149 FERC ¶ 61,145

UNITED STATES OF AMERICA

FEDERAL ENERGY REGULATORY COMMISSION

Before Commissioners: Cheryl A. LaFleur, Chairman;

 Philip D. Moeller, Tony Clark,

and Norman C. Bay.

Centralized Capacity Markets in Regional Transmission 

Organizations and Independent System Operators

Winter 2013-2014 Operations and Market Performance 

in Regional Transmission Organizations and 

Independent System Operators

Docket Nos. AD13-7-000

AD14-8-000

ORDER ON TECHNICAL CONFERENCES

(Issued November 20, 2014)

1. The Commission, through this order, is acting to address an issue that has been 

raised over the course of the last several months in various venues, including the 

Commission’s September 25, 2013 technical conference on centralized capacity markets 

in regional transmission organizations and independent system operators (RTO/ISO) 

(Capacity Markets Technical Conference) and the Commission’s April 1, 2014 technical 

conference on winter 2013/2014 operations and market performance in RTOs/ISOs

(Polar Vortex Technical Conference). Fuel assurance was a consistent theme at both 

technical conferences and has a direct and immediate impact on generator performance 

and thus, system reliability. Failure to address this issue can potentially lead to volatile 

and often high fuel prices or costly RTO/ISO actions to ensure reliability. In light of 

these potential risks to reliability and just and reasonable rates, the Commission believes 

it is appropriate at this time to initiate a review of how each RTO/ISO is addressing fuel 

assurance.

2. In this order, we direct RTOs/ISOs to file reports on the status of their efforts to 

address fuel assurance issues. We also provide guidance to assist RTOs/ISOs in those 

efforts.

Background

3. The Commission convened the September 25, 2013 Capacity Markets Technical 

Conference to consider how centralized capacity market rules are supporting the 

procurement and retention of resources necessary to meet future reliability and 
Docket Nos. AD13-7-000 and AD14-8-000 - 2 -

operational needs.1

 The Commission stated its intention to examine the effects of the 

evolving mix of resources and changing market conditions, including low natural gas 

prices, the retirement of aging generation resources, and compliance with state and 

federal environmental policies. During the conference, and in post-technical conference 

comments, commenters discussed four broad topics: (1) the role of centralized capacity 

markets in assuring resource adequacy; (2) mechanics of current centralized capacity 

markets; (3) adapting to industry changes; and (4) considerations for the future.

4. The Commission convened the April 1, 2014 Polar Vortex Technical Conference 

subsequent to the events of winter 2013/2014, in which generator outages and fuel supply 

issues led to tight system conditions. At the conference, RTOs/ISOs gave presentations 

on how they prepared for and operated during cold weather events, followed by 

stakeholder discussion on the lessons learned and future implications. During the 

conference, and in post-technical conference comments, commenters identified several 

aspects of fuel assurance as significant contributors to generator outages, including 

assurance of fuel supply, natural gas pipeline transportation, high natural gas prices

caused by extreme cold weather, and cost recovery of high fuel prices.

Discussion

5. Out of the set of issues explored in both conferences, generator performance and 

efficient market operations are among the most pressing concerns to the Commission. 

Throughout the conferences and subsequent post-technical conference comments, and in 

continued analysis by the RTOs/ISOs and the Commission, generator access to sufficient 

fuel supplies and the firmness of generator fuel arrangements (referred to generally here 

as “fuel assurance”) has been identified as a significant issue contributing to poor 

generator performance and inefficient market operations. For example, PJM 

Interconnection, L.L.C. (PJM) cited lack of fuel as a key reason for generator forced 

outages that occurred during January 2014 cold weather events.2

 Commission staff 

further identified fuel deliverability and fuel handling problems as contributing to high 

 1 In August 2013, staff released a white paper evaluating the design of the 

centralized capacity markets in the three eastern RTOs/ISOs. Commission Staff, 

Centralized Capacity Market Design Elements, Docket No. AD13-7-000 (Aug. 23, 

2013).

