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NATIONAL ASSOCIATION OF STATE UTILITY CONSUMER ADVOCATES

RESOLUTION

PROMOTING MARKET MONITORING FUNCTIONS WITHIN
REGIONAL TRANSMISSION ORGANIZATIONS (RTOs)
WHENEVER SUCH REGIONAL ENTITIES ARE CREATED

WHEREAS, the effort of the Federal Energy Regulatory Commission (FERC) to restructure the electric industry has the goal of producing lower prices and a better array of services for consumers by the creation of a marketplace where electricity prices were the result of vibrant and vigorous competition;

WHEREAS, the design of wholesale markets in regions whose wholesale electric operations are governed by RTOs is crucial to ensuring that wholesale and retail electricity prices are just and reasonable;

WHEREAS, the primary function of an RTO market monitoring unit (MMU) is to monitor the behavior of market participants, the implementation of market rules, and the performance of the market;

WHEREAS, experience in the northeast markets has shown that close communication between staff the market monitoring unit and the RTO market administration staff is critical for effective monitoring of extremely complicated and rapidly evolving wholesale markets;

WHEREAS, a market monitoring organization that is separated from the RTO will degrade the MMU’s ability to carryout its primary responsibility;

WHEREAS, an MMU with sufficient authority, as well as budgetary and operational independence, can be effectively independent in conducting analysis, evaluation, and taking actions with respect to the activities of the RTO;

WHEREAS, separation of the workings of the staff of the market monitoring unit from those in the RTO that administer the markets creates an information gap that hinders effective market monitoring;

WHEREAS, without baseline cost data from all generating units in a region that bid into energy or capacity markets it becomes difficult and conjectural for the market monitor to establish or refute claims of strategic bidding, price gouging or other market abuses;

WHEREAS, the majority of all capacity is typically committed under bilateral arrangements and not bid into energy or capacity markets at all, and it is necessary for the market monitor to be aware of the pricing, terms and conditions of these bilateral contracts in monitoring for market power;

WHEREAS, the efficiency of a uniform price auction market with low barriers to entry, can be evaluated by comparing bids to the marginal cost of generation;

WHEREAS, a market where customers do not have the economic information or means to change their demand for electricity in response to changes in market prices indicates that the market is not competitive and requires vigilant monitoring;

THEREFORE, BE IT RESOLVED, that NASUCA calls for RTOs to monitor markets and market participants and that market monitoring units (MMUs) should possess the following characteristics:

The MMU should monitor all RTO markets and review and evaluate trends in all related markets, including markets outside the region, with the mandate to ensure that each RTO market is efficient and competitive;

The MMU should be funded at a level that permits it to complete its work effectively;

The MMU should be an integrated part of the RTO and should be ultimately accountable to the RTO board;

The head of the MMU should only be dismissed for cause and with the approval of the independent board of the RTO and the Commission;

The MMU should have access to all data available to or generated by the RTO as part of its operations;

The MMU must have the authority to compel collection from all market participants, including those with bilateral contracts all relevant cost data, including, but not limited to, short-run cost, fuel cost, unit heat rate, start-up cost, environmental constraints, emissions allowances, evaluate the causes for outages, analyze cost of capital additions and capacity addition and upgrades, and fixed operation and maintenance cost;

The MMU should have the authority to take action against market dysfunction or manipulation by means of telephone contacts, letters to company executives, and publicizing misbehavior;

The MMU should review and evaluate energy market bids for any apparent violations of standard RTO market rules and mitigate questionable bids before-the-fact based on methodology that models existing market rules;

The MMU should have the authority to immediately report to FERC and recommend refunds where prices depart substantially from marginal cost when in the judgment of the MMU the price is the result of market failure or market manipulation

Upon the filing of a report by a Market Monitor advising that market manipulation may be occurring and recommending refunds, FERC should immediately issue a show cause order and require that the outcome of such investigation be subject to refund by any market participant found to have benefited from the anti-competitive behavior or manipulation;

The MMU should analyze, evaluate and have the authority to independently file comments or testimony on the impact of mergers and acquisitions on RTO and related markets or take other action as determined necessary by the MMU to protect or improve the efficiency and competitiveness of the markets;

The MMU should have the right to apply to FERC for market rule and market monitoring rule changes without prior approval of other RTO staff or the RTO independent board;

Subject to subsequent review by FERC, the MMU should have the authority to make immediate changes to market rules and market monitoring rules in an emergency situation;

The MMU should have the authority to impose sanctions and penalties for failure to cooperate with the MMU in the performance of its duties, including compliance with data requests, and for violations of RTO market rules;

As part of its ongoing evaluation of market efficiency and competitiveness, the MMU should evaluate and report on the performance of the RTO markets against the outcome where all bids are at marginal cost;

The MMU should have the obligation to report significant anomalies in the market immediately to FERC;

The MMU should issue monthly, quarterly and annual reports on the status of the markets and have complete editorial control over its reports;

The MMU should release bid data to the general public following a reasonable period of time after submission of the bids without masking the identity of the individual bidders;

BE IT FURTHER RESOLVED, that NASUCA authorizes its Executive Committee to develop specific positions and to take appropriate actions consistent with the terms of this resolution. The Executive Committee shall advise the membership of any proposed action prior to taking action if possible. In any event the Executive Committee shall notify the membership of any action taken pursuant to this resolution.

Approved by: Submitted:

June 19, 2002 Electric Committee
Gerald A. Norlander, Chair