[Federal Register Volume 67, Number 188 (Friday, September 27, 2002)]
[Proposed Rules]
[Pages 61049-61055]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-24564]


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DEPARTMENT OF ENERGY

Federal Energy Regulatory Commission

18 CFR Part 35

[Docket No. RM01-12-000]


Remedying Undue Discrimination Through Open Access Transmission 
Service and Standard Electricity Market Design

September 20, 2002.
AGENCY: Federal Energy Regulatory Commission, DOE.

ACTION: Notice, agenda, and staff paper for the October 2nd staff 
conference on market monitoring.

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SUMMARY: On July 31, 2002, the Commission issued a Notice of Proposed 
Rulemaking proposing to amend its regulations to remedy undue 
discrimination through open access transmission service and standard 
electricity market design (67 FR 55452, August 29, 2002). As announced 
in the Commission's August 28, 2002, Notice of Staff Conference on 
Marketing Monitoring (67 FR 57187, September 9, 2002) the Commission is 
convening a technical conference on October 2, 2002 to discuss and 
further develop the essential elements that should be required in a 
standard market monitoring plan. By this notice, the Commission is 
providing an agenda for the conference and a staff discussion paper on 
standard market metrics information.

DATES: Conference will be convened on October 2, 2002.

ADDRESSES: Federal Energy Regulatory Commission, 888 First Street, NE., 
Room--2C, Washington, DC 20426.

FOR FURTHER INFORMATION CONTACT: Saida Shaalan, Office of Markets, 
Tariff and Rates, Federal Energy Regulatory Commission, 888 First 
Street, NE., Washington, DC 20426, (202) 502-8278, email: 
[email protected].

SUPPLEMENTARY INFORMATION:

Notice, Agenda, and Staff Paper for the October 2nd Staff Conference on 
Market Monitoring

    As announced in the Notice of Staff Conference on Market 
Monitoring, issued August 28, 2002, the staff of the Federal Energy 
Regulatory Commission (Commission) will hold a conference on Wednesday, 
October 2, 2002 to discuss and further develop the essential elements 
that should be required in a standard market monitoring plan. The 
conference will be held at FERC, 888 First St. NE, in Washington DC, in 
the Commission Meeting Room.
    Staff is convening this conference to get additional public input 
on developing a standard market monitoring plan. The staff may then 
propose additional detail for such a plan, on which the public will 
then be given opportunity to comment.
    The goal of this conference is to discuss the development of a 
standardized market monitoring plan to assist in evaluating the 
performance of wholesale electric markets and the conduct of individual 
market participants. The conference will include a discussion of 
standard indices, data and reporting needed to implement the market 
monitoring plan effectively. Attached is the conference Agenda as well 
as a staff discussion paper on standard market metrics.
    The public is invited to attend. There is no registration or fee.
    The conference will be transcribed. Those interested in acquiring 
the transcript should contact Ace Reporters at 202-347-3700, or 800-
336-6646. Transcripts will be placed in the public record ten days 
after the Commission receives the transcripts. Additionally, Capitol 
Connection offers the opportunity for remote listening and viewing of 
the conference. It is available for a fee, live over the Internet, via 
C-Band Satellite. Persons interested in receiving the broadcast, or who 
need information on making arrangements should contact David Reininger 
or Julia Morelli at the Capitol Connection (703-993-3100) as soon as 
possible or visit the Capitol Connection Web site at http://www.capitolconnection.gmu.edu and click on ``FERC.''
    For additional information, please contact Saida Shaalan at 202-
502-8278, or by e-mail to [email protected].

Magalie R. Salas,
Secretary.

Agenda for the SMD Conference on Market Monitoring; Wednesday, October 
2, 2002

Panel I--Academics, FTC, DOJ, and others--9:30 a.m.-11:00 a.m.

