Public Utilities Reports

PUR Guide 2012 Fully Updated Version

Available NOW!
PUR Guide

This comprehensive self-study certification course is designed to teach the novice or pro everything they need to understand and succeed in every phase of the public utilities business.

Order Now

Power Pools & ISOs: Monitoring Market Power in a Restructured Industry

Fortnightly Magazine - March 1 1998

of bilateral trading arrangements, especially given FERC's apparent predilection to protect the sanctity of the latter. The three northeastern pools, which have for decades had more inclusive and centralized trading arrangements than other regions, should provide the first test.

The other major monitoring issue in California has been whether monitoring should be limited to conduct specific to auction markets or whether it should look also at broader issues that have dominated most recent antitrust debates in this industry, such as market structure.

Some in California's governance structures advocated not dealing with market power abuses at all but only with other forms of manipulation distinctive to these markets. %n3%n FERC's late 1997 orders, however, made clear that it expects the monitoring units to detect market power abuses in the auction markets and that it welcomes their input on broader issues of market structure. However, FERC recognizes that the resolution of these issues more likely would occur in other contexts such as FERC or antitrust agency proceedings.

Fines, Penalties and Corrective Action

One reason that the FERC prefers broad-scope surveillance in California stems from a recognition that simply setting up programs to monitor market power does not presuppose that the programs will be equipped to deal with abuses once they are identified.

In proposing their monitoring "plans" to FERC, both the ISO and PX contemplated (and FERC accepted) a menu of options for enforcement or corrective action in descending order of probable use. At the top of the list is prospective modification of the detailed rules of new markets to eliminate design flaws that permit market power abuse or other forms of manipulation (using ADR where appropriate to broker compromises between conflicting stakeholder views). Notably, the proposed New England monitoring plan adopts a similar approach, preferring deterrence rather than punishment for exercises of market power, seeking explanations from market players for apparently problematic conduct before acting and allowing them to institute ADR reviews of ISO mitigation actions.

For clear offenses of existing rules, the California ISO and PX will develop a menu of fines and other sanctions. The Commission, sensitive to its own prerogatives and limitations in this area, already has signaled that it will scrutinize carefully these assertions of enforcement authority, especially where they involve limiting the rights of market players to compete.

Where serious violations of FERC's regulatory policies or those of the antitrust agencies are perceived, direct referrals to these agencies probably will be used. The monitoring programs may provide information, and perhaps their views, to the pertinent agency but leave the discretion to take corrective action in its hands.

In situations such as California's, where the ISO and PX both have stakeholder-dominated governing boards, special attention has been given to the "independence" of the monitoring programs (em by ensuring them a direct avenue to the regulators and antitrust enforcement agencies where a potential exists for stakeholder interests in the governance structure to block effective action.

In northeastern pools, where each system has now proposed governing boards of external experts, unaffiliated with any stakeholders, the concern over the "independence" of the