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ISO-NE: Remaining Uplift in Market Largely "Intrinsic"; No Easy Solution
March 07,2016 Uplift remaining in the ISO New England market is largely, "intrinsic," to the operation of an efficient, least-cost power system in which energy is priced on the basis of marginal cost, and there is no easy solution to addressing such remaining uplift, ISO-NE said in a report to FERC on price formation issues While the ISO has made strides in reducing uplift, "the level of uplift that remains is, to a large degree, intrinsic to the operation of an efficient, least-cost power system in which energy is priced on the basis of marginal cost – a fundamental economic principle that forms the basis for Locational Marginal Pricing generally," ISO-NE said "New initiatives to eliminate remaining uplift may not be practical, or may entail unforeseen consequences at the expense of the market’s overall performance," ISO-NE said. The ISO noted that it has implemented measures to reduce uplift to 1-2% of the total energy market value in New England. "In sum, ISO-NE fully supports sound improvements to energy pricing, and agrees with the broad market design principle that the costs of operating an efficient, reliable power system should be reflected in transparently-priced products and services. Indeed, ISO-NE and its stakeholders have made significant strides in improving price formation in the New England markets, through a new methodology for the dispatch and pricing of fast-start resources, enhanced modeling of constraints, priced locational reserve products, and the adoption of look-ahead modeling tools. Together, the steady progression of these and other market design improvements results in total uplift that amounts to only one to two percent of the total energy market value in New England," ISO-NE said "The uplift that remains today is, in large part, attributable to generators’ technological characteristics – most notably, the inherent 'lumpiness' and inflexibilities of current generation technologies – that limit certain generators’ ability to promptly shut down when their energy is no longer needed, or require them to start up and produce energy before it is actually needed. As explained in this report, although such units may receive uplift from time to time, their operation and dispatch is still the least-cost, most economically efficient way to satisfy energy demand while respecting the system’s transmission security constraints," ISO-NE said "In fact, the level of uplift that remains is, to a large degree, intrinsic to the operation of an efficient, least-cost power system in which energy is priced on the basis of marginal cost – a fundamental economic principle that forms the basis for Locational Marginal Pricing generally. New initiatives to eliminate remaining uplift may not be practical, or may entail unforeseen consequences at the expense of the market’s overall performance," ISO-NE said "The allocation of uplift costs also raises challenging issues. When the root cause of uplift is the inherent 'lumpiness' and inflexibility of generators, it is generally difficult to identify a participant action that could be determined to have “caused” the uplift. In these cases, it may be that uplift should be allocated based on the Commission’s beneficiary-pays principles, as the consumer is the ultimate beneficiary when the power system is operated in the least-cost, most efficient manner," ISO-NE said "In conclusion, as highlighted in ISO-NE’s answers below, many of the questions posed in the Commission’s November 20th Order involve complex, technical issues that may not have clear answers. ISO-NE appreciates the Commission’s deliberative approach to these challenging issues," ISO-NE said Link to ISO Report
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