1. FERC Standard Market Design Working Papers
Northwest Power Planning Council
Whitefish, MT
May 14, 2002

2. Overview
Aims:
Reform the Order 888 open access tariff, under which most transmission provided today, to incorporate standard market design (SMD)
Apply to RTOs, IOUs (not in an RTO) – no mention of reciprocity (but was included in Order 888)
Some confusion about RTOs vs. individual utilities
Lead to NOPR in the summer, final rule end of year
General Principles
Major specific proposals and issues raised in papers
Potential Northwest issues
May 14, 2002

3. General Principles – 1
Common framework; reduce transaction costs and seams problems; fair, well defined and understandable
Operation of imbalance markets and transmission systems by entities independent of market participants (affects non-RTO IOUs)
Energy and transmission markets accommodate and expand customer choices
Technology- and fuel-neutral market rules (supply and demand resources, large and small resources)
Price signals that reflect time and locational value of energy (but not full substitute for planning and expansion process for transmission, generation and demand response)
May 14, 2002

4. General Principles – 2 Demand response is essential
Transmission owners continue opportunity to recover costs; merchant lines have no regulatory assurance of recovery
Customers with existing contracts (including implicit) receive same level and quality of service; unused capacity available to others
SMD not static; shouldn’t inhibit adaptation to regional requirements or hinder innovation.
May 14, 2002

5. Transmission Service
Network Access Service: offer to all customers including vertically integrated utilities
All service to retail and wholesale loads – transition issues
Combine flexibility of network service with tradable rights of point to point service; replaces both
Service defined by source and sink (includes individual nodes and aggregations into hubs)
Access fee allows access to all sources and sinks
Congestion managed via locational marginal pricing (LMP)
Congestion cost covered by transmission rights or paid on each transaction
May 14, 2002

6. Transmission Rights – 1
Provide hedge against transmission congestion by allowing receipt of congestion payments, which offset congestion charges to transaction
Congestion charges set by difference in nodal prices
Rights provide cash if transmission not scheduled [RTOW: rights expire if not used; do not provide cash]
Transmission constructor receives rights
Converting rights holder either receives new rights or money from rights auction – an open issue [RTOW: new rights]
Schedules accepted whether or not they have associated transmission rights – rights are financial only
May 14, 2002

7. Transmission Rights – 2
Variation 1: can be either source-to-sink or flowgate
Source-to-sink: Complete hedge against congestion on all impacted paths [RTOW: source-to-sink only]
Flowgate: partial hedge against congestion on a path
Variation 2: can be either options or obligations
Options: right to transmit or “collect” congestion payment [RTOW: option only]
Obligation: requirement to transmit or “collect” payment
“Collect” can mean “pay” if congestion reverses
Obligations must be offered and options must be offered on request
May 14, 2002

8. Energy Market Design
Transmission provider must operate both day ahead and real time (imbalance) markets [RTOW: no day ahead energy market]
Day ahead market: joint schedule to maximize combined value of transmission, energy and ancillary services
Both day ahead and real time markets are bid-based and security constrained
Day ahead market is voluntary (real time market does not specify voluntary; not clear whether intended or not)
Both markets must accommodate demand side participation
May 14, 2002

9. Day Ahead Energy Market – 1
Should fully accommodate bilateral transactions and self-supply
Cannot require balanced energy schedules [RTOW: requires balanced schedules]
May need to limit bidding flexibility to mitigate market power
Recognizes need to accommodate characteristics of energy limited resources (e.g., hydro) in bidding
Must allow multi-part bids (start up, no load, energy)
Start up costs not covered by hourly prices (based on energy bids only) are uplifted
[RTOW: not contemplate multi-part bids]
May 14, 2002

