FERC Order 825 was issued on June 16, 2016 and directed all RTOs to align their dispatch and settlement intervals with the requirement to trigger shortage pricing in the interval when shortages occur. The three areas that needed alignment were Real Time Energy (5-minute), Real Time Operating Reserves (5-minute) and Real Time Physical Transactions (15-minute).
What Is the Reason for the Order?
The drive behind the order is to more accurately compensate generators that followed RTO 5-minute dispatch instructions and therefore, to incentivize them to be available by paying for performance, especially during LMP spikes. Order 825 is meant to result in increased transparency to reflect system conditions and constraints. It is also meant to provide an easier and faster reconciliation of participants’ P&L due to the market shifting more settlement dollars to Real Time and minimizing Real Time Make-Whole Payments. This will also trigger investment in new and/or upgraded equipment.
What are the Benefits?
- For the Market Participant: The order gives Market Participants the opportunity to see an increase in Real Time payments and a decrease in penalties for fast-moving resources (generation and demand resources) that follow ISO dispatch instructions. To reap the benefit of 5-minute Settlement, fast-moving generators need to submit 5-minute settlement data. NOTE: If you do not submit 5-minute data, the ISO will use telemetry profiling to derive 5-minute meter data and the resultant meter data will not be open to any dispute resolution. 5-minute settlements provide better price signals for resources and further margin improvements can result for markets that co-optimize energy and ancillary services in RT market.
- For the Grid: The goal of FERC Order 825 is to provide lower costs and higher grid reliability. The order assists in this objective as resources strive to increase their availability since they are adequately compensated with reduced ambiguity. As a result, resources tend to reduce the risk premium they include in their various offers resulting in overall lower costs to the market.
What is the State of Readiness for Individual Markets?
The markets are in various states of readiness for FERC Order 825:
- CAISO already satisfied the settlement interval requirement, paying resources in the same 5 and 15-minute increments it uses to dispatch the grid.
- NYISO’s existing rules are currently in compliance with Order 825 as its markets settle every 5 minutes.
- SPP has been settling at the 5-minute interval since March 1, 2014. ERCOT, outside of FERC jurisdiction, settles at a 15-minute interval.
- ISO-NE started on aligning settlement and dispatch intervals and went live with its changes on March 1, 2017. Modifications to move the regulation market from hourly to 5-minutes will go live on December 1, 2017.
- MISO was in-line with FERC order on shortage pricing, but it still needs to make some changes to align with the settlement interval rule. MISO is implementing new settlement software to accomplish that goal though the ISO’s go-live date has been deferred to July 1, 2018.
- PJM had to propose multiple changes to align its settlement and dispatch intervals and have shortage pricing automatically triggered.
- PJM will be settling energy and ancillary services every 5-minutes, and intertie transactions every 15-minutes to match both of their dispatch intervals.
- The RTO is making major changes on the scarcity pricing as currently these prices only kick in if the event is expected to last 45-minutes or more. Once the new rules are in-place, PJM will engage scarcity pricing every 5-minutes.
The Tools You’ll Need
You will need an enhanced settlement and analytics solution that will be able to handle data management, reporting and visualizations at a lower granularity level to effectively benefit from the increased data visibility from the RTO. Given the right tools, you will be able to do P&L Analysis earlier and provide next-day feedback on market operations. This will encourage operators to optimize the portfolio of generators and encourage them to follow RTO 5-minute dispatch instructions to increase revenues of the power plants.