2 PJM Interconnection, L.L.C., Analysis of Operational Events and Market 

Impacts During the January 2014 Cold Weather Events, at 24 (May 8, 2014); available 

at http://www.pjm.com/~/media/documents/reports/20140509-analysis-of-operationalevents-and-market-impacts-during-the-jan-2014-cold-weather-events.ashx.
Docket Nos. AD13-7-000 and AD14-8-000 - 3 -

levels of forced generation outages in several RTOs/ISOs.

3

 These issues were also 

identified as contributing to the stressed conditions in the markets that led operators to 

resort to out of market unit commitments and emergency actions, which contributed to 

higher prices and high levels of uplift during the same cold weather events.

4

 

6. In addition, commenters in the Capacity Markets Technical Conference and Polar 

Vortex Technical Conference questioned whether the existing markets value fuel 

assurance. In particular, commenters raised concerns as to whether the current resource 

adequacy constructs in place in the RTOs/ISOs, including the eastern centralized capacity 

markets,5 can address these significant challenges effectively. Commenters raised 

specific concerns focused on the ability of capacity markets to address a range of 

reliability and operational needs, including valuing firmer fuel supplies. As currently 

designed, the eastern capacity market auctions establish capacity prices based on

economic bids of sellers, but do not directly take into account generator type, fuel supply 

arrangements, or operational characteristics. The Midcontinent Independent System 

Operator, Inc.’s (MISO) resource adequacy construct operates similarly in that it does not 

directly account for fuel assurance concerns. Additionally, experiences in RTO/ISO 

regions without centralized capacity markets, such as the California Independent System 

Operator Corporation (CAISO)

6 and the Southwest Power Pool, Inc. (SPP)7 suggest that 

similar fuel assurance concerns may exist in those regions. In addition, commenters in 

the Capacity Markets Technical Conference proceeding raised concerns regarding the 

performance of energy and ancillary services markets, including the effectiveness of the 

 3 Commission Staff, Winter 2013-2014 Operations and Market Performance in 

RTOs and ISOs, at 8, Docket No. AD14-8-000 (Apr. 3, 2014).

4 See id. at 6-7, 9.

5 The three eastern RTOs/ISOs, PJM, ISO New England Inc. (ISO-NE) and New 

York Independent System Operator, Inc. (NYISO), have all implemented mandatory 

centralized capacity markets.

6 For example, CAISO recently filed with the Commission a proposal to enhance 

its commitment cost recovery tariff provisions to, among other things, allow CAISO to 

use updated natural gas price data in its day-ahead market when natural gas prices exceed 

a specified threshold. CAISO October 1, 2014 Proposal, Docket No. ER15-15-000.

7 SPP, Southwest Power Pool: Winter 2013-2014, Docket No. AD14-8-000, at 9-

10, 16 (Apr. 3, 2014) (noting the operational challenges associated with limited natural 

gas supply during extreme cold events).
Docket Nos. AD13-7-000 and AD14-8-000 - 4 -

markets in setting prices during reserve shortage conditions.8

 Following the severe cold 

weather events experienced during winter 2013-2014, concerns were raised regarding the 

impact of offer caps and other RTO/ISO practices on the ability of generators to recover 

their fuel costs. 

7. As explained above, we use the term “fuel assurance” to describe the broad set of 

issues that have emerged in the RTOs/ISOs with respect to generator access to sufficient 

fuel supplies and the firmness of generator fuel arrangements. Fuel assurance is a broad 

concept that includes a range of generator-specific and system-wide issues, including the 

overall ability of an RTO’s/ISO’s portfolio of resources to access sufficient fuel to meet 

system needs and maintain reliability. These issues have become of greater concern 

given the increased reliance on natural gas-fired generators due to low average natural 

gas prices, compliance with environmental regulations, and other factors. However, 

while issues surrounding increased reliance on natural gas act as important drivers of 

current fuel assurance concerns, the need to address fuel assurance continues to apply to 

all resources, regardless of fuel type. Fuel assurance may also encompass impacts on fuel 

availability of any industry in the supply chain, including contingencies and other risks 

stemming from those industries. While it is valuable for RTOs/ISOs, as well as the 

Commission, to be aware of the impacts on fuel availability of any industry in the supply 

chain, there may be issues that individual resources or RTOs/ISOs cannot control, and, in 

fact, only a subset of such impacts on fuel availability may be within the confines of the 

Commission’s jurisdiction. 

