The FERC has directed RTOs/ISOs to identify fuel assurance issues relevant to their respective markets and file a report on the status of their efforts to address the issues.
On November 20, 2014, the Federal Energy Regulatory Commission (FERC) issued an order directing regional transmission organizations and independent system operators (RTOs/ISOs) to file reports on their fuel assurance plans. FERC requires each RTO/ISO to file a status report – within 90 days of the order – identifying fuel assurance issues most relevant to its market and comprehensively describing ongoing and proposed actions to address region-specific concerns.
Fuel assurance of RTOs/ISOs regards generator access to sufficient fuel supplies and the firmness of generator fuel arrangements. It includes generator-specific and system-wide issues including overall ability of RTOs’/ISOs’ resource portfolio to access sufficient fuel to meet system needs and maintain reliability. It has a direct and immediate impact on generator performance, which directly contributes to overall grid reliability and rates. Fuel assurance concerns have increased due to increased reliance on natural gas-fired generators and compliance with environmental regulation, among others. They apply to all resource types and include impacts on fuel availability in industries’ supply chain and contingencies and risks stemming from them. FERC noted that failure to address the issue can potentially lead to volatile and often high fuel prices or costly RTO/ISO actions to ensure reliability.
The FERC highlighted that fuel assurance was a consistent theme at its September 25, 2013 Capacity Markets Technical Conference and April 1, 2014 Polar Vortex Technical Conference. The Capacity Markets Technical Conference considered how capacity market rules support procurement and retention of resources to meet future reliability and operational needs. The Polar Vortex Technical Conference focused on winter 2013/2014 operations and market performance, and discussed several aspects of fuel assurance as significant contributors to generator outages. Both conferences identified fuel assurance as a significant issue contributing to poor generator performance and inefficient market operations. FERC also identified fuel deliverability and fuel handling problems as contributing to high levels of forced generation outages in several RTOs/ISOs. Concerns also pertain to the ability of RTOs’/ISOs’ current resource adequacy constructs to address challenges, more specifically, the ability of capacity markets to address reliability and operational needs.
Among recent measures addressing fuel assurance, FERC cited its action on market rule changes proposed by ISO New England (ISO-NE) and the New England Power Pool to provide greater market incentives for generators to meet their obligations during reserve shortages. The changes facilitate “pay for performance” for closer linkage of capacity revenues to real-time performance in the capacity market; and increase in Reserve Constraint Penalty Factors for better price signals in the energy and ancillary service markets. They aim to spur investments in fuel assurance, dual-fuel capability, and other enhancements to improve resource performance. FERC has addressed incremental steps to provide generators with greater certainty for their ability to recover fuel costs. For example, FERC has conditionally accepted ISO-NE’s energy market enhancements providing greater flexibility for market participants to structure and modify supply offers in the day-ahead and real-time markets.
FERC has granted several requests of RTOs/ISOs to temporarily waive bid caps that could prevent generators from reflecting full fuel costs in their offers, providing greater certainty to recover higher fuel costs caused by cold weather and supply shortages. It has accepted ISO-NE’s two Winter Reliability Programs encouraging generators to maintain onsite fuel inventories, addressing concerns regarding reliance on pipeline fuel deliveries during periods of high natural gas demand and pipeline system stress.
The FERC noted that potential approaches to address market and system performance concerns could range from providing incentives to more administrative options. RTOs/ISOs could reform centralized capacity markets through greater price incentives for capacity resources to be available and stiffer penalties for performance failure, thereby encouraging firmer fuel arrangements. A more administrative approach to reform capacity markets and/or resource adequacy mechanisms would require capacity resources to have certain fuel arrangements to be eligible to provide resource adequacy. FERC also suggested combining the approaches such as discounting the value of capacity resources (by lowering capacity rating or some other means) based on fuel arrangements. Regardless of the method, FERC noted that additional changes may be needed, such as adjusting capacity market offer caps to include fuel assurance investments and clarifications regarding rules of day-ahead market and unit commitment process.
Regarding potential reforms to energy and ancillary service markets, FERC suggested incentivizing resources for firmer fuel arrangements through shortage pricing measures that accurately reflect the value of avoiding involuntary curtailment. To incentivize generators for timely fuel procurement decisions, RTOs/ISOs could adjust market rules to ensure greater certainty in recovering fuel costs. FERC also encourages RTOs/ISOs to evaluate the need for changes to energy market rules to ensure sufficient fuel cost recovery for enhanced fuel assurance.
Originally published by EnerKnol.
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