    [sbull] Paul Joskow, Massachusetts Institute of Technology, 
Economics
    [sbull] John Hilke, Federal Trade Commission
    [sbull] Jade Eaton, Department of Justice, Attorney
    [sbull] Kenneth Rose, National Regulatory Research Institute
    [sbull] Kristin Domanski, Energy Security Analysis Inc.
    [sbull] Scott Harvey, LECG

Panel II--Market Monitoring Units--11:00 a.m.-12:30 a.m

    [sbull] David Patton, Independent Consultant, MISO
    [sbull] Anjali Sheffrin, CAISO
    [sbull] Frank Wolak, Stanford University, CAISO
    [sbull] Robert Ethier, ISO NE
    [sbull] Steve Balser, ISO NY
    [sbull] Joseph Bowring, PJM ISO
    Both panels will cover the same topics, but from a different 
perspective: The first will be a theoretical discussion of what 
needs to be done as we move towards establishing a standard set of 
metrics. The second panel will discuss what has been done in 
practice, what successes they have had, what impediments they have 
encountered, and what can be done to assist in resolving the 
difficulties.
    The first half hour of each panel will address the first set of 
issues (below) and whether the ``strawman'' we issued includes the 
topics that need to be addressed. The second hour can then deal with 
a variety of issues associated with using a standard set of metrics 
such as data availability, regional differences, etc. as well as 
broader issues addressing market participant access to the data.
    First half hour of each panel--standard set of metrics and the 
strawman:
    [sbull] What aspects of the market should MMUs be monitoring and 
what are the metrics?
    [sbull] Does the ``strawman'' capture these?
    [sbull] Are there metrics which are missing?
    [sbull] To what degree should MMUs be monitoring general market 
behavior vs. individual market participant behavior?
    Last hour of each panel--data and regional issues and market 
participant accessability to the data:
    [sbull] What data limitations are there in monitoring and what 
can FERC do to address them ?
    [sbull] What, if any, differences in monitoring are appropriate 
by region? (Are some additional metrics likely to be needed in some 
regions?)

[[Page 61050]]

    [sbull] What data or information needs to be available to the 
market to function properly?
    [sbull] What data or information needs to be kept confidential 
for the market to function properly and protect corporate interests?

Lunch Break--12:30 p.m.-1:30 p.m.

Panel III--NYMEX, CFTC, SEC, and Others--1:30 p.m.-2:15 p.m.

    [sbull] Robert Levin, NYMEX
    [sbull] Randall Dodd, Professor , Financial Advisor
    [sbull] William Kokontis, CFTC
    [sbull] Alton Harvey, SEC
    [sbull] Robert Nordhaus, Energy Attorney
    This panel will address how other regulatory entities have dealt 
with market monitoring.
    [sbull] What are the lessons learned from monitoring other 
markets and individual market players?
    [sbull] What is the reality of what can be monitored, as opposed 
to the ideal?
    [sbull] How should data needs of the market be balanced against 
corporate needs for confidentiality?
    [sbull] What additional metrics are needed (e.g. financial)?

Break--2:15 p.m.-2:30 p.m.

Panel IV--Market Participants--2:30 p.m.-4:00 p.m.

    [sbull] Mayor Sasson, Consolidated Edison
    [sbull] Linda Clarke, Exelon Power Team
    [sbull] Susan Kelly, NRECA
    [sbull] Jolly Hayden, Calpine
    [sbull] John Stout, Reliant
    [sbull] Edison Elizeh, Pacificorp
    This panel will address monitoring individual companies vs. the 
broader market.
    [sbull] What is the appropriate level and depth of monitoring 
individual market behavior?
    [sbull] To what degree should this monitoring be by MMU versus 
by the FERC?
    [sbull] How does this compare to current MMU monitoring of 
individual participant behavior?
    [sbull] What are the appropriate metrics with which to monitor?

Panel V--Consumers and State Representatives--4:00 p.m.-5:00 p.m.

