[Federal Register Volume 81, Number 251 (Friday, December 30, 2016)]
[Proposed Rules]
[Pages 96391-96404]
[FR Doc No: 2016-30971]

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Proposed Rules
                                                Federal Register
________________________________________________________________________

This section of the FEDERAL REGISTER contains notices to the public of
the proposed issuance of rules and regulations. The purpose of these
notices is to give interested persons an opportunity to participate in
the rule making prior to the adoption of the final rules.

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Federal Register / Vol. 81, No. 251 / Friday, December 30, 2016 /
Proposed Rules

DEPARTMENT OF ENERGY

Federal Energy Regulatory Commission

18 CFR Part 35

[Docket No. RM17-3-000]

Fast-Start Pricing in Markets Operated by Regional Transmission
Organizations and Independent System Operators

AGENCY: Federal Energy Regulatory Commission, DOE.

ACTION: Notice of proposed rulemaking.

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SUMMARY: The Federal Energy Regulatory Commission is proposing to
revise its regulations to require that each regional transmission
organization and independent system operator incorporate market rules
that meet certain requirements when pricing fast-start resources. These
reforms should lead to prices that more transparently reflect the
marginal cost of serving load, which will reduce uplift costs and
thereby improve price signals to support efficient investments.

DATES: Comments are due February 28, 2017.

ADDRESSES: Comments, identified by docket number, may be filed in the
following ways:
     Electronic Filing through http://www.ferc.gov. Documents
created electronically using word processing software should be filed
in native applications or print-to-PDF format and not in a scanned
format.
     Mail/Hand Delivery: Those unable to file electronically
may mail or hand-deliver comments to: Federal Energy Regulatory
Commission, Secretary of the Commission, 888 First Street NE.,
Washington, DC 20426.

Instructions: For detailed instructions on submitting comments and
additional information on the rulemaking process, see the Comment
Procedures Section of this document.

FOR FURTHER INFORMATION CONTACT:

Daniel Kheloussi (Technical Information), Office of Energy Policy and
Innovation, Federal Energy Regulatory Commission, 888 First Street NE.,
Washington, DC 20426,<PHONE_NUMBER><EMAIL_ADDRESS>Eric Vandenberg (Technical Information), Office of Energy Market
Regulation, Federal Energy Regulatory Commission, 888 First Street NE.,
Washington, DC 20426,<PHONE_NUMBER><EMAIL_ADDRESS>Kaleb Lockwood (Legal Information), Office of the General Counsel,
Federal Energy Regulatory Commission, 888 First Street NE., Washington,
DC 20426,<PHONE_NUMBER><EMAIL_ADDRESS>
SUPPLEMENTARY INFORMATION:

Table of Contents

    Paragraph Numbers
I. Background 5.
II. Discussion 8.
    A. Current RTO/ISO Approaches to Fast-Start Pricing 11.
    B. Comments on Fast-Start Pricing 18.
    1. Fast-Start Resource Definitions and Resource Eligibility 22.
    2. Inclusion of Start-up and No-load Costs in Prices 23.
    3. Relaxation of Economic Minimum Operating Limit 27.
    4. Offline Fast-Start Resources 30.
    5. Day-Ahead and Real-Time Market Consistency 33.
    C. Need for Reform of Fast-Start Pricing 34.
    D. Commission Proposal 44.
    1. Fast-Start Resource Definitions and Resource Eligibility 46.
    2. Inclusion of Start-up and No-load Costs in Prices 49.
    3. Relaxation of Economic Minimum Operating Limit 54.
    4. Offline Fast-Start Resources 56.
    5. Day-Ahead and Real-Time Market Consistency 60.
    6. Additional Comments Sought on This Proposal 64.
III. Compliance 66.
IV. Information Collection Statement 69.
V. Environmental Analysis 73.
VI. Regulatory Flexibility Act 74.
VII. Comment Procedures 77.
VIII. Document Availability 81.

    1. In this Notice of Proposed Rulemaking (NOPR), the Federal Energy
Regulatory Commission (Commission) is proposing to address the pricing
of energy from resources that are able to start quickly (i.e., any
resource that is able to start up within ten minutes or less, that has
a minimum run time of one hour or less, and that submitted an economic
energy offer to the market) (fast-start resources). In this context,
fast-start pricing addresses the software algorithms by which a
regional transmission organization (RTO) or independent system operator
(ISO) incorporates the offers of fast-start resources into the market
prices for energy and ancillary services.\1\
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    \1\ In the November 20, 2015 Order Directing Reports issued in
Docket No. AD14-14-000, the Commission noted that inflexible
resources ``are generally referred to as block-loaded fast-start
resources.'' Price Formation in Energy and Ancillary Services
Markets Operated by Regional Transmission Organizations and
Independent System Operators, 153 FERC ] 61,221, at P 9 (2015)
(Order Directing Reports). The Commission also stated that
    [a]n inflexible resource generally refers to a resource that may
not be able to physically operate much below its maximum output and
therefore cannot be dispatched up or down. For this reason, the
energy supply offer parameters for these resources may stipulate
that they be dispatched either to zero or to a minimum level that is
at (or close to) their maximum output, but not in between.
    Id. P 9 n.8. The Commission further noted that ``[a] block-
loaded resource is a resource whose economic minimum operating limit
is equal to its economic maximum output.'' Id. P 9 n.9. While this
NOPR seeks to address issues discussed in the Order Directing
Reports and the subsequent reports and comments submitted in that
docket, we do not limit terms used in this NOPR to the definitions
provided in the Order Directing Reports.
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    2. Varied approaches exist among RTOs and ISOs to incorporate fast-
start resources into energy and ancillary services prices (fast-start
pricing). Fast-start resources are unique because they are often
dispatched to their inflexible minimum or maximum operating limits, and
are thus not eligible to set the locational marginal price (LMP).\2\ In
addition, fast-start resources are typically committed in real-time,
very close to the interval when they are needed. As a result, the cost
to commit these resources is incurred at roughly the same time the
incremental energy costs are incurred, which raises the question of
whether the commitment costs should be included in the LMP. Finally,
fast-start resources can arguably respond quickly enough to be
considered part of an RTO's/ISO's operating reserves even when they
have

not yet been committed. As a result of these unique characteristics,
RTOs/ISOs have developed pricing specific to this class of resources.
This pricing is designed generally to recognize that fast-start
resources are, for all intents and purposes, the marginal resource used
to meet the next increment of energy or operating reserves demand.
Based on experience with the different fast-start pricing used by each
RTO/ISO, we believe some practices have emerged over time that better
represent the marginal cost of serving load.
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    \2\ At a high level, the LMP is set by the offer of the resource
that is dispatched up to serve the next additional MW of demand or
dispatched down to accommodate the next MW of reduced demand. Fast-
start resources often have little or no dispatch range (i.e., their
economic minimum operating limit equals their economic maximum
operating limit). A resource that is operating inflexibly at its
economic minimum operating limit or maximum operating limit is not
dispatchable to serve an additional increment or decrement of load,
and is thus not eligible to set the LMP.
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    3. We preliminarily find that some of these approaches may not
result in rates that are just and reasonable for several reasons. We
are concerned that some existing practices may not ensure that prices
accurately reflect the marginal cost of serving load, potentially
resulting in prices that do not reflect the value of fast-start
resources, potentially creating unnecessary uplift payments, and
potentially failing to provide incentives for market participants to
make efficient investments. As a result, we propose to require that
each RTO/ISO incorporate the following five requirements for its fast-
start pricing. First, an RTO/ISO must apply fast-start pricing to any
resource committed by the RTO/ISO that is able to start up within ten
minutes or less, has a minimum run time of one hour or less, and that
submits economic energy offers to the market. Second, when an RTO/ISO
makes a decision to commit a fast-start resource, it should incorporate
commitment costs, i.e., start-up and no-load costs, of fast-start
resources in energy and operating reserve prices, but must do so only
during the fast-start resource's minimum run time. Third, an RTO/ISO
must modify its fast-start pricing to relax the economic minimum
operating limit of fast-start resources and treat them as dispatchable
from zero to the economic maximum operating limit for the purpose of
calculating prices. Fourth, if an RTO/ISO allows offline fast-start
resources to set prices for addressing certain system needs, the
resource must be feasible and economic. Finally, an RTO/ISO must
incorporate fast-start pricing in both the day-ahead and real-time
markets.
    4. We seek comment on these proposed reforms 60 days after
publication of this NOPR in the Federal Register.

I. Background

    5. In June 2014, the Commission initiated a proceeding, in Docket
No. AD14-14-000, Price Formation in Energy and Ancillary Services
Markets Operated by Regional Transmission Organizations and Independent
System Operators, to evaluate issues regarding price formation in the
energy and ancillary services markets operated by RTOs/ISOs (Price
Formation Proceeding). The notice initiating that proceeding stated
that there may be opportunities for the RTOs/ISOs to improve the price
formation process in the energy and ancillary services markets. As set
forth in the notice, 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.'' \3\ 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.\4\
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    \3\ Price Formation in Energy and Ancillary Services Markets
Operated by Transmission Organizations and Independent System
Operators, Notice, Docket No. AD14-14-000, at 2 (June 19, 2014).
    \4\ Id. at 1, 3-4.
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    6. In January 2015, the Commission requested comments on questions
that arose from the price formation technical workshops.\5\ As a result
of these comments, the Commission identified, among other things, five
technical topics with potential for reform to improve price formation,
but for which further information was needed. In November 2015, the
Commission issued an order that directed each RTO/ISO to report on
these five price formation topics: fast-start pricing; managing
multiple contingencies; look-ahead modeling; uplift allocation; and
transparency.\6\ The order directed each RTO/ISO to file a report
providing an update on its current practices in the topic areas,
outlining the status of its efforts (if any) to address issues in each
of the five topics, and responding to specific questions contained in
the order. This NOPR addresses the pricing of fast-start resources.
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    \5\ Notice Inviting Post-Technical Workshop Comments, Docket No.
AD14-14-000 (Jan. 16, 2015).
    \6\ Order Directing Reports, 153 FERC ] 61,221).
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    7. In the reports filed and the subsequent comments, RTOs/ISOs and
other commenters addressed the issue of fast-start pricing, as
discussed below.\7\
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    \7\ A list of commenters and the abbreviated names used in this
NOPR appears in the Appendix.
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II. Discussion

