FERC Filings
MOTION TO INTERVENE AND PROTEST OF ELECTRIC POWER SUPPLY ASSOCIATION-New York Independent System Operator, Inc, Central Hudson Gas & Electric Corporation,Consolidated Edison Company of New York, Inc., New York State Electric & Gas Corporation, Niagara Mo
II. PROTEST
A. The Commission Should Require The NYISO To Form A Single, Region-wide RTO In Combination With One Or More Adjacent Control Area Organizations.
The NYISO’s proposed RTO does not meet the Commission’s requirement that an RTO serve a region of sufficient scope and configuration to permit the RTO to perform its required functions effectively and to support efficient and nondiscriminatory power markets. While NYISO details its interregional activities in the Compliance Filing that support its goal of forming a virtual regional RTO, it asserts that the NYISO, “standing alone, has sufficient size and scope to comply with Order No. 2000’s requirements.” EPSA rejects the NYISO’s claim; the NYISO should not be allowed to continue the status quo which it inherited. Rather, the Commission should direct the NYISO to seek actively to create a single, region-wide RTO in combination with one or more adjacent control areas’ organizations. The NYISO’s failure to meet the Commission’s requirements of scope and configuration is the Compliance Filing’s fundamental deficiency. A Commission direction to the NYISO to work in an accountable and monitorable manner, with specific milestones and a process to enforce compliance with such milestones, to form a region-wide RTO would resolve most, if not all, of the specific comments that EPSA submits in this Protest.
B. The NYISO Does Not Meet The Commission’s Requirement Of Independence From Market Participants(Characteristic No. 1).
The Commission has stated that independence is the bedrock upon which ISOs and all RTOs must be based. While the NYISO asserts in the Compliance Filing that the Commission’s prior approval of the NYISO’s governance structure as an ISO supports a determination that the NYISO complies with Commission’s independence characteristic set forth in Order No. 2000, the NYISO fails to meet the Commission’s requirement that RTOs be independent from market participants in three important respects. First, the independent entity deciding market policy must be freed of the constraints imposed by the current “shared governance” structure. Stakeholders should be able to provide advisory input and be assured that properly raised and legitimate concerns are suitably addressed, but not control the outcome of those decisions, as the current governance arrangements permit. Second, even if the governance process is not made truly independent of market participants as proposed immediately above, the NYISO’s current authority to take unilateral action pursuant to filings under Section 205 of the Federal Power Act is unnecessarily limited in scope and excessively tied to the concurrence of influential stakeholders. Third, the present allocation of important decisionmaking authority to a transmission owner-dominated organization allows for undue parochial influence over RTO governance.
1. The NYISO’s Governance Must Be Modified So That It Is Independent of Stakeholders.
The current ability of the New York governance process to adopt and submit to the Commission pro-competitive revisions to its tariff and market rules is limited. While stakeholders should have the opportunity to contribute to independent decisionmaking through a formal advisory process, the NYISO’s proposal to continue to share governance control of the NYISO with market participants under the NYISO voting rules now in place will continue the present requirement that stakeholders must assent to most tariff changes proposed by the NYISO. This requirement imposes severe limits on the NYISO’s independent control over changes to market rules and other crucial actions relating to amendment of a tariff or the NYISO Agreement. Furthermore, the fact that the NYISO filed this approach raises serious doubt as to its ability to understand and implement independence in policy decisions.
The NYISO’s current inability or unwillingness to take prompt action to amend its tariffs or to take action that, while designed to improve system operations, does not reflect sufficient stakeholder support to be enacted under existing voting rules, is a significant factor inhibiting the functional improvement of the NYISO’s power markets. The NYISO’s “shared governance structure” thus improperly delegates responsibility for decisionmaking to stakeholders and is a sub-optimal means of satisfying the Commission’s independence characteristic.
The authority of the NYISO to control the operation of the markets independently of market participants is additionally limited by the fact that the actions of each of the NYISO’s three stakeholder committees become effective, subject to the right of an appeal, 30 days after the Committee’s action. Thus, not only is authority to review and potentially block action on business and operating issues concerning the market, such as market design flaws, allocated to the three stakeholder committees, but these stakeholder committees possess the authority to take action on such matters directly.
