1. Shir Consultants Regulation and Market Monitoring in Electricity Markets Dariush Shirmohammadi dariush@shirconsultants.com www.shirconsultants.com Shir Power Engineering Consultants, Inc.

2. Shir Consultants 2 Disclaimer ► These presentation slides only represent the view of the speaker ► These slides were accompanied by an oral discussion; the slides alone do not fully represent the presentation content

3. Shir Consultants 3 Market Monitoring & Regulation ► Market Monitor (the investigative arm) and the Regulator (the Enforcement arm) are concerned about market power abuse and anticompetitive activities ► Market monitoring could be performed by various entities (ISOs or regulators) or in cooperation between various entities ► Some markets have Market Monitoring Units (MMUs) as well as Independent Market Monitors (IMM)

4. Shir Consultants 4 Need for Market Monitoring & Regulation ► No Liquid Forward Markets ► Inadequate price signals ► Need more accurate pricing for wholesale and retail sales ► Need better pricing for locating resources ► Need better pricing for identifying transmission needs ► Non-storable nature of electricity ► Lack of adequate remedy to address existing market power ► Lack of sufficient demand responsiveness to prices ► Unnecessary compromises in stakeholders process ► Inadequate customer presentation ► Inadequate reliance on economic/market expertise ► Opportunities for gaming by market participants

5. Shir Consultants 5 Market Environment During Transition to Workably Competitive Electricity Market ► Significant local market power ► Inadequate transmission system to facilitate competitive market operations ► Inadequate customers education to create sufficient demand responsiveness to prices ► Newly deregulated electricity markets are vulnerable to gaming and manipulations ► Inadequate safeguards for customers ► Insufficient competition in newly deregulated electricity markets

6. Shir Consultants 6 Market Monitor – the Investigative Arm (1) ► DA & RT market monitoring through automated indices/ screens ► Assess generation adequacy to meet required demand in various markets ► Review abnormal events (weather, congestion, outages, etc.) ► Identify price abnormalities and conduct preliminary analysis ► Review ex-ante price mitigation and compliance ► Identify violation of market rules ► Communicate with market participants ► Address complaints and resolve disputes regarding anticompetitive behavior ► Identify major concerns requiring further investigation

7. Shir Consultants 7 ► Identify market design flaws and remedies ► Investigate market power abuses and anticompetitive behaviors ► Assess generation and transmission adequacy and system reliability ► Assess of competitiveness of the market ► Maintain necessary databases and computer models ► Be up to date on emerging market issues ► Disseminate useful market information Market Monitor – the Investigative Arm (2)

8. Shir Consultants 8 Important Factors to Consider for Market Monitoring ► Independence of Market Monitor regarding: ► Existence of Independent Board ► Hiring Independent Market Monitor under terms and conditions set by regulators ► Having MMUs to be independent of ISOs and responding to regulators or having MMUs within agencies with enforcement authority ► Independent technical and financial resources ► Open access to all relevant market data and information ► Access to individual market participant’s data ► Ease of communication with regulators (enforcers)

9. Shir Consultants 9 Power Market Mitigation Measures ► Order the construction of transmission ► Seek an injunction or civil penalties ► Impose administrative penalty ► Suspend/revoke/amend a certificate or registration

10. Shir Consultants 10 Role of the Regulator - the Enforcement Arm ► Review and approval of market protocols and ISO tariffs ► Order to change the same as necessary ► Approval of specific Power Market Mitigation measures ► Execution of the same ► Order investigation of the market and its needs ► Reliability responsibilities of the regulator are not listed!

11. Shir Consultants 11 Possible Models ► Separated Monitoring and Enforcement ► Popular Model in U.S.: MMU in ISO/RTO: CAISO, NE-ISO, NYISO, and PJM ► Independent/Contracted Market Monitor: MISO ► Joint Monitor and Enforcement: ► ERCOT ► Alberta, Canada ► France