necessarily mean a shortage exists.                      severity of the operating condition and
                                               proposed requirement.161                                CAISO notes that in some cases the                       result in prices that do not accurately
                                                  112. NYISO supports the shortage                     deployment of reserves is made through                   reflect operating conditions on the
                                               pricing proposal, and states that it uses               alternative deployment mechanisms and                    system, or last long enough to allow
                                               demand curves to price all reserve                      not in the co-optimization function of                   market participants responding to them
                                               shortages, regardless of their duration.                the market.166 CAISO also explains that                  to take meaningful action. In fact, PJM
                                               NYISO adds that it currently                            in any given fifteen-minute market                       and SPP assert that responses may occur
                                               implements shortage pricing in its day-                 interval, if a shortage is observed,                     after the relevant interval has passed,
                                               ahead and real-time markets using                       shortage pricing will trigger within that                which could be counterproductive
                                               various demand curves for operating                     interval and CAISO will not wait for the
                                               reserves, regulating reserves, and                                                                               operationally and economically. PJM
                                                                                                       shortage to materialize beyond that
                                               transmission security, where the                                                                                 and SPP pose two examples to illustrate
                                                                                                       interval before triggering shortage
                                               demand curves represent the escalating                  pricing. However, CAISO states that not                  this point. As the first example, they
                                               value of each product as the level of any               all price signals triggered by ‘‘transient               posit: PJM carrying the required amount
                                               shortage increases.162 NYISO also states                shortages’’ provide incentives to                        of reserves when a market seller of a
                                               that it does not interpret the NOPR to be               resources that have the capability to                    generation resource lowers the
                                               addressing the use of offline resources                 respond to brief-duration shortages.167                  resource’s economic maximum
                                               in real-time pricing or to be implying                     115. PJM and SPP filed joint                          capability, for a brief time (ten minutes
                                               that practices, such as the NYISO’s                     comments opposing triggering shortage                    or less), causing PJM to have less
                                               ‘‘Hybrid Pricing’’ rules,163 are                        pricing in any dispatch interval in                      reserves than its requirement. Currently,
                                               inconsistent with the NOPR.164                          which a shortage of energy or operating                  PJM can recover these reserves by re-
                                                  113. CAISO agrees with the concept                   reserves occurs. First, PJM and SPP state                executing its dispatch engine and re-
                                               behind the shortage pricing reform and                  that they support shortage pricing only                  dispatching its system; but under the
                                               supports its implementation, subject to                 when ‘‘a shortage of a particular product                shortage pricing reform, this could
                                               certain clarifications. CAISO expects                   exists that presents reliability                         invoke shortage pricing, which would
                                               that its existing tariff provisions                     concerns.’’ 168 PJM and SPP argue that                   then attract more suppliers than needed
                                               implementing scarcity pricing for                       applying shortage prices to shortage                     and create disincentives for resources to
                                               energy and ancillary services already                   events that do not cause reliability                     back down once the event was over. In
                                               comply with the NOPR’s proposal.                        concerns allows price increases even                     another example, they posit: PJM has
                                               CAISO explains that, in any fifteen-                    when such events are transitory, do not                  scheduled a resource with a ten-minute
                                               minute interval of the fifteen-minute                   pose reliability concerns, and cannot be                 start-up time to come online to provide
                                               market, it will co-optimize the                         addressed due to limitations on resource                 energy so that another resource may be
                                               procurement of energy and ancillary                     response. PJM and SPP maintain that                      reduced to provide reserves; but if the
                                               services based on submitted supply bids                 applying shortage pricing to some
                                                                                                                                                                resource scheduled to come online
                                               and the forecast of demand and its                      transient shortages will give inaccurate
                                               ancillary services requirements. CAISO                                                                           actually takes twenty minutes instead of
                                                                                                       prices and could potentially degrade
                                               further explains that, in any given                     system reliability, and may also result in               ten, shortage pricing would be triggered
                                               fifteen-minute interval, if effective                   market pricing and operations that are                   under the shortage pricing proposal, and
                                               supply bids are insufficient to clear                   contrary to the Commission’s stated                      the second resource, instead of having
                                               forecasted demand, scarcity pricing will                goals.169                                                its output reduced to provide reserves
                                               trigger and thereby indicate a shortage                    116. PJM and SPP further state that                   would now need to continue to provide
                                               of supply for that applicable fifteen-                  they have in place rules related to this                 energy, thus potentially leaving PJM
                                               minute interval. CAISO states that,                     issue consistent with the principles and                 short on reserves for a brief period.171
                                               similarly, if ancillary services bids are               goals of shortage pricing. PJM and SPP                      118. PJM and SPP introduce another
                                               not sufficient to meet the ancillary                    urge the Commission to provide                           hypothetical scenario from the SPP
                                               services procurement target, ancillary                  flexibility by allowing RTOs/ISOs to                     region. PJM and SPP state that SPP can
                                               services scarcity pricing will trigger for              implement shortage pricing in the                        temporarily use operating reserves to
                                               that interval.165                                       context of their regional rules. This, PJM               meet energy requirements during
                                                  114. CAISO notes that within a                       and SPP assert, will ensure that                         transient periods when system
                                               fifteen-minute operating interval it may                inefficient pricing does not result.170                  conditions do not present reliability
                                               need to deploy operating reserves to
                                               address a contingency in the case of                       166 CAISO explains that during each fifteen-
                                                                                                                                                                concerns. PJM and SPP argue that while
                                               operating reserves, or in the case of                   minute interval in which the resources are               this may technically compromise the
                                               regulation to continuously balance                      deployed, the system is not actually short of supply     operating reserve requirement, the
                                                                                                       bids when the operating reserves for that interval       condition is transient and is recovered
                                               supply and demand. CAISO states that                    are procured. Also, CAISO states that once the
                                                                                                       reserves are deployed, to the extent that the market     in less than ten minutes. According to
                                                 161 ISO–NE    Comments at 3.                          allows for full recovery of the required reserves, the   PJM and SPP, this is not an operating
                                                 162 NYISO   Comments at 6.                            contingency event itself does not trigger scarcity       reserve shortage, but rather a transient
                                                                                                       pricing for ancillary services. According to CAISO,
                                                 163 NYISO’s Hybrid Pricing rules were adopted in
                                                                                                       this is because no actual shortage of operating
                                                                                                                                                                reallocation of capacity to manage
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                                               2001. See New York Indep. Sys. Operator, Inc., 95                                                                temporary energy needs caused by the
                                               FERC ¶ 61,121 (2001). The Hybrid Pricing rules          reserves exists unless there are insufficient
                                               apply to Real-Time Market pricing and relax the         resources to meet operational needs for operating        operational characteristics of resources.
                                               minimum operating limits of certain fast-start,         reserves in the next applicable fifteen-minute           PJM and SPP further state that the
                                               block-loaded resources in order to permit them to       market interval. CAISO Comments at 21–22.
                                                                                                          167 CAISO Comments at 23.
                                                                                                                                                                examples described above do not
                                               be eligible to set price based on the incremental
                                               need that required their commitment.                       168 PJM and SPP Comments at 1.                        present emergency conditions or
                                                 164 NYISO Comments at 7.                                 169 PJM and SPP Comments at 1–2.
                                                 165 CAISO Comments at 20.                                170 PJM and SPP Comments at 2–3.                       171 PJM   and SPP Comments at 4.



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                                               42896              Federal Register / Vol. 81, No. 126 / Thursday, June 30, 2016 / Rules and Regulations

                                               reliability concerns that would justify                 and that these are true shortages,                     conditions and should be implemented
                                               shortage pricing.172                                    because if a large contingency occurs                  if PJM can accurately measure the level
                                                 119. In order to ‘‘recognize and                      during this period (e.g., a generator                  of reserves on a five-minute basis,
                                               respect the fact that not all instances of              tripping off-line), the RTO/ISO will not               which the PJM Market Monitor
                                               shortages justify shortage pricing,’’ PJM               have the ability to replace the capacity               understands that PJM currently cannot
                                               and SPP propose alternative language                    because its other generators are already               do. The PJM Market Monitor asserts
                                               for any Final Rule on shortage pricing:                 ramping as quickly as possible. Potomac                that, without accurate measurement of
                                                 Each RTO/ISO must establish tariff                    Economics states that the Commission’s                 reserves at minute-by-minute
                                               provisions that implement shortage pricing              proposal will lead to resources offering               granularity, system operators cannot
                                               for pre-defined operating conditions related            faster ramp rates, offering wider                      know with certainty that a shortage
                                               to a shortage of energy or operating reserves.          dispatch ranges and not self-scheduling                condition exists, thus masking the
                                               The Commission will allow each RTO/ISO to               resources, and offering shorter start                  trigger for five-minute shortage pricing.
                                               develop those provisions based on their                 times for natural gas turbines. Potomac                The PJM Market Monitor recommends
                                               regional circumstances, provided that the
                                               rules are consistent with shortage pricing
                                                                                                       Economics states that the proposal also                that if PJM cannot measure operating
                                               principles and are designed to facilitate the           has important long-term implications as                reserves on a five-minute basis, the
                                               goals of this [Final Rule]. The Commission              it provides efficient incentives for                   Commission should direct PJM to
                                               expects that each RTO/ISO will explain why              participants to build more flexible, fast-             develop methods to do so. The PJM
                                               their provisions, or why their current rules,           ramping generating resources, and to                   Market Monitor asserts that if RTOs/
                                               comply with this rule.173                               make maintenance decisions on existing                 ISOs cannot demonstrate that they can
                                                  120. PJM and SPP further assert that                 resources to increase their flexibility.178            accurately measure reserves at minute-
                                               a universal shortage pricing rule                          123. Potomac Economics also states                  by-minute granularity, they should not
                                               requiring shortage pricing even for                     that allowing offline resources to set                 implement five-minute shortage pricing
                                               transient circumstances would require                   real-time energy and ancillary services                until they have that capability.182
                                               the implementation of operating reserve                 prices can be efficient, but there are also               126. The SPP Market Monitor
                                               demand curves that distinguish prices                   conditions under which the use of these                supports the Commission’s proposal to
                                               relative to varying degrees of shortage.                resources can artificially lower energy                require RTOs/ISOs to trigger shortage
                                               PJM and SPP explain further that in                     prices and obscure shortages.179                       pricing for any dispatch interval during
                                               PJM’s case, the current operating reserve               Potomac Economics explains that if an                  which a shortage of energy and
                                               demand curves are a step function,                      RTO’s/ISO’s pricing model allows                       operating reserves occurs. The SPP
                                               which would need to be changed, and                     infeasible or uneconomic units to set                  Market Monitor states that SPP’s
                                               in SPP’s case it would likely consider                  prices, the offline units represent an                 Integrated Marketplace uses
                                               the implementation of a pricing gradient                artificial increase in real-time supply                administratively-determined scarcity
                                               demand curve based on different                         that will depress real-time prices.                    pricing demand curves to set prices
                                               degrees of shortages and their impact on                Further, Potomac Economics explains                    during capacity shortages. The SPP
                                               reliability, rather than steep step                     that the artificial increase in real-time              Market Monitor explains that, during
                                               curves.174                                              supply can have a large effect when the                shortages, quick-start and fast-ramping
                                                                                                       system is experiencing an operating                    resources—which generally have higher
                                               b. Comments by Market Monitors                          reserve or transmission shortage, which                costs and low capacity factors—earn a
                                                  121. Potomac Economics explains that                 is ultimately not priced as a shortage                 significant portion of their annual
                                               all the markets that it monitors (ISO–                  because an offline unit has set the                    revenue. The SPP Market Monitor
                                               NE, NYISO, and MISO) are designed to                    price.180                                              asserts that scarcity pricing serves as an
                                               price all shortages, regardless of                         124. Potomac Economics recommends                   important mechanism for sending
                                               duration.175 Potomac Economics states                   that the Commission require RTOs/ISOs                  correct price signals to these resources;
                                               that it strongly supports the shortage                  to demonstrate that their real-time                    however, the SPP Market Monitor states
                                               pricing reform and argues that pricing                  pricing models do not allow offline                    that SPP is not sending this price signal
                                               all shortages, regardless of duration,                  units to set prices in a manner that                   during ramp-constrained operating
                                               provides efficient incentives for                       undermines its real-time shortage                      reserve shortages since the SPP market
                                               resources to be flexible and to perform                 pricing. Potomac Economics believes                    rules do not allow insufficient ramping
                                               well, which ultimately lowers costs to                  that this can be demonstrated by the                   capability to trigger scarcity pricing of
                                               consumers and improves reliability.176                  RTO/ISO describing how and when                        operating reserves.183 The SPP Market
                                               Potomac Economics states that, together                 offline units set real-time prices and                 Monitor requests that the Commission
                                               with the alignment of dispatch and                      showing that when offline units have set               address the ramp-constrained operating
                                               settlement intervals, a requirement for                 price historically that they are generally             reserve shortage pricing issue in the
                                               RTOs/ISOs to price ‘‘transitory                         committed and dispatched as well.                      Final Rule.184
                                               shortages’’ rewards units that can                      Potomac Economics further asserts that
                                                                                                       if the RTOs/ISOs cannot demonstrate                    c. Comments Supporting the Shortage
                                               respond quickly to help the RTO/ISO
                                                                                                       this in their compliance filing, then they             Pricing Reform
                                               remedy the shortage and, in doing so,
                                               addresses the diminished reliability                    may need to make changes to their                         127. Several other commenters
                                               caused by the shortage.177                              pricing models to ensure that they                     express support for shortage pricing
                                                  122. Potomac Economics states that                   satisfy the Commission’s price                         reform. These commenters agree that the
                                               transitory shortages typically occur                    formation goals.181                                    proposed shortage pricing reform will
                                                                                                          125. The PJM Market Monitor states
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                                               when the system is ramp-constrained,                                                                           increase transparency, create incentives
                                                                                                       that five-minute shortage pricing would                to trigger quick response from supply,
                                                 172 PJM and SPP Comments at 5–6.                      correctly reflect actual shortage                      promote investment in resources that
                                                 173 PJM and SPP Comments at 7.
                                                 174 PJM and SPP Comments at 8.                          178 Potomac Economics Comments at 8.                   182 PJM Market Monitor Comments at 9.
                                                 175 Potomac Economics Comments at 9.                    179 Potomac Economics Comments at 9.                   183 SPP Market Monitor Comments at 4 (citing
                                                 176 Potomac Economics Comments at 7.                    180 Potomac Economics Comments at 10.                SPP Tariff, Attachment AE 5.1.2.1 and 8.3.4.2).
                                                 177 Potomac Economics Comments at 7.                    181 Potomac Economics Comments at 9–11.                184 SPP Market Monitor Comments at 4–6.




