Department of Energy: Thursday, August 29, 2002

Thursday,
August 29, 2002
Part II
Department of
Energy
Federal Energy Regulatory Commission
18 CFR Part 35
Remedying Undue Discrimination
Through Open Access Transmission
Service and Standard Electricity Market
Design; Proposed Rule
VerDate Aug<23>2002 15:37 Aug 28, 2002 Jkt 197003 PO 00000 Frm 00001 Fmt 4717 Sfmt 4717 E:\FR\FM\29AUP2.SGM 29AUP2
55452 Federal Register / Vol. 67, No. 168 / Thursday, August 29, 2002 / Proposed Rules
DEPARTMENT OF ENERGY within and among regional power Washington, DC 20426. (202) 208–
markets. The Commission proposes to 1024. (202) 502–8028 (after Aug. 7,
Federal Energy Regulatory require all public utilities with open 2002).
Commission access transmission tariffs to file Mark Hegerle (Technical Information),
modifications to their tariffs to reflect Office of Markets, Tariffs and Rates,
18 CFR Part 35 non-discriminatory, standardized Federal Energy Regulatory
[Docket No. RM01–12–000] transmission service and standardized Commission, 888 First Street, NE.,
wholesale electric market design. Washington, DC 20426. (202) 208–
Remedying Undue Discrimination DATES: Initial comments are due on 0287. (202) 502–8287 (after Aug. 7,
Through Open Access Transmission October 15, 2002. Comments should 2002).
Service and Standard Electricity include an executive summary that does David Withnell (Legal Information),
Market Design not exceed 10 pages. Office of General Counsel, Federal
ADDRESSES: Send comments to: Office of Energy Regulatory Commission, 888
July 31, 2002.
the Secretary, Federal Energy Regulatory First Street, NE., Washington, DC
AGENCY: Federal Energy Regulatory
Commission, 888 First Street, NE., 20426. (202) 208–2063. (202) 502–
Commission, DOE.
Washington, DC 20426. 8421 (after Aug. 15, 2002).
ACTION: Notice of proposed rulemaking.
FOR FURTHER INFORMATION CONTACT: SUPPLEMENTARY INFORMATION: In
SUMMARY: The Federal Energy Alice Fernandez (Technical addition to publishing the full text of
Regulatory Commission (Commission) Information), Office of Markets, this document in the Federal Register,
proposes to amend its regulations under Tariffs and Rates, Federal Energy the Commission provides all interested
the Federal Power Act (FPA) to modify Regulatory Commission, 888 First persons an opportunity to view and/or
the pro forma open access transmission Street, NE., Washington, DC 20426. print the contents of this document via
tariff established under the (202) 208–0089. (202) 502–6389 (after the Internet through FERC’s home page
Commission’s Order No. 888 to remedy Aug. 7, 2002). (http://www.ferc.gov) and in FERC’s
remaining undue discrimination in the David Mead (Technical Information), Public Reference Room during normal
provision of interstate transmission Office of Markets, Tariffs and Rates, business hours (8:30 a.m. to 5 p.m.
services and in other industry practices, Federal Energy Regulatory Eastern time) at 888 First Street, NE.,
and to assure just and reasonable rates Commission, 888 First Street, NE., Washington, DC 20426.
TABLE OF CONTENTS
Paragraph
I. Introduction 1
II. Background: Order No. 888 and Order No. 2000 20
A. Order Nos. 888 and 888–A 20
B. Order No. 2000 24
III. Need for Reform 31
A. Undue Discrimination and Impediments to Competition Remain 31
B. Specific Instances of Undue Discrimination and Impediments to Competition 36
1. Transmission Market Power by Utilities that are Not Independent 38
a. Load Growth 41
b. Delays in Responding to Requests for Service 43
c. Scheduling Advantages 45
d. Imbalance Resolution 48
e. Available Transfer Capability and Affiliates 50
f. OASIS Postings 52
g. Capacity Benefit Margin Manipulation 55
h. Discretionary Use of Transmission Loading Relief 57
2. Lack of Common Rules Governing Transmission 61
3. Congestion Management 71
4. Seams Problems 80
5. Market Design Flaws 86
C. Reform Essential Given the Changed Nature of the Electric Industry 91
D. Legal Authority and Findings 100
IV. The Proposed Remedy 107
A. The Interim Tariff 117
1. Placing Bundled Retail Customers under the Interim Tariff 118
2. Additional Interim Revisions to the Pro Forma Tariff 121
B. Independent Transmission and Markets 124
1. Independent Transmission Providers 125
2. Role of Independent Transmission Companies in Standard Market Design 132
C. The New Transmission Service 136
1. Basic Rights 139
2. Access to Transmission Service 143
3. Service Limitations in the Existing Pro Forma Tariff 146
4. Conditions for Receiving Service 148
5. Scheduling Transmission Service and Acquiring Congestion Revenue Rights 149
6. Designating Resources and Loads 152
7. Substituting Receipt and Delivery Points 154
8. System Impact and Facilities Studies 157
9. Load Shedding and Curtailments 158
10. Trading (Reassigning) Congestion Revenue Rights 162
Federal Register / Vol. 67, No. 168 / Thursday, August 29, 2002 / Proposed Rules 55453
TABLE OF CONTENTS—Continued
11. Ancillary Services 164
D. Transmission Pricing 165
1. Recovery of Embedded Costs 167
2. Rates for Bundled Retail Customers 176
3. Inter-Regional Transfers 179
4. Application of Inter-Regional Pricing to Parallel Path Flows 190
5. Pricing of New Transmission Capacity 191
E. The New Congestion Management System 203
1. Locational Marginal Pricing 204
2. LMP and Energy Markets 221
3. Congestion Revenue Rights 235
a. General Features 237
b. Types of Congestion Revenue Rights 241
(1) Receipt Point-to-Delivery Point Rights 242
(2) Obligations and Options 245
(3) Flowgate Rights 246
c. Requirement for Offering Rights 248
d. Funding for the Congestion Revenue Rights 250
e. Auctions and Resales of Congestion Revenue Rights 252
f. Including Energy and Ancillary Services in the Congestion Revenue Rights Auctions 254
F. Day-Ahead and Real-Time Market Services 256
1. Design of the Day-Ahead Markets 257
a. Scheduling Transmission Service Day Ahead 258
(1) General Features 258
(2) Transmission Service Across Borders 264
b. Transmission Losses 267
c. Day-Ahead Energy Market 269
(2) Bidding and Scheduling Rules 270
(3) Price Determination and Settlement 277
d. Day-Ahead Ancillary Service Markets 284
2. Scheduling After the Close of the Day-Ahead Market 298
a. Replacement Reserves 298
b. Changes to Transmission Schedules 303
3. Design of the Real-Time Markets 305
a. Real-Time Energy Markets 306
b. Real-Time Ancillary Services Markets 320
4. Market Rules for Shortages or Emergencies 326
G. Other Changes to Improve the Efficiency of the Markets under Standard Market Design 328
1. Capacity Benefit Margin 330
2. Regional and Independent Calculation of Available Transfer Capability, Performance of Facilities Studies and
OASIS 333
3. Regional Planning Process 335
4. Modular Software Design 351
5. Transmission Facilities That Must be Under the Control of an Independent Transmission Provider 361
a. Before Order No. 888 362
b. Order No. 888 365
c. Test for Transmission Facilities 367
H. Transition to Single Transmission Tariff 370
1. Treatment of Customers under Existing Wholesale Contracts 372
2. Allocation of Congestion Revenue Rights 376
3. Reciprocity Provision 383
4. Force Majeure and Indemnification Provisions 385
I. Market Power Mitigation and Monitoring in Markets Operated by the Independent Transmission Provider 390
1. Principles and Objectives 390
2. Overview of the Market Power Mitigation Measures 398
3. Market Power Mitigation for Local Market Power 406
4. The Safety-Net Bid Cap 413
5. Mitigation Triggered by Market Conditions 415
6. Establishing Bid Caps or Competitive Reference Bids 418
7. Exemptions 428
8. Monitoring 429
a. Framework for Analyzing Market Structure and Market Conduct 436
b. Data Requirements and Data Collection 447
c. Reporting Requirements 451
d. Enforcement of the Tariff Rules 454
J. Long-Term Resource Adequacy 457
1. The Reason for the Requirement 460
TABLE OF CONTENTS—Continued
a. Spot Market Prices Alone Will Not Signal The Need to Begin Development of New Resources in Time to Avert
a Shortage 462
b. Spot Market Prices that are Subject to Mitigation Measures May Not Produce an Adequate Level of Investment
When a Shortage Occurs 467
c. Load-Serving Entities Will Underinvest in Resources Needed for Reliability if They Can Depend on the Re-
source Development Investments of Others 469
2. Basic Features of the Requirement 474
a. Demand Forecast 485
b. Level of Resource Adequacy 487
c. Load-Serving Entities 494
d. Load-Serving Entity’s Share of the Regional Resource Requirement 497
e. Resources That Can Satisfy the Resource Needs 503
(1) Generation and Transmission 504
(2) Demand Response 507
3. Resource Standards 509
a. Generation Standards 511
b. Transmission Standards 514
c. Demand Response Standards 517
4. Planning Horizon 520
5. Enforcement 526
6. Regional Flexibility 542
K. State Participation in RTO Operations 551
L. Governance for Independent Transmission Providers 556
1. Responsibilities of the Board of Directors 558
2. Stakeholder Participation 560
3. Initial Selection Process for Board of Directors 562
4. Succession of Board Members 569
5. Mergers of Independent Transmission Providers 573
M. System Security 575
V. Implementation 580
VI. Public Comment Procedures 595
VII. Regulatory Flexibility Act 599
VIII. Environmental Statement 603
IX. Public Reporting Burden and Information Collection Statement 604
X. Document Availability 612
Regulatory Text
Appendices
A. Interim Pro Forma Tariff Revisions
B. Standard Market Design Tariff (SMD Tariff)
C. Examples of Flaws in the Current Regulatory Environment
D. Conversion of the Order No. 888–A Pro Forma Tariff to the Revised Standard Market Design Pro Forma Tariff
E. Standard Market Design and Trading Strategies Encountered in the Independent Transmission System Operators
F. Access Charges and Congestion Revenue Rights
G. Form for the Annual Self-Certification of Compliance with FERC Security Standards
I. Introduction issued Order No. 2000.2 The competitive electricity markets.

1. This notice of proposed rulemaking Commission’s objective was ‘‘for all However, as events have transpired,
represents the third in a series of transmission owning entities in the there remain significant impediments to
initiatives undertaken by the Nation, including non-public utility competitive markets and to the
Commission to harness the benefits of entities, to place their transmission infrastructure needed to meet our
competitive markets for the nation’s facilities under the control of electric energy demand. Unduly
electric energy customers, in order to appropriate regional transmission discriminatory transmission practices
meet our statutory responsibility to institutions [RTOs] in a timely have continued to occur and
assure adequate and reliable supplies of manner.’’3 inconsistent design and administration
electric energy at a just and reasonable 2. Order No. 888 and Order No. 2000 of short-term energy markets has
price. In 1996, the Commission issued set the foundation upon which to build resulted in pricing inefficiencies that
Order No. 888, which required, as a regional transmission institutions and can cause rates to be unjust and
remedy for undue discrimination, that unreasonable. At the same time, the
other grounds sub nom. Transmission Access Policy nature of the electric industry has
all public utilities provide open access Study Group, et al. v. FERC, 225 F.3d 667 (D.C. Cir.
transmission.1 In 1999, the Commission 2000), aff’d sub nom. New York v. FERC, 122 S. Ct. changed in a way that makes the
1012 (2002). development of competitive wholesale
1 Promoting Wholesale Competition Through 2 Regional Transmission Organizations, Order No.
markets all the more critical. The
Open Access Non-discriminatory Transmission 2000, 65 FR 809 (January 6, 2000), FERC Stats. & electric industry has evolved from one
Services by Public Utilities and Recovery of Regs. ¶ 31,089 (1999), order on reh’g, Order No.
Stranded Costs by Public Utilities and Transmitting 2000–A, 65 FR 12,088 (February 25, 2000), FERC characterized by large, vertically
Utilities, Order No. 888, 61 FR 21,540 (May 10, Stats. & Regs ¶ 31,092 (2000), petitions for review integrated utilities to an industry with
1996), FERC Stats. & Regs. ¶ 31,036 (1996), order on dismissed, Public Utility District No. 1 of increasing wholesale trade and
reh’g, Order No. 888–A, 62 FR 12,274 (March 14, Snohomish County, Washington v. FERC, 272 F.3d increasing numbers of independent
1997), FERC Stats. & Regs. ¶ 31,048 (1997), order on 607 (D.C. Cir. 2001).
reh’g, Order No. 888–B, 81 FERC ¶ 61,248 (1997), 3 Regional Transmission Organizations, 64 FR buyers and sellers of wholesale power
order on reh’g, Order No. 888–C, 82 FERC ¶ 61,046 31,389 (May 13, 1999), FERC Stats. & Regs. ¶ 32,541 seeking non-discriminatory access to
(1998), aff’d in relevant part, remanded in part on at 33,685 (1999) (Notice of Proposed Rulemaking). transmission facilities. Public utilities
today purchase significantly more significant transaction costs and the region in which it provides
wholesale power to meet their load than threatens reliability. transmission services or in neighboring
in the past. Indeed, from 1989 through 6. To remedy undue discrimination, regions. We propose that all
2000, their wholesale purchases enhance competition, remove economic Independent Transmission Providers
increased from 18 percent of their total inefficiencies and ensure just and administer the day-ahead and real-time
available electric energy to over 37 reasonable rates, terms and conditions markets. As discussed infra, we also
percent, and this percentage is expected transmission of electric energy, the have identified long-term planning and
to continue to grow.4 Commission proposes to: Exercise expansion, system impact and facilities
3. The Commission’s objectives in this jurisdiction over the transmission studies and transmission transfer
third rulemaking initiative, therefore, component of bundled retail capability calculations (including
are to remedy remaining undue transactions; modify the existing pro postings on an Open Access Same-time
discrimination and establish a forma transmission tariff to include a Information System (OASIS)) as tasks
standardized transmission service and single flexible transmission service that must be done on a regional basis.
wholesale electric market design that (Network Access Service) that applies Thus, we propose that all Independent
will provide a level playing field for all consistent transmission rules for all Transmission Providers perform these
entities that seek to participate in transmission customers—wholesale, tasks.
wholesale electric markets. The unbundled retail and bundled retail; 9. In addition to creating the new
Commission proposes to provide new and provide a standard market design Network Access Service, the revised
choices through a flexible transmission for wholesale electric markets. While it tariff would include requirements to
service, and an open and transparent is critical that the same non-rate terms standardize wholesale electric market
spot market 5 design that provides the and conditions be applied to all design. The fundamental goal of the
right pricing signals for investment in transmission uses, including bundled Standard Market Design requirements,
transmission and generation facilities, retail, as soon as possible, we intend to in conjunction with the standardized
as well as investment in demand work closely with our state colleagues transmission service, is to create
with respect to transition issues ‘‘seamless’’ wholesale power markets
reduction.
involving bundled retail transmission that allow sellers to transact easily
4. When supply and demand do not rates
support fully competitive markets, across transmission grid boundaries and
7. The proposed Network Access that allow customers to receive the
market design should provide Service would combine features of both
protection against market power. We benefits of lower-cost and more reliable
existing open access transmission electric supply. For example, currently
seek in this rulemaking to put in place services—the flexibility and resource
sufficient regulatory backstops to a supplier that seeks to serve load in a
and load integration of Network distant state may need to cross several
protect customers against the exercise of Integration Transmission Service; and
market power when structures do not utility systems or independent system
the reassignment rights of Point-to-Point operator systems (ISOs), all of which
support a competitive market. Market Transmission Service. It would give a
monitoring at all times, and market have different rules for such things as
customer the right to transmit power reserving and scheduling transmission
power mitigation when needed, are between any points on the transmission
critical pieces of this initiative. and scheduling generation. This can
system—so long as the transaction is either result in an efficient transaction
5. A significant impediment to feasible under a security-constrained not occurring at all or it can add
achieving the full benefits of dispatch. significant time and costs to the
competition is that there is no single set 8. We expect that most if not all transaction. Standard Market Design
of rules governing transmission of entities will become members of RTOs seeks to eliminate such impediments.
electric energy. Not only does the Order and that the new Network Access 10. Central to the Standard Market
No. 888 pro forma tariff contain Service would be provided through Design concept is its reliance on
provisions that allow different types of these RTOs. However, this rule may bilateral contracts entered into between
customers to be treated differently, but become effective at a time when some buyers and sellers. The resource
there also are conflicting state and transmission owners and operators have adequacy requirement strongly
Federal rules governing the use of not yet become members of functioning encourages such long-term contracts.
interstate transmission facilities. This RTOs. Thus, we propose that all The short-term spot markets set out
provides opportunities for transmission transmission owners and operators that below are intended to complement
providers to establish and apply rules in have not yet joined an RTO must bilateral procurement. To handle
a way that unduly discriminates against contract with an independent entity to generation imbalances and the
certain classes of customers, leads to operate their transmission facilities. procurement of ancillary services, the
This proposed rule refers to both the Commission proposes to require that all
4 See Section III.C. for a more detailed discussion. RTO and those independent entities as Independent Transmission Providers
5 The term ‘‘spot market’’ typically refers to a ‘‘Independent Transmission Providers.’’ operate markets for energy and for the
trade that covers a short period in the very near An Independent Transmission Provider
future. Trading in an independent transmission procurement of certain ancillary
system operator (ISO) real-time or day-ahead market would have no financial interest, either services in conjunction with markets for
is referred to here as occurring in the spot market. directly or through an affiliate, as transmission service. These markets
In the Western price mitigation order, the defined in section 2(a)(11) of the Public would be bid-based, security-
Commission defined a spot market trade as any Utility Holding Company Act (15 U.S.C.
trade lasting 24 hours or less, whether a bilateral constrained spot markets operated in
trade or a trade occurring in an organized real-time 79b(a)(11), in any market participant 6 in two time frames: (1) A day ahead of real-
or day-ahead market that does not match up time operations, and (2) in real time.
particular sellers and buyers. See San Diego Gas 6 A market participant means: (i) Any entity that,
and Electric Company v. Sellers of Energy and either directly or through an affiliate, sells or The adoption of a market-based
Ancillary Services into Markets Operated by the brokers electric energy, or provides ancillary
California Independent System Operator and the services to the [RTO], unless the Commission finds Any entity that the Commission finds has economic
California Power Exchange, 95 FERC ¶ 61,418 at that the entity does not have economic or or commercial interests that would be significantly
64,525 n.3 (2001). We will adopt this meaning for commercial interests that would be significantly affected by the [RTO’s] actions or decisions. 18 CFR
this rulemaking. affected by the [RTO’s] actions or decisions; and (ii) 35.34 (2) (2002).
locational marginal pricing (LMP) 14. However, because market power that is independent (i.e., has no
transmission congestion management mitigation may tend to suppress scarcity financial interest, either directly or
system is designed to provide a prices that signal the need for through an affiliate, as defined in
mechanism for allocating scarce investment, a companion mechanism section 2(a)(11) of the Public Utility
transmission capacity to those who besides spot prices is needed. The Holding Company Act (15 U.S.C.
value it most, while also sending proper Commission proposes a resource 79b(a)(11), in any market participant in
price signals to encourage short-term adequacy requirement to ensure the region in which it provides
efficiency in the provision of adequate electric generating, transmission service or in neighboring
transmission service as well as transmission and demand response regions).
wholesale energy, and to encourage infrastructure, the level of which is to be (3) Require that an Independent
long-term efficiency in the development determined on a regional basis. Transmission Provider provide
of transmission, generation and demand Recognizing that supply planning and transmission services and administer
response infrastructure. We expect that retail customer demand response are the the day-ahead and real-time energy and
market participants will strike an states’ responsibility, the Commission ancillary services markets;
appropriate balance between bilateral proposes a resource adequacy (4) Establish an access charge to
contracts and spot market transactions. requirement intended to complement recover embedded transmission costs
Efficient spot markets with appropriate existing state programs. In particular, based on a customer’s load ratio share
price signals bring bilateral and spot the Commission proposes that an RTO of the Independent Transmission
market prices closer together, helping to or other regional entity must forecast the Provider’s costs, and would be paid by
assure customers of efficient bilateral region’s future resource needs, facilitate any customer taking power off the grid; 9
markets. regional determination of an adequate (5) Use LMP as the system for
11. Several changes required by future level of resources and assess the transmission congestion management
Standard Market Design promote greater adequacy of the plans of load-serving and provide tradable financial rights—
customer access to low-cost power. We entities 7 to meet the regional needs. Congestion Revenue Rights 10 as a
note that this may raise concerns that Each load-serving entity would be means to lock in a fixed price for
cheap power may leave one region for required to meet its share of the future transmission service;
sale in another, higher-priced region. regional need through a combination of (6) Establish a preference for the
This can only happen with generation generation and demand reduction. auction of Congestion Revenue Rights,
that is not already under contract for 15. In summary, in this proceeding, but initially allow regional flexibility for
purchase. Thus, customers in low-cost the Commission, pursuant to its a four-year transition period in
regions can ensure that low-cost power authority under sections 205 and 206 of determining whether to allocate
‘‘stays home’’ by contracting for that the Federal Power Act,8 proposes to: Congestion Revenue Rights to existing
power. This way, only excess power (1) Establish a single non- customers or auction such rights such
will leave the region to serve another discriminatory open access transmission that revenues are allocated to existing
market. tariff with a single transmission service customers to hold them financially
12. The Commission proposes a (Network Access Service) that is harmless;
pricing policy and process for applicable to all users of the interstate (7) Establish open imbalance energy
recovering the costs of new transmission transmission grid: wholesale and markets to allow all market participants
investment so as to develop the unbundled retail transmission to buy or sell their imbalances in a fair,
infrastructure needed to support customers, and bundled retail efficient and non-discriminatory market.
competitive markets. The policy builds customers; Imbalance markets would be neutral
on the price signals provided by the (2) Require all public utilities that towards fuel sources and treat demand
proposed spot market design. However, own, control or operate interstate resources on an equal footing with
there are cases where LMP price signals transmission facilities to become an supply;
alone will not encourage all beneficial Independent Transmission Provider, (8) Permit customers under existing
transmission investments. Therefore, we turn over their transmission facilities to contracts to receive the same level and
propose to require market participants an Independent Transmission Provider quality of service under Standard
to participate in a regional process to or contract with an Independent Market Design that they receive under
identify the most efficient and effective Transmission Provider to operate their their current contracts, to the greatest
means to maintain reliability and facilities. An Independent Transmission extent feasible;
eliminate critical transmission Provider is any public utility that owns, (9) Establish procedures to mitigate
constraints. controls or operates facilities used for market power in the day-ahead and real-
13. Even with good market design the transmission of electric energy in time markets required by Standard
rules, current supply and demand interstate commerce, that administers Market Design and mechanisms for
conditions make a market monitoring the day-ahead and real-time energy and market monitoring;
and market power mitigation plan (10) Establish procedures to assure, on
ancillary services markets in connection
necessary. The market power mitigation a long-term regional basis, that there are
with its provision of transmission
proposed in this rule would rely on a adequate transmission, generation and
services pursuant to the SMD Tariff, and
combination of methods to protect demand-side resources;
against the exercise of market power by 7 A load-serving entity is an entity, including a
(11) Provide a formal role for state
preventing sellers from withholding municipal electric system and an electric representatives to participate in the
economical supplies from the market, cooperative, authorized by law, regulatory
authorization or requirement, agreement, or 9 As explained in section IV.D.1, current long-
while permitting prices to reflect true contractual obligation to supply energy, capacity, term point-to-point customers that seek to receive
scarcity. The proposed market power and/or ancillary services to retail customers located Congestion Revenue Rights would also pay the
mitigation method should be more within the transmission provider’s service area, access charge.
restrictive at times or places where the including an entity that takes service directly from 10 These rights were called ‘‘Transmission Rights’’
the transmission provider to supply its own load in in the Working Paper on Standardized
exercise of market power is more likely the transmission provider’s service area. See SMD Transmission Service and Wholesale Electric
to occur than at times or places where Tariff § 1. Market Design, Docket No. RM01–12–000 (Mar. 15,
the market is sufficiently competitive. 8 16 U.S.C. 824d and 824e (1994). 2002) (hereinafter Working Paper).
decision-making processes of In Appendix E, we discuss various transmission and wholesale power

Independent Transmission Providers; allegations of market manipulation functions, to prevent the utility from
and strategies encountered in the organized giving its power marketing arm
(12) Clarify the obligation of all users markets and how Standard Market preferential access to transmission
of the transmission system to comply Design will address these strategies. In information.14 Under Order No. 889, all
with all appropriate standards for Section IV we explain our specific public utilities that own, control or
ensuring system security and reliability. remedy for pervasive problems in the operate facilities used in the
16. The Commission’s focus is on industry consistent with our statutory transmission of electric energy in
promoting the development of responsibilities. In Section V, we set out interstate commerce are required to
competitive wholesale markets and we the implementation process and dates. create or participate in an OASIS that
do not intend to interfere with the Finally, the glossary for the terms used provides existing and potential
legitimate concerns of state regulatory in this document is found in the transmission customers the same access
authorities. It remains within a state’s Definitions section of the SMD Tariff in to transmission information that will
authority to determine whether or not to Appendix B, and the revisions to the enable them to obtain open access non-
provide retail access. Nevertheless, the Interim Tariff are set out in Appendix A. discriminatory transmission service.
reforms proposed in this rulemaking 22. The Commission declined to
will benefit customers in states with or II. Background: Order No. 888 and require corporate unbundling at the
without retail access. In addition, we Order No. 2000 time of Order No. 888, and stated
seek to formally involve state A. Order Nos. 888 and 888–A instead that efforts to remedy undue
representatives in the decision-making discrimination should begin by
processes of regional entities. We also 20. In April 1996, in Order No. 888,
requiring the less intrusive functional
recognize the need to permit parties to the Commission found that unduly
unbundling approach.15 While the
continue to rely on existing contracts discriminatory and anticompetitive
Commission in Order No. 888
and scheduling practices, including practices existed in the electric
encouraged the creation of ISOs and set
those involving hydroelectric power, industry, and that public utilities that
forth eleven principles for assessing ISO
and these are fully accommodated own, control or operate interstate
proposals submitted to the Commission,
under Standard Market Design. transmission facilities had
it did not mandate regional
17. The Commission recognizes that discriminated against others seeking
organizations.16 The Commission in
differences exist throughout the regions transmission access. It determined that
Order No. 888 stated:
of the country; however, the non-discriminatory open access
Commission’s goal is to remedy undue transmission services, including access [W]e see many benefits in ISOs, and
discrimination by standardizing to transmission information, and encourage utilities to consider ISOs as a tool
stranded cost recovery were the most to meet the demands of the competitive
transmission service and wholesale marketplace. As a further precaution against
electric market design as much as critical components of a successful discriminatory behavior, we will continue to
possible. We propose to allow certain transition to competitive wholesale monitor electricity markets to ensure that
regional variations, as described infra. electricity markets.11 The Commission functional unbundling adequately protects
18. Finally, the Commission stated that its goal was to ensure that transmission customers. At the same time,
recognizes that implementation of a customers have the benefits of we will analyze all alternative proposals,
revised open access transmission tariff competitively priced generation. including formation of ISOs, and, if it
and Standard Market Design on a 21. Order No. 888 required all public becomes apparent that functional unbundling
nationwide basis may take some time. utilities that own, control or operate is inadequate or unworkable in assuring non-
Thus, the Commission proposes a facilities used for transmitting electric discriminatory open access transmission, we
phased compliance process. By July 31, will reevaluate our position and decide
energy in interstate commerce to: (1) whether other mechanisms, such as ISOs,
2003, all public utilities that own, File open access non-discriminatory should be required. 17
operate or control interstate transmission tariffs containing certain
transmission facilities must file revised minimum, non-price terms and Order No. 888–A reaffirmed the findings
open access transmission tariffs (Interim conditions, and (2) functionally of Order No. 888. The Court of Appeals
Tariffs) to become effective September unbundle wholesale power services for the District of Columbia Circuit
30, 2004, that reflect the inclusion of from transmission services.12 upheld the orders ‘‘in nearly all
bundled retail customers as eligible Functional unbundling requires public respects.’’ 18 The Supreme Court
customers. By December 1, 2003, all utilities to: (1) Take wholesale recently affirmed.19
public utilities that own, control or transmission services under the same 23. A number of significant
operate interstate transmission facilities tariff of general applicability as they developments took place in the electric
must file revised open access offer their customers; (2) state separate utility industry following issuance of
transmission tariffs (SMD Tariffs), to rates for wholesale generation, Order No. 888. All public utilities filed
become effective no later than transmission, and ancillary services; non-discriminatory, open access
September 30, 2004, or such other time and (3) rely on the same electronic transmission tariffs stating rates, terms
as directed by the Commission, that information network that their and conditions for comparable
reflect all of the remaining revisions and transmission customers rely on to obtain 14 See Open Access Same-Time Information
requirements of the Final Rule in this information about the utilities’ System and Standards of Conduct, Order No. 889,
proceeding. The Commission and its transmission systems.13 In Order No. 61 FR 21,737 (April 24 1996), FERC Stats. & Regs.
staff will work with regional 889, issued concurrent with Order No. ¶ 31,035 at 31,588–91 (1996), order on reh’g, Order
organizations and stakeholders in 888, the Commission also imposed No. 889–A, 62 FR 12,484 (March 4, 1997), FERC
Stats. & Regs. ¶ 31,049 (1997).
facilitating full and efficient compliance standards of conduct governing 15 See Order No. 888 at 31,654.
with this rule. communications between the utility’s 16 See id. at 31,730–32.