8. Fuel assurance is a key to ensuring generator performance, which directly 

contributes to the overall reliability of the grid and just and reasonable rates. Failure to 

address fuel assurance could lead RTOs/ISOs to take costly actions to ensure reliability. 

Failure to address fuel assurance could also result in volatile (and often high) prices to 

consumers when generation resources are forced to procure fuel supplies at the last 

minute in a volatile natural gas market. The events of winter 2013/2014 provide an 

example of this potential. To the extent that energy and ancillary services markets, 

centralized capacity markets, or resource adequacy constructs fail to address fuel 

assurance concerns, reforms may be necessary to ensure that these markets or resource 

adequacy constructs meet their reliability objectives and result in just and reasonable 

wholesale rates.

 8 See, e.g., Exelon Corporation, Post-Technical Conference Comments, Docket 

No. AD13-7-000, at 8-14 (filed Jan. 8, 2014); Electric Power Supply Association, PostTechnical Conference Comments, Docket No. AD13-7-000, at 9 (filed Jan. 8, 2014); 

Vitol, Inc., Post-Technical Conference Comments, Docket No. AD13-7-000, at 7-8 (filed 

Jan. 8, 2014).
Docket Nos. AD13-7-000 and AD14-8-000 - 5 -

9. While the comments from the Capacity Markets Technical Conference and Polar 

Vortex Technical Conference brought recent attention to the issue of fuel assurance in 

RTOs/ISOs, the Commission has highlighted such concerns in the past. For example, as 

early as 2006, the Commission met with utility and railroad representatives to discuss 

railroad coal-delivery matters and their impact on markets and electric reliability.9

 More 

recently, the Commission has acted in several individual proceedings to put in place a 

number of market rule and tariff changes that can help address fuel assurance concerns.10 

These incremental steps include providing greater market incentives to encourage 

generators to enter into firmer fuel arrangements, clarifying the obligations of capacity 

resources with respect to fuel procurement, and providing greater fuel cost recovery 

certainty.

10. For example, the Commission recently acted on market rule changes proposed by 

ISO New England Inc. (ISO-NE) and the New England Power Pool (NEPOOL) to 

provide greater market incentives, in both the capacity market and energy and ancillary 

services markets, for generators to be available and meet their obligations during reserve 

shortages.

11 The capacity market rule changes, called “pay for performance,” more 

closely link capacity revenues to real-time performance, paying capacity resources more 

when they deliver energy or reserves during reserve shortages and penalizing capacity 

resources that fail to perform during such events. In addition, the Commission required 

ISO-NE to adopt a NEPOOL proposal to increase Reserve Constraint Penalty Factors to 

provide better price signals in the energy and ancillary services markets during reserve 

shortage events. The potential additional market revenues to generators available in realtime shortage conditions, and the potential for significant penalties when not available,

are intended to spur investments in fuel assurance, dual-fuel capability, improved 

maintenance and staffing, and other enhancements to improve resource performance.

11. With respect to clarifying the obligations of capacity resources, the Commission 

(in response to a complaint) clarified that the ISO-NE tariff imposes a strict performance 

obligation on capacity resources and that capacity resources may not take “economic”

outages, including outages based on economic decisions not to procure fuel or fuel 

transportation.12 This clarification provided important certainty to the market regarding 

 9 Discussions with Utility and Railroad Representatives On Market and Reliability 

Matters, Notice of Discussions, Docket No. AD06-8-000 (May 30, 2006).

10 See cases cited infra notes 11-18.

11 ISO New England Inc., 147 FERC ¶ 61,172 (2014).

12 New England Power Generators Association, Inc. v. ISO New England, Inc., 

144 FERC ¶ 61,157, at P 47 (2013).
Docket Nos. AD13-7-000 and AD14-8-000 - 6 -

the obligations of capacity resources in ISO-NE with respect to procuring fuel and fuel 

transportation.