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                                                                  Federal Register / Vol. 81, No. 126 / Thursday, June 30, 2016 / Rules and Regulations                                               42897

                                               can respond to short duration shortages,                Further, CEA states that without                       provides.197 ESA maintains that, for
                                               and provide revenues to resources that                  appropriate compensation prices                        energy storage resources to help ensure
                                               reflect the value of the service                        invariably become distorted insofar as                 grid reliability, an economic incentive
                                               provided.185 In addition, several                       they do not reflect the increased value                must exist to incorporate those
                                               commenters, including EPSA and                          of that resource with utmost accuracy                  resources onto the grid.198
                                               Westar, support the shortage pricing                    and granularity.191 In addition, NGSA                     133. Exelon and Inertia Power assert
                                               proposal and state that it should apply                 comments that the proposal will                        that implementing shortage pricing for
                                               to all shortages, regardless of                         encourage investments by generators                    any interval during which a shortage
                                               duration.186                                            that allow them to more reliably                       could occur will provide the right
                                                  128. Several commenters support the                  perform, leading to greater regional fuel              incentives for generating resources and
                                               Commission’s shortage pricing proposal,                 assurance.192                                          will promote adequate incentives for
                                               arguing that market clearing prices                        130. ANGA states that while a                       resource adequacy. Exelon and Inertia
                                               should reflect shortage or emergency                    shortage may be transient and last only                Power state that it is economically more
                                               situations so that generators are                       a single five-minute interval, some                    efficient for prices to reflect the value of
                                               provided transparent price signals that                 resources are able to move quickly                     the marginal resource during shortage
                                               reflect the market conditions.187 EPSA                  enough to meet these shifts in demand                  periods, and that this is particularly true
                                               and Westar note that reflecting a                       and, hence, reduce overall system                      in instances where generation resources
                                               shortage price signal during transient                  instability. Further, ANGA maintains,                  must compete with alternatives, such as
                                               shortage events will result in a price                  allowing prices to respond to these                    exporting power to a neighboring
                                               signal that incents resources to respond                small shortages also sends a long-term                 market or not consuming a scarce
                                               to real-time system constraints based on                price signal to the market, highlighting               fuel.199
                                               a price that reflects the value of loss of              where and what types of resources are
                                               load even if the event is less than ten                 needed on the system, which improves                      134. PSEG states that it supports the
                                               minutes in duration.188 Further, Westar                 overall system reliability. ANGA also                  shortage pricing proposal, that the
                                               states that if the ‘‘steepness’’ of                     agrees with EPSA’s position, recorded                  proposal would address concerns about
                                               regulation and operating reserve                        in the NOPR, that all markets should                   transparency, and that it would
                                               demand scarcity pricing curves is a                     prioritize establishing shortage pricing               accomplish Order No. 719’s objective of
                                               concern then an RTO/ISO should create                   based on operating reserve demand                      enhancing market efficiency by
                                               separate operating reserve scarcity                     curves and co-optimized with the                       establishing a price that reflects the
                                               demand curves for transitory periods                    energy market. ANGA states that this is                value of the loss of load and encourage
                                               versus periods lasting longer than ten                  a least-cost solution and recommends                   resources to respond to shortage
                                               minutes.189                                             that the Commission direct the RTOs/                   events.200 PSEG further states that the
                                                  129. Some commenters state that the                  ISOs to include in their compliance                    absence of shortage pricing in the
                                               shortage pricing proposal will provide                  filing a plan for modifying their rules,               appropriate intervals is inefficient
                                               an incentive for existing resources to                  to the extent necessary, to include these              within individual RTOs/ISOs as well as
                                               offer their supply and to be available if               features in both the day-ahead and real-               between them, and it can frustrate the
                                               shortages occur and will provide an                     time markets.193                                       objectives of Coordinated Transaction
                                               incentive for incremental investments to                   131. Powerex supports the                           Scheduling, which is currently being
                                               enable existing or new generation or                    Commission’s proposal to require RTOs/                 deployed by several RTOs/ISOs.201
                                               dispatchable demand to respond to                       ISOs to apply shortage pricing for any                    135. Golden Spread supports the
                                               shortages, regardless of duration.190                   dispatch interval during which a                       Commission’s proposed shortage pricing
                                                                                                       shortage of energy or operating reserves               reform and argues that even the smallest
                                                  185 Ameren Comments at 1, 3–4; ANGA
                                                                                                       occurs.194 Powerex contends that                       amount of operating reserve and energy
                                               Comments at 2–5; CAISO Comments at 2; CEA
                                               Comments at 3–6; Dominion Comments at 1–2; DTE          shortage pricing mechanisms tied to                    shortage should be reflected in scarcity
                                               Comments at 3–4; EDP Renewables Comments at 2;          real-time conditions provide revenues to               pricing.202 Golden Spread states that it
                                               EEI Comments at 2; ESA Comments at 2–4; Entergy         generators and demand side resources                   has invested hundreds of millions of
                                               Nuclear Power Marketing Comments at 2; EPSA                                                                    dollars in a fleet of new quick-start, fast-
                                               Comments at 1–5; Exelon Comments at 4; Financial        that provide energy and reserves when
                                               Marketers Coalition Comments at 1; Golden Spread        needed, which is an advantage over the                 ramping generation resources in
                                               Initial Comments at 1–3; Inertia Power and DC           capacity markets long-term focus on                    anticipation of the proper working of
                                               Energy Comments at 2; ISO–NE Comments at 1;             load growth and reliability.195                        efficient marginal cost-based energy
                                               MISO Comments at 2, 9; NEI Comments at 1; NGSA
                                               Comments at 2–5; PJM Power Providers Comments              132. EDP Renewables states that the                 markets. Golden Spread states that to
                                               at 2–5; Potomac Economics Comments at 2;                Commission’s shortage pricing proposal                 the extent these resources are not fully
                                               Powerex Comments at 6; PSEG Comments at 3;              would result in more accurate price                    compensated because shortage pricing is
                                               Public Interest Organizations Comments at 5; SPP        signals than under existing market rules,              masked, the value of these assets to
                                               Market Monitor Comments at 2; Westar Comments
                                               at 1; Duke Comments at 7.                               and therefore would encourage greater                  Golden Spread’s members and their
                                                  186 EPSA Comments at 9; EPSA Comments, Pope          investment in new production and                       consumers is diminished.203
                                               Aff. at 15; Golden Spread Initial Comments at 6;        storage technologies with the ability to                  136. DTE states that, as a member of
                                               PJM Power Providers Comments at 4; Powerex              respond quickly to shortages.196
                                               Comments at 6; EDP Renewables Comments at 5–
                                                                                                                                                              MISO, it has largely supported the
                                               6; Entergy Nuclear Power Marketing Comments at          Similarly, ESA asserts that the shortage               changes MISO has made through ELMP
                                               2; Exelon Comments at 6; PSEG Comments at 13;           pricing reform will improve the ability                to ensure that generators are provided
                                               Westar Comments at 5; NEI Comments at 14; CEA           for a resource to be compensated based
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                                               Comments at 4; NGSA Comments at 5.                      on the value of the service the resource                 197 ESA
                                                  187 EEI Comments at 10; EPSA Comments at 9;                                                                            Comments at 4.
                                                                                                                                                                198 ESA  Comments at 4.
                                               PJM Power Providers Comments at 4; Westar
                                                                                                         191 CEA Comments at 4.                                 199 Inertia Power and DC Energy Comments at 5;
                                               Comments at 5; NEI Comments at 14.
                                                                                                         192 NGSA  Comments at 5.                             Exelon Comments at 6.
                                                  188 EPSA Comments at 9; Westar Comments at 5.
                                                  189 Westar Comments at 5.                              193 ANGA Comments at 5.                                200 PSEG Comments at 13.

                                                  190 EPSA Comments, Pope Aff. at 15; NEI                194 Powerex Comments at 6.                             201 PSEG Comments at 14.
                                                                                                         195 Powerex Comments at 8.                             202 Golden Spread Reply Comments at 4.
                                               Comments at 14; CEA Comments at 4; NGSA
                                               Comments at 5.                                            196 EDP Renewables Comments at 5–6.                    203 Golden Spread Reply Comments at 7.




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                                               42898              Federal Register / Vol. 81, No. 126 / Thursday, June 30, 2016 / Rules and Regulations

                                               accurate price signals, akin to the                     e. Comments Opposed to the Proposed                    infrequently in PJM and MISO, but more
                                               shortage pricing proposal.204                           Shortage Pricing Reform                                frequently in NYISO.218
                                                                                                                                                                 143. APPA and NRECA question the
                                               d. Comments Recommending Changes                           141. Several commenters oppose the
                                                                                                                                                              extent to which shortage pricing would
                                               to the Shortage Pricing Reform                          shortage pricing proposal. Several
                                                                                                                                                              improve short-term system efficiency.
                                                                                                       commenters argue that while the NOPR
                                                  137. Several commenters propose                                                                             They comment that existing variations
                                                                                                       does not address the price level of the
                                               changes to the shortage pricing reform,                                                                        among RTOs/ISOs in shortage pricing
                                                                                                       shortage pricing, to the extent that
                                               or identify implementation issues in                                                                           approaches create an opportunity to
                                                                                                       RTOs/ISOs do change shortage pricing                   analyze the efficacy of more frequent
                                               specific RTOs/ISOs.
                                                                                                       triggers, the RTOs/ISOs should also                    shortage events. They request that the
                                                  138. Golden Spread, for example,
                                                                                                       evaluate whether shortage pricing levels               Commission direct the RTOs/ISOs to
                                               states that the current SPP rules allow
                                                                                                       remain just and reasonable.212 For                     provide evidence or examine whether
                                               the temporary use of operating reserves
                                                                                                       example, Concerned Cooperatives and                    the theoretical benefits of the shortage
                                               to meet energy requirements during
                                                                                                       APPA and NRECA argue that the NOPR                     pricing proposal can be validated with
                                               transient periods without invoking
                                                                                                       will raise prices for consumers, but the               actual resource decisions. APPA and
                                               shortage pricing; in other words, SPP’s
                                                                                                       Commission fails to quantify the cost                  NRECA caution that, without such
                                               rules encourage ‘‘price manipulation’’
                                                                                                       impact of the shortage pricing proposal                analysis, entities, such as generators
                                               undermining the transparency needed
                                                                                                       on consumers or the potential benefits                 already online that cannot easily ramp
                                               to incentivize longer term economic and
                                                                                                       to the market and consumers.213                        up or down or financial marketers,
                                               reliable solutions.205
                                                                                                       Concerned Cooperatives add that any                    could benefit financially without
                                                  139. Golden Spread identifies
                                                                                                       changes to the shortage pricing triggers               contributing to system efficiency.219
                                               examples of issues with certain SPP
                                                                                                       in the RTO/ISO markets must be cost-                   Concerned Cooperatives also note that
                                               processes that it argues need to be
                                                                                                       justified on the basis of quantifiable                 the Commission’s rationale that prices
                                               addressed to comply with this reform
                                                                                                       improvements in market efficiencies                    must rise to reflect the true value of
                                               and provides the following
                                                                                                       and cost reductions. Furthermore,                      generation offered during operational
                                               recommendations to resolve them: (1)
                                                                                                       Concerned Cooperatives argue that the                  shortages for the market to function
                                               Relax constraints to allow economic
                                                                                                       Commission’s shortage pricing will raise               properly fails to consider that only half
                                               dispatch to solve when there is a
                                                                                                       prices for consumers and increase                      of the market, i.e., generators, may be
                                               resource capacity constraint, global
                                                                                                       revenues to incumbent generators.214                   able to respond to the price signal in
                                               power balance constraint, resource ramp
                                                                                                          142. APPA and NRECA assert that it                  real-time.220
                                               constraint or operating constraint; 206 (2)
                                                                                                       is important to understand how various                    144. On the topic of long-term
                                               prevent insufficient ramping capability
                                                                                                       resource types would respond to price                  incentives, several commenters assert
                                               to be subject to scarcity pricing; 207 (3)
                                                                                                       signals created by the shortage pricing                that no evidence exists that price signals
                                               include fast-start technologies in a
                                                                                                       proposal. Specifically, they assert that               as volatile and transient as shortage
                                               Reliability Unit Commitment action to
                                                                                                       the NOPR did not discuss whether a                     prices would be the basis for capital
                                               avoid scarcity events, which then
                                                                                                       five-minute shortage pricing event                     investments, whether to improve
                                               eliminates scarcity prices; 208 and (4)
                                                                                                       would produce a sufficient response or                 flexibility, whether to delay or avoid
                                               use of the concept of ‘‘head-room’’ to
                                                                                                       only reflect a transient shortage                      retirements, and especially not for the
                                               not factor much-needed ramping
                                                                                                       resolvable without resorting to shortage               construction of new resources. APPA
                                               capacity in the LMP, which is reducing
                                                                                                       pricing.215 APPA and NRECA reference                   and NRECA assert that, even with a
                                               transparency and creating large
                                                                                                       PJM representative Adam Keech’s                        slight uptick in merchant plant
                                               uplifts.209
                                                                                                       comment at the October 28, 2014                        construction compared to prior years, 95
                                                  140. ELCON states that the shortage
                                                                                                       workshop on scarcity and shortage                      percent of new construction was built
                                               pricing proposal should be adopted only
                                                                                                       pricing, justifying PJM’s current                      under contract in 2014, and 98 percent
                                               if the Commission promotes the
                                                                                                       minimum duration of 30 minutes prior                   of new construction was built under
                                               development of technology-neutral fast-
                                                                                                       to triggering shortage pricing, and assert             contract in 2013.221 Further, Concerned
                                               ramp products paid to provide the
                                                                                                       that the shortage pricing proposal runs                Cooperatives argue that the evidence
                                               specific shortage service, and for which
                                                                                                       the risk of rewarding generators that are              presented at the technical conferences
                                               compensation would not inflate real-
                                                                                                       already online just because another                    preceding the NOPR demonstrate that
                                               time LMPs.210 ELCON asserts that it
                                                                                                       generator has not fully ramped up                      short-term price signals from shortage
                                               conditionally supports the provision on
                                                                                                       yet.216 APPA and NRECA state that the                  pricing do not result in the long-term
                                               shortage price triggers when applied to
                                                                                                       NOPR neither discussed the degree to                   resource investment contemplated in
                                               technology-neutral fast-ramping                                                                                the NOPR.222
                                                                                                       which the RTOs/ISOs are already in
                                               products—products it states could be                                                                              145. Concerned Cooperatives contend
                                                                                                       compliance with the proposal, the
                                               provided by demand response, energy                                                                            that the RTOs/ISOs could develop better
                                                                                                       extent to which implementation would
                                               storage technologies, or generation—but                                                                        products, such as a fast-ramping
                                                                                                       impact the frequency of shortage pricing
                                               not to real-time shortage pricing in                                                                           product, that could encourage
                                                                                                       events or impact prices, nor did it
                                               which every resource dispatched or                                                                             investment in more flexible resources
                                                                                                       require RTOs/ISOs to undertake this
                                               called by the system operator during a                                                                         without having to pay every resource a
                                                                                                       analysis.217 APPA and NRECA state that
                                               dispatch interval is paid the same                                                                             high price during shortage intervals of
                                                                                                       shortage pricing was triggered relatively
                                               price.211                                                                                                      short duration.223 Moreover, APPA and
                                                                                                         212 APPA and NRECA Comments at 12; TAPS
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                                                 204 DTE Comments at 5.                                Comments at 14–15; Concerned Cooperatives               218 APPA   and NRECA Comments at 9–10.
                                                 205 Golden Spread Reply Comments at 5.                Comments at 13.                                         219 APPA   and NRECA Comments at 10–11.
                                                 206 Golden Spread Comments at 8.                        213 Concerned Cooperatives Comments at 13–14;          220 Concerned Cooperatives Comments at 14.
                                                 207 Golden Spread Comments at 7–8.                    APPA and NRECA Comments at 6.                            221 APPA and NRECA Comments at 11–12; TAPS
                                                 208 Golden Spread Comments at 9–10.                     214 Concerned Cooperatives Comments at 13.
                                                                                                                                                              Comments at 7–13; Concerned Cooperatives
                                                 209 Golden Spread Comments at 10.                       215 APPA and NRECA Comments at 6–7.                  Comments at 15–16.
                                                 210 ELCON Comments at 2.                                216 APPA and NRECA Comments at 7.                      222 Concerned Cooperatives Comments at 15–16.
                                                 211 ELCON Comments at 3–6.                              217 APPA and NRECA Comments at 9.                      223 Concerned Cooperatives Comments at 22–24.




