Presented to:Eastern RTO/ISO Conference

Washington, DCMay 11, 2005

The Importance of Teamwork in Multi-JurisdictionalEnergy Market Monitoring

William F. Hederman, DirectorOffice of Market Oversight and Investigations

Federal Energy Regulatory Commission

WH-5/11/05

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Outline

• FERC Strategy• OMOI Organization• Delineation of Responsibilities• Diversity of MMU Models• Markets Overview• Program and Policy Options

(Views expressed are Hederman’s, not the Commission’s.)

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FERC has 3-prong strategy.

Effective Rules

Infrastructure

Rules

Enforcement

CompetitiveMarkets

Just & ReasonableOutcomes

StrategicApproach

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Energy Market Progress Requires: Integrity AND Public Confidence In That Integrity

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OMOI has 3 essential processes to “Trust and Verify”.

• Professionally skeptical

• Diverse (private/public sectors, disciplines)• Highly skilled• Team-oriented

C

O

I

OutsIde

FERC

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*Report to Board *Discuss Emerging*Report to PUCs Issues/Trends*Regional State of Market *Watch for Anomalous or *Mitigation Inappropriate Market Behavior*Supply Detailed Market Data *Confer on Market Developments Evaluations *Analyze Markets*Contribution to Market Design

*Report to Commission *Coordinate with all MMUs *National State of the Markets *Seasonal Look-Aheads *Audit -Market Participants -RTO/ISOs *Enforce Regulations *Monitor Non-RTO Areas and Fuels (esp., Natural Gas) *Market Surveillance Reports/Market Snapshots *Order Development *EQR Implementation *Coordinate With Other Federal Agencies

RTO/ISOMarket Monitors

FERC OMOI

Feds and Monitors share tasks and have distinct tasks.

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Common Market Metrics - MMUS

Category Metric NYISO PJM ISO-NE CAISO MISO Total

EnergyMarketMetrics

DA and RT Prices 1

Price Duration Curve 4

All-in Price 4

Volatility

Congestion Costs 3

Secondary Market Metrics

Capacity MarketVolume and Price 2

LoadMetrics

Load Duration Curve 5

Imports and Exports 5

Offer Sufficiency 2

GenerationMetrics

Outages and Deratings 5

Generation by Fuel 2

Additional Market Metrics

Virtual Transactions 2

Spot Market Activity 1

RSI Duration Curve 4

Reserve Margin OMOI and Market Monitors agreed to add this metric at June 22 MMU meeting.

Net Revenue Analysis 4

Total 10 8 10 9 7

Status of MMU Common Metrics from State of the Market Presentations

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There is no dominant market monitoring model

PJM ISO-NE NYISO CAISO MISO SPP ERCOT

Internal

Monitor

Reports to:

Employees

President and Board of Managers

Employees

ISO CEO & Markets Committee of ISO Board of Directors

Employees

(Note 1)

Director, Corp. and Market Risk Management

Employees

General Counsel

(Note 2) Employees

(Note 3)

CEO

External

Monitor

Reports to:

Contractor

Markets Committee of ISO Board of Directors

Contractor

(Note 4)

Markets Committee of NYISO Board

Contractor

(Note 5)

FERC and ISO

Contractor

Markets Committee of the MISO Board

Contractor

Compliance Committee of Board of Directors

Texas PUC employees (Note 6)

Texas PUC

Other

Monitor

Reports to:

NYPSC staff

NYPSC

Market Surveillance Committee

CEO and Board of Governors

Contractor

Texas PUC

Notes: (1) Lead for: real time, physical audits; (2) No Internal Monitor, staff liaison to the External Monitor; (3) Skeletal staff now, change likely; (4) Lead for: longer term, analytics; (5) Limited role setting DEC reference prices; (6) Pending legislation would require ERCOT to Fund, through administrative fees, an independent market monitor (contractor) that would be hired by the PUC and would report directly tothe PUC

The relevant markets and jurisdictions are complex. Natural Gas & Electric Market Space

Gas Supply

Trading Venues

Futures (NYMEX)

Electronic Platforms

Bilateral Trading

Voice Brokers

Pipelines&

Storage

Players

Delivered Market

Physical Nat Gas

Generation

Transmission&

Pumped Storage

Delivered Market

Phys Electric Power

Gas to fuel power generation

RTO’s & ISO’s

Price Contributors-Fixed price buyers & sellers-Speculators

Price Takers-Indexed price buyers & sellers

Source: FERC-OMTR&OMOI 9

Nat Gas & Electric Derivatives

Nat Gas & Electric Clearing

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There are many dimensions to crafting Market Monitoring programs and policies.

• Monitor Qualifications (none/independent judgment/minimum/certification)

• Monitor Reporting Requirements- FERC - RTO Board- PUCs - RTO Management

• Monitor Independence/Incentives

• Monitor Confidentiality Restrictions

• Inter-monitor/Agency Interaction

• Responses: Timeliness/QA-QC

Just a few examples:

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There is lots to discuss.

Questions and Answers