USA Electricity Markets Monitoring From OMOI

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USA Electricity MarketsMonitoring From OMOIs
Perspective

• George Godding
• Director, Mgmt. Comm.
• Office of Market Oversight and Investigations

Brazilian Partnership Conference - Thursday,
August 19, 2004
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Presentation Outline

• Background of Energy Market
• Electric Sector Overview
• FERC
• RTOs
• NERC
• Electricity Market Monitoring
• Major Players
• OMOI
• Oversight Process
• Market Power Mitigation
• Surveillance Process
• Indices and Reports
• Market Monitoring Center

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Brief Background on Electricity Markets
and its Regulation and Oversight
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Overview of U.S. Electricity Sector (most recent
data available 2002/03)

• Generation
• Capacity (2002) 914,123 MW
• Total net generation (2002) 3,858 billion KWh
• Coal 1,933 billion KWh
• Natural gas 691 billion KWh
• Nuclear 790 billion KWh
• Petroleum 94 billion KWh
• Hydroelectric 264 billion KWh
• Other renewable 86 billion KWh

• Generation Capacity
• Ownership
• Investor-owned utilities 398,112 MW
• Public-owned utilities 92,696 MW
• Cooperatives 37,825 MW
• Federal Power 70,220 MW
• Non-utilities 315,271 MW

• Expected Demand Growth
• 3,639 billion KWh (2002)
• 3,674 billion KWh (2003) (1)
• 3,718 billion KWh (2004) est. (1.2)

• Transmission
• High-Voltage Circuit Miles (230-kV and above)
  158,605 (255,250 km)

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FERCs Goals

• FERC Strategic Plan
• Promote a Secure, High-Quality, Environmentally
  Responsible Infrastructure through Consistent
  Policies
• Foster Nationwide Competitive Energy Markets as a
  Substitute for Traditional Regulation.
• Protect Customers and Market Participants through
  Vigilant and Fair Oversight of the Transitioning
  Energy Markets.
• Plan Transparency
• Plan Stability (minimize market uncertainty)
• Open participation in implementation decisions by
  interested parties

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FERC Organization Chart
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FERC Infrastructure Regulation

• Approve Hydro facilities (many others involved)
• Approve rate design for generation and
  transmission (states approve siting
  legislation may change for tx)
• Approve pipeline siting and transmission rates
• OASIS (Open Access Same-time Information System
  for transmission availability)
• FERC set interconnection rate design and rules
• FERC DOE review transmission issues and
  generation adequacy bully pulpit (possible
  legislation)
• DOE SP-15 Cross Channel Cable
• DOE issued July 22, 2004 Notice of Inquiry on
  National Interest Electric Transmission
  Bottlenecks (NIETB)
• Publicly identify and designate NIETBs
• To classify NIETBs (national security,
  reliability, risk of cost increases)
• How DOE facilitate monitor mitigation

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Electric Market Planning and Design - RTOs

• RTOs SMD
• Centralized dispatch
• Resource adequacy
• Long-range planning
• Day ahead and real-time markets
• Locational Marginal Pricing
• Transmission rights
• Natural Trading Markets
• Large as Possible
• Recognize Regional Differences

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RTO Map
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Reliability - NERC

• Established in 1968 in response to 1965 Northeast
  Blackout
• Non-governmental entity ten-member Board of
  Trustees
• Voluntary membership with 10 regional reliability
  councils
• Members from all segments of the electric
  industry
• Developed reliability standards and established
  good utility practices
• Developed technical services, tools and databases
  to enable industry to monitor and evaluate system
  and equipment reliability, manage grid congestion
  and facilitate communication
• 2003 Blackout
• Reevaluate reliability standards
• Accelerate adoption of enforceable standards
• Develop better real-time tools for operators and
  reliability coordinators

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NERC Map
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Electricity Market Monitoring
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Market Monitoring Major Players
NERC (Reliability Standards)
FERC (Wholesale)
Generation
Transmission
MMUs (Defined RTOs)
Distribution
States (Retail)
Other Federal Agencies
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OMOIs Mission

• Guide the evolution and operation of energy
  markets to ensure effective regulation and
  protect customers through understanding markets
  and their regulation, timely identification and
  remediation of market problems, and assured
  compliance with Commission rules and regulations.

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OMOIs Vision

• Vigilant oversight and vigorous enforcement of
  proper market rules ensure dependable,
  affordable, competitive markets to benefit end
  use customers and other participants.

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Office of Market Oversight and Investigations
(OMOI) Knowledge/Skillsets

• Planning
• Perf. Mgmt.
• Budgeting
• Facilitation
• Speaking
• Knowledge of industry
• Partnering

• Career Dev.
• HR
• Recruiting
• Contracting
• Writing/Editing
• Web design
• Graphics
• Presentation
• development

Division of Management Communication
Director
Deputy Director Market Oversight Assessment
Deputy Director Investigations Enforcement
Hotline
Market Scanning

• Public Speaking
• ADR
• Phone Response

• Strategic Analysts
• Library Science

Division of Energy Market Oversight
Division of Financial Market Assessment
Division of Integrated Market Assessment
Division of Enforcement
Division of Operational Investigations
Division of Technical Investigations
Division of Information Development

• Attorneys
• Litigation
• Investigation
• Knowledge of
• financial markets
• Enforcement
• ADR Training
• Paralegal

• Electrical Engineers
• Pipeline Engineers
• Economists
• Deep Industry Expertise
• Information Analysis
• Modeling
• Operations Research
• Market Design Operation