19. Below in Section II we set out the 17 Id. at 31,655.
relevant developments in the electric 11 See Order No. 888 at 31,652. 18 Transmission Access Policy Study Group, 225
industry. In Section III and Appendix C 12 See id. at 31,635–36. F.3d at 681.
we explain the need for further reform. 13 See id. at 31,654. 19 See New York v. FERC, 122 S.Ct. 1012.
wholesale transmission service to third- indicated that local management of the began operating in early 2002.25 The
party users of their transmission transmission grid by many individual Midwest ISO is large. It stretches from
systems. With the advent of OASIS vertically integrated utilities was an eastern boundary in western
systems, improved information about inadequate to support the efficient, Pennsylvania westward to the Rocky
transmission systems became available reliable regionwide operation that was Mountains, northward into Manitoba,
to all participants in the bulk power needed for continued development of Canada and southward to the Texas
market at the same time that it was competitive markets. The Commission border.
available to utilities’ own wholesale concluded that establishing 28. Although progress with
merchant functions and wholesale independent RTOs would eliminate
Commission-approved RTOs has been
marketing affiliates (although further residual undue discrimination in
slow, regionalization has also occurred
information improvements are still transmission, enhance the benefits of
through the ISO formation process that
needed). New generation resources were competitive electricity markets, and
developed in areas that had experienced could: (1) Improve efficiency in was encouraged in Order No. 888. The
generation shortages.20 Regional trading transmission grid management; (2) Northeast and California ISOs are
patterns have expanded. In addition, the improve grid reliability; (3) remove engaged in a process to become
Commission granted a large number of remaining opportunities for Commission-approved RTOs or to join
merger applications and applications to discriminatory transmission practices; larger RTOs. In eastern North America,
charge market-based rates, effecting (4) improve market performance; and (5) close coordination is developing
structural changes in the industry. The facilitate lighter-handed regulation. The between U.S. and Canadian
industry thus became less localized and Commission anticipated that formation transmission systems and market
more regionalized, with a growing need of regional transmission grids would designs.
for regional planning and regulation. result in a substantial cost savings to the 29. In addition to the Midwest ISO,
And as part of that regionalization, the electric utility industry and its the Commission has provisionally
Commission also approved voluntary customers.23 approved other RTOs,26 and authorized
ISOs in five regions of the country— 25. Order No. 2000 encouraged all operation of ITCs that operate under an
New England, New York, PJM,21 the transmission owners to voluntarily RTO umbrella.27 The Commission also
Midwest and California (an ISO was place their transmission facilities in the ordered Northeastern and Southeastern
also formed in ERCOT, but it is not hands of appropriate RTOs. The RTO applicants, including some
under the Commission’s full Commission stated that RTOs could applicants whose RTO proposals had
jurisdiction). These ISOs are the include ISOs or independent for-profit been provisionally approved, into
precursors to regional entities identified transmission companies (ITCs). mediation proceedings to facilitate the
as RTOs, in the Commission’s Order No. However, all RTOs must meet four formation of RTOs in those areas.28 The
2000, discussed below. minimum characteristics and eight Commission further noted that a ‘‘west
minimum functions that were identified wide RTO, or a seamless integration of
B. Order No. 2000 in Order No. 2000, and also must have Western RTOs, is the best vehicle for
24. Order No. 2000, issued in an open architecture framework that
designing and implementing a long-term
December 1999, was the Commission’s would permit an RTO and its members
regional solution’’ to the West’s electric
second major step toward establishing flexibility to improve their structures
generation supply crisis.29
competitive wholesale power markets over time.24
and eliminating residual undue 26. Following Order No. 2000, some 25 See Midwest Independent System Operator,
discrimination in interstate transmission-owning public utilities Inc., 97 FERC ¶ 61,326 (2001).

transmission services. It identified two began to file proposals to participate in 26 See GridSouth Transco, LLC, 94 FERC ¶ 61,273
broad categories of impediments to RTOs. The process has been slow for (2001); GridFlorida, LLC, 94 FERC ¶61,363 (2001);
several reasons, one of which is and PJM Interconnection, LLC, 96 FERC ¶61,061
competitive electricity markets: (1) The (2001).
engineering and economic inefficiencies stakeholder uncertainty about what the 27 See TRANSLink Transmission Company,
inherent in the current operation and Commission would require for RTO L.L.C., et al., 99 FERC ¶61,106 (2002) (authorizing
expansion of the transmission grid, and approval—not only for the RTO scope operation of ITC within the Midwest ISO), reh’g
(2) continuing opportunities for and independence characteristics, but pending, [Docket Nos. EC01–156–001 et al.;
also regarding such RTO functions as Alliance Companies, et al., 99 FERC ¶61,105 (2002)
transmission owners to unduly (authorizing the operation of an ITC).
discriminate in the operation of their congestion management and market- 28 See Regional Transmission Organizations, 96
transmission systems so as to favor their oriented provision of ancillary services. FERC ¶61,065 (2001) (initiating mediation
27. Order No. 2000 called for RTOs to proceedings between Northeastern RTO applicants);
own (or their affiliates’) power
be in operation across the nation by Regional Transmission Organizations, 96 FERC
marketing activities.22 Further, evidence ¶61,066 (2001) (initiating mediation proceedings
December 2001. To date, there is only
between Southeastern RTO applicants).
20 See Staff Report to the Federal Energy
one RTO fully approved by the 29 Removing Obstacles to Increased Electric
Regulatory Commission on the Causes of the Pricing Commission, the Midwest ISO, which Generation and Natural Gas Supply in the Western
Abnormalities in the Midwest During June 1998 United States, 94 FERC ¶61,272 at 61,974 (2001).
(1998), available in http://www.ferc.gov/electric/ of access charges, the absence of secondary markets A coalition of Western utilities (RTO West Filing
mastback.pdf. in transmission service and the possible Utilities) filed a proposal on October 16, 2001 to
21 The PJM ISO takes its name from the former disincentives created by the level and structure of create RTO West. The Commission granted several
Pennsylvania, New Jersey, Maryland Power Pool, transmission rates. See id. at 31,014. of the RTO West Filing Utilities’ requests for
which serves New Jersey, Maryland, Delaware, 23 See id. at 30,993. declaratory order on April 26, 2001, finding some
much of eastern Pennsylvania, the District of 24 The four RTO characteristics are: (1) of RTO West’s proposed characteristics and
Columbia, and a small area of Virginia. Independence; (2) scope and regional configuration; functions compliant with Order No. 2000. See
22 Order No. 2000 identified four specific areas of
(3) operational authority; and (4) short-term Avista Corporation, et al., 95 FERC ¶61,114 (2001).
concerns: (1) Calculation and posting of Available reliability. The eight RTO functions are: (1) Tariff The RTO West Filing Utilities then filed a proposal
Transfer Capability in a manner favorable to the administration and design; (2) congestion for Stage 2 of RTO West’s creation on March 28,
transmission provider; (2) standards of conduct management; (3) parallel path flow; (4) ancillary 2002. The Stage 2 proposal is intended to enable
violations; (3) line loading relief and congestion services; (5) OASIS, Total Transfer Capability and the Commission to determine whether the RTO
management; and (4) OASIS sites that are difficult Available Transfer Capability; (6) market West proposal fulfills all of the Order No. 2000
to use. See Order No. 2000 at 31,005 n.69. The order monitoring; (7) planning and expansion; and (8) characteristics and functions. See Stage 2 Filing and
also identified parallel path flows, planning and interregional coordination. See Order No. 2000 at Request for Declaratory Order Pursuant to Order
investing in new transmission facilities, pancaking 30,993–94. 2000 at 5, Docket No. RT01–35–000 (Mar. 28, 2002).
30. The following section and related markets. For example, the Commission’s Innovations in transmission control and
Appendix C discuss specific features of recently issued Generator pricing (e.g., ISO control of transmission
today’s wholesale electricity markets Interconnection proposed rule seeks to and LMP for generation and
that inhibit the development of remove one particular type of undue transmission services in the Northeast,
competition and efficient regional discrimination occurring in the RTO formation in the Midwest), while
markets, and identify areas in which the marketplace—barriers to obtaining impressive, have been slow to take root
Commission must direct reforms to interconnections to the interstate in other regions of the country. The pro
eliminate remaining undue transmission grid—so that new forma tariff was envisioned as the
discrimination and inefficiencies, and generators can compete with vertically baseline above which transmission
ensure just and reasonable rates. integrated transmission providers to providers were encouraged to develop
serve load.31 However, this initiative competitive and customer-responsive
III. Need for Reform
will resolve only one aspect of service offerings. But Florida Power
A. Undue Discrimination and remaining discriminatory practices. Corporation’s network contract demand
Impediments to Competition Remain Other opportunities for vertically service, a hybrid of Network Integration
31. Since the issuance of Order Nos. integrated transmission providers to Transmission Service and Point-to-Point
888 and 2000, it has become clear that operate in ways that favor their own Transmission Service features,34 and
additional, mandatory measures are generation remain within the construct
Duke Energy Corporation’s ‘‘recallable
needed to achieve the goals of non- of the pro forma tariff (e.g., preferences
long-term firm’’ service 35 are the only
discriminatory transmission access and for native load and network customers
noteworthy new services accepted by
competition in electricity markets. to reserve transmission capability,
differing transmission services that raise the Commission for use with a single
Vertically integrated transmission utility’s open access transmission tariff.
owners and operators continue to use barriers to competition, the lack of
inclusion of all services under the same Other proposed pro forma tariff
their interstate transmission facilities in revisions amounted to little more than
ways that inhibit competition in tariff). As noted in Order No. 2000,
‘‘perceptions of discrimination are working around the edges of the existing
wholesale power markets as well as services and procedures and did not
competition in those retail power significant impediments to competitive
markets. Efficient and competitive produce more competitive transmission
markets where states have adopted retail
markets will develop only if market service that reduces overall electricity
choice. The discriminatory preferences
participants have confidence that the costs.
that these transmission owners and
operators give to their own uses of the system is administered fairly.’’32 35. Most ISOs recently introduced
interstate transmission grid to serve 33. Furthermore, it has become centralized short-term real-time hourly
their retail customers (whether or not apparent that there are also markets and day-ahead markets for
they are in retail choice states) results in opportunities to discriminate and to energy (i.e., spot markets) where sellers
discrimination against, and in costs hinder an efficient, competitive sell into the market and buyers buy from
being borne by, other wholesale and marketplace due to the absence of the market without matching a
retail customers who also rely on the standardization with respect to market particular seller with a particular buyer.
interstate transmission facilities to buy rules and practices within and between In such organized spot markets, there is
power. The discriminatory preferences regional markets. So-called ‘‘seams’’
a single market clearing price
also create barriers to new sellers that problems (e.g., different rules and
established that is received by all
could provide lower-cost power. This different pricing systems) create
generators who bid into the market
could result in higher prices to the transaction costs and artificial barriers
to trade. These problems inhibit the below that price and is paid by all load
native load served by the transmission that bids in above that price. However,
owner. For example, transmission- Commission from fulfilling its statutory
responsibility to ensure that customers the ability of customers to bid demand
dependent utilities 30 and other load- reductions into the spot market in
serving entities need the interstate receive reliable power supplies at the
lowest reasonable costs.33 response to supplier prices is still
transmission facilities to move power limited and needs to be improved
34. Finally, innovation that the
they are purchasing by contract from significantly for short-term markets to
Commission expected to see with
distant generators or suppliers, but operate more competitively. Further,
respect to new service offerings has
allege that despite the requirements of been sporadic and unsteady. while there have been benefits of market
Order No. 888, they are denied development in the Northeast (PJM,
comparable access to the grid. Similarly, 31 See Standardization of Generator New York ISO, ISO-New England),
new generators wishing to compete in Interconnection Agreements and Procedures, 67 FR Texas and California (during the first
wholesale markets or for retail 22,249 (May 2, 2002), FERC Stats. & Regs. ¶32,560 two years of its restructuring), the
customers in retail choice states tell us at 34,174 (2002) (Notice of Proposed Rulemaking).
The proposed rule defines interconnection study Midwest ISO is still in the formative
that they are denied comparable access time frames and grants all generators the stages of operation with respect to
to the grid, thus inhibiting entry of new, opportunity to be treated as competing network markets, and few market benefits have
lower-cost, efficient and resources in meeting load and load growth. See id.
materialized in the Southeast and West.
environmentally superior power at 34,243–45.
32 Order No. 2000 at 31,017. Lack of market
suppliers. B. Specific Instances of Undue
confidence may lead to a reluctance on the part of
32. The Commission recently has market participants to share operational real-time Discrimination and Impediments to
taken additional steps to address some and planning data with transmission providers Competition
of the remaining impediments to non- because of the suspicion that they could be
discriminatory transmission access and providing a competitive advantage to their affiliated 36. The specific reasons for requiring
power marketers. It may also deter generation reform are many. Market participants
competition in wholesale power expansion and lead to the perception that the
transmission provider’s generation is more reliable, 34 See Florida Power Corporation, 81 FERC ¶
30 A transmission-dependent utility is a utility thereby reducing competition and raising prices for
customers. See id. 61,247 (1997).
that does not own generation and relies on its
35 See Duke Energy Corporation, 88 FERC ¶
neighboring utilities to transmit power to it that it 33 See FPC v. Hope Natural Gas Company, 320
purchases from its suppliers. U.S. 591, 610 (1944). 61,184, reh’g denied, 89 FERC ¶ 61,190 (1999).
have identified, through formal through the voluntary divestiture of capacity at issue was required to serve
complaints, hotline calls, public generation or establishment of RTOs, native load growth.39
conferences, and pleadings, the ISOs, or ITCs). In the rest of the country, 42. In Standard Market Design, we
difficulties they have experienced in the remaining corporate ties between propose to eliminate the preference for
gaining equal access to the transmission generation and transmission within future native load growth. Instead, since
grid to compete with vertically public utilities have proven problematic Congestion Revenue Rights will be used
integrated utilities to serve load. Much for transmission access. Thus, across to assure price certainty, Congestion
of this problem is directly attributable to most of the nation, barriers to entry Revenue Rights will be apportioned
the remaining ability of such vertically remain for new generators and new based on historical use or by an auction,
integrated utilities (and the existence of load-serving entities. neither of which grants preference for
sufficient incentives) to exercise some future load growth by a particular
39. A large portion of this problem is
degree of transmission market power in supplier; this approach resolves these
directly attributable to the continued
order to protect their own generation concerns.
market share. Further complicating ability of vertically integrated
transmission access is the fact that not transmission providers to exercise some b. Delays in Responding to Requests for
all transmission service is provided degree of transmission market power to Service
under the rates, terms and conditions of advantage their own or affiliated 43. Another type of anticompetitive
the Commission’s pro forma tariff. generation. The longer the vertically behavior centers on a vertically
Rather, over 60 percent of load has been integrated transmission provider can integrated transmission provider
subject to various state rules governing use access to interconnection or delaying the processing of a
the transmission component of bundled transmission service to delay or prevent competitor’s request for new
retail transactions. Independent entry of competing generators to its transmission service or interconnection
transmission service under a common service territory, the longer it can profit (including the related system impact or
set of rules would solve many of these from its own generation sales with a facilities studies). Transmission
problems. limited threat of competition. Vertically providers have done so by failing to
37. Nevertheless, new problems have integrated transmission providers have follow time lines or expansively
been created by some of the market found numerous ways to delay or interpreting the tariff procedures. These
design experiments. In regions of the prevent entry of competitors, some delays may be enough to cause the
country where the separation of within the existing rules and some by competing generator to lose the sale,
transmission from generation has been exceeding reasonable discretion particularly if the potential customer is
addressed through the creation of ISOs afforded to the transmission provider. concerned that it may lose service
(which, in some instances, have placed All of these are difficult to monitor or completely if it does not stay with the
nearly all load under a single tariff), prevent with behavioral rules.36 transmission provider.40
market design flaws create inefficiencies 40. As part of Standard Market 44. Under Standard Market Design,
in the marketplace and opportunities for Design, we propose that an Independent these types of delays are resolved
the exercise of market power. Transmission Provider operate all through the requirement for an
Conflicting market rules and procedures transmission facilities. The requirement independent entity, preferably an RTO,
in neighboring ISOs have created or for independent control of the to perform studies and calculate
perpetuated seams problems that transmission grid, preferably by an RTO, available transfer capability (ATC),41
impede the economic flow of power resolves these types of problems. since an independent entity would have
from one region to another. All of these no incentive to favor one customer over
problems have hindered the progress a. Load Growth
another.
towards competitive regional electricity
markets. Standard Market Design is 41. Under the current pro forma tariff,
intended to address these problems. a transmission provider is required to 39 See Public Service Company of New Mexico v.
plan its system to allow customers with Arizona Public Service Co., 99 FERC ¶ 61,162
(2002), for a recent example. In this case, the
1. Transmission Market Power by existing long-term contracts to extend, Commission directed APS to grant PSNM’s request
Utilities That Are Not Independent or roll over, those contracts.37 However, to extend its contract for 60 MW of Point-to-Point
38. By differing means, Order Nos. the transmission provider has a right to Transmission Service. APS had attempted to deny
recall that transmission capacity if it the rollover request on the basis that it had verbally
888 and 2000 attempt to effect open informed PSNM that capacity would not be
access transmission by reducing the identified in the initial agreement with available due to APS’s future native load growth.
ability of transmission owners that also the customer that it had projected native The Commission restated the principle that a
own generators to act in anticompetitive load growth that would require that transmission provider can deny a customer the
transmission capacity.38 Transmission ability to roll over its long-term firm service
or unduly discriminatory ways against contract only if the transmission provider includes
other generators. In both orders, the providers have failed to identify any in the service agreement a specific limitation based
Commission attempted to move the native load growth at the time of the on reasonably forecasted native load needs that will
electric industry into a competitive initial agreement, and disputes have use the transmission capacity provided under the
arisen with customers claiming they contract at the end of the contract term.
wholesale market without mandating 40 See Kinder Morgan Power Co. v. Southern
corporate restructuring. Through Order were denied the ability to roll over their Company Services, Inc., 97 FERC ¶ 61,240 (2001),
Nos. 888 and 2000, the Commission contracts because the transmission reh’g denied, 98 FERC ¶ 61,044 (2002) (finding
required open access to public utility provider claimed, well after the contract Southern’s interconnection procedures delayed and
transmission systems, encouraged the was executed, that the transmission discriminated against customer’s ability to develop
new projects).
formation of ISOs and, later, RTOs to 41 The Commission used the term ‘‘Available
achieve control of the transmission grid 36 See Working Paper at 21 (Mar. 15, 2002); see
Transmission Capability’’ in Order No. 888 to
by entities that are independent from also Comment of the Staff of the Bureau of describe the amount of additional capability
Economics and Office of General Counsel of the available in the transmission network to
generation marketing or sales. However, Federal Trade Commission, Docket No. RM01–12– accommodate additional transmission services. To
only limited portions of the country 000 (July 23, 2002). be consistent with the term generally accepted
have moved beyond the basic 37 See Section 2.2 of the current pro forma tariff.
throughout the industry, ‘‘Available Transfer
requirements of open access (e.g., 38 See Order No. 888–A at 30,277. Capability’’ will be used.
c. Scheduling Advantages customers of the transmission provider that the affiliate will be first in line to
45. A vertically integrated face higher costs if they take service claim the capability.43 Such abuses
transmission provider has a structural from other suppliers that could balance reinforce our belief that, in the absence
advantage over many competitors to against each other. This difference gives of an independent entity calculating
make economy sales or to serve its own the transmission provider a competitive Available Transfer Capability and
load, primarily because it has a large advantage over other sellers of power. operating a transmission provider’s
49. Under Standard Market Design, all OASIS, ‘‘a transmission provider’s self-
portfolio of both generators and loads. A
suppliers and loads on a system will monitoring of its standards of conduct is
competitor with access only to
resolve imbalances through the same not sufficient, and that it is essential for
generation outside of the control area
energy imbalance procedures. This will interested parties to be able to
and no native load has to identify the
remove any competitive advantage the participate in this process’’ of reviewing
delivery point of its power before being transmission owner with its own
able to secure transmission service. But communications between market
generation and load may have over participants.44 Further, even with the
a vertically integrated transmission competing power suppliers.
provider does not have to identify a best of intentions, it is not possible for
specific location on the grid to serve its e. Available Transfer Capability and a single transmission provider in a
load because its load is dispersed across Affiliates region to calculate Available Transfer
its entire system. A vertically integrated Capability on its system alone without
50. Another source of discrimination accounting for the transactions over all
transmission provider also does not is the calculation of Available Transfer
have to identify a single generation the other systems in its region and
Capability. A transmission provider that neighboring regions.
location, but can run a combination of is not independent calculates its
its own generators or purchase from 53. Similarly, control over the design,
Available Transfer Capability, using its function and maintenance of OASIS
lower cost-suppliers inside or outside of own proprietary data and its own
its system. It can schedule purchased systems may also present opportunities
equations. This discretion gives it the for discrimination. The Commission has
power to one of its own loads (in place ability and the opportunity to
of power from one of its own generators) been concerned for some time that
discriminate in its own favor against transmission providers have the ability
in order to secure transmission service entities that rely upon the OASIS for
for the purchase. Later, it can find a to impede competition by making their
Available Transfer Capability OASIS sites difficult to use, limiting
buyer for the power and schedule information. In several cases, the
transmission service from one of its users’ access to OASIS and limiting
Commission has found that utilities’
internal generators to the load. This access to information about
OASIS postings reflect an inaccurate
often is enough of a scheduling transmission curtailments and
Available Transfer Capability. Indeed,
advantage over a competing supplier to interruptions that would allow the
in response to ‘‘serious concerns about
ensure that the transmission provider Commission to identify instances of
the integrity of the postings of ATC’’ on
(or its affiliated power marketer) gets the undue discrimination.45
the OASIS systems of two transmission 54. Under Standard Market Design, an
sale. providers, the Commission required the independent entity will operate an
46. While it is true that all network transmission providers to employ an OASIS on a regional basis, and thus will
customers have these same rights and independent third party to administer
remove any advantages one seller may
abilities, in many areas of the country their OASIS systems.42
have over another and improve the
the only customer using network service 51. Under Standard Market Design, an
accuracy of regional Available Transfer
is the vertically integrated transmission independent entity will calculate
Available Transfer Capability and Capability postings on the OASIS.
provider. Moreover, the vertically
integrated transmission provider’s size schedule transmission service. This will g. Capacity Benefit Margin
of resources and loads is usually much eliminate this potential for undue Manipulation
greater than any other network discrimination. 55. The Commission has found
customer, giving it that much more of an f. OASIS Postings instances of transmission providers
advantage in flexibility. In addition, the taking advantage of their ability to
vertically integrated transmission 52. Manipulation or violation of
OASIS posting requirements and the reserve interface capability to serve their
provider may have an advantage
through access to better or more Commission’s standards of conduct is 43 See Aquila Energy Marketing Corporation v.
transmission and other related another way vertically integrated Niagara Mohawk Power Corporation, 87 FERC
information. transmission providers that control their ¶ 61,328 (1999) (finding that off-OASIS
47. Under Standard Market Design, all own OASIS sites are able to engage in communication between utility and its marketing
undue discrimination. This can occur affiliate led to preferential treatment of the affiliate);
transmission service will be provided The Washington Water Power Company, 83 FERC
under a new Network Access Service. through prohibited off-OASIS ¶ 61,097 (1998) (finding favorable treatment of
Having one service for all customers communications between the affiliate and expressing concern that this treatment
will eliminate scheduling advantages of transmission provider and its affiliated may have been the result of prohibited off-OASIS
market participant, e.g., informing only communication).
competing suppliers. 44 Aquila Energy Marketing Corporation v.
the affiliate about Available Transfer
d. Imbalance Resolution Niagara Mohawk Power Corporation, 87 FERC
Capability that will soon become ¶ 61,238 at 62,279 (1999).
48. Customers have also alleged that available and posted on the OASIS so 45 See Regional Transmission Organizations,
vertically integrated transmission FERC Stats. & Regs. ¶ 32,541 at 33,713 (describing
42 See AEP Power Marketing, Inc., et al., 97 FERC market participants’ perceptions that transmission
providers have an advantage over providers may use OASIS to discriminate among
¶ 61,219 at 61,973 (2001), reh’g pending, Docket
competitors in the resolution of energy Nos. ER96–2495–016, et al. See also American market participants); Open Access Same-Time
imbalances. Transmission providers Electric Power Company, Inc. and Central and Information System, 64 FR 34,117 (June 25, 1999),
with generation and load of their own South West Corporation, 90 FERC ¶ 61,242 at FERC Stats. & Regs. ¶ 31,075 (1999) (articulating
61,789 (2000) (requiring AEP to turn over its OASIS changes to Commission regulations that would
can resolve their own energy imbalances and ATC calculation functions to an independent make available more information about
through in-kind energy exchanges with entity as a condition of the applicants’ merger). See transmission curtailments and interruptions and
neighboring systems. In contrast, other also Appendix C for other examples. limit OASIS hosts’ ability to disconnect users).
own load while limiting the ability of 58. There has been a sharp increase in 2. Lack of Common Rules Governing
competing suppliers to access customers the number of TLRs used in some Transmission
on its system. For instance, transmission regions, suggesting that transmission 61. Some of the difficulties that come
providers have reserved excessive operators rely upon them to do more from having different rules as power
amounts of capacity benefit margin than simply relieve emergency moves across the grid are discussed later
(CBM) to serve their own load,46 and transmission overloads.48 There are in the Seams Problems Section III.B.4),
violated the pro forma tariff by reserving unmistakable financial incentives to where a ‘‘seam’’ is a dividing line
large amounts (e.g., 2,000 MW) of rely on TLRs in forward transmission between different sets of grid rules.
transfer capability at multiple interfaces, planning: 62. Having two or more different sets
under the label of ‘‘firm import for of rules governing the operation of a
native load,’’ without designating The increased incidence of TLRs may
suggest that some transmission capacity is transmission system makes it difficult—
resources or loads associated with the if not at times impossible—for that
reservations as other transmission being oversold. Market participants have
attributed a tendency to implement a greater system to support an efficient regional
customers are required to do.47 Import electric power market. If the interstate
capability reserved by the transmission number of TLRs to the commercial reality
that transmission providers do not have to transmission system is to provide fair
provider blocks a competing supplier and efficient movement of power on
refund transmission reservation fees for
from securing firm service across the behalf of all users of the system, the
service curtailed because a TLR is called.49
interface, limiting that supplier’s ability same general rules must govern such
to compete to serve load on the system, 59. When a vertically integrated matters as who gets service, who has the
or on neighboring systems. A related transmission provider injects power right to transmission service when not
issue is whether those who set aside from its own generation onto its own all service requests can be accepted,
transmission for CBM are reserving it power lines to meet the constantly how the transmission facility costs are
and paying for it under the terms of the shifting demands of the load on its allocated among transmission
pro forma tariff. When transfer customers, who gets its transmission
system, it has both the opportunity and
capability for CBM is set aside for the curtailed and by how much when a
the incentive to manipulate the
use of one market participant, its cost is transmission outage prevents all the
not necessarily allocated to that market transmission system for its own benefit.
It can either dispatch generators to planned services from being
participant alone. Because transmission accommodated, who plans the additions
facility embedded costs are allocated to create a transmission constraint that
prevents a competitor from making a to the grid and who pays for these
transmission customers on the basis of additions.
use—capacity reservation for Point-to- sale that the transmission provider
63. Today there are not only different
Point Transmission Service customers would also like to make, or it can
rules in different public utility systems,
and load ratio share (which does not capitalize on legitimate constraints into
but there may be more than one set of
include the transmission capability set- a load pocket to curtail a competitor’s rules for transmission owned by a single
aside of CBM) for Network Integration transmission transaction and serve the utility. This is because there are
Transmission Service customers—all customer with its own generation different rules for two types of
customers may unfairly subsidize the instead. The key here is that none of the wholesale transmission service, and the
cost of the CBM capability. transmission provider’s actions require rules for bundled retail transmission
56. Under Standard Market Design, direct communication with its merchant service may differ from the rules for
entities that want to reserve transfer function or marketing affiliate. A wholesale and unbundled retail
capability must pay for that capability to simplified hypothetical example of such transmission services.
reach generation reserves across an anti-competitive behavior is set forth in 64. The Commission established an
interface. Thus, the preferential Appendix C. open access transmission tariff under
treatment would be eliminated. Order No. 888 that provides for two
60. Several aspects of our proposed
h. Discretionary Use of Transmission remedy address this concern, including distinct types of wholesale transmission
Loading Relief the use of LMP to manage congestion services—Network Integration
and the requirement that transmission Transmission Service and Point-to-Point
57. The opportunity for
facilities be operated by an Independent Transmission Service. Network
anticompetitive behavior arises when
Integration Transmission Service was
transmission providers have discretion Transmission Provider.
designed primarily to meet the needs of
to dispatch their own generation to
the transmission customer that wants to
serve their own load in a way that 48 In the Southeast, the incidence of TLRs
integrate many generators and many
requires transmission service increased 354 percent from the summer of 1999 to
the summer of 2000. See Staff Report to the Federal loads at diverse locations on the public
curtailments through the use of
Energy Regulatory Commission on the Bulk Power utility’s grid; it was intended to be
transmission loading relief (TLR) Markets in the United States (Nov. 1, 2000), comparable to the service that the
procedures. available in <http://www.ferc.gov/electric/ public utility provided to its own
bulkpower/southeast.pdf>, at 3–38. In the Midwest,
46 See Delegated Letter in Docket No. ER98–4410– the incidence increased 472 percent over the same bundled retail customers. Point-to-Point
000 (Feb. 8, 1999); Entergy Services, Inc., 87 FERC time period. See Staff Report to the Federal Energy Transmission Service, as the name
¶ 61,156 (1999) (directing Entergy, which had Regulatory Commission on the Bulk Power Markets implies, was designed primarily for the
reserved 2900 MW, to recompute ATC). in the United States (Nov. 1, 2000), available in customer that wants to move power
47 See Aquila Power Corporation v. Entergy <http://www.ferc.gov/electric/bulkpower/
midwest.pdf>, at 2–32. The lack of a centralized
from one discrete location to another.