    [sbull] George Stojic, Michigan Public Service
    [sbull] Mark Reeder, NYPSC
    [sbull] Mark Cooper, Consumer Federation of America
    [sbull] Denise Goulet, PA Office of Consumer Advocate
    This panel is to obtain the state and consumer perspective of 
standard market monitoring and their reaction to the day's 
discussion and the positions taken.
    [sbull] What is the reaction to what has been discussed today 
regarding standardizing a market monitoring plan?
    [sbull] What monitoring issues have not been discussed or 
proposed in the ``strawman'' that need to be addressed for a 
comprehensive and balanced monitoring program?

``Strawman'' Staff Discussion Paper on Market Metrics SMD Staff 
Conference on Market Monitoring

October 2, 2002.
    This paper explores what standard metrics the annual market 
monitoring reports proposed in the SMD NOPR might use to report on 
their markets. The paper proposes a core set of metrics to serve as a 
``strawman'' for further development and detailed specification of 
standard metrics.
    The SMD NOPR discusses some of the ways market monitors have 
measured the structure of their markets and the conduct of market 
participants (] 438) and requests comment on how the market monitor 
should develop useful measures that permit interregional comparisons (] 
442.) Many of the techniques and measures underlying the annual reports 
and analyses are similar across market monitoring units (MMUs), 
stemming from common purposes and economic principles. However, 
differences among these analyses hinder comparability of results across 
existing ISO/RTO markets. These differences arise from several sources, 
including ISO/RTO market design, information collected, resource 
configurations, analytical approaches, and presentation. Although some 
of these differences will remain under SMD, it is important to adopt a 
standard set of market metrics as we move toward a standard set of 
design elements under SMD.
    This paper seeks to advance the discussion toward specific metrics 
that can measure how well the markets operated by Independent 
Transmission Providers (ITPs) under SMD \1\ function. The MMUs have 
recognized the need for such metrics and a working group of market 
monitors has drafted an initial catalog of metrics. The following 
discussion of reporting standards draws on this work,\2\ on market 
monitoring reports, and on the general literature. We first address 
broad measurement categories and then discuss core measures for each 
category.
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    \1\ This discussion also applies to existing RTO/ISO markets, to 
the extent that these markets correspond to the markets proposed 
under SMD.
    \2\ ``A Catalog of Market Metrics'', (Market Monitoring and 
Working Group, EISG April 2002, Alberta Canada).
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Measurement Categories

    A virtually endless list of statistics is provided in the 
literature on market monitoring. We focus first on a limited set to 
address key questions about the SMD markets and to group statistics 
broadly for purposes of discussion and comment. No single set of 
metrics will cover all possibilities within a category, and there are 
gray areas between the defined categories. Nevertheless, our grouping 
serves to facilitate comparable analyses. The following categories 
frame the discussion of specific metrics:
    [sbull] General market functioning
    [sbull] Assessment of market structure
    [sbull] Assessment of market performance
    [sbull] Evaluation of participant conduct

General Market Functioning

    General metrics of the state of the markets start with a general 
description of the market and changes over the year, emphasizing 
measures such as:
    [sbull] energy market prices
    [sbull] quantities delivered
    [sbull] ancillary services prices
    [sbull] transmission usage and pricing
    [sbull] major input costs, such as fuel, and
    [sbull] market ratios, such as a ratio of spot and forward prices.
    These measurements come from specific observed quantities available 
in the normal course of operations, and serve as the basis for 
development of further measures and analyses, such as concentration 
measures or time series analysis of markets.
    Although these measurements are not directly tied to a particular 
index of market power or market efficiency, standardization will permit 
better comparison across regional markets and time periods. It will 
also facilitate the development of other standard metrics specifically 
intended as indices of market structure or performance.