10. Day Ahead Energy Market – 2
Settle buyers and sellers at nodal prices
If requested, transmission provider should provide trading hubs (weighted averages of nodal prices)
Day ahead results must be financially binding on buyers and sellers
Imbalances (including deviations from schedules) settled at real time prices, for both buyers and sellers
[RTOW: requires balanced schedules, so schedule coordinator (the agent) faces any net imbalance, not buyers and sellers independently]
May 14, 2002

11. Real Time Energy (Imbalance) Market
All imbalances, even in bilateral energy markets, settled at imbalance price
No multi-part bids
Accommodates scheduling by energy limited resources
Settles at nodal prices in 5 minute increments [RTOW: not specified]
Imbalances that threaten reliability may require special rules including penalties
May 14, 2002

12. Other Markets
Regulation and operating reserves – load serving entity (LSE) responsible for procuring or paying for
Must accommodate bilateral transactions and self-supply
Transmission provider must have bid based day ahead and real time markets for these so can procure for LSEs
[RTOW: scheduling coordinator responsibility]
Transmission capability must be calculated regionally, by independent entity if owner not part of RTO
Regional long term planning and expansion – RTO chooses solution (transmission, generation or demand side) and implements [RTOW: limited RTO choice and implementation role]
May 14, 2002

13. Market Power Monitoring / Mitigation
Focus on detecting economic and physical withholding
Must have bid cap (demand response proxy) until sufficient demand response in place [RTOW: no proposal]
May identify generators that must run for local reliability and have local market power
Must coordinate maintenance and outage schedules for generation and transmission [RTOW: not generation]
RTO Must have independent market monitoring unit (MMU) reporting directly to FERC and to RTO independent board
MMU monitors all regional markets, especially for withholding
MMU reports periodically to FERC; proposes rule changes
May 14, 2002

14. Generation Adequacy – 1 Principles:
SMD may include measures to ensure [RTOW: does not]
Prefer state/regional reliability authorities coordinate to set long-term reserve margin for LSEs
Transmission provider should avoid curtailing LSE loads if provided for themselves (if possible)
Specific alternatives:
Rely on prices and supply/demand information
Require capacity obligation for operating reserves only, e.g., by forward contracts
May 14, 2002

15. Generation Adequacy – 2
Require a regional supply or capacity obligation, imposed on all LSEs
Region could be RTO
Alternative enforcement mechanisms: E.g., no curtailments, administrative penalties, condition of receiving transmission rights, etc.
Alternative timing requirements: E.g., years, seasons or months ahead
Impose supply obligation on LSEs only if projected reserves fall below trigger level
May 14, 2002

16. Rate Issues – Open Questions – 1
Some regional deference on these questions, especially if RTO in place
Who pays the access charge?
All schedules? Only loads? Only those who get rights? [RTOW: combination of first two]
Should access charge apply to exports and wheel-throughs?
Yes? No? Yes, through reciprocity payments? Yes, but lower? [RTOW: Yes, but will work on reciprocity]
Access charge based on peak or energy?
Monthly peak? Annual peak? Total energy? [RTOW: monthly peak]
May 14, 2002

17. Rate Issues – Open Questions – 2
Transition of service to new tariff (including existing contracts and bundled retail service) [RTOW: voluntary]
Transition on implementation?
Bundled service on implementation with incentive for contracts?
Regional variations? (only if RTO in place)
Allocation of transmission rights
Assign to existing customers? To all that pay access charge? [RTOW: existing customers]
Assign? Auction (money to existing customers)? Regional variation, if RTO in place? [RTOW: assign]
May 14, 2002

18. Potential Northwest Issues
Hydro coordination and flexibility, no day ahead unit commitment
Protect current rights holders who do not want to convert
Service to bundled retail loads – state jurisdictional issue
Voluntary bids (recognize opportunity cost issues for hydro)
Options, not obligations for transmission rights
Allow RTO to require balanced schedules
Day ahead formal energy market? RTOW: none proposed
Generator maintenance requirement
Demand response responsibility: state/utility or RTO?
May 14, 2002