Services, Inc., 90 FERC ¶ 61,260, reh’g denied, 92
FERC ¶ 61,064 (2000), appeal docketed, No. 00– market, particularly in the Southeast, has limited 65. At the time Order No. 888 issued,
1417 (D.C. Cir. Sept. 22, 2000). The Commission did market liquidity and, thus, increased the likelihood the Commission recognized the
not order a remedy in the complaint docket since of TLRs. potential for problems with having two
the compliance filing in Docket No. ER98–4410 to 49 Staff Report to the Federal Energy Regulatory
wholesale services that could not be
remedy the excessive native load reservations Commission on the Bulk Power Markets in the
would also provide a remedy for the improper United States (Nov. 1, 2000), available in <http://
truly equal, especially the problem of
native load reservations at the interfaces. See id. at www.ferc.gov/electric/bulkpower/southeast.pdf> at dealing with claims of undue
61,860. 3–39. discrimination between the services.
Consequently, along with the issuance transmission by independent power Capability of its grid, a calculation often
of Order No. 888 the Commission producers and marketers. made without knowledge of the power
proposed a rule to create a new tariff, 69. Four prominent examples flows on its grid that result from
called the Capacity Reservation Tariff.50 highlight the alleged advantages that a transactions scheduled over other grids
It was intended to remedy the public utility’s bundled retail customers in its region. Under the current pro
anticipated problems by establishing a have over wholesale and unbundled forma tariff, customers reserve capacity
new tariff that would replace the two retail customers. First, certain reliability on either a firm or non-firm basis, based
wholesale services with one. The practices related to keeping the on the assumed contract path that the
Commission received many comments transmission system balanced may transaction will use. Once the customer
on the proposed rule and held a allow a public utility that is responsible has reserved capacity on a firm basis, it
technical conference with for keeping generation and load in is supposed to receive certainty both
representatives of diverse balance to obtain lower costs for its own that power will be delivered and the
stakeholders.51 power customers. Second, a price that the customer will be charged
66. Some parties expressed concern transmission-owning public utility may for transmission. If the customer has
about moving quickly to a single service have more de facto flexibility to non-firm capacity, it has no certainty
based on the Capacity Reservation Tariff designate transmission receipt and that capacity will be available to deliver
model, while other parties asserted that, delivery points than other transmission power, but does know that there will be
although a single tariff reducing the two customers, if that public utility also no congestion charge if the delivery
services to one was a good policy, there provides power to customers on its does occur.
were problems with the particular transmission system. Third, the bundled 73. The existing pro forma tariff also
Capacity Reservation Tariff that was retail customers of a transmission owner provides that the redispatch of a
proposed. They recommended that the may have certain transmission transmission provider’s generating units
Commission delay acting on the reservation and pricing advantages to relieve congestion is required only if
proposed rule until it learned the best regarding transmission transfer it can be achieved while maintaining
form of single service tariff through capability set aside for reliability. reliable operation of the transmission
industry experience with open access. Fourth, state transmission curtailment system in accordance with prudent
This is the approach that the rules that favor a public utility’s utility practice. The recovery of the
Commission in effect followed. Since bundled retail customers may conflict higher generation costs resulting from
the two Order No. 888 services were with the Commission’s transmission such generator redispatch, which are a
adopted, however, there have been curtailment rules, resulting in a subset of opportunity costs, requires
allegations of undue discrimination transmission preference to customers in that (1) a formal generator redispatch
between customers of the two services one state over customers served in other protocol be developed and made
as discussed later in this section. states.52 The first three of these were available to all transmission customers
summarized above, and a detailed and (2) all information to calculate
67. There are also different rules for
discussion with examples is set forth in redispatch costs be made available to
bundled retail transmission service and
Appendix C. the customer for audit. If a transmission
for wholesale and unbundled retail
70. The requirement for all services
transmission services. States have provider collects revenues to cover the
on the transmission grid to be taken
historically established the rules for the redispatch costs from a specific
under a common set of rates, terms and
transmission component of bundled transmission customer, it must credit
conditions will resolve these concerns.
retail transactions, while the these revenues to the cost of fuel and
Commission has established the rules 3. Congestion Management purchased power expense included in
for wholesale and unbundled retail 71. Due to new transmission usage its wholesale fuel adjustment clause.
transmission services. patterns and the lack of transmission Various tariff provisions specify how
68. Despite the requirement in Order infrastructure improvements, congestion redispatch is to be implemented. For
No. 888 that no transmission customer has increased. However, economically instance, Sections 33.2 and 33.3 of the
may have any undue advantage over sound congestion management plans do existing pro forma tariff provide that the
another, there remain real or perceived not exist in most parts of the country, redispatch of all network resources and
advantages for the customers of and transmission customers have been the transmission provider’s own
vertically integrated transmission exposed to transmission service resources, on a least-cost basis without
owners. In many cases, the perceived interruptions and increasing generation regard to ownership, is to be performed
advantage is one of Network Integration costs due to the risk of interruption. The only to maintain system reliability, not
Transmission Service over Point-to- operating rules that do exist were not for economic reasons. Under those
Point Transmission Service, where designed as a congestion management circumstances, the redispatch costs
Network Integration Transmission tool for allocating scarce transmission would be shared among the network
Service is available to both bundled capacity, but were designed to keep customers and the transmission
retail transmission customers and facilities from overloading in an provider on a load ratio basis. Sections
wholesale Network Integration emergency, such as when a transmission 13.5 and 27 of the existing pro forma
Transmission Service customers, while facility unexpectedly goes out of tariff permit the transmission provider
Point-to-Point Transmission Service is service. to provide the requested transmission
taken primarily for wholesale 72. Currently, under the existing pro service and relieve a system constraint
forma tariff, congestion is managed by redispatching the transmission
50 See Capacity Reservation Open-Access primarily through a system of physical provider’s resources: (1) If this costs less
Transmission Tariffs, 61 FR 21,847 (May 10, 1996), reservation of capacity, based on each than constructing network upgrades;
FERC Stats. and Regs. ¶ 32,519 (1996) (Notice of
individual transmission provider’s and (2) if, under Section 13.5, the
Proposed Rulemaking). transmission customer agrees to
51 See Capacity Reservation Open-Access calculation of the Available Transfer
Transmission Tariffs, 76 FERC ¶ 61,065 (1996)
compensate the transmission provider
(notice extending deadline for filing written 52 We emphasize that transmission curtailment for any such redispatch costs on an
comments and convening technical conference). does not necessarily mean a power outage. incremental basis as specified in the
customer’s service agreement prior to congestion.56 Although the program has different transmission or other market
the commencement of service. been in place for several years, it has rules. Market participants assert that it
74. Although the existing pro forma been implemented only infrequently can be difficult to move power ‘‘across
tariff allows the recovery of generating because of the difficulty in establishing a seam’’ from one area to another.
unit redispatch costs, the Commission counterflow transactions and the 81. Seams issues include differences
generally has not accepted proposals limited availability of data to the in transmission rules as well as
submitted by single-utility transmission transmitting customer.57 differences in power market rules. They
providers to recover such costs. For 77. In 1998, Commonwealth Edison include such diverse matters as different
instance, the Commission rejected Company (ComEd) proposed a similar operating rules (e.g., rules for recalling
voluntary redispatch program, which firm transmission capacity; coordination
Bangor Hydro-Electric Company’s
predated NERC’s Market Redispatch of generation and transmission
(Bangor Hydro) proposed formula to
Program.58 In November 1998, ComEd maintenance schedules; how parallel
recover opportunity costs for lack of
submitted the first of two interim path flows are determined to affect other
supporting data showing that its
reports to the Commission summarizing regions); different market rules (e.g.,
opportunity cost pricing would be
its experience with the program.59 It bidding rules; market product
consistent with the principle of
determined that a single utility cannot definitions); different market designs
comparability and because the formula
effectively offer redispatch over other (e.g., congestion management
lacked sufficient detail to operate as a
systems, especially where other procedures; demand response rules;
rate formula itself.53 The Commission
generation owners do not participate. market price intervention practices);
directed Bangor Hydro to submit a 78. The overall result of the Order No. different business practices (e.g.,
separate section 205 filing with revised 888 congestion management system is scheduling practices; reservation
opportunity cost pricing before that the transmission system is not practices; OASIS designs; processes to
implementing such pricing. The utilized in the most efficient manner. verify transactions between ISOs and
Commission also rejected a proposal by Customers can be denied access to market participants; transmission and
the operating companies of Central and lower-cost supplies that could be made generation outage information
South West Corporation (CSW) available if the congestion management dissemination, compensation, and
regarding redispatch costs because they and pricing system had an efficient and coordination rules; generation
did not provide sufficient specificity to fair method of recovering the cost of interconnection practices; liability
enable a customer to calculate or verify generator redispatch. provisions); and different electronic and
redispatch costs and because the 79. Managing congestion using an telephonic communications protocols.
formula lacked sufficient detail to LMP system, coupled with a single 82. Market participants have called
operate as a formula rate.54 The transmission service that relies on price for a ‘‘seamless market,’’ by which they
Commission also directed CSW to (rather than first-come, first-served) to mean a market whose operation is not
submit a separate filing under section allocate limited transmission capacity, encumbered by differences in rules at
205 before implementing such pricing. will resolve these problems. public utility or RTO boundaries. To
75. Because it is difficult for a single- achieve a seamless market, some assert
4. Seams Problems
utility transmission provider to develop that rules may differ but only in ways
a formula that specifies the costs of 80. A lack of common transmission that the differences are invisible to
redispatch and protects transmission rules inhibits competition in power power sellers and buyers. Others assert
customers’ interests, generation markets not only when there are that such management of differences
redispatch has not been used as different rules for different customers rarely works in practice and that the
extensively as it could be used to relieve under one public utility’s tariff or one rules must be the same everywhere to
congestion. A transmission provider RTO’s tariff, but also when there are achieve a seamless market.
will not redispatch generating units if it different rules from one public utility to 83. The Commission has long
cannot collect its higher generation the next, or from one RTO to the next. recognized the need for more
costs, and less transmission transfer The term ‘‘seam’’ has come into coordination and uniformity throughout
capability will be available to the energy common use in the electric power a region in transmission matters. Our
market. industry over the last several years to Regional Transmission Group Policy
refer to a boundary between areas with Statement of 1993 60 encouraged public
76. In 1998, the Commission called on utilities to develop a common set of
public utilities to work with the North 56 See North American Electric Reliability rules for regional expansion planning,
American Electric Reliability Council Council, et al., 87 FERC ¶ 61,160 (1999). and our Transmission Pricing Policy
(NERC) to develop a congestion 57 NERC identified several problems with the
Statement of 1994 61 encouraged the
management system based on program in a January 31, 2002 submittal to the
development of a common pricing
redispatch.55 NERC responded with its Commission: (1) The Market Redispatch customer
cannot easily anticipate and specify in advance policy for a region that would
pilot Market Redispatch program that which facilities will overload and require internalize and rationalize the pricing of
relied on counterflow transactions, i.e., transmission curtailment; (2) the Market Redispatch parallel path flows. As explained above,
power transfers against the prevailing transaction must provide a counterflow for the
Order Nos. 888 and 2000 recognized the
flows on the constraint, to relieve the entire protected transaction even though the
required transmisssion curtailment may be only a need to bring the various public utility
portion of the original protected transaction; and (3)
53 See Allegheny Power System, Inc., et al., 80 the Market Redispatch customer cannot easily 60 Policy Statement Regarding Regional
FERC ¶ 61,143 (1997). discover the availability of generator pairs for Transmission Groups: Policy Statement, 58 FR
54 Central Power and Light Company, 81 FERC counterflow transactions. See Report on Market 41,626 (August 5, 1993), FERC Stats. & Regs.
¶ 61,311 (1997). Redispatch Pilot Program by NERC Market Interface ¶ 30,976 (Jul. 30, 1993).
55 The NERC rules for protecting the system were Committee and Motion to Continue Market 61 Inquiry Concerning the Commission’s Pricing
designed to adapt the Commission’s Order No. 888 Redispatch Program, Docket No. ER02–933–000, at Policy for Transmission Services Provided by
individual utility transmission curtailment 3 (Jan. 31, 2002). Public Utilities Under the Federal Power Act, 59 FR
58 See Commonwealth Edison Company, et al., 83
requirements to multi-system transactions and 55,031 (November 3, 1994), FERC Stats. & Regs.
parallel flows. See North American Electric FERC ¶ 61,145 (1998). ¶ 31,005 (Oct. 26, 1994), order on reconsideration
Reliability Council, 85 FERC ¶ 61,353, 62,363–64 59 Interim Report on Non-Firm Redispatch, and clarifying policy statement, 71 FERC ¶ 61,195
(1998). Docket No. ER98–2279–000 (Dec. 17, 1998). (1995).
transmission systems in a region under 5. Market Design Flaws principal elements of market design and
a common set of transmission rules. 86. Poorly designed market rules, or business practices. A standard market
Order No. 888 not only applied a market rules with unforeseen or design rule will help advance this
common set of open access transmission unintended consequences, can have a process and extend it to other regions.
rules to public utility transmission debilitating effect on markets, market Our goal is to use the Standard Market
systems, but included a reciprocity pricing and overall confidence in the Design rulemaking to address and
provision that conditioned a non-public markets of the market participants. remedy many of the market design flaws
utility’s use of a public utility’s open Moreover, differences in market designs identified to date and to raise the
access transmission tariff on the non- in neighboring regions can also lead to quality of all electric markets
public utility’s agreement to provide problems such as the exercise of market simultaneously.
comparable transmission service to the 90. Market rules will need to be
power through the exploitation of the
public utility. Indeed, Order No. 888 flexible and have the ability to evolve
differences.
also encouraged the formation of ISOs over time. However, consistent rules
87. Wholesale electricity markets are
not only to bring all the transmission across the entire interconnection based
complex, with multiple products traded
on best practices, coupled with sound
systems in a region under common at multiple locations on different time-
market monitoring to promptly identify
rules, but also under unified operation. frames, while subject to the unique
and correct any design flaws will
Many parties in Canada have stressed physical characteristics of electricity
provide the necessary foundation for
the necessity of having a common set of (e.g., non-storable, need for system
future market innovation and
rules for reliability and trading stability and balancing, physics of
improvement.
protocols for cross-border transmission power flows). Market rules have been
facilities.62 Order No. 2000 built on this affected by the variation in generation C. Reform Essential Given the Changed
theme by strongly encouraging the mix, the transmission network layout Nature of the Electric Industry
formation of RTOs to bring all facilities and the local and regional regulatory 91. The need to address the instances
in a region under a common set of history in different regions of the of discrimination described above is all
transmission rules. However, RTOs have country. For example, the initial the more critical given the changing
not developed at the pace anticipated California markets had a design quite nature of the electric industry. The
when Order No. 2000 was issued and different from the designs of the markets United States electric power industry is
seams problems continue to exist. In in the Northeast region (PJM, New York in the middle of a transition from a
June 2001, the Commission held a and New England). predominantly monopoly industry to a
technical conference on seams issues.63 88. In the regions where voluntary, predominantly competitive industry.
Participants to the seams conference organized ISO markets for energy, The fundamental economic driver of
explained that resolution of seams transmission and ancillary services have change has been, and continues to be,
issues is critical for making the inter- been established under the existing the reduction of economies of scale in
RTO transmission systems and power tariff, problems due to the design new generation construction, combined
markets work. choices have been characterized as with environmental restrictions that
‘‘market design flaws.’’ A market design encourage gas-fired units. This is due in
84. We set forth in Appendix C a flaw is a market rule—including
number of examples of differences in large part to the introduction during the
product specification, bid format, 1980s of highly efficient gas turbines
rules that can create seams problems, auction rules and pricing rules—that
and a discussion of efforts at the and combined cycle generators that
allows distortions in the market prices produce much more electricity from a
Commission or within the industry to or availability of a product or service,
address seams problems. given amount of gas. A relatively small
whether energy, ancillary services, gas-fired generator can compete
85. The requirement under Standard transmission service or installed effectively with power from a large
Market Design for a single tariff and a capacity. In the years since the ISO central generating station. Additionally,
single market design operating with the markets have been operating, dozens of small distributed generation is
same set of rules throughout the entire market design flaws have been becoming economic, and some
interconnection resolves the seams identified, ranging from minor problems renewable energy resources, especially
problems discussed above. that cause temporary inconveniences to wind power generation, are also on the
major problems that require markets to verge of becoming competitive.64 In the
62 See, e.g., Ambassador Michael Kergin (Canada) be re-designed. No region has been right locations, wind generating units
letter to Honorable Thomas A. Daschle, Senate exempt from market design flaws of one can compete with the much larger coal,
Majority Leader, dated November 2, 2001: type or another. We set forth in
Canadian electricity companies are linked to their nuclear and hydroelectric units.65
counterparts in the U.S. through a number of major
Appendix C examples of specific design 92. Because of these fundamental
connections crossing our common border. We share flaws. changes in industry technology, small
a truly international electricity grid. This 89. These problems have resulted in producers of electricity can compete
interconnectedness itself enhances our respective markets that are inefficient and do not with large producers, and both the
energy security, but it also places an onus on our produce the lowest reasonable prices for
countries to act together to manage the grid. smaller utilities and the retail customers
Nowhere is that more important than in the area of electric power. These problems cannot of a number of utilities have demanded
electricity reliability. * * * Because uniformity in be resolved on a case-by-case basis access to competing power suppliers in
reliability standards is required to enable effective because that will maintain and hopes of lowering their electric bills,
electricity trade, variations in standards would exacerbate the problems due to local
impede electricity trade and balkanize markets.
63 Conference on RTO Interregional Coordination, differences in rules. Only 64 See, e.g., International Energy Agency,
Docket No. PL01–5–000, June 19, 2001. Called by standardization of electricity market Distributed Generation in Liberalized Electricity
many the ‘‘FERC Seams Conference,’’ this technical design will solve these problems. In the Markets, International Energy Agency (June 2002);
conference on the RTO interregional coordination parts of the country in which markets and Ann Chambers, et al., Distributed Generation:
requirements of Order No. 2000 helped the A Nontechnical Guide (PennWell Corp. 2001).
Commission learn about seams issues and about
are most mature, including the 65 See Christine Real de Azua, Wind Power:
how uniform standards for some rules could benefit Northeast, Midwest and California, Poised for Take Off? A Survey of Projects and
power markets. there is broad consensus on the Economics, Pub. Util. Fort., Aug. 2001 at 38.
improving service and harnessing new 93. One hallmark of electric industry almost tripled. Table 1 also shows that
technologies. The pressures for retail restructuring has been the growth of in 1989 wholesale power purchases
access have been greater in regions with wholesale trade. In the past, wholesale provided 18 percent of the total electric
higher rates, which are typically regions power purchases made up a small energy available to investor-owned
with few low-cost natural resources for fraction of a large vertically integrated utilities from both wholesale purchases
generating electric power, such as utility’s power supply, with most of its and their own generation. By 2000,
nearby coal mines, gas fields, and power needs met by its own generation. wholesale purchases provided over 37
hydroelectric areas.66 Many of these Today, however, even large vertically percent of investor-owned utility
regions have taken the lead in retail integrated utilities rely increasingly on electric energy. This percentage has
restructuring, while regions with wholesale purchases for their energy steadily increased since 1989, and is
historically low electricity production supplies. For example, as shown in expected to continue to grow as utility-
costs have proceeded more cautiously or Table 1, between 1989 and 2000, owned plants are sold or retired and
even affirmatively decided not to generation by investor-owned utilities
new power supplies are acquired
change their retail access policies or to grew from 2,132 thousand GWh to 2,230
competitively in most parts of the
support their local utilities’ thousand GWh, an increase of less than
participation in regional programs at 5 percent. During this time, wholesale country.
this time.67 power purchases by these utilities
TABLE 1.—INVESTOR-OWNED UTILITIES’ TOTAL PURCHASES, 1989–2000, AS A PERCENTAGE OF ENERGY PURCHASED

AND SELF-GENERATED
Purchases
IOUs’ pur- IOUs’
Year chases generation (purchases +
(GWh) (GWh) generation)
(%)
1989 ............................................................................................................................................. 460,627 2,132,065 17.8

1990 ............................................................................................................................................. 530,325 2,134,429 19.9
1991 ............................................................................................................................................. 635,015 2,145,435 22.8
1992 ............................................................................................................................................. 671,758 2,143,847 23.9
1993 ............................................................................................................................................. 718,876 2,216,724 24.5
1994 ............................................................................................................................................. 732,710 2,237,652 24.7
1995 ............................................................................................................................................. 786,676 2,269,958 25.7
1996 ............................................................................................................................................. 916,087 2,308,156 28.4
1997 ............................................................................................................................................. 1,080,538 2,321,225 31.8
1998 ............................................................................................................................................. 1,073,638 2,402,571 30.9
1999 ............................................................................................................................................. 1,083,892 2,353,639 31.5
2000 ............................................................................................................................................. 1,324,558 2,229,617 37.3
Source: RDI POWERDAT Database.
Note: Data for 2001 is not yet available. necessary to support the new transmission cooperatives that generate
Investor-owned utility purchases include environment. It also makes clear that a at least some of their own power.68
purchases from affiliates. retreat from competitive markets to a These tables show that wholesale
94. Table 1 demonstrates the cost-regulated vertically integrated purchases, on average, provide about 40
increasing importance of competitive world would be difficult—the nation percent of the power needs of these
wholesale energy acquisition in the now depends increasingly on wholesale large utilities. Data are not presented for
United States electric power industry, interstate electricity markets. the smaller public power and
and the need for this Commission to 95. Similar data are presented in cooperative utilities because they
ensure that transmission, market rules Tables 2 and 3 for large public power typically do not self-generate but buy all
and institutions are reformed as utilities and generation and of their power at wholesale.
TABLE 2.—LARGE PUBLIC POWER UTILITIES’ TOTAL PURCHASES, 1992—2000, AS A PERCENTAGE OF ENERGY
PURCHASED AND SELF-GENERATED
Purchases
Utilities’ Utilities’
Year purchases generation (Purchases +
(%)
1992 ............................................................................................................................................. 297,076 520,348 36.3

1993 ............................................................................................................................................. 314,472 549,810 36.4
1994 ............................................................................................................................................. 331,643 555,198 37.4
1995 ............................................................................................................................................. 332,962 586,737 36.2
1996 ............................................................................................................................................. 350,880 645,740 35.2
66 See Energy Information Administration, The chg_stru_update/update2000.pdf> (hereinafter represents a sampling of these utilities. The sample
Changing Structure of the Electric Power Industry Electric Power Industry 2000 Update). size typically grew each year so that an apparent
67 See id. growth in the wholesale purchase percentages
2000: An Update, at 81–82 (2000), available in
http://www.eia.doe.gov/cneaf/electricity/ 68 Note that the data available for large public could reflect the addition of smaller utilities that
power and cooperative utilities is not complete but purchase more power at wholesale.
TABLE 2.—LARGE PUBLIC POWER UTILITIES’ TOTAL PURCHASES, 1992—2000, AS A PERCENTAGE OF ENERGY
PURCHASED AND SELF-GENERATED—Continued
Purchases
Utilities’ Utilities’
(%)
1997 ............................................................................................................................................. 349,641 674,725 34.1

1998 ............................................................................................................................................. 364,434 676,698 35.0
1999 ............................................................................................................................................. 394,617 634,548 38.3
2000 ............................................................................................................................................. 429,369 631,143 40.5
‘‘Large Public Power Utilities’’ authorities. Data for 2001 is not yet
includes municipals, federal power available.
TABLE 3.—GENERATION & TRANSMISSION COOPERATIVES’ TOTAL PURCHASES, 1992—2000 AS A PERCENTAGE OF
ENERGY PURCHASED AND SELF-GENERATED
Purchases
Cooperatives’ Cooperatives’
(%)
1992 ............................................................................................................................................. 85,226 136,417 38.5

1993 ............................................................................................................................................. 93,756 149,783 38.5
1994 ............................................................................................................................................. 96,148 156,589 38.0
1995 ............................................................................................................................................. 99,909 166,099 37.6
1996 ............................................................................................................................................. 117,455 172,161 40.6
1997 ............................................................................................................................................. 112,822 176,689 39.0
1998 ............................................................................................................................................. 115,003 177,534 39.3
1999 ............................................................................................................................................. 122,151 172,323 41.5
2000 ............................................................................................................................................. 127,785 171,198 42.7
Note: ‘‘Generation & Transmission adequacy of incentives to build much term power markets are unnecessarily
Cooperatives’’ includes cooperatives with needed generation and transmission volatile and they cannot obtain price
generation and transmission facilities, but infrastructure, availability of non-
excludes distribution cooperatives. Data for certainty.
2001 is not available yet. discriminatory transmission service for 99. The promise of wholesale
all sellers and buyers in a regional competition may go unfulfilled—or at
96. The transition to competitive market and the risk of making long-term
electricity markets is characterized by best continue to be delayed at great
commitments when market rules are cost—unless many of these
opportunity and uncertainty. The subject to frequent experiment and
promise of competition is the uncertainties are resolved. This
change. Differences in market rules
opportunity to develop more innovative proposed rule is intended to help
between regions make it difficult to
technologies, improve services, lower resolve generically many of the
transact business across regions and
average electric rates and provide more uncertainties facing the electric power
thus also lead to increased uncertainty
customer choice than is likely under a industry and to restore confidence in
in the industry and the risk of market
strictly regulated monopoly future power markets.
manipulation.
environment. During the transition to
competition, these promises are only 98. Investors, generators and D. Legal Authority and Findings
partly fulfilled, and results vary transmission providers are reluctant to
invest in new generation and 100. The primary purposes of the
regionally as a result of different choices Federal Power Act are to curb abusive
about retail restructuring. Additionally, transmission infrastructure if the rules
for setting energy or transmission prices practices by public utilities and to
the California electricity crisis of 2000– protect customers from excessive rates
2001, allegations of improper trading are not yet known or are subject to
frequent revision.69 Thus, uncertainty and charges. To achieve these ends,
practices, the collapse of Enron
about the direction of competition section 205 of the Federal Power Act
Corporation in December 2001 and the
policies inhibits the development of the requires that no public utility shall
deteriorating financial health of many
electric suppliers and marketers at this very infrastructure needed both to allow ‘‘make or grant any undue preference or
time have added unprecedented competition to work and to assure advantage to any person or subject any
uncertainty about, and lack of reliability in a competitive environment. person to any undue prejudice or
confidence in, today’s electric markets. Customers are reluctant to sign contracts disadvantage,’’ with respect to the
97. In addition to general concerns for power or to change suppliers if long- transmission of electric energy in
about adequate constraints on the interstate commerce or wholesale
exercise of market power by power 69 See generally U.S. Department of Energy, sales.70 Section 206 of the Federal
sellers, there is uncertainty in the National Transmission Grid Study (May 2002), Power Act authorizes the Commission
available in <http://tis.eh.doe.gov/ntgs/>
industry about impediments to new (hereinafter DOE National Transmission Grid
generators entering the market, Study). 70 16 U.S.C. 824d.
to investigate and remedy unduly concerning undue discrimination in the either does not exist in many areas of
discriminatory or preferential rules, retail electricity market, § 206 of the the country or competition is distorted.
regulations, practices or contracts FPA would require FERC to provide a 105. We find that:
affecting public utility rates for remedy for that discrimination * * * (1) the operation of the Commission’s
transmission in interstate commerce and And such a remedy could very well pro forma transmission tariff (which is
for sales for resale of electric energy in involve FERC’s decision to regulate administered by vertically integrated as
interstate commerce.71 It also authorizes bundled retail transmissions’’ of well as non-vertically integrated public
the Commission to investigate and energy.76 utilities such as ISOs) contains
remedy unjust and unreasonable rates, 103. We find that undue provisions that, in practice, permit
charges or classifications, and any rules, discrimination and anticompetitive undue discrimination in the provision
regulations, practices or contracts behavior persist, as detailed in Section of transmission services;
affecting such rates, charges or III and Appendix C, in both wholesale (2) public utilities that own, operate
classifications. and retail transmission of energy. or control transmission facilities and
101. Moreover, the Commission’s Pursuant to our statutory mandate to also participate in power markets
regulatory authority ‘‘clearly carries remedy undue discrimination and continue to possess substantial
with it the responsibility to consider, in anticompetitive effects in these markets, transmission market power and retain
appropriate circumstances, the as interpreted by the Supreme Court, we the ability to unduly discriminate in the
anticompetitive effects of regulated will apply the requirements of this rule provision of transmission service and
aspects of interstate utility operations to the transmission component of spot market energy services;
pursuant to [Federal Power Act bundled retail transactions. At a (3) lack of standardized wholesale
sections] 202 and 203, and under like minimum, all transmission service in electric market design allows undue
directives contained in [Federal Power interstate commerce must be subject to discrimination within and across
Act sections] 205, 206, and 207.’’ 72 The the same non-discriminatory non-rate regions, can result in unjust and
Commission’s authority to remedy terms and conditions in order to unreasonable pricing and allocation of
undue discrimination and eliminate undue discrimination in transmission and permits the exercise of
anticompetitive effects is broad.73 wholesale markets and in retail choice market power (and thus unjust and
102. The Court of Appeals for the markets. With respect to rates for unreasonable rates) in power markets;
District of Columbia Circuit reviewed bundled retail transmission service, and
challenges to Order No. 888 and found (4) proper price signals are not being
however, we will work with states to
that the ‘‘open access requirement is sent to the marketplace, with the result
address difficult transition rate issues.
authorized by and consistent with the that market-based rates in many places
104. In light of these statutory
[Federal Power Act],’’ and upheld the are distorted, and reasonably accurate
responsibilities and authorities under
order.74 On appeal, the Supreme Court price signals necessary for infrastructure
the Federal Power Act, we have
affirmed the Commission in applying its additions are not being sent.
assessed the state of the electric utility 106. To remedy remaining undue
open access requirements to industry and determined that it is
transmission used for wholesale and discrimination in the provision of
necessary to act promptly to provide interstate transmission services and in
unbundled retail sales of electric energy stability to the industry and to assure
in interstate commerce, but also other industry practices, and to ensure
that customers receive adequate just and reasonable rates for sales of
concluded that the Commission had supplies of electric energy at the lowest
jurisdiction over transmission used for electric energy within and among
reasonable price. During the past six regional power markets, the
bundled retail sales of electric energy in years, the implementation of open
interstate commerce. The Supreme Commission proposes to modify the
access transmission under Order No. Order No. 888 pro forma tariff to reflect
Court further stated that the 888 has fundamentally altered the
Commission may regulate bundled retail non-discriminatory, standardized
landscape of the electric utility industry transmission service and require
transmission of energy as a means of by removing major discriminatory
addressing undue discrimination. While standardized wholesale electric market
barriers to the use of the interstate design. The Commission also proposes
the Court did not adopt the appellants’ transmission grid and thereby opening
suggestions that the Commission’s to expressly exercise jurisdiction over
the door to competition in wholesale all transmission in interstate commerce
finding of discrimination in the electric power markets. However, even
wholesale electricity market suggested by public utilities.
with the Order No. 888 open access pro
the presence of discrimination in the forma transmission tariff and Order No. IV. The Proposed Remedy
retail electricity markets,75 it stated that 889 transmission standards of conduct 107. The Commission’s goal in Order
‘‘[w]ere FERC to investigate this alleged in place, there continues to be undue Nos. 888 and 2000 was to harness the
discrimination and make findings discrimination in the provision of benefits of competition for the nation’s
interstate services. Experience under the electricity customers by assuring
71 16 U.S.C. 824e.
