SET UP in January by the Ontario Minister of Energy, Science and Technology, and led by Ronald J. Daniels, law faculty dean at the University of Toronto, the Market Design Committee issued its first interim report on March 31, presenting recommendations on two issues: (1) governance, operation and regulation of the Independent Market Operator, and (2) principles of market design.

IMO FUNCTIONS. The functions of the IMO were set out in November in the Ontario provincial white paper on electricity sector reform. (See, Direction for Change: Charting a Course for

Competitive Electricity and Jobs in Ontario).

1. IMO runs the electricity exchange, with power dispatched according to least-cost bids, and arranges financial settlements between buyers and sellers.

2. IMO forecasts supply requirements, encourages needed investments and advises provincial government on reliability.

3. IMO manages market impartially, guarding against abuse

of market power.

4. IMO works with the Ontario Energy Board to ensure

adequate transmission capacity.

5. IMO alerts the province to any unfair competitive advantage held by the Hydro's spun-off genco, the Ontario Electric Generation Co.

BOARD MEMBERSHIP. MDC recommends a maximum of 15 voting members on the IMO Board, selected and allocated by classes of market participants - generators (2); customers (3); transmission providers (1); distributors (2); aggregators, brokers and marketers (1); IMO president (1) and members (5).

OPERATIVE COMMITTEES. Three standing panels would assist

the board on (1) technical issues, (2) dispute resolution and

(3) market surveillance.

FUNDING. Initially, Ontario Hydro would fund the IMO. However, such funding would be considered a loan, to be repaid once

competition was implemented. In the long run, the MDC expects that the IMO will be 100-percent financed by debt.

MARKET DESIGN. The white paper had envisioned a two-tiered market, with a centralized spot market power exchange and also trading via bilateral contracts. The MDC appears to endorse that idea, finding a substantial consensus.

GRID OWNERSHIP. The white paper had envisioned that Ontario Hydro would remain as owner of Ontario's major grid assets. MDC rejects that notion, with a "substantial consensus agreeing that, if the IMO takes over the dispatch function, it should also logically take over operational control of the grid.

TRANSMISSION PRICING. MDC questions the recommendation

of white paper to price transmission "on a uniform rate for all customer classes." Instead, MDC recommends pricing with "appropriate incentives" to generators, loads and investors, plus non-discriminatory congestion pricing as between scheduled bilateral and spot transactions. MDC members generally agree that some form of location pricing should be considered, including nodal or zonal variants, if Ontario incurs grid congestion that implies "commercially significant" locational differences in marginal energy costs.

- Bruce W. Radford, editor

Source: First Interim Report of the Market Design Committee, March 3, 1998. For more information, see www.omdc.org/NewHomePage.html.

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