usa electricity markets monitoring from omoi’s perspective

Office ofMarket Oversight& Investigations

USA Electricity MarketsMonitoring From OMOI’s

Perspective

George Godding

Director, Mgmt. & Comm.

Office of Market Oversight and Investigations

Brazilian Partnership Conference - Thursday, August 19, 2004

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Office ofMarket Oversight& InvestigationsPresentation Outline

• Background of Energy Market Electric Sector Overview FERC RTOs NERC

• Electricity Market Monitoring Major Players OMOI Oversight Process Market Power & Mitigation Surveillance Process

• Indices and Reports

• Market Monitoring Center

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Brief Background

on Electricity Markets and

its Regulation and Oversight

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Overview of U.S. Electricity Sector (most recent data available – 2002/03)

• Generation:• Capacity (2002) – 914,123 MW• Total net generation (2002)

– 3,858 billion KWh• Coal – 1,933 billion KWh• Natural gas – 691 billion KWh• Nuclear – 790 billion KWh• Petroleum – 94 billion KWh• Hydroelectric – 264 billion KWh• Other renewable – 86 billion KWh

Generation CapacityOwnership:• Investor-owned utilities – 398,112 MW

• Public-owned utilities – 92,696 MW

• Cooperatives – 37,825 MW

• Federal Power – 70,220 MW

• Non-utilities – 315,271 MW

Expected Demand Growth:• 3,639 billion KWh (2002)• 3,674 billion KWh (2003) (1%)• 3,718 billion KWh (2004) est.

(1.2%)

Transmission:• High-Voltage Circuit Miles (230-kV

and above) – 158,605 (255,250 km)

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Office ofMarket Oversight& InvestigationsFERC’s Goals

• FERC Strategic Plan Promote a Secure, High-Quality, Environmentally Responsible

Infrastructure through Consistent Policies Foster Nationwide Competitive Energy Markets as a Substitute

for Traditional Regulation. Protect Customers and Market Participants through Vigilant

and Fair Oversight of the Transitioning Energy Markets.

• Plan Transparency• Plan Stability (minimize market uncertainty)

• Open participation in implementation decisions by interested parties

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Office ofMarket Oversight& InvestigationsFERC Organization Chart

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Office ofMarket Oversight& InvestigationsFERC Infrastructure Regulation

• Approve Hydro facilities (many others involved)

• Approve rate design for generation and transmission (states approve siting – legislation may change for tx)

• Approve pipeline siting and transmission rates• OASIS (Open Access Same-time Information System for transmission availability)

• FERC set interconnection rate design and rules• FERC & DOE review transmission issues and generation

adequacy – bully pulpit (possible legislation)

DOE – SP-15 & Cross Channel Cable DOE issued July 22, 2004 – Notice of Inquiry on National Interest

Electric Transmission Bottlenecks (NIETB)• Publicly identify and designate NIETBs

• To classify NIETBs (national security, reliability, risk of cost increases)

• How DOE facilitate & monitor mitigation

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Electric Market Planning and Design - RTOs

• RTOs – SMD Centralized dispatch Resource adequacy Long-range planning Day ahead and real-time markets Locational Marginal Pricing Transmission rights

• Natural Trading Markets

• Large as Possible

• Recognize Regional Differences

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Office ofMarket Oversight& InvestigationsRTO Map

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Office ofMarket Oversight& InvestigationsReliability - NERC

• Established in 1968 in response to 1965 Northeast Blackout• Non-governmental entity; ten-member Board of Trustees• Voluntary membership with 10 regional reliability councils• Members from all segments of the electric industry• Developed reliability standards and established good utility

practices• Developed technical services, tools and databases to enable

industry to monitor and evaluate system and equipment reliability, manage grid congestion and facilitate communication

• 2003 Blackout Reevaluate reliability standards Accelerate adoption of enforceable standards Develop better real-time tools for operators and reliability coordinators

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Office ofMarket Oversight& InvestigationsNERC Map

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Electricity Market Monitoring

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Office ofMarket Oversight& InvestigationsMarket Monitoring – Major Players

Transmission

Distribution

GenerationFERC(Wholesale)

States(Retail)

NERC(ReliabilityStandards)

MMUs(Defined RTOs)

Other FederalAgencies

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Office ofMarket Oversight& InvestigationsOMOI’s Mission

Guide the evolution and operation of energy markets to ensure effective regulation and protect customers through understanding markets and their regulation, timely identification and remediation of market problems, and assured compliance with Commission rules and regulations.

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Office ofMarket Oversight& InvestigationsOMOI’s Vision

•Vigilant oversight and vigorous enforcement of proper market rules ensure dependable, affordable, competitive markets to benefit end use customers and other participants.

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Director

Division of Management & Communication

Division of Management & Communication

• Planning • Perf. Mgmt. • Budgeting • Facilitation • Speaking • Knowledge of industry

• Partnering

• Career Dev. • HR • Recruiting • Contracting • Writing/Editing • Web design • Graphics • Presentation development

Deputy Director Market Oversight& Assessment

Deputy Director Market Oversight& Assessment

Deputy Director Investigations & Enforcement

Deputy Director Investigations & Enforcement

HotlineHotline

Division of Energy Market

Oversight

Division of Energy Market

Oversight

Division of Financial

Market Assessment

Division of Financial

Market Assessment

Division of Integrated

Market Assessment

Division of Integrated

Market Assessment

• Public Speaking • ADR • Phone Response

• Attorneys • Litigation • Investigation • Knowledge of financial markets • Enforcement • ADR Training • Paralegal

