On October 17, 2008, the Federal Energy Regulatory Commission (FERC) issued Order No. 719 which adopted measures to improve the operation of organized wholesale electric markets in the areas of: (1) demand response and market pricing during periods of operating reserve shortage; (2) long-term power contracting; (3) market-monitoring policies; and (4) the responsiveness of regional transmission organizations (RTO) and independent system operators (ISO) to stakeholders and customers. FERC hopes that these new measures will benefit consumers by providing more supply options, improving operating performance, and spurring the developing of new technology. This final rule becomes effective 60 days after publication in the Federal Register, and compliance filings are due six months after the publication date.
(1) The Role of Demand Response: In order to further eliminate barriers to demand response and encourage the use of market prices to elicit demand response, FERC requires that ISOs and RTOs comply with the following requirements:
- accept bids from demand response resources in their competitively bid markets for certain ancillary services, comparable to any other resource;
- eliminate, during a system emergency, a charge to a buyer in the energy market for taking less electric energy in the real-time market than purchased in the day-ahead market;
- unless prohibited by the relevant regulatory authority, permit an aggregator of retail customers, as long as it meets the same requirements as other demand response bidders, to bid demand response on behalf of retail customers directly into the organized energy market, which would allow small retail loads that otherwise could not participate on an individual basis to participate in the markets by pooling their loads together;
- modify their market rules, as necessary, to allow the market-clearing price, during periods of operating reserve shortage, to reach a level that rebalances supply and demand so as to maintain reliability while providing sufficient provisions for mitigating market power; and
- study and report whether further reforms are necessary to eliminate barriers to demand response in organized markets.
FERC has been generally supportive of eliminating barriers to the participation of demand response in capacity, energy and ancillary service markets. Demand response has the potential to help discipline prices by increasing demand elasticity. This is an evolving area of market rules among ISOs and RTOs.
(2) Long-Term Power Contracting: FERC has mandated that ISOs and RTOs dedicate a portion of their websites for market participants to post offers to buy or sell power on a long-term basis. This requirement involves the development of an RTO/ISO website "bulletin board" for posting long-term offers to sell or buy designed to facilitate the long-term contracting process by increasing the transparency of available sellers and buyers for market participants. FERC believes that the resulting improved information flow will increase liquidity among buyers and sellers and allow parties to post offers to sell or buy without making the RTO or ISO responsible for the content of the offers.
Finding the right solution for forward capacity markets has been a work in progress. The promise of long-term forward contracting would help projects obtain financing, manage risks and decrease the overall cost of capital for such projects, as well as help promote price stability. Voluntary bulletin boards represent an experiment capable of evolution. Many utilities and load serving entities, however, will not make financial commitments to long-term supplies absent confidence in the regulatory treatment, at the state level, of such investments.
(3) Methods to Strengthen Market Monitoring: FERC enhances the independence of market monitoring units (MMU) and increases the transparency of monitoring activities by: (a) having the MMU report to the board of directors instead of to the management of the ISO/RTO; (b) guaranteeing adequate resources, access to market data and personnel; (c) modifying market power mitigation and tariff administration responsibilities of MMUs by allowing MMUs to continue to implement retrospective mitigation measures (e.g., calculation of after-the-fact mitigation true-ups for billing purposes and settlement price adjustments), but limiting their role to data/input providers for the prospective mitigation process, which will remain with the ISO or RTO – thereby precluding MMUs from affecting market outcomes and avoiding conflicts of interest; (d) consolidating all provisions on market monitoring in one section of the tariff; and (e) requiring ethical standards to be in place for the MMU and its employees. In addition, FERC mandates that the MMU functions should include:
- identifying ineffective market rules and market designs and recommending proposed rules and tariff changes;
- reviewing and reporting (on a quarterly and annual basis) on the performance of the wholesale markets, with such reports to be made available to the RTO or ISO, FERC, and other interested entities (including state commissions, state attorneys general and market participants); and
- notifying FERC's Office of Enforcement Staff of a broader range of instances in which a market participant's behavior requires investigation.
It will be left up to each ISO/RTO and its stakeholders to determine if its MMU should have an internal, external or hybrid structure. It will take time to see how these changes will impact the market monitoring function and who will handle market power mitigation and how. To the extent there was concern that independent market advisors were not consulted on issues on which ISOs/RTOs did not want critical, expert evaluation, the buck will stop at the board level.
(4) RTO/ISO Responsiveness to Customers and Stakeholders: FERC establishes new criteria designed to ensure that an RTO or ISO is responsive to its customers and stakeholders, and ultimately to the customers who benefit from and pay for electricity services. Stakeholders must be given a form of direct access to the board of directors. In evaluating the RTO's or ISO's reforms to increase responsiveness, FERC will judge compliance based on the following criteria: (a) inclusiveness; (b) fairness in balancing diverse interests; (c) representation of minority positions; and (d) ongoing responsiveness. Each RTO or ISO also needs to post on its website its mission statement or organizational charter.
FERC requires each RTO or ISO, after consulting with stakeholders, to submit a compliance filing within six months after the date of publication of the order in the Federal Register demonstrating how its existing practices are already sufficient to meet these above-referenced requirements in the four main areas or describe its plan to achieve compliance.
For More Information
Follow these links for an additional report on recent actions taken by the Federal Energy Regulatory Commission:
- FERC Adopts Significant Revisions to the Standards of Conduct for Transmission Providers
- Guidelines on Effective Compliance Programs Established
- FERC Continues to Support Transmission Investments by Approving Rate Incentives for Two Major Transmission Projects
- Final Rule on Electronic Tariff Filings Issued, also Triggering Small Generator Interconnection Procedures and Agreement Filing Requirement