    8. In RTOs/ISOs, LMPs reflect the system marginal cost of serving
the next increment of load, taking into account transmission
constraints and line losses. With certain exceptions, only resources
that are dispatchable, i.e., those that can be dispatched up or down in
response to changes in system conditions, are eligible to set
prices.\8\ In many situations, this eligibility requirement ensures
that LMPs reflect the marginal cost of serving the next increment of
demand. However, this eligibility requirement can distort LMPs when a
fast-start resource is committed and dispatched to serve expected load
during a particular interval. This restriction often prevents a fast-
start resource from setting prices when the resource is dispatched at
its economic minimum operating limit. Fast-start resources are often
required to be dispatched at their economic minimum operating limit or
are block-loaded.\9\ Because the system may need fewer megawatts (MW)
than the fast-start resource's economic minimum operating limit to meet
load, other resources must be dispatched down. The resources that were
dispatched down become the most economic option to serve the next
increment of load. Therefore, despite the fact that a fast-start
resource is essentially marginal, this restriction prevents a fast-
start resource dispatched at its economic minimum operating limit from
setting the LMP. To allow fast-start resources to set prices so that
LMPs better reflect the marginal cost of serving load, some RTOs/ISOs
modify the market rules and software. Typically, they treat fast-start
resources as dispatchable in a pricing algorithm (i.e., pricing run)
separate from the dispatch algorithm (i.e., dispatch run). While the
dispatch run meets all of the physical constraints of the resources,
the pricing run relaxes the economic minimum operating limit of a fast-
start resource so that the resource is treated as dispatchable by the
market-clearing software and eligible to set prices.
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    \8\ Order Directing Reports, 153 FERC ] 61,221 at P 9.
    \9\ Block-loaded means the resource's economic minimum operating
limit equals its economic maximum operating limit. The economic
minimum and maximum operating limits are the minimum amount of
electric power that a resource must be allowed to produce, and the
highest level a resource can produce, while under economic dispatch,
respectively.
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    9. Fast-start pricing can result in improved price signals,
especially during tight or unexpected system conditions when the need
for fast-start resources is the greatest. However, fast-start pricing
can create a disconnect between prices and dispatch instructions, which
can lead to over-generation. Specifically, fast-start

pricing requires the pricing run to assume that fast-start resources
can operate below the resources' economic minimum operating limit such
that the pricing run also dispatches other units at levels greater than
the level instructed by the dispatch run. Many RTOs/ISOs ensure that
the disconnect in resource output levels between the pricing and
dispatch runs are reconciled to avoid over-generation; however, some
RTOs/ISOs do not reconcile the differences, leading to dispatch targets
that produce energy in excess of what is needed to serve load, i.e.,
over-generation. Further, generation resources that are dispatched
downward to accommodate the commitment of fast-start resources may have
incentives to produce energy above their dispatch targets to capture
the higher prices set by fast-start resources, leading to over-
generation. Thus, fast-start pricing rules are typically paired with
market rules to reduce the incentives for producing energy above
dispatch targets.
    10. Further, reflecting commitment costs in LMPs requires some
judgment regarding how and when to include those commitment costs.
Similarly, reflecting the costs of offline resources in LMPs requires
some judgment regarding when these resources are actually economically
and technically able to address a reserve shortage or transmission
constraint.

A. Current RTO/ISO Approaches to Fast-Start Pricing

    11. Each RTO/ISO has developed its own unique pricing to
accommodate the specific characteristics of fast-start resources in its
respective market.
    12. CAISO defines fast-start resources as those that can come
online in under two hours and can be committed in CAISO's fifteen-
minute market or the short-term unit commitment process. CAISO states
that there is no special treatment for the commitment or pricing of
generating units related to whether they are fast, medium, or long
start.\10\ However, CAISO applies special modeling logic to certain
block-loaded or nearly block-
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    \10\ Report of CAISO, Docket No. AD14-14-000, at 4 (Mar. 4,
2016) (CAISO Report).
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    loaded resources known as Constrained Output Generators.\11\ CAISO
currently allows minimum load costs to affect LMPs but does not include
start-up costs.\12\ In the day-ahead market, Constrained Output
Generators are treated as dispatchable resources in both the scheduling
and pricing run; thus, in the day-ahead market, Constrained Output
Generators can set prices. In the real-time market, the scheduling run
does not allow Constrained Output Generators to be dispatched below
their economic minimum operating limit, but in the pricing run the
economic minimum operating limit is relaxed to zero. CAISO does not
allow offline resources to set LMP.\13\ CAISO states that because so
few resources have registered as Constrained Output Generators, it has
no anecdotal data that its Constrained Output Generator-related pricing
logic results in over-generation issues. However, CAISO notes that
over-generation could be a concern if a large number of resources were
to register as Constrained Output Generators.\14\ CAISO states that it
is not currently working on any stakeholder initiatives to modify
commitment or pricing logic related to fast-start units, but notes that
some of its stakeholders have argued for an extended pricing mechanism
similar to MISO's Extended LMP mechanism.\15\
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    \11\ CAISO defines a Constrained Output Generator as any
generating unit with an operating range that is no greater than the
highest of three MW or five percent of its maximum operating range.
Id. at 1-2. Block-loaded resources in CAISO are required to register
as Constrained Output Generators, while certain nearly-block loaded
resources are permitted to register as Constrained Output
Generators, if desired. CAISO notes that there are currently no
resources registered as Constrained Output Generators. Id. at 11.
    \12\ Id. at 2. In CAISO, a Constrained Output Generator's
calculated energy bid (which is the unit's minimum load costs
divided by the MW quantity of the unit's maximum output) can set the
LMP.
    \13\ Id. at 10.
    \14\ Id. at 8. Fast-start pricing could result in over-
generation (i.e., producing energy in excess of what is needed to
serve load) due to several factors. First, price signals generated
by fast-start pricing could incent some resources to produce energy
above their dispatch targets. Specifically, if LMP is higher than a
resource's incremental energy offer, that resource would have an
incentive to increase its profits by generating above energy
dispatch targets, leading to over-generation. Second, an RTO/ISO may
use a scheduling run that incorporates relaxed economic minimum
operating limits and does not require that generation be equal to
load, resulting in over-generation. See PJM Report on Price
Formation Issues, Docket No. AD14-14-000, at 12-13 (Feb. 17, 2016)
(PJM Report).
    \15\ CAISO Report at 8-9.
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    13. ISO-NE recently proposed revisions to its process for
dispatching and pricing fast-start units, which will become effective
March 31, 2017.\16\ ISO-NE defines fast-start resources as those with
start-up times of thirty minutes or less and which have a minimum run
time of one hour or less and a minimum down time of one hour or
less.\17\ ISO-NE states that its pricing mechanism will allow start-up
and no-load costs to be included in LMPs. ISO-NE will have separate
dispatch and pricing runs, with the pricing run following the dispatch
run, where economic minimum operating limits are relaxed.\18\
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    \16\ ISO New England Inc. and New England Power Pool
Participants Committee, Docket No. ER15-2716-000 (Oct. 19, 2015)
(delegated letter order).
    \17\ Report of ISO-NE., Docket No. AD14-14-000, at 6 (Mar. 4,
2016) (ISO-NE Report).
    \18\ Id. at 16.
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    However, ISO-NE does not allow offline resources to set the
LMP.\19\ ISO-NE states that its revised fast-start pricing is being
implemented in the real-time market only.\20\ ISO-NE argues that its
revised fast-start pricing logic will eliminate over-generation issues
and states that it will compensate certain re-dispatched resources for
their opportunity costs.\21\
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    \19\ Id. at 10.
    \20\ Id. at 3.
    \21\ Id. at 14-15.
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    14. MISO's fast-start pricing logic, referred to as Extended LMP
(ELMP), became effective in 2015.\22\ MISO defines a fast-start
generating resource as a generating unit with a start-up time of ten
minutes or less and a minimum run time of one hour or less.\23\ MISO
allows a fast-start resource's start-up and no-load costs to affect the
LMP. MISO also allows an offline fast-start resource to set LMPs but
only under reserve or transmission scarcity conditions.\24\ MISO's ELMP
is applied to both day-ahead and real-time markets in order to
facilitate price convergence between the two markets.\25\ MISO states
that, though it recognizes that fast-start pricing can result in over-
generation, it has not observed any significant over-generation issues.
However, MISO emphasizes that its settlement rules incentivize
following dispatch instructions because it penalizes resources that
deviate.\26\ MISO states that it is currently planning to implement
ELMP Phase II, which it states will expand upon Phase I principles by
applying fast-start pricing to more peaking resources.\27\
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    \22\ Midcontinent Indep. Sys. Operator, Inc., 150 FERC ] 61,143
(2015).
    \23\ Report of MISO, Docket No. AD14-14-000, at 9 (Mar. 4, 2016)
(MISO Report).
    \24\ Id. at 11.
    \25\ Id. at 8.
    \26\ Id. at 15.
    \27\ Id. at 7.
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    15. NYISO does not apply fast-start pricing to all fast-start
resources. Instead, NYISO applies special pricing logic, referred to as
``hybrid gas turbine pricing logic,'' to all committed block-loaded
resources qualified to provide 10-minute non-synchronous reserves. This
pricing logic allows block-loaded gas turbines to set prices.\28\ Under
this logic, start-up and no-load costs are not reflected in LMP. In the
day-ahead