72 See
pro forma tariff has demonstrated that adequate and reliable supplies of
Order No. 888 at 31,669 (quoting Gulf
States Utilities Co. v. FPC, 411 U.S. 747, 758–59,
unduly discriminatory transmission electricity at a just and reasonable price.
reh’g denied, 412 U.S. 944 (1973)). See also City of practices continue today. Further, As discussed above in the Need for
Huntingburg v. FPC, 498 F.2d 778, 783–84 (D.C. Cir. existing trading rules and design of Reform section (Section III), the current
1974) (finding that the Commission has a duty to wholesale power markets do not
consider the potential anticompetitive effects of a
rules and regulations have prevented
proposed interconnection agreement).
consistently prevent market the full attainment of that objective. To
73 See Order No. 888 at 31,669 (the Federal Power manipulation or send proper price address these problems in the current
Act fairly bristles with concern for undue signals to participants or allocate scarce system, we are proposing a
discrimination (citing Associated Gas Distributors resources to those who value them most comprehensive package of reforms that
v. FERC, 824 F.2d 981, 998 (D.C. Cir. 1987), cert. and thus could result in unjust and
denied, 485 U.S. 1006 (1988))). are described more fully in this section.
74 Transmission Access Policy Study Group v. unreasonable rates. Thus, competition 108. Section III and Appendix C
FERC, 225 F.3d at 685. provide numerous examples of ways
75 See id. at 1028. 76 Id. that an entity that owns both
transmission and generation can open spot market for imbalance energy 114. To avoid the market design flaws
discriminate in favor of its own and a uniform congestion management discussed in the Need for Reform
customers or generation under the methodology, i.e., LMP, to more section (Section III) and Appendix C
current tariff. The problem stems from efficiently manage the transmission and market manipulation in Appendix
the differences in the sets of rules that grid. The spot energy market and LMP E, and to minimize the potential for
apply to users of the transmission rely on management of the transmission seams issues, we propose a standardized
system. First, the current regulatory system and bidding by supply and tariff that incorporates the best practices
system allows vertically integrated demand resources attached to the and builds on the lessons from our
utilities to discriminate in favor of their transmission grid under market rules experience with organized markets. In
bundled retail load at the expense of and protocols. Appendix B, the proposed SMD Tariff
wholesale customers. This occurs 111. To provide the price signals standardizes many aspects of the basic
because transmission service for needed to manage congestion, the market design. However, it also allows
bundled retail customers is subject to Independent Transmission Provider will flexibility in a number of areas to
different rules and rates than service for be required to operate a day-ahead and customize the basic market design to
wholesale customers. Second, the real-time market for energy. To provide meet regional requirements where such
current distinction between Point-to- customers with a mechanism for customization will not lead to further
Point Transmission Service and achieving price certainty under the new discrimination or inefficiencies.
Network Integration Transmission congestion management system, we also 115. We propose to permit small
Service also creates opportunities for propose to require that customers be entities to seek waiver of the Standard
undue discrimination in favor of given Congestion Revenue Rights for Market Design Final Rule requirements.
generation owned by the transmission their historical uses that protect against The regulations we propose include
owner or an affiliate. congestion costs when specific receipt waiver provisions under which public
109. To remedy this discrimination and delivery points are used. utilities, and non-public utilities
we propose to place all transmission 112. LMP and Congestion Revenue seeking exemption from the reciprocity
customers under the same set of rules. Rights will provide price signals to condition, may file requests for waivers
We propose to place transmission indicate where new investment is from all or part of the Commission’s
service for bundled retail customers needed; however, the price signals alone regulations.
under the same terms and conditions of may not guarantee sufficient 116. Finally, while we have attempted
service as wholesale transmission investment. We also propose to require to standardize the basic aspects of the
service. To accomplish this we propose a regional transmission planning and market design policy, this proposed rule
to revise the existing pro forma tariff to expansion process to provide a backstop does not include detailed business
remove provisions that grant process for ensuring that needed practices and communication protocols
preferential treatment to transmission transmission construction is that will be needed to administer
service for bundled retail customers. We undertaken. We propose that this Standard Market Design. We fully
propose that all public utilities that process begin six months from the appreciate the benefits of business
own, control or operate interstate effective date of the Final Rule, even practice standardization and, as we did
transmission file these interim changes though much of the country will not in the natural gas industry, we believe
no later than July 31, 2003. We also have had the opportunity to respond to it is best if industry participants develop
propose that no later than September 30, LMP and Congestion Revenue Rights for these types of highly detailed and
2004, or such date as the Commission another few years. technical standards. Thus, we are
may establish, only Independent 113. At this stage of the industry’s proposing a process, similar to that used
Transmission Providers would operate evolution, structural barriers to in the natural gas industry, that could be
Commission-jurisdictional facilities. competitive markets remain, so to used for standardization of business
This requirement will apply whether or address this we are proposing market practices, data sets and communication
not the public utility that owns, controls power mitigation measures for the spot protocols that includes representation of
or operates interstate transmission markets that will be operated by the all affected market participants. Upon
facilities has joined an RTO.77 We are Independent Transmission Provider. its formation, the Wholesale Electric
proposing specific governance These measures are designed to address Quadrant of the North American Energy
requirements that must be met by the the two significant structural problems Standards Board (NAESB), working
Independent Transmission Provider. in wholesale energy markets—the closely with Independent Transmission
110. Also, no later than September 30, existence of localized market power that Providers who would collectively serve
2004, or such date as the Commission arises from transmission constraints, in an advisory capacity to the board,
may establish, we propose to eliminate and the lack of price-responsive would produce business practice and
the distinction between Point-to-Point demand. The market power mitigation electronic communication standards.
and Network Integration Transmission proposal is a framework that can be NAESB would notify the Commission
Services by having one service, Network tailored to reflect the competitive when it has adopted standards, and the
Access Service, that contains elements conditions of the particular region. It is Commission would then use rulemaking
of both types of service—the flexibility designed to be reexamined annually and proceedings to propose the
of Network Integration Transmission adjusted as needed to reflect changes in incorporation of these standards by
the competitive structure of the region, reference into the Commission’s
Service and the tradability of Point-to-
including a phasing out of mitigation regulations. If the industry is unable to
Point Transmission Service. We propose
measures as resource adequacy and reach consensus on a particular
these time periods to provide sufficient
demand response develops. Because standard, the Commission would be
time for the development of the
market power mitigation of spot market available to resolve the dispute, so that
necessary new software systems.
prices will tend to suppress the price the industry process can continue, or
Network Access Service is based on an
signals for new entry, we are also the Commission could develop its own
77 A Commission-approved RTO would meet the proposing a non-price mechanism to standards if necessary. Consistent with
requirements of an Independent Transmission assure that load meets a long-term gas industry regulation, issues of policy
Provider. resource adequacy requirement. that affect significant resources or that
may cause cost-shifting would be 14.2, 22.1(a), 22.1(a), 28.2, 28.3, 33.2, utilities to make the tariff changes to
resolved at the Commission rather than 33.3, 33.3 and 33.5. The specific Section 2.2 of the existing pro forma
through the standard setting body. changes are identified in Appendix A. tariff, as outlined in Appendix A.
120. We propose that the public
A. The Interim Tariff utilities file these revisions to their B. Independent Transmission and
117. Standard Market Design is tariffs and execute service agreements to Markets
intended to cure undue discrimination, take Network Integration Transmission 124. Another form of undue
in part, with respect to the use of the Service on behalf of their bundled retail discrimination is the lack of
transmission grid. As we discussed in load no later than July 31, 2003. We independence of the transmission
Section III.B.2, there are different rules recognize, however, that some public provider in many regions of the country.
for bundled retail transmission service utilities (e.g., ISOs) may already be As discussed in Section III.B.1,
and for wholesale and unbundled retail serving bundled retail load under the remaining corporate ties between
transmission services. These differences pro forma tariff. Accordingly, to the generation and transmission within
result in unduly discriminatory extent that a public utility can public utilities are problematic since
preferences for the vertically integrated demonstrate that it complies with this they allow the vertically integrated
transmission owner’s bundled retail requirement, it may so indicate in its utility to exercise market power to
customers. compliance filing. advantage its affiliated generation.
1. Placing Bundled Retail Customers 2. Additional Interim Revisions to the 1. Independent Transmission Providers
Under the Interim Tariff Pro Forma Tariff
125. To remedy this undue
118. We propose that to eliminate this 121. Since the implementation of the discrimination, transmission service
undue discrimination, the transmission existing pro forma tariff, the must be provided by an independent
component of bundled retail service Commission has offered clarifications to entity. Therefore, we propose to require
must be taken under an open access various provisions of the tariff. Perhaps all public utilities that own, control or
transmission tariff. Under the current the most important of these dealt with operate facilities used for the
pro forma tariff, a vertically integrated a customer’s right to roll over its transmission of electric energy in
utility is required to designate the existing contract for long-term firm interstate commerce to: (1) Meet the
resources it uses to serve bundled retail service (Section 2, Initial Allocation and definition of Independent Transmission
customers in the same manner as Renewal Procedures). Provider, (2) turn over the operation of
wholesale customers are required to 122. In several orders, the its transmission facilities to an RTO that
designate network resources under the Commission clarified three significant meets the definition of Independent
Network Integration Transmission points: (1) A customer must submit a Transmission Provider, or (3) contract
Service. We propose to use these request to roll over its contract no later with an entity that meets the definition
designations of network resources in than sixty days prior to the date the of Independent Transmission Provider
converting service used to meet retail current service agreement expires;78 (2) to operate its transmission facilities.
obligations. The existing level of service the public utility may only deny a
would be provided pursuant to the new 126. An Independent Transmission
customer its right to roll over a contract Provider is any public utility that owns,
Network Access Service. The load- due to future load growth if the public
serving entity or the retail customer controls or operates facilities used for
utility includes in the original service the transmission of electric energy in
would receive either Congestion agreement a specific, reasonably
Revenue Rights or the auction revenues interstate commerce, that administers
forecasted need for the transfer the day-ahead and real-time energy and
for these rights for the currently capability to serve load growth for
designated resources. In Section V of ancillary services markets in connection
network customers at the end of the with its provision of transmission
this Notice of Proposed Rulemaking, the term of the service agreement;79 and (3)
Commission sets forth a proposed time- services pursuant to the SMD Tariff, and
a long-term firm customer that requests that is independent (i.e., has no
line and implementation process for this to use alternate point(s) of receipt or
conversion process. financial interest, either directly or
delivery retains its right of first refusal through an affiliate, in any market
119. In the interim, however, we for service at the original point(s) of
propose to require that bundled retail participant in the region in which it
receipt and delivery at the time the provides transmission services or in
load be placed under the existing pro current service agreement expires.80
forma tariff. While many of the neighboring regions).
123. These revisions have a
revisions required by Standard Market 127. We propose that affected public
significant impact on the rights of
Design are dependent on the production utilities must inform the Commission
current transmission customers and will
and adoption of software to determine which Independent Transmission
continue to do so up until the time the
locational marginal prices and to Provider will operate the public utility’s
SMD Tariff, including auctions of
operate markets, placing bundled retail transmission facilities no later than July
Congestion Revenue Rights, is in
load under the existing pro forma tariff 31, 2003. However, a public utility that
place.81 We propose to require public
can be done immediately. This will is a member of an approved RTO or ISO
remove certain discriminatory practices 78 Entergy Power Marketing Corporation v. or other entity that meets the definition
and is the first step towards placing all Southwest Power Pool, 91 FERC ¶61,276 (2000). of Independent Transmission Provider
transmission service under one tariff. 79 Order No. 888–A, as clarified by Public Service may file a request for a waiver of the
This will require several revisions to the Company of New Mexico, 85 FERC at 62,006 (1998); filing requirements of this paragraph on
Public Service Company of New Mexico v. Arizona the ground that it has already complied
existing pro forma tariff to modify Public Service Company, 99 FERC ¶61,162 (2002);
provisions that define the different Exelon Generation Company, LLC v. Southwest with the requirement.
treatment granted to the service of Power Pool, 99 FERC ¶ 61,235 (2002).
80 Commonwealth Edison Company, 95 FERC
bundled retail load. Among the Congestion Revenue Rights. Once Congestion
¶ 61,027 (2000). Revenue Rights are fully auctioned, and access to
revisions that the Commission proposes 81 The protections offered by rollover rights are of transmission service will be based on a willingness
to require public utilities to file are value in a first-come, first-served priority system, to pay congestion costs (and losses), it may no
revisions to Sections 1.19, 13.5, 13.6, and are valuable for a direct allocation of longer be necessary.
128. Any entity meeting the definition 133. The Commission recently area and will operate a real-time and day-
of Independent Transmission Provider approved a proposal by several ahead market, or any functions that are
would file the SMD Tariff to provide transmission owners to form an ITC, required under the SMD final rule.84
transmission services, including TRANSLink Transmission Company, 134. We seek comment on the
ancillary services, and to administer the LLC (TRANSLink), to share functions that an ITC should perform
day-ahead and real-time energy and responsibility with the Midwest ISO under Standard Market Design. Should
ancillary services markets. As discussed Regional Transmission Organization the Commission retain the same
delegation of functions that was
further below, an Independent (the Midwest ISO) 82 and other regions
approved in TRANSLink? Are there
Transmission Provider would also for the RTO functions prescribed in
elements of the proposed Standard
perform market monitoring and market Order No. 2000. In that proceeding, the
Market Design that would justify a
power mitigation, long-term resource Commission approved a hybrid RTO
different delegation of functions?
adequacy and transmission planning formation under which specific RTO
Should an ITC qualify as an
and expansion on a regional basis. functions were delegated to either the
Independent Transmission Provider?
129. An Independent Transmission RTO or the ITC. Regarding the 135. We seek comment on whether an
Provider would also file under section delegation of functions we stated: ITC that has no ties to a Market
205 any changes to transmission rates Our rulings on the allocation of functions Participant, as defined in this proposal,
necessary to implement Standard issues are based on our belief that for is sufficiently independent to act as the
Market Design, no later than 60 days effective RTO operations, regional trading, Independent Transmission Provider.
prior to the date on which it proposes and one-stop shopping, a single transmission
The ITC may hold grid assets such as
to implement Standard Market Design. provider must have overall authority and
ultimate responsibility for transmission transmission facilities and Congestion
130. In addition, one or more public Revenue Rights and may be allowed a
service in the region. We further believe that
utilities may jointly file an application the security-constrained, economic dispatch performance-based ratemaking program.
to meet the requirements of Standard needed for an efficient and reliable market is Thus the Commission is concerned that
Market Design. Also, an Independent best operated by an independent regional the ITC may unduly discriminate in
Transmission Provider may make transmission provider. However, we believe favor of its own transmission interests
necessary filings on behalf of public that it is acceptable for some functions with when carrying out operational and
utilities required to meet the predominantly local characteristics to be planning decisions in its role as
requirements of this paragraph. delegated to an ITC so long as the RTO has
Independent Transmission Provider. We
131. We seek comment on whether oversight authority in the event that local
actions have a regional impact. We find that seek comment on whether such ITC
this remedy is adequate to remove the interests in transmission investment
this is critical to successful RTO
potential for unduly discriminatory development and especially important given may cause the ITC to unduly
behavior on the part of a vertically the characteristics of the interstate discriminate in day ahead or real time
integrated transmission provider. Can transmission grid. It has become increasingly markets operations or to discount
the requirements of Standard Market evident in recent years that even seemingly generation, demand response, and other
Design be satisfied either by performing local issues, such as generator location or transmission owners’ (e.g., merchant
the function through an RTO or isolated transmission bottlenecks, can and do transmission) solutions to grid
contracting with an independent entity impact the larger grid, and that is why we
problems. On the other hand, generation
to perform them? Given that most believe that centralized RTO oversight is
needed. and demand response solutions are
transmission providers have filed likely to have the first opportunity to
We also remain concerned that vesting
proposals to join an RTO, is a non-RTO control into sub-regional entities may create respond to LMPs if it makes economic
compliance option necessary to cure seams which could easily lead to re- sense to do so, given the difficulty in
undue discrimination and produce just balkanization. These difficult delegation siting transmission. Given the planning
and reasonable rates for transmission decisions are made with our firm belief that process and stakeholder input, as well
service and the sale of electric energy? ITCs can flourish under the RTO umbrella as the Commission’s authority to set
and that in performing certain delegated rates, we seek comment on what
2. Role of Independent Transmission functions, ITCs will be able to effectively
Companies in Standard Market Design specific ways an ITC could make such
manage their assets, protect their value, and
bring their expertise to increase efficiencies unduly discriminatory decisions? The
132. We have long recognized that the Commission is convinced that, if its role
and enhance the value of their business.
Independent Transmission Company Nevertheless, these delegation decisions is appropriately defined, and
(ITC) business model can bring should not prevent ITCs from seeking opportunities for undue discrimination
significant benefits to the industry. additional authority, subject to Commission are addressed, the ITC shows great
Their for-profit nature with a focus on approval, at a later date after ITCs have promise to address grid problems
the transmission business is ideally gained experience under RTO operations.83 through profit driven activities. One
suited to bring about: (1) Improved asset We are also guided by the premise that any such activity could be reducing
management including increased delegation of functions to an ITC must be
congestion where an ITC with properly
investment; (2) improved access to consistent with and further the Commission’s
goals in the SMD Proceeding. We assume in structured performance based rates
capital markets given a more focused would have an incentive. What is the
this order that the Midwest ISO will be the
business model than that of vertically transmission provider in the TRANSLink appropriate role for the ITC?
integrated utilities; (3) development of
innovative services; and (4) additional 82 TRANSLink Transmission Company, L.L.C., et
C. The New Transmission Service
independence from market participants. al., 99 FERC ¶ 61,106 (2002). 136. To address the discrimination
We believe that these characteristics of 83 We recognize that as the Midwest ISO and ITCs described in Section III above and in
ITCs can have significant benefits for gain experience, they should, from time to time, Appendix C, we will require
the implementation of Standard Market reassess the assignment of the functions and Independent Transmission Providers to
Design, particularly in the areas of reevaluate whether some that have been delegated provide a nondiscriminatory, standard
to a local level need to be performed at a regional
development of transmission level and vice versa. Likewise, after SMD is transmission service to all customers.
infrastructure and structural implemented, the assignment of functions may
independence from market participants. need to be reassessed. (Footnote 37 in original). 84 TRANSLink, 99 FERC at 61,463.
This new service, Network Access process must accommodate such where a transaction terminates. Receipt
Service, combines features of both the bilateral trades. and delivery points include both
existing open access transmission individual nodes as well as aggregated
1. Basic Rights
services—Network Integration points, e.g., trading hubs. Thus, a
Transmission Service and Point-to-Point 139. Network Access Service builds Network Access Service customer could
Transmission Service. The Network upon the existing Order No. 888 use this service to move power from a
Access Service is grounded in the Network Integration Transmission generator (receipt point) to a load
flexibility of network integration Service and will be available to all (delivery point), from a generator
transmission service, but adds a eligible customers. As with Network (receipt point) to a trading hub (delivery
measure of reassignability similar to that Integration Transmission Service, point), from one trading hub to another,
available under firm Point-to-Point Network Access Service offers flexible or from a trading hub (receipt point) to
Transmission Service. Thus, Network use of the transmission grid—it allows a load (delivery point). A Network
Access Service will give all customers the load-serving entity to choose to Access Service customer would have
the opportunity to have tradable serve its load with any available access to all receipt and delivery points
Congestion Revenue Rights 85 that will resource on the system (or access any on the system and would be able to
expand their transmission options and interface to import power from a substitute receipt points on a daily or
enhance competition in wholesale neighboring system), consistent with the hourly basis through the day-ahead and
electric markets. It also will result in all Network Resource Interconnection real-time scheduling processes.
transmission services being performed Service discussed in the Generator 142. Any customer using transmission
under a single set of rules. Interconnection proposed rule.86 service, whether a load-serving entity,
Network Access Service allows a generator, or marketer, would take
137. To complement Network Access
customer to have the Independent Network Access Service. However, as
Service and implement the Standard
Transmission Provider integrate, explained more fully in Section IV.D.1,
Market Design, Independent
dispatch and regulate the customer’s only those customers taking power off of
Transmission Providers will manage current and planned resources to serve the grid would pay the access charge.
congestion using LMP. Management of its load as is currently done under the (All customers would pay congestion
transmission grid congestion is difficult pro forma tariff. Customers, including costs and losses associated with their
to do through bilateral transactions generators and marketers, can also use particular transaction.) We expect that,
alone; thus a spot market is required to this service for through-and-out service, in most instances, it would be a load-
manage congestion efficiently. We to aggregate resources for resale, and to serving entity, rather than a generator or
believe that congestion management, perform hub-to-hub transactions similar marketer, that would be the customer
balancing of load and generation in real to Point-to-Point Transmission Service. for transactions that result in power
time, and the provision of ancillary In addition, Network Access Service leaving the grid, and thus, the load-
services can be accomplished most allows the customer (1) to trade serving entity would be the entity
reliably and efficiently by a bid-based, (reassign) its Congestion Revenue Rights paying the access charge.88
security-constrained spot market. and (2) to access points, which, under
138. In addition to administering a the current pro forma tariff, are 2. Access to Transmission Service
spot market to manage congestion, the secondary points that may be fully 143. Under the existing pro forma
Independent Transmission Provider will subscribed, by paying all applicable tariff, ‘‘firm’’ transmission service
also use it to handle imbalances and the congestion charges. implies certainty both with respect to
procurement of ancillary services. The 140. Network Access Service is delivery and price. Once a customer
Independent Transmission Provider premised on dispatching of the regional taking firm service under the existing
would operate markets for energy, transmission grid so that the customers pro forma tariff agrees to pay the
regulation, operating reserve—spinning that value transmission service the most transmission rate and schedules service,
and operating reserve—supplemental. will get it. All requested transactions it has full assurance that it will be able
These markets would be security- must be physically feasible under a to transmit power between its chosen
constrained, bid-based markets operated security-constrained dispatch. Where receipt and delivery points without
in two time frames: (1) A day ahead of there are transmission constraints, the service interruption (absent force
real-time operations, and (2) in real LMP system we propose will price out majeure or curtailment) and without
time. Transmission services will be all transactions and redispatch available being subject to any additional costs
scheduled through the day-ahead and generation as needed to accommodate (e.g., redispatch). However, there are
real-time markets. The Independent all requests for service.87 times when a transmission provider
Transmission Provider would establish 141. Network Access Service gives the cannot offer a guarantee of service
schedules for transmission service, and customer the right to transmit power availability (absent the long-term
sales and purchases of energy, between any number of combinations of solution of a customer agreeing to pay
regulation, and both operating reserves, receipt and delivery points. A receipt for system expansion). At these times,
to ensure the most efficient use of the point is defined here as the location under the existing pro forma tariff, only
transmission grid. Although the where a transaction originates, and a non-firm transmission service (which
Independent Transmission Provider will delivery point is defined as the location can be interrupted for economic
not be required to operate an organized reasons)89 is available at the stated
market for either short- or long-term 86 Standardization of Generator Interconnection
maximum rate. Thus, the existing pro
Agreements and Procedures, FERC Stats. & Regs. forma transmission service begins with
bilateral transactions, its scheduling ¶ 32,560. Network Resource Interconnection Service
requires that sufficient network upgrades be built so
the basic premise of price certainty, but
85 Congestion Revenue Rights entitle the holder to that interconnecting generators can serve load as a includes a measure of uncertainty
receive specified congestion revenues in the day- Network Resource, as defined by the existing pro
ahead market. To the extent that a customer’s real- forma tariff. 88 An end-use customer in a state with retail
time schedule coincides with its day-ahead 87 In all but limited cases, this should allow the access could be the entity taking transmission
schedule and its Congestion Revenue Rights, these Independent Transmission Provider to satisfy all service and paying the access charge.
rights offer complete protection against uncertain requests for service by customers willing to pay the 89 All services, including firm service, can be
congestion charges. applicable congestion charges. curtailed for reliability reasons.
regarding service availability that is would not take transmission service for standards are largely unchanged from
resolved only if firm service can be that receipt point-delivery point the existing pro forma tariff. In addition,
secured. In sum, the customer is combination during the requested time the customer must agree to pay any
generally assured of the rate it will pay period. This means no separate non-firm congestion charges and transmission
for transmission service, but, unless it transmission service option is needed losses associated with its request 93 and
has secured firm transmission service under Network Access Service. any customer serving load located
between the specified points, is not within the Independent Transmission
3. Service Limitations in the Existing
necessarily assured that it will receive Provider’s system must agree to pay the
Pro Forma Tariff
transmission service. applicable access charge.
144. With Network Access Service, all 146. The existing pro forma tariff
customers who want physically feasible limits how the Network Integration 5. Scheduling Transmission Service and
service will be able to receive service; Transmission Service and Point-to-Point Acquiring Congestion Revenue Rights
however, uncertainty can arise as to the Transmission Service can be used. It
rate paid to receive the service. In limits the use of interface capability by 149. As noted above, a customer
addition to the access charge (which Network Integration Transmission would acquire Congestion Revenue
recovers the embedded costs of the Service customers to the amount of the Rights to assure price and delivery
transmission system), the customer customer’s load. Under the LMP system certainty for its transactions. Anyone
would be subject to the cost of that we are proposing, transmission can hold Congestion Revenue Rights.
congestion between its chosen receipt service would be available to any Congestion Revenue Rights can be
and delivery points. To achieve customer up to the full amount of the acquired through a variety of means,
certainty with respect to price and avoid transfer capability, so long as the including: (1) Direct allocation that is
congestion costs, the customer would customer is willing to pay the based on some measure of current or
have to acquire the Congestion Revenue applicable congestion charges. The historical rights to the system; (2)
Rights associated with its specific specifics of scheduling power across periodic auctions; or (3) some
receipt point-delivery point interfaces is discussed in a later section. combination of these methods. The
combination(s).90 Thus, Network Access 147. The existing pro forma tariff also initial process for acquiring these rights
Service, coupled with Congestion requires the network customer to take is discussed in Section IV.H.2.
Revenue Rights for the desired points, Point-to-Point Transmission Service for
any additional third-party sales 150. Transmission service will be
provides the customer with certainty
transaction or to serve load on another scheduled through the day-ahead
with respect to delivery and price,
transmission provider’s system. This market with deviations accounted for in
comparable to the existing pro forma
will no longer be necessary with the real-time market, as discussed in
tariff’s firm service.