Market Structure Metrics

    The MMUs need first to identify the geographic market for the 
products and identify load pockets. This is a necessary condition for 
applying metrics to measure market structure and performance.
    Typical structural indicators highlight the competitiveness and 
efficiency of the market, in the defined relevant markets. We expect 
structural indices to be controversial, however structural measures, 
such as HHI or a measure of pivotal supply can serve as indicators of 
the state of the market structure, and, if properly standardized, 
permit comparisons across markets.
    The SMD NOPR proposes to require each market monitoring unit (MMU) 
to perform a structural analysis to address market structure and 
performance prior to implementation of SMD (] 439) and to update this 
analysis annually.\3\ The scope of the geographic market will change 
over time, as supply and demand conditions change. This

[[Page 61051]]

changing scope will need to be addressed in a structural analysis that 
identifies transmission constraints and load pockets.
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    \3\ The SMD NOPR requires this analysis in order to implement 
market mitigation, but the analysis should also provide essential 
background for the application of the market metrics.
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    Developing such indicators must permit ongoing evaluation of 
changes over time in the market and comparison of structural analyses 
across markets. We recognize that the precise relationship between the 
structure of the market and the performance of the market (either in 
aggregate or by individual participants) will remain controversial.

Market Performance Metrics

    Performance measures typically focus on whether market outcomes are 
consistent with outcomes expected in a competitive market, whereas 
structural measurements examine whether the underlying market 
conditions suggest many different sellers can compete to serve load and 
sellers can reach many different buyers. Performance measures address 
what generators or loads actually do, whereas structural measures 
address what generators or load potentially can do. For example, market 
power is a structural characteristic of markets with certain properties 
(monopolistic or highly concentrated ownership), whereas the exercise 
of market power is an indicator of market performance associated with 
market outcomes, such as prices and quantities. A concentrated market 
(as measured by a high HHI) would be taken as a structural condition 
that might be expected to lead to the exercise of market power (as 
measured by a Lerner index that indicated the price markup over cost 
was above a competitive level.)
    Aggregate market performance measures should cover a wide range of 
markets (e.g., energy markets, ancillary services, capacity revenue 
rights), periods (e.g., day ahead and real time markets, longer term) 
and conditions (e.g., prices in relation to costs, output in 
relationship to capacity, market depth and liquidity.) Since no single 
measure will satisfy all the purposes of performance measurement, a 
balanced group of measures will be needed. Clear identification of each 
measure is important, so the theoretical and practical implications of 
applying each measure are understood. It is also important that 
measures be feasible to implement with data accessible to the market 
monitors.

Market Conduct Metrics

    General statistical measures help identify patterns of anomalous 
market outcomes that appear to indicate undesirable behavior by 
individual market participants. For example, unexplained jumps in power 
prices that appear to have no basis in fundamentals such as fuel prices 
or high loads may indicate and exercise of market power. Therefore, the 
market performance measures, discussed above, can be a useful starting 
point in identifying problems of conduct.
    However, general measures of market performance are unlikely to 
apply to individual participant conduct. General measures may indicate 
a need for further investigation, but drawing a line between outcomes 
that are caused by difficult-to-measure fundamentals (such as scarcity) 
and difficult-to-measure undesirable behavior (such as economic 
withholding) remains a matter of analytic judgment. Mitigation tools 
that can be employed ex ante may be preferable to ex post monitoring, 
but metrics to monitor the behavior of individual participants will 
remain important.

Core Metrics

    In this section, we discuss specific core metrics that can be used 
to measure market structure and performance across RTOs. These measures 
will also provide a basis for meaningful assessment of the state of 
each market over time. The specifics of measures must identify 
necessary data and calculations. Specifying the data and methods 
applicable across regional markets permits these measures to be used to 
compare performance across RTOs. All MMUs will produce the core set of 
measurements. However, we encourage the development of innovative 
measures beyond this core set to address regional differences and to 
identify new metrics that could be added to the core set if the metric 
provides useful insight across all RTOs.
    The SMD NOPR expresses the Commission's intent to ``require the use 
of a core set of questions and techniques'' (] 436.) Questions, metrics 
and techniques are interrelated: standard metrics can provide a clear 
and comparable basis for answering some of the key core questions, but 
we recognize that many questions will require customized responses. Our 
purpose here is to begin to identify those metrics with a consensus on 
their value and calculation. The discussion below also raises questions 
relating to the use some of these metrics.

