At its January meeting, the FERC issued a Notice of Proposed Rulemaking¹ (NOPR)² proposing (1) specific processes for allocating real-time uplift costs from deviations to market participants and (2) providing more information generally to the market on uplift costs.

While the proposed regulatory text for the first part of the NOPR is relatively straightforward³ — requiring that if an RTO/ISO allocates real-time uplift costs to deviations, it must allocate the costs to market participants “whose transactions are reasonably expected to cause the uplift costs” and describing the process for making that determination — in reality implementing that text will not be as straightforward.

To understand the NOPR, it is necessary to understand the terms used. Uplift generally refers to payments that RTOs/ISOs make to a resource whose commitment and dispatch result in a shortfall between the costs in a resource’s offer and the revenue earned through market clearing prices. Real-time uplift refers to uplift payments to resources committed after the close of the day-ahead market, including any uplift associated with reliability commitments, whether or not the RTO/ISO considers such commitments outside of the day-ahead market, e.g., the Reliability Unit Commitment process. A deviation represents the “megawatt hour differences between a market participant’s scheduled deliveries or receipts at particular points — as determined by the day-ahead market clearing process — and those amounts actually delivered or received in real-time that are not related to real-time economic or reliability-related operator dispatch instructions.”⁴

It is also necessary to understand what the FERC is addressing and not addressing in the context of uplift and real-time uplift. This NOPR does not address the allocation of all uplift costs, only real-time uplift costs. Further, the NOPR does not require that RTOs/ISOs allocate real-time uplift costs to deviations. But if an RTO/ISO allocates real-time uplift to deviations, then the NOPR requires that the RTO/ISO must do so on the basis of cost causation.

The NOPR addresses the process for determining the real-time uplift costs to be allocated to a market participant because of a deviation, i.e., the market participants that caused the real-time uplift costs to be incurred. First, the real-time uplift costs to be allocated to deviations would be put into at least two buckets based on the reason the uplift costs were incurred, (1) a system-wide capacity bucket⁵ and (2) a congestion management bucket.⁶

Second, to allocate the costs in those buckets to individual market participants, the RTO/ISO would distinguish between deviations by market participants that “help” the system and those that “harm” the system. The proposed text requires uplift costs to be allocated “to a market participant’s net harmful deviations [net of helpful deviations] commensurate with the extent to which those deviations harm efforts to address system needs.”⁷

Under the proposed system-wide capacity category, a market participant would be allocated a portion of the total real-time uplift costs incurred to maintain energy and operating reserve requirements in the real-time market based on the net contributions of its deviations to those costs. This method would require an RTO/ISO to determine if each market participant’s deviations are, on net, “helping,” by converging the day-ahead scheduled unit commitment and dispatch to the unit commitment and dispatch needed to meet real-time energy and operating reserve requirements, or “harming,” by exacerbating the difference between the day-ahead scheduled unit commitment and dispatch and the unit commitment and dispatch needed to meet real-time energy and operating reserve requirements.

Under the proposed congestion management category, a market participant would be allocated real-time uplift costs if its net deviations contributed to a difference between the congestion on a specific constraint in the day-ahead market and the real-time congestion on that constraint. This method would require an RTO/ISO to determine if each market participant’s deviations are, on net, helping, by converging day-ahead and real-time congestion patterns, or harming, by exacerbating the difference between day-ahead and real-time congestion on a constraint.

Let’s use a simple example. Let’s assume that there is $100 in real-time only uplift costs that the RTO/ISO decides should be allocated to deviations. Further, assume there are only two buckets (1) a system-wide capacity bucket and (2) a congestion management; and the real-time uplift costs relate equally to each bucket. Therefore there is $50 in each bucket that must be allocated to individual market participants. The RTO/ISO would look at the deviations by each market participant and determine the deviations by that market participant that harmed the system and from that amount net the deviations from the market participant that helped the system. So let’s assume there are five market participants, each with a net harm to the system of 1. In that event, each of the five market participants would receive $10 of the real-time uplift costs in each bucket, or $20 total.

In the second part of the NOPR, the FERC proposes to generally increase the information available on all uplift costs, not just real-time uplift costs. FERC proposes that each RTO/ISO:

1. report total uplift payments for each transmission zone, broken out by day and uplift category;
2. report total uplift payments for each resource. The information would be posted within 20 days after the end of each month. Provisions are included to address confidentiality concerns;
3. report megawatts (MW) of operator-initiated commitments⁸ in or near real-time and after the close of the day-ahead market, broken out by transmission zone and commitment reason;⁹ and
4. include certain provisions related to transmission constraint penalty factors¹⁰ in their tariffs. The provisions would include if and when transmission constraint penalty factors may be used to set prices and provisions for changing transmission constraint penalty factors, including notice to market participants.

The new requirements would be put in place 90 days after any final rule. Comments will be due late March but given the overall complexity of the NOPR (and the lack of a current quorum at the FERC to vote on any final rule), a request for an extension of time will likely be filed.