145. Accordingly, customers desiring Network Access Service, which will be later sections. These scheduling
service comparable to (but actually more used for all transmission services, opportunities are comparable to the
dependable than) existing firm including third-party sales transactions existing pro forma tariff’s requirements
transmission service would need to and transmission service for load on (e.g., firm point-to-point transmission
acquire Congestion Revenue Rights for another transmission provider’s system. service scheduled by no later than 10
their receipt and delivery points and A customer, however, may prefer to a.m. the day before, with schedules
schedule service between those points have separate service agreements for submitted after that time
in the day-ahead market. With the service to particular loads for accommodated, if practicable, and
allocation process we propose in accounting or tracking purposes. allowance to make changes to that ‘‘day-
Section IV.H.2, customers under ahead’’ schedule prior to the start of the
4. Conditions for Receiving Service
existing contracts will receive next clock hour). However, the new
Congestion Revenue Rights that match 148. To receive Network Access service synchronizes the scheduling of
their current use of the system, which Service, a customer must meet the same transmission service and energy, and
will ease and simplify the conversion requirements as those under the existing relies on a transmission customer
process. Customers using non-firm pro forma tariff for acquiring the right holding Congestion Revenue Rights or
transmission service under the existing to schedule transmission service: all its willingness to pay the cost of
pro forma tariff could request service customers must meet creditworthiness congestion, rather than on a firm/non-
when needed in the day-ahead or real- and other eligibility standards, complete firm, first-come, first served method, to
time markets. To the extent the an application for service, and meet ration capacity.
customer is willing to pay congestion certain operating standards (e.g.,
reliability maintenance of customer- 151. A Network Access Service
costs and transmission losses, its customer would have to indicate the
requested transmission service would be owned facilities for integration with the
transmission provider’s system, location of its receipt and delivery
available and provided.91 A customer points when it schedules service in the
also has the option of placing a limit on including metering and
communications equipment) as defined day-ahead or real-time markets.94 If a
the amount of congestion charges it is
willing to pay—to the extent that in the current pro forma tariff.
Similarly, the customer must have a Provider file an unexecuted transmission agreement
amount is exceeded, the customer or network operating agreement if the two parties
service agreement to take service under cannot agree on the terms and conditions of service.
90 Congestion Revenue Rights provide the rights the tariff. A load-serving entity would 93 As noted earlier and more fully explained in
holder with the revenues associated with also need a network operating Section IV.E.3., a customer can protect itself against
congestion between the associated points; thus, any agreement, which would detail how the the costs of congestion by acquiring Congestion
congestion costs it pays are fully offset by these Revenue Rights in the amount of its load and
revenues. To the extent the Congestion Revenue
Independent Transmission Provider’s between the receipt/delivery points where its
Rights holder opts not to schedule transmission system under the SMD Tariff and the desired resources and loads are located.
service at those points, it would still receive the load-serving entity’s system would work 94 Further, consistent with the existing pro forma
congestion revenues. together (similar to a generator tariff and the Commission’s decision regarding
91 As discussed in Section IV.D.3, customers ‘‘tagging,’’ the customer must identify the ultimate
exporting power from or transmitting through one
interconnection agreement).92 These source and sink so that the various system operators
region would not be subject to that region’s access in an interconnection can assess the simultaneous
charge, but would be liable for the cost of 92 Consistent with the existing pro forma tariff, a feasibility of all scheduled power flows. See
congestion and transmission losses associated with Network Access Service customer would retain the Coalition Against Private Tariffs, 83 FERC ¶ 61,015
its transaction. right to request that the Independent Transmission at 61,040, reh’g denied, 84 FERC ¶ 61,050 (1998).
customer holds Congestion Revenue respect to performing the integration of receipt and delivery points through an
Rights between a set of receipt and resources and loads.95 Similarly, with auction or secondary market.
delivery points in the day-ahead market, respect to the information required to 156. Alternatively, the customer could
but later decides to take transmission complete an application for service
request a ‘‘reconfiguration’’ of the
service between a different set of points, (Section 2 of the SMD Tariff), is it
Congestion Revenue Rights it holds, i.e.,
the customer would no longer have full necessary for the Independent
protection against congestion costs for the customer could turn in the
Transmission Provider to request
its transaction in the day-ahead market information beyond the identity of and Congestion Revenue Rights for the old
and could incur different congestion contact information for the customer, receipt and/or delivery point and
costs than the congestion revenues service term and commencement date, request Congestion Revenue Rights from
associated with the Congestion Revenue and receipt and delivery points for the the new receipt point or to the new
Rights it holds. Similarly, to the extent requested service? Does the delivery point. We seek comment on the
that a customer’s real-time transactions Independent Transmission Provider MW quantity of reconfigured
differ from its day-ahead schedule, the need to collect for each service request Congestion Revenue Rights that the
customer would be liable for any (but not for each transaction) the customer should be entitled to receive.
redispatch costs that occur in real time location and characteristics of the There are at least three options. One
that are necessary to accommodate its generation serving the load, detailed option is to allocate to the customer the
real-time transactions. descriptions of the load and the MW quantity that is available
6. Designating Resources and Loads customer’s transmission system and specifically as a result of turning in the
owned generation?96 In sum, do we old Congestion Revenue Rights. Under
152. The existing pro forma tariff need separate procedures for service to this option, the customer would receive
allows a Network Integration customers such as marketers, who do rights that become available by turning
Transmission Service customer to not serve load or own generation, or in the old Congestion Revenue Rights.
designate resources that the customer transmission systems and load-serving
owns or has committed to purchase In such a case, the MW quantity of new
entities that have all these things? Does Congestion Revenue Rights might be
pursuant to an executed, non- the integration aspect of Network
interruptible contract. The transmission different (either larger or smaller) than
Access Service require different the MW quantity of the old Congestion
provider must then plan and operate its information to be provided to the
system to be able to provide firm Revenue Rights.97 A second option is to
Independent Transmission Provider in allocate any MW quantity of new
transmission service from these order to initiate service? Should this
resources to the customer’s load. Under Congestion Revenue Rights that are
information be provided through other
the proposed Standard Market Design, physically feasible (i.e., it does not
means, and what would that be?
the reservation of capacity for service is adversely affect the Congestion Revenue
no longer required, since a transmission 7. Substituting Receipt and Delivery Rights held by any other customer),
customer pays the congestion cost for Points including Congestion Revenue Rights
transmission service. Thus, there is no 154. Under the existing pro forma that were available before turning in the
longer a need for a Network Access tariff, choosing alternate resources to old Congestion Revenue Rights. The
Service customer to designate network meet load required, in effect, placing a MW quantity of new Congestion
resources to get transmission service. request in the queue for new service. If Revenue Rights under this option could
While the integration of resources and firm capacity were available, the also be different (either larger or
loads (including behind-the-meter customer would be permitted to use smaller) than the MW quantity of older
generation) that occurs under Network alternate points of receipt (or delivery) Congestion Revenue Rights. A third
Integration Transmission Service will on a firm basis. If firm capacity were not option is to allocate a MW quantity of
continue, a Network Access Service available, the customer could choose the new Congestion Revenue Rights that is
customer will now request receipt and point(s) on a secondary, or non-firm, either equal to the MW quantity of the
delivery points through the day-ahead basis. old Congestion Revenue Rights, or, if
scheduling process and real-time
155. With Network Access Service, that is not physically feasible, the
transactions.
this process is no longer necessary. A
153. Thus, we believe that the
Network Access Service customer can
requirement to designate network 97 For example, a customer holding a 10 MW
essentially access any point simply by
resources to receive transmission Congestion Revenue Right from A to B may want
requesting it through the day-ahead to exchange its existing rights for Congestion
service may no longer be needed.
scheduling process or real-time Revenue Rights from C to D. Suppose that both the
Further, we note that under the existing
transactions (and be willing to pay A-to-B and C-to-D Congestion Revenue Rights relied
pro forma tariff the designation of on a common congested flowgate, so that the
congestion costs and losses). To the
network resources was used in amount of A-to-B Congestion Revenue Rights and
extent the customer wanted to avoid the C-to-D Congestion Revenue Rights is limited by the
addressing long-term resource adequacy
cost of congestion for the transaction, it capacity of the flowgate. However, suppose that the
concerns and in the planning process
could retain its existing Congestion A-to-B Congestion Revenue Right relies more
undertaken to ensure that the resources heavily on the congested flowgate than the C-to-D
Revenue Rights and acquire additional
could be integrated. Because we are now Congestion Revenue Right. That is, the proportion
Congestion Revenue Rights for its new
proposing a resource adequacy of the power flow (known as the ‘‘power flow
requirement and a regional planning distribution factor’’) over the flowgate in
95 The relevant sections of the SMD Tariff are
transmission service from A to B is greater than the
process to meet these requirements, the Sections B.3 and B.4. While we believe that they proportion in transmission service from C to D.
requirement to designate network may no longer be necessary, they remain in the Thus, giving up 10 MW of A-to-B Congestion
resources may no longer be needed. (See tariff for ease of reference during the proposed Revenue Rights may create the ability to award
rulemaking process. In the Final Rule, the more than 10 MW of Congestion Revenue Rights
Section IV.J). We request comment on
Commission will determine if these or similar (e.g., 15 MW) from C to D. Conversely, a customer
whether designating network resources provisions need to be included in the SMD Tariff. with 15 MW of C-to-D Congestion Revenue Rights
and loads is necessary for Network 96 See Sections B.2.2.1(iv) and (v), and Sections could exchange them for only 10 MW of A-to-B
Access Service, particularly with B.2.2.2(iii) through (vi) of the SMD Tariff. Congestion Revenue Rights.
largest MW quantity that is physically propose that to the extent the Service, but was not available under
feasible. Under this third option, the Independent Transmission Provider is Network Integration Transmission
MW quantity of new Congestion unable to schedule all requests for Service. Customers may be able to
Revenue Rights could never exceed the service made through the day-ahead acquire Congestion Revenue Rights from
MW quantity of the old Congestion scheduling process, those customers a particular receipt point to a particular
Revenue Rights. The process for with Congestion Revenue Rights for delivery point directly from the
acquiring and reconfiguring Congestion their requested receipt point-delivery Independent Transmission Provider,
Revenue Rights is further described in point combinations should be through a formal auction, or through
Section IV.E.3. scheduled first. We seek comment as to secondary markets. Once a customer has
whether this scheduling priority is these point-specific Congestion Revenue
8. System Impact and Facilities Studies
appropriate. While it would grant Rights, the customer may sell them at
157. Most service requests will be Congestion Revenue Rights holders an any time to another entity, whether or
resolved through the day-ahead additional measure of certainty of not that entity intends to transmit
security-constrained dispatch. delivery, would this undermine the power. The sale could be for all or a
Nevertheless, the Independent benefits of having a single transmission portion of the amount or duration of the
Transmission Provider will need to service for all customers? Congestion Revenue Rights. All resales
conduct system impact and/or facilities 160. We propose that an Independent of Congestion Revenue Rights must be
studies for service involving the Transmission Provider can assess a reported on and conducted through the
interconnection of a new load or penalty for failure to curtail if a OASIS. As is currently the case in some
generator. The Independent transmission customer fails to curtail ISOs, Congestion Revenue Rights will be
Transmission Provider will also after reasonable notice. The proposed traded at the price at which purchasers
routinely perform simultaneous penalty is the locational marginal price value the rights. The procedures for the
feasibility studies to determine the plus $1000 per MWh. The Commission auctions and resale of Congestion
configurations of Congestion Revenue has approved a minimum notice period Revenue Rights are discussed in Section
Rights that can be accommodated. Thus, of ten minutes if the curtailment is for IV.E.3.
except for adding references to the reliability purposes.99 We request 163. We seek comment as to whether
simultaneous feasibility studies that comment on whether the Commission all Congestion Revenue Rights must be
will be performed in response to should continue this practice. sold through the OASIS, or whether
requests for Congestion Revenue Rights, 161. We also note that the some bilateral sales may be made and
sections of the existing pro forma tariff Commission required transmission only reported through OASIS after the
addressing various studies will remain providers to incorporate procedures for sale.
largely unchanged. However, as addressing curtailment of parallel flows
discussed in Section IV.C.8, these involving more than one transmission 11. Ancillary Services
studies are now required to be system (i.e., the Transmission Loading 164. The ancillary services provided
performed by an Independent Relief Procedure developed by NERC) as as part of the current pro forma tariff
Transmission Provider. a single generic amendment to the pro will largely remain the same under
forma tariff.100 Under Network Access Network Access Service. However,
9. Load Shedding and Curtailments
Service, procedures for addressing non- certain ancillary services will be
158. Under the existing pro forma discriminatory curtailment of parallel provided through organized markets
tariff, load shedding and curtailment flows will continue to be needed under with appropriate market power
procedures were developed for emergency conditions when the use of mitigation, as discussed infra. The
inclusion in individual network a regional congestion management ancillary services markets are discussed
operating agreements. These procedures procedure set out in this proposed rule in Sections IV.F.1.d and IV.F.3.b.
should be uniform and, therefore, will does not completely relieve a
be included in the SMD Tariff. In D. Transmission Pricing
constraint.101 Language has been added
addition, we expect that the majority of to Section 9.3, Curtailments of 165. The Commission seeks to ensure
constraints will be resolved through the Scheduled Deliveries, to reflect this transmission owners the opportunity to
LMP-based congestion management change. recover their revenue requirements for
system, with only localized emergency/ their transmission systems under
reliability contingencies (transmission 10. Trading (Reassigning) Congestion Network Access Service. This charge
line outage into a load pocket) needing Revenue Rights could either be a license plate rate
to be addressed through load shedding 162. Network Access Service adds the (charge depends on zone of delivery) or
or curtailment procedures. tradability that currently exists for a postage stamp rate (same rate applies
159. This is a major improvement ‘‘firm’’ Point-to-Point Transmission for all load within the Independent
over the current tariff, as it should Transmission Provider’s service area)
eliminate most or all TLRs. To the United States Court of Appeals for the Eighth and would be paid by all entities
extent practicable, when system Circuit on the Commission’s curtailment authority
over bundled retail customers is no longer relevant.
serving load within the Independent
conditions require curtailment (in real See Northern States Power Company (Minnesota) Transmission Provider’s service area.
time) that cannot be resolved through and Northern States Power Company (Wisconsin), Moreover, to facilitate trading across
the congestion management system, the 83 FERC ¶ 61,098, order on clarification, 83 FERC regions, we are proposing to change our
Independent Transmission Provider ¶ 61,338, reh’g denied, 84 FERC ¶ 61,128 (1998),
Northern States Power Co., et al. v. FERC, 176 F.3d
policy on pricing of transactions that
should curtail the customers whose 1090 (8th Cir. 1999), cert. denied, 528 U.S. 1182 start and end in different transmission
transactions contribute to the constraint (2000), order on remand, 89 FERC ¶ 61,178 (1999). systems.
on a pro rata basis.98 In addition, we 99 See Allegheny Power System, Inc., 80 FERC 166. In addition, we are proposing to
¶ 61,143 at 61,546 (1997), order on reh’g, 85 FERC refine our policy on pricing of
98 Because we are now proposing to exercise our ¶ 61,235 (1998).
100 See North American Electric Reliability
transmission expansions to provide
jurisdiction over the transmission component of
bundled retail transactions and to provide a single Council, 87 FERC ¶ 61,160 (1999). incentives for market-driven solutions.
set of rules and regulations that apply to all 101 Such procedures may need to be refined in To facilitate the addition of much
transmission service, the limitation imposed by the light of Standard Market Design. needed transmission infrastructure, we
propose a regional approach to Service and to address unintended held by customers. Thus, customers
transmission expansion which includes consequences of the current rate design. currently receiving Network Integration
extensive participation by Regional First, we propose that transmission Transmission Service and firm Point-to-
State Advisory Committees 102 to owners recover embedded costs through Point Transmission Service under the
identify the beneficiaries of a proposed an access charge assessed mainly to existing pro forma tariff would receive
expansion and how costs for that load-serving entities, based on their Congestion Revenue Rights based on
expansion should be recovered. respective shares of the system’s peak their existing service levels. However,
load, i.e., their load ratio shares. Our there are two issues regarding access
1. Recovery of Embedded Costs charges and the allocation of Congestion
goal is to minimize the distorting effects
167. Under the existing pro forma that an access charge can have on Revenue Rights on which we
tariff, there are two types of economic choices. We propose to assess specifically seek comment.
transmission services—Network access charges primarily on loads, but 172. First, we seek comment on the
Integration Transmission Service, which not on generators, because the economic treatment of existing customers taking
is designed for the integration of choices of loads (such as where to long-term firm Point-to-Point
resources and loads, and Point-to-Point locate) are less likely to be affected by Transmission Service that are not load-
Transmission Service, which is access charges than are the choices of serving entities. Such customers
generally used to export power from one generators.105 Moreover, even if access currently pay an embedded cost charge
transmission system to another charges were imposed on generators or in order to receive firm Point-to-Point
(through-and-out service). other market participants, it is likely Transmission Service under the Order
168. To recover the embedded costs of that they would pass along most or all No. 888 pro forma tariff. We believe that
the transmission grid, the Commission of their access charges to their it would be inequitable for customers to
has historically permitted transmission customers, so that loads would receive an initial allocation of
providers to assess an access charge, in ultimately bear most or all of the Congestion Revenue Rights unless they
the form of a load ratio share charge or transmission fixed costs. also pay a share of transmission
a per kW per month charge, on all 170. Second, we propose to eliminate embedded costs. We also believe that it
transactions taking place on the all ‘‘rate pancaking,’’ which involves would be inequitable for customers to
transmission provider’s system.103 For a charging separate embedded cost pay a share of transmission embedded
single transmission utility, these charges charges for moving power over separate costs without receiving an initial
usually take the form of a ‘‘postage Independent Transmission Provider allocation of Congestion Revenue
stamp’’ rate (i.e., the same charge for all service areas. We propose to eliminate Rights. Thus, we seek comment on two
customers’’ use of the utility’s grid) and, rate pancaking both within an options. One option is for these
for an ISO or RTO, a ‘‘license plate’’ rate Independent Transmission Provider’s customers to continue paying their
(i.e., a different charge for the use of the service area and between service areas. embedded cost charges in exchange for
entire regional transmission system that Rate pancaking impedes the ability of receiving Congestion Revenue Rights
is based on the revenue requirement of distant generators to compete with that reflect their current levels of Point-
the transmission owner’s facilities, or nearby generators by imposing charges to-Point Transmission Service. This
‘‘zone,’’ where the transaction sinks).104 to transmit energy from distant option would help minimize cost shifts,
The access charge is assessed on all generators that are unrelated to actual while maintaining the transmission
transactions making use of the variable transmission costs. Assessing rights currently held by these
transmission provider’s system, the access charge primarily to load- customers. On the other hand, this
including transactions where the serving entities based on their load ratio option would recover a portion of
generator and load are located within share rather than on the number of embedded transmission costs from
the transmission provider’s system and service areas over which energy is customers that are not loads. The
where either the generator or the load transmitted increases generation second option is to eliminate the access
(or both) are located outside of the competition by allowing distant charges for these customers while also
transmission provider’s system. generators to compete more easily with allocating no Congestion Revenue
169. While this method of pricing has Rights to them. This option avoids
nearby generators.
been effective in recovering a 171. As discussed further below, we recovering embedded costs from entities
propose that customers paying access that are not loads. However, it would
transmission provider’s revenue
charges would receive Congestion result in some shifting of the
requirement, some changes are required
Revenue Rights (or alternatively, responsibility for recovering embedded
to reflect the new Network Access
revenues from the auction of Congestion costs, and it would fail to maintain the
102 Regional State Advisory Committee as
Revenue Rights). Thus, in exchange for transmission rights currently held by
discussed more fully in Section IV.K. paying the fixed costs of the these customers. We seek comment on
103 A Network Integration Transmission Service
transmission system, those paying the merits of these two options, as well
customer pays a monthly demand charge based on as whether the Final Rule should select
its load ratio share of the transmission provider’s access charges would receive the
monthly transmission revenue requirement. The financial benefits—the stream of one option or, alternatively, allow
customer’s load ratio share is based on the congestion revenues—resulting from customers to choose between them.106
customer’s hourly load coincident with the
transmission provider’s monthly transmission
usage of the transmission system. In 106 We propose that Congestion Revenue Rights
system peak. The firm Point-to-Point transmission addition, we seek to minimize cost be directly assigned only to long-term firm
customer pays a monthly demand charge for each shifts that could result from our customers, consistent with the existing pro forma
unit of capacity that it has reserved. proposal, and we propose to maintain as tariff’s right of first refusal. Thus, short-term and
104 Both PJM and New York ISO use a license non-firm point-to-point customers would not
much as possible the explicit and
plate rate design. PJM and New York ISO have receive Congestion Revenue Rights under direct
different rate designs for exports and wheel-through implicit transmission rights currently assignment. These customers, therefore, may wish
services. PJM uses a weighted average of the charges to structure their contracts such that they expire at
of all transmission for these types of transactions. 105 Point-to-Point customers wanting to receive a the time Standard Market Design is implemented.
New York ISO uses the transmission charge of the direct allocation of Congestion Revenue Rights This way, while they would not receive Congestion
owner of the intertie that serves as the point of would also pay the access charge, as discussed Revenue Rights, they also would no longer be
delivery to the adjacent system. below. paying an access charge.
173. The second issue concerns the rate to be charged.107 The Commission Independent Transmission Provider’s
treatment of load-serving entities in added that having vertically integrated system would pay only the access
retail open access states that attract utilities pay GridSouth for transmission charge for the transmission system
loads away from their traditional utility to serve their bundled retail customers where power is ultimately delivered to
suppliers. Under our proposal, a new does not make those utilities’ retail rates load.109 This will encourage broader
load-serving entity that attracts load subject to our jurisdiction. Rather, the areas of competition by eliminating
from other suppliers would be assigned Commission stated its willingness to multiple access charges, and in
a share of embedded costs—costs accommodate the utilities paying particular would reduce the harsh
previously assigned to other suppliers. GridSouth a transmission rate equal to inequities of regional boundary
In areas where there is no Available the transmission component of their definition on those customers near such
Transfer Capability for additional bundled retail rates, as long as the price boundaries.
Congestion Revenue Rights, we seek is clearly stated, reduced to writing in 181. It has become apparent that
comment on how such new load-serving contracts with GridSouth, and is not transmission pricing across RTO borders
entities should receive an allocation of accomplished by omission.108 can have a significant impact both on
the customer’s former load-serving 178. Now that the Commission is power purchasing decisions and on
entity’s Congestion Revenue Rights. We asserting jurisdiction over all RTO formation. A customer’s choice as
propose that Congestion Revenue Rights transmission service in interstate to whether to purchase power from a
‘‘follow the load.’’ Thus, Congestion commerce, including that for bundled generator located within the same RTO
Revenue Rights previously allocated to retail service, the question arises as to or a neighboring RTO is directly affected
other suppliers whose loads (and access whether different charges for by the fact that one generator faces an
charges) have been reduced would be transmission service for wholesale and additional access charge to reach the
reallocated to the new load-serving bundled retail customers should be RTO in which the load is located. This
entities. permitted. Allowing different rates for additional access charge may cause the
174. We propose to permit the use of wholesale and bundled retail customers sale to become uneconomic.110
license plate rates such as those that are could lead to undue discrimination if 182. In addition, decisions on which
currently in effect within ISOs. We seek the rate setting policies of the state and RTO/ISO to join may be affected by
comment, however, on whether we the Commission differ significantly. The inter-regional pricing. Choices driven by
should retain license plate ratemaking Commission seeks comment on whether the economics of transmission owner’s
only for a transitional period and at all customers should be charged the merchant function’s trading patterns,
some later date, require that all regions same transmission rate either upon rather than by the most rational and
have postage stamp rates. Should the implementation of Standard Market efficient aggregation of transmission
Commission upon the recommendation Design or after a reasonable transition assets for a particular region, could
of a Regional State Advisory Committee period of four years. result in oddly configured RTOs.
183. Rate pancaking across the
accept an embedded cost recovery 3. Inter-Regional Transfers numerous transmission owning utilities
mechanism for the region which may
179. Under current rate designs, a that comprise the RTO has been
vary from neighboring regions?
user that transmits power from one eliminated by the implementation of
175. To better illustrate the pricing region to another would pay two license plate rates, while continuing to
proposals we have included Appendix F transmission charges to recover the provide an opportunity for the
which identifies by customer types embedded costs of the transmission transmission owners to recover their full
whether and under what circumstances provider from which power was revenue requirements. We propose that
they will pay the access charge and/or exported as well as the embedded costs the same or a similar rate structure
receive Congestion Revenue Rights of the transmission provider where should be applied to inter-regional
under Network Access Service. power is delivered to load. As long as transfers. In a competitive market
2. Rates for Bundled Retail Customers transmission owners have an environment, reliability and the
opportunity to recover their embedded supplier’s cost of generation, rather than
176. When a vertically integrated costs, to increase competition, we sunk transmission costs, should be the
utility joins a regional organization such propose to prevent customers from primary drivers for a customer’s choice
as an ISO or RTO, the Commission has being assessed multiple transmission of power suppliers. To the extent rate
required that the utility execute a charges. design facilitates that result,
service agreement under the regional 180. We have concluded that rate transmission owners would have a
transmission provider’s transmission treatment for inter- and intra-regional greater incentive to join an RTO based
tariff. For instance, the Commission transactions should be consistent to on where their transmission facilities
required the vertically integrated avoid creating artificial incentives or most benefit customers and markets, not
utilities in GridSouth to execute a disincentives for trade across regions. on where their generators have better
service agreement under the GridSouth Thus, the design of rates for Network opportunities to make off-system sales
transmission tariff, thus ensuring that Access Service should eliminate the
these utilities would take service for payment of multiple access charges, 109 However, the transaction would still be
their bundled retail load under the same such that only one access charge is paid responsible for applicable congestion charges and
transmission losses in the originating and any
terms and conditions as all other users for power to reach load. Accordingly, an intermediate transmission systems.
of the grid. export and through-and-out transaction 101 E.g., a load and Generator 1 with a cost of $25
177. With respect to whether the originating in an Independent are located in RTO A, and a competing Generator
Transmission Provider’s system and 2 with a cost of $24 is located just across the border
GridSouth transmission charge should in RTO B. On its face (and absent congestion), it
be applied to the bundled retail load, terminating at a load in another appears that the load should choose Generator 2 in
the Commission permitted the utilities RTO B. However, because Generator 2 faces a $2
107 Carolina Power & Light Co., et al., 94 FERC
to pay the transmission portion of the transmission charge from RTO B, it is unable to
¶61,273 at 61,999, order on reh’g, 95 FERC ¶61,282 compete with Generator 1 even though it is a more
bundled retail rate, but required that the (2001). efficient unit simply because of the additional
service agreement explicitly state the 108 95 FERC ¶61,282 at 61,991. access charge.
