FERC — Benchmarking and Market Monitoring Latvian Conference

FERC - Benchmarking and Market Monitoring Latvian Conference – September 9, 2004 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.

Why Benchmarking Office of Market Oversight & Investigations • 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 2

Overview of Benchmarking Office of Market Oversight & Investigations • 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 Control § Market Power Assessment § Mitigation § Creditworthiness • Common Metrics (RTOs) RTO: Regional Transmission Organization NERC: North American Reliability Council EISG: Electricity Intermarket Surveillance Group 3

Competitive Market Determinations Office of Market Oversight & Investigations • 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 4

Why RTO Report Card Office of Market Oversight & Investigations • 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 5

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

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

NERC - Reliability Standards Office of Market Oversight & Investigations • 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 8

EISG • • Office of Market Oversight & Investigations 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 9

Market Power Screens Office of Market Oversight & Investigations • 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 10

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

Credit Worthiness Standards Office of Market Oversight & Investigations • 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 12

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

Common Market Metrics – MMUs Office of Market Oversight & Investigations Status of MMU Common Metrics from State of the Market Presentations Category NYISO DA and RT Prices Energy Market Metrics Metric PJM ISO-NE CAISO MISO Total Price Duration Curve 4 All-in Price 4 3 1 Volatility Congestion Costs Load Metrics Capacity Market Volume and Price Load Duration Curve Secondar y Market Metrics 5 Imports and Exports 5 2 5 2 2 Offer Sufficiency Generatio n Metrics Outages and Deratings Generation by Fuel Virtual Transactions Additiona l Market Metrics 2 Spot Market Activity RSI Duration Curve Reserve Margin Net Revenue Analysis Total 1 4 OMOI and Market Monitors agreed to add this metric at June 22 MMU meeting. 10 8 10 9 4 7 14