EPSA proposes that the governance of the NYISO be changed to insure the independence of the RTO. In particular, market policy decisions need to be addressed through an independent regional board which holds the associated Section 205 authority and is subject to addressing stakeholder concerns. Stakeholders would be able to provide advice and recommendations to this board in a formal advisory process. The stakeholders’ committees would thus become advisory committees, as opposed to committees which have authority to control the RTO’s operations.
The NYISO’s justification for continuing its unique “shared governance” is based upon the premise that no single market participant, nor single class of market participants, can dominate the NYISO. The NYISO overlooks, however, the commanding role played by select market participants that routinely participate as voting blocks in the NYISO’s decisionmaking. The Commission recently rejected the use of a stakeholder board for the California ISO and required that ISO to replace its stakeholder board with a board composed of independent members. With respect to the California ISO’s Governing Board, the Commission observed that it had difficulty reaching decisions on complex and divisive issues. In addition, the Commission considered the Governing Board to be subject to serious conflicts of interest.
These recent Commission decisions speak clearly about the inappropriateness of governing an ISO through a stakeholder board. The Commission’s California decisions undercut the Commission’s original acquiescence in the NYISO “sharing” of governance with a stakeholder committee. The fact that NYISO stakeholders merely share governance with NYISO, as opposed to constituting the Governing Board as in California, does not distinguish New York from the situation in California. Except for cases involving “exigent circumstances” discussed below, under the NYISO’s current governance structure, which the RTO proposal would perpetuate, stakeholders in New York have an effective veto over the NYISO’s decisions to file any tariff amendment under Section 205.
Sharing of governance control with a stakeholder body retards the ability to achieve needed changes in market rules promptly and expeditiously. The significant control that the stakeholder committees can exercise over the tariff amendment process requires the NYISO to expend significant resources and time in seeking stakeholder support for proposed tariff amendments. The NYISO’s emphasis on stakeholder control also encourages the NYISO to emphasize the fact of stakeholder support for a proposed amendment rather than the efficacy of a proposed amendment to the market rules. The result is NYISO’s over-reliance on the argument that a proposal satisfied the minimum voting formula and secured sufficient support from a segment of market participants at the Management Committee rather than an argument that a proposal is best for competitive markets.
The NYISO’s proposed amendments to its governance structure are limited in scope and unclear in goal and do not eliminate or mitigate the NYISO Board’s lack of independence. In one amendment, the NYISO proposes that NYISO staff be given greater responsibility for matters, such as the general administration of the NYISO and matters not specifically assigned to the committees, that the NYISO President reasonably believes will not alter NYISO policy in a manner that affects market participants. Even assuming that the NYISO intends these changes to be significant, EPSA does not agree that the proposed changes adequately address the limitation on the NYISO’s independence caused by NYISO’s “shared governance.” Control over the NYISO policies would remain with stakeholder committees, and NYISO staff action would be subject to ratification by the appropriate stakeholder committee at its next meeting. As such, while EPSA supports the independent authority to render these decisions, there is reasonable basis to doubt the abilities of NYISO to implement properly independent decisions that promote competitive markets.
The NYISO’s other proposed amendment of its governance structure, in which it proposes to extend the length of the sunset period for tariff changes which are made as a result of “exigent circumstances,” does no more to solve the lack of independence. The important issue is not the length of the period during which such tariff changes may continue to be effective in the absence of Management Committee concurrence, but the lack of exclusive independent authority to amend the tariffs and the NYISO Agreement and the length of the decisionmaking periods in connection with changes to market rules and other operational matters.
2. The NYISO Proposal Does Not Provide Sufficient Independent Authority With Regard to Making Section 205 Filings.
Even if the fundamental change in the NYISO’s governance set forth immediately above is not adopted, the Commission should not allow the NYISO to perpetuate the current flawed system of governance without amendment. Currently, without concurrence of the NYISO Management Committee, a stakeholder committee, the NYISO Board does not possess the independent authority to make filings pursuant to Section 205 to amend the NYISO’s Open Access Transmission Tariff, the NYISO’s Market Administration and Control Area Services Tariff or the Independent System Operator Agreement (“NYISO Agreement”), unless the Board certifies that “exigent circumstances” exist. The requirement that the NYISO Board obtain the Management Committee’s concurrence for proposed amendments of a NYISO tariff, in the usual course, demonstrates a significant limitation on the NYISO Board’s authority to act independently for the betterment of regional markets.