(i.e., an access charge for exporting Independent Transmission Provider. Revenue Rights or the revenues from the
power from one region to a neighboring This method would require a projection auction of those rights. We propose a
region should not be the deciding of inter-regional transfers and a rate similar result for inter-regional
factor). filing to accomplish the re-allocation of transactions when customers in one
184. However, absent other costs between Independent region are paying a portion of the
adjustment mechanisms, if customers Transmission Providers. It would also embedded costs of another region. We
going through and out of an RTO are no require a decision as to how narrowly to seek comment on how to assign
longer charged access fees by that RTO focus the cost allocation (e.g., RTO to Congestion Revenue Rights to the
for transmission service, these costs RTO, export zone to import zone). customers of the importing region. For
would instead be borne by the load 187. Alternatively, under a revenue example, if Midwest ISO is a net
served by the RTO through the existing crediting approach, inter-regional exporter to PJM, customers on PJM’s
load ratio share methodology.111 Under transfers could be priced at the load system will be obligated to pay a portion
the commonly used license plate rate ratio share charge (or a similar of Midwest ISO’s embedded costs. PJM’s
design, load within a particular RTO transmission charge)112 and the inter- customers could receive a proportionate
zone would pay that transmission regional transaction charges would be share of Midwest ISO’s Congestion
owner’s full embedded costs, including netted out over some time period (e.g., Revenue Rights.
the portion that is currently contributed one month or one year). This method
by through-and-out customers. This may would assign the inter-regional charges 4. Application of Inter-Regional Pricing
create problematic cost shifts for certain to all customers within the sink to Parallel Path Flows
transmission providers that currently Independent Transmission Provider. 190. To the extent the Commission
receive a significant amount of revenue The cost of transmission on a adopts a true-up methodology for
from exports and wheel-throughs (e.g., neighboring Independent Transmission recovering the costs of through-and-out
AEP and Cinergy). While simply Provider associated with net imported services, should a similar pricing
eliminating the transmission charge for power could be charged to all of the net methodology be applied to parallel path
through-and-out service may avoid the importing Independent Transmission flows? Parallel path flows are
skewing of purchase and sale decisions Provider’s customers through the comparable in that one region benefits
by inter-regional transaction charges, it Independent Transmission Provider’s by the use of a neighboring region’s
will result in cost-shifting and may stifle scheduling charge. The revenues would transmission facilities. Parallel path
new transmission investment since state be returned to all transmission flows are currently resolved through
regulators will not generally favor customers within the net exporting cooperation. An alternative method
having their customers pay for facilities Independent Transmission Provider. would be to price all uses of the grid.
that may primarily benefit other states. 188. We seek comment on whether We seek comment as to how cost
185. Therefore, we propose to create there should be a uniform cost impacts of parallel path flows across
a mechanism that recognizes the allocation of inter-regional costs among regional borders should be addressed.
import/export quantities in establishing all zones within an Independent 5. Pricing of New Transmission
the revenue requirement to be recovered Transmission Provider’s system. For Capacity
through the access charge. We seek instance, there will likely be opposition
comment on two approaches that could to a region-wide charge by customers 191. The existing transmission grid
be used. who do not import power. To address has fallen far behind the demands that
186. One method would be to have this concern, the inter-regional transfers have been placed on it. Over the last ten
the ‘‘source’’ Independent Transmission could instead be netted out between years, we have seen a strong increase in
Provider allocate a portion of its zones within neighboring Independent the amount of new generation, which
revenue requirement to the ‘‘sink’’ Transmission Providers. This way the has been built largely in locations that
Independent Transmission Provider’s costs would be assigned to all customers make the most economic sense for the
transmission customers. An within the import zone and the builder of the generation (i.e., where
Independent Transmission Provider’s revenues would be returned to the land is affordable and economic sources
revenue requirement could be reduced export zone. These transmission costs of fuel, water and labor are near).
by the amount of revenues associated could be assigned to the zone where the However, we have yet to see a parallel
with through-and-out service and that power was imported as if the jump in construction of transmission
portion of the revenue requirement neighboring Independent Transmission infrastructure. The absence of needed
would then be included as uplift in the Provider’s facilities were part of that new transmission facilities has led to
scheduling charge paid by all customers zone. Likewise, the zone where exports more and more congestion, which
of the sink Independent Transmission leave an Independent Transmission hinders customers from seeking and
Provider in whose service area the Provider would receive the transmission depending on more distant and
power sinks. Under this approach, costs payments associated with the exports. It competitive supply choices.
would not be shifted from the is possible that the revenue sharing plan 192. The sluggishness of transmission
beneficiaries of the inter-regional used by ISOs with license plate rates to construction is largely because: (1)
transaction to the load on the source resolve intra-ISO, interzone transactions Siting transmission is a long and
side of the transaction. At the same could be broadened to encompass inter- contentious process; and (2) mismatches
time, embedded cost recovery would RTO transactions. between those who benefit from the new
not interfere with short-run efficiency, 189. As noted above, the proposed facilities and those who pay for them,
since embedded costs would not be rule advocates treating inter- and intra- particularly when the two affected sets
recovered in individual inter-regional regional transmission pricing the same. of customers are served by different
transactions, but would instead be As explained elsewhere, customers transmission providers, are often more
recovered through uplift from all within the region who pay the access than enough to make sure the new
customers in the zone of the sink charge will be entitled to Congestion facilities do not get built. The
Department of Energy’s 2002 National
111 This would also be true for a non-RTO 112 An explanation of how this charge may be Transmission Study points to state-by-
Independent Transmission Provider. calculated is contained in Appendix F. state siting approval, a lack of regional
institutions and a lack of clarity in 198. The Generator Interconnection the Regional State Advisory Committee,
regulatory pricing policy as several of proposed rule introduced the idea that the Commission would look favorably
the barriers to transmission participant funding may be an on a pricing proposal by the Regional
investment.113 acceptable pricing policy where an State Advisory Committee if it is
193. The Commission’s pricing policy independent entity determines: (1) The consistent with the FPA. Such a
for network upgrades, whether for cost of and responsibility for needed proposal might take the form of roll-in,
reliability or economic reasons, has upgrades; (2) congestion price signals to an assignment to beneficiaries, or some
traditionally favored ‘‘rolled in’’ pricing, which the customer responds (along combination of the two.
where all users pay an administratively with Congestion Revenue Rights); and 202. We seek comment whether these
determined share of new facilities. This (3) the assumptions underlying the pricing proposals are appropriate to
policy was based on the rationale that power flow analysis.114 meet our goal of expediting needed
the transmission grid is a single piece of 199. The Commission envisions that, infrastructure investment or whether
equipment such that system expansions under Standard Market Design, the another method would be more
are used by and benefit all users due to Independent Transmission Provider will effective.
the integrated nature of the grid. This perform all of these functions, which
method forms the basis of the pricing will allow the Commission to consider E. The New Congestion Management
proposal in the Generation the use of participant funding. However, System
Interconnection proposed rule. full compliance with Standard Market 203. Under Network Access Service,
194. If the expansion is for region- Design will take some time. We are all transmission customers may request
wide reliability, there is little eager to see new infrastructure in place transmission service. The Independent
disagreement as to who should pay for as soon as possible and believe that Transmission Provider must honor all
the necessary facilities—all ratepayers. participant funding will be a useful tool valid transmission requests where there
Likewise, interconnection facilities are to make that happen. Accordingly, we is sufficient capability, i.e., when there
non-controversial; there is general propose that, for proposed transmission is no transmission congestion. However,
agreement that these facilities should be facilities that are included in a regional when there is transmission congestion
directly assigned to the interconnecting planning process which is conducted by we propose to require that all
generator. an entity, whether an RTO, ISO, or other
195. What we see, however, is that Independent Transmission Providers
independent entity, that is independent, allocate scarce transmission capability
economic expansions that would we will consider participant funding for
remove congestion and allow customers using a price system. Specifically, we
that project. propose to require that all Independent
to reach more distant power supplies 200. In the absence of independence,
are the most difficult to get sited. This we would apply a default pricing policy Transmission Providers manage
is at least in part because state siting that would recognize the regional congestion using a system of LMP and
authorities have no interest in siting a benefits of transmission expansions. Congestion Revenue Rights. Under LMP,
line that benefits a particular generator Under this default policy, we propose to the price to transmit energy between
or a distant load in another state roll-in on a region-wide basis all high any receipt point and delivery point
because to do so would require the load voltage network upgrades of 138 kV and reflects the marginal cost (including the
on the constructing public utility’s above. Since lower voltage, sub-regional marginal opportunity cost) of such
system to pay for the new facilities. The transmission needs are less likely to transmission service, and the price of
state authorities, at a minimum, need benefit the whole region, the cost of energy at each location reflects the
assurance that the costs of that network facilities below 138 kV could marginal cost (as reflected in
expansion will be paid for by those who be more appropriately allocated to a participants’ bids) of producing energy
benefit from the expansion in order to sub-region (e.g., a single transmission and delivering it to that location.
have sufficient incentive to site the new owner or a ‘‘license plate’’ zone) where 1. Locational Marginal Pricing
facilities. the expansion facilities will be located.
196. Our goal is to remove any cost Consistent with our proposal for 204. LMP is the method that is
recovery impediments to transmission interregional transmission service currently used for managing congestion
expansion so that needed upgrades get pricing, costs would be allocated to the in the regional markets run by both PJM
built now. Traditional means of region that benefits from the expansion, and New York ISO. It is also proposed
expansion pricing may not be the most which may not be the same as the region to be adopted as the congestion
effective way of encouraging new in which the expansion facilities are management system for ISO-New
transmission infrastructure, in part located. This proposal recognizes that England in 2003 and for the California
perhaps because they do not take into high voltage expansions can have ISO in its proposed market redesign.115
account the wide regional benefits of benefits beyond the borders of the local Marginal pricing, a fundamental
higher voltage upgrades that can accrue transmitting utility and, therefore, concept in economics, is the basis for
beyond a single transmission owner’s assigns a portion of these costs to more LMP.116 Marginal pricing is the idea
system. distant beneficiaries.
197. We believe that a more precise 201. Further, as we explain in Section 115 See California ISO’s Comprehensive Market
matching of beneficiaries and cost IV.G.3, Regional Planning Process, we Design Proposal, Docket No. ER02–1656–000 (May
recovery responsibility would encourage the formation of Regional 1, 2002); see also California Independent System
encourage greater regional cooperation Operator Corp., 100 FERC ¶ 61,060 (2002).
State Advisory Committees, which, in 116 It is a widely accepted principle of economics
to get needed facilities sited and built. addition to facilitating the siting of that markets work efficiently when prices reflect
Our preference is to allow recovery of regional expansions, can enable states to marginal costs. See Alfred E. Kahn, The Economics
the costs of expansion through work together to identify beneficiaries of of Regulation: Principles and Institutions, The MIT
participant funding, i.e., those who Press, Cambridge, Massachusetts, reprinted 1988,
expansion projects and make pp. 63–70. The economic rationale for applying
benefit from a particular project (such as recommendations on pricing proposals. marginal cost pricing to an electricity network using
a generator building to export power or To the extent there is agreement within the concepts of LMP was presented in Schweppe,
load building to reduce congestion) pay F.C., et al., Spot Pricing of Electricity, 1988,
Norwell, MA, Kluwer Academic Publishers; and
for it. 114 The Commission is currently reviewing Hogan, William W., ‘‘Contract Networks for Electric
extensive comments on this topic in that Power Transmission,’’ Journal of Regulatory
113 See DOE National Transmission Grid Study. proceeding. Economics, 1992, vol. 4, pp. 211–242.
that the market price should be the cost price in the transmission system, the are trying to sell out of the region than
of bringing the last unit to market (the price bid by the last, or marginal, can be accommodated by the
one that balances supply and demand). generator that provides energy or load transmission capacity. The energy price
LMP in electricity recognizes that the that offers to reduce its demand.119 would be higher on the side where more
marginal price may differ at different When there is congestion, the cheapest expensive local generation must be used
locations and times. Differences result generators may be unable to reach all because of the transmission constraint.
from transmission congestion which their potential buyers. Consequently, As discussed further in Section IV.F.,
limits the transfer of electricity between when there is congestion there may be for purchasers of energy in the
the different locations.117 The marginal many different energy prices across the Independent Transmission Provider-run
price of energy at a particular location transmission system.120 Under LMP, the spot markets, the LMP at the node
and time—that is, the energy LMP—is Independent Transmission Provider will closest to them is their delivered power
the additional cost of procuring the last establish separate energy prices at each
unit of energy supply that buyers and cost (energy charge plus transmission
node on the transmission grid and
sellers at that location willingly agree on charge). The generators are then paid
separate prices to transmit energy
to meet the demand for energy. That is, the LMP at the nodes closest to them.
between any two nodes (receipt and
it is the price that ‘‘clears the market’’ delivery points) on the grid. These 207. For customers buying energy
for energy.118 prices reflect the cost of congestion. through bilateral contracts rather than in
205. LMP is a market-based method LMP relies on economic redispatch in spot markets, the transmission usage
for congestion management. Congestion managing congestion. Redispatching charge would reflect the marginal cost
is managed through energy prices and means decreasing the energy the of transmission between a receipt point
transmission usage charges (congestion Independent Transmission Provider and a delivery point.121 In the above
and loss charges) determined in a bid- obtains in front of the constraint (where example, the difference would be the
based market. When there is no the power is flowing from) and marginal cost of moving energy from the
congestion anywhere on the system increasing the energy the Independent import to the export side of the
(when there is enough transmission Transmission Provider obtains behind constraint which should equal the
capacity to get power from the cheapest the constraint (where the power is difference in the energy price on the
available generators to all potential flowing to). The cost of redispatch is the import and the export side of the
buyers) there will be only one energy basis for the congestion charges under constraint. In other words, the
LMP. If a customer is willing to pay the transmission usage charge for bilateral
117 Prices may also vary based on transmission
marginal cost of redispatch, which it transactions would be the difference
losses. For purposes of simplification this
discussion focuses on the differences due to energy signals through its bids, the between the LMP at the receipt point
prices alone. Independent Transmission Provider will
and the delivery point. When
118 Under LMP, all suppliers selling at a location schedule the transmission service.
receive the market clearing price, including those congestion exists, the difference in
206. For example, assume there is
who offer in their bids to sell for less. Similarly, all
congestion or a constraint on one energy prices to transmission users is a
buyers purchasing at the location pay the market price signal that reflects the marginal
clearing price, including those who offer in their transmission interface. Some low-cost
bids to purchase at a higher price. An alternative generators may not be able to deliver cost of economic dispatch of resources
policy would be to pay each seller its bid price (and energy to load on the other (import) side necessary to accommodate the
perhaps, to charge each buyer its bid price). We
of the constraint. So, they will need to transmission service. Those who place a
propose a single market clearing price for several
reasons. First, it encourages sellers to submit bids reduce their production because of the higher value on the transmission
that reflect their marginal costs (and thus, the constraint. To signal these generators to capacity and the value of the ultimate
sellers selected in the energy auction are more reduce their production, the energy delivered electricity, will be willing to
likely to be the sellers with the lowest actual costs). pay higher transmission usage charges.
Sellers without market power could not increase
price that these generators would
the market price by increasing their bids, so bidding receive would be lowered. To replace Also, because transmission usage
above their marginal costs would have no benefit the low-cost generation, more expensive charges for bilateral transactions are
to them. Bidding above marginal cost would merely generators on the other side of the based on the differences in spot market
create the risk that the seller would lose in the
auction when the market price was higher than the
constraint (export) must be dispatched. energy prices, the proposed congestion
seller’s marginal costs, and thus, the seller could To signal to these higher cost generators management system would not bias a
have earned a profit. Moreover, by paying all sellers that they should increase their customer’s choice between purchasing
the market clearing price, sellers with marginal production, the energy price they would
costs below the market clearing price would receive
energy through the spot market versus a
revenues to help recover their fixed costs. A policy
receive would increase. As a result the bilateral transaction.
of paying each seller its bid would encourage sellers energy price on each side of the
208. LMP uses a financial instrument
to bid above their marginal costs, since doing so transmission constraint would be
would be the only way for them to earn a profit. different. The energy price would be called a Congestion Revenue Right to
As a result, the sellers selected in the auction would
lower on the side where more suppliers provide customers with price certainty
not necessarily be the sellers with the lowest actual for transmission service.122 A
costs. Moreover, if the pay-as-bid policy were
applied only to sellers (and not to buyers), so that 119 The operation of the bid-based auction for Congestion Revenue Right is a financial
buyers were charged the average payment made to energy is described further in Section IV. tool that allows a customer to protect
sellers, buyers would face a price that was lower 120 Because the transmission grid is a network,
itself against the costs of congestion. A
than the highest accepted seller’s bid. This result reducing transmission service between one receipt
would encourage inefficient purchases and poor point—delivery point pair (e.g., from A to B) may
Congestion Revenue Right ensures that
demand response. For example, on a hot day when free up transmission capability for transmission the holder of that right will be protected
the highest accepted seller’s bid is $1000/MWh but service between a different receipt point—delivery
the average payment to sellers is $400/MWh, point pair (e.g., from C to D), albeit not necessarily
121 Transmission losses will also be recovered
charging buyers $400/MWh under pay-as-bid would on a MW-for-MW basis. For example, reducing
encourage less demand response than a market service from A to B by 2 MW may allow an through the transmission usage charge and included
clearing price policy of charging $1000/MWh. If the additional 1 MW of transmission service from C to in the energy prices under LMP.
pay-as-bid policy were applied to both sellers and D. If so, the price to transmit 1 MWh of energy from 122 As discussed above, we also propose that
buyers, then the revenue collected from buyers C to D must reflect at least what a customer denied Congestion Revenue Rights would provide a
would usually differ from the revenue paid to 2 MW of service from A to B would have been scheduling priority in certain circumstances.
sellers. willing to pay.
against congestion costs for the the cost of economic redispatch. concern that a bid-based system with
transmission service covered by that Currently, these types of transactions LMP, which requires individual
right in the day-ahead market.123 Once would not be scheduled because of the generators to bid independently against
the day-ahead market closes, all existence of congestion. Also, Network one another, ignores this cooperation or
customers pay for the service requested Access Service customers would have even would view such cooperation as
and, if they hold Congestion Revenue the ability to voluntarily resell their collusion in a market system. Some
Rights, are paid congestion costs Congestion Revenue Rights when others coordination agreements assure that
associated with those rights. Thus, the value them more highly. Because market low-cost transmission will be made
customer has bought and paid for a participants will see and be responsible available to implement the
quantity of transmission at a specified for the full effect of their decisions on coordination, and there is a concern that
price. congestion costs, each have an incentive LMP congestion pricing may be
209. Any changes a customer wants to to manage its own transactions in a way incompatible with these agreements.
make to the transmission service it has that is consistent with a least-cost 213. Northwest parties note that while
scheduled in the day-ahead market must dispatch consistent with reliable system annual costs in a thermal system are
be accomplished in the real-time market operations. minimized simply by minimizing the
at real-time prices, which may be 211. The proposed SMD Tariff lays costs in every individual hour the same
different from the day-ahead prices. A out the general framework and the basic does not hold true in a hydropower
customer wanting less transmission rules for LMP. It is based on the best system. A hydroelectric dam with stored
service than it requested and received in practices we have seen. We recognize water has a marginal running cost close
the day-ahead market would effectively that in certain regions there may need to zero, however, this does not mean
sell back to the market the amount of to be additional rules or changes to that it should be dispatched first every
unused service. Conversely, a customer accommodate specific regional hour. Rather, the value of hydropower
needing an additional amount of requirements. We also recognize that over time depends on when that stored
transmission service could buy the over time there likely will be a need to energy system can best be released to
additional amount of service in the real- update the tariff provisions to offer new minimize costs over a season, a year, or
time market. No congestion revenues are service options or to further refine the even a multi-year period. Thus, there is
paid to Congestion Revenue Rights market rules. The pro forma tariff is not a concern that in a hydropower system,
holders for transactions made in real- intended to be a static document, but a congestion management and energy
time market.124 rather one that will evolve over time spot market designed to minimize
210. The LMP system for congestion and meet the needs of the marketplace. hourly costs will not minimize costs
management is better suited to manage We seek comment on how best to over a longer period.
congestion in a competitive market than recognize this need for regional 214. Moreover, commenters have
the congestion management system variation and the need for continued noted that decisions about water use in
under the Order No. 888 pro forma tariff refinement in the rules. the Northwest are based on more than
(pro rata curtailment) because LMP 212. One concern that has been electric power cost minimization.
allocates scarce transmission capacity to expressed in the Standard Market Decisions about use of hydropower
those who value it most and it relies on Design conferences and in comments on facilities involve coordinated trade-offs
an incentive system (i.e., it assigns the Working Paper is that while LMP among power needs, the needs of fish
congestion costs to the transactions that may work well with systems that are and wildlife, irrigation, flood control,
cause the congestion) that encourages dominated by thermal plants, it may not recreation and other factors, which may
market participants to buy and sell work in systems that primarily rely on be difficult to reflect in the bids of
power in a manner that is consistent hydroelectric resources. In particular, individual units. Some parties in the
with the reliable operation of the the Pacific Northwest is concerned that Northwest acknowledge that a bid-based
system. Under an LMP system, market an hourly bid-based system with LMP LMP system could be adapted to meet
participants have greater commercial may be in conflict with Northwest the objections above but are concerned
flexibility in arranging transactions. resource uses, practices and obligations, either that such a system may be
Market participants have the ability to which are dominated by hydroelectric imposed without adaptation or that the
signal whether they are willing to buy generation. Much of this is from ‘‘run- adaption will be done poorly. There is
their way through transmission of-river’’125 facilities that cannot store also concern that adaptation to a bid-
constraints. Under the current system water, and at which energy is lost if a based security-constrained system may
they do not have the ability to do that, generator does not run when water is reopen such issues as transmission
in part because transmission providers available. Because the decision to run is priorities and preference power
do not have a mechanism for recovering virtually automatic, many Northwest allocations that have been settled over
parties see no need for a bidding system. many years of negotiation based on
123 For example, a customer holding Congestion Also, many of the hydroelectric factors other than market efficiency.
Revenue Rights could be charged the congestion facilities of the Columbia River System Finally, Northwest parties worry about
costs (e.g., $10 MWh) and then receive a credit on must coordinate their operations; obtaining sufficient Congestion Revenue
the same bill for congestion revenues (e.g., $10
MWh). So, the net congestion costs paid by the
whether a downstream facility runs Rights to protect against congestion
customer is $0. The customer, however, would have depends on whether an upstream dam charges.
to pay for transmission losses. runs and releases water. Some of this 215. We believe that the proposed
124 For example, a customer schedules and
coordination is among facilities in the Standard Market Design would work
receives 100 MW of transmission service the day United States and Canada and is subject well in every region and for all types of
ahead at a congestion cost of $2/MW. The customer
pays the $2/MW of congestion charges to the to international treaties. There is a fuel sources; we believe that the
Congestion Revenue Rights holder (which could be concerns expressed by participants in
itself). The customer may later decide it only needs 125 Run-of-river facilities use the natural flow of the Pacific Northwest can be
90 MW. It could then sell in the real-time market the river to generate electricity. They typically accommodated within the LMP system
the unneeded 10 MW. If congestion in the real-time divert water from a nautral channel, run the water
market is $3, the seller would receive $3/MW (or through a turbine to produce energy and then return
we propose. First, use of the
$30) for the sale of the 10 MW of transmission the water to the natural channel downstream of the Independent Transmission Provider’s
service from the buyer of the transmission service. turbine. bid-based spot energy markets would be
optional. No one would be required to 218. Finally, our proposal here would the Independent Transmission Provider
bid into these markets (except when not abrogate existing pre-Order No. 888 operate both a day-ahead and a real-time
market power mitigation is imposed).126 transmission contracts, so customers energy market to manage congestion.
Hydropower generators could choose to holding these rights could continue 222. The Commission proposes to use
self-schedule without submitting a price their existing services under the existing real-time markets for energy to resolve
bid. As a result, the bilateral contractual contractual provisions. In addition, this energy imbalances. Under the proposal,
energy arrangements of the Northwest proposal would allocate Congestion the transmission customer would be
would be unaffected. Thus, for example, Revenue Rights or auction revenues to charged the real-time price of energy for
hydropower facilities along a common parties based on their recent historical any imbalance, i.e., the difference
waterway that wish to develop a usage of transmission. Thus, customers between the energy the transmission
coordinated schedule without receiving transmission service under the customer schedules a day ahead on the
submitting energy price bids would be Order No. 888 pro forma tariff, as well system and the amount that it takes off
free to do so. Also, hydropower facilities as entities previously serving bundled the system in real time. The real-time
that must consider non-price factors retail load outside the pro forma tariff, price of energy is determined through a
such as the needs for irrigation, flood would receive Congestion Revenue security-constrained, bid-based energy
control, and fish and wildlife in their Rights to protect against congestion market run by the Independent
scheduling decisions could do so charges. Transmission Provider. The
through the self-scheduling feature. 219. We agree that the operational Independent Transmission Provider
216. For hydropower generators that limits of both the resources and the uses the bids to select the lowest-cost
wish to participate in the Independent transmission systems need to be fully energy within the operational
Transmission Provider’s spot energy considered in the design of the specific limitations of the transmission system.
markets, the Standard Market Design market rules. For example, there is These same procedures will be used to
that we propose can accommodate the likely a need to calculate opportunity resolve imbalances for all users of the
special features of hydropower facilities. costs for hydroelectric resources transmission system.
Suppliers would be allowed to reflect differently from thermal plants. These 223. The Commission also proposes
their opportunity costs in their bids; differences can affect market mitigation that the Independent Transmission
bids need not be limited to marginal measures. However, we are concerned Provider operate a security-constrained,
running costs. Also, generators such as about whether different market designs financially binding day-ahead energy
hydropower facilities would have the can be in place in the Northwest and the market that is operated together with a
option (but not the requirement) of rest of the West, and ask for comment day-ahead scheduling process for
requesting the Independent on whether the entire West must have transmission service.127 The day-ahead
Transmission Provider to schedule the a common set of market rules to market for energy will allow the
generator’s designated MWhs over the eliminate seams and prevent Independent Transmission Provider to
highest priced hours of the day, to manipulation. manage congestion that arises in the
economically optimize hydropower 220. In the SMD Tariff we propose to day-ahead scheduling process.128
production over the day. LMP is a result include several different types of 224. The day-ahead energy market is
of a least-cost dispatch of the resources Congestion Revenue Rights to allow a bid-based market. Sellers submit bids
available to the transmission system in customers to protect against congestion that indicate the quantities of power
a manner that recognizes both the costs. For example, one concern that we they will offer for sale in each hour of
have heard from customers and the next day and the price for that
operational limits of those resources and
suppliers in the Northwest is that a power at each location (node).129 The
the operational limitations of the
receipt point-to-delivery point price for the power may vary based on
transmission system. As a result,
Congestion Revenue Right may not work the quantities that are offered for sale.
customers’ loads can be met at the
to effectively manage congestion on a The differences in bid prices recognize
lowest total cost (as reflected in the
system that utilizes several different that a generator’s marginal cost of
submitted bids) consistent with the
hydroelectric facilities on a contingent producing power can vary at different
reliable operation of the system, which
basis to serve the same delivery points.
should be the objective on any system quantity levels because it operates more
A Congestion Revenue Right that
regardless of the resource base of the efficiently at certain output levels than
recognized the contingent nature of the
transmission system. others. Also, at the highest output
supply sources would be more valuable
217. In short, we see no reason why levels, there may be additional
to customers in this instance. We
the proposed Standard Market Design opportunity costs because of an
believe that developing these types of
would prevent hydropower generators increased risk of a unit outage. Buyers
Congestion Revenue Rights is possible
from operating in a way that also submit bids indicating the
and we propose to work with the
accommodates their special features. quantities they desire to purchase in
regions to develop variations to meet
Indeed, we believe that the LMP system each hour of the day. Buyers may also
regional needs. The congestion
would aid hydropower generators in
management system that we propose is
optimizing the economic value of their 127 The operation of both a financially binding
flexible enough to accommodate these day-ahead market in conjunction with a financially
resources within their legitimate
types of regional variations. Such binding real-time market is also known as a multi-
operational constraints, because the settlement system.
variation and flexibility should not
prices for energy and transmission 128 Such markets are currently operated by the
impinge on the development of a
would signal the economic costs of New York ISO and PJM. California ISO and ISO-
seamless electric grid. New England are planning on adding this feature
providing energy and transmission
to their market design.
service at different locations and time 2. LMP and Energy Markets 129 The bids usually take the form of a bid curve
periods. 221. To implement LMP, the that shows the bid price and quantity between the
Independent Transmission Provider unit’s minimum output and its maximum output.
126 The market power mitigation measures would Usually the prices are relatively flat over the normal
be developed on a regional basis and would take
must operate an energy market to operating range of the unit. As quantities approach
into account the special characteristics of determine the marginal cost of the maximum output the prices usually increase
hydropower. redispatch. We propose to require that very rapidly.
indicate the maximum price they are management system and the day-ahead market clearing price for energy will
willing to pay for those quantities. scheduling process for transmission apply throughout the system.