Division of EnforcementDivision of

Enforcement

Division of Operational

Investigations

Division of Operational

Investigations

Division of Technical

Investigations

Division of Technical

Investigations

• Forensic Auditors • Analytic ability • Statistical sampling • Documentation • Industry experience • Investigators • Examiners

• Gas Engineer • Electric Engineer • Mechanical Engineer • Quantitative Economist

• Electrical Engineers • Pipeline Engineers • Economists • Deep Industry Expertise

• Information Analysis • Modeling • Operations Research • Market Design & Operation

• Engineers • Economists • Broad Industry Experience (Cross-Industry, Scenario, Regulatory Analysis; Market Microstructure Issues)

• Operations Research • Writing/Presentation Skills

• Policy Analysts

• Information Analysis • Energy Industry Expertise

• Software Applications (Large databases, Data Analysis, Statistical, Presentations (including Mapping)

• Web Experience • Questionnaire & Survey Design

• Statistical Analysis

Market ScanningMarket

Scanning

• Strategic Analysts • Library Science

Division of Information Development

Division of Information Development

• Financial Analysts

• Accountants • Understanding of Investment

• Derivatives Markets

• Energy Trading

Office of Market Oversight and Investigations (OMOI) – Knowledge/Skillsets

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Office ofMarket Oversight& InvestigationsFlow Chart of Oversight Process

•OMOI takes advantage of information technology and updated resources for monitoring electric market stresses.

Emergency Team

8:30 AMDiscussions

Regular OversightMeeting

SurveillanceReport

In-Depth Study

Emergency

Co

mm

issi

on

Feedback

Investigations & Audits

Mar

ket

Ove

rsig

ht

Market

Pull

Push

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Office ofMarket Oversight& InvestigationsHow We Regulate – Market Oversight

• Set Rules (open rulemaking process)

• Provide Oversight

• Conduct Audits

• Conduct Investigations

• Ensure Compliance

• Enforce Rules

• Feedback on effectiveness of above

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Office ofMarket Oversight& InvestigationsSurveillance - FERC

• Data/Data/Data – direct reporting and 3rd party• Real time• 8:30 meetings• Alerts• Daily information on Intranet – from web scraping• Weekly surveillance meetings • Hot Line and complaints• Building partnerships (see next page)

• Analyzing anomalies• Reporting to Commission (anomalies, scheduled briefings, special reports)

• Building Reliability Group

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Office ofMarket Oversight& InvestigationsCoordinating Surveillance

• RTO Market Monitors (report anomalies to FERC, standard reports, Ex Parte rule, etc.)

• States (NARUC, Snapshot Report, etc.)

• Other Federal agencies (CFTC, FTC, DOJ, DOE, SEC, etc.)

• NERC

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Office ofMarket Oversight& InvestigationsRelationship with Market Monitors

• Joint Mission Statement

• Clear market monitoring plans

• Contact list & monthly conference calls

• Triggers for reporting to OMOI

• Information access

• Coordinating investigations

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Office ofMarket Oversight& InvestigationsMarket Power & Mitigation

• Market-based rates vs. Cost-based rates• Generation Market Power Screens

Pivotal supplier analysis based on control area’s annual peak supply and demand

Market share analysis applied on a seasonal basis in relation to other’s market share

• Behavioral Rules Not undertake actions that purposefully lead to market manipulation or

would be expected to Specific prohibitions (wash trades, false information, artificial congestion,

collusion)

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Office ofMarket Oversight& InvestigationsMarket Power & Mitigation (continued)

• Code of Conduct Separate generation from marketing and transmission Treat affiliates as do non-affiliates If deal with affiliates (transparent, defined product, standard criteria,

independent design & solicitation review)

• Mitigation schemes at RTO level Caps Bidding controls

• AMP – conduct and impact• Cost-based restrictions when congestion (market power & RMR)

• Merger approval may require mitigation

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Office ofMarket Oversight& InvestigationsElectric Market Efficiency

• Shared objective with States and other Federal agencies

• Market-based drives efficiency and “just and reasonable” rates

• No specific requirements Economic and physical withholding Maintenance

• Cost-based if market power & not mitigated

• Dispatch studies

• Looking for: lowest cost power into the market & to customers

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Indices and Reports

Market Monitoring Center

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Office ofMarket Oversight& InvestigationsIndicies and Reports

• Alerts

• Daily Energy Reports

• Market Surveillance Report

• Seasonal Assessments

• Anomaly Reports

• Annual State of the Markets Report

• Annual Behavioral Rules Report• MMU Annual Reports

• Common Metrics

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Office ofMarket Oversight& InvestigationsCommon Market Metrics – MMUs

Category Metric NYISO PJM ISO-NE CAISO MISO Total

EnergyMarketMetrics

DA and RT Prices 1

Price Duration Curve 4

All-in Price 4

Volatility

Congestion Costs 3

Secondary Market Metrics

Capacity MarketVolume and Price 2

LoadMetrics

Load Duration Curve 5

Imports and Exports 5

Offer Sufficiency 2

GenerationMetrics

Outages and Deratings 5

Generation by Fuel 2

Additional Market Metrics

Virtual Transactions 2

Spot Market Activity 1

RSI Duration Curve 4

Reserve Margin OMOI and Market Monitors agreed to add this metric at June 22 MMU meeting.

Net Revenue Analysis 4

Total 10 8 10 9 7

Status of MMU Common Metrics from State of the Market Presentations

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Market Monitoring Center(Information Examples)

• Screens from: Bloomberg, ICE and DOW (data and traders comments) Friedwire (flows, LMP, nuclears, etc.) Genscape PJM

usa electricity markets monitoring from omoi’s perspective

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