• Engineers
• Economists
• Broad Industry Experience (Cross-Industry,
  Scenario, Regulatory Analysis Market
  Microstructure Issues)
• Operations Research
• Writing/Presentation Skills
• Policy Analysts

• Information Analysis
• Energy Industry Expertise
• Software Applications (Large databases, Data
  Analysis, Statistical, Presentations (including
  Mapping)
• Web Experience
• Questionnaire Survey Design
• Statistical Analysis

• Financial Analysts
• Accountants
• Understanding of Investment
• Derivatives Markets
• Energy Trading

• Forensic Auditors
• Analytic ability
• Statistical sampling
• Documentation
• Industry experience
• Investigators
• Examiners

• Gas Engineer
• Electric Engineer
• Mechanical Engineer
• Quantitative Economist

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Flow Chart of Oversight Process

• OMOI takes advantage of information technology
  and updated resources for monitoring electric
  market stresses.

Investigations Audits
Push
Emergency
Emergency
Team
Market
Market Oversight
Commission
830 AM Discussions
In-Depth Study
Surveillance Report
Oversight Meeting
Regular
Pull
Feedback
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How We Regulate Market Oversight

• Set Rules (open rulemaking process)
• Provide Oversight
• Conduct Audits
• Conduct Investigations
• Ensure Compliance
• Enforce Rules
• Feedback on effectiveness of above

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Surveillance - FERC

• Data/Data/Data direct reporting and 3rd party
• Real time
• 830 meetings
• Alerts
• Daily information on Intranet from web scraping
• Weekly surveillance meetings
• Hot Line and complaints
• Building partnerships (see next page)
• Analyzing anomalies
• Reporting to Commission (anomalies, scheduled
  briefings, special reports)
• Building Reliability Group

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Coordinating Surveillance

• RTO Market Monitors (report anomalies to FERC,
  standard reports, Ex Parte rule, etc.)
• States (NARUC, Snapshot Report, etc.)
• Other Federal agencies (CFTC, FTC, DOJ, DOE, SEC,
  etc.)
• NERC

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Relationship with Market Monitors

• Joint Mission Statement
• Clear market monitoring plans
• Contact list monthly conference calls
• Triggers for reporting to OMOI
• Information access
• Coordinating investigations

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Market Power Mitigation

• Market-based rates vs. Cost-based rates
• Generation Market Power Screens
• Pivotal supplier analysis based on control areas
  annual peak supply and demand
• Market share analysis applied on a seasonal basis
  in relation to others market share
• Behavioral Rules
• Not undertake actions that purposefully lead to
  market manipulation or would be expected to
• Specific prohibitions (wash trades, false
  information, artificial congestion, collusion)

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Market Power Mitigation (continued)

• Code of Conduct
• Separate generation from marketing and
  transmission
• Treat affiliates as do non-affiliates
• If deal with affiliates (transparent, defined
  product, standard criteria, independent design
  solicitation review)
• Mitigation schemes at RTO level
• Caps
• Bidding controls
• AMP conduct and impact
• Cost-based restrictions when congestion (market
  power RMR)
• Merger approval may require mitigation

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Electric Market Efficiency

• Shared objective with States and other Federal
  agencies
• Market-based drives efficiency and just and
  reasonable rates
• No specific requirements
• Economic and physical withholding
• Maintenance
• Cost-based if market power not mitigated
• Dispatch studies
• Looking for lowest cost power into the market
  to customers

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Indices and Reports Market Monitoring Center
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Indicies and Reports

• Alerts
• Daily Energy Reports
• Market Surveillance Report
• Seasonal Assessments
• Anomaly Reports
• Annual State of the Markets Report
• Annual Behavioral Rules Report
• MMU Annual Reports
• Common Metrics

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Common Market Metrics MMUs
Status of MMU Common Metrics from State of the
Market Presentations
Category Metric NYISO PJM ISO-NE CAISO MISO Total
Energy Market Metrics DA and RT Prices ? 1
Energy Market Metrics Price Duration Curve ? ? ? ? 4
Energy Market Metrics All-in Price ? ? ? ? 4
Energy Market Metrics Volatility
Energy Market Metrics Congestion Costs ? ? ? 3
Secondary Market Metrics Capacity Market Volume and Price ? ? 2
Load Metrics Load Duration Curve ? ? ? ? ? 5
Load Metrics Imports and Exports ? ? ? ? ? 5
Load Metrics Offer Sufficiency ? ? 2
Generation Metrics Outages and Deratings ? ? ? ? ? 5
Generation Metrics Generation by Fuel ? ? 2
Additional Market Metrics Virtual Transactions ? ? 2
Additional Market Metrics Spot Market Activity ? 1
Additional Market Metrics RSI Duration Curve ? ? ? ? 4
Additional Market Metrics Reserve Margin OMOI and Market Monitors agreed to add this metric at June 22 MMU meeting. OMOI and Market Monitors agreed to add this metric at June 22 MMU meeting. OMOI and Market Monitors agreed to add this metric at June 22 MMU meeting. OMOI and Market Monitors agreed to add this metric at June 22 MMU meeting. OMOI and Market Monitors agreed to add this metric at June 22 MMU meeting. OMOI and Market Monitors agreed to add this metric at June 22 MMU meeting.
Additional Market Metrics Net Revenue Analysis ? ? ? ? 4
Total Total 10 8 10 9 7
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Market Monitoring Center(Information Examples)

• Screens from
• Bloomberg, ICE and DOW (data and traders
  comments)
• Friedwire (flows, LMP, nuclears, etc.)
• Genscape
• PJM