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                                                                  Federal Register / Vol. 81, No. 126 / Thursday, June 30, 2016 / Rules and Regulations                                             42899

                                               NRECA encourage the Commission to                       to mitigate adverse financial impacts on               because of the impact of shortage
                                               examine alternative methods of                          parties who are short; (3) prices that                 pricing penalty factors in transient
                                               achieving its stated goal of incentivizing              escalate with greater levels of shortage,              shortage circumstances, because the
                                               the availability of resources during                    because marginal costs will vary by                    shortage pricing reserve penalty factors
                                               periods of shortage, such as separately                 shortage; and (4) a mechanism to ensure                would be applied to a marginal unit
                                               priced ramping products. APPA and                       that revenues earned through shortage                  providing energy that is not the highest
                                               NRECA urge the Commission to also                       pricing are not duplicated by capacity                 opportunity cost reserve unit. Thus,
                                               examine whether such methods might                      market revenues.229                                    Direct Energy argues the Commission
                                               achieve this goal at a lower cost to                       149. The New Jersey Board urges the                 should either revise its proposal to
                                               consumers.224 Concerned Cooperatives                    Commission to allow PJM to retain its                  reflect issues with transient shortages of
                                               further argue that the Commission’s                     current shortage pricing mechanism—a                   operating reserves, or permit individual
                                               proposal is simply a transfer of wealth                 thirty-minute look-ahead dispatch                      RTOs/ISOs to evaluate this proposal and
                                               from consumers to generators without                    algorithm that identifies reserve                      consider tariff revisions to address true
                                               value to consumers, because, as the                     shortages as only those lasting a                      shortages and to send appropriate price
                                               Commission admitted in the NOPR,                        minimum of thirty minutes. The New                     signals.233
                                               some shortage events are so short that                  Jersey Board agrees with PJM that five-                   153. Concerned Cooperatives and
                                               suppliers cannot react to the price                     minute shortfalls are not necessarily                  APPA and NRECA argue that the NOPR
                                               signal.225                                              symptomatic of system stress, but are                  does not account for differences among
                                                  146. ODEC states that, in the example                merely transient shortfalls that can be                the RTOs/ISOs, maintaining that
                                               provided by PJM, if a unit is slow in                   quickly addressed through system re-                   shortage pricing issues should be
                                               coming online for a five-minute interval,               dispatch.                                              resolved through individual stakeholder
                                               it is not clear that shortage pricing                      150. More broadly, TAPS argues that                 processes.234 Alternatively, Concerned
                                               would not over-compensate a resource,                   any price signal during transient                      Cooperatives request that the
                                               or if supply can even respond to such                   scarcity events is meaningless because                 Commission not implement shortage
                                               a short-term event in sufficient time for               resources cannot respond in time to the                pricing reform until an RTO/ISO
                                               the price signal to create an incentive to              higher prices.230 In addition, Direct                  demonstrates that it has eliminated the
                                               change behavior. ODEC states that it                    Energy says that targeting transient                   conditions that cause ‘‘artificial’’
                                               therefore believes that shortage pricing                shortages will create control issues and               shortages (those arising from
                                               during transient shortages may be unjust                increase uplift, and the application of                mathematical modeling when no actual
                                               and unreasonable because it will                        RTO/ISO shortage penalty factors to                    operational shortage exists), adopts
                                               increase prices paid by load without                    these transient situations will likely                 rules preventing shortage pricing from
                                               corresponding benefits.226                              lead to higher prices than would                       being applied during artificial shortages,
                                                  147. APPA and NRECA also express                     otherwise be produced, creating unjust                 and adopts rules ensuring that shortage
                                               concern that more frequent shortage                     and unreasonable rates for generation                  price levels are reduced during artificial
                                               pricing creates incentives to exercise                  compensation.231                                       shortages to reflect that these are not
                                               market power and game market rules                         151. Regarding definitions, Direct                  real shortages.235
                                               due to the potential for higher energy                  Energy asserts that a true shortage                       154. Concerned Cooperatives also
                                               and operating reserve prices. They                      implies that insufficient capacity exists              note that the NOPR fails to provide a
                                               assert that if the proposal moves                       on an RTO’s/ISO’s system to meet                       comparison of the market design in
                                               forward, each RTO/ISO should be                         energy and reserve requirements. In                    RTO/ISO-administered markets that
                                               required to reevaluate its market power                 contrast, Direct Energy argues, transient              trigger shortage pricing for a shortage
                                               mitigation rules and propose new or                     shortage conditions are not true                       event of any duration and those that use
                                               additional mitigation measures if                       shortages because they simply reflect                  longer duration events as the trigger.236
                                               necessary.227 In addition, Concerned                    the operating characteristics of the                   Concerned Cooperatives argue that,
                                               Cooperatives also argue that revising                   generators being used to meet energy                   before imposing a uniform rule, the
                                               RTO/ISO tariffs to invoke shortage                      and reserve targets. Direct Energy argues              Commission should determine whether
                                               pricing more frequently is likely to                    that in a transient shortage condition,                these different shortage pricing rules
                                               increase opportunities for exploitation                 the RTO/ISO has the capacity to meet                   have resulted in incremental resource
                                               of consumers, but that the NOPR does                    energy and reserve requirements and the                development, improved generator
                                               not propose to require RTOs/ISOs to                     transient shortage period represents the               response to shortage conditions, and/or
                                               include in their compliance filings an                  period of time it takes to deploy                      reduced the need for uplift charges.
                                               analysis of needed reforms to ensure                    generation resources to meet those                     Concerned Cooperatives state that in
                                               that consumers remain protected against                 targets.232                                            some cases, uplift payments may be the
                                               the exercise of market power.228                           152. Direct Energy claims the                       most cost-effective solution for
                                                  148. Concerned Cooperatives also                     response an RTO/ISO receives based on                  consumers.237
                                               argue that if the Commission issues a                   the shortage pricing signals sent during                  155. Several commenters point to
                                               final rule in this proceeding, RTOs/ISOs                transient shortage conditions is likely to             various efforts in RTOs/ISOs that may
                                               must be required to demonstrate that                    cause a control issue when generation                  impact shortage pricing. Concerned
                                               their shortage pricing mechanisms                       already being ramped through RTO/ISO                   Cooperatives argue that the Commission
                                               comply with four overarching                            dispatch to resolve the shortage                       should not address price formation
                                               principles, by providing for (1) prices                 condition hits its dispatch targets.                   issues in a piecemeal fashion, as
                                                                                                       Further, Direct Energy argues unjust and
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                                               that reflect the marginal costs of meeting                                                                     changes to one element will impact the
                                               the shortage; (2) a cap that is designed                unreasonably higher prices would result
                                                                                                       from targeting ‘‘transient’’ shortages                  233 Direct Energy Comments at 11–13.
                                                 224 APPA  and NRECA Comments at 12.                                                                           234 APPA   and NRECA Comments at 5; Concerned
                                                 225 Concerned Cooperatives Comments at 15–16.           229 Concerned  Cooperatives Comments at 24–25.       Cooperatives Comments at 18.
                                                 226 ODEC Comments at 6.                                 230 TAPS   Comments at 7–13.                           235 Concerned Cooperatives Comments at 18.
                                                 227 APPA and NRECA Comments at 15–16.                   231 Direct Energy Comments at 10–11.                   236 Concerned Cooperatives Comments at 26.
                                                 228 Concerned Cooperatives Comments at 15.              232 Direct Energy Comments at 10–11.                   237 Concerned Cooperatives Comments at 26.




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                                               42900               Federal Register / Vol. 81, No. 126 / Thursday, June 30, 2016 / Rules and Regulations

                                               need for other reforms. Concerned                        minute shortage where a resource                       reforms.248 Dominion states that the
                                               Cooperatives note that several RTOs/                     cannot respond and/or the event is                     Commission should require RTOs/ISOs
                                               ISOs already have rules providing                        triggered by an artificial shortage.244                to specifically explain how the RTOs/
                                               adequate incentives for resource                            158. PG&E urges the Commission to                   ISOs will address this issue as part of
                                               performance and investment, such as                      examine transient shortages and their                  their compliance filings. Further,
                                               PJM’s Reliability Pricing Model, ISO–                    attendant price spikes, and resolve                    Dominion asserts that the modification
                                               NE’s Forward Capacity Market, or                         modeling issues that are causing these                 of shortage pricing triggers to better
                                               MISO’s ELMP.238 Concerned                                shortages. PG&E understands that                       correlate to dispatch intervals should
                                               Cooperatives assert that the Commission                  shortage pricing might be appropriate to               coincide with implementation of the
                                               provides no evidence that more frequent                  the extent that such pricing provides a                Commission’s proposal to align
                                               triggering of shortage pricing is                        meaningful price signal to resources.                  settlement intervals with dispatch
                                               necessary to ensure resource adequacy                    However, PG&E argues that most price                   intervals. Dominion argues that this will
                                               or improve resource performance and                      spikes in the CAISO over the past five                 align a resource’s timely response to
                                               flexibility when RTOs/ISOs use other                     years have been so short that they have                shortage pricing with payment for its
                                               market tools to achieve the same                         not provided a meaningful opportunity                  response.249
                                               objectives set forth in the NOPR.                        for resources to respond.245 For
                                                  156. The New Jersey Board, APPA                       example, PG&E states that from 2012                    4. Commission Determination
                                               and NRECA and ODEC all acknowledge                       through 2014, the CAISO five-minute                       161. For the reasons discussed below,
                                               PJM’s Capacity Performance Program 239                   market saw positive price spikes                       we adopt the NOPR shortage pricing
                                               and argue to varying degrees that                        (>$250/MWh) in approximately 0.75                      proposal and modify the regulatory text
                                               shortage pricing need not be considered                  percent of the intervals. PG&E argues                  to clarify that shortage pricing is
                                               here given this PJM reform or that the                   that transitory price spikes do not                    required only when a shortage of energy
                                               Commission should consider whether                       contribute to market efficiency, but                   or operating reserves is indicated by the
                                               there would be overlap between this                      result in increased market costs, and                  RTO’s/ISO’s software.
                                               PJM reform and the shortage pricing                      they give false signals to virtual                        162. Specifically, we require each
                                               proposal.240 Furthermore, APPA and                       participants, which can distort day-                   RTO/ISO to trigger shortage pricing for
                                               NRECA state that another factor in                       ahead awards and prices. PG&E also                     any interval in which a shortage of
                                               determining whether the shortage                         asserts that these transitory price spikes             energy or operating reserves is indicated
                                               pricing proposal would improve market                    have contributed to price divergence                   during the pricing of resources for that
                                               efficiency and benefit consumers is the                  between day-ahead and real-time and                    interval. As stated in the NOPR, the
                                               extent to which there is an overlap                      have resulted in significant uplift                    shortage pricing requirement should
                                               between this proposal and other RTO/                     costs.246                                              ‘‘ensure that a resource is compensated
                                               ISO market rules.241 APPA and NRECA                         159. PG&E notes that CAISO is                       based on a price that reflects the value
                                               also point out that, in some RTOs/ISOs                   already taking significant steps to                    of the service the resource provides.’’ 250
                                               such as NYISO, scarcity pricing is an                    address modeling issues that create                    This rationale applies to any shortage
                                               additional and separate revenue stream                   transient shortages and attendant                      ‘‘regardless of the duration or cause of
                                               that can balance reliance on capacity                    transient price spikes. For example,                   [the] shortage.’’ 251 It thus would apply
                                               market revenues.242 Further, ODEC                        PG&E states that CAISO is working to                   to ‘‘transient shortages.’’ Several
                                               suggests that, instead of requiring an                   augment the real-time dispatch function                commenters specifically agreed with
                                               expansion of scarcity pricing to                         with a Flexible Ramping Product which                  this analysis.252 Under this requirement,
                                               transient time periods, the Commission                   will help avoid ramp-induced shortages                 whenever a shortage of energy or
                                               require PJM to consider the need to                      that cause scarcity conditions in real-                operating reserves is indicated in an
                                               reduce, if not eliminate, scarcity pricing               time. PG&E also explains that CAISO is                 RTO’s/ISO’s pricing run software for a
                                               in light of the new Capacity                             considering applying different penalty                 particular pricing interval, shortage
                                               Performance construct.243                                prices for infeasibilities depending on                pricing should be invoked even if
                                                  157. Concerned Cooperatives note                      the level of constraint relaxation, which              during that period resources are
                                               that the NOPR fails to identify the                      will more appropriately reflect the cost               ramping up to a particular level they are
                                               number of additional shortages that                      of constraint violations. PG&E asserts                 likely to reach in a few minutes.
                                               would be triggered in RTO/ISO markets                    that a small violation of the power                       163. We find that the shortage pricing
                                               that do not invoke shortage pricing for                  balance constraint may be covered by                   requirement will help ensure that prices
                                               a single settlement interval. They argue                 deploying regulation reserves at a                     rise sufficiently and appropriately to
                                               that the NOPR also fails to quantify                     smaller cost per megawatt-hour than a                  allow supply to meet demand during an
                                               what that cost might potentially be for                                                                         operating reserve shortage, and thus will
                                                                                                        larger violation, which may require
                                               consumers, particularly in PJM, which                                                                           more accurately reflect the value a
                                                                                                        more costly load shedding.247
                                               recently sought to increase its energy                      160. Dominion states that it is                       248 Dominion     Comments at 4–5.
                                               offer caps to $2,000 per MWh which                       concerned that some shortages are                        249 Dominion     Comments at 5.
                                               could produce LMPs of $3,700 per MWh                     merely transient in nature due to slight                 250 NOPR,    FERC Stats. & Regs. ¶ 32,710 at P 52.
                                               during shortage events. Concerned                        differences in modeling and the                           251 NOPR, FERC Stats. & Regs. ¶ 32,710 at P 47;
                                               Cooperatives state that the NOPR                         ramping of generation, and may not                     see also id. P 9 (‘‘This reform would also ensure
                                               provides no evidence that prices at this                 warrant sending a shortage price signal                that resources operating during a shortage are
                                               level are just and reasonable for a five-                to the market. Dominion argues that                    compensated for the value of the service that they
                                                                                                                                                               provide, regardless of whether the shortage is short-
                                                                                                        issues regarding transient shortages
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                                                 238 Concerned
                                                                                                                                                               lived.’’).
                                                               Cooperatives Comments at 18–21.          should be addressed prior to                              252 See, e.g., Inertia Power and DC Energy
                                                 239 SeePJM Interconnection, L.L.C., 151 FERC ¶
                                               61,208 (2015).                                           implementation of the proposed                         Comments at 6 (citing NYISO Comments, Docket
                                                                                                                                                               No. AD14–14–000, at 28–29 (Mar. 6, 2015), Potomac
                                                 240 New Jersey Board Comments 4–6; APPA and
                                                                                                          244 Concerned
                                                                                                                                                               Economics Comments, Docket No. AD14–14–000, at
                                               NRECA Comments at 14.                                                  Cooperatives Comments at 25.             25–26 (Mar. 6, 2015), and Calpine Comments,
                                                 241 APPA and NRECA Comments at 13.                       245 PG&E Comments at 1–2.                            Docket No. AD14–14–000, at 20 (Mar. 6, 2015)); SPP
                                                 242 APPA and NRECA Comments at 14–15.                    246 PG&E Comments at 1–2.
                                                                                                                                                               Market Monitor Comments at 3; Golden Spread
                                                 243 ODEC Comments at 8.                                  247 PG&E Comments at 2.                              Comments at 3–4.



