UNITED STATES OF AMERICA
BEFORE THE

FEDERAL ENERGY REGULATORY COMMISSION

Price Formation in Energy and Ancillary)

Services Markets Operated by Regional)

Transmission Organizations and)Docket No. AD14-14-000

Independent System Operators)

COMMENTS OF THE ISO/RTO COUNCIL

The ISO/RTO Council (“IRC”)1 submits the following comments in response to the

Commission Staff Notice Inviting Post-Technical Workshop Comments issued in this docket on January 16, 2015, setting forth staff questions developed based upon the discussions which
occurred during the price formation workshops held by the Commission on September 8,
October 28 and December 9, 2014.

I.COMMENTS

Although individual ISO/RTOs will file their own comments in this proceeding, the IRC
through this document sets forth certain guiding principles that should be considered by the
Commission as it evaluates whether any changes are needed to the existing nationwide $1000
offer cap.

By definition, an offer cap requires the balancing of a number of competing policy issues.
Nevertheless, as one guiding principle, the IRC proposes that any offer cap should be structured
so that Market Participants are permitted to offer into the market a price that reflects the costs to
actually run a particular generating unit. Any offer cap design should allow for the recovery of

1

The IRC is comprised of the Alberta Electric System Operator (“AESO”), California Independent System

Operator (“CAISO”), Electric Reliability Council of Texas (“ERCOT”), the Independent Electricity System

Operator of Ontario, Inc. (“IESO”), ISO New England, Inc. (“ISO-NE”), Midcontinent Independent System

Operator, Inc. (“MISO”), New York Independent System Operator, Inc. (“NYISO”), PJM Interconnection, L.L.C.
(“PJM”), Southwest Power Pool, Inc. (“SPP”), and New Brunswick System Operator (“NBSO”).  The AESO,
ERCOT, IESO and NBSO are not subject to the Commission’s jurisdiction in this regard and are not joining in these
Comments.

actual production costs of units that clear in the marketplace. To do otherwise, would, by design,
force cleared units to run at a loss and potentially discourage a resource from being available to
the RTO when otherwise needed to ensure reliability.  As any implementation of an offer cap has
the potential that marginal costs might exceed that cap, the RTOs agree that production costs
guarantees should exist to ensure cost recovery is available to resources with higher actual costs.2
Second, as the Commission evaluates appropriate price formation principles and the need for revised offer caps, the IRC urges the Commission to consider offers caps that are coordinated for consistency across neighboring organized markets operated by ISO/RTOs.3  A new set of issues could arise should the Commission approach this issue in a piecemeal fashion. For
example, interface pricing at ISO/RTO borders could be affected as energy resources seek the
highest market prices that could result if offer cap rules diverge.  Moreover, the efficiencies to be
gained by the market to market coordination that exist across a number of ISO/RTO markets
may be frustrated if the offer caps prevent resources from offering marginal costs (e.g., one
market may end up mitigating a constraint at a higher shadow price than would be available from
the other market if the offer caps were not the same) and adjacent generating units in different
ISO/RTO markets that operate on the same natural gas pipeline could end up losing gas
procurement opportunities to less efficient resources in markets with higher offer caps,  raising
equity and efficiency concerns.  Moreover, shortage pricing rules also should be similarly
considered ensuring that adjacent markets do not have inefficient or divergent prices at their
interfaces.

2

While the IRC Members are agreement on this general principle, the individual IRC Members do not

universally agree on a specific offer cap level that would effectuate the above operating cost recovery principle. Moreover, some IRC Members have not seen an immediate need to change their offer cap provisions and do not believe such changes should be prioritized over other more pertinent issues in their markets.

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The IRC recognizes that in areas initiating new organized markets operated by ISO/RTOs there may be

legitimated reasons for offer caps to vary.

2

As a final principle, to the extent that the Commission finds that natural gas price spikes
as were witnessed during the 2014 Polar Vortex constitute one driver of its review, the IRC
believes that the impacts of these price spikes can be ameliorated by a continued focus on natural
gas markets to increase transparency and ensure flexibility in gas scheduling.  Generally
speaking, intra-day spikes in gas prices are difficult to support with existing processes and the
RTOs think that additional transparency is needed in the intra-day gas markets in order to
support verification of the cost-basis for offer cap adjustments or production cost guarantees.
The Commission should build on the meeting4 facilitated by Commissioner Moeller last year to
examine such price spikes as a critical aspect of price formation, which can drive higher prices
and increased volatility in ISO/RTO markets. The IRC stands ready to work with the
Commission on this as well as all other aspects of this important set of issues.

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Commissioner Phillip D. Moeller’s Inquiry Into the Trading of Natural Gas, and the Proposal to Establish

an Electronic Information and Trading Platform, Docket No. AD14-19-000.

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II.CONCLUSION

The IRC respectfully requests that the Commission consider these Comments in this

proceeding.

Respectfully submitted,

/s/ Craig Glazer/s/ Theodore J. Paradise

Craig GlazerRaymond W. Hepper

Vice President - Federal Government PolicyVice President, General Counsel and Corporate

Robert EckenrodSecretary

Senior CounselTheodore J. Paradise

PJM Interconnection, LLCAssistant General Counsel - Operations and

1200 G Street, N.W. Suite 600Planning

Washington, D.C. 20005Margoth R. Caley

Regulatory Counsel

ISO New England Inc.

One Sullivan Road

Holyoke, MA 01040-2841

/s/ Stephen G. Kozey/s/ Paul Suskie

Stephen G. KozeyPaul Suskie

Senior Vice-President, Legal andExecutive Vice President, Regulatory Policy and

Compliance Services, General Counsel andGeneral Counsel

SecretarySouthwest Power Pool, Inc.

Midcontinent Independent System201 Worthen Drive

Operator, Inc.Little Rock, AR 72205

P.O. Box 4202

Carmel, Indiana 46082-4202

/s/ Anna McKenna/s/ Garrett E. Bissell

Roger E. CollantonGarrett E. Bissell

General CounselSenior Attorney

Anna A. McKennaRaymond Stalter

Assistant General Counsel-RegulatoryDirector, Regulatory Affairs

California Independent System OperatorNew York Independent System Operator,

CorporationInc.

250 Outcropping Way10 Krey Blvd.

Folsom, California 95630Rensselaer, New York 12144

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