On September 19, 2024, FERC approved Southwest Power Pool, Inc.’s (“SPP”) proposed tariff revisions allowing make-whole payments for incremental energy costs for offers affected by the incremental energy offer cost caps required by FERC’s Order No. 831. In doing so, FERC found that the tariff revisions appropriately provide an opportunity for resources to recover their incremental energy costs in certain circumstances when the resources are paid a locational marginal price (“LMP”) that is less than their verified incremental costs.
FERC Order No. 831 requires each regional transmission organization and independent system operator to (1) cap each resource’s incremental energy offer at the higher of $1,000/MWh or that resource’s verified cost-based incremental energy offer or (2) cap verified cost-based incremental energy offers at $2,000/MWh when calculating LMPs. However, Order No. 831 provided that resources that submit offers greater than $2,000/MWh are eligible for make-whole payments up to the submitted verified cost-based incremental energy offer.
Here, SPP proposed tariff revisions permitting make-whole payments to ensure cost recovery in certain circumstances when Order No. 831 conditions are in effect and resources are paid LMPs that may be lower than their incremental energy offers:
- when SPP clears a resource in the day-ahead market at a greater amount than the resource’s prior self-commitment;
- when a resource self-commits in the day-ahead market and is then dispatched in the real-time market for more than its self-commitment in the day-ahead market; and
- when a resource self-commits in the reliability unit commitment (“RUC”) and is then dispatched in the real-time market for more than the resource’s RUC self-commitment.
SPP explained that in each of these three scenarios, the resource’s energy offer is either above $1,000/MWh and not verified by the market monitor prior to clearing, or above $2,000/MWh, and that the resource’s verified actual costs may be higher than the LMP. However, SPP explained that, under its current tariff, resources were not eligible for make-whole payments when they self-commit and generally were not eligible for make-whole payments for energy in excess of day-ahead commitments. SPP therefore proposed to allow make-whole payments for unverified energy offers above $1,000/MWh or any offer above $2,000/MWh, regardless of the reason for commitment, when Order No. 831 conditions are in effect. SPP argued that this would encourage resource participation and ensures compensation for the resource’s services.
FERC accepted SPP’s proposed tariff revisions, finding that they provide opportunities for resources to recover their incremental energy costs because, without the revisions, the LMP paid to resources in SPP that self-commit, and are cleared or committed at an amount greater than their day-ahead or RUC self-commitment, may be less than their verified actual costs. Further, FERC found the revisions incentivize resources to follow SPP dispatch instructions and to provide correct operating parameters under Order No. 831 conditions.
A copy of the order can be found here.