FERC last Wednesday gave its stamp of approval to the lion’s share of a proposal made by New England Power Pool (NEPOOL) and ISO New England that will set up a standard market design (SMD) for the New England region and, more broadly, help to standardize regional wholesale power markets both across the northeast and the rest of the United States.

But the Commission carved out for further consideration one element of a mitigation mechanism offered by NEPOOL and ISO New England. Commissioners want to consider further the New England market design’s call for allowing mitigation measures to be applied during unconstrained time periods.

Much of the discussion at the meeting centered on the mitigation plan proposed by ISO New England and NEPOOL, which is similar to a mitigation mechanism utilized by the New York Independent System Operator (NYISO). Automated mitigation procedures (AMP) are a central element in the NYISO’s market mitigation efforts.

A FERC staff member said that the proposed New England mitigation plan is similar to New York’s “in that there are specific threshold levels and conduct and impact tests that is part of AMP.” But the New England approach to mitigation differs from the NYISO’s AMP in that it is not automatic, the staff member added. “It’s not triggered by any automatic kind of pricing.”

FERC Commissioner William Massey noted that ISO New England and the NYISO have proposed a merger that would result in the creation of a Northeast regional transmission organization (NERTO). “It seems to me to be a very positive feature for New England to attempt to formulate a mitigation plan that could be used regionwide in the Northeast. It seems to me that this proposal also establishes fairly bright lines for conduct, which I also think is a very positive feature.”

But FERC Commissioner Nora Brownell expressed puzzlement as to why ISO New England and NYISO would approach mitigation differently, given that the two entities plan on merging. “Is there some significant difference in the market in New England that would suggest that this different approach for the foreseeable future is necessary?,” Brownell asked Commission staff.

“The mitigation plans in New York and the proposed mitigation in New England are very similar in philosophy in the way they go about investigating generator bids, the effect on the market,” a FERC staffer responded. “The fact that one has an automatic feature and one does not, I’m not sure is really as significant as it may seem.”

Brownell also questioned the NEPOOL and ISO New England decision to mitigate market power in unconstrained markets. The issue of whether mitigation should be applied to unconstrained transmission quickly became a topic of debate among the Commissioners.

“I noted in the order that ISO New England’s plan takes the approach that as transmission becomes more constrained, opportunities to exercise market power increase,” Commissioner Linda Breathitt said. “I think we would all agree with that.” But “if the basis of the plan is to mitigate during constraints, then what I have the problem with is…I don’t think there’s been justification for applying additional mitigation during unconstrained periods,” she added. “I just would have rejected that very tiny part of the New England ISO’s mitigation plan — the rest of it I think is really terrific.”

Breathitt also pointed out that a $1,000 bid cap could be applied at a time when there’s an unconstrained situation that arises in New England. But Massey said “I would be concerned about the exercises of market power within the $1,000 bid cap. I still think there could be opportunities for the exercise of market power.”

Massey pointed out that in California’s power markets, the prices “were not often higher than $1,000, but they were consistently high.” Backing up Massey’s point, a FERC staff member said that “in most instances, perhaps in all instances, in the California situation, the spot market prices were below $1,000 and…for the most part, there were no transmission constraints that were present during a lot of the period when prices were in the multi-hundred dollar per megawatt-hour situation.”

Commissioners ultimately agreed to set aside this one particular issue for further consideration and vote out the balance of the proposed market design forwarded by NEPOOL and ISO New England.

©Copyright 2002 Intelligence Press Inc. Allrights reserved. The preceding news report may not be republishedor redistributed, in whole or in part, in any form, without priorwritten consent of Intelligence Press, Inc.