Order No. 2000 required that RTOs:
have the independent and exclusive right to make Section 205 filings that apply to the rates, terms and conditions of transmission services over the facilities operated by the RTO. (emphasis added)
The Commission noted in Order No. 2000 that New York was an exception to the general rule in which the ISOs’ Boards have final decisionmaking authority. The fact that the Commission initially accepted this restriction on the NYISO’s independence in its formation as an ISO, should not limit the Commission from now requiring that New York comply with the independence requirements of Order No. 2000 by providing such authority to an independent decisionmaking board.
3. The New York State Reliability Council’s (“NYSRC”) Control Over Reliability-Related Decisions Unacceptably Intrudes On Independence.
Under the existing NYISO procedures, the NYSRC retains significant power over the NYISO’s administration of wholesale markets in energy and ancillary services. The NYSRC establishes both the state-wide annual installed capacity requirement and the reliability rules for the New York control area, both of which have the potential to affect the operation of the market significantly. The NYISO RTO Compliance Filing would retain NYSRC’s role in New York. The NYSRC, however, is subject to very different governance arrangements than the NYISO as the NYSRC is controlled by New York’s transmission owners. The transmission owners in the New York control area occupy seven of thirteen seats on the NYSRC’s Executive Committee.
The NYISO’s delegation of issues that have the potential to affect the markets to a transmission owner-dominated organization hardly seems necessary now, if it ever was, and is certainly inconsistent with Order No. 2000 , as the NYISO has established itself as capable of operating the New York control area’s power and transmission systems. In the absence of clear explanation of a continuing need for the NYSRC, the NYSRC exists simply in order to provide the transmission owners control over, and management of, the transmission grid and through that to maintain control over the markets. This aspect of the NYISO governance should be ended forthwith as it is clearly inconsistent with the Commission’s independence characteristic.
C. The NYISO Does Not Meet The Commission’s Requirements For Sufficient Scope And Regional Configuration (Characteristic No. 2).
If the Commission is serious about its desire to create truly regional transmission organizations, rubber stamping existing ISOs is the wrong approach. This is particularly true in the case of a single state ISO, such as the NYISO. State-wide, or power pool-based, ISOs may have made sense in the context of the Commission’s issuance of Order No. 888, but simply approving the scope and configuration of existing ISOs will likely perpetuate the current balkanization of the electrical grid. Large, seamless, regional markets are essential to the development of robust, competitive electric markets. The ultimate goal should be a single northeastern RTO. It is doubtful whether any of the three existing northeastern ISOs can ever meet the Commission’s RTO requirements as a stand-alone organization.
As a single-state ISO, NYISO particularly fails to meet the Commission’s requirements. The NYISO is subject both to explicit and implicit regulatory influence from New York’s Public Service Commission (“PSC”) and New York’s political leadership. The PSC’s control of the NYISO is not limited to overt regulatory orders, but occurs as a result of its indirect regulatory oversight of key market participants and the subtle and pervasive oversight of the NYISO and its committees and groups.
The Commission’s Staff Report on U.S. Bulk Power Markets recognized the need for a northeastern RTO:
A single [northeastern] RTO is best equipped to deal with the narrow, business process type issues such as scheduling and interchange flexibility as well as the more significant issues such as regional transmission expansion. . . . This would help strengthen interties, possibly reduce market power (lessen incentives to flee from one ISO to another), and would result in a harmonized market without competing ISO interests or goals. The likely benefit of this approach is that market enhancements would be made more readily than if the ISOs were to remain as separate RTOs with seams agreements to address coordination issues. Thus far, the ISOs have made little significant progress on inter-ISO issues; there is really no motivation for the ISOs to do so.
The Commission Staff supported this policy option with substantial comments about the inward focus of the three northeastern ISOs, that the ISOs are not structured to enhance northeast regional coordination and may, in fact, be deterring trade across the northeast and the advantages that would accrue to the competitive market if institutional barriers were eliminated. The Staff Report concluded, with respect to market coordination, with an invitation to the Commission to take a more active role in enhancing northeastern regional coordination:
It might be more effective to devote the resources of all market segments and regulators to the potential for northeastern regional solutions to issues such as transmission planning or congestion management than to perfect separate ISO-administered markets. Synergies that will further the Commission’s goal of broader regional coordination may be lost, at a minimum, in the near term and quite possibly longer term once NYISO and ISO-New England have made considerable investments in fixing or enhancing their separate markets. To prevent the possibility of continued internal changes by ISOs that do not also enhance, and may hinder, further trade across the Northeast, the Commission may want to take a more active role in the coordination and standardization process begun with the MOU.