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                                                                  Federal Register / Vol. 81, No. 126 / Thursday, June 30, 2016 / Rules and Regulations                                                  42901

                                               resource provides.253 Better formed                     entry, we agree with EPSA that                          pricing.258 However, we agree with
                                               prices help ensure just and reasonable                  appropriate shortage pricing will                       Potomac Economics that if an RTO’s/
                                               rates by providing appropriate                          encourage more modest investments                       ISO’s pricing model allows infeasible or
                                               incentives for market participants to                   that can improve availability and                       uneconomic units to set prices, the
                                               follow commitment and dispatch                          response-time, such as weatherization of                offline units represent an artificial
                                               instructions, maintain reliability,                     fuel supplies, heat tracing to reduce                   increase in real-time supply that will
                                               provide transparency of the underlying                  instrument failure during freezing                      depress real-time prices. Therefore, for
                                               value of the service so that operational                temperatures, and completion of                         the purpose of this Final Rule, RTOs/
                                               and investment decisions are based on                   deferred maintenance such as burner                     ISOs choosing to use offline resources to
                                               prices that reflect the actual marginal                 upgrades.257 Investments of the nature                  count towards energy and operating
                                               cost of serving load and the operational                identified by commenters should                         reserve requirements may not allow
                                               constraints of reliable system operation,               enhance reliability in the long-run as                  infeasible or uneconomic offline units to
                                               and encourage efficient investments in                  system resources are more able to                       set prices through the real-time pricing
                                               facilities and equipment.                               perform during critical system                          model or to be counted as providing
                                                  164. As for incentives to follow                     conditions.                                             reserves.
                                               dispatch, as noted in the NOPR, if a                       166. With regard to transparency, an                    169. In opposing the proposal, PJM
                                               resource is compensated based on a                      RTO’s/ISO’s action to establish prices at               and SPP argue that an energy or
                                               price that reflects the value of the                    the times of shortage, including                        operating reserve shortage that the RTO/
                                               service the resource provides, the                      transient shortages, makes the shortage                 ISO expects to be resolved quickly (e.g.,
                                               resource will have appropriate                          apparent to all market participants. This               within ten minutes), should not trigger
                                               incentives to address energy or reserve                 maximizes the opportunities and                         shortage pricing. They note that, in PJM,
                                               shortages. As explained by Potomac                      incentives for all system resources to                  for example, shortage pricing is not
                                               Economics, the higher prices (relative to               take actions to address the shortage.                   triggered until a shortage is projected to
                                               non-shortage price intervals) resulting                    167. In response to commenters like                  last at least thirty minutes.259
                                               from the shortage pricing proposal will                 CAISO, we clarify that we did not                          170. We disagree that an energy or
                                               enhance resource flexibility by leading                 intend to impose shortage pricing if a                  operating reserve shortage that the RTO/
                                               to: (1) Faster resource ramp rates; (2)                 shortage occurs during an interval for                  ISO expects to be resolved quickly
                                               wider dispatch ranges and not self-                     which the prices and dispatch decisions                 should not trigger shortage pricing.
                                               scheduling resources; (3) shorter start                 have already been set. We did not                       Such a shortage presents exactly the
                                               times for natural gas turbines; and (4) an              intend that, for example, ex post pricing               type of mismatch between system
                                               incentive to build more flexible, fast-                 should, after binding prices have been                  conditions and pricing that the reform
                                               ramping generating resources and to                     determined by the RTO/ISO software,                     was meant to remedy. Thus, by adopting
                                               perform maintenance on existing                                                                                 the proposed shortage pricing reform,
                                                                                                       invoke shortage pricing based upon a
                                               resources that increases their                                                                                  we require PJM and SPP to modify their
                                                                                                       subsequent recognition that a shortage
                                               flexibility.254 In addition, shortage                                                                           existing shortage pricing mechanisms.
                                                                                                       existed in a particular prior interval.
                                               pricing during all reserve deficiencies                                                                            171. As summarized above, PJM and
                                                                                                       Similarly, the shortage pricing proposal
                                               also sends the correct price signal to                                                                          SPP provide three hypothetical
                                                                                                       also did not intend to require any
                                               already operating resources to take any                                                                         situations in their joint comments to
                                                                                                       changes to the frequency of existing
                                               actions necessary to remain operational                                                                         describe situations where they argue
                                                                                                       dispatch and pricing runs for energy or
                                               during the shortage event. For instance,                                                                        shortage pricing should not apply.260 In
                                                                                                       operating reserves. To the extent that
                                               a resource that is already operating but                                                                        all of these scenarios, RTOs/ISOs are
                                                                                                       operating reserves are priced at a
                                               realizes it will need to take a forced                                                                          ‘‘technically compromising the
                                               outage in the near-term will receive a                  different interval than energy resources
                                                                                                       are dispatched, as is the case in CAISO,                operating reserve requirement,’’ as PJM
                                               clear signal to delay that forced outage,                                                                       and SPP concede,261 although such
                                               to the extent possible, until the reserve               this Final Rule applies to the interval
                                                                                                       that prices and co-optimizes both energy                transient shortages may not violate
                                               shortage has been resolved.                                                                                     NERC’s reliability standards.262
                                                  165. A number of commenters cite the                 and operating reserves. Thus, an RTO/
                                                                                                       ISO need not trigger shortage pricing                   However, we find that RTOs/ISOs
                                               role of appropriate shortage pricing in
                                                                                                       during a fifteen-minute operating                       should reflect these system conditions
                                               creating an incentive for market
                                                                                                       reserve period if it becomes aware of a                 in the price. Using shortage pricing for
                                               participants to make investments that
                                                                                                       shortage within that interval, because                  a transient shortage situation reflects in
                                               will alleviate shortages in the future.255
                                               EDP Renewables and ESA note that the                    reserve prices have already been set for
                                                                                                                                                                 258 See Midcontinent Indep. Sys. Operator, Inc.,
                                               shortage pricing proposal will                          that entire fifteen-minute period. Only if
                                                                                                                                                               150 FERC ¶ 61,143, at P 36 (2015) (‘‘For the reasons
                                               encourage greater investment in new                     that shortage is projected to continue                  discussed below, we conditionally accept MISO’s
                                               production and storage technologies.256                 into the next reserve period and there is               Revised ELMP Filing, effective March 1, 2015,
                                               In response to commenters that assert                   time to factor that shortage into the                   subject to a further compliance filing. . . .’’);
                                                                                                       dispatch and pricing run for the next                   Midcontinent Indep. Sys. Operator, Inc., Docket No.
                                               that short duration shortage prices will                                                                        ER15–685–001 (Feb. 4, 2016) (delegated letter order
                                               not create a sufficient incentive for new               interval does the RTO/ISO need to                       accepting compliance filing).
                                                                                                       trigger shortage pricing for that next                    259 NOPR, FERC Stats. & Regs. ¶ 32,710 at P 46

                                                 253 See NOPR, FERC Stats. & Regs. ¶ 32,710 at P       interval.                                               & n.70; PJM and SPP Comments at 5.
                                               48 (citing Order No. 719, FERC Stats. & Regs.              168. Also, the shortage pricing                        260 PJM and SPP Comments at 3–5.

                                               ¶ 31,281).                                              proposal did not intend to require any                    261 PJM and SPP Comments at 4.
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                                                 254 Potomac Economics Comments at 8.                                                                            262 Requirement R6.2 of North American Electric
                                                 255 NEI Comments at 14; NGSA Comments at 5;
                                                                                                       changes to existing pricing methods,
                                                                                                                                                               Reliability Corporation’s Reliability Standard BAL–
                                               EPSA Comments, Pope Aff. at 15; Potomac                 such as ELMP in MISO that allows                        002–1 requires restoration of contingency reserves
                                               Economics Comments at 8.                                offline resources to set energy prices,                 within 90 minutes: ‘‘The default Contingency
                                                 256 EDP Renewables Comments at 5–6; ESA
                                                                                                       and we agree that the use of offline                    Reserve Restoration Period is 90 minutes.’’ In the
                                               Comments at 4. ESA states that the shortage pricing     resources can result in efficient                       Western Electric Coordinating Council (WECC), the
                                               reform will improve the ability for a resource to be                                                            reliability standards require restoration of
                                               compensated based on the value of the service the                                                               contingency reserves within 60 minutes. WECC
                                               resource provides.                                        257 EPSA   Comments, Pope Aff. at 19.                 BAL–002–WECC–2, R1.



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                                               42902              Federal Register / Vol. 81, No. 126 / Thursday, June 30, 2016 / Rules and Regulations

                                               the price of operating reserves the                     appropriate forum to make such is a                       176. TAPS recommends that the
                                               current system conditions, which                        change is through an FPA section 205                   Commission direct each RTO/ISO to
                                               include the possibility of a contingency                filing.                                                propose new shortage prices for
                                               occurring—for which operating reserves                     174. We disagree with TAPS,                         transient shortages that do not exceed
                                               were procured and designed to address.                  Concerned Cooperatives, APPA, and                      the value of the incremental benefit (if
                                               This is designed to appropriately value                 NRECA that the only effect of requiring                any) provided by an additional
                                               those resources that provide value to the               RTOs/ISOs to trigger shortage prices in                megawatt in those circumstances, or to
                                               system by their ability to respond                      transient events is to provide extra                   demonstrate that the RTO’s/ISO’s
                                               quickly to changing prices. As Potomac                  revenue to generators already in the                   existing shortage prices applicable in
                                               Economics states,263 transient shortages,               market.268 While extra revenue may                     such circumstances already meet that
                                               which typically occur when the system                   result from prices accurately reflecting               standard.272 We decline to require this
                                               is ramp-constrained, are true shortages                 shortage conditions, we believe that is                in the Final Rule both because this was
                                               because, if a large contingency occurs                  appropriate. The purpose for requiring                 not originally proposed and because the
                                               during such a shortage (e.g., a generator               the shortage pricing is to create                      record in this proceeding has not
                                               trips off-line), the RTO/ISO will not                   transparent market prices that reflect                 persuaded us that any RTO’s/ISO’s
                                               have the ability to replace the capacity                system conditions. The benefit of                      administrative shortage prices need to
                                               because other generators are already                    triggering shortage prices for all                     be modified. However, as discussed
                                               ramping as quickly as possible. It is                   shortages is that it gives all suppliers an            above, any RTO/ISO may file, pursuant
                                               possible, as PJM and SPP state, that                    incentive to do as much as they can,                   to section 205 of the FPA, to propose a
                                               when a transient shortage is recognized,                including investments and operational                  modification of any of the
                                               RTOs/ISOs can re-dispatch their system                  alterations, to be available the next time             administrative shortage prices as a
                                               to eliminate the shortage quickly.264                   it appears that shortages may occur and                result of this Final Rule, as PJM and SPP
                                               However, until the shortage is resolved,                shortage pricing may be invoked, even                  indicate they might.
                                               prices should reflect the system                        if such shortages last briefly. Further, as               177. The PJM Market Monitor
                                               conditions and the actions taken to                     discussed above, shortage pricing                      identifies an implementation issue,
                                               resolve the shortage as much as                         during all reserve deficiencies also                   which may be unique to PJM. The PJM
                                               possible.                                               sends the correct price signal to already              Market Monitor asserts that PJM cannot
                                                  172. PJM, SPP, and Direct Energy                     operating resources to take any actions                accurately measure the actual level of
                                               have also not shown that applying                       necessary to remain operational during                 operating reserves on a five-minute
                                               shortage pricing to transient shortages                                                                        basis. To address this, the PJM Market
                                                                                                       the shortage event.
                                               will create control issues and increase                                                                        Monitor and the New Jersey Board
                                               uplift.265 In fact, there is evidence in                   175. We disagree with the views of
                                                                                                       those commenters 269 who assert that                   recommend that the Commission direct
                                               this record that it will not. The RTOs/                                                                        PJM to develop this measurement
                                               ISOs which currently invoke shortage                    the proposed rule is not justified
                                                                                                       because no evidence exists that price                  capability before it implements the
                                               pricing during relatively brief periods,                                                                       shortage pricing proposal.273 To the
                                               i.e., MISO, NYISO and ISO–NE., do not                   signals as volatile and transient as
                                                                                                       shortage prices would be the basis for                 extent that PJM or any other RTO/ISO
                                               appear to have these types of control                                                                          believes it needs to enhance its
                                               issues. Further, we note that reflecting                capital investments. While shortage
                                                                                                       pricing revenues may not, by                           measurement capabilities to implement
                                               system conditions in prices should                                                                             the shortage pricing requirement, it
                                               decrease uplift over time, as the costs of              themselves, be enough to financially
                                                                                                       justify entirely new generation projects,              should propose to do so in its
                                               units committed, dispatched, or
                                                                                                       commenters who are generation owners                   compliance filing.
                                               designated as reserves would be
                                                                                                       and project developers have indicated                     178. Concerned Cooperatives
                                               reflected in prices and those units
                                                                                                       that triggering shortage prices during                 maintains that the shortage pricing
                                               would no longer need to be made whole
                                                                                                       short duration shortages as proposed in                proposal may not achieve the price
                                               through uplift payments.
                                                  173. PJM and SPP state that                          the NOPR ‘‘will provide an incentive for               formation objective of increased
                                               application of the shortage pricing                     incremental investments to enable                      transparency because generators may
                                               reform to transient shortages would                     existing or new generation or                          not be capable of responding fast
                                               likely require the implementation of                    dispatchable demand to respond to                      enough to shortage pricing triggered
                                               operating reserve demand curves that                    short-duration shortages.’’ 270 As to the              during transient events.274 However, we
                                               distinguish prices relative to varying                  amount of construction done recently by                find that the shortage pricing
                                               degrees of shortage.266 In the NOPR, the                merchants as opposed to that done                      requirement will increase transparency
                                               Commission acknowledged that, as a                      under long-term contracts, we note that                because shortage prices provide a clear
                                               result of the shortage pricing reform,                  RTOs/ISOs such as PJM have been able                   and public market signal, while
                                               ‘‘an RTO/ISO may need to calibrate                      to maintain reliability with reliance                  compensation to resources provided
                                               administrative shortage prices to better                primarily upon their capacity market                   through uplift provides a signal only to
                                               reflect the value of the service.’’ 267                 and not long-term contracts for new                    individual resources and after-the-fact.
                                               Thus, if PJM or SPP believes that a                     generation.271                                         In addition, consistently sending a clear
                                               modification of the applicable operating                                                                       price signal during reserve deficiencies
                                               reserve demand curves is appropriate in                    268 TAPS Comments at 9; APPA and NRECA              in real-time should encourage market
                                               light of the shortage pricing reform, the               Comments at 7; Concerned Cooperatives Comments         participant behavior in the day-ahead
                                                                                                       at 16.                                                 market that translates into day-ahead
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                                                                                                          269 APPA and NRECA Comments at 11–12; TAPS
                                                 263 Potomac Economics Comments at 8.                  Comments at 7–13; Concerned Cooperatives
                                                 264 PJM and SPP Comments at 4.                                                                               2016/New_Generation_in_the_PJM_Capacity_
                                                                                                       Comments at 15–16.
                                                 265 See PJM and SPP Comments at 3–5 (making              270 EPSA Comments, Pope Aff. at 15.                 Market_20160504.pdf.
                                               this argument in the context of the hypotheticals          271 See generally Monitoring Analytics, New           272 TAPS Comments at 13. PJM and SPP indicate

                                               discussed above); Direct Energy Comments at 10–         Generation in the PJM Capacity Market: MW and          that they may need to file to modify their shortage
                                               11.                                                     Funding Sources for Delivery Years 2007/2008           prices. See PJM and SPP Comments at 8.
                                                 266 PJM and SPP Comments at 7–8.                                                                               273 PJM Market Monitor Comments at 9.
                                                                                                       through 2018/2019 (May 4, 2016), http://
                                                 267 NOPR, FERC Stats. & Regs. ¶ 32,710 at P 49.       www.monitoringanalytics.com/reports/Reports/             274 Concerned Cooperatives Comments at 6.




