George A. Godding, Jr.Director, Management and CommunicationsOffice of Market Oversight and Investigations

Comments are the speakers and do not necessarily represent those of the Commission.

FERC - Benchmarking and Market Monitoring

Latvian Conference – September 9, 2004

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Office ofMarket Oversight& InvestigationsWhy Benchmarking

• 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

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Office ofMarket Oversight& InvestigationsOverview of Benchmarking

• 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 and Control Market Power Assessment Mitigation Creditworthiness

• Common Metrics (RTOs)

RTO: Regional Transmission Organization

NERC: North American Reliability Council

EISG: Electricity Intermarket Surveillance Group

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Office ofMarket Oversight& InvestigationsCompetitive Market Determinations

• 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

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Office ofMarket Oversight& InvestigationsWhy RTO Report Card

• 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

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Office ofMarket Oversight& InvestigationsRTO Performance Categories

• Cost Management

• Business Processes

• Market Operations

• System Operations

• Corporate Governance/Stakeholder Processes

• Corporate Strategy/Performance Measurement

• Stakeholder Satisfaction

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Office ofMarket Oversight& InvestigationsExample - Length of Settlement

0 20 40 60 80 100

Calendar days

NEMMCO (Australia)

IMO (Ontario)

MISO

ERCOT

ISONE

PJM

NYISO

CAISO

RTO Settlement Cycles

Meter DataFirst StatementFirst InvoiceFirst Payment

Source: Wise Technology Management,EUCI Settlement and Clearing for Efficient Energy Markets Conference, February 18-19,2004

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Office ofMarket Oversight& InvestigationsNERC - Reliability Standards

• 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

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Office ofMarket Oversight& InvestigationsEISG

• 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

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Office ofMarket Oversight& InvestigationsMarket Power Screens

• 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

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Office ofMarket Oversight& InvestigationsPrice Capping

• Automated mitigation procedures California

• Reference price (established through benchmarking)

• Percent increase

• Dollar increase

New York, New England and PJM use other methods based on reference prices and market power

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Office ofMarket Oversight& InvestigationsCredit Worthiness Standards

• 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

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Office ofMarket Oversight& InvestigationsEstablishing Common Metrics

• Requiring the reporting of similar data/analysis

• Ability to compare across regions/markets

• Provides means to Benchmark

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Office ofMarket Oversight& InvestigationsCommon 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