FERC on Sept. 17 issued two new proposed rules involving independent system operators, with one aiming to align the timing of settlement and dispatch of generation resources and the other calling for ISOs to collect and provide to FERC identifying information on market participants.
The latter proposal is designed to aid the commission’s oversight of ISO markets, since numerous entities are often housed under a corporate parent, with names that can be similar but confusing, especially with different companies operating in different markets, FERC staff explained at a Sept. 17 meeting.
The enhanced data collection could help explain the relationship among market participants involved in trading activities and possible incentives for market manipulation, and FERC could use the information to decide if an investigation is needed, FERC staff said.
Discussing the notice of proposed rulemaking on pricing reforms, FERC commissioners mentioned how they see it as another step to improve market efficiency and ensure resources are compensated fairly. Over the long term, the NOPR and other steps should help encourage investment in facilities, FERC Chairman Norman Bay said during FERC’s Sept. 17 meeting.
The NOPR (FERC Docket No. RM15-24) tackles two issues associated with ISO pricing, the first of which is to require ISOs to settle real-time energy transactions financially at the same time interval they dispatch energy. Currently, some ISOs and regional transmission organizations dispatch resources every five minutes but settle transactions based on an hourly integrated price, or an average price across an hour, which can create disincentives for resources to respond to dispatch signals, FERC staff explained.
Aligning the settlement interval with the dispatch interval would compensate resources in a way that better reflects the value of services provided, and it should also reduce uplift payments, FERC staff said.
The second change would address ISO practices and triggers for shortage pricing, or the often-brief periods when the grid is under stress and short-term prices rise to reflect a scarcity of resources. In many ISOs and RTOs, a shortage is required to last a minimum time frame before shortage pricing is triggered, and if that minimum period is longer than when a shortage takes place, prices do not reflect market conditions, FERC said in the NOPR.
The proposed rule would require each ISO and RTO to trigger shortage pricing for any dispatch interval during which a shortage of energy or operating reserves takes place. That would compensate resources for the services they provide when operating reserves are low, and it would provide consistency and transparency to market participants so that they understand how prices reflect grid operating conditions, FERC said.
In the NOPR on data collection (FERC Docket No. RM15-23), FERC staff told the commissioners that the proposal would aid FERC staff and ISO market monitors in their individual or joint efforts to investigate possible market manipulation.
The proposal would require ISOs or RTOs to collect information about “connected entities” that have certain defined ownership, employment, debt or contractual relationships with the regional market participants. It calls for the ISOs or RTOs to use a common identifier – dubbed the legal entity identifier — and list the connected entities and briefly describe the nature of the relationship with each connected entity.
FERC staff said the term LEI is globally accepted, and currently in use at the Commodity Futures Trading Commission and Securities and Exchange Commission.
“We anticipate that the proposed connected entity disclosures will supplant the various affiliate disclosure requirements in use by the RTOs and ISOs,” FERC staff said at the meeting.
The NOPR includes electronic formatting for the submission of identifying information, but seeks comment on the formatting, as well as the benefits and burdens of the proposal.
FERC Commissioner Philip Moeller cautioned that some industry groups might think the proposed rule has “come out of the blue,” since his office only saw an outline of it last month. He also asked staff if the term LEI is universally recognized.
Staff responded that its use is fairly recent, starting in financial markets following the 2008 financial downturn. Since it has been in use in those markets globally, about 400,000 entities have obtained LEIs, many of them in the U.S., and they are growing in use, staff told Moeller.
FERC Commissioner Cheryl LaFleur concurred with the decision to have ISOs collect and report the identifying information, expressing concern about the burden it could impose on ISOs and RTOs. She said that she supported the proposal because it is important for FERC to have the tools to protect consumers from market manipulation, and the proposed rule would aid that effort.
“However, the commission should always consider carefully whether the benefits offered by new compliance obligations outweigh the burdens that will be faced by market participants,” she said. “I believe that the requirements in the notice of proposed rulemaking would create a significant new reporting regime for all market participants, as well as the RTOs and ISOs. I therefore encourage market participants to submit comments on today’s proposed rulemaking that address the benefits of this proposed regulation, as well as the incremental costs or burdens that would be created by this new reporting requirement.”