225. Under the Commission’s service. The Independent Transmission 230. The day-ahead market would be
proposal, buyers are not required to Provider will determine market clearing financially binding. This means that a
procure energy through the day-ahead prices for each hour in the day-ahead seller that is selected in the day-ahead
energy market. A load-serving entity energy market based on the sale and market is obligated to actually provide
may procure all of its power through purchase bids that are submitted. The the power in real time or in real time it
bilateral transactions, in the market clearing price is the bid of the will be charged the cost of procuring the
transmission provider’s spot markets, or last unit of supply needed to satisfy the shortfall through the real-time
by generating its own power.130 demand, i.e., the highest bid that is market.132 The day-ahead market is also
However, a load-serving entity may use accepted. The market clearing price at a financially binding on buyers.133 This
the day-ahead market if it needs to location is paid to all suppliers at that reduces certain opportunities for
acquire additional power or the price of location that are selected in the auction strategic bidding and thus, market
power through the day-ahead energy and is paid by all buyers at that location manipulation.
market is lower than the price of power that purchase through the auction. 231. Years of experience with
under an existing bilateral contract or organized markets makes it clear that a
228. We believe there are important day-ahead market is a best practice that
the cost of generating its own power. A
differences between Standard Market must be included in the Standard
generator may also buy power through
Design and the market design that was Market Design. The development of a
the day-ahead market. It would do this
in effect in the California ISO when it day-ahead schedule for energy and
if it could buy the power more cheaply
experienced problems in the energy transmission service, including certain
than generating to satisfy a bilateral
contract obligation or if a forced outage markets in 2000 and 2001. First, ancillary services, provides reliability
requires it to procure power to satisfy a Standard Market Design is premised on benefits. It allows the Independent
contract obligation. the use of bilateral contracts. While Transmission Provider to have advance
226. The Commission proposes to LSEs may purchase energy in the spot warning to ensure that sufficient units
require Independent Transmission markets, these purchases should are committed to serve the projected
Providers to allow buyers and sellers to constitute a small percentage of their load. For example, if the Independent
submit purely financial bids, a feature actual purchases. In contrast, the Transmission Provider believes that
that currently exists in the day-ahead California market design required the load has not scheduled sufficient
markets run by PJM and New York ISO. LSEs to purchase the bulk of their transmission service or energy
These financial bids to buy or sell energy needs through the spot markets. purchases in the day-ahead markets, it
power are not backed by actual Second, Standard Market Design can commit additional units to be
generation resources nor are they includes a forward-looking long-term available in real time. Because of their
backed by actual load. Rather, these resource adequacy requirement to avoid operating characteristics, different types
transactions are used to bring the prices the types of supply shortages that of generation units have differing levels
in the day-ahead market and in the real- adversely affected California. Third, as of start-up costs as well as different lead
time market closer together. For discussed in more detail in Appendix E, times to be available in real time. The
example, suppose that the day-ahead Standard Market Design includes day-ahead market gives the Independent
price is consistently lower than the trading rules, a congestion management Transmission Provider information on
corresponding real-time price. Entities system, market power mitigation unit availability, costs and system needs
may therefore want to submit financial measures, and market power monitoring well before real time so the Independent
bids to buy energy in the day-ahead to address the manipulation strategies Transmission Provider has more options
encountered in the California markets. available to ensure reliability and
market at the lower price, and submit a
reduce costs in the real-time market.
corresponding bid to sell in the real- 229. In determining market clearing 232. Finally, the day-ahead market
time market at the higher price, thereby prices, the Independent Transmission provides an important platform for
making a net profit on the two Provider factors in the operational market power mitigation. We propose
transactions. The additional buyer bids limitations of the transmission capacity, several mitigation measures to ensure
in the day-ahead market would tend to such as congestion and reactive power that there is a well-functioning spot
increase day-ahead prices, while the needs, to ensure that the units that set market for wholesale power. These spot
additional supply bids in the real-time the market clearing prices are consistent
market would tend to reduce the real- with the transmission system operations 132 For example, assume in the day-ahead market
time prices. The result is that the price (i.e., a security-constrained dispatch).131 a generator agreed to sell 50 MW for the hour
differences in the two markets would Because LMP is used as the congestion running from 9 a.m. to 10 a.m. at a price of $30
shrink, as would the profits of sale. This Mwh. In the day-ahead market the generator would
management system, the market clearing receive $1,500 ($30 times 50) for that sale. In real
process benefits the market. It helps prices are the prices for energy time, the generator only delivered 20 MW during
market participants make better delivered to each location or node on that hour. The real-time price of energy in that hour
decisions in advance—in the day-ahead the system. If there is no congestion on was $40 MWh. The generator would be charged
time frame—that will affect how much $1200 for its 30 MW shortfall in real time (30 times
the transmission system, the same 40). Thus, the generator would receive a total net
electricity they will sell or buy, because payment of $300.
the day-ahead price becomes a more 131 It is important that the schedule developed 133 For example, assume that a load-serving entity
accurate gauge of what the real-time through the day-ahead market be physically buys 40 MW in the day-ahead market for the hour
price will be. feasible, i.e., consistent with reliable transmission 10 a.m. to 11 a.m. at a price of $30 Mwh. In the
227. The day-ahead energy market is limitations. If it were not, then it would be day-ahead market the load-serving entity would pay
necessary to make separate congestion payments to $1200 (40 times 30) for that purchase. In real time
operated together with the congestion suppliers in real time to change their output so that the load-serving entity only took 35 MW in that
the real-time schedule was consistent with reliable hour. The real-time price of energy for that hour
130 These transactions must still be scheduled transmission limitations. This would provide an was $25. The load-serving entity would effectively
through the day-ahead market and are subject to incentive for suppliers to create congestion in the sell back the excess power (5 MW) at the real-time
congestion costs if they do not have Congestion day-ahead market so that they could receive price ($25), $125. Thus, the load-serving entity
Revenue Rights. payments in real time to relieve congestion. would pay a net total of $1075.
markets will result in price 3. Congestion Revenue Rights not have the Congestion Revenue Rights
transparency, so buyers and sellers can 235. Under LMP, transmission usage protection against congestion costs.
see that market clearing prices are set in 240. We propose that Congestion
prices will vary based on the price of
a fair and predictable manner. While the Revenue Rights be made available first
relieving transmission congestion and
real-time market will be a transparent in the form of receipt point-to-delivery
losses. Rather than using a system of
market, real-time prices may not be point obligation rights, which we
physical reservations, a system of
known until after the fact or at most five propose to mandate now, and later in
financial rights called Congestion
to ten minutes before real time. This the form of receipt point-to-delivery
Revenue Rights will be used to give
gives buyers and sellers little chance to point option rights and flowgate rights.
customers the ability to protect Currently, in PJM and New York ISO
react to prices. In contrast, a day-ahead themselves against congestion costs. only receipt point-to-delivery point
market provides a transparent spot 236. The initial allocation process for obligations are offered. However, there
market that allows buyers and sellers to Congestion Revenue Rights will be done has been considerable interest expressed
engage in additional commercial through compliance filings that allow by market participants in other types of
transactions before real time. Thus, a for different treatment within each Congestion Revenue Rights. For
day-ahead market helps liquidity and is region. Since this must occur before example, the Midwest ISO is
likely to be less volatile than the real- Standard Market Design is considering offering a package of
time market. implemented, we have not addressed Congestion Revenue Rights that are
233. The Independent Transmission initial allocation in the SMD Tariff, but similar to what we are proposing. Also,
it is discussed in Section IV.E.3.e below. PJM is considering offering receipt
Provider will also establish hourly
This section describes allocation point-to-delivery point options. Offering
prices for certain ancillary services,
processes that would be used after the several different types of Congestion
which may differ by location to the
initial allocation has been done. Revenue Rights would make the system
extent that ancillary service
requirements differ by location. Since a. General Features more flexible and better able to adapt to
the same supply resources can often be the needs of specific customers. Also,
237. We propose to require that certain types of Congestion Revenue
used to provide either energy or Independent Transmission Providers
ancillary services, energy and ancillary Rights may be more valued in different
offer Congestion Revenue Rights of regions of the country based on the
services should have compatible market several types (one that we will mandate physical configuration of the
designs. Otherwise, there would be an now and others that should be offered transmission system and the types of
incentive to sell one type of product upon customer request when resources connected to that system.
over another. Since both are needed, a technically feasible) that allow Various technical papers over the last
compatible system allows the supplier transmission customers to obtain few years have examined offering these
to sell energy or ancillary services, protection against uncertain future alternate rights simultaneously and
whichever is the most efficient use of congestion charges. We have added a concluded that it is feasible under the
the supply resources. This yields the new section to the SMD Tariff that conditions now specified in the SMD
lowest total costs to customers. describes the types of Congestion Tariff.134 Therefore, we believe the tariff
234. As explained further below, the Revenue Rights that would be available, should provide this flexibility.
Independent Transmission Provider will how one acquires Congestion Revenue
Rights after the initial allocation and b. Types of Congestion Revenue Rights
need to manage congestion in two time
frames: (1) During the day-ahead how Congestion Revenue Rights provide 241. The SMD Tariff describes the
scheduling process, and (2) during real- protection against congestion costs (Part characteristics of each of the types of
II.D., Congestion Revenue Rights). The Congestion Revenue Rights. These
time operations. The Independent
proposed provisions are discussed descriptions are summarized below.
Transmission Provider will conduct
below.
separate auctions to manage congestion (1) Receipt Point-to-Delivery Point
238. The Independent Transmission
in each time frame. In the day-ahead Rights.
Provider would be required to offer
auction, for each hour of the following Congestion Revenue Rights for all of the 242. A receipt point-to-delivery point
day the Independent Transmission transmission transfer capability on the right is a right that is specified by a
Provider will take bids to buy and sell grid, but it would not be allowed to sell receipt point (which can be a generator
energy, to provide certain ancillary more rights than can be accommodated. node, an aggregation of generator nodes,
services, and to purchase transmission Congestion Revenue Rights would be an interface, a trading hub, or any other
service between identified receipt and available over a variety of terms, such as collection of nodes) and a delivery point
delivery points. The Independent weekly, monthly, yearly and perhaps for (which can be a delivery node, an
Transmission Provider will consider the longer terms. If an entity pays to aggregation of delivery nodes, an
bids for energy, transmission service construct new generation or interface, or a trading hub), and the
and ancillary services simultaneously. transmission facilities that add transfer power in MW that is transmitted from
Based on those bids, the Independent capability, and the costs of the upgrade the receipt point to the delivery point
Transmission Provider will develop a are not rolled in, the entity would for a period of time (e.g., one hour).
schedule that maximizes the economic receive the Congestion Revenue Rights
value (as reflected in the bids) of the associated with the new transfer 134 See, e.g., Hogan, William W., Financial
transactions over the entire day-ahead capability. In the past the Commission Transmission Rights Formulations, Center of
period, in light of the amount of Business and Government, John F. Kennedy School
has allowed credits for upgrades; is of Government, Harvard University, Cambridge, MA
Available Transfer Capability and any there still a role for credits under (March 31, 2002); Chao, Hung-Po, Peck, Stephen,
resulting transmission congestion and Standard Market Design? Oren, Shmuel, and Wilson, Robert, Flow-based
losses. The Independent Transmission 239. Customers that have not acquired Transmission Rights and Congestion Management,
The Electricity Journal, pp. 8, 13 and 38–58 (2000);
Provider will also establish prices for Congestion Revenue Rights in advance and Chao, Hung-Po and Peck, Stephen, A Market
transmission service, energy and could schedule transmission service in Mechanism for Electric Power Transmission,
ancillary services that clear the markets. the day-ahead market, but they would Journal of Regulatory Economics (July 1996).
243. A receipt point-to-delivery point service regardless of the congestion Congestion Revenue Rights holder
right entitles the holder to the day- charge. In that case, the customer would would not be required to pay the
ahead congestion revenues associated be charged for congestion (as well as for negative congestion revenues to the
with transmission service from the losses). But a self-scheduled customer Independent Transmission Provider.
receipt point to the delivery point.135 In holding a receipt point-to-delivery point Existing firm point-to-point
addition, during any period when the right for at least the same amount of transmission contracts under the Order
demand for transmission service cannot power between the same receipt and No. 888 pro forma tariff do not require
be met with Available Transfer delivery points would receive contract holders to transmit energy and,
Capability (i.e., because there are too congestion revenues that fully offset the thus, are similar to Congestion Revenue
many customers who have indicated congestion charge. Rights that are options.
that they want transmission service at
(2) Obligations and Options. (3) Flowgate Rights.
any price), holders of receipt point-to-
delivery point rights would receive 245. Receipt point-to-delivery point
rights can take the form of obligations or 246. A flowgate is a particular
priority over other market participants
options. The difference between transmission facility or group of
in scheduling transmission service
between the receipt point and delivery obligations and options becomes facilities (e.g., an interface). A flowgate
points designated in their rights. important when congestion occurs in right specifies a portion of the
244. A receipt point-to-delivery point the opposite direction from the right, transmission capacity over that flowgate
right would provide the holder with the that is, when there is congestion from in a specified direction. A flowgate right
right to schedule transmission service of the delivery point to the receipt point. entitles the holder to the day-ahead
the specified amount of power (MW) in In this case, congestion revenues in the congestion revenues associated with the
the day-ahead market from the receipt direction of the right are negative. specified power flows over the flowgate
point to the delivery point without Under a receipt point-to-delivery point in the specified direction.
paying any net charges for congestion obligation, the Congestion Revenue 246a. Consider, for example, a very
(although the holder would need to pay Rights holder in that case would be simplified transmission network that
a charge for losses). The reason is that required to pay the negative congestion connects two points, A and B, with two
every customer would be entitled to revenues to the Independent different but interconnected
inform the Independent Transmission Transmission Provider. Under a receipt transmission lines, a northern line and
Provider to schedule its transmission point-to-delivery point option, the a southern line, as shown below:
Each transmission line could be a 246b. Unlike a receipt point-to- than the receipt-point-to-delivery point
separate transmission or flowgate, and delivery point obligation, a flowgate right (which is typically only
separate flowgate rights could be issued right would never require the holder to reconfigured on a monthly basis and
for each line. The holder of a flowgate make congestion payments. The which can be traded on the secondary
right on the northern line from west to congestion revenue associated with a market most easily if another customer
east would be entitled to the congestion flowgate in a specified direction would requires the same points as specified in
revenues associated with that line in the equal the additional net economic value the right). The major market advantage
west-to-east direction. However, holding to market participants that would result of the flowgate right is that since there
a flowgate right on the northern line by incrementally increasing the are fewer congested flowgates than
would not entitle the holder to flowgate’s capacity in the specified
possible under receipt-point-to-delivery-
congestion revenues associated with the direction. That additional net economic
point rights, transmission customers can
southern line. Hence, if transmission value may be either positive (i.e., when
service results in energy flows over the flowgate is congested) or zero (i.e., focus their rights on the key congested
several flowgates, the buyer must obtain when the flowgate is not congested), but flowgates. This allows for coverage of
sufficient rights on each flowgate to it would never be negative. much of the congestion charges (in some
obtain protection from congestion 247. Receipt-point-to-delivery-point estimates, between 80 percent to 90
charges. By contrast, the holder of a rights offer the transmission customer percent). However, the flowgate rights
receipt point-to-delivery point right with long-term energy contracts the best may not provide a complete protection
from west-to-east (i.e., from A to B) way to protect itself against hourly against congestion charges for a receipt
would be entitled to congestion congestion costs. However, many point-to-delivery point energy
revenues in the west-to-east direction transmission customers may be meeting transaction, since the congestion
regardless of whether the northern or their loads’ needs with a portfolio of revenues may differ from the congestion
the southern lines were congested and generators scattered around a regional charges.
thus would have a complete hedge for electricity market. Such customers may
this transaction. be seeking a more flexible type of right
135 The right is direction-specific. The holder is

delivery point, not from the delivery point to the
EP29AU02.040</GPH>
receipt point.
entitled to congestion revenues from the receipt to
c. Requirement for Offering Rights Capability under normal operating and if alternative mechanisms should be
248. At the start of Network Access conditions. As a result, during normal used to distribute the revenue surpluses.
Service, the Independent Transmission operating conditions, the Independent e. Auctions and Resales of Congestion
Provider would be required to offer Transmission Provider would collect Revenue Rights
receipt point-to-delivery point enough congestion charge revenue from
users of transmission service in the day- 252. We believe it is important that
obligations. These rights are the easiest there be an active secondary market for
to implement because they are already ahead market to fully pay the day-ahead
congestion revenues owed to holders of Congestion Revenue Rights. This will
in wide use. While we want the market allow a market mechanism for
to develop additional choices for Congestion Revenue Rights. Indeed, the
Independent Transmission Provider customers that have Congestion
customers, we are concerned about Revenue Rights to acquire new ones or
requiring implementation of numerous might collect a surplus of revenue in
to sell Congestion Revenue Rights they
types of rights, including types of some hours during normal operating
no longer need. Additionally, this
Congestion Revenue Rights that have conditions. However, when a significant
provides a way for market participants
not yet been tested by an ISO or RTO, amount of transmission facilities are out that do not have Congestion Revenue
when Standard Market Design is first of service, so that less transmission Rights to acquire them. Market
implemented. Because there is no service can be provided, the participants would be allowed to resell
experience with the other types of Independent Transmission Provider any Congestion Revenue Rights that
rights, we propose not to require the may collect less congestion charge they have been awarded for the full term
Independent Transmission Provider to revenue from transmission users than of the rights or for a part of the term.
offer them initially. However, upon the the amounts owed to Congestion Resales could be transacted bilaterally
request of market participants, the Revenue Rights holders. between willing buyers and sellers. In
Independent Transmission Provider 251. There are two ways to handle addition, we propose to require that the
would be required to offer receipt point- this revenue shortfall. First, the amount Independent Transmission Provider
to-delivery point options and flowgate of congestion revenues paid to the conduct periodic auctions of Congestion
rights as soon as technically feasible. holders of Congestion Revenue Rights Revenue Rights. The Independent
249. Additionally, Congestion Transmission Provider’s auction would
may have to be reduced. As a result, the
Revenue Rights could be offered for allow holders of rights to resell their
customer may only be able to protect
various terms, e.g., one month or five Congestion Revenue Rights in an
against a portion (e.g., 95 percent) of its
years. Some customers may desire organized market. This would provide
congestion costs in the day-ahead
Congestion Revenue Rights with multi- greater price transparency for these
market. Alternatively, the customer that
year terms to correspond to the terms of rights than if all sales were conducted
long-term power contracts, including has a Congestion Revenue Right could
receive full protection against through bilateral transactions.
contracts used to satisfy the resource Moreover, the auctions would provide
adequacy requirement discussed in congestion costs and the revenue
the ability to reconfigure Congestion
Section J. At the same time, it may be shortfall would be assigned to the
Revenue Rights into different receipt
difficult for the market to value long- transmission owner. We propose to use
and delivery points, or into different
term Congestion Revenue Rights until a the latter approach. When such revenue
types of rights (e.g., receipt point-to-
region has actual operating experience deficits arise, we propose that such delivery point options, obligations, or
under an LMP congestion management deficits be made up by transmission flowgate rights). This would allow
system. This could create problems in owners whose transmission facilities are Congestion Revenue Rights holders to
an area that auctions all Congestion out of service. We would, however, change their Congestion Revenue Rights
Revenue Rights and allocates the include an exception for outages due to if for example they decided to switch
auction revenue rights to load. We seek force majeure events, since our intent is suppliers. The auctions would also
comment on whether the Commission to reward transmission owners for allow Congestion Revenue Rights
should require the Independent proactively maintaining their associated with other transmission
Transmission Provider to offer multi- transmission facilities.138,137 Assigning capacity that becomes available (such as
year Congestion Revenue Rights when revenue deficits in this way would through the expiration of previously
Standard Market Design is first encourage transmission owners to take issued Congestion Revenue Rights) to be
implemented. Additionally, we seek steps to minimize forced transmission sold.
comment on whether the Independent outages and to schedule maintenance 253. In the auctions, buyers and
Transmission Provider should be outages so as to minimize their effect on sellers would submit bids that specify
required to offer Congestion Revenue congestion costs. Assigning congestion the type of Congestion Revenue Rights
Rights with terms tied to the planning revenue surpluses to transmission desired to be bought or sold, the
horizon used in the region to satisfy the owners may also encourage them to location, term and price. The
resource adequacy requirement. minimize outages. However, such a Independent Transmission Provider
policy may also create an interest on the would select the combination of bids
d. Funding for the Congestion Revenue that maximizes the economic value of
Rights part of transmission owners in
maintaining congestion, and thus may the transactions for the participants. In
250. As explained above, holders of discourage them from building needed so doing, the Independent Transmission
Congestion Revenue Rights would be transmission expansions. We propose Provider must reconfigure the
entitled to receive congestion revenues that any revenue surpluses be paid to Congestion Revenue Rights offered for
associated with transmission congestion transmission owners, but we seek sale in a way that maintains the
in each hour of the day-ahead market. comment on the potential of this policy simultaneous feasibility of the
The aggregate amount of Congestion to discourage transmission expansions Congestion Revenue Rights. That is, the
Revenue Rights issued by the types and/or locations of the Congestion
Independent Transmission Provider 136,137 As a result, in the event of force majeure Revenue Rights offered for sale may
would be the amount simultaneously the Congestion Revenue Rights would not be fully differ from those that are purchased.
feasible based on Available Transfer funded. The Independent Transmission Provider
would establish market-clearing prices used for congestion management and marginal losses) at which the customer
for each Congestion Revenue Right operation of the spot markets.138 desires service; 139 (2) customers would
bought or sold. Each seller would be allowed to specify the maximum
1. Design of the Day-Ahead Markets
receive the market-clearing price for the congestion charge component of the
rights that it sold, and each buyer would 257. We propose that the Independent transmission usage charge at which they
pay the market-clearing price for the Transmission Provider operate day- desire transmission service, or above
rights that it purchased. ahead and real-time markets for energy which they are unwilling to pay any
and certain ancillary services in congestion costs; or (3) customers
f. Including Energy and Ancillary conjunction with its scheduling of (whether or not they hold Congestion
Services in the Congestion Revenue transmission service day ahead and in Revenue Rights) could submit a bid that
Rights Auctions real time. These markets would allocate states a desire for transmission service
254. The time period covered by the transmission and generation capacity to be scheduled regardless of the
Congestion Revenue Rights sold in among competing uses in different transmission usage charge. This option
auctions would be a month or longer. markets through LMP pricing. For may be useful for a holder of a
We propose that an Independent example, the markets would determine Congestion Revenue Right that desires
Transmission Provider would be how much transmission capacity would to schedule transmission service that
permitted, but not required, to conduct be allocated for transmission service to uses the receipt point-to-delivery point
pre-day-ahead auctions for energy and market participants completing bilateral combination covered by that Congestion
ancillary services. Under such auctions, energy transactions, for use by the Revenue Right.
market participants could offer to buy Independent Transmission Provider in 259. Another way that transmission
and sell energy and ancillary services at completing energy sales and purchases customers will be able to respond to
specific locations on a forward basis for through its bid-based energy markets, price signals is by submitting multi-
a specified time period, such as for a and for providing ancillary services. The hour block bids, requesting transmission
month or a year. Participation in these markets should be operated jointly to service for a block of consecutive hours
pre-day ahead markets, as in all ensure that transmission and generation and indicating the maximum price for
markets, would be on a voluntary basis. capacity is allocated where it is most the entire multi-hour period. For
Such purchases and sales of energy and valuable, and to ensure that the prices example, a multi-hour block bid might
ancillary service would require use of for the products and services are specify that the customer desires 10 MW
the transmission system, just as sales of internally consistent. of transmission service from receipt
Congestion Revenue Rights would. a. Scheduling Transmission Service point A to delivery point B in each hour
Thus, in conducting pre-day-ahead Day Ahead from 1 p.m. to 6 p.m. as long as the
auctions, the Independent Transmission price per MW for the entire 5-hour
(1) General Features. period does not exceed $10. Such a bid
Provider would allocate transmission
capacity among competing demands for 258. Each day the Independent would be accepted if the sum of the
Congestion Revenue Rights, forward Transmission Provider would accept hourly transmission usage prices for
energy and forward ancillary services so requests to schedule transmission each of the 5 hours did not exceed $10.
as to maximize the economic value of service to support bilateral energy Otherwise, the entire bid would be
the winning bids. The Independent transactions or customer-owned rejected. This option allows a customer,
Transmission Provider would establish generation for each hour of the for example an industrial customer in a
market-clearing prices for forward following day. A customer desiring state with retail access, to indicate that
energy and ancillary services at each transmission service would be required it is willing to reduce its transmission
location, as well as market-clearing to submit a scheduling request in a usage if the prices for a multi-hour
prices for Congestion Revenue Rights. standardized form specified by the period are above a specified level. This
255. A potential benefit of pre-day- Independent Transmission Provider. For feature has not been put in practice in
ahead auctions is that they could more each requested transmission service, the any of the bid-based markets operated
easily maximize the economic benefits scheduling request would indicate the by ISOs. We seek comments on its merit
of transmission capability by receipt point and the delivery point of and any implementation difficulties.
considering a greater array of competing the bilateral energy transaction or 260. The Independent Transmission
uses of the transmission grid. They customer-owned generation, the amount Provider would consider these
could also provide a convenient, central of power (MW) to be transmitted and transmission scheduling requests in
market forum for buyers and sellers to the time period. To facilitate the ability conjunction with bids submitted in its
arrange forward trades of energy and of demand to respond to price signals, day-ahead energy and ancillary service
ancillary services. They could provide transmission customers will be given markets. Based on all of these, the
transparency and liquidity (and thus several ways of indicating their Independent Transmission Provider
protection against manipulation) in willingness to change their would accept the set of energy bids and
long-term markets where liquidity has consumption based on congestion costs scheduling requests and develop a day-
recently been reduced. and marginal losses: (1) Customers ahead schedule that maximizes the
(whether or not they hold Congestion economic value for all market
F. Day-Ahead and Real-Time Market Revenue Rights) would be allowed to participants. The Independent
Services specify in their scheduling requests the Transmission Provider would also
256. This section sets forth the maximum transmission usage charge
(reflecting the costs of congestion and 139 For example, when transmission usage prices
bidding, scheduling, price
become sufficiently high, customers holding receipt
determination, and settlement 138 Part I of the SMD Tariff includes a definition point-to-delivery point Congestion Revenue Rights
provisions necessary to implement LMP of the terms related to market services. In addition, may prefer not to schedule transmission service
in the day-ahead and real-time markets as we use the term ‘‘supplier’’ or ‘‘seller’’ in this between their designated receipt and delivery
for energy, regulation and both Section, the definition we are using includes both points. Instead, the customers may prefer to receive
generators and demand-side resources that satisfy the applicable congestion revenues. Customers
operating reserves. In this section, we the Independent Transmission Provider’s could communicate these preferences through
lay out the basic elements that would be applicable requirements. price-bids.
establish transmission usage prices for different service areas, managing the agrees to pay the applicable market
each hour of the next day that are the congestion becomes more difficult clearing transmission usage charge.
same as the implicit transmission usage because more than one Independent Once submitted, the transaction would
price included in the set of locational Transmission Provider is involved. be financially binding unless the New
energy prices (i.e., the difference in the 265. There are at least two methods York ISO permits the customer to
price of energy at the receipt point and for arranging for transmission service withdraw the prescheduled transaction.
at the delivery point, which reflects across borders—physical reservations We seek comment on whether a similar
both congestion and losses). (i.e., continuing firm point-to-point prescheduling option should be
261. The Independent Transmission reservations of transfer capability), and included in Standard Market Design.
Provider would schedule all requests for scheduling of service consistent with
transmission service since these users internal transactions under Network b. Transmission Losses
have agreed to pay any applicable Access Service (scheduling of
congestion charges. The Independent transmission and financial bidding). We 267. When energy is transmitted from
Transmission Provider would also propose to treat transmission service a point of receipt to a point of delivery,
schedule all requested transactions across borders in the same way as some of the energy is lost due to
where the transmission usage charge internal transactions. Thus, like internal resistance on the wires. These
was below the amount the customer transactions, an importing or exporting transmission losses are a cost of
indicated it was willing to pay. customer could either schedule transmission and commonly are
262. Customers with Congestion transmission service and agree to pay recovered on an average cost basis from
Revenue Rights would receive the transmission usage charge regardless all transmission customers. As noted
congestion revenues that help offset any of the level or submit a bid that limits earlier, we are proposing that energy
congestion charges paid as part of the its congestion exposure. Under the first prices and the associated transmission
transmission usage charge. The amount method, the transmission customer usage charges be based on marginal
of the congestion revenues received would submit to each Independent costs, in order to promote economic
(and the associated protection against Transmission Provider a request to be efficiency. We seek comment on
congestion charges) would depend on scheduled for transmission service to whether transmission losses should be
the specific Congestion Revenue Rights and from the border, regardless of the recovered on the basis of the marginal
held. A customer holding receipt point- applicable transmission usage charges cost of losses or if they should be
to-delivery point Congestion Revenue that it will be assessed. The customer recovered on the average cost of losses.
Rights for a certain amount of power would be scheduled unless congestion There are advantages and disadvantages
between a delivery and receipt point arose that could not be relieved through to each approach. Using marginal losses
that matches its day-ahead transmission redispatch or some other means. Under
schedule would receive congestion would promote a more efficient use of
the second method, financial bidding,
revenues that exactly offset its the transmission system. However, as
the customer would submit a price bid
congestion charges, so that its net bill to each Independent Transmission discussed below, charging marginal
would reflect no congestion charges Provider indicating the maximum losses will collect surplus revenues that
(although it would be charged for transmission usage charge that it is must then be returned to transmission
losses). willing to pay for transmission service customers. On the other hand, the
263. The above process would be used on each side of the border. The advantage of charging average losses is
for scheduling transmission service on a customer would be scheduled if its simplicity. If average losses are charged,
daily basis. Some customers, price bid on each side of the border was the losses collected from customers
particularly those with Congestion at or above the applicable transmission would equal actual losses. There would
Revenue Rights, may desire to schedule usage charge. Under either method, if be no need to create a mechanism to
the same exact service over a longer the customer’s transaction is scheduled, return surplus losses.
period to save on administrative costs. the customer would pay the applicable 268. For customers purchasing
The Commission seeks comments on transmission usage charges to and from transmission service to complete
whether a customer should be allowed the border. We propose to make both bilateral transactions, we see value in
to provide a schedule for multiple days options available to transmission allowing transmission customers to pay
or have a standing scheduling request customers, because each option may for their assigned losses either in cash
that would remain in effect until provide benefits to customers. We or in kind. To pay in cash, the customer
changed by the customer. Any schedule would prefer ‘‘one-stop shopping’’ with would pay the market price for its
request, once scheduled by the Independent Transmission Provider assigned MWhs of losses, which would
Independent Transmission Provider coordination; we seek comment on be included in the applicable
would become financially binding on whether this can be done? transmission usage charge. Thus, the
the customer at the close of each day’s 266. Recently we accepted a
MWh of energy injected at the point of
day-ahead market. prescheduling option for service across
receipt would equal the MWh
(2) Transmission Service Across borders that was proposed by the New
withdrawn at the point of delivery. The
Borders. York ISO.140 A prescheduling option
transmission provider would procure
would give a customer certainty prior to
264. Transmission service across the the day-ahead market that it could the energy used for losses from its
border of adjoining Independent transmit power across a border. Under energy market. To pay in kind, the
Transmission Providers’ service areas— the New York ISO’s prescheduling customer would supply energy at the
from a point of receipt in one service option a customer may schedule such a point of receipt in the amount of its
area to a point of delivery in another— transaction up to eighteen months in assigned losses. Thus, the MWhs
requires coordination between the advance of the dispatch day. A customer injected at the point of receipt would
affected Independent Transmission that requests a prescheduled transaction exceed the MWhs at the point of
Providers. When transmission delivery by the amount of the assigned
congestion exists between a point of 140 New York Independent System Operator, Inc., losses, and the customer would pay in
receipt and a point of delivery in 99 FERC ¶ 61,292 (2002). cash only the congestion component of
the transmission usage charge.141 We required to make additional payments response programs because they allow
note, however, that some commenters in in real time to relieve congestion, which the buyer to indicate the price at which
our outreach process expressed concern could provide an incentive for market it will voluntarily reduce its
that allowing customers to provide participants to create congestion in the consumption. Buyers would also be
losses in kind may unduly complicate day-ahead market to receive these allowed to schedule an amount to be
the scheduling process, especially for payments in the real-time market.142 purchased regardless of the applicable
transactions that involve multiple The market should allow full energy price.143 Bids would not need to
Independent Transmission Providers. participation by both the supply side be tied to a physical generator or load
We seek comment on whether and the demand side of the market. resource. However, for reliability
transmission customers should have the purposes, bids would need to indicate
(2) Bidding and Scheduling Rules.