market, all resources are modeled as dispatchable in the pricing pass
of the Security Constrained Unit Commitment process, but NYISO states
that this process does not employ the same fast-start pricing as is
used in real-time.\29\ NYISO explains that, in the real-time market,
its hybrid gas turbine pricing logic allows block-loaded resources to
be modeled as fully dispatchable to determine prices.\30\ NYISO applies
fast-start pricing during a fast-start resource's minimum run time if
it is economic.\31\ NYISO also allows offline fast-start resources to
set prices and allows start-up costs for those resources to be
reflected in the price.\32\ NYISO states that it will be working with
stakeholders during 2016 to allow all block-loaded units economically
committed by the real-time commitment software to set prices.\33\
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    \28\ Corrected Report of NYISO, Docket No. AD14-14-000, at 9
(Mar. 23, 2016) (NYISO Report).
    \29\ Id. at 15.
    \30\ Id. at 3.
    \31\ Id. at 4.
    \32\ Id. at 6, 10.
    \33\ Id. at 3, 8.
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    16. PJM's tariff and other governing documents do not include
formal definitions for fast-start or block-loaded resources. For the
purposes of its report, PJM describes a fast-start resource as a
combustion turbine that can start within two hours and a block-loaded
resource as one with an economic minimum operating limit equal to its
economic maximum operating limit. In practice, PJM allows block-loaded
resources to set prices.\34\ PJM's pricing logic does not allow block-
loaded resources' start-up or no-load costs to be included in prices.
PJM states that in the day-ahead market, the pricing and dispatch runs
are combined, while in the real-time market, the pricing run executes
first, followed by the dispatch run.\35\ PJM states that in both the
day-ahead and real-time markets, it relaxes the economic minimum
operating level of block-loaded resources up to ten percent.\36\
However, PJM does not allow offline resources to set prices.\37\ PJM
explains that it allows resources with a limited operating range, other
than block-loaded resources, to set prices when operating to control a
specific transmission constraint.\38\ PJM states that it is not
currently working on any stakeholder initiatives regarding fast-start
unit pricing.\39\
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    \34\ PJM Report at 2.
    \35\ Id. at 5.
    \36\ Id. at 5.
    \37\ Id. at 10-11.
    \38\ Id. at 14-15.
    \39\ Id. at 9.
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    17. SPP has special pricing logic that it applies to what it refers
to as quick-start resources. SPP defines a quick-start resource as a
resource that (1) is registered as a quick-start resource; (2) has a
cold start-up time of ten minutes or less; (3) has a minimum run time
of one hour or less; and (4) has a total minimum down time of one hour
or less.\40\ SPP does not allow start-up or no-load costs to affect LMP
directly, but does allow quick-start resources to include start-up and
no-load costs in their mitigated energy offer curves for the purpose of
unit commitment.\41\ SPP's production run determines both dispatch and
pricing for all resources but resources constrained by their economic
minimum or maximum operating limits are not eligible to set LMP.\42\
Specifically, SPP states that it relaxes the economic minimum operating
limit of quick-start resources to zero in a screening run that is
executed prior to the final production run, which includes both
dispatch and pricing. SPP explains that if the quick-start resource is
dispatched below its economic minimum operating limit in the screening
run, it will be considered offline in the final production run.
Conversely, SPP states that if the quick-start resource is committed at
or above its economic minimum operating limit, it will be considered
online in the final production run.\43\ Additionally, SPP does not
allow offline quick-start resources to set LMP.\44\ SPP reports that it
intends to implement new fast-start pricing to commit quick-start
resources more efficiently in real-time in the second quarter of
2017.\45\
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    \40\ Report of SPP on Price Formation Issues, Docket No. AD14-
14-000, at 1-2 (Mar. 7, 2016) (SPP Report).
    \41\ Id. at 5, 8, 10.
    \42\ Id. at 2-3.
    \43\ Id. at 2-3.
    \44\ Id. at 8-9.
    \45\ Id. at 4-5.
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B. Comments on Fast-Start Pricing

    18. Multiple commenters support the use of fast-start pricing
methods that allow resources dispatched at their operating limits to
set LMP and allow start-up and no-load costs to affect prices.\46\
EPSA/WPTF \47\ argues that such fast-start pricing methods could
improve pricing signals and help correct CAISO's ``duck curve problem''
by redistributing excess costs incurred during the middle of the day to
the ramping periods.\48\ Similarly, Exelon believes that RTOs/ISOs
should ensure that start-up and no-load costs of resources dispatched
at operational limits can affect prices by using a particular
mathematical technique called ``convex hull pricing,'' which would
better reflect the cost of electricity, reduce uplift, and enhance
incentives for all resources to perform.\49\
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    \46\ DC Energy, Inertia Power, and Vitol Comments at 8; EPSA
Comments at 11; EPSA/IPPNY Comments at 6; EPSA/P3 Comments at 5;
EPSA/WPTF Comments at 4-5; Exelon Comments at 7-8; PSEG Companies
Comments at 8.
    \47\ EPSA filed multiple sets of comments paired with different
groups as well as its own stand-alone comments.
    \48\ EPSA/WPTF Comments at 4-5.
    \49\ Exelon Comments at 6-7. Commenters frequently refer to a
certain pricing methodology known as ``convex hull pricing.'' This
methodology allows the start-up and no-load costs of resources to
affect prices by using a particular mathematical technique.
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    19. Commenters identified a number of best practices across the
RTOs/ISOs. Entergy, EPSA, and Westar generally support certain aspects
of MISO's ELMP. EPSA believes that MISO's ELMP approach yields
favorable results by ensuring that generators follow dispatch signals
and that generators' minimum operating limits are satisfied in
dispatch.\50\ EPSA states that several components of MISO's ELMP can be
widely adopted across all RTO/ISO pricing mechanisms.\51\ Further, EPSA
and PSEG Companies believe the approaches used by MISO and ISO-NE to
relax the economic minimum limits represent a best practice.\52\
Further, PSEG Companies states that ISO-NE's revised fast-start pricing
method addresses over-generation concerns by paying lost opportunity
payments to those resources that follow dispatch instructions but are
subsequently re-dispatched down to their economic set point.\53\ In
addition, EPSA and EPSA/IPPNY are generally supportive of NYISO's fast-
start pricing methods.\54\
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    \50\ EPSA Comments (on MISO Report) at 12.
    \51\ Id. at 6; EPSA Comments (on price formation) at 12-13.
    \52\ EPSA Comments (on MISO Report) at 6; PSEG Companies
Comments at 4.
    \53\ PSEG Companies Comments at 7.
    \54\ EPSA Comments (on SPP Report) at 7; EPSA/IPPNY Comments at
5-6.
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    20. On the other hand, EPSA and Golden Spread express concern that
the fast-start pricing methods employed by SPP are insufficient.\55\
Specifically, Golden Spread states that certain aspects of SPP's market
design features and operator practices result in inefficient market
prices and fail to reflect the costs to start and operate fast-start
resources or the value they provide to the system.\56\
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    \55\ EPSA Comments (on SPP Report) at 5; Golden Spread Comments
at 1-2.
    \56\ Golden Spread Comments at 1-2.
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    21. In contrast, the PJM Market Monitor argues that relaxing
economic minimum limits for price setting artificially overrides
fundamental pricing logic in order to reduce uplift. The PJM Market
Monitor argues that

this can result in an increase in total production costs.\57\
Specifically, the PJM Market Monitor opposes PJM's practice of reducing
the economic minimum limit of certain resources to change LMPs. The PJM
Market Monitor argues that this pricing logic is a form of subjective
pricing because it varies from fundamental LMP logic based on an
administrative decision to reduce uplift.\58\
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    \57\ PJM Market Monitor Comments at 2-3.
    \58\ Id. at 2.
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1. Fast-Start Resource Definitions and Resource Eligibility
    22. Commenters generally support applying enhanced technology-
neutral fast-start pricing logic to an expanded set of resources.
Exelon and IMG Midstream/Tangibl recommend that the definition of fast-
start resources be technology agnostic.\59\ EPSA and Entergy support
expanding MISO's ELMP pricing to include units that can respond within
thirty minutes and to include more emergency demand response
resources.\60\ EPSA/NEPGA also supports prioritizing fast-start demand
response resource pricing.\61\ IMG Midstream/Tangibl states that PJM's
and CAISO's definitions of fast-start resources do not coincide with
the definition used by other RTOs/ISOs, which define fast-start
resources as being able to start up within ten minutes, rather than two
hours as defined by PJM and CAISO. Further, IMG Midstream/Tangibl
argues that PJM's definition inappropriately rewards less flexible
resources.\62\ IMG Midstream/Tangibl recommends that the Commission
direct PJM and CAISO to define stricter start-up time requirements for
fast-start resources, or create two different classes for these
resources to better
---------------------------------------------------------------------------

    \59\ Exelon Comments at 13; IMG Midstream/Tangibl Comments 4-5.
    \60\ EPSA Comments (on MISO Report) at 10; EPSA Comments (on
price formation) at 13; Entergy Comments at 7.
    \61\ EPSA/NEPGA Comments at 6-7.
    \62\ IMG Midstream/Tangibl Comments at 2-4, 6-8.
---------------------------------------------------------------------------

    differentiate those that are truly fast-start from those that are
not.\63\ With respect to CAISO's Constrained Output Generator
commitment process, EPSA/WPTF points out that not all fast-start
resources are registered or would qualify for this process.\64\
---------------------------------------------------------------------------

    \63\ Id. at 4-5. However, CAISO states that regardless of
whether a unit is classified as fast, medium, or long start, there
is no special treatment for the commitment or pricing of that unit.
CAISO Report at 4.
    \64\ EPSA/WPTF Comments at 5.
---------------------------------------------------------------------------

2. Inclusion of Start-Up and No-Load Costs in Prices
    23. Multiple commenters believe that the start-up and no-load costs
of fast-start resources should be allowed to affect LMPs, particularly
when a unit is within its minimum run time.\65\ According to EEI,
including start-up and no-load costs in appropriate markets could
minimize uplift and result in more complete and accurate price signals
for market participants.\66\ DC Energy, Inertia Power, and Vitol note
that both ISO-NE and MISO use reasonable methods of amortizing a fast-
start resource's start-up costs over its minimum run time, and that
resource's no-load costs over its actual run time, which appropriately
includes these costs in prices.\67\
---------------------------------------------------------------------------

    \65\ DC Energy, Inertia Power, and Vitol Comments at 8-9; EEI
Comments at 3; EPSA/P3 Comments at 5-6; Exelon Comments at 9-10; IMG
Midstream/Tangibl Comments at 8-9; PSEG Companies Comments at 9.
Exelon also states that PJM's concern that resources will chase
prices if start-up and no-load costs are included in price should be
resolved by imposing a penalty to resources that deviate from
dispatch instructions. Exelon Comments at 12.
    \66\ EEI Comments at 3-4.
    \67\ DC Energy, Inertia Power, and Vitol Comments at 9.
---------------------------------------------------------------------------

    24. EPSA/IPPNY urges the Commission to direct NYISO to review
whether the start-up and no-load costs of fast-start resources should
be allowed to affect LMPs and supports NYISO's current efforts in this
regard.\68\ Similarly, Golden Spread, Westar, and EPSA believe that SPP
should incorporate the start-up and no-load costs of fast-start
resources into the LMP \69\ in order to reduce uplift and prevent price
suppression.\70\
---------------------------------------------------------------------------

    \68\ EPSA/IPPNY Comments at 6.
    \69\ As noted previously, SPP determines a unit's offer curve by
combining start-up and no-load adders with the unit's energy offer
curve. However, only the energy component is used to set LMP. SPP
Report at 8.
    \70\ EPSA Comments (on SPP Report) at 8; Golden Spread Comments
at 1-2; Westar Comments at 3-4.
---------------------------------------------------------------------------