The existing, entrenched ISOs, with parochial interests and political constraints, are unlikely to accept voluntarily the difficult compromises necessary to become more geographically diverse. The fact that the NYISO is strongly influenced – if not controlled by certain similarly-situated stakeholders and the PSC – makes the likelihood that the NYISO will voluntarily agree to a merger of the Northeastern ISOs even slighter. If the Commission approves the NYISO as a separate, stand-alone RTO, there will almost inevitably be three separate RTOs in the northeast for the foreseeable future. Inter-RTO relations will be treated as “seams issues” to be resolved on a low priority basis, rather than as a fundamental competitive market issue that should be at the forefront of the ISO’s short-term agenda and market dislocations will be institutionalized. Because of the strong role that the PSC and stakeholders play in the NYISO, it is unlikely that the NYISO can be an effective leader in integrating the three northeastern ISOs, and the Commission must take a leadership role in the integration of the three northeastern ISOs into a single market.
In addition, the effect of anti-competitive block voting habits of certain market participants and the influence of the PSC would be lessened were the scope and regional configuration of market policy decision-making expanded. An expanded RTO would diminish parochial influences and allow for more reasoned decision-making on the impact of the RTO tariff and market rules on market liquidity and the overall efficiency of regional power markets.
The three regional ISOs are unlikely to accomplish regional integration without strong encouragement by the Commission, and it is certain that any such integration will not be undertaken promptly in the absence of Commission oversight. EPSA suggests two ways in which the Commission could support regional integration:
First, the Commission should direct the three northeastern ISOs to adopt the best market rules, best business practices and best software to be applied across all three northeastern ISOs. This approach to regional scope and integration of ISOs addresses market functions first followed by consideration of the structure of the ISOs. Starting with functional changes will produce immediate benefits for market participants and for customers throughout the region. Structural issues (including matters such as governance, corporate form and the formation of a transco) will neither be easy to resolve nor will they produce immediate payoffs for market participants and customers.
Second, the Commission should direct its ADR unit to assist the three northeastern ISOs and market participants in adopting common market rules, business practices and software across the three ISOs. Specific deadlines must be established for implementing solutions, that will encourage the ISOs and interested market participants to assign the needed priority to the integration process. In addition, a settlement judge should be designated who will hold periodic settlement meetings to encourage consensus on issues that seem in dispute. Finally the Commission should establish a date certain, no later than December 31, 2002, for this process to be completed. Thus would allow the resulting region-wide RTO to be established by Summer 2003.
This integration process should involve all three regional ISOs, not just the NYISO and ISO New England, Inc. The Commission should issue an order immediately directing that this regional integration effort begin. There are significant benefits to be realized promptly from the integration of market rules, business practices and software. There is, therefore, no reason for the Commission to delay the encouragement to integration that will result from these suggestions until the Commission has resolved all other issues concerning Order No. 2000.
In any event, there must be immediate adoption of common market design elements and common market oversight practices to produce the seamless multi-state market that is required. Some features of the current ISOs, such as market monitoring, need not be continued on a stand-alone basis. This would allow the ISOs to adopt a common approach to market power issues and to integrate the administration of measures to detect and mitigate market power.
EPSA understands that the PJM ISO has offered to make available to the other two northeastern ISOs certain of PJM’s procedures and computer-based programs that support its market administration. Since PJM has been the most successful in operating its energy market, either the NYISO should accept PJM’s offer or the Commission should require NYISO and PJM, as well as ISO New England, to adopt best practices that lead to consistent and comparable market rules, market monitoring and other practices. Finally, such an enlarged market should include all market participants, including cooperatives and municipal utilities.
EPSA supports the proposal by the Coalition for Competitive Markets (“Coalition”) in the proceeding addressing the RTO filing by ISO New England, Inc. and six transmission owner that the Commission adopt a Regional Markets Board and an Independent Market Monitoring Unit. The Coalition is composed of power suppliers, exchanges and customers that are active in New England. The Regional Markets Board would replace existing stakeholder decision-making in the New England Power Pool and would be responsible for establishing market policies, rules and procedures. The Independent Market Monitoring Unit would monitor market participant behavior, as well as auditing the performance of the ISO New England, Inc. and the proposed Independent Transmission Company. Such institutions would not only address their specific respective assigned responsibilities, the design and submission of market rules and the monitoring of market performance and mitigation of market power abuse, but they would be designed using an “open architecture” structure that would allow their integration with neighboring regions’ RTOs. EPSA encourages both the application of that approach to NEPOOL and its extension to New York.