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                                                                  Federal Register / Vol. 81, No. 126 / Thursday, June 30, 2016 / Rules and Regulations                                                 42903

                                               prices that better reflect expected                     for implementation of reforms to                       filing, what it believes is a reasonable
                                               system conditions.                                      shortage pricing triggers.277                          implementation schedule.284
                                                  179. Concerned Cooperatives, ODEC,                                                                             186. PJM asserts that it can make a
                                               ELCON, and PG&E suggest that the                        2. Comments                                            compliance filing four months after the
                                               Commission should not adopt the                           182. As described below, some                        date of the Final Rule, but is concerned
                                               shortage pricing proposal because other                 commenters sought more time to submit                  that insufficient time was suggested for
                                               initiatives, such as PJM’s Reliability                  compliance filings and questioned (1)                  implementation.285 PJM hopes to
                                               Pricing Model modifications and fast                    whether the Commission provided                        complete an evaluation of what changes
                                               ramping products, already provide                       enough time to implement the                           are needed in its settlement system
                                               adequate incentives for resource                        settlement proposal; and (2) whether the               around April 2016, but, depending upon
                                               performance and send the signals                        Commission should extend                               on the outcome of that analysis, it
                                               needed for generation investment.275                    implementation of the shortage pricing                 estimates that revising the settlement
                                               We are not persuaded by these                           proposal to allow for simultaneous                     process will require between fifteen to
                                               arguments. While other initiatives, such                implementation of shortage pricing                     thirty-eight months.286 PJM also states
                                               as PJM’s Reliability Pricing Model                      proposal with the settlement proposal.                 that, though it opposes the shortage
                                               modifications and additional fast-                                                                             pricing proposal, if the Commission
                                               ramping products, could decrease the                    a. Comments From RTOs/ISOs                             orders some version of shortage pricing
                                               occurrence of shortages and shortage                                                                           reform, the Commission should
                                               pricing, an effective shortage pricing                    183. The ISO/RTO Council argues that                 consider simultaneous implementation
                                               trigger is still required to ensure                     the Commission should not force the                    of shortage pricing with the settlement
                                               appropriate pricing when shortages                      RTOs/ISOs to substantially reform their                interval proposal.287
                                               occur. This is particularly important for               existing market structure to comply                       187. CAISO also states that,
                                               incenting behavior by load in the day-                  with the shortage pricing proposal.278                 depending upon the specifics of the
                                               ahead market that is consistent with                    PJM, MISO, and ISO–NE either support                   Final Rule, extra time may be necessary
                                               expected system conditions in real-time.                the compliance deadline or believe that                for a complete compliance filing.288
                                               For instance, the Reliability Pricing                   they can meet the compliance deadline
                                                                                                       once a Final Rule is published in the                  b. Comments Urging Flexibility in
                                               Model modifications will send real-time
                                                                                                       Federal Register.279                                   Implementation
                                               price signals to encourage resource
                                               performance, but will not necessarily                     184. ISO–NE supports the                                188. Several commenters urge
                                               encourage accurate day-ahead load                       implementation timeline for the                        flexibility in the implementation
                                               forecast for load.                                      shortage pricing proposal because it                   timelines.289 The New Jersey Board
                                                  180. Concerned Cooperatives express                  believes that its market already meets                 concurs with PJM that, given the
                                               concern that the Commission does not                    the NOPR proposal.280 Similarly, ISO–                  technical uncertainties involved, the
                                               require the RTOs/ISOs to include, in                    NE states that it has already engaged its              Commission, in the Final Rule, should
                                               their compliance filings, an analysis to                participants to discuss tariff changes to              provide flexibility in the
                                               ensure that consumers remain protected                  settle the real-time markets in five-                  implementation timeline.290 Duke states
                                               against the exercise of market power                    minute intervals, and is therefore not                 that the RTOs/ISOs should determine
                                               when the proposed reforms are                           concerned with the implementation                      the implementation timeline after first
                                               implemented.276 However, Concerned                      timeline because it anticipates tariff                 exploring system design options, cost
                                               Cooperatives do not explain why the                     changes will be filed with the                         impacts to market participants, and
                                               RTOs’/ISOs’ existing market power                       Commission in mid-2016, to be effective                approaches to reduce cost impacts.291
                                               mitigation methodologies would not                      in 2017.281                                            EEI and APPA and NRECA contend that
                                               prevent the exercise of market power                                                                           not only is a flexible implementation
                                               during times of shortage pricing, under                   185. MISO states that it already has a               timeline necessary, but RTOs/ISOs
                                               the proposed reforms or otherwise.                      project in progress to replace the current             should also be encouraged to work with
                                               Therefore, we do not require the RTOs/                  software systems that perform market                   market participants to ensure they have
                                               ISOs to provide a market power review                   and transmission settlements                           the necessary systems and metering in
                                               and mitigation reforms in their                         processing,282 and it estimates that an                place in advance.292
                                               compliance filings.                                     additional eight months would be                          189. NEPOOL, Golden Spread, and
                                                                                                       required to mitigate any issues related to             TAPS echo the statements of EEI,
                                               C. Compliance and Implementation                        the new software and complete
                                               1. Commission Proposal                                  development of the revised settlement                    284 MISO    Comments at 12.
                                                                                                       system, allowing implementation by the                   285 PJM   Comments at 7.
                                                  181. In the NOPR, the Commission                     fourth quarter of 2017.283 MISO states                   286 PJM Comments at 3–4.
                                               proposed that RTOs/ISOs submit
                                                                                                       that the Commission should allow each                    287 PJM addresses its objections to the shortage
                                               compliance filings on both the proposed                                                                        pricing proposals in the PJM and SPP Comments.
                                                                                                       RTO/ISO to propose, in its compliance
                                               settlement reform and the proposed                                                                               288 CAISO Comments at 25. CAISO has asked for

                                               shortage pricing reform four months                       277 NOPR, FERC Stats. & Regs. ¶ 32,710 at PP 38,
                                                                                                                                                              certain clarifications as part of its comments, and
                                               from the effective date of the Final Rule;                                                                     states that if the Commission does not make the
                                                                                                       54–55.                                                 necessary clarifications, CAISO will need extra time
                                               that the proposed settlement reform                       278 ISO/RTO Council Comments at 3.
                                                                                                                                                              to consider what changes would need to be made
                                               become effective twelve months from                       279 PJM Comments at 7; MISO Comments at 13;          to its systems, and to develop implementing tariff
                                               the date of the compliance filings for                  ISO–NE Comments at 1.                                  language along with the supporting filing. Id.
                                               implementation of reforms to settlement
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                                                                                                         280 ISO–NE Comments at 3.                              289 ISO/RTO Council Comments at 3; New Jersey

                                               systems; and that the shortage pricing                    281 ISO–NE Comments at 2. ‘‘ISO–NE plans to          Board Comments at 3; PJM Comments at 4; EEI
                                                                                                       implement five-minute settlement of real-time          Comments at 8; NEPOOL Comments at 1; Golden
                                               proposal become effective four months                   reserves as part of the implementation of five-        Spread Comments at 7–8.
                                               from the date of the compliance filings                 minute settlement of real-time energy transactions,      290 New Jersey Board Comments at 3 (citing PJM

                                                                                                       which is currently being discussed with                Comments at 4).
                                                 275 Concerned Cooperatives Comments at 18–25;         stakeholders.’’ Id. at 3.                                291 Duke Comments at 6.

                                               ELCON Comments at 2; PG&E Comments at 2.                  282 MISO Comments at 3.                                292 EEI Comments at 8; APPA and NRECA
                                                 276 Concerned Cooperatives Comments at 15.              283 MISO Comments at 6.                              Comments at 4–5.



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                                               42904              Federal Register / Vol. 81, No. 126 / Thursday, June 30, 2016 / Rules and Regulations

                                               contending that implementation should                   compliance and implementation of the                   implementation details with their
                                               account for specific differences between                Final Rule.300                                         stakeholders.308
                                               the RTOs/ISOs instead of imposing a                        194. Exelon maintains that the                         198. APPA and NRECA request that
                                               rigid standard.293                                      implementation period for the five-                    RTOs/ISOs ensure all market
                                                  190. Although TAPS argues against                    minute settlement interval proposal                    participants either have the necessary
                                               the proposed shortage pricing rule, it                  should be 18 months because of the                     metering and billing systems in place or
                                               states that if the rule is adopted, then                equipment changes that will be                         have sufficient time to add required
                                               needed administrative shortage pricing                  necessary for generators in the RTOs/                  systems.309
                                               level modifications should become                       ISOs that do not currently use five-                      199. Only one entity, Direct Energy,
                                               effective when other shortage pricing                   minute pricing.301                                     requested an indefinite delay of
                                               modifications become effective.294                         195. Ameren argues the timeline                     implementation: Specifically, for the
                                               Golden Spread also identifies issues it                 proposed in the NOPR is too short and                  five-minute settlement proposal, arguing
                                               believes need to be addressed before the                could potentially increase both costs                  that the underlying technology of many
                                               proposed shortage pricing requirement                   and risks to the detriment of their                    supply resources is not advanced
                                               can be properly implemented in SPP.295                  customers.302 As for the settlement                    enough to ensure the efficiency the
                                                                                                       interval proposal, Ameren states that the              Commission states it seeks in the
                                               c. Compliance Filing Deadline                           implementation timeline developed                      NOPR.310
                                                  191. Some commenters commented                       from its internal assessment is at least
                                                                                                                                                              e. Simultaneous Implementation
                                               on the amount of time allowed to                        24 months to 29 months, with a possible
                                                                                                       implementation date of June 1, 2018 if                    200. Some commenters argue that the
                                               submit a compliance filing. With regard                                                                        Commission should synchronize
                                               to the settlement interval proposal,                    a Final Rule is issued in early 2016.303
                                                                                                          196. Dominion and IPL point out that                implementation of the shortage pricing
                                               Concerned Cooperatives state that                                                                              reform with the settlement interval
                                               because it could take over a year to                    implementation timing and specifics for
                                                                                                       market participants will depend upon                   proposal due to their interrelated
                                               determine what market rules may need                                                                           nature.311
                                               modification and to subsequently                        when the RTOs/ISOs finalize their own
                                               implement those changes, the                            implementation details, and it argues                  f. Costs
                                               Commission should require a                             that the proposed twelve-month
                                                                                                       implementation period for settlement                      201. In the NOPR, the Commission
                                               compliance filing after one year so that                                                                       noted that while adopting the proposed
                                               RTOs/ISOs can discuss implementation                    interval reforms does not appropriately
                                                                                                       take this factor into account.304                      reforms might provide significant
                                               issues with stakeholders.296 TAPS states                                                                       benefits, implementing and modifying
                                                                                                          197. DTE states that it would need a
                                               that the four-month compliance                                                                                 settlement systems can be complex and
                                                                                                       minimum of eighteen months and
                                               deadline proposed in the NOPR is too                                                                           costly.312 Various commenters provided
                                                                                                       ‘‘several million dollars’’ to implement
                                               short because a rule adjusting shortage                                                                        settlement implementation cost
                                                                                                       necessary changes to its settlement
                                               pricing triggers needs to be                                                                                   estimates: PJM ($3 to $5.6 million),313
                                                                                                       system,305 and Duke is concerned that
                                               accompanied by an adjustment to                                                                                Ameren ($3 million, plus an additional
                                                                                                       twelve months will not be enough
                                               shortage pricing levels.297                                                                                    $13 to $20 million if the settlement
                                                                                                       time.306 DTE and Duke emphasize that
                                               d. Implementation Deadline                              it is essential for the Commission to                  interval proposal is applied to load),314
                                                                                                       encourage RTOs/ISOs to work with                       Duke ($1 to $3.25 million, plus an
                                                 192. PSEG states that, in markets                                                                            additional $4 million if the settlement
                                                                                                       stakeholders and market participants in
                                               where the current equipment can be                                                                             interval proposal is applied to load),315
                                                                                                       order to facilitate the most cost-effective
                                               utilized, the twelve-month                                                                                     and Concerned Cooperatives ($1.5 to $2
                                                                                                       and timely implementation.307
                                               implementation timeline proposed by                                                                            million capital costs and $300,000 to
                                                                                                       Commenting on the shortage pricing
                                               the NOPR would be reasonable.298                                                                               $600,000 annual costs).316
                                                                                                       proposal, Concerned Cooperatives, who
                                               However, PSEG notes that the                                                                                      202. While the NOPR did not propose
                                                                                                       also contend stakeholders need to work
                                               Commission must take into account the                                                                          that a cost-benefit analysis must be
                                                                                                       cooperatively with RTOs/ISOs, assert
                                               time it will take the individual RTOs/                                                                         performed in conjunction with the
                                                                                                       that the implementation timeline is not
                                               ISOs to implement computer system                                                                              proposed reforms, some commenters
                                                                                                       long enough, and that the Commission
                                               changes.299 Several commenters assert                                                                          discuss whether a formal cost-benefit
                                                                                                       should allow at least a year for the
                                               that the timelines for implementation                                                                          analysis is necessary prior to
                                                                                                       RTOs/ISOs to vet the shortage pricing
                                               mentioned in the NOPR may be too                                                                               implementation of the proposals. APPA
                                               short.                                                    300 ODEC                                             and NRECA, Concerned Cooperatives,
                                                                                                                     Comments at 5.
                                                 193. ODEC asserts that, instead of                      301 Exelon   Comments at 5.                          Ameren, and IPL claim that a cost-
                                               requiring implementation within twelve                     302 Ameren Comments at 6.                           benefit analysis is necessary before
                                               months of the compliance filings, if the                   303 Ameren Comments at 6–7. Ameren also             implementation.317 IPL asserts this
                                               Commission determines PJM must settle                   suggests ‘‘aligning the implementation of a final
                                               resources at the same interval those                    rule with the beginning of the MISO Planning Year,       308 Concerned  Cooperatives Comments at 26–27.
                                                                                                       i.e. June 1, in order to facilitate a more seamless
                                               resources are dispatched, then the                      transition.’’ Id.
                                                                                                                                                                309 APPA   and NRECA Comments at 4–5.
                                                                                                                                                                310 Direct Energy Comments at 6.
                                               Commission should require each RTO/                        304 Dominion Comments at 2; IPL Comments at
                                                                                                                                                                311 PJM Comments at 10; EEI Comments at 10–11;
                                               ISO to submit a proposed plan for                       2–3.
                                                                                                          305 DTE Comments at                                 DTE Comments at 6; EPSA Comments at 8; PSEG
                                                                                                                                                              Comments at 15–16; Inertia Power and DC Energy
                                                 293 NEPOOL Comments at 5; Golden Spread               4–5. DTE explains that these changes would
                                                                                                                                                              Comments at 8–9.
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                                                                                                       include, among other things, evaluating its meters
                                               Comments at 7–8; TAPS Comments at 14–15.                                                                         312 NOPR, FERC Stats. & Regs. ¶ 32,710 at P 60.
                                                 294 TAPS Comments at 13.
                                                                                                       and computer systems, as well as re-evaluating
                                                                                                                                                                313 PJM Comments at 3–4.
                                                                                                       many of its current contracts. Id.
                                                 295 Golden Spread Comments at 8–10.                                                                            314 Ameren Comments at 5–6.
                                                                                                          306 Duke Comments at 6–7; DTE Comments at
                                                 296 Concerned Cooperatives Comments at 12.                                                                     315 Duke Comments at 6.
                                                                                                       4–5. DTE explains that these changes would
                                                 297 TAPS Comments at 14.
                                                                                                       include, among other things, evaluating its meters       316 Concerned Cooperatives Comments at 9.
                                                 298 PSEG Comments at 8.                               and computer systems, as well as re-evaluating           317 APPA and NRECA Comments at 4–5;
                                                 299 PSEG Comments at 15; Inertia Power                many of its current contracts. Id.                     Concerned Cooperatives Comments at 12; Ameren
                                               Comments at 9.                                             307 DTE Comments at 5; Duke Comments at 6–7.        Comments at 4; IPL Comments at 2.