    25. Conversely, the PJM Market Monitor states that PJM
appropriately explains in its report the likely negative impacts of
including start-up and no-load costs in PJM's price-setting logic.\71\
PJM argues that to account for start-up costs in LMP would involve
assumptions regarding the run time of a fast-start resource in order to
amortize these costs over that period. PJM contends that assumptions
regarding actual run time would introduce uncertainty and error in LMP
calculations and cause potential divergence between the dispatch
instructions given to a resource and the LMP at the resource's
location.\72\ In addition, PJM explains that incorporating no-load
costs into the calculation of LMP would represent a significant change
to the status quo and produce negligible benefits. PJM asserts that
such a change would introduce a divergence between LMPs and dispatch
signals for all resources.\73\
---------------------------------------------------------------------------

    \71\ PJM Market Monitor Comments at 1.
    \72\ PJM Report at 10.
    \73\ Id. at 10.
---------------------------------------------------------------------------

    26. CAISO asserts that LMPs are intended to reflect the incremental
cost of serving load, which does not include commitment costs, but
states that the logic by which the no-load costs of block-loaded
Constrained Output Generators are included in LMPs could be extended to
other resources with a limited operating range.\74\
---------------------------------------------------------------------------

    \74\ CAISO Report at 12.
---------------------------------------------------------------------------

3. Relaxation of Economic Minimum Operating Limit
    27. Several commenters argue that the economic minimum operating
limit of block-loaded or fast-start resources should be relaxed to zero
when determining prices. EPSA, EPSA/P3, Exelon, and PSEG Companies
argue that PJM's practice of relaxing the economic minimum operating
limit by at most ten percent limits the ability for block-loaded
resources to set LMPs whenever they are required to meet load and
prevents a full consideration of a block-loaded resource's costs.\75\
PSEG Companies requests that the Commission find that relaxing a block-
loaded fast-start resource's minimum operating limit to zero (i.e.,
relaxing the minimum operating limit by 100 percent) is the best
practice because it ensures that block-loaded resources can set the
price whenever they are needed.\76\ PJM argues that because it limits
the relaxation of the economic minimum operating limit by at most ten
percent, over-generation is kept to a minimum and any imbalances are
managed by existing grid services.\77\
---------------------------------------------------------------------------

    \75\ EPSA Comments (on MISO Report) at 6; EPSA/P3 Comments at 6;
Exelon Comments at 12; PSEG Companies Comments at 4-5.
    \76\ PSEG Companies Comments at 7.
    \77\ PJM Report at 12.
---------------------------------------------------------------------------

    28. EPSA encourages the Commission to direct all RTOs/ISOs to
incorporate the principles exemplified by MISO's ELMP pricing logic,
which it believes relaxes economic minimum operating limits in a
pricing run that occurs after the dispatch run, and appears to have
resulted in robust dispatch operations and not resulted in significant
over-generation. EPSA states that such logic will help adequately
compensate resources for their distinct capabilities

through LMPs and lead to efficient and orderly dispatch.\78\
---------------------------------------------------------------------------

    \78\ EPSA Comments (on MISO Report) at 12-13.
---------------------------------------------------------------------------

    29. NYISO states that it allows block-loaded resources to be
considered as fully dispatchable from zero to their upper limit when
determining prices so that these resources can set the price whenever
they are needed to meet load.\79\ NYISO argues that not treating such
resources as fully dispatchable could prevent these resources from
setting prices, especially in load pockets within New York where only
block-loaded resources are available to meet reliability needs.\80\
---------------------------------------------------------------------------

    \79\ NYISO Report at 5.
    \80\ Id. at 5.
---------------------------------------------------------------------------

4. Offline Fast-Start Resources
    30. Several commenters express concern that allowing offline
resources to set prices when they are not actually capable of resolving
a transmission or reserve shortage could lead to inaccurate price
signals.\81\ Specifically, Entergy, EPSA, and Westar express concern
that MISO is over-including offline resources in price setting even
when they are not available to serve an increase in demand.\82\ Westar
further states that the use of offline unit costs can inappropriately
prevent scarcity price signals, prevent online resources with higher
costs from setting the price, lead to increased uplift, and result in
prices that do not represent the true marginal cost of production.\83\
To remedy this issue, EPSA argues that MISO must make significant
improvements to its dispatch modeling and pricing processes in order to
allow offline resources to set prices only when these resources are
both economic and available.\84\ MISO states that it allows offline
fast-start resources to set LMP, but has, per guidance from its market
monitor, revised its commitment methodology to better reflect unit
economics and availability.\85\
---------------------------------------------------------------------------

    \81\ Entergy Comments at 7; EPSA Comments (on MISO Report) at 6-
8; Exelon Comments at 13; Westar Comments at 4-5.
    \82\ Entergy Comments at 7; EPSA Comments (on MISO Report) at 6-
8; Westar Comments at 4-5.
    \83\ Westar Comments at 4-5.
    \84\ EPSA Comments (on MISO Report) at 6.
    \85\ MISO Report at 11-14.
---------------------------------------------------------------------------

    31. CAISO does not believe that allowing offline resources to
contribute to LMP would lead to the most economical market
solution.\86\ CAISO explains that it clears its markets using classical
unit commitment methodologies where the objective is to minimize the
overall system costs, including the commitment costs. Under this
approach, CAISO states that offline resources would not be committed in
CAISO markets because they are considered to not lead to the most
economical solution. PJM and ISO-NE argue that, since LMP is based on
the cost of the next incremental unit of energy at that moment in time
and an offline resource cannot provide that next incremental unit of
energy, offline resources should not be eligible to set prices.\87\
---------------------------------------------------------------------------

    \86\ CAISO Report at 10.
    \87\ PJM Report at 11; ISO-NE Report at 10.
---------------------------------------------------------------------------

    32. With respect to NYISO's treatment of offline resources, LIPA
states that NYISO's model reflects the availability of offline units in
LMPs while not accurately representing the actual flexibility of the
system. LIPA explains that this leads to inefficient pricing and system
dispatch, as well as excessive start-ups of offline units.\88\
---------------------------------------------------------------------------

    \88\ LIPA Comments at 4.
---------------------------------------------------------------------------

5. Day-Ahead and Real-Time Market Consistency
    33. Commenters also generally support the use of fast-start pricing
in both the day-ahead and real-time markets. Some commenters contend
that RTOs/ISOs should use consistent fast-start pricing for both day-
ahead and real-time models to encourage price convergence, regardless
of how infrequently fast-start units are committed in the day-ahead
market.\89\ Entergy supports MISO's past efforts to implement ELMP as a
day-ahead and real-time market platform such that LMP reflects the true
marginal cost of production.\90\ PJM states that its fast-start pricing
logic is applied to both markets in order to reflect the costs of
resources operated to address transmission constraints in both day-
ahead and real-time LMPs.\91\ On the other hand, ISO-NE states that its
revised fast-start pricing is being implemented in the real-time market
only.\92\ ISO-NE explains that implementation in the day-ahead market
would have a smaller beneficial impact given that most fast-start
resources do not clear in the day-ahead market. ISO-NE states that this
is especially true with respect to fossil fuel fast-start resources,
which have inherently high operating costs and primarily operate in
response to unanticipated real-time system conditions.\93\
---------------------------------------------------------------------------

    \89\ DC Energy, Inertia Power, and Vitol Comments at 9-10.
    \90\ Entergy Comments at 7.
    \91\ PJM Report at 13.
    \92\ ISO-NE Report at 16-17.
    \93\ ISO-NE Report at 16.
---------------------------------------------------------------------------

C. Need for Reform of Fast-Start Pricing
    34. We preliminarily find that RTOs'/ISOs' existing practices
regarding the pricing of fast-start resources may result in rates that
are unjust and unreasonable.
    35. The Commission has stated that the goals of price formation are
to: (1) Maximize market surplus for consumers 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.\94\ The accurate pricing of fast-
start resources can advance price formation goals by more transparently
reflecting the marginal cost of serving load, which will reduce uplift
costs and thereby improve price signals to support efficient
investments in facilities and equipment.
---------------------------------------------------------------------------

    \94\ See Notice Inviting Post-Technical Workshop Comments,
Docket No. AD14-14-000 at 2 Price Formation in Energy and Ancillary
Services Market Operated by Transmission Organizations and
Independent System Operators, Notice, Docket No. AD14-14-000.
---------------------------------------------------------------------------

    36. While most RTOs/ISOs have incorporated some form of fast-start
pricing into their market-clearing software, based on experience with
the different fast-start pricing used by each RTO/ISO, we believe some
practices have emerged that better represent the marginal cost of
serving load. Specifically, we believe that some existing fast-start
pricing practices, or a lack of fast-start pricing practices, may
result in market prices that fail to accurately reflect the marginal
cost of serving load. These prices may fail to reflect the value of
fast-start resources and create unnecessary uplift payments.
    37. For the reasons outlined below, we preliminarily find that such
market outcomes may produce rates that are unjust and unreasonable.
First, we preliminarily find that some current RTO/ISO practices may
fail to accurately reflect the marginal cost of serving load because
fast-start resources are inappropriately prevented from setting
prices.\95\ Fast-start resources are often dispatched to meet real-time
system needs but are often ineligible to

set the clearing price because these resources are either dispatched at
an economic minimum operating limit or are block-loaded. This is the
case because LMP is set by the offer of the resource that is dispatched
up to serve the next additional MW of demand or dispatched down to
accommodate the next MW of reduced demand. Fast-start resources often
have little or no dispatch range (i.e., their economic minimum
operating limit equals their economic maximum operating limit). A
resource that is operating inflexibly at its economic minimum operating
limit or economic maximum operating limit is not dispatchable to serve
an additional increment or decrement of demand, so is not eligible to
set prices.\96\ Rules or modeling practices that prevent fast-start
resources from setting prices result in prices that fail to reflect the
cost of the marginal resource on the system when that resource is
needed to serve load.
---------------------------------------------------------------------------

    \95\ See Midwest Indep. Transmission Sys. Operator, Inc., 140
FERC ] 61,067, at P 38 (2012) (finding that MISO's LMP pricing
algorithm, which prohibited fast-start resources from setting the
market clearing price, ``may produce an inaccurate price signal'').
    \96\ See Federal Energy Regulatory Commission, Price Formation
in Organized Wholesale Electricity Markets: Staff Analysis of
Operator-Initiated Commitments in RTO and ISO Markets, Docket No.
AD14-14-000, at 26-27 (Dec. 2014), http://www.ferc.gov/legal/staff-reports/2014/AD14-14-operator-actions.pdf.
---------------------------------------------------------------------------

