1. George A. Godding, Jr. Director, Management and Communications Office of Market Oversight and Investigations Comments are the speakers and do not necessarily represent those of the Commission. FERC - Benchmarking and Market Monitoring Latvian Conference – September 9, 2004

2. Office of Market Oversight & Investigations 2 Why Benchmarking Wide array of uses for Benchmarking Benchmarking in the Regulatory Environment is used as a substitute for Competitive Markets Where there is not Competition – use Benchmarking to achieve better Performance Where there is or is not Competition – use Benchmarking to identify Bad Behavior or alter Behavior Where there is Competition – use Benchmarking to indicate level of Performance and as a way to track Performance If implemented Performance Based Ratemaking, Benchmarking would play a significant role

3. Office of Market Oversight & Investigations 3 Overview of Benchmarking Expect competitive markets to determine Winners & Losers Classic Benchmarking  RTO – Operations Report Card  NERC – Reliability Standards  EISG – Market Monitors Sharing Best Practices FERC Limited Command and Control  Market Power Assessment  Mitigation  Creditworthiness Common Metrics (RTOs) RTO: Regional Transmission Organization NERC: North American Reliability Council EISG: Electricity Intermarket Surveillance Group

4. Office of Market Oversight & Investigations 4 Competitive Market Determinations Generators compete in Bid-Based Markets Generators identify & employ Best Practices  Efficient investment  Efficient operation Operational procedures Maintenance New technology Most efficient generators will run

5. Office of Market Oversight & Investigations 5 Why RTO Report Card The FERC Staff will issue an annual report on the business performance of RTOs  Non-profit entities can benefit from a business success assessment  Assessing critical aspects of their business can help focus management and Boards on areas needing attention  Being able to compare assessments across RTOs encourages the use of best practices  Publishing easy to understand measures based on meaningful criteria allows consumers, market participants, state commissions and FERC to hold RTOs accountable for their performance RTO: Regional Transmission Organization

6. Office of Market Oversight & Investigations 6 RTO Performance Categories Cost Management Business Processes Market Operations System Operations Corporate Governance/Stakeholder Processes Corporate Strategy/Performance Measurement Stakeholder Satisfaction

7. Office of Market Oversight & Investigations 7 Example - Length of Settlement

8. Office of Market Oversight & Investigations 8 NERC - Reliability Standards Established in 1968 in response to 1965 Northeast Blackout Non-governmental entity; ten-member Board of Trustees; Voluntary membership Members from all segments of the electric industry Developed reliability standards & good utility practices 2003 Blackout – Joint US and Canadian Task Force  Reevaluated reliability standards  Accelerate adoption of enforceable standards  Develop better real-time tools for operators and reliability coordinators NERC : North American Electricity Reliability Council

9. Office of Market Oversight & Investigations 9 EISG International Market Monitors meet semi-annually Present recent activities and rule and operating changes Discuss “best practices” Take best practices home EISG: Electricity Intermarket Surveillance Group

10. Office of Market Oversight & Investigations 10 Market Power Screens Market-based rate authority standards/benchmarks  Generation Market Power  Transmission Market Power  Barriers to Entry  Affiliated Company Issues Generation market power  Pivotal Supplier Compare to control area’s annual peak supply and demand  Market Share Compare on seasonal basis to total available market size

11. Office of Market Oversight & Investigations 11 Price Capping Automated mitigation procedures  California Reference price (established through benchmarking) Percent increase Dollar increase  New York, New England and PJM use other methods based on reference prices and market power

12. Office of Market Oversight & Investigations 12 Credit Worthiness Standards FERC proposed rule on interstate natural gas pipeline companies to follow standardized procedures for determining shipper creditworthiness  Promote consistent practices  Provide shippers with objective and transparent creditworthiness evaluation  10 standards developed by North American Energy Standards Board

13. Office of Market Oversight & Investigations 13 Establishing Common Metrics Requiring the reporting of similar data/analysis Ability to compare across regions/markets Provides means to Benchmark

14. Office of Market Oversight & Investigations 14 Common Market Metrics – MMUs Category MetricNYISOPJMISO-NECAISOMISOTotal Energy Market Metrics DA and RT Prices 1 Price Duration Curve 4 All-in Price 4 Volatility Congestion Costs 3 Secondary Market Metrics Capacity Market Volume and Price 2 Load Metrics Load Duration Curve 5 Imports and Exports 5 Offer Sufficiency 2 Generation Metrics 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 Total108 97 Status of MMU Common Metrics from State of the Market Presentations