General Market Functioning

    There needs to be a list of general market indicators focused on 
key concerns about the function of the markets proposed in the SMD 
NOPR. As a minimum, MMUs should provide general background information 
identifying major submarkets including recurring load pockets and 
describing the size of the markets, the general mix, transmission 
constraints, and export/import patterns. The reported information 
should include the following SMD markets:
    [sbull] Energy markets (day ahead and real time, peak and off-peak)
    [sbull] Ancillary services-regulation, spinning and non-spinning 
reserves (day ahead and real time)
    [sbull] Transmission markets including CRRs (by term)
    For each of these markets, separate information should be provided 
on quantities and prices for the following groupings:
    [sbull] Overall market, for example the average load-weighted 
hourly price for the entire ITP.
    [sbull] Submarkets, such as energy and ancillary service prices, 
provided by delivery/load zone and time period.
    [sbull] Transmission prices for CRRs from each of the CRR auctions.
    [sbull] Congestion charges in the day ahead and spot markets, 
provided for overall market and for major transmission paths.
    These statistics should be provided on a monthly, seasonal and an 
annual basis. We seek comment on additional market information 
groupings that should be part of a standard package.

Market Structure Metrics

    Concentration measures from the principal measure of market 
structure, with the HHI being used most commonly by the DOJ and in FERC 
analyses for mergers and market based rates. In the analysis of market 
based rates, FERC also employs the concept of a pivotal supplier, 
measuring the degree to which the supply of a single firm is needed to 
meet market demand in an area. These measures are designed to provide 
an indication of market power for a defined market with market power 
being defined as the ability to raise the price above the competitive 
level.\4\ Although it can be argued that the link between concentration 
and market power is not always conclusive, it still provides a useful 
measure of competitive market structure, particularly when used in 
conjunction with other measures. However, it is important to clearly 
define the basis for calculating any specific concentration measure. 
The HHI can be based on one

[[Page 61052]]

or more methods for measuring market share, including the following:
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    \4\ Depending on the use of the definition, the definition is 
sometimes expanded to require that the price rise be profitable to 
the firm, that the price rise be sustained for some period of time, 
or to require that the exercise of market power result in a 
misallocation of resources.
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    [sbull] HHI based on ownership shares of installed capacity, 
measured seasonally, and for submarkets where transmission constraints 
are frequently binding.
    [sbull] HHI for energy output, calculated from hourly generator 
output for an overall market and for specific classes of generator 
(baseload, intermediate and peak units.)
    [sbull] HHI based on capacity of units that are near the market 
clearing price, defined as units that are bid within a fixed percentage 
of the market clearing price in each hour.
    We seek comment on the appropriate methods for measuring market 
share in the calculation of HHI. There are other possible structural 
measures for which staff would like comment, including the concept of 
pivotal supply noted above. Although less widely used than the HHI 
measure, the use of the pivotal supplier concept may provide certain 
advantages in electricity markets, where non-storability of electricity 
and the time-varying (and largely inelastic) natures of electricity 
demand are important.
    In addition to these specific measures, there is a need to develop 
some measure of structural incentives for withholding, where firms with 
units near the market clearing price (typically peaking units) hold 
large amounts of lower priced (typically baseload) capacity that could 
profit from economic withholding of the marginal units, or from 
physical withholding of small amounts of baseload capacity that would 
force the peaking units to set the marginal price.

