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Watching the Watchers

Can RTO market monitors really be independent?
Fortnightly Magazine - July 15 2003

FERC also ends up better informed because where members of this MMI differ they will have good reason to put their differences in writing and argue hard for them.

Take the idea up another level. FERC is a commission of heterogeneous individuals who at times act, in effect, as monitors. Where its members agree they make the fact explicit, and when they disagree minority opinions are encouraged and accorded respect. No one likes everything the commission does, but most of us can agree that it makes coherent and intellectually respectable policy a lot more often than not. The monitors I trust are not in Folsom, Holyoke, Albany, or Valley Forge, where few can observe them or understand the local forces acting on them. They are at 888 First St. N.E. in Washington, and they need to understand that market monitoring is too important to be left to the market.

  1. Order No. 2000, Regional Transmission Organizations, FERC Stats. Regs. 31,089 (2000), 65 Fed. Reg. 809 (2000) (codified at 18 C.F.R. pt. 35); Remedying Undue Discrimination through Open Access Transmission Service and Standard Electricity Market Design, Docket No. RM01-12-000 (2001).
  2. Joint Application of [PG&E, SCE, and SDG&E] for Authority to Sell Electric Energy at Market-Based Rates Using a Power Exchange, Docket No. ER96-1663-000 (April 29, 1996) at A-1- A-5.
  3. 71 FERC 61,265 (Dec. 18, 1996), Slip Op. at 25. Only a handful of public power intervenors voiced concerns about how the monitors would deal with owners of divested generation, which soon became a key issue.
  4. See letter from CPUC President Daniel Fessler to the WEPEX Steering Committee, Jan. 31, 1996, quoted in Motion to Intervene of the California Municipal Utilities Association, Docket No. ER96-1663-000, at 3.
  5. California utilities were required to bid contract purchases and retained generation into the PX at a price of zero.
  6. The California PX ceased operating in January 2001. Elsewhere all markets are administered by the RTO. The process of day-ahead, ancillary services, and real-time bidding and scheduling is broadly similar in all of them. For details of California's former system see Nguyen T. Quan and Robert J. Michaels, "Games or Opportunities: Bidding in the California Markets," Electricity Journal 14 (Jan. 2001), 99-108.
  7. Final Report on Price Manipulation in Western Markets, Docket No. PA02-000 (Mar. 2003) at VI-21 and VI-25. FERC ordered refunds from generators but asked nothing of buyers on the odd grounds that "there are no profits to disgorge from a price-reducing strategy." (VI-25)
  8. ISO Market Surveillance Committee [MSC] [external monitor], Report on Redesign of California Real-Time and Ancillary Services Markets, Oct. 18, 1999 at 58.
  9. MSC, Report on Redesign of Markets for Ancillary Services and Real-Time Energy, Mar. 25, 1999 at 17; ISO Department of Market Analysis [DMA] [internal monitor], "Price Cap Policy for Summer 2000," Mar. 2000 at 19. I provided FERC testimony on these matters for a major independent power producer.
  10. PX Market Monitoring Committee, Second Report on Market Issues in the California Power Exchange Energy Markets, Mar. 9, 1999 at 48.
  11. MSC, Analysis of Order Proposing Remedies for California Wholesale Electric Markets (Issued Nov.