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                                                                  Federal Register / Vol. 81, No. 126 / Thursday, June 30, 2016 / Rules and Regulations                                                  42905

                                               analysis will prove that market benefits                   205. Of the entities required to submit             synchronize implementation of shortage
                                               will be small in comparison to the costs                a compliance filing, PJM, MISO, and                    pricing with the settlement interval
                                               of implementation.318 Conversely, EPSA                  ISO–NE either support the compliance                   based upon the facts presented at that
                                               and the PJM Market Monitor state that                   deadline or believe that they can meet                 time. We expect that any RTO/ISO
                                               they should not be required to do a cost-               the compliance deadline once a Final                   seeking to synchronize shortage pricing
                                               benefit analysis (specifically in                       Rule is published in the Federal                       with the settlement interval will set
                                               reference to sub-hourly pricing) because                Register. Further, neither SPP nor                     forth compelling reasons as to why it is
                                               it would be too difficult to accurately                 NYISO submitted comments opposing                      necessary based upon the unique nature
                                               measure or approximate the potential                    the compliance deadline. CAISO                         of the RTO/ISO.
                                               long-term benefits.319                                  expressed concern about its ability to                   208. We will not dictate how RTOs/
                                                  203. Some commenters opine on how                    submit a compliance filing within 120                  ISOs must implement the reforms set
                                               they perceive the costs relate to the                   days of the effective date of this Final               forth in the Final Rule from a technical
                                               benefits of the proposed reforms. Duke                  Rule. We believe that, with the various                perspective. Nevertheless, we
                                               expresses concerns that the costs of                    clarifications provided in this Final                  recommend that wherever possible, the
                                               aligning dispatch and settlement                        Rule, CAISO should be able to submit                   RTO/ISO should consider using existing
                                               intervals will exceed the benefits. Duke                a compliance filing within four months                 metering equipment and current data
                                               acknowledges that the potential impact                  of the effective date of the Final Rule.               collection processes, such as the process
                                               of these reforms is not currently                       Accordingly, we adopt the proposal in                  currently being explored by PJM.325
                                               knowable, given that MISO and PJM                       the NOPR and require each RTO/ISO to                     209. With regard to the comments
                                               have not proposed new market rules                      submit, within 120 days of the effective               concerning the costs of implementing
                                               and system changes.320 However, Duke                    date of this Final Rule, a compliance                  the NOPR proposals, we find that some
                                               states that if RTOs/ISOs determine that                 filing that includes tariff changes that               of these costs appear to be overstated,
                                               costs associated with the proposed                      adopt the requirements in this Final                   taken as a whole. For example, PJM’s
                                               reform will not exceed the benefits,                    Rule, or demonstrates how the RTO/ISO                  use of its state estimator and telemetry
                                               stakeholder discussions could involve                   already complies. We will allow a                      may reduce, if not eliminate, the need
                                               software system changes and relevant                    further 12 months from the compliance                  for new five-minute revenue quality
                                               costs and impacts on market                             filing date for the tariff changes                     meters; and it is unclear, in the case of
                                               participants.321 In contrast, Inertia                   implementing reforms to settlement                     the Concerned Cooperatives, why costs
                                               Power states that, although the long-                   intervals to be effective, and 120 days                equal to several more full-time
                                               term benefits are not quantifiable, the                 from that same compliance filing date                  employees would need to be incurred
                                               direct savings to consumers and market                  for the tariff changes implementing                    on an annual basis as a result of the
                                               participants will warrant the costs.                    shortage pricing reforms to be                         NOPR reform. In any event, we find that
                                               Inertia Power suggests that the                         effective.324                                          the value of the benefits of more
                                               Commission should consider the                             206. As previously noted, comments                  accurate pricing under the proposed
                                               ‘‘immeasurable cost of muted price                      on the implementation schedule                         rule described in the NOPR, as
                                               signals’’ when comparing costs to                       focused on two areas: (1) Whether the                  recognized by the vast majority of
                                               benefits.322                                            Commission provided enough time to                     commenters in this proceeding, and the
                                                                                                       implement the settlement reform                        net present value of the future increases
                                               3. Commission Determination                             proposal; and (2) whether the                          in market surplus, although difficult to
                                                 204. Because the reforms required in                  Commission should extend                               quantify with precision, are likely to
                                               this Final Rule are targeted and specific,              implementation of the shortage pricing                 outweigh any one-time implementation
                                               we believe RTOs/ISOs will have                          reform proposal to allow for                           costs.
                                               sufficient time to develop and file tariff              simultaneous implementation of                           210. We reject the proposal to require
                                               changes to adopt these limited reforms,                 shortage pricing with settlement reform.               RTOs/ISOs to conduct a cost-benefit
                                               contrary to the concerns of commenters                  Based upon the comments received, we                   analysis before implementing the
                                               such as Concerned Cooperatives and                      retain the current implementation                      settlement reform.326 The Commission
                                               TAPS. In the NOPR, the Commission                       schedule, but will consider requests for               has not previously conducted such
                                               recognized that implementation of the                   extensions of time to extend the                       analyses when it has considered
                                               settlement reform could take up to a                    implementation dates when the RTOs/                    whether to require various market
                                                                                                       ISOs submit their compliance filings.                  reforms.327 Also, since many of the
                                               year after the compliance filings were
                                                                                                       The RTOs/ISOs will have had 120 days                   expected benefits will occur in the long-
                                               submitted.323 With regard to shortage
                                                                                                       as they prepare their compliance filings               run due to changes in marginal
                                               pricing, any revisions an RTO/ISO may
                                                                                                       to assess the feasibility of implementing              investments and enhancements
                                               propose to shortage pricing levels
                                                                                                       the reforms set forth in this Final Rule.              resulting from other price formation
                                               (which are not required by this Final
                                                                                                       It is premature at this time to extend the             reforms, there is limited ability to
                                               Rule) must be filed under section 205
                                                                                                       implementation timelines when affected                 quantify the short-run benefits before
                                               and could be submitted prior to the
                                                                                                       parties are only just starting to analyze              adopting these reforms.328 We agree
                                               actual implementation of the shortage
                                                                                                       what actions they must take in order to                with the PJM Market Monitor’s assertion
                                               pricing provisions of this Final Rule,
                                                                                                       implement the requirements of the Final                that, while the costs of implementation
                                               thereby permitting stakeholders and the                 Rule.
                                               RTO/ISO additional time to work                            207. Moreover, when the RTOs/ISOs                     325 PJM  Comments at 3.
                                               through the implementation details.                     submit their respective compliance
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                                                                                                                                                                326 APPA   and NRECA Comments at 4.
                                                                                                       filings, we will consider whether it is                  327 Cf. Order No. 719–A, FERC Stats. & Regs. ¶
                                                 318 IPLComments at 2.
                                                 319 EPSA
                                                                                                       appropriate to permit the RTO/ISO to                   31,292 at P 179 (‘‘For instance, although we believe
                                                           Comments, Pope Aff. at 13–14; PJM                                                                  that cost-benefit analyses can be useful in analyzing
                                               Market Monitor Comments at 2–3.                           324 The Commission has followed a similar            new projects, we are unconvinced that the
                                                320 Duke Comments at 6.
                                                                                                       approach with the timelines for compliance and         Commission should mandate cost-benefit analyses
                                                321 Duke Comments at 5.
                                                                                                       implementation in the past. See, e.g., Order No.       in all circumstances where an RTO or ISO engages
                                                322 Inertia Power Comments at 7.                                                                              in a major initiative’’).
                                                                                                       755, FERC Stats. & Regs. ¶ 31,324 at P 201, reh’g
                                                323 NOPR, FERC Stats. & Regs. ¶ 32,710 at P 55.        denied, Order No. 755–A, 138 FERC ¶ 61,123.              328 EPSA Comments, Pope Aff. at 13–14.




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                                               42906              Federal Register / Vol. 81, No. 126 / Thursday, June 30, 2016 / Rules and Regulations

                                               may be approximated, calculating the                    and (3) transparency with regard to out-               participation of demand response in
                                               efficiency benefits of implementing five-               of-market actions and payments.337 EEI                 RTO/ISO markets.347
                                               minute settlements is effectively                       further states that the Commission                        220. Referencing the NOPR’s
                                               impossible.329                                          should consider issues related to                      discussion of the role that look-ahead
                                                                                                       improving the transparency of LMPs by                  tools can play in mitigating seemingly
                                               D. Requests Beyond the Scope of This
                                                                                                       addressing the treatment of start-up and               artificial shortages, the SPP Market
                                               Proceeding
                                                                                                       no-load costs, and operator actions that               Monitor also requests the Commission
                                               1. Comments                                             result in out-of-market payments.338                   clarify that look-ahead models
                                                  211. Commenters raised issues that                      215. Westar requests that the                       incorporate administrative pricing in
                                               are not discussed above and that are                    Commission encourage RTOs/ISOs to                      their least cost evaluation before
                                               outside of the scope of this rulemaking.                clarify what costs may constitute                      choosing unit commitments to relieve
                                               EPSA states that the Commission and                     marginal costs.339 Additionally, XO                    shortages.348
                                               RTOs/ISOs must move expeditiously on                    Energy lists many benefits of a day-                      221. Powerex argues that further
                                               the reforms proposed in the NOPR as                     ahead transmission product, and                        Commission action is necessary to
                                               well as others identified in the price                  recommends the implementation of                       ensure that RTOs/ISOs refrain from
                                               formation proceeding that encourage                     such a product across all RTOs/ISOs.340                using more general tariff provisions and
                                               economically efficient decisions about                     216. Financial Marketers Coalition
                                                                                                                                                              non-tariff protocols, including out-of-
                                               resource entry and exit.330                             and XO Energy assert that while the
                                                                                                                                                              market procurement and other operator
                                                  212. PJM Power Providers and Exelon                  NOPR addresses settlement intervals for
                                                                                                                                                              interventions, to prevent shortage
                                               urge the Commission to focus on                         generation (supply), similar reforms are
                                                                                                                                                              pricing from being triggered or
                                               reducing uplift and remedying its                       needed for the intervals in which load
                                                                                                                                                              otherwise prevent scarcity from being
                                               causes as well as market power                          is forecasted, bid and settled in order to
                                                                                                                                                              reflected in market prices.349
                                               mitigation, operator actions, and other                 eliminate the mismatch between
                                                                                                       generation and load.341                                   222. Dominion questions if the
                                               issues.331 PJM Power Providers, Exelon,                                                                        proposed settlement reforms require
                                               EPSA, and NGSA also encourage                              217. Entergy Nuclear Power
                                                                                                       Marketing and NEI state that although                  further consideration of the interactions
                                               Commission action on reforming the                                                                             between the day-ahead and real-time
                                               energy offer cap.332                                    the reforms proposed in the NOPR will
                                                                                                       improve price formation for resources                  markets. Specifically, Dominion
                                                  213. ELCON, Westar, TAPS, and
                                                                                                       operating in real-time, they will not                  suggests that changes may be necessary
                                               Inertia Power and DC Energy recognize
                                                                                                       improve the outlook for baseload                       to how the RTOs/ISOs calculate
                                               the interconnected nature of the issues
                                                                                                       resources such as nuclear plants                       generator deviations in the real-time
                                               in the price formation proceeding.
                                                                                                       typically fully committed in the day-                  market from their day-ahead
                                               ELCON urges the Commission to
                                                                                                       ahead market.342                                       schedules.350
                                               consolidate any additional price
                                               formation proposals into a single                          218. NEI recommends various                            223. ESA requests that the
                                               NOPR.333 Westar states that the                         changes to price formation to better                   Commission consider five-minute
                                               Commission should consider the NOPR                     ensure that the market clearing price                  scheduling once it implements five-
                                               in conjunction with other items                         reflects all of the costs associated with              minute intervals to better access the
                                               identified in the price formation                       reliably providing service to the                      greater operational flexibility of fast-
                                               proceedings.334 TAPS states that RTOs/                  market.343                                             ramping resources like energy
                                               ISOs should have the flexibility to                        219. With respect to other issues, DTE              storage.351
                                               comply with all price formation                         requests clarification from the                           224. Powerex requests that the
                                               rulemakings in a way that coordinates                   Commission that market participants                    Commission require each RTO/ISO to:
                                               implementation and reduces the                          will not have to change the manner in                  (1) Identify all out-of-market actions or
                                               possibility of overlapping modifications                which they currently net purchases and                 procurement tools that it uses, or is
                                               of software and hardware.335 Inertia                    sales for purposes of FERC Form No.                    authorized to use, to manage its system;
                                               Power and DC Energy asks the                            1.344 The SPP Market Monitor raises                    and (2) propose tariff amendments to
                                               Commission to be mindful of other                       look-ahead modeling concerns.345                       ensure that these actions are
                                               system benefits that may result from the                Powerex has concerns regarding steps                   appropriately reflected in prices or,
                                               required software and hardware                          CAISO takes to minimize the occurrence                 alternatively, demonstrate that its
                                               upgrades in the RTO/ISOs.336                            of shortages (as opposed to when                       existing tariff provisions already achieve
                                                  214. EEI and EPSA reiterate their                    shortage pricing occurs) 346 and Public                such a result.352
                                               prior comments regarding common                         Interest Organizations have a concern                     225. Appian Way states that the
                                               principles that should guide the                        regarding possible barriers to the                     instant proposals encompassed by this
                                               discussion of price formation: (1)                                                                             NOPR are insufficient to ensure proper
                                                                                                          337 EEI Comments at 4–5 (citing EEI Comments,
                                               Dispatch-based pricing; (2) efficient                                                                          shortage pricing. Appian Way adds that
                                                                                                       Docket No. AD14–14–000, at 2 (filed Mar. 6, 2015));
                                               commitment that will provide accurate                   EPSA Comments at 12 and Att. B.                        some RTOs/ISOs will continue to have
                                               day-ahead and real-time price signals;                     338 EEI Comments at 6.                              defective pricing unless and until the
                                                                                                          339 Westar Comments at 3.                           Commission requires them to establish
                                                 329 PJM  Market Monitor Comments at 2–3.                 340 XO Energy Comments at 2–3 (citing MISO,         pricing rules that ensure prices rise to
                                                 330 EPSA   Comments at 11.                            Virtual Spread Bid Proposal Stakeholder Workshop,      scarcity levels when shortage conditions
                                                 331 PJM Power Providers Comments at 7; Exelon         at 10 (Nov. 18, 2013)).
                                                                                                                                                              occur that require the RTO/ISO to call
                                               Comments at 8.                                             341 Financial Marketers Coalition Comments at 4–
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                                                 332 PJM Power Providers Comments at 6; EPSA           6; XO Energy Comments at 3–4.
                                                                                                                                                                347 Public   Interest Organizations Comments at
                                               Comments at 13–15; Exelon Comments at 8–9;                 342 Entergy Nuclear Power Marketing Comments