Market Performance Metrics

    Competitive markets are efficient, and workably competitive markets 
should reflect an appropriate measure of efficiency. The SMD NOPR 
proposes that the annual assessment of market performance compare the 
actual market results with a benchmark for a competitive market (] 
440), and cites studies using a simulated benchmark (] 437), but does 
not specify how that benchmark should be obtained.
    There are many issues about whether a price benchmark should be 
based on costs and how to incorporate costs in calculating the 
benchmark. Simple methods of incorporating costs in a benchmark are 
desirable where feasible, but simply methods can be misleading in a 
complex market, because they will leave out key factors that may 
determine market prices and quantities. Computer simulation of prices 
and quantities is one alternative, but it is difficult to identify cost 
components (such as temporal opportunity costs), to get data, and to 
develop and implement such a modeling approach.
    In some cases, using simple production cost estimates to replace 
bids in the dispatch, and estimating the market clearing price with 
these cost-based bids, might yield a reasonable estimate of a market 
clearing price, particularly if some adjustment is made for opportunity 
costs. Some key cost elements will still be missing from the approach, 
but results might form a reference point for measurement and 
comparisons. We believe there may be useful cost-based benchmarks, but 
seek comment on how to trade off complexity of approach with accuracy 
of results.
    An alternative to basing a benchmark directly on costs is to base 
it on some estimate from in-merit bids during prior periods that are 
deemed competitive. This alternative is potentially attractive, in part 
because using averages of prior in-merit bids is one approach proposed 
in SMD, along with cost-based approaches, for setting default energy 
bids (]420). This approach also has the advantage that the data needed 
are easier to obtain in the normal course of business and raise fewer 
issues of information confidentiality than approaches based on detailed 
generator production costs. However, reliance on generator bids rather 
than independent assessment of costs leaves open the relationship 
between the competitive benchmark and the costs of production, raising 
the issue of whether this approach satisfies the need to assess whether 
loads are being served at least cost. We seek comment on whether the 
use of the approach can be reconciled with the need to base a 
performance assessment on the overall cost efficiency of the market.

Market Conduct Metrics

    Any assessment of individual behavior is extremely difficult, given 
the number and range of factors that need to be considered, and raises 
issue of data availability, access and confidentiality. Consequently, 
metrics for evaluation of conduct will need considerable additional 
study and analyst judgment. Nevertheless, because we know that 
individual conduct can include exercises of market power and attempts 
to game the market rules, there will continue to be a need for metrics 
to monitor the behavior of individual participants. For example, market 
monitoring units will need to continue to examine physical withholding 
through monitoring of patterns of outages, deratings and scheduling by 
generators, and to examine economic withholding through monitoring of 
bidding behavior of individual participants.
    One possible core approach to evaluate conduct is to identify 
potential anomalies in bidding patterns, whether these anomalies are 
measured against prior bidding behavior or against some external 
standard such as estimated input costs. A metric for this purpose would 
be to measure patterns of how generator supply offers change as a 
function of bid price, by measuring shifts in quantities offered in 
different price ranges. We seek comment on whether this type of metric 
can assist in analyzing participant conduct, and on what other metrics 
might be useful.
    Table 1 presents a list of key questions to address, suggested core 
metrics that could be used to address those questions, and comments on 
applying those metrics. It is organized around the categories discussed 
above. Staff proposes the metrics presented in Table 1 as the starting 
point for the discussion of standardization.

[[Page 61053]]