12. The Commission has also addressed incremental steps intended to provide 

generators with greater certainty of their ability to recover fuel costs. For example, the 

Commission issued an order conditionally accepting enhancements to ISO-NE’s energy 

market to provide greater flexibility for market participants to structure and modify their 

supply offers in the day-ahead and real-time markets.13 One of those enhancements will 

permit market participants the flexibility to update their offers on an hourly basis in real 

time, allowing them to reflect updated fuel costs in their offers.

14 The Commission also 

granted a request by Dominion Energy Marketing, Inc. (Dominion) for the recovery of 

fuel costs incurred when generating units at one of Dominion’s facilities ran beyond their

day-ahead schedules at the direction of ISO-NE.

15 Further, during the severe cold 

weather events of last winter, the Commission granted several requests submitted by 

RTOs/ISOs to temporarily waive bid caps that could prevent generators from reflecting 

their full fuel costs in their offers, providing generators with greater certainty that they 

would be permitted to recover higher fuel costs caused by the extreme cold weather.16

Finally, the Commission has accepted two Winter Reliability Programs filed by ISO-NE 

to encourage generators to maintain onsite fuel inventories, addressing concerns about 

generator reliance on pipeline deliveries of fuel during periods of high natural gas 

demand and stresses on pipeline systems.

17

 13 ISO New England Inc. and New England Power Pool, 147 FERC ¶ 61,073 

(2014).

14 See id. P 3.

15 Dominion Energy Marketing, Inc. and ISO New England, Inc., 143 FERC 

¶ 61,233, at PP 24-25, order on compliance, ISO New England Inc., 145 FERC ¶ 61,110 

(2013).

16 PJM Interconnection, L.L.C., 146 FERC ¶ 61,041; PJM Interconnection, L.L.C.,

146 FERC ¶ 61,078, at P 40 (2014); New York Indep. Sys. Operator, Inc., 146 FERC 

¶ 61,061, at P 20 (2014); Cal. Indep. Sys. Operator, Inc., 146 FERC ¶ 61,184, at P 20

(2014).

17 ISO New England Inc. and New England Power Pool Participants Committee, 

148 FERC ¶ 61,179 (2014). The program also provides cost recovery for dual-fuel 

audits, market monitoring changes to the must-burn requirement for dual-fuel resources, 

and incentives for commissioning of dual-fuel capacity and additional demand response 

participation.
Docket Nos. AD13-7-000 and AD14-8-000 - 7 -

13. While we expect that these incremental steps will help to address market and 

system performance concerns associated with fuel assurance, the Commission would like 

to consider these issues, and the efforts RTOs/ISOs have undertaken or plan to undertake 

to address them, on a more comprehensive basis. Thus, as explained in more detail 

below, we direct the RTOs/ISOs to file reports on the status of their efforts to address 

fuel assurance issues within 90 days of the date of this order. 

14. Having considered the incremental improvements that RTOs/ISOs have 

implemented to date (as discussed above), we note that there are a number of potential 

approaches – in the capacity markets and resource adequacy constructs, energy and 

ancillary services markets, or both – RTOs/ISOs could consider to address market and 

system performance concerns associated with fuel assurance. The options can range 

from those focused on providing incentives to encourage greater fuel assurance to 

approaches that are more administrative in nature. 

15. With respect to potential reforms to capacity markets or resource adequacy 

constructs, RTOs/ISOs could pursue a range of options. On one end of the spectrum, 

RTOs/ISOs could reform their centralized capacity markets to provide greater price 

incentives for capacity resources to be available, and impose stiff penalties for failure to 

perform, to encourage capacity resources to enter into firmer fuel arrangements. As 

explained above, the Commission has already approved one such proposal in ISO-NE. 

On the other end of the spectrum, RTOs/ISOs could take a more administrative approach 

by reforming their capacity markets and/or resource adequacy mechanisms to specifically 

require that capacity resources have certain fuel arrangements in place to be eligible to 

provide resource adequacy. For example, RTOs/ISOs might require that, to be eligible to 

participate in a centralized capacity market or to satisfy resource adequacy obligations in 

other constructs, a generator would have to demonstrate that it has in place the fuel 

arrangements required in the RTO’s/ISO’s definition of the capacity product or resource 

adequacy obligation. RTOs/ISOs could also combine aspects of both approaches. One 

way an RTO/ISO might consider implementing this approach is to discount the value of 

capacity resources (by lowering their capacity rating or some other means) based on their 

fuel arrangements.