    38. While PJM and NYISO allow certain block-loaded resources to set
prices, they do not generally allow fast-start resources that are not
block-loaded to set prices. CAISO allows only certain block-loaded and
nearly block-loaded resources to set prices. In addition, PJM's
practice of relaxing the economic minimum operating limits of block-
loaded resources by at most ten percent could restrict the set of
circumstances in which such a resource could set prices.
    39. Second, even if fast-start resources were allowed to set
prices, certain other aspects of some current RTO/ISO fast-start
pricing practices, such as not choosing to include commitment costs,
can prevent prices from accurately reflecting the marginal cost of
serving load. Because of their operating characteristics, fast-start
resources are uniquely situated to respond to unforeseen real-time
system needs. When fast-start resources are committed in real-time, it
is often at short notice to meet some system condition or market need
over a short time period, and, as such, we preliminarily find that
these commitment costs should be considered marginal costs. However,
this is not the current practice in all RTOs/ISOs, and we preliminarily
find that market rules in some RTOs/ISOs that prevent prices from
reflecting commitment costs of fast-start resources may contribute to
inaccurate price signals.
    40. Third, some current practices regarding the use of offline
resources to set prices in certain RTOs/ISOs may distort price signals.
For example, MISO allows offline fast-start resources to set prices
under transmission constraint violations or reserve shortage
conditions, although sometimes such resources are not feasible (i.e.,
the resources are not able to start up quickly enough to address the
shortage or transmission constraint violation) or economic for
addressing the shortage or transmission constraint violation.\97\ If an
offline fast-start resource is not actually feasible or economic for
addressing a shortage or transmission constraint violation, then the
resulting prices could be inefficiently low and mute the price signals
associated with shortages or transmission constraint violations.\98\
---------------------------------------------------------------------------

    \97\ MISO, Informational Report on Extended Locational Marginal
Pricing, Docket No. ER12-668-000, at 9 (Aug. 29, 2016). MISO states
that for reserve shortages, 53 percent of participating offline
fast-start units were feasible and economic. For transmission
violations, it states that 77 percent of participating offline units
were feasible and economic.
    \98\ See, e.g., Potomac Economics, 2015 State of the Market
Report for the MISO Electricity Markets at 33 (June 2016).
---------------------------------------------------------------------------

    41. Fourth, we are concerned that implementation of fast-start
pricing in the real-time market only, or implementation of fast-start
pricing practices in the day-ahead market that are significantly
different from the real-time market, can negatively impact day-ahead
and real-time price convergence and may result in day-ahead market
prices that fail to reflect the marginal cost of fast-start resources.
Furthermore, even though some RTOs/ISOs have implemented some form of
fast-start pricing in the day-ahead market, current rules limit which
resources qualify as fast-start resources in a manner that is
inconsistent with the requirements herein.
    42. Accordingly, we preliminarily find that, based on experience
with existing RTO/ISO fast-start pricing practices, some forms of fast-
start pricing may result in prices that fail to reflect the marginal
cost of production in intervals when fast-start resources are needed to
serve load. As a result, prices in RTO/ISO energy markets in some
periods may not reflect the value that fast-start resources provide. As
a result, over the long run, prices in RTO/ISO energy markets may fail
to reflect the need for fast-start resources and thus fail to provide
appropriate incentives for investment.
    43. We also preliminarily find that existing RTO/ISO fast-start
pricing could create unnecessary uplift payments. For example, when
prices do not sufficiently reflect a marginal fast-start resource's
commitment cost, the resource must be compensated through out-of-market
uplift payments. Compensating resources through uplift payments is less
transparent than compensating resources through market clearing prices
that reflect the marginal cost of production, which could be based on
the costs of a fast-start resource. Additionally, uplift payments are
often allocated more broadly, which can mute the investment signals
provided by prices over longer time periods, therefore inhibiting
efficient market entry and exit. In addition, resources with costs
below the market-clearing price may also have a lower financial
incentive to perform at times when fast-start resources typically
operate, such as during stressed system conditions, when the
performance of all resources is particularly important.\99\
---------------------------------------------------------------------------

    \99\ Settlement Intervals and Shortage Pricing in Markets
Operated by Regional Transmission Organizations and Independent
System Operators, Order No. 825, FERC Stats. & Regs. ] 31,384, at P
58 & n.99 (2016).
---------------------------------------------------------------------------

D. Commission Proposal

    44. To remedy the potentially unjust and unreasonable rates caused
by existing RTO/ISO fast-start pricing practices, we propose, pursuant
to section 206 of the Federal Power Act,\100\ to establish a set of
fast-start pricing requirements in RTOs/ISOs. These requirements would
ensure RTO/ISO day-ahead and real-time markets more accurately reflect
the marginal costs of operating fast-start resources. Specifically, we
propose to require each RTO/ISO to establish the following set of
requirements for its fast-start pricing: (1) Apply fast-start pricing
to any resource committed by the RTO/ISO that is able to start up
within ten minutes, has a minimum run time of one hour or less, and
that submits economic energy offers to the market; (2) incorporate
commitment costs, i.e., start-up and no-load costs, of fast-start
resources in energy and operating reserve prices; (3) modify fast-start
pricing to relax the economic minimum operating limit of fast-start
resources and treat them as dispatchable from zero to the economic
maximum operating limit for the purpose of calculating prices; (4) if
the RTO/ISO allows offline fast-start resources to set prices for
addressing certain system needs, the resource must be feasible and
economic; and (5) incorporate fast-start pricing in both the day-ahead
and real-time markets. We seek comment on each of these proposals.
---------------------------------------------------------------------------

    \100\ 16 U.S.C. 824e (2012).

---------------------------------------------------------------------------

    45. We expect that the proposed reforms will remedy current RTO/ISO
fast-start pricing practices that potentially lead to unjust and
unreasonable rates and will provide benefits that are consistent with
the goals of the Commission's price formation initiative. For instance,
the proposed reforms are intended to more accurately reflect the
marginal cost of production in periods when a fast-start resource is
the marginal resource and provide price signals that better inform
investment decisions, including where and when fast-start resources
should be built or maintained. The proposed reforms will also benefit
markets by providing more accurate and transparent price signals that
better reflect the actual marginal cost of serving load and reduce
uplift.
1. Fast-Start Resource Definitions and Resource Eligibility
    46. In order to establish consistent treatment for fast-start
resources across RTOs/ISOs and ensure that prices appropriately reflect
the cost of serving load, we propose to require that each RTO/ISO must
define fast-start resources as resources that meet the following
performance requirements: \101\ (1) Are able to start up within ten
minutes or less; (2) have a minimum run time of one hour or less; and
(3) submit economic energy offers to the market, i.e., not self-
scheduling energy. We preliminarily find that this definition of fast-
start resources will address the deficiencies in current RTO/ISO fast-
start pricing practices that limit the eligibility of certain fast-
start resources to set prices.\102\ In addition, any resource,
regardless of technology type, that meets the above definition would
qualify as a fast-start resource and would then be covered by the fast-
start pricing requirements, as defined further herein.
---------------------------------------------------------------------------

    \101\ RTOs/ISOs would need to routinely assess a resource's
currently effective parameters and status prior to conferring fast-
start pricing eligibility.
    \102\ See supra section II.C. We understand that this proposed
definition of fast-start resource could require changes to
previously approved RTO/ISO pricing practices. However, as discussed
further below, we seek comment on this proposed definition, and will
consider these comments in the development of any Final Rule in this
proceeding.
---------------------------------------------------------------------------

    47. We preliminarily find that it is appropriate to include both
dispatchable fast-start resources and block-loaded fast-start resources
in the definition of a fast-start resource, as is done in ISO-NE and
MISO. That is, some fast-start resources are committed and dispatched
to an output level equal to the resource's economic minimum operating
limit that is lower than the resource's economic maximum operating
limit. Such a resource would not be eligible to set prices in all
circumstances and would therefore create the same concerns we have
regarding block-loaded fast-start resources. Further, if only block-
loaded fast-start resources are included in the definition, as is done
in CAISO and NYISO, certain resources could have the incentive to
restrict the operating range in their energy supply offers.\103\
Moreover, it appears that a variety of technologies beyond conventional
generation can and should be eligible for dispatch under fast-start
pricing. For example, both MISO and ISO-NE allow certain demand
response resources to set prices under their fast-start pricing.\104\
Given that a variety of resources could be the last resource dispatched
to serve load (i.e., the marginal resource), we propose to use the
performance requirements noted earlier to define fast-start resources,
rather than specific technological characteristics.
---------------------------------------------------------------------------

    \103\ For example, if only block-loaded fast-start resources are
eligible for fast-start pricing, some resources may have an
incentive to reduce their dispatchable range, which could lead to
inefficient results, such as a reduction in system flexibility.
    \104\ MISO, FERC Electric Tariff, Schedule 29A, ELMP for Energy
and Operating Reserve Market: Ex-Post Pricing Formulations (40.0.0);
ISO-NE, Transmission, Markets and Services Tariff, Market Rule 1,
III.2.4 (19.0.0).
---------------------------------------------------------------------------

    48. We seek comment on this proposed definition of fast-start
resources. For example, we seek comment on whether the definition of
fast-start resources should include resources that have start-up times
of greater than ten minutes. Similarly, we seek comment on whether the
definition of fast-start resources should include resources with
minimum run times of longer than one hour. We also seek comment on
whether there are other characteristics that should be included in the
definition of fast-start resources. Additionally, we seek comment on
any additional tariff changes that may be necessary to implement the
reforms proposed herein. Finally, we seek comment on whether this
proposed definition should instead define minimum standards for each
operating characteristic necessary to be considered a fast-start
resource, to, among other things, allow regional variation.