                                  Table 1.--Summary of Principal Market Metrics
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        Question(s) addressed                       Metric(s)                         Application notes
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                                           General Market Functioning
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Competitive Nature of Market:         For Day Ahead (DA), Real Time (RT),   Look for price and quantity
[sbull] Are market outcomes            Ancillary Services, and Congestion    anomalies.
 consistent with expectations for      and Congestion Revenue Right (CRR)
 competitive markets?                  Markets:
[sbull] How often is the price cap    [sbull] Prices, including year to
 binding?                              year comparisons
                                      [sbull] Number of hours and quantity
                                       of load at bid cap price
                                      [sbull] Quantities, including year
                                       to year comparisons
Inter-market Efficiency:              [sbull] Ratio of DA and RT prices     On locational, temporal, and type of
[sbull] Is arbitrage occurring        [sbull] Ratios of energy prices to     service basis.
 between markets in a competitive      ancillary service prices
 manner?                               (regulation, spinning, non-
[sbull] Are prices in neighboring      spinning)
 markets converging?                  [sbull] Ratio of spot to forward
                                       prices
                                      [sbull] Frequency and duration of
                                       imports/exports inconsistent with
                                       price differentials
                                      [sbull] Spark spreads (natural gas)
Demand Reponsiveness:                 [sbull] MW of demand response         Analysis of formal demand response
[sbull] Is demand unresponsive to      capabilities in energy and            programs as well as simple demand
 price in a manner that facilitates    ancillary service markets             responses to price.
 the exercise of market power?        [sbull] Load weighted % of demand     Retail rate barriers will reduce
[sbull] To what degree is metering     bids that are price responsive        demand response.
 in place?                            [sbull] % of load with real-time
[sbull] How is demand response         metering capability
 providing alternatives to new        [sbull] Price elasticity of demand
 supply?                              [sbull] Changes in those demand
                                       response capabilities (spread of
                                       technology)
Load Pockets:                         [sbull] Listing and description of    How should load pockets be
[sbull] What are the individual load   individual load pockets               determined?
 pockets?
Transmission Constraints:             [sbull] Frequency, duration and       All by load pocket.
[sbull] Are transmission constraints   location of congestion
 limiting the development of          [sbull] Level of congestion revenues
 competition in energy markets?       [sbull] CRR revenue shortfall
[sbull] Where is congestion creating  [sbull] Instances of nodal prices
 distinct separate load pockets?       above highest bid taken
[sbull] Is the congestion             [sbull] Pivotal supplier analysis
 inefficient (are there cheaper       [sbull] Seller HHIs and N-firm
 alternatives that are not             ratios
 exploited)?                          [sbull] Buyer HHIs and N-firm ratios
Effects of Mitigation Actions:        [sbull] Number and duration of        By region.
[sbull] To what extent are             mitigation instances                 What is/should be the degree of
 administrative solutions relied      [sbull] Cost of mitigation from non-   subjectivity or discretion in
 upon?                                 competitive load pockets created by   imposing mitigation?
[sbull] Are market mitigation          constraints
 actions impeding the competitive
 operation and development of energy
 markets?
Risk:                                 [sbull] % exposure to spot market
[sbull] Is the level of exposure to   [sbull] % of transmission service
 spot market prices appropriate?       hedged (with CRRs)
[sbull] Are levels of hedging of
 transmission service appropriate?
-------------------------------------
                                                Market Structure
----------------------------------------------------------------------------------------------------------------
Ownership and Control:                [sbull] Hirschman-Hirfindahl Index    Disaggregate measures by supply
[sbull] Does the distribution of       (HHI) of base ownership/control       category (base, intermediate, peak)
 ownership and control of assets      [sbull] N-firm concentration ratio     and load level.
 support competition?                  of base ownership/control            Apply to overall regional market,
[sbull] Does the distribution of      [sbull] HHI of capacity of units       and congested major load pockets.
 ownership and control of assets       within a fixed percentage of the     Is information on control of assets
 support market development?           market clearing price                 available?
                                      [sbull] Pivotal Supply Analysis/
                                       Residual Supply Index For Each
                                       Supplier (measure of degree to
                                       which a supplier is critical to the
                                       market)
                                      [sbull] Market supply curves
                                      [sbull] Supply Elasticity
Long Term Market Structure:           [sbull] Current and anticipated       Perform calculations for major
[sbull] How long does it take from     reserve margins                       congested zones.
 project announcement to entrance in  [sbull] HHIs including actual and
 the market?                           proposed entrants
[sbull] Are long-term resources       [sbull] Entrants by role in market
 sufficient?                           (baseload, intermediate, peaking
                                       unit), and by fuel
                                      [sbull] Degree of entry barriers
                                       (e.g., siting, environmental * * *)
-------------------------------------

[[Page 61054]]