D. The NYISO Does Not Possess Exclusive Authority Over Interconnecting New Generators, Planning and Expansion Requirements (Functions No. 1 and 7).
1. The RTO Proposed By NYISO Will Not Have Ultimate Authority For Transmission Planning And Expansion.
The NYISO proposes that a new stakeholder committee, the Transmission Planning Committee (“TPC”), be created to:
consider and coordinate all transmission expansion proposals in the ISO control area and develop a Consolidated Transmission Plan (“CTP”) that would include transmission facilities necessary to ensure the continued reliability of the New York transmission system.
While the NYISO states that the NYISO Board will have final approval authority over the CTP, how much real authority the NYISO Board will have over the CTP remains unclear. First, and perhaps most telling, the CTP will not be developed by NYISO staff but by the new stakeholder committee. Since the only parties to this TPC with the information and technical expertise to establish a transmission plan are the transmission owners, it can be expected that the CTP will in fact be prepared by the transmission owners. The limited authority of the NYISO Board over the CTP is further exemplified by the authority provided the NYISO Board in Attachment II, which provides that if the NYISO Board determines modifications to the CTP are necessary, the Board shall “remand the CTP to the [Management Committee,] with an explanation of the [Board’s] reasons for the proposed modifications.” The Board, in other words, can only “propose” modifications to the CTP. The stakeholder committees, in turn, can analyze and comment on the modifications proposed by the Board. This legalistic procedure is far from the level of authority that the NYISO Board and the NYISO staff should possess.
The CTP will address transmission projects required to meet reliability requirements, which cannot reasonably be expected to be met by new supply resources. Thus, transmission upgrades or expansions that would be required (1) only if new generation supply projects were not built or (2) to serve new generation supply will not be included in the CTP. This is a significant limitation of an already-circumscribed plan. Moreover, it is not clear whattransmission facilities will even be considered by the TPC in its CTP. The NYISO indicates that they will only relate to the “bulk power” system, an undefined and potentially limited category of transmission facilities. The transmission owners have made clear in at least one of the three NYISO task forces focusing on interconnections that the CTP will not cover “local transmission” facilities.
The transmission owners appear to want the TPC to approve “incentives” for the construction of reliability-based transmission facilities. While incentive rate making may have a beneficial role in rewarding transmission owners for overall improvement in system operation, it is inappropriate for the TPC to consider such incentives in connection with the construction of reliability-related upgrades and expansions. Considering incentives poses a serious conflict of interest for this stakeholder group.
The undertaking of the transmission owners to build reliability-related transmission projects, moreover, is substantially hedged. While it is reasonable for parties undertaking to build transmission upgrades to request that cost recovery be assured and that necessary regulatory approvals be received, the additional requirements of “appropriate amortization periods,” the receipt of the transmission owner’s board’s approval and the receipt of adequate financing seem likely to present barriers to construction of transmission upgrades and expansions.
NYISO proposes that the CTP be updated every two years. This time lag is not acceptable. The growth in demand today is not only higher in the aggregate, but is also subject to regional shifts. The CTP should be updated on a six-month interval, as is done in PJM, not two years.
The Commission should reject the suggestion that proponents of market, or economic-justified, transmission projects must negotiate with transmission owners. The suggestion that the transmission owners should control such negotiations reveals the weakness of the Compliance Filing which places transmission owners, not the NYISO, in charge. A clear conflict of interest exists for the transmission owners, which may seek to compete with generators by building transmission projects instead of generation projects, when these owners seek to control which projects are constructed. The negotiations must be with the RTO, not the transmission owners.
2. The RTO Will Fail To Have Sole Authority Over All Requests For Interconnection.
The Commission expressly required in Order No. 2000 that the RTO, not transmission owners, be the sole provider of transmission service and that, as a part of that authority, the RTO have the sole authority for the evaluation and approval of all requests for transmission service and new interconnections. Specifically, the Commission rejected comments urging it to limit the RTOs’ authority over requests for new interconnections. The NYISO’s Compliance Filing, however, fails to meet this standard. Although in its Compliance Filing NYISO refers to the actions it is taking to establish interconnection procedures for new generators, it has not yet adopted satisfactory procedures and neither the NYISO nor the Commission can know at this time how such procedures ultimately will be shaped or when they will be adopted. Moreover, there is no reason why the NYISO should start from scratch to formulate interconnection procedures. PJM already has Commission-approved interconnection procedures in effect which easily could be adopted for use by the NYISO.
The limited information on interconnection procedures in the Compliance Filing suggests that the NYISO will not possess exclusive authority over interconnection of new generators. The degree of transmission owners’ formal, or effective, control over the interconnection process is of crucial importance. EPSA’s members’ experience in the study processes of other ISOs has not been positive when transmission owners play a major role. Feasibility studies take much longer than they should, and transmission owners have too much say concerning the nature and costs of interconnection. Thus, the interconnection procedures must be explicit. The transmission owners have their own interests at stake when evaluating the nature of transmission reinforcements required to interconnect. The Commission should reject the NYISO proposal and direct NYISO to prepare interconnection procedures that (1) place NYISO, and not the transmission owners, as ultimately responsible for determining what transmission reinforcements are required and (2) ensure that NYISO, and not the transmission owners, is responsible for ensuring timely completion of studies and negotiations of transmission upgrades.
E. The NYISO Does Not Meet The Commission’s Requirements Regarding Parallel Path Flows (Function No. 3).
The NYISO’s claim that it meets the Commission’s requirements for parallel path flows overlook the limitations imposed upon the NYISO by its limited geographic scope. In fact, the NYISO identifies in its Compliance Filing a major reason for creating a regional, seamless market, namely, the potential for one market participant to gain advantage over others by relieving congestion through its own efforts. The fact that the NYISO has taken, and continues to take, steps to meet the parallel path flow issue – and thus fulfill its obligations as an ISO – does not qualify it to be an RTO. Again, concerns with respect to this function largely disappear if the scope and configuration of the NYISO are substantially improved.
F. The NYISO Must Modify Its Market Monitoring To Meet The Commission’s Requirements (Function No. 6).
Order No. 2000 declares that one of an RTO’s functions is to monitor markets for transmission services, ancillary services and bulk power to identify design flaws and market power. While an RTO’s market monitoring should further the Commission’s overarching goal for the formation of RTOs – the facilitation of robust, competitive wholesale electricity markets on a regional basis – some existing ISOs are choosing to define their market monitoring role as providing input and support to the ISO in the latter’s often arbitrary effort to reduce wholesale price movements. What they fail to acknowledge is that effective market monitoring requires other responsibilities, including, monitoring system and market operation compliance with the Commission-approved market rules, identification of flaws in market design and operation and opportunities for market improvement. When these other critical functions are considered, it is clear that the monitor must be independent of the entities deciding market policy as well as those who implement policy, as both will be unable to provide the necessary objectivity.
Market monitoring should not be used as a substitute for structuring the RTO rules properly to begin with. Properly structured, well-functioning bulk power markets will produce consumer benefits. RTO rules must be structured to ensure fair and open access to transmission, reliability, and effective competition. There are key tasks that a market monitoring unit (“MMU”) should accomplish.
It is imperative that the MMU role be carefully prescribed and clarified so that market design corrections, in the guise of market monitoring, not do more harm than good.
The NYISO’s market monitoring has a number of acceptable features. First, the NYISO has retained an independent market advisor. Such an independent expert is in a position to provide advice independent of the staff of the ISO. This independence provides significant advantages for the market monitoring function. Moreover, such an advisor is in a position to provide advice from a wider sphere of professional experience than that existing within a single ISO. EPSA, however, is concerned that each of ISO NE and NYISO feel compelled to each have their own separate market advisor reporting to each respective organization’s Board. This duplication raises questions whether the ISO Boards view these market advisors as independent since if they were truly independent, there would seem to be no advantage to each ISO Board having its own market advisor. Second, the NYISO’s market monitoring unit provides educational and counseling services to market participants in the NYISO-administered markets.
The NYISO’s MMU, however, is continually involved in reviewing and changing bid prices. When focused on commodity energy markets, the MMU should not intrude into or try to “make” the market, but should:
(a)Evaluate the operation of the market to detect either design flaws in the operating rules, standards, procedures, or practices as set forth in the tariff, manuals and other prevailing documents or to detect structural problems in the market that may need to be addressed in future collaborative efforts;
(b)Monitor and report on issues relating to the operation of the market, including the determination of transmission congestion costs or the potential of any market participant(s) to exercise market power within the specific control area;
(c)Evaluate any proposed additional monitoring and reporting mechanisms that are necessary to assure compliance with market rules; and
(d)Facilitate a monitoring program in an independent and objective manner. Market monitors should not attempt (nor have the authority or capability) to artificially adjust prices (high or low), but rather should recommend to the RTO and its market participants long-term structural solutions that remedy identified problems so as to avoid after-the-fact price adjustments. The NYISO’s continual, after-the-fact adjustment of clearing prices is a significant flaw in its approach to market monitoring.
Although the market monitor must rely on RTO systems and data, the market monitor must be independent from the RTO entities which decide market policy and which implement the markets and operate the system and the transparency and confidentiality of any analysis should be assured. The NYISO’s MMU should be made independent of the NYISO’s Board and Staff.
Due to the need to expand regional markets, the Commission should encourage the development of regional independent market monitors to support the development of large seamless regional trading markets. An independent regional entity would be free from any local political or market sector interests, therefore allowing better integration among neighboring regions. Indeed, reasoned and efficient decisions made by fully independent entities that lack bias and are not captive to one administrative structure will improve confidence in the process and in the market rules themselves.
The primary role of the market monitor should be to provide the diagnostic analysis and, when needed, to recommend rule changes to the RTO’s Board of Directors in a collaborative manner to address anti-competitive behavior. The MMU cannot unilaterally impose rule changes on the market, and the Commission cannot delegate enforcement and rate changing authority to the MMU. That process should be a collaboration among the RTO, stakeholder participants, administered by the Commission. The MMU cannot have authority to change or dictate prices or to enforce sanctions on market participants.
Enforcement of any relevant laws must be left to the Commission and the Department of Justice, depending on the circumstances at hand and on the specifics of the case. The MMU should not be empowered to take enforcement action and should only recommend that enforcement action is needed if market power abuse is demonstrated.
The Commission must clearly state and consistently apply standards to identify and remedy anti-competitive behavior. Although Order No. 2000 did allow market monitoring proposals to vary with RTO structure, one fundamentally important detail was left undecided in the rule – the definition of market power and abuse thereof.
The Commission must provide direction to the industry by clearly defining market power, what constitutes an acceptable definition of a market in terms of geographic scope and product type, and how market power should be measured. Within the appropriately defined markets, the Commission should then employ EPSA’s two proposed stages of market power assessment to assure accurate market power measurement.
The issue of market measurement is important, yet it has nonetheless not received adequate attention from the Commission. EPSA has submitted White Papers on Market Monitoring in two Commission proceedings which address the subject of market power measurement in detail.
G. The NYISO Does Not Meet The Commission’s Regional Coordination Requirements (Function No. 8).
While the NYISO refers to certain actions it is taking to improve interregional coordination, these proposals do not have definitive implementation schedules with enforceable deadlines. Thus, the NYISO’s discussion of the “virtual RTO” in the Compliance Filing is vague and devoid of action plans. The limited nature of the NYISO’s undertaking in this instance is revealed by the fact that the transmission owners reserved the right to file comments on this aspect of the Compliance Filing or to support alternate inter-regional coordination proposals. The NYISO’s discussion of formal merger of ISOs is vague and unenthusiastic and leaves open the question whether such a merger will ever happen. Further doubt is created by the portion of the Joint Agreement between the NYISO Board and ISO NE Board that they cooperatively resolve seams issues, while each asserts they need their own Market Advisor.
The NYISO is not sufficiently encouraging the integration of the northeastern market. The strengthening of regional coordination should be a very high priority, but the NYISO presents little evidence in the Compliance Filing to support the claim that it is working effectively and insistently to cause the regional market to come into existence. While the NYISO has signed various memoranda of understanding with adjacent ISOs, the NYISO’s efforts at coordination of the three markets to date appear too superficial and too little, too late. The expected time frame for realization of results is too far in the future. The most recent agreement between NYISO and ISO-NE simply layers a new, ineffective process on top of the existing, ineffective process. For example, it is currently not possible to sell New England capacity into the NYISO market. This most basic issue should be resolved immediately.
The Commission should provide the NYISO with guidance on the appropriate schedule for accomplishing the integration of the northeastern market.