                                               NGSA Comments at 6 (citing NGSA Comments,               at 2–3; NEI Comments at 15.                            4–5.
                                               Docket No. ER15–623–000 (filed Jan. 20, 2015)).            343 NEI Comments at 15–16.                            348 SPPMarket Monitor Comments at 7.
                                                 333 ELCON Comments at 7.                                 344 DTE Comments at 6.                                349 Powerex Comments at 9.
                                                 334 Westar Comments at 2–3.                              345 PSEG Comments at 14; SPP Market Monitor at        350 Dominion Comments at 3–4.
                                                 335 TAPS Comments at 6.                               4–7; Westar Comments at 3.                               351 ESA Comments at 4–5.
                                                 336 Inertia Power and DC Energy Comments at 8.           346 Powerex Comments at 9–13.                         352 Powerex Comments at 12–13.




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                                                                  Federal Register / Vol. 81, No. 126 / Thursday, June 30, 2016 / Rules and Regulations                                                      42907

                                               demand response in order to serve                       contained in a rule of general                          metering or other equipment; and (4)
                                               load.353                                                applicability. OMB’s regulations,360 in                 processes for RTOs/ISOs to vet
                                                 226. Inertia Power and DC Energy                      turn, require approval of certain                       proposed changes amongst their
                                               state that when operating reserves and                  information collection requirements                     stakeholders. The Commission also
                                               other ancillary services are priced ‘‘out               imposed by agency rules. Upon                           sought comment on whether changes in
                                               of market,’’ it prevents the triggering of              approval of a collection(s) of                          settlement systems would disrupt
                                               shortage pricing and circumvents the                    information, OMB will assign an OMB                     existing contractual relationships and, if
                                               intent of the NOPR.354                                  control number and an expiration date.                  so, what burdens this might impose and
                                                 227. Potomac Economics states that                    Respondents subject to the filing                       how the Commission should address
                                               the Commission’s focus on shortage                      requirements of a rule will not be                      any potential issues resulting from such
                                               pricing should extend to transmission                   penalized for failing to respond to these               disruption.
                                               shortages.355                                           collection(s) of information unless the                   234. The Commission received
                                                 228. Public Interest Organizations                    collection(s) of information display a                  responses regarding the costs of
                                               state that if the Commission carries out                valid OMB control number.                               implementing the reforms described in
                                               the shortage pricing proposal as set forth                 232. In this Final Rule, we are                      the NOPR; 363 however we find that
                                               in the NOPR, it should simultaneously                   amending the Commission’s regulations                   those costs do not fall under the
                                               ensure that demand-side resources can                   to improve the operation of organized                   definition of ‘‘burden’’ as defined by
                                               respond to those prices to reduce the                   wholesale electric power markets                        OMB’s regulations.364 Therefore, an
                                               potential for unjust and unreasonable                   operated by RTOs and ISOs. We require                   analysis of those costs is not relevant to
                                               rates.356                                               that each RTO/ISO align settlement and                  our analysis under the PRA.
                                                 229. Mr. Lively maintains that                        dispatch intervals by: (1) Settling energy                Burden Estimate and Information
                                               shortages should be viewed as a                         transactions in its real-time markets at                Collection Costs: We believe that the
                                               continuum, not as a shortage versus                     the same time interval it dispatches                    burden estimates below are
                                               non-shortage issue. Mr. Lively cites a                  energy; (2) settling operating reserves                 representative of the average burden on
                                               paper he wrote that discusses using                     transactions in its real-time markets at                respondents. The estimated burden and
                                               Area Control Error (ACE) in a pricing                   the same time interval it prices                        cost 365 for the requirements contained
                                               mechanism to adjust the nominal price                   operating reserves; and (3) settling                    in this Final Rule follow.366
                                               of electricity to determine a settlement                intertie transactions in the same time
                                               price.357                                               interval it schedules intertie                            363 See   supra PP 201–203.
                                                                                                                                                                 364 ‘‘Burden’’  is defined as ‘‘the total time, effort,
                                               2. Commission Determination                             transactions. We also require that each
                                                                                                                                                               or financial resources expended by persons to
                                                                                                       RTO/ISO trigger shortage pricing for any                generate, maintain, retain, or disclose or provide
                                                  230. We appreciate the concerns                      interval that prices both energy and                    information to or for a Federal Agency, including
                                               raised by numerous commenters                           operating reserves in which a shortage                  . . . (ii) Developing, acquiring, installing, and
                                               requesting that the Commission                          of energy or operating reserves is                      utilizing technology and systems for the purpose of
                                               undertake various initiatives, as set                   indicated during the pricing of                         collecting, validating, and verifying information;
                                               forth above. However, we find that the                                                                          (iii) Developing, acquiring, installing, and utilizing
                                                                                                       resources for that interval. The reforms                technology and systems for the purpose of
                                               requested initiatives go beyond the                     required in this Final Rule require a                   processing and maintaining information; (iv)
                                               scope of this rulemaking. Many of the                   one-time tariff filing due 120 days after               Developing, acquiring, installing, and utilizing
                                               issues raised by commenters may be                      the effective date of this Final Rule.                  technology and systems for the purpose of
                                               relevant in other price formation                                                                               disclosing and providing information. . . .’’ 5 CFR
                                                                                                       With regard to those RTOs/ISOs that                     1320.3(b)(1) (2015). We respond to comments
                                               proceedings,358 but they go beyond the                  believe that they already comply with                   regarding other costs not related to ‘‘burden’’ (such
                                               limited issues in this proceeding, which                the reforms required here, they can                     as hardware and software) in PP 209–210 above.
                                               deals only with the settlement interval                 demonstrate their compliance in their                      365 The estimated hourly cost (salary plus

                                               proposal and the trigger for shortage                   compliance filing. The Commission will                  benefits) provided in this section are based on the
                                               pricing. Accordingly, we will not                                                                               salary figures for May 2015 posted by the Bureau
                                                                                                       submit the proposed reporting                           of Labor Statistics for the Utilities sector (available
                                               address those issues here.                              requirements to OMB for its review and                  at http://www.bls.gov/oes/current/naics2_
                                               IV. Information Collection Statement                    approval under section 3507(d) of the                   22.htm#00-0000) and scaled to reflect benefits using
                                                                                                                                                               the relative importance of employer costs in
                                                 231. The Paperwork Reduction Act                      Paperwork Reduction Act.361                             employee compensation from December 2015
                                                                                                          233. Although the Commission stated                  (released March 10, 2016 and available at http://
                                               (PRA) 359 requires each federal agency to
                                                                                                       in the NOPR that it expects the adoption                www.bls.gov/news.release/ecec.nr0.htm). The
                                               seek and obtain Office of Management
                                                                                                       of the reforms proposed to provide                      hourly estimates for salary plus benefits are:
                                               and Budget (OMB) approval before                                                                                   Legal (code 23–0000), $128.94
                                                                                                       significant benefits,362 the Commission
                                               undertaking a collection of information                                                                            Computer and Mathematical (code 15–0000),
                                                                                                       solicited comments on the accuracy of
                                               directed to ten or more persons or                                                                              $60.54
                                                                                                       provided burden and cost estimates set                     Information Security Analyst (code 15–1122),
                                                 353 Appian   Way Comments at 2.
                                                                                                       forth in the NOPR and any suggested                     $57.99
                                                 354 Inertia Power Comments at 5–6.                    methods for minimizing the                                 Accountant and Auditor (code 13–2011), $53.78
                                                 355 Potomac Economics Comments at 11.                 respondents’ burdens, including the use                    Information and Record Clerk (code 43–4199),
                                                 356 Public Interest Organizations Comments at         of automated information techniques.                    $37.69
                                               3–5.                                                    Specifically, the Commission sought                        Electrical Engineer (code 17–2071), $64.20
                                                 357 Mr. Lively Comments at 3–4 (filed Nov. 23,                                                                   Economist (code 19–3011), $74.43
                                                                                                       detailed comments on the potential cost
                                               2015).                                                                                                             Computer and Information Systems Manager
                                                 358 See, e.g., Offer Caps in Markets Operated by
                                                                                                       and time necessary to implement                         (code 11–3021), $91.63
                                                                                                       aspects of the reforms proposed in the
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                                               Regional Transmission Organizations and                                                                            Management (code 11–0000), $88.94
                                               Independent System Operators, Notice of Proposed        NOPR, including (1) hardware, software,                    The average hourly cost (salary plus benefits),
                                               Rulemaking, 81 FR 5591 (Feb. 4, 2016), FERC Stats.      and business processes changes; (2)                     weighting all of these skill sets evenly, is $73.13.
                                               & Regs. ¶ 32,714 (2016), Price Formation in Energy      increased data storage and validation;                  For the calculations here, the Commission rounds
                                               and Ancillary Services Markets Operated by                                                                      it to $73 per hour.
                                               Regional Transmission Organizations and                 (3) changes to market participant                          366 The RTOs/ISOs (CAISO, ISO–NE., MISO,
                                               Independent System Operators, 153 FERC ¶ 61,221                                                                 NYISO, PJM, and SPP) are required to comply with
                                               (2015).                                                   360 5   CFR part 1320 (2015).                         the reforms in this Final Rule. Three RTOs/ISOs
                                                 359 44 U.S.C. 3501–3520 (2012).                         361 44   U.S.C. 3507(d).                                                                             Continued




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                                               42908              Federal Register / Vol. 81, No. 126 / Thursday, June 30, 2016 / Rules and Regulations



                                                 FERC 516D,367 as imple-                                                       Annual number of                                           Average burden                     Annual burden
                                                                                                                                                                Total number of
                                                  mented in final rule in            Number of respondents                      responses per                                              hours & cost                       hours & total
                                                                                                                                                                  responses
                                                     RM15–24–000                                                                  respondent                                               per response                        annual cost

                                                                                                    (1)                                    (2)                   (1) × (2) = (3)                     (4)                      (3) × (4) = (5)

                                               Tariff filings one-time in        3 RTOs or ISOs .................                                          1                       3   80 hrs; $5,840 .......              240 hrs; $17,520.
                                                 Year 1, for RTOs/ISOs
                                                 that currently align real-
                                                 time settlement with dis-
                                                 patch intervals.
                                               Tariff filings one-time in        3 RTOs or ISOs .................                                          1                       3   160 hrs; 11,680 .....               480 hrs; 35,040.
                                                 Year 1, for RTOs/ISOs
                                                 that do not currently align
                                                 real-time settlement with
                                                 dispatch intervals.

                                                    Total (one-time in Year      6 .........................................   ..............................                      6    ................................   720 hrs.; 52,560.
                                                      1) 368.



