Expressing concern about price volatility in the natural gas market, New Jersey, Virginia and Michigan regulators have directed local gas distribution companies to try fixed-price contracts and...
The ISO takes on critics of its new market design.
Electricity market design is a complex, even arcane, subject-which is why any discussion of the makings of a new market structure should focus on substance, rather than sound bite material. The California Independent System Operator Corp. (California ISO) was disappointed to read what appeared to be a narrow view of the state of market redesign in the August 2002 article "A Vision for Transmission: How the RTOs Stand on Market Design." It told a one-sided story. The article let readers down by neglecting to assess the validity of critical comments selected for quotation by the authors. As a result, the article left readers with a distorted impression of our comprehensive Market Design 2002 (MD02) proposal filed with the Federal Energy Regulatory Commission (FERC) in May and approved to a large extent by the FERC order of July 17.
Many of the allegations in the article focused on price mitigation tools. Those measures, we believe, are necessary with the approaching expiration of the existing FERC-established West-wide price mitigation. Until the benefits of the long-term market redesign-accurate and consistent price signals that result in needed infrastructure investment-are realized, the mitigation tools are essential. It is important to note the level and magnitude of the price mitigation measures will moderate as the market becomes more stable and competitive. Thus, the article completely fails to distinguish where we are from where we are going.
Big Three Fallacies
One fallacy promulgated by the article is that MD02 is not very different from the ISO's original design. It appeared the authors quoted comments filed with FERC on our MD02, but did not include the ISO's response to FERC regarding those very comments. Case in point, one comment included in the article was that "MD02 … offers only incremental change … rather than a fundamental rethinking of what has been proven to be a fatally flawed system." Nothing could be further from the truth. The executive summary of the Comprehensive Design Proposal, which the ISO filed with FERC on May 1, describes several key design elements that depart dramatically from California's original design, including:
- Integrated day-ahead and hour-ahead spot markets that optimally clear energy trades, procure ancillary services, commit supply resources, and manage congestion. The original design placed day-ahead and hour-ahead energy trading and unit commitment completely outside the ISO, requiring sequential ancillary services procurement after energy trading was completed by the Power Exchange and other scheduling coordinators (SCs). MD02 overhauls the original design by eliminating the often criticized "market separation rule" that prevented the ISO from executing energy trades (i.e., moves from a completely "decentralized" approach to a more "centralized" energy and ancillary services marketplace). This approach is completely consistent with FERC's recently released Notice of Proposed Rulemaking (NOPR) regarding a standardized wholesale market design (SMD NOPR).
- Locational Marginal Pricing (LMP or nodal) in the forward and real-time markets based on an accurate model of the grid. The original design used a three-zone model that ignored "intra-zonal" constraints and allowed SCs to establish schedules that could not