Market Monitors Explain Competitive Outcomes in Organized Electricity Markets
Regional electricity markets are well-structured and well-regulated, and by delivering competitive results are providing real economic and environmental benefits to consumers, the Independent Market Monitors for the majority of regional transmission operator/independent system operator (RTO/ISO) markets said at a COMPETE-sponsored Capitol Hill policy briefing. These markets are creating innovation, new investment and competitive electricity rates – all the while ensuring system reliability, the monitors said. The “Meet the Market Monitors” event convened monitors from PJM Interconnection, which serves 13 Mid-Atlantic and Midwestern states and the District of Columbia; Midwest Independent Transmission System Operator (Midwest ISO), which serves 13 upper Midwest states and the Canadian province of Manitoba; New York ISO (NYISO), which serves New York State; ISO-New England (ISO-NE), which serves six Northeastern states; and the Southwest Power Pool (SPP), which serves nine Southern and Southwestern states. These RTO/ISO markets are responsible for providing real-time and time-ahead operation of the wholesale power markets, oversight and administration of the electricity grid, and recommending new transmission and generation investment to meet demand. These market monitors discussed how they ensure the markets are run fairly, transparently and competitively, and assess the operation of each RTO/ISO in annual state-of-the-market reports. “A well-structured market will perform well, and we’re seeing very positive results out of our nation’s organized competitive markets, especially in terms of electricity rates,” said William Massey, former FERC Commissioner and COMPETE Counsel, who moderated the event. “In 2009, rates fell 45.1 percent in PJM, 49 percent in NYISO, and 48 percent in NE-ISO.” Dr. David Patton, President of Potomac Economics, market monitor for the Midwest ISO, ISO-NE and NYISO, explained how competitive electricity markets are structured to ensure generators bid their marginal costs. This has translated into higher availability and efficiency of generation units, and consumers have benefited since more generation is produced from existing facilities. Markets are subject to strict regulatory oversight and ensure market fairness and transparency, resulting in limited examples of market power abuse, Patton said:“Market monitors have the legal authority to gather the information we need from the market participants. If investigations indicate anticompetitive conduct or gaming that cannot be addressed by our market power mitigation measures and sanctions, the conduct is referred to FERC for enforcement… To date, we have found that the wholesale electricity markets have been very competitive and delivered the following specific benefits: lower overall supply costs; higher availability and ratings for existing power plants; and more accurate price signals to guide investments.”
Dr. Joseph Bowring, President of Monitoring Analytics and the independent market monitor for PJM Interconnection, explained that market monitors spend most of their time making sure market rules and oversight work to produce good results for consumers and prevent the exercise of market power. In the RTO/ISO markets, prices are set by the generators’ marginal costs, an outcome he described as “an economist’s dream.” Competition within the organized markets from multiple power providers helped set the lowest possible costs, he said:“In the PJM wholesale electricity market in 2009, prices were down 45 percent and congestion was down 66 percent. The declines in fuel prices were passed through in lower offers and in lower energy prices. This is what we expect in a competitive market. Units that were on the margin and set the price in the energy market offered at prices equal to their short-run marginal cost. The energy market results were competitive in 2009.”
Dr. Craig Roach, President of the Boston Pacific Company and the SPP Market Monitor explained how RTO/ISO markets are attracting substantial amounts of new investment, said:”The SPP markets are competitive. We base this finding on evidence ranging from (a) actual new entry into the market to (b) the fact that bid prices are well below bid caps to (c) the finding that prices track broader market trends like swings in natural gas prices. More importantly, the SPP Board of Directors and the participating State Commissions insisted that substantial evidence be shown that money spent on market development would be well spent – that is, consumer benefits were expected to exceed the costs. The Board then asked that benefits be confirmed with actual market results in the first year of market operation. Similarly, the Board and the State Commissions are relying on benefit/cost studies to approve recent recommendations for transmission investments.”
These markets also inspire innovation and promote investment. Between 2001 and 2008, over 83,000 megawatts of generation capacity was added in U.S. organized markets and almost $26 billion in new transmission investment was made in PJM, ISO New England and MISO alone. Regional electricity market operators have installed the most advanced systems in the industry for network analysis, monitoring, operations planning, scheduling, forecasting, grid management and delivery of energy services.
Joel Malina | April 21, 2010
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