 
                                               Market Performance
----------------------------------------------------------------------------------------------------------------
Efficiency of Short-Term Market:      [sbull] Lerner Index comparing        Determine benchmark from historical
[sbull] Are short-term markets         actual hourly prices with benchmark   bidding patterns and/or variable
 operating efficiently?                of marginal energy costs              cost estimates.
[sbull] How much are short-term       [sbull] Price-cost markup comparing   Base benchmark clearing price on
 market results diverging from         actual hourly prices with benchmark   simple dispatch model or more
 competitive outcome?                  marginal energy costs                 complex simulation.
[sbull] Is price set by the true      [sbull] Price-cost markup comparing
 marginal resource?                    actual hourly prices with actual
[sbull] Is dispatch efficient?         marginal energy costs on an
                                       aggregate basis and on an
                                       individual peak hour basis
Withholding:                          [sbull] Output gap analysis--         Develop hourly benchmark of
[sbull] Is generation capacity being   difference between actual hourly      economically available output,
 withheld from the market that is      output with benchmark of              using supply function analysis
 economic?                             economically available capacity       based on historical patterns or on
[sbull] Are observed high prices      [sbull] Output gap analysis--ratio     cost analysis of generation. Do by
 caused by withholding or scarcity?    of actual hourly output with          region and by fuel type.
                                       economically available capacity      Case studies/audits of high priced
                                      [sbull] Difference between total       hours may be needed.
                                       generation capacity with brenchmark  Analyze deratings and outages on the
                                       of economically available capacity    basis of conditions and participant
                                      [sbull] Ratio of total generation      characteristics.
                                       capacity with benchmark of
                                       economically available capacity
                                      [sbull] Deratings (Number, quantity,
                                       frequency)
                                      [sbull] Scheduled and forced outages
                                       (Number, quantity, frequency)
Liquidy:                              [sbull] Number of supply options      Calculate current, 1 year, 5 years,
[sbull] Are markets sufficiently       (unaffiliated suppliers) in short-    and 10 years forward.
 liquid?                               term markets
[sbull] Will markets continue to be   [sbull] Number of supply options
 sufficiently liquid?                  (unaffiliated suppliers) on a long-
                                       term basis
                                      [sbull] Percent of load that is long
                                       term
                                      [sbull] Supply (Capacity, Firm
                                       Energy, and Firm Demand Response)
                                       available in the bilateral market
                                       as a % of load
Long Term Market Performance:         [sbull] Average price including long- (As calculated by CAL-ISO).
[sbull] Is market pricing consistent   term contracts                       Requires a significant amount of
 with need for new entry?             [sbull] Price cost margin including    data on bilateral markets.
[sbull] Are longer term market         long-term contracts                  Base net revenue analysis on energy
 outcomes efficient?                  [sbull] % of contracts that are long-  market and on all-in compensation
[sbull] Is entry profitable for        term                                  including all sources.
 generation, for transmission, and    [sbull] Correlation between spot and
 for demand resources?                 long-term prices
                                      [sbull] Net revenue analysis of
                                       pricing and entry costs for base,
                                       intermediate and peaking plants
                                      [sbull] Net revenue analysis of
                                       pricing and entry costs for demand
                                       resources
                                      [sbull] Net revenue analysis of
                                       pricing and entry costs for
                                       transmission alternatives
-------------------------------------
                                           Market Participant Conduct
----------------------------------------------------------------------------------------------------------------
Participant Conduct:                  [sbull] Bids by price bin (weekly     Plant audits for outages (forced and
[sbull] Is bidding behavior            average of bids for incremental       otherwise).
 consistent with competitive           energy compared to dispatched
 behavior?                             incremental MW)
[sbull] Are market participants       [sbull] Instances of failures to
 following established rules?          follow rules
[sbull] Do bids reflect marginal      [sbull] Plant audits for outages
 opportunity costs?
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[[Page 61055]]

[FR Doc. 02-24564 Filed 9-26-02; 8:45 am]
BILLING CODE 6717-01-P