At its recent public meeting, FERC opened a staff-led proceeding to address price formation and related issues in the RTO/ISO wholesale electricity energy markets. Concerns with whether these organized markets are attracting appropriate levels and types of new generation capacity and the markets’ performance during last winter’s Polar Vortex have raised questions regarding their designs and operational practices.
The RTOs and ISOs run hourly energy auction markets to call forth, through price signals, the generators that will run, and the demand that is willing to be cut, to keep the grid in balance. The operators also ensure that sufficient resources are committed over some future periods; some accomplish this through capacity auction markets. There have been concerns recently that the capacity markets are attracting mostly low-cost gas generators and not taking into account the need for fuel diversity and for generators that can serve as workhorse “base load” resources. During a FERC conference on the capacity markets, it was suggested that pricing rules in the energy markets also play a role in attracting investment and should be examined. Subsequently, comments during FERC’s conference on market performance during the Polar Vortex suggested that energy market pricing rules and operational practices may have interfered with the markets’ response to the extreme conditions.