New%20England%20Market%20Monitoring%20Issues

1
New England Market Monitoring Issues

• Paul PetersonSynapse Energy Economics
• 22 Pearl Street, Cambridge, MA 02139
• www.synapse-energy.com
• Massachusetts Roundtable
• January 18, 2002

2
Synapse Reports

• Best Practices in Market Monitoring
• A Survey of Current ISO Activities and
  Recommendations for Effective Market Monitoring
  and Mitigation in Wholesale Electricity Markets
• The Other Side of Competitive Markets
• Developing Effective Load Response in New
  Englands Electricity Market
• www.synapse-energy.com

3
Undesirable Features of N.E. Wholesale Markets

• No demand curve to restrain supply bids
• No market as demand approaches limits of
  available supply
• Single settlement system
• Limited congestion pricing signals
• 1,000 bid cap in all markets

4
Patton Report

• Comprehensive and detailed analysis of market
  rules inhibiting appropriate price signals
• Apply similar analysis to other market rules
  related to high prices
• Notes limitations of ISO-NE to improve market
  rules without multi-settlement and an effective
  congestion management system
• General support for the recommendations in the
  report
• Concern over how recommendations are implemented

5
ISO-NE Proposed Changes

• Appropriate deferral of some issues to SMD
• Improvement in transaction rules with NYISO
• Revised ECP eligibility rules
• Reserve Market reforms

6
ISO Experiences to date CA and PJM

• California (old)
• No requirement for generation units to bid into
  the market
• Load-servers required to purchase from spot
  market
• Price caps in CA below market prices in other
  states
• Withholding and other gaming activities
• PJM
• 1,000 bid cap since inception
• Continuation of vertically integrated utilities
• 1999 and 2001 hourly ECPs above 900/MW
• De-listing of capacity resources ICAP market
  power concerns and gaming in the FTR auction
  market

7
ISO Experiences to Date N.E. and NY

• New England
• Elimination of Operable Capacity market in 1999
  due to gaming
• Bid mitigation in ICAP market in early 2000
  later revisions to ICAP
• 6,000 ECP in May, 2000 1,000 bid cap imposed
  by FERC
• 1,000 ECPs in summer 2001
• New York
• Bid cap imposed as a precaution in July, 2000
• Enhanced bid mitigation implemented by NY ISO
• Physical withholding in reserve market led to a
  bid cap

8
Issues

• Generator Unit availability insufficient outage
  data
• 1,000 bid cap no analytical basis for price
  signal
• Proxy cost of peaking unit
• Opportunity cost
• Reference price in other markets
• Hydro bids
• Load Response
• Cost-based dispatch analysis

9
National Issues

• RTO governance structure
• Role of Market Monitoring
• Independent Market Advisor
• Market power analyses (structural)
• Rule-making (section 205 rights)

10
Upcoming Events (Opportunities)

• FERC RTO process (Northeast mediation)
• FERCs new market power screen (pivotal test)
• Summer 2002 rule changes
• Standard Market Design in New England
• Quarterly and Annual Reports
• ISO-NE Board of Directors