                                                 Title: FERC–516D, Electric Rate                              Affairs, Office of Management and                                    description and analysis of rules that
                                               Schedules and Tariff Filings in Docket                         Budget, 725 17th Street NW.,                                         will have significant economic impact
                                               RM15–24.                                                       Washington, DC 20503 [Attention: Desk                                on a substantial number of small
                                                 Action: A new information collection.                        Officer for the Federal Energy                                       entities. The RFA does not mandate any
                                                 OMB Control No.: To Be Determined.                           Regulatory Commission]. Due to                                       particular outcome in a rulemaking. It
                                                 Respondents for This Rulemaking:                             security concerns, comments should be                                only requires consideration of
                                               RTOs and ISOs.                                                 sent electronically to the following
                                                 Frequency of Information: One-time                                                                                                alternatives that are less burdensome to
                                                                                                              email address: oira_submission@                                      small entities and an agency
                                               during Year one.                                               omb.eop.gov. Comments submitted to
                                                 Necessity of Information: The Federal                                                                                             explanation of why alternatives were
                                                                                                              OMB should refer to FERC–516D and
                                               Energy Regulatory Commission                                                                                                        rejected.
                                                                                                              OMB Control No. To Be Determined.
                                               implements this rule to improve                                                                                                        238. This rule applies to six RTOs/
                                               competitive wholesale electric markets                         V. Environmental Analysis                                            ISOs (all of which are transmission
                                               in the RTO and ISO regions.                                       236. The Commission is required to                                organizations). The three RTOs/ISOs
                                                 Internal Review: The Commission has                          prepare an Environmental Assessment                                  that do not currently align real-time
                                               reviewed the changes and has                                   or an Environmental Impact Statement                                 settlement with dispatch intervals will
                                               determined that such changes are                               for any action that may have a                                       have to incur a one-time cost to upgrade
                                               necessary. These requirements conform                          significant adverse effect on the human                              their hardware and software. These
                                               to the Commission’s need for efficient                         environment.369 We conclude that                                     enhancements will be needed to allow
                                               information collection, communication,                         neither an Environmental Assessment                                  the RTOs/ISOs to process settlement
                                               and management within the energy                               nor an Environmental Impact Statement
                                               industry. The Commission has specific,                                                                                              data on a more granular level. That one-
                                                                                                              is required for this Final Rule under
                                               objective support for the burden                                                                                                    time cost (spread over Years 1 and 2) for
                                                                                                              section 380.4(a)(15) of the Commission’s
                                               estimates associated with the                                                                                                       hardware and software for each of those
                                                                                                              regulations, which provides a
                                               information collection requirements.                           categorical exemption for approval of                                three RTOs/ISOs is estimated to be an
                                                 235. Interested persons may obtain                           actions under sections 205 and 206 of                                average of $3 million (a total of $9
                                               information on the reporting                                   the FPA relating to the filing of                                    million for those three RTOs/ISOs). The
                                               requirements by contacting the                                 schedules containing all rates and                                   average estimated burden cost (one-time
                                               following: Federal Energy Regulatory                           charges for the transmission or sale of                              in Year 1) to each of the RTOs/ISOs is
                                               Commission, 888 First Street NE.,                              electric energy subject to the                                       $8,760 (total of $52,560 for all six RTOs/
                                               Washington, DC 20426 [Attention: Ellen                         Commission’s jurisdiction, plus the                                  ISOs). Therefore the estimated total cost
                                               Brown, Office of the Executive Director],                      classification, practices, contracts and                             (burden, hardware, and software) over
                                               email: DataClearance@ferc.gov, Phone:                          regulations that affect rates, charges,                              Years 1 and 2 for all six RTOs/ISOs is
                                               (202) 502–8663, fax: (202) 273–0873.                           classifications, and services.370                                    $9,052,560.
                                               Comments concerning the collection of
                                               information and the associated burden                          VI. Regulatory Flexibility Act
                                               estimate(s) may also be sent to the                              237. The Regulatory Flexibility Act of
                                               Office of Information and Regulatory                           1980 (RFA) 371 generally requires a

                                               (ISO–NE., MISO, and PJM) currently do not align                item per OMB Control No. can be pending OMB                          within four months of the effective date of the Final
                                               real-time settlement with dispatch intervals and               review at a time, the reporting requirements in the                  Rule.
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                                               thus likely would be burdened more by that aspect              Final Rule in RM15–24 are being submitted to OMB                       369 Regulations Implementing the National
                                               of the reforms in this Final Rule.                             for review under FERC–516D (a temporary                              Environmental Policy Act of 1969, Order No. 486,
                                                  367 The information collection requirements and             ‘placeholder’ collection number, OMB Control No.                     52 FR 47897 (Dec. 17, 1987), FERC Stats. & Regs.,
                                               related burden for the NOPR in Docket No. RM15–                to be determined). Long-term, the staff expects to
                                                                                                                                                                                   Regulations Preambles 1986–1990 ¶ 30,783 (1987).
                                               24 were submitted to OMB under FERC–516                        transfer administratively the requirements and
                                                                                                                                                                                     370 18 CFR 380.4(a)(15) (2015).
                                               (Electric Rate Schedules and Tariff Filings, OMB               burden of this final rule to FERC–516 (OMB Control
                                                                                                                                                                                     371 5 U.S.C. 601–612 (2012).
                                               Control No. 1902–0096). Currently, there is an                 No. 1902–0096) from FERC–516D.
                                               unrelated package (in Docket No. PL15–3) pending                  368 The burden costs (one-time in Year 1) consist                   372 The RFA definition of ‘‘small entity’’ refers to

                                               OMB review under FERC–516. Because only one                    of filing proposed tariff changes to the Commission                  the definition provided in the Small Business Act,



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                                                                        Federal Register / Vol. 81, No. 126 / Thursday, June 30, 2016 / Rules and Regulations                                                  42909

                                                  239. The RTOs/ISOs, however, are not                            Public Reference Room at (202) 502–                      (iv) * * *
                                               small entities, as defined by the RFA.372                          8371, TTY (202) 502–8659. Email the                      (A) Each Commission-approved
                                               This is because the relevant threshold                             Public Reference Room at                              independent system operator and
                                               between small and large entities is 500                            public.referenceroom@ferc.gov.                        regional transmission organization must
                                               employees and the Commission                                                                                             modify its market rules to allow the
                                                                                                                  VIII. Effective Date and Congressional
                                               understands that each RTO/ISO has                                                                                        market-clearing price during periods of
                                               more than 500 employees. Furthermore,                              Notification
                                                                                                                                                                        operating reserve shortage to reach a
                                               because of their pivotal roles in                                    243. These regulations are effective                level that rebalances supply and
                                               wholesale electric power markets in                                September 13, 2016. The Commission                    demand so as to maintain reliability
                                               their regions, none of the RTOs/ISOs                               has determined, with the concurrence of               while providing sufficient provisions for
                                               meet the last criterion of the two-part                            the Administrator of the Office of                    mitigating market power. Each
                                               RFA definition of a small entity: ‘‘Not                            Information and Regulatory Affairs of                 Commission-approved independent
                                               dominant in its field of operation.’’ As                           OMB, that this rule is not a ‘‘major rule’’           system operator and regional
                                               a result, we certify that the reforms                              as defined in section 351 of the Small                transmission organization must trigger
                                               required by this Final Rule would not                              Business Regulatory Enforcement                       shortage pricing for any interval in
                                               have a significant economic impact on                              Fairness Act of 1996.                                 which a shortage of energy or operating
                                               a substantial number of small entities.
                                                                                                                  List of Subjects in 18 CFR Part 35                    reserves is indicated during the pricing
                                               VII. Document Availability                                           Electric power rates, Electric utilities,           of resources for that interval.
                                                  240. In addition to publishing the full                         Reporting and recordkeeping                           *      *     *     *     *
                                               text of this document in the Federal                               requirements.                                            (vi) Settlement intervals. Each
                                               Register, the Commission provides all                                By the Commission.                                  Commission-approved independent
                                               interested persons an opportunity to                                 Issued: June 16, 2016.                              system operator and regional
                                               view and/or print the contents of this                                                                                   transmission organization must settle
                                                                                                                  Kimberly D. Bose,
                                               document via the Internet through                                                                                        energy transactions in its real-time
                                                                                                                  Secretary.
                                               FERC’s Home Page (http://                                                                                                markets at the same time interval it
                                               www.ferc.gov) and in FERC’s Public                                    In consideration of the foregoing, the             dispatches energy, must settle operating
                                               Reference Room during normal business                              Commission amends part 35, chapter I,                 reserves transactions in its real-time
                                               hours (8:30 a.m. to 5:00 p.m. Eastern                              title 18, Code of Federal Regulations, as             markets at the same time interval it
                                               time) at 888 First Street NE., Room 2A,                            follows:                                              prices operating reserves, and must
                                               Washington, DC 20426.                                                                                                    settle intertie transactions at the same
                                                  241. From FERC’s Home Page on the                               PART 35—FILING OF RATE
                                                                                                                  SCHEDULES AND TARIFFS                                 time interval it schedules intertie
                                               Internet, this information is available on                                                                               transactions.
                                               eLibrary. The full text of this document
                                               is available on eLibrary in PDF and                                ■ 1. The authority citation for part 35               *      *     *     *     *
                                               Microsoft Word format for viewing,                                 continues to read as follows:                            Note: The following appendix will not
                                               printing, and/or downloading. To access                              Authority: 16 U.S.C. 791a–825r, 2601–               be published in the Code of Federal
                                               this document in eLibrary, type the                                2645; 31 U.S.C. 9701; 42 U.S.C. 7101–7352.            Regulations.
                                               docket number excluding the last three                             ■   2. Amend § 35.28 as follows:                      Appendix: List of Commenters
                                               digits of this document in the docket                              ■   a. Revise paragraph (g)(1)(iv)(A).
                                               number field.                                                      ■   b. Add paragraph (g)(1)(vi).                         The following is a list of the entities that
                                                  242. User assistance is available for                                                                                 filed comments in this proceeding, along
                                               eLibrary and the FERC’s Web site during                            § 35.28 Non-discriminatory open access                with the short name/acronym used in this
                                               normal business hours from FERC                                    transmission tariff                                   Final Rule. Unless otherwise noted, all
                                               Online Support at (202) 502–6652 (toll                             *       *    *       *      *                         comments were submitted on November 30,
                                                                                                                                                                        2015.
                                               free at 1–866–208–3676) or email at                                    (g) * * *
                                               ferconlinesupport@ferc.gov, or the                                     (1) * * *                                         Comments

                                                          Short name/acronym                                                                               Commenter

                                               AEMA ...............................................     Advanced Energy Management Alliance.
                                               Ameren .............................................     Ameren Services Company (on behalf of Ameren Illinois Company and Union Electric Company).
                                               ANGA ...............................................     America’s Natural Gas Alliance.
                                               APPA and NRECA ...........................               American Public Power Association and National Rural Electric Cooperative Association.
                                               Appian Way ......................................        Appian Way Energy Partners.
                                               CAISO ..............................................     California Independent System Operator Corporation.
                                               CEA ..................................................   Canadian Electricity Association.
                                               Concerned Cooperatives .................                 Hoosier Energy Rural Electric Cooperative, Inc., Kansas Electric Power Cooperative, Inc., and North Caro-
                                                                                                          lina Electric Membership Corporation.
                                               Delaware Commission .....................                Delaware Public Service Commission.
                                               Direct Energy ...................................        Direct Energy Business, LLC and Direct Energy Business Marketing, LLC.
                                               Dominion ..........................................      Dominion Resources Services, Inc.
                                               DTE ..................................................   DTE Electric Company.
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                                               which defines a ‘‘small business concern’’ as a                    employees. See 5 U.S.C. 601(3) (2012) (citing to
                                               business that is independently owned and operated                  section 3 of the Small Business Act, 15 U.S.C. 632
                                               and that is not dominant in its field of operation.                (2012)).
                                               The Small Business Administration’s regulations at
                                               13 CFR 121.201 (2015) define the threshold for a
                                               small Electric Bulk Power Transmission and
                                               Control entity (NAICS code 221121) to be 500



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                                               42910                     Federal Register / Vol. 81, No. 126 / Thursday, June 30, 2016 / Rules and Regulations

                                                          Short name/acronym                                                                                             Commenter

                                               Duke .................................................     Duke Energy Corporation, Duke Energy Progress, LLC, Duke Energy Carolinas, LLC, Duke Energy Ken-
                                                                                                            tucky, Inc., Duke Energy Indiana, Inc., and Duke Energy Ohio, Inc.
                                               EDP Renewables .............................               EDP Renewables North America LLC.
                                               EEI ...................................................    Edison Electric Institute.
                                               ELCON .............................................        Electricity Consumers Resource Council.
                                               ESA ..................................................     Energy Storage Association.
                                               EPSA ................................................      Electric Power Supply Association.
                                               Entergy Nuclear Power Marketing ...                        Entergy Nuclear Power Marketing, LLC.
                                               Exelon ..............................................      Exelon Corporation.
                                               Financial Marketers Coalition ..........                   Financial Marketers Coalition.
                                               Golden Spread .................................            Golden Spread Electric Cooperative, Inc.
                                               Inertia Power and DC Energy ..........                     Inertia Power, LP and DC Energy, LLC.
                                               IPL ....................................................   Indianapolis Power & Light Company.
                                               ISO/RTO Council .............................              ISO/RTO Council.
                                               ISO–NE ............................................        ISO New England Inc.
                                               Mr. Lively ..........................................      Mark B. Lively, Utility Economic Engineers.
                                               MISO ................................................      Midcontinent Independent System Operator, Inc.
                                               NEPOOL ..........................................          New England Power Pool Participants Committee.
                                               NEI ...................................................    Nuclear Energy Institute.
                                               New Jersey Board ...........................               New Jersey Board of Public Utilities.
                                               NGSA ...............................................       Natural Gas Supply Association.
                                               NYISO ..............................................       New York Independent System Operator, Inc.
                                               ODEC ...............................................       Old Dominion Electric Cooperative.
                                               Mr. Centolella ...................................         Paul Centolella and Associates, L.L.C.
                                               PG&E ...............................................       Pacific Gas & Electric Company.
                                               PJM ..................................................     PJM Interconnection, L.L.C.
                                               PJM Market Monitor .........................               Monitoring Analytics, LLC, Independent Market Monitor for PJM.
                                               PJM Power Providers ......................                 PJM Power Providers Group.
                                               Potomac Economics ........................                 Potomac Economics, Ltd.
                                               Powerex ...........................................        Powerex Corp.
                                               PSEG ...............................................       PSEG Companies (Public Service Electric and Gas Company, PSEG Power LLC, and PSEG Energy Re-
                                                                                                            sources & Trade LLC).
                                               Public Interest Organizations ...........                  Acadia Center, Americans for a Clean Energy Grid, Climate + Energy Project, Great Plains Institute, Nat-
                                                                                                            ural Resources Defense Council, Sierra Club, Sustainable FERC Project, Union of Concerned Sci-
                                                                                                            entists, and Wind on the Wires.
                                               SCE ..................................................     Southern California Edison Company.
                                               SPP ..................................................     Southwest Power Pool, Inc.
                                               SPP Market Monitor .........................               Southwest Power Pool, Inc. Independent Market Monitoring Unit.
                                               TAPS ................................................      Transmission Access Policy Study Group.
                                               Westar ..............................................      Westar Energy, Inc.
                                               XO Energy .......................................          XO Energy, LLC.


                                                                                                                        REPLY OR SUPPLEMENTAL COMMENTS
                                                    Short name/acronym                                                                             Commenter                                                                   Date submitted

                                               Golden Spread ....................             Golden Spread Electric Cooperative, Inc ..............................................................................        December 14, 2015.
                                               Direct Energy ......................           Direct Energy Business, LLC and Direct Energy Business Marketing, LLC .........................                               March 4, 2016.


                                                                                                                                         LATE COMMENTS
                                                    Short name/acronym                                                                             Commenter                                                                   Date submitted

                                               New Jersey Board ..............                New Jersey Board of Public Utilities ......................................................................................   December 3, 2015.



                                               [FR Doc. 2016–15196 Filed 6–29–16; 8:45 am]
                                               BILLING CODE 6717–01–P
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Document Created: 2018-02-08 07:45:26
Document Modified: 2018-02-08 07:45:26
CategoryRegulatory Information
CollectionFederal Register
sudoc ClassAE 2.7:
GS 4.107:
AE 2.106:
PublisherOffice of the Federal Register, National Archives and Records Administration
SectionRules and Regulations
ActionFinal rule.
DatesThis rule will become effective September 13, 2016.
ContactStanley Wolf (Technical Information), Office of Energy Policy and Innovation, Federal Energy Regulatory Commission, 888 First Street NE., Washington, DC 20426, (202) 502-6841, [email protected] Pamela Quinlan (Technical Information), Office of Energy Market Regulation, Federal Energy Regulatory Commission, 888 First Street NE., Washington, DC 20426, (202) 502-6179, [email protected] Alicia Cobb (Legal Information), Office of the General Counsel--Energy Markets, Federal Energy Regulatory Commission, 888 First Street NE., Washington, DC 20426, (202) 502-8501, [email protected]
FR Citation81 FR 42882 
CFR AssociatedElectric Power Rates; Electric Utilities and Reporting and Recordkeeping Requirements

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