2. Inclusion of Start-Up and No-Load Costs in Prices

    49. We propose to require RTOs/ISOs to allow fast-start resources'
commitment costs, i.e., start-up and no-load costs,\105\ to be
reflected in prices. Specifically, we propose to require that, in the
pricing run, each RTO/ISO determine prices by calculating an enhanced
energy offer for each fast-start resource that includes not just the
incremental energy offer but also incorporates start-up and no-load
costs. Specifically, the enhanced energy offer should include the
following components: (1) The incremental energy offer; (2) the
amortized start-up cost; and (3) an amortized portion of the no-load
cost, as described below. The enhanced energy offer can only be used to
set prices during the resource's minimum run time, as discussed further
below.
---------------------------------------------------------------------------

    \105\ No-load costs are the theoretical costs in $/hour for
operating a resource at zero MW output.
---------------------------------------------------------------------------

    50. To incorporate a fast-start resource's start-up and no-load
costs into prices, we propose to define specific formulations.
Recognizing that commitment costs may be determined in different ways
in RTOs/ISOs, these proposals are not intended to alter how a
resource's start-up and no-load costs are calculated. To incorporate a
fast-start resource's start-up cost into prices, we propose to define a
resource's amortized start-up cost as equal to its start-up cost
divided by the product of its economic maximum operating limit and
minimum run time. To determine the portion of a fast-start resource's
no-load costs that is reflected in prices, we propose to define the
amortized no-load cost as the no-load cost divided by the resource's
economic maximum operating limit. For both amortized start-up and no-
load costs, we propose to accept any mathematically equivalent
formula.\106\
---------------------------------------------------------------------------

    \106\ For instance, the RTO/ISO could introduce a fractional
commitment variable for fast-start resources within the market
pricing algorithm. Adding such a variable provides an additional
option of introducing a portion of the capability of a resource in
the solution while adding only an equivalent fraction of the
amortized commitment cost.
---------------------------------------------------------------------------

    51. We preliminarily find that given the unique operating
characteristics of fast-start resources, their commitment costs, i.e.,
start-up and no-load costs, should be viewed as marginal costs and, as
such, should be included in prices. The Commission previously accepted
MISO's ELMP methodology, which allows commitment costs to affect
prices. There, the Commission found that incorporating the commitment
costs of fast-start resources in prices leads to prices that better
reflect the costs of committing and dispatching resources.\107\
Moreover, incorporating a fast-start resource's start-up and no-load
costs would ensure that prices reflect

the actual marginal cost of production and will thus reduce uplift.
---------------------------------------------------------------------------

    \107\ Midwest Indep. Transmission Sys. Operator, Inc., 140 FERC
] 61,067 at P 39.
---------------------------------------------------------------------------

    52. As noted above, we propose that the enhanced energy offer can
only be used to set prices during the resource's minimum run time.
While it could be argued that commitment costs for fast-start resources
are still marginal costs of operating the system even beyond a fast-
start resource's minimum run time, attempting to amortize start-up
costs beyond the minimum run time is problematic from a practical
standpoint, specifically in the real-time market. This is because,
after the minimum run time is completed, the unit commitment algorithm
may decommit the fast-start resource if it is no longer economic,
making the total run time unknown. When the actual run time of the
fast-start resource is unknown, it is difficult to define an
appropriate period over which to amortize that resource's start-up
cost. Given that the resource must operate for no less than its minimum
run time, we believe that amortizing a fast-start resource's commitment
costs during this period represents a reasonable approach.\108\
---------------------------------------------------------------------------

    \108\ This proposal does not address RTOs/ISOs including no-load
costs in prices beyond a fast-start resource's minimum run time.
---------------------------------------------------------------------------

    53. We seek comment on the proposal to include a fast-start
resource's start-up and no-load costs as marginal costs. We also seek
comment on whether to amortize commitment costs for the purpose of
calculating prices, and the proposed formulas to amortize these costs.
In particular, we understand that the amortization period for
commitment costs acts as a proxy for the timeframe over which the
committed fast-start resource is likely to be marginal. Therefore, we
seek comment on whether there are better or alternative timeframes over
which commitment costs for fast-start resources should be amortized. We
also specifically seek comment on whether the economic maximum
operating limit is the appropriate value to use when amortizing start-
up and no-load costs or whether another capacity value may be more
appropriate.
3. Relaxation of Economic Minimum Operating Limit
    54. We propose to require RTOs/ISOs, in the pricing run, to relax
to zero each fast-start resource's economic minimum operating limit,
thereby treating these resources as fully dispatchable for the purpose
of calculating prices. Relaxing the economic minimum operating limit of
a fast-start resource to zero will permit an inflexible or mostly
inflexible fast-start resource to be treated as dispatchable by the
RTO/ISO market software during the pricing run. The purpose of this
proposal is to enable a fast-start resource to set the market clearing
price if it is, indeed, the marginal unit needed to serve load.
Additionally, RTOs/ISOs must ensure that they sufficiently address
over-generation concerns. Specifically, each RTO/ISO must ensure that
physical dispatch instructions to resources do not result in over-
generation and must have market rules that address the potential for
over-generation due to deviations from dispatch instructions. As noted
above, RTOs/ISOs with fast-start pricing already use penalties and/or
opportunity cost payments to ensure that resources adhere to scheduled
dispatch instructions.\109\ We propose that, as part of its compliance
filing to any Final Rule, each RTO/ISO should either demonstrate that
its current practices meet the requirements established here to address
over-generation, or propose additional tariff changes to do so.
---------------------------------------------------------------------------

    \109\ See supra section II.A; MISO, FERC Electric Tariff, Sec.
40.3.4 (33.0.0) (charges for excessive or deficient energy
deployment); ISO-NE., Transmission, Markets and Services Tariff,
Market Rule 1, III.F.2.3.10 (24.0.0) (lost opportunity cost credit
for resources displaced by fast-start resources).
---------------------------------------------------------------------------

    55. We seek comment on whether there are challenges associated with
relaxing the economic minimum operating limit for the pricing run. We
also seek comment on any over-generation concerns, such as whether
over-generation can be managed through penalties for deviations,
opportunity cost payments, or other existing mechanisms. Additionally,
we seek comment on alternative methods to treat fast-start resources as
fully dispatchable for the purpose of calculating prices.
4. Offline Fast-Start Resources
    56. Allowing offline fast-start resources to set prices can better
reflect the cost of providing energy at a given location or of meeting
reserve requirements. For instance, if the real-time dispatch algorithm
optimizes spinning reserve \110\ supply among online resources and
these online resources are not sufficient to meet the RTO's/ISO's
spinning reserve requirements, the dispatch algorithm will determine
there is a shortage of spinning reserve and implement the appropriate
shortage pricing. However, in such circumstances, while online
resources may not be sufficient to meet spinning reserve requirements,
there may be offline fast-start resources that can quickly provide
energy in the same time frame as spinning reserve. If RTOs/ISOs do not
adequately consider all resources that are available to meet system
needs, including fast-start resources that are offline, this may result
in the use of administrative pricing or other measures (e.g.,
committing additional resources) that are less economically efficient
because they do not reflect the availability of less expensive fast-
start resources that could resolve the issue and thus result in higher
overall system costs. Allowing RTOs/ISOs to include offline fast-start
resources may have benefits; however, we do not propose to require that
all RTOs/ISOs allow offline resources to set prices. Instead, we
propose to establish certain requirements for those RTOs/ISOs that
choose to allow offline fast-start resources to set prices.
---------------------------------------------------------------------------

    \110\ Spinning reserve refers to reserve capacity that is online
and synchronized to the system and is ready to meet electric demand
within ten minutes of a dispatch instruction by an RTO/ISO.
---------------------------------------------------------------------------

    57. While allowing offline fast-start resources to set prices can
be beneficial, it is imperative that the offline resources actually be
feasible (i.e., able to start quickly) and economic for addressing
certain system needs.\111\ For example, an offline fast-start resource
that has not reached its minimum down time would not actually be able
to start to remedy a transmission constraint violation, energy
shortage, or reserve shortage. Such an offline fast-start resource is
not a feasible option to resolve the system issue and should not be
allowed to set prices. Further, if online resources were not able to
meet an RTO's/ISO's spinning reserve requirement, the dispatch
algorithm would calculate the price based on an applicable shortage
price. However, if offline fast-start resources are considered, there
may be an offline fast-start resource that can be used to meet the
spinning reserve requirement at a price lower than the shortage price.
If, for example, the shortage price for spinning reserve was $80/MWh,
it would only be economic to allow a fast-start resource to set prices
if the full cost to operate the resource was less than $80/MWh. To
accurately reflect the full cost of operating the fast-start resource,
its offer would need to include start-up costs and no-load costs
(amortized over a certain timeframe and capacity value). If the offline
fast-start resource set prices at a level that did not reflect its full
cost of operation, the resulting prices could be inefficiently low. For
instance, if the offline fast-start resource set the spinning reserve
price

based on an offer that included only its incremental energy cost of
$75/MWh, the resource would be setting the spinning reserve price, even
though, if its full cost of operation was considered, it may not be
more economic than establishing the shortage price of $80/MWh.
---------------------------------------------------------------------------

    \111\ See Order No. 825, FERC Stats. & Regs. ] 31,384 at P 168
(``. . . 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.'').
---------------------------------------------------------------------------

    58. We propose to allow offline fast-start resources to be eligible
to set prices if the resource is feasible and economic. As a threshold
requirement, an offline fast-start resource may only be used to set
prices (1) during a transmission constraint violation; or (2) if energy
or ancillary service shortage conditions exist. Transmission constraint
violations are defined as any instance where a transmission constraint
is exceeded because the cost of redispatching resources to resolve the
constraint is greater than the penalty factor associated with that
constraint.\112\ Energy or ancillary service shortage conditions are
defined as any instance where prices for energy or ancillary services
are calculated using administrative prices as defined in the RTO's/
ISO's tariff. To be considered feasible, we propose that an offline
fast-start resource must meet the following criteria: (1) Have a start-
up time of ten minutes or less; (2) have a generation shift factor of
no less than 5 percent on the applicable transmission constraint that
is being exceeded; and (3) must not have any operational constraints
that would prevent the resource from starting and providing
energy.\113\ We preliminarily find that a start-up time of ten minutes
or less will ensure that offline fast-start resources are feasible to
address transmission constraint violations or reserve shortages in a
timeframe that is consistent with applicable facility ratings and
contingency reserve deployment periods. Similarly, we preliminarily
find that requiring a generation shift factor of no less than 5 percent
will ensure that an offline fast-start resource used to set price
during a transmission constraint violation can actually relieve the
constraint if started. This minimum generation shift factor is similar
to the threshold used in MISO, which is 6 percent.\114\ To be
considered economic, the RTO/ISO's fast-start pricing must consider the
full cost of an offline fast-start resource, including its amortized
start-up and no-load costs. The offline fast-start resource's full cost
must be less than the administrative shortage price for the shortage or
transmission constraint violation the resource is resolving.
---------------------------------------------------------------------------

