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A ROADMAP TO FERC’S STANDARD MARKET DESIGN NOPR

Federal Energy Regulatory Commission. A ROADMAP TO FERC’S STANDARD MARKET DESIGN NOPR. Scott Miller Federal Energy Regulatory Commission Boston, MA September 13, 2002. WHY IS THIS NEEDED?. Increasingly Regional Nature of Electricity Trade Residual Discrimination – Independence Issue

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A ROADMAP TO FERC’S STANDARD MARKET DESIGN NOPR

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  1. Federal Energy Regulatory Commission A ROADMAP TO FERC’S STANDARD MARKET DESIGN NOPR Scott Miller Federal Energy Regulatory Commission Boston, MA September 13, 2002

  2. WHY IS THIS NEEDED? • Increasingly Regional Nature of Electricity Trade • Residual Discrimination – Independence Issue • Minimize “Seams” • Avoid Market Manipulation • Promote Investment in Necessary Infrastructure • gx vs. tx vs. demand response • encourage development of new technology • Lower Costs to Customers • Framework for Effective State & Federal Regulation

  3. PRE-NOPR OUTREACH • RTO Week October 2001 • Follow-on Technical Conferences • Comments on Working Paper and Options Paper • Meeting with major industry segments • Federal/State Commissioner Dialog on RTO issues

  4. PRESERVING STATE PREROGATIVES In addition, we are proposing: Regional State Advisory Committees for policy issues and RTO management and budget review Multi-State Entities for planning, certification, and siting at a regional level Complements recommendation of Task Force to National Governors Association States continue to: Set retail rates Site transmission and generation Deal with local distribution issues

  5. MAJOR ELEMENTS • Independent Transmission Provider • New Transmission Tariff • Transmission Pricing Reform • Organized Day-ahead & Real Time Spot Markets • Mitigation of Market Power/Market Monitoring • Resource Adequacy • Regional Planning Process

  6. Independent Transmission Provider • Operates Transmission Facilities • Administers Transmission Tariff • Administers Organized Spot Market • Same Definition of Independence as in Order No. 2000 • Could be RTO (or some other independent entity)

  7. NEW TRANSMISSION TARIFF • Network Access Service • All Customers Subject to the same terms and conditions of Transmission service • Transition • Customers under OATT – Network Access Service • Bundled retail service – LSE takes Network Access Service to serve these customers • Pre-Order No. 888 contracts – Can convert to network Access service, if not, then LSE takes Network Access Service to serve these customers

  8. TRANSMISSION PRICING • Embedded costs • access charge paid by load • license plate to address cost shifts • LMP Pricing for Congestion Management • Pricing of expansions • With ITP - consider participant funding • Without ITP - presumption will be to roll-in cost of expanding high voltage lines • No Access charges for transactions across RTO Borders (cost allocation remedy for cost shifts)

  9. ORGANIZED SPOT MARKETS • Supplement Long-Term Bilateral Contracts • Day Ahead & Real Time • Implements LMP • Congestion Revenue Rights • Financial right that entitles holder to congestion revenue (enables customer to protect itself from congestion costs) • Initial allocation process will be difficult • Rights of existing customers should be preserved • How do we accommodate unique needs of NW?

  10. MITIGATION MEASURES • Three required Components • Must offer obligation for localized market power • Safety-net bid cap - e.g., $1000 Mwh • Resource adequacy requirement for load • Fourth measure could be used if non-competitive conditions exist • Could limit bids if bid are high due to withholding and not scarcity • Need for measure determined on a regional basis

  11. MARKET MONITORING • NOPR lays out framework • Independent market monitoring unit • Evaluates State of Markets • Identifies need for changes in market rules • Identifies load pockets & areas where infrastructure is needed for competition • Reports to FERC, Regional State Advisory Committee, and Board of Directors • Flexibility to adapt measures to regional market conditions

  12. RESOURCE ADEQUACY REQUIREMENT • Customer protection • Forward-looking requirement developed on a regional basis • Encourages long-term contracts for supply • Avoids “free rider” opportunities • Preserves strong State role in establishing adequate reserve margins

  13. RESOURCE ADEQUACY REQUIREMENT • Annual regional demand forecast by RTO • Minimum 12% reserve margin, region could decide on higher level • Forward looking - e.g. , 3 years in advance • Regional flexibility • LSE that does not satisfy requirement assessed penalties for spot market purchases during shortage

  14. REGIONAL PLANNING PROCESS • Start process within six months to facilitate development of infrastructure • Ground-up process with regional coordination to address loop flow • Four regions to start • ITPs would act as clearinghouse and evaluate alternative proposals

  15. POST-NOPR PROCESS • Comments Due November 15 • Reply Comments Due December 20 • More Technical Conferences • Final Rule Implementation • Sept. 30, 2003 ---- Bundled Retail Under Tariff • Dec. 1, 2003 ---- SMD Compliance Filings • 1 Yr. after Rule ---- Regional Planning • Jan. 31, 2004 ---- Security Standards • Sept. 30, 2004 ---- SMD in effect

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