FERC yesterday conditionally approved a significant re-design ofthe New England bulk electricity market in an attempt to reduce theprice volatility stemming from generation shortages and congestedtransmission systems. But it could be as much as two years beforethe regional market feels the effects of the changes.

Some of the design initiatives accepted by FERC included the NewEngland Independent System Operator’s (ISO) proposals for acongestion management system based on locational marginal pricing(LMP), a multi-settlement system for a day-ahead market andreal-time market for energy and ancillary services, and three-partbidding for the day-ahead electricity market.

“My hope is that today’s order is a signal of a more aggressiveCommission posture on insisting on well designed and efficientelectricity markets,” said Commissioner William Massey. “Theheadlines about electricity price spikes and impending shortagesdrive home the importance of getting market design right.”

The “good news” is that there was “broad consensus” among theNew England stakeholders for adopting LMP, which Massey said “sends[the market] correct price signals for using existing generationand transmission resources efficiently.” At the same time, LMP willhelp with the future siting of new generation and transmissionfacilities, he noted, adding that it is “becoming the Commission’spreferred congestion management system.”

The “bad news” is that the New England ISO has said it will be16 to 24 months before it can fully implement the market designchanges, Massey said. The Commission made it clear that it was”very disappointed” with the ISO’s projected timetable forimplementation. It ordered New England to submit within 30 days anexplanation of why it will take so long [EL00-62].

If the delayed implementation is due to the development of LMPsoftware, FERC encouraged the New England ISO to purchase the”rather successful” software of the Pennsylvania-NewJersey-Maryland (PJM) pool.

Commissioner Linda Breathitt noted that many of the proceduresbeing adopted for the New England power market were already in useby adjoining ISOs — the New York ISO and the PJM power pool.”Approving similar bidding, settlement and congestion mechanismsfor New England will simplify coordination among the regionalISOs.”

But Commissioner Curt Hebert Jr., a strong advocate of transcos,didn’t think the ISO design changes would make much difference. “Aslong as we continue to allow ISOs to live from summer to summer,while putting a Band-Aid [on them], we’re never going to get itright.” The power market needs more investment in transmissionfacilities, he said, and transcos will encourage that.

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