    \112\ See Comments of Potomac Economics, Docket No. AD14-14-000,
at 20 (Feb. 24, 2015).
    \113\ For example, the resource cannot be within its minimum
down time and must not be prevented from starting due to
environmental restrictions, fuel use restrictions, or other
operational restrictions.
    \114\ MISO, FERC Electric Tariff, Schedule 29A, ELMP for Energy
and Operating Reserve Market: Ex-Post Pricing Formulations (40.0.0),
II.B, III.B.
---------------------------------------------------------------------------

    59. We seek comment on the proposal to reflect the costs of offline
fast-start resources in prices in certain circumstances. Specifically,
we seek comment on whether we should establish a standard amortization
period for the commitment costs of offline fast-start resources for all
RTOs/ISOs, similar to online fast-start resources, or whether RTOs/ISOs
should be allowed to propose an amortization period on compliance. To
determine a resource's full cost for the purpose of pricing, RTOs/ISOs
could amortize a resource's costs over a particular time period. We
also seek input on any additional rules for offline fast-start
resources to ensure they will respond in time to meet the system needs
beyond requiring that they be feasible and economic for addressing
system needs. We also seek comment on the market conditions under which
offline fast-start resources should be able to set prices (e.g.,
transmission constraint violations, energy or operating reserve
shortages).
5. Day-Ahead and Real-Time Market Consistency
    60. We propose to require RTOs/ISOs to incorporate fast-start
pricing in both the day-ahead and real-time markets. We preliminarily
find that doing so provides a more accurate price signal in the day-
ahead market and supports price convergence between the day-ahead and
real-time markets.
    61. As discussed above, fast-start resources are frequently used to
quickly respond to real-time system conditions. However, under certain
market conditions, such as high day-ahead demand or persistent
congestion patterns, fast-start resources may economically clear the
day-ahead market. For reasons similar to the ones discussed above, we
believe that when these resources economically clear the market, market
prices should reflect the marginal cost of these resources. By allowing
fast-start resources to set prices, RTO/ISO markets will send a
transparent price signal that more accurately reflects marginal costs.
    62. We further preliminarily find that requiring consistent pricing
practices in both the day-ahead and real-time markets will lead to
better price convergence, and therefore we believe these benefits merit
implementation of fast-start pricing in both the day-ahead and real-
time markets. Absent consistent pricing in both the day-ahead and real-
time markets, day-ahead and real-time market prices may be different
even under similar market conditions. For example, the day-ahead and
real-time markets in ISO-NE could produce different energy prices even
under identical market conditions because the day-ahead market does not
incorporate the commitment costs of fast-start resources in energy
prices.
    63. We seek comment on the proposal to incorporate consistent fast-
start pricing in both day-ahead and real-time markets. Specifically, we
acknowledge that implementation in the day-ahead market may have a
smaller benefit given that most fast-start resources clear in the real-
time market, and we thus seek comment on the extent to which there are
benefits or drawbacks to applying the proposed reforms to both the day-
ahead and real-time markets, as opposed to only the real-time markets.
Further, we seek comment on whether there are any reasons for
establishing different fast-start pricing practices in the day-ahead
and real-time markets. In particular, we seek comment on including
commitment costs in the day-ahead market given different forecast,
optimization, and commitment time horizons than the real-time market,
where fast-start units can have brief dispatch periods to meet system
needs.
6. Additional Comments Sought on This Proposal
    64. We seek comment on the need for reform and on the five
proposals outlined above.\115\ We also seek comment on whether allowing
fast-start resources to set prices could result in the exercise of
market power. For example, the concentrated ownership of fast-start
resources could raise market power concerns that are not addressed in
existing RTO/ISO market power mitigation procedures.\116\
---------------------------------------------------------------------------

    \115\ These five proposals are: (1) An RTO/ISO must apply fast-
start pricing to any resource committed by the RTO/ISO that is able
to start up within ten minutes, has a minimum run time of one hour
or less, and that submits economic energy offers to the market; (2)
an RTO/ISO should incorporate commitment costs of fast-start
resources in energy and operating reserve prices; (3) an RTO/ISO
must modify its fast-start pricing to relax the economic minimum
operating limit of fast-start resources and treat them as
dispatchable from zero to the economic maximum operating limit for
the purpose of calculating prices; (4) if an RTO/ISO allows offline
fast-start resources to set prices for addressing certain system
needs, the resource must be feasible and economic; and (5) an RTO/
ISO must incorporate fast-start pricing in both the day-ahead and
real-time markets.
    \116\ Such procedures could include any procedures or conduct
and impact tests that provide offer and physical operating parameter
mitigation for economic withholding, physical withholding, or out-
of-market commitment.

---------------------------------------------------------------------------

    65. We recognize the potential that the proposed reforms may
require significant changes to RTO/ISO software systems, which can be a
complex and costly endeavor. We seek comment on the required software
changes, updates to optimization modeling and parameter inputs,
estimated costs and time necessary to implement aspects of the reforms
proposed in this NOPR, and any additional considerations for
implementing the requirements proposed herein.

III. Compliance

    66. We propose to require that each RTO/ISO submit a compliance
filing within 90 days of the effective date of any eventual Final Rule
in this proceeding to demonstrate that it meets the proposed
requirements set forth in any Final Rule. We note that this compliance
deadline is for RTOs/ISOs to submit proposed tariff changes or
otherwise demonstrate compliance with any Final Rule. We understand
that implementing the reforms required by any Final Rule in this
proceeding may be a complex endeavor. However, we preliminarily find
that implementation of these reforms is important to ensure rates
remain just and reasonable. Therefore, we propose that tariff changes
filed in response to a Final Rule in this proceeding must become
effective no more than six months after compliance filings are due. We
seek comment on this proposed compliance timeline.
    67. We seek comment on the proposed deadline for RTOs/ISOs to
submit the compliance filing 90 days following the effective date of
any Final Rule in this proceeding. Specifically, we seek comment on
whether 90 days is sufficient time for RTOs/ISOs to develop new tariff
language in response to any Final Rule.
    68. To the extent that any RTO/ISO believes that it already
complies with the reforms proposed in this NOPR, the RTO/ISO would be
required to demonstrate how it complies in the compliance filing
required 90 days after the effective date of any Final Rule in this
proceeding. To the extent that any RTO/ISO seeks to argue on compliance
that its existing market rules are consistent with or superior to the
reforms adopted in any Final Rule, the Commission will entertain those
at that time.\117\
---------------------------------------------------------------------------

    \117\ See, e.g., Order No. 825, FERC Stats. & Regs. ] 31,384 at
P 72; 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).
---------------------------------------------------------------------------

IV. Information Collection Statement

    69. The Paperwork Reduction Act (PRA) \118\ 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
regulations \119\ require approval of certain information collection
requirements imposed by agency rules. Upon approval of a collection of
information, OMB will assign an OMB control number and an expiration
date. Respondents subject to the filing requirements of an agency rule
will not be penalized for failing to respond to the collection of
information unless the collection of information displays a valid OMB
control number.
---------------------------------------------------------------------------

    \118\ 44 U.S.C. 3507(d).
    \119\ 5 CFR 1320.
---------------------------------------------------------------------------

    70. The reforms proposed in this NOPR would amend the Commission's
regulations to improve the operation of organized wholesale electric
power markets operated by RTOs/ISOs. The Commission proposes to require
each RTO and ISO implement market rules that meet certain requirements
when pricing fast-start resources. The reforms proposed in this NOPR
would require one-time filings of tariffs with the Commission and
potential software upgrades to implement the reforms proposed in this
NOPR. The Commission anticipates the reforms proposed in this NOPR,
once implemented, would not significantly change currently existing
burdens on an ongoing basis. With regard to those RTOs/ISOs that
believe that they already comply with the reforms proposed in this
NOPR, they could demonstrate their compliance in the compliance filing
required 90 days after the effective date of any Final Rule in this
proceeding. The Commission will submit the proposed reporting
requirements to OMB for its review and approval under section 3507(d)
of the Paperwork Reduction Act.\120\
---------------------------------------------------------------------------

    \120\ 44 U.S.C. 3507(d) (2012).
---------------------------------------------------------------------------

    71. While the Commission expects the adoption of the reforms
proposed in this NOPR to provide significant benefits, the Commission
understands implementation can be a complex endeavor. The Commission
solicits comments on the accuracy of provided burden and cost estimates
and any suggested methods for minimizing the respondents' burdens,
including the use of automated information techniques. Specifically,
the Commission seeks detailed comments on the potential cost and time
necessary to implement aspects of the reforms proposed in this NOPR,
including (1) hardware, software, and business processes changes; and
(2) processes for RTOs/ISOs to vet proposed changes amongst their
stakeholders.
    72. Burden Estimate: \121\ The Commission believes that the burden
estimates below are representative of the average burden on
respondents, including necessary communications with stakeholders. The
estimated burden and cost for the requirements contained in this NOPR
follow.\122\
---------------------------------------------------------------------------

    \121\ Burden means the total time, effort, or financial
resources expended by persons to generate, maintain, retain,
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)
(2016). The time, effort, and financial resources necessary to
comply with a collection of information that would be incurred by
persons in the normal course of their activities (e.g., in compiling
and maintaining business records) will be excluded from the
``burden'' if the agency demonstrates that the reporting,
recordkeeping, or disclosure activities needed to comply are usual
and customary.
    \122\ For this information collection, the Commission staff
estimates that industry is similarly situated in terms of hourly
cost (wages plus benefits). Based on the Commission's average cost
(wages plus benefits) for 2016, the Commission is using $74.50/hour.

--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                        Annual number                     Average burden hours     Total annual burden
                                          Number of     of responses   Total number of   and cost per response   hours and  total annual     Cost per
                                         respondents   per respondent     responses              \123\                     cost           respondent ($)
                                                  (1)             (2)  (1) * (2) = (3)  (4)....................  (3) * (4) = (5)........       (5) / (1)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Tariff filing costs..................               6               1                6  80 hours, $5,920.......  480 hours, $35,520.....  ..............