choice of paying for losses in cash or in whether they were purely financial bids
kind, or alternatively, whether all 270. Each day, the Independent or whether they were tied to a physical
transmission customers should be Transmission Provider would accept resource. This would permit market
required to pay for losses in cash. bids to sell and buy energy for each participants to bring day-ahead and real-
hour of the following day. Participants time prices closer together, increasing
c. Day-Ahead Energy Market desiring to sell or buy energy would the stability of both markets. This
(1) General Features. submit a bid in a standardized form. option should reduce price differences
271. Each seller’s bid would indicate
269. We propose that the Independent the amount of power (MW) offered to be between these two markets.
Transmission Provider be required to sold, the receipt point, and the time 273. Buyers and sellers would be able
run a voluntary, bid-based, security- period. In addition, each seller would be to submit different price bids for
constrained day-ahead energy market. allowed to submit multi-part bids that different hours of the day, and bids
‘‘Voluntary’’ means that market separately specify bid prices for start- could vary from day to day. However, if
participants do not have to buy or sell up, no-load, and energy, as well as market participants can exercise market
in the day-ahead energy market. The technical characteristics such as ramp power, limits may be imposed on
day-ahead market we are proposing rates, minimum run times and bidding to mitigate market power, as
provides customers with additional minimum down times. Allowing discussed below in the section
supply choices. It is not intended to suppliers’ bids to include these items addressing market power monitoring
substitute for other longer-term yields more detailed information that and mitigation.
arrangements that customers may use to can improve the ability of the grid 274. We propose a scheduling option
purchase supplies such as bilateral operator to dispatch suppliers with the to address the special conditions facing
transactions or use of a customer’s own lowest total cost. For example, if the energy-limited resources such as
generation. Thus, market participants supplier were required to submit a one- hydroelectric and environmentally
would be able to schedule bilateral part bid it would need to include start- constrained thermal resources. These
transactions and/or their own up costs in its energy bid, resulting in resources are limited in the amount of
generation rather than bid into the day- a higher energy price bid. However, a energy or the number of hours that they
ahead energy market. ‘‘Bid-based’’ supplier submitting a bid that separately can produce energy over a period of
means that participants may submit specified the energy bid and the start-up time. As a result, production in one
offers to buy or sell quantities of energy costs would not have to make these hour may reduce the amount of energy
into the market and may specify the estimates and the grid operator would that the resource can produce (and the
prices at which they are willing to use the bids to dispatch the supplier associated revenue) in other hours.
transact. This provides an organized and with the lowest total cost. Suppliers Energy-limited suppliers could submit
transparent system for the Independent would also be allowed to submit bids bids in the day-ahead market that
Transmission Provider to determine the that are self-schedules, that is, that specify the amount of energy, or the
marginal cost of relieving transmission would indicate an amount to be number of hours, available for
congestion. ‘‘Security-constrained’’ supplied at a location regardless of the production over the next day. The
means that the Independent applicable energy price. The supplier supplier could then request the
Transmission Provider, in the energy would receive the applicable market Independent Transmission Provider to
auction process, takes account of all clearing price for its energy. This option schedule its energy in those hours of the
system constraints, such as contingency may be useful for suppliers with very next day when the energy price is
limits, needed for reliable system high start-up costs such as nuclear highest. Such a scheduling feature
operations and develops a schedule that facilities. Intermittent resources would would promote efficient scheduling
does not violate such constraints. This be able to participate in the day-ahead because it would allow the energy-
is necessary to ensure that the day- market on the same basis as other limited resource to be scheduled where
ahead schedule is physically feasible. resources. its energy would have the greatest value,
Otherwise, the Independent 272. Similarly, each buyer’s bid with maximum profit to the resource
Transmission Provider might be would indicate the desired amount of owner.144 We recognize that the
power (MW) to be bought, the delivery
141 The amount of energy needed for losses would
point, and the time period. In addition, 143 Since energy prices have the potential to rise
not be known until the close of the market. For
transactions in the day-ahead market, the each buyer would be allowed to specify to very high levels, it may be necessary to require
Transmission Provider would inform each customer bid prices that indicate the quantities it buyers that request energy without submitting a
that wishes to supply losses in kind (after the close is willing to purchase at alternative price bid to demonstrate to the Independent
of the day-ahead market) of the amount of its Transmission Provider in advance that they are
assigned losses (in MWh), and that amount would
prices. Buyers would also be allowed to financially capable of paying very high prices for
be included in the customer’s day-ahead schedule. submit multi-part bids that indicate the such quantities. Alternatively, the Independent
For transactions in the real-time market, the time and price constraints under which Transmission Provider could limit the amounts
Transmission Provider could provide an estimate in they are willing to purchase energy. based on a buyer’s creditworthiness.
advance of the amount of each customer’s assigned 144 While this scheduling feature is intended
losses. However, since actual marginal losses would

These options would facilitate demand mainly for energy-limited resources, it would be
not be known until after the fact, the customer available to all generators and would not be
would be charged or credited at the applicable LMP 142 See the discussion of this issue in Appendix restricted to energy-limited resources, unless such
for any under- or over-provision of losses. E. restrictions are necessary to mitigate market power.
resource mix varies significantly from (3) Price Determination and Settlement. would permit a load-serving entity to
region to region and that some regions, 277. Based on the accepted bids aggregate prices for deliveries to its
such as the Northwest, have a greater included in the day-ahead schedule, the various delivery nodes.
amount of energy limited resources. We Independent Transmission Provider 280. Each buyer and seller would
seek comment on whether other would establish day-ahead locational transact at the applicable clearing price
scheduling options or regional energy prices for each hour. The hourly for the hour and time period. A seller
variations should be included for energy price at each location would that submits separate bids for start-up
energy-limited resources in the tariff. reflect the marginal cost (as reflected in and no-load costs and is dispatched by
275. We recognize that intermittent bids) of producing and delivering the Independent Transmission Provider
resources such as wind power may also energy to that location in that hour. for any period during the day, will be
benefit from scheduling rules that Energy prices would be consistent with assured that it will recover the start-up
recognize their inability to precisely the transmission usage charges, so the and no-load costs that it bid. If a seller’s
control output. We recently approved a difference in energy prices between two total bid costs (including start-up and
locations in an hour would reflect the no-load costs, as well as energy running
special mechanism for intermittent
cost of transmitting energy from one costs) over the entire day are not fully
resources selling into the energy market
location to the other. covered by its revenues from selling at
run by the California ISO.145 Under that 278. The Independent Transmission
mechanism, the intermittent resource the hourly clearing prices, it would
Provider would establish a single receive an additional payment (i.e., an
and the California ISO work together to market-clearing energy price for each
develop a schedule and procedures for ‘‘uplift’’ payment) for the net revenue
hour for each node on its transmission
accurately forecasting the output of the shortfall for the day. Hourly energy
system. We believe it is important that
resources. However, California ISO prices would be based only on energy
energy prices be calculated for each
currently runs only a real-time market bids; start-up cost bids and no-load bids
node to avoid socialization of
for energy and not both a day-ahead would not be used in calculating hourly
congestion costs and to reduce the
market and real-time market as energy prices. Thus, a generator may
possibility of manipulating the
proposed here. Also, the amount of congestion management system.146 The have legitimate start-up costs that are
power produced by intermittent Independent Transmission Provider not fully covered by selling at the
resources within California is much could also establish nodal prices for hourly energy price over the day; paying
larger than in many parts of the country. time intervals shorter than an hour. uplift may be necessary to ensure that
We propose to include the California Nodal pricing would be used for both generators selected in the auction will
ISO’s scheduling option for intermittent buyers and sellers in the day-ahead receive revenues that fully cover their
resources as part of Standard Market market. bid-costs.148 Since the additional
Design. However, we seek comment on 279. Upon request of market payments are a cost of providing
whether there is a better way to participants, the Independent supplies of energy and ancillary services
schedule intermittent resources. Transmission Provider would establish in the Independent Transmission
trading hubs. A trading hub is a virtual Provider’s day-ahead market, we
276. Finally, in drafting the bidding propose to recover the additional
location where financial transactions
and scheduling rules we have included may be arranged, whose hub price is the payments from entities that purchase
several ways for demand to respond to weighted average of energy prices at a energy and/or ancillary services in the
prices. We recognize that several ISOs specified set of nodes on the Independent Transmission’s Provider’s
currently have demand response transmission system. A trading hub day-ahead market. Any entity that does
programs that operate differently. Under facilitates financial trading and not buy any energy from the
these demand response programs, the aggregation of supplies from multiple Independent Transmission Provider’s
ISO pays end-users to reduce their sources. Creation of trading hubs should day-ahead market on a given day, and
demand if market clearing prices reach not lead to socialization of congestion that self-supplies all of its ancillary
a certain level. We believe the direct costs, because the price for service at the service obligations on that day, would
approach of letting demand bid in the trading hub is the weighted average of
market will be less costly than a prices at the various nodes that are 148 For example, suppose that the Independent
program where an end-user receives included in the trading hub. Energy may Transmission Provider needs to supply an
additional 100 MW load in each of 20 hours over
payments greater than the market not be injected or withdrawn from the the next day. Two generators, A and B, are
clearing price to reduce its demand. We grid at a trading hub, since a hub does available. Generator A has energy costs of $35/
have not proposed to include these not exist at a physical location. But a MWh, but must incur $15,000 in start-up costs
types of programs in the pro forma tariff hub may be named as an intermediate before beginning production. Generator B has
energy costs of $40/MWh, and has no start-up costs.
although they could be included if the point between physical points of Generator A’s total cost of meeting the load would
Independent Transmission Provider, in injection and withdrawal where be $85,000 (i.e., total energy costs of $70,000 [$35/
consultation with the state advisory financial energy trades may occur.147 MWh × 100 MWh × 20 hrs] PLUS start-up costs of
committee and stakeholders, Also, at the request of market $15,000). Generator B’s total cost would be $80,000,
comprised exclusively of energy costs (i.e., $40/
determined that they were necessary. participants, the Independent MWh × 100 MWh × 20 hrs). Generator B should be
Since the participation of demand in the Transmission Provider would establish chosen because its total costs ($80,000) would be
market is critical for an effective zones that are the weighted average of less than Generator A’s total costs ($85,000).
energy prices at selected delivery nodes Suppose that the hourly clearing price in each hour
wholesale market, we seek comment on is $42/MWh. By selling 100 MWh in each of 20
whether the measures proposed are on the transmission system. This option hours, Generator B would receive total revenues of
sufficient or if other measures should be $64,000 (i.e., $32/MWh × 100 MWh × 20 hrs),
146 See discussion in Appendix E of manipulation
included. which is $6,000 less than its total bid-in costs of
strategies involving congestion management. $70,000. Generator A would thus need to receive a
147 A good example of a trading hub is PJM’s $6,000 uplift payment in addition to its energy
145 See California Independent Operator Corp., 98 Western hub, where there are active spot energy revenues. Paying $6,000 in uplift is still cheaper for
FERC ¶ 61,327, order accepting compliance filing, and transmission rights markets, as well as bilateral customers than the alternative of dispatching
99 FERC ¶ 61,309 (2002). markets. Generator B.
not be assigned a share of the additional opportunity cost of its reduced profits established different response times for
payment for that day. from selling real power? Should the operating reserve—supplemental, we do
281. The results of the day-ahead generator be paid the higher of its not propose a standard set of markets for
market would be financially binding on opportunity costs or the market operating reserve—supplemental.
buyers and sellers. That is, sellers congestion value of the additional However, we propose to require that
would be paid the applicable locational transfer capability created? How should each Independent Transmission
day-ahead price for energy scheduled to locational market power concerns be Provider operate separate markets for
be sold in the day-ahead market, and addressed in these circumstances? each type of operating reserve—
buyers would pay the applicable supplemental that it procures.
locational day-ahead price for energy d. Day-Ahead Ancillary Service 286. Location-specific reserve targets
scheduled to be bought in the day-ahead Markets may be required in some areas due to
market. In addition, to the extent sellers (1) General Features. persistent and significant congestion.
and buyers fail to actually produce or 284. Order No. 888 identified six The Independent Transmission Provider
take energy according to their respective ancillary services. Under this proposed would identify and establish these
schedules in real time, such imbalances rule, all six ancillary services must be targets consistent with any reliability
would be settled at the applicable real- provided by the Independent rules.
time energy price. Thus, a seller would Transmission Provider, but the three (2) Bidding and Scheduling Rules.
pay the real-time LMP nodal price for listed below need not be obtained from 287. Each day, the Independent
any scheduled energy that it fails to the Independent Transmission Transmission Provider would determine
deliver in real time to its bid delivery Provider:149 the total amount of each of the ancillary
point. Similarly, a buyer would be paid (1) Regulation and frequency response services that will be required for each
the applicable LMP nodal real-time (2) Operating reserve—spinning hour of the following day. Customers
price for any scheduled energy that it (3) Operating reserve—supplemental that wish to meet their ancillary service
does not take at its bid receipt point in Transmission customers may meet requirement through self-supply or
real time. their responsibility through self-supply, procurement through a third party
282. The Independent Transmission by procuring these ancillary services would be required to provide the
Provider would post prices and other from a third party, or by acquiring them Independent Transmission Provider
market information and settle the from the Independent Transmission with the necessary information about
markets promptly to provide market Provider. the generation capacity or demand-side
participants with reliable information 285. As discussed earlier, imbalance resource that would be providing the
regarding their market transactions. energy would be provided through the ancillary services (as is currently
283. In certain instances, a generator day-ahead and real-time energy markets. required under the existing pro forma
may alleviate a voltage or stability For the remaining three ancillary tariff).
constraint by producing real power and/ 288. To procure the remaining
services (regulation and both operating
or reactive power at its location. By amount of ancillary services, the
reserves), we propose to require that the
alleviating the constraint, the transfer Independent Transmission Provider
Independent Transmission Providers
capability of the grid may be increased, would accept bids for regulation and the
operate bid-based markets open to all types of operating reserves for each hour
thereby allowing a greater amount of
potential suppliers so that Independent of the following day. A participant
lower-cost energy to be transmitted to
Transmission Providers can procure desiring to sell regulation or operating
an area with higher energy prices. For
these ancillary services from the lowest reserves would submit a bid in a
example, the transmission capability to
cost suppliers. Different regional standardized form specified by the
import power into a load pocket may
reliability authorities may establish Independent Transmission Provider.
initially be limited to 1000 MW due to
different requirements for operating Bids could be offered to provide
a voltage or stability constraint, even
reserve—supplemental. For example, ancillary services from generation
though the thermal limit is 1500 MW.
However, production of an additional the four jurisdictional operating ISOs capacity or any demand-side resource
100 MW of real power and/or an procure resources for the ancillary that meets the technical requirements of
additional amount of reactive power service operating reserve—supplemental the ancillary service. Participants could
within the load pocket could increase (which are usually generation resources offer the same capacity in more than one
import capability into the load pocket that are not synchronized with the grid ancillary service market, as well as in
by 50 MW, to 1050 MW. We seek or demand-side resources that can the energy market.
comment on whether generators who curtail use), with varying response 289. Each bid would indicate the type
provide such real or reactive power times. Each ISO procures a portion of of ancillary service, the amount of
should receive additional compensation their necessary operating reserve— generating capacity (MW) offered for
(in addition to the locational market supplemental requirement with reserves sale, the receipt point of the resource
price for energy and the applicable that can respond within 10 minutes of and the time period. The bid would also
compensation for reactive power) for the a dispatch request, as well as slower- include an availability bid indicating
additional transfer capability that they responding reserves at 30 minutes (New the minimum price per MW (which
create, to provide incentives to produce York ISO and ISO-New England) and 60 could be either a positive amount or
energy that increases transfer capability. minutes (California). Since different zero) required to provide the ancillary
For example, should such generators be regional reliability authorities have service. The availability bid would
given the Congestion Revenue Rights 149 The remaining ancillary services that must be
allow the bidder to ensure that it would
with the additional transfer capability obtained from the Independent Transmission
not be selected to provide the ancillary
that they create? In certain Provider are (1) Scheduling, System Control and service unless the ancillary service price
circumstances, a generator must reduce Dispatch Services, (2) Reactive Supply and Voltage is high enough to cover out-of-pocket
its production of real power in order to Control Service, and (3) Energy Imbalance Service. costs, such as the costs of keeping a
We seek comment on treating Scheduling, System
increase its production of reactive Control and Dispatch Services as a basic cost of
crew at its facility for the following day.
power. In these circumstances, should providing transmission service instead of as an The bid would also include the various
the generator be compensated for the ancillary service. components that would be submitted to
provide energy into the energy market. Independent Transmission Provider ancillary service requirements for each
These components include an energy would establish separate hourly of these three ancillary services in each
bid, indicating the minimum price per locational ancillary services prices. hour, based on their real-time, load-ratio
MWh required to produce energy. Other 292. To promote an efficient market, share. Ancillary service requirements
bid components would include price- the price for regulation and operating generally depend more on real-time
bids for start-up and no-load, as well as reserves services would equal the transactions than on day-ahead
technical constraints, such as minimum marginal cost of each service, which schedules. Assessing ancillary service
load, ramp rates, minimum run time would equal the highest accepted total requirements based on day-ahead
and minimum down time. By providing bid cost expressed in dollars per MW. schedules would provide an incentive
one ancillary service, a bidder may forgo The total bid cost of each generator is for customers to understate their day-
profits from sales in other markets, and the sum of: (1) The generator’s ahead schedules.
these forgone profits are an opportunity availability bid per MW and (2) the 296. In Order No. 888, exports are not
cost of providing ancillary services. As opportunity cost of forgoing sales in charged for these ancillary services. We
explained in the following section, the other markets operated by the ask for comments on whether they
Independent Transmission Provider will Independent Transmission Provider, should be charged here.
consider the opportunity cost associated expressed on a per-MW basis.151 297. Customers that want to self-
with forgone sales in other markets 293. A generator or demand-side provide or procure their own ancillary
operated by the Independent resource could be eligible to bid into services would be required to notify the
Transmission Provider. Opportunity more than one market operated by the Independent Transmission Provider in
costs from forgone sales in markets not Independent Transmission Provider. the day-ahead scheduling process and
operated by the Independent The opportunity costs paid to the identify the resources that would be
Transmission Provider could be supplier would be the forgone profit used to provide these services.
included in the bidder’s availability bid. from the most profitable other market. Customers would be given credit for the
290. The Independent Transmission For example, a generator that is capable amount of ancillary services that they
Provider would consider all bids to sell of providing ancillary services could self-provide or procure from third
ancillary services, in conjunction with also sell into the transmission provider’s parties. Customers that self-provide or
bids submitted in its day-ahead markets day-ahead energy market, although it procure from third parties more capacity
for energy and transmission service. As would incur additional variable energy than their requirements would be paid
noted earlier, based on all submitted costs to do so. Thus, the forgone profit the applicable hourly ancillary service
bids, the Independent Transmission from selling into the energy market (as price for the excess if needed by the
Provider would maximize the economic reflected in the generator’s bid) would market.152
value (as reflected in the bids) of the be the difference between the energy
price and the generator’s energy bid. 2. Scheduling After the Close of the
accepted bids, i.e., accept the bids with
The opportunity cost of selling ancillary Day-Ahead Market
the overall lowest cost. Thus, for
generation capacity and demand-side services would include this forgone a. Replacement Reserves
resource that bid into more than one energy profit.
294. The hourly price for one of these 298. The Independent Transmission
market, the Independent Transmission Provider will use the day-ahead market
Provider would schedule the generation ancillary services in a given location
would thus equal the sum of the to develop prices and a schedule for
capacity or demand-side resource into suppliers. The prices and schedules will
the market where it is most efficient opportunity cost and the availability bid
in dollars per MW of the most expensive be based on the bids submitted by
(unless it is not efficient to schedule the buyers and sellers. However, the day-
generation capacity or demand-side unit accepted to provide that type of
ancillary service in that hour to that ahead schedule may be less than the
resource in any market).150 This should forecasted load in real time and, if so,
yield the overall lowest cost for location. As noted above, a generator
providing any ancillary service is also the Independent Transmission Provider
procuring energy, regulation and would commit additional units to
operating reserves. technically capable of providing a
slower response ancillary service. For ensure that load can be met reliably in
(3) Price Determination and real time.
Settlement. example, a generator providing
299. After the Independent
291. Based on the accepted bids operating reserve—spinning could also
Transmission Provider has established a
included in the day-ahead schedule, the provide operating reserve—
day-ahead schedule and associated
Independent Transmission Provider supplemental. Thus the opportunity
prices for energy, transmission service
would establish day-ahead prices for cost of providing operating reserves—
and ancillary services, it would make its
each of the ancillary services procured spinning would be at least as high as the
own forecast of load within its market
in the bid-based markets for each hour. price of operating reserve—
area for each hour of the following day.
In regions with separate locational supplemental. As a result, the marginal
To the extent that its forecasted load
ancillary service requirements, the cost (and thus, the price) of operating
exceeds the amount of energy scheduled
reserve—spinning would not be less
to be delivered to load in the day-ahead
150 Because of the way that prices would be than the price of operating reserve—
schedule, the Independent
established in each market, the market into which supplemental in the same hour.
each bidder of generation capacity or demand-side 295. Although suppliers bid to Transmission Provider may need to
resource is scheduled would also be the market that
provide these ancillary services in the procure additional reserves (called
is the most profitable for the bidder. That is ‘‘replacement’’ reserves) from generators
because, as discussed in the following section, the day-ahead market, customers pay for
prices in each market would reflect marginal them based on real-time load. to make up the difference, but only to
opportunity costs of the bidders in that market. Transmission customers would be
Thus, the price in each market would be high 152 Since the customer’s day-ahead schedule was
enough to allow each accepted bidder in that assessed a pro rata share of the total based on its projected share of the ancillary service
market to receive at least as much profit as it could requirement, it may have procided more than its
have received in any other market operated by the 151 Because prices are determined hourly, an actual share in real time. Thus, the customer would
Independent Transmission Provider that it is opportunity cost expressed in dollars per MWh be comlpensated for the additional amounts it
technically capable of participating in. converts to an equivalent dollar-per-MW basis. provided.
the extent necessary to ensure that lead times, and adhere to the requested ahead energy market (this is a departure
sufficient generation will be available to changes in real time, would settle the from the Working Paper).
meet load. changes in transmission service at the 308. The transactions in real time vary
300. To procure replacement reserves, applicable real-time transmission usage from those reflected in the day-ahead
the Independent Transmission Provider prices, described more fully below. schedule due to a variety of factors,
would accept bids from generators Participants with new or increased including changes in weather
submitted for the day-ahead market. The transmission service would be charged conditions and unexpected equipment
Independent Transmission Provider the applicable real-time transmission outages. The Independent Transmission
would select generators to provide usage price between the applicable Provider may be informed in advance of
replacement reserves so as to minimize receipt and delivery points for the new some of the scheduling departures
the costs of availability, start-up costs or increased transmission service in the under the procedures described above;
and no-load costs regardless of energy applicable hour. Conversely, other departures may occur without
costs. This approach to procuring participants that reduce transmission warning.
replacement reserves would provide an service in real time (compared to the 309. As occurs today, an Independent
incentive for load to accurately bid its day-ahead schedule) would be paid the Transmission Provider will have to
load in the day-ahead market since applicable hourly real-time transmission adjust energy production and/or load at
energy prices may be higher in the real- usage price for the applicable receipt various locations in order to balance
time market. and delivery points, to compensate generation with load and manage
301. As discussed further in the next them for the additional transmission congestion. Under Standard Market
section, generators selected to provide capacity they have made available in Design, the Independent Transmission
replacement reserves would be included real time. Provider would make these adjustments
in the real-time energy bid stack along by calling upon participants that have
with other generators that submit bids 3. Design of the Real-Time Markets submitted bids into the real-time energy
into the real-time market to provide 305. Under Standard Market Design, market, as well as participants that have
energy. Generators selected to provide the Independent Transmission Provider been selected to provide spinning,
replacement reserves would be paid the would be required to operate bid-based, supplemental, and replacement
applicable real-time energy price for security-constrained real-time markets reserves. The Independent Transmission
energy that they produce. If a for transmission service, energy, and Provider would issue dispatch
generator’s revenues received from certain ancillary services (i.e., instructions to bidders so as to balance
selling real-time energy are less than its regulation, operating reserve—spinning generation and load, and efficiently
bids for availability, start-up, no-load and operating reserve—supplemental). manage congestion of demand and
and energy, the Independent supply.
Transmission Provider would pay the a. Real-time Energy Markets (3) Price Determination and
generator an additional payment (i.e., an (1) General Features. Settlement.
‘‘uplift’’ payment) for the shortfall. The 310. The Independent Transmission
306. Under the Standard Market
revenue shortfall would be recovered Provider would determine energy prices
Design, the Independent Transmission
pro rata from all loads that buy energy in the real-time energy market for each
Provider would accept bids to buy and
in real time that have not been node for each 5-minute period or other
sell energy in each hour in the real-time
scheduled in the day-ahead market. subhourly period where a 5-minute
energy market. The bids would be in the
Thus, the costs would be allocated to determination is not technically
standardized form specified by the
the customers that benefitted from the achievable. Each price would reflect the
Independent Transmission Provider.
replacement reserves—customers that marginal cost (as reflected in the real-
Real-time energy markets would be used
took power in real time. This provides time supply and demand bids) of
to provide the energy imbalance service
an incentive for load to accurately producing energy and delivering it to
of Order No. 888 pro forma tariff.
predict its requirements in the day- the node in that period. The
However, loads could voluntarily enter
ahead market. Independent Transmission Provider
302. We propose to add a new Section into bilateral contracts with suppliers in
would post prices and other market
G.2 to the pro forma tariff that would advance to lock in a fixed price for
information and settle the markets
implement the foregoing procedures for energy.
promptly to give market participants
scheduling and paying for reserves after (2) Bidding and Scheduling Rules. reliable information regarding their
the close of the day-ahead market. 307. In general, bids would indicate market transactions.
an offer to depart in real time from the 311. To promote efficient participant
b. Changes to Transmission Schedules bidder’s day-ahead schedule to decisions regarding real-time
303. A market participant that has not purchase or sell energy (including a transactions, we propose that all
scheduled transmission service in the day-ahead schedule to purchase or sell departures in real time from the day-
day-ahead market but desires 0 MWhs of energy). Real-time bids ahead schedule be settled through the
transmission service in real time must would be accepted from any market real-time market at the applicable price
inform the Independent Transmission participant, including generators, load- (as is done today in many markets).
Provider within specific time deadlines serving entities, eligible retail buyers, Nodal pricing would be used for both
before real time. Market participants marketers and other agents. Bids would buyers and sellers in the real-time
may change their day-ahead indicate the increase or decrease (in market.
transmission service schedule by MWhs) from the day-ahead schedule in 312. There are several aspects of the
informing the Independent the amount of energy to be sold or design of the real-time energy market
Transmission Provider consistent with purchased in real time, and the location where we seek additional comments.
the time deadlines. and the hour of the changed purchase or
304. Participants that have informed sale. Each participant bidding into the Ex Post Versus Ex Ante Prices
the Independent Transmission Provider real-time energy market would be 313. This Section discusses how to
of their desired changes within the allowed to include multi-part price bids determine real-time energy prices. The
Independent Transmission Provider’s similar to those allowed in the day- options are to set the prices using near
real-time estimates (ex ante), or base the other ancillary services that the inefficient results are more likely to
price on the price of the actual marginal Independent Transmission Provider occur in the real-time market than in the
resource clearing the market in real time must procure, in order to reliably day-ahead market.156 Therefore, we
(ex post). Immediately in advance of balance load and generation. If so, it propose to allow generators whose
each upcoming 5-minute period, the would be appropriate to recover the output is adjustable on an hourly basis,
Independent Transmission Provider costs of these services through a charge. but only in increments greater that 1
would announce the real-time energy We seek comment on whether the MW, to be eligible to set the energy
prices that it estimates will clear the increased costs of regulation service or price in the Real-Time Market if two
market and match generation with load ancillary services should be allocated to conditions are met. First, the generator’s
during that upcoming period (based on the entities (buyers and sellers) that had output must be needed to meet load in
the real-time bids submitted by market uninstructed deviations from their the hour. That is, in the absence of the
participants). The Independent schedules since the costs were incurred generator’s output, either load could not
Transmission Provider could settle all to serve these entities. Uninstructed be fully met or a more expensive
departures in real-time from the day- deviations may also require the use of generator would be needed to fully meet
ahead schedule using these prices scarce ramping capability within the load. Second, the reason that the
announced in advance. Such an ex ante Independent Transmission Provider’s generator is operating must not be a
pricing policy would provide price market area. If ramping capability were minimum run time constraint. We also
certainty and thereby encourage buyers used, it may be appropriate to charge for propose that any cheaper generators that
and sellers that have not submitted bids that use. We seek comment on whether are directed to reduce their output
to adjust their transactions in response and how to establish market prices for would be paid their opportunity costs
to the announced price. ramping capability. Finally, in extreme (i.e., the difference between the
314. Alternatively, an ex post pricing cases large uninstructed deviations can applicable energy price and their energy
policy could be used as an incentive for threaten reliability of service. To bids) for the amount of the output
suppliers to follow dispatch discourage this type of conduct a reduction. With this payment, the
instructions. Some bidders may not penalty provision may be generator is compensated for the
respond to the announced prices in the appropriate.153 We seek comment on legitimate opportunity cost of following
way suggested in their bids. For whether the SMD Tariff should include the Independent Transmission
example, a supplier stating in its bid penalty provisions for uninstructed Provider’s instructions.157
that it would increase its output by 50 deviations that threaten system 319. We seek comment on whether
MWh for each price increase of $5/MWh reliability and how such penalty such lumpy generators should also be
may in fact increase its output by less provisions should be structured. eligible to set the energy price in the
than 50 MWh in response to such a day-ahead market. Although allowing
price increase. By settling at the ex ante What Bids Should Be Eligible To Set the
these lumpy generators to set the energy
price, the generator would be paid the Energy Price
price may have more direct benefit in
higher price despite the fact that it did 317. Strictly speaking, the marginal the real-time market, we are concerned
not increase its output as it had cost of meeting a small increment of about potential negative ramifications
promised in its bid. An ex post pricing load would be based on the bids of from establishing different pricing rules
rule might help to encourage bidders to suppliers whose output can be for the day-ahead and real-time markