FERC Filings
COMMENTS OUT OF TIME OF THE ELECTRIC POWER SUPPLY ASSOCIATION ON THE NEW ENGLAND STANDARD MARKET DESIGN PROPOSAL
COMMENTS
There are, however, elements of the proposal that are a source of concern. One such element is the absence from the NE SMD of clear language stating that any Manual, operating procedures or business procedures that significantly affect rates, terms and conditions is required to be filed with FERC under Section 205 of the FPA. Further, there must be a stakeholder appeal process to review the implementation and approval process of the Market Rule Manuals. While the NE ISO acknowledges that Manuals that could have a substantial effect on rates and service will be filed pursuant to Section 205, there is no internal process for either making or reviewing the determination of “substantial” impact. The Manuals are the means by which Market Rules are implemented and operate and, therefore, a proper review mechanism is essential to a functional market design. If the ISO does retain the discretion to differentiate administrative or procedural Manual items from “substantial” operational Manual items, there must be an instrument for stakeholder appeal of those decisions. However a stakeholder appeal process is implemented, either through the existing NEPOOL Review Board or some other mechanism, it is imperative that market participants are confident that the Manuals do not cause or result in unjust and unreasonable rates or service. The ability for market participants to appeal the Manuals, after the fact through the FERC Section 206 process, is insufficient and largely ineffective.
Another element missing from the NE SMD proposal is the inclusion and continuation of the recently effective reforms to the current markets that were suggested by the NEPOOL Market Advisor (the Patton Reforms). Approved by FERC on April 26, 2002, the Patton Reforms were made in the New England energy and reserves markets to improve pricing in the energy market and increase opportunities for trading between New England and New York. The reforms became effective May 1, 2002, and addressed a number of problems which produced substantially understated prices during peak periods, including the disqualification of too many resources from setting the market clearing price and the inaccurate valuation of reserves. These reforms are described at length in other comments and protests in this proceeding; EPSA supports those comments and the reinstatement of the Patton Reforms in the New England SMD proposal.
A third area of concern in the NE SMD is the lack of operating reserves markets. Similar to the Patton Reforms discussed above, at this time there are operating reserves markets functioning in New England, and their elimination is a glaring deficiency in Market Rule 1, as well as counter to the Commission’s SMD NOPR. Instead, Market Rule 1 provides for a so called “Operating Reserve” payment for resources scheduled whose bids exceeds available market revenue. These “Operating Reserve” payments are a form of uplift and do not produce appropriate price signals because they do not compensate resources in a meaningful way for the actual amount of reserve service provided, quashing any incentive to increase or maintain the level of reserve service provided. The NEPOOL should be directed to reinstate reserves markets as they function in that market today at least until the time the more refined operating reserves market is implemented in order to eliminate seams between New England and New York, which does utilize reserves markets.