Implementation costs.................               6               1                6  3,853 hours, $285,122..  23,118 hours,            ..............
                                                                                $1,710,732.
                                      -------------------------------------------------                                                  ---------------
    Total (one-time in Year 1).......                                                   3,933 hours, $291,042..  23,598 hours,                  $291,042
                                                                                $1,746,252.
--------------------------------------------------------------------------------------------------------------------------------------------------------

    Cost to Comply: The Commission has projected the total cost of
compliance, all within six months of a Final Rule plus initial
implementation, to be $1,746,252. After Year 1, the reforms proposed in
this NOPR, once implemented, would not significantly change existing
burdens on an ongoing basis.
---------------------------------------------------------------------------

    \123\ The Commission staff anticipates that the average
respondent for this collection is similarly situated to the
Commission, in terms of salary plus benefits. Based upon FERC's 2016
annual average of $154,647 (for salary plus benefits), the average
hourly cost is $74.50/hour.
---------------------------------------------------------------------------

    Title: FERC-516E, NOPR in RM17-3.
    Action: Proposed revisions to an information collection.
    OMB Control No.: TBD.
    Respondents for this Rulemaking: RTOs and ISOs.
    Frequency of Information: One-time during year one.
    Necessity of Information: The Commission proposes this rule to
improve competitive wholesale electric markets in the RTO and ISO
regions.
    Internal Review: The Commission has reviewed the proposed changes
and has determined that the 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 assured itself, by means of internal review, that there
is specific, objective support for the burden estimates associated with
the information collection requirements.
    65. 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_ADDRESS>Phone:<PHONE_NUMBER>, fax:<PHONE_NUMBER>.
Comments on the collection of information and the associated burden
estimate in the proposed rule should be sent to the Commission in this
docket and 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], at the following email address:
<EMAIL_ADDRESS>Please refer to Docket No.: RM17-3, FERC-
516E, OMB Control No. 1902-0286 in your submission.

V. Environmental Analysis

    73. 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.\124\ We
conclude that neither an Environmental Assessment nor an Environmental
Impact Statement is required for this NOPR 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.\125\
---------------------------------------------------------------------------

    \124\ Regulations Implementing the National Environmental Policy
Act of 1969, Order No. 486, FERC Stats. & Regs. ] 30,783 (1987).
    \125\ 18 CFR 380.4(a)(15).
---------------------------------------------------------------------------

VI. Regulatory Flexibility Act

    74. The Regulatory Flexibility Act of 1980 (RFA) \126\ generally
requires a description and analysis of proposed rules that will have
significant economic impact on a substantial number of small entities.
The RFA mandates consideration of regulatory alternatives that
accomplish the stated objectives of a rule and that minimize any
significant economic impact on a substantial number of small entities.
The Small Business Administration's (SBA) Office of Size Standards
develops the numerical definition of a small business.\127\ These
standards are provided on the SBA Web site.\128\
---------------------------------------------------------------------------

    \126\ 5 U.S.C. 601-12.
    \127\ 13 CFR 121.101.
    \128\ U.S. Small Business Administration, Table of Small
Business Size Standards Matched to North American Industry
Classification System Codes (effective Feb. 26, 2016), https://www.sba.gov/sites/default/files/files/Size_Standards_Table.pdf.
---------------------------------------------------------------------------

    75. The SBA classifies an entity as an electric utility if it is
primarily engaged in the transmission, generation and/or distribution
of electric energy for sale. Under this definition, the six RTOs/ISOs
are considered electric utilities, specifically focused on electric
bulk power and control. The size criterion for a small electric utility
is 500 or fewer employees.\129\ Since every RTO/ISO has more than 500
employees, none are considered small entities.
---------------------------------------------------------------------------

    \129\ 13 CFR 121.201 (Sector 22, Utilities).
---------------------------------------------------------------------------

    76. 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.'' \130\ As a result, we certify
that the reforms required by this NOPR would not have a significant
economic impact on a substantial number of small entities.
---------------------------------------------------------------------------

    \130\ 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 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) (citing to section 3 of the Small Business Act, 15 U.S.C.
632).
---------------------------------------------------------------------------

VII. Comment Procedures

    77. The Commission invites interested persons to submit comments on
the matters and issues proposed in this notice to be adopted, including
any related matters or alternative proposals that commenters may wish
to discuss. Comments are due February 28, 2017. Comments must refer to
Docket No. RM17-3-000, and must include the commenter's name, the
organization they represent, if applicable, and their address in their
comments.
    78. The Commission encourages comments to be filed electronically
via the eFiling link on the Commission's Web site at http://www.ferc.gov. The Commission accepts most standard

word processing formats. Documents created electronically using word
processing software should be filed in native applications or print-to-
PDF format and not in a scanned format. Commenters filing
electronically do not need to make a paper filing.
    79. Commenters that are not able to file comments electronically
must send an original of their comments to: Federal Energy Regulatory
Commission, Secretary of the Commission, 888 First Street NE.,
Washington, DC 20426.
    80. All comments will be placed in the Commission's public files
and may be viewed, printed, or downloaded remotely as described in the
Document Availability section below. Commenters on this proposal are
not required to serve copies of their comments on other commenters.

VIII. Document Availability

    81. 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 the Commission's Home Page (http://www.ferc.gov) and
in the Commission'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.
    82. From the Commission'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.
    83. User assistance is available for eLibrary and the Commission's
Web site during normal business hours from the Commission's Online
Support at<PHONE_NUMBER> (toll free at 1-866-208-3676) or email at
<EMAIL_ADDRESS>or the Public Reference Room at (202) 502-
8371, TTY<PHONE_NUMBER>. Email the Public Reference Room at
<EMAIL_ADDRESS>
List of Subjects in 18 CFR Part 35

    Electric power rates, Electric utilities.

    By direction of the Commission.

    Dated: December 15, 2016.
Nathaniel J. Davis, Sr.,
Deputy Secretary.

Regulatory Text

    In consideration of the foregoing, the Commission proposes to amend
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 by adding paragraph (g)(10) to read as follows:

Sec.  35.28   Non-discriminatory open access transmission tariff.

* * * * *
    (g) * * *
    (10) Pricing fast-start resources--(i) Definition of fast-start
resources. A fast-start resource is any resource that is able to start
up within ten minutes or less, that has a minimum run time of one hour
or less, and that submitted an economic energy offer to the market.
    (ii) Application to both day-ahead and real-time markets. A
Commission-approved independent system operator or regional
transmission organization with a tariff that contains a day-ahead and a
real-time market must implement the following requirements in both the
day-ahead and real-time markets. Implementation of the following
requirements must be consistent between the day-ahead and real-time
markets.
    (iii) Start-up and no-load costs. When a Commission-approved
independent system operator or regional transmission organization makes
a decision to commit a fast-start resource, it must calculate prices by
determining a fast-start resource's enhanced energy offer, which
includes the following components: The resource's incremental energy
offer, amortized start-up cost, and amortized no-load cost. In using
that offer to calculate prices for the real-time and day-ahead markets,
each Commission-approved independent system operator and regional
transmission organization must amortize a fast-start resource's start-
up cost over the resource's minimum run time and its economic maximum
operating limit and must divide a fast-start resource's no-load cost by
the resource's economic maximum operating limit, but are only required
to do so during the resource's minimum run time.
    (iv) Relaxation of economic minimum operating limit. Each
Commission-approved independent system operator and regional
transmission organization must relax to zero each fast-start resource's
economic minimum operating limit such that the resource is able to be
treated as fully dispatchable for purposes of calculating prices. Each
Commission-approved independent system operator and regional
transmission organization must ensure that physical dispatch
instructions to resources do not result in over-generation and must
have market rules that address the potential for over-generation due to
deviations from dispatch instructions.
    (v) Offline fast-start resources. If a Commission-approved
independent system operator or regional transmission organization uses
offline fast-start resources to calculate prices, the resource must
have a start-up time of ten minutes or less, must not have any
operational constraints that would prevent the resource from starting
and providing energy, and must set prices based on the resource's
amortized full cost, including start-up and no-load costs, which must
be less than the administrative shortage price for the shortage or
transmission constraint violation the resource is resolving. In
addition, an offline fast-start resource used to resolve a transmission
constraint violation must have a generation shift factor of no less
than 5 percent on the applicable transmission constraint that is being
exceeded. Each Commission-approved independent system operator and
regional transmission organization may use an offline fast-start
resource to calculate prices only during a transmission constraint
violation or during energy or ancillary service shortage conditions.
    The following appendix will not appear in the Code of Federal
Regulations.

Appendix--List of Short Names/Acronyms of Commenters

----------------------------------------------------------------------------------------------------------------
                        Short name/acronym                                           Commenter
----------------------------------------------------------------------------------------------------------------
CAISO............................................................  California Independent System Operator
                                                                    Corporation.
DC Energy, Inertia Power, and Vitol..............................  DC Energy, LLC, Inertia Power, LP, and Vitol
                                                                    Inc.
EEI..............................................................  Edison Electric Institute.
EPSA.............................................................  Electric Power Supply Association.
EPSA/IPPNY.......................................................  Electric Power Supply Association and
                                                                    Independent Power Producers of New York.
EPSA/NEPGA.......................................................  Electric Power Supply Association and New
                                                                    England Power Generators Association, Inc.

EPSA/P3..........................................................  Electric Power Supply Association and PJM
                                                                    Power Providers.
EPSA/WPTF........................................................  Electric Power Supply Association and Western
                                                                    Power Trading Forum.
Entergy..........................................................  Entergy Services, Inc. commented on behalf of
                                                                    the Entergy Operating Companies (Entergy
                                                                    Arkansas, Inc.; Entergy Louisiana, LLC;
                                                                    Entergy Mississippi, Inc.; Entergy New
                                                                    Orleans, Inc.; and Entergy Texas, Inc.).
Exelon...........................................................  Exelon Corporation.
Golden Spread Electric...........................................  Golden Spread Electric Cooperative, Inc.
IMG Midstream/Tangibl............................................  IMG Midstream LLC and Tangibl LLC.
ISO-NE...........................................................  ISO New England Inc.
LIPA.............................................................  Long Island Power Authority and Long Island
                                                                    Lighting Company d/b/a Power Supply Long
                                                                    Island.
MISO.............................................................  Midcontinent Independent System Operator,
                                                                    Inc.
PJM Market Monitor...............................................  Monitoring Analytics, LLC.
NYISO............................................................  New York Independent System Operator, Inc.
PJM..............................................................  PJM Interconnection, L.L.C.
PSEG Companies...................................................  PSEG Companies (Public Service Electric and
                                                                    Gas Company; PSEG Power LLC; and PSEG Energy
                                                                    Resources & Trade LLC).
SPP..............................................................  Southwest Power Pool, Inc.
Westar...........................................................  Westar Energy, Inc.
----------------------------------------------------------------------------------------------------------------

[FR Doc. 2016-30971 Filed 12-29-16; 8:45 am]
 BILLING CODE 6717-01-P