16. Tradeoffs exist between the different approaches that must be considered in 

determining what additional changes to capacity markets or resource adequacy constructs 

to address fuel assurance may be appropriate. For example, an administrative approach

may offer RTOs/ISOs more certainty regarding the expected performance of resources 

but requires that the RTO/ISO correctly identify all future system needs and the best 

methods for meeting those needs. The ability of the RTO/ISO to do so correctly has cost

consequences for consumers. On the other hand, providing incentives to resources places 

the risk and obligation on resource owners to determine how each resource can best fulfill 

its fuel assurance needs but provides the RTO/ISO with less certainty regarding how 
Docket Nos. AD13-7-000 and AD14-8-000 - 8 -

resources will perform in the future. Resource owners will also price risk into their 

market offers, which could have cost consequences for consumers.

17. Regardless of the method, if fuel assurance is expressly valued in capacity markets 

or resource adequacy constructs, additional changes may also be required. For example, 

it may be appropriate to adjust capacity market offer caps, if applicable, to allow offers to 

include investments required for fuel assurance. Additionally, clarifications may be 

needed regarding rules such as the timing of the day-ahead market and unit commitment 

process.

18. With respect to potential reforms to energy and ancillary services markets, 

shortage pricing measures that accurately reflect the value to consumers of avoiding an 

involuntary curtailment could provide incentives for resources to pursue firmer fuel 

arrangements. Specifically, the potential to earn revenues to cover their costs and earn a 

return in a few high priced hours each year provides a strong incentive for resources to 

take steps (including firming their fuel arrangements) to ensure that they are available 

during those hours. In addition, the risk of higher prices during peak demand hours could 

provide a strong incentive for load to take steps to hedge against that risk, including 

entering into bilateral arrangements to support additional infrastructure needed to ensure 

fuel availability. Further, as described above, RTOs/ISOs can adjust market rules to 

provide greater certainty that generators will be able to recover their fuel costs, giving 

them greater incentives to make timely fuel procurement decisions. As with capacity 

markets, we encourage RTOs/ISOs to evaluate whether changes to energy market rules 

are necessary to ensure sufficient fuel cost recovery, thereby enhancing fuel assurance. 

We recognize that any solution involves a balance of interests, such as weighing the 

benefits of a particularly high level of fuel assurance with the associated costs, and 

encourage RTOs/ISOs to account for these trade-offs in their approaches to fuel 

assurance.

19. While the Commission could take action to impose solutions, and may need to in 

the future if the steps RTOs/ISOs have taken or plan to take prove inadequate, we find 

that the appropriate next step is for each RTO/ISO to provide the Commission with 

additional information to explain how its market rules address fuel assurance challenges. 

Although there are some common issues affecting all the RTOs/ISOs, there are also 

significant differences in the nature and scope of the fuel assurance issues among the 

RTOs/ISOs and it may be that there is more than one right answer for addressing fuel 

assurance. Therefore, we allow each RTO/ISO the opportunity to identify the fuel 

assurance issues most relevant to its markets and comprehensively describe the set of 

actions it has already undertaken or proposes to undertake to address these issues. 

20. We direct each RTO/ISO to file a report on the status of its efforts to address

market and system performance associated with fuel assurance issues within 90 days of 

the date of this order. The RTO/ISO report should describe the nature of fuel assurance 

concerns specific to its regions. The report should also describe the comprehensive 
Docket Nos. AD13-7-000 and AD14-8-000 - 9 -

strategy or strategies the RTO/ISO has implemented or plans to implement to address 

market and system performance in light of each of its fuel assurance concerns. Finally, 

the report should detail the specific programs and mechanisms that the RTO/ISO will use

to carry out its strategies. Following the submission of the RTO/ISO reports, there will 

be a 30-day public comment period. 

The Commission orders:

The RTOs/ISOs are hereby directed to file reports, as discussed in the body of this 

order, within 90 days of the date of this order.

By the Commission.

( S E A L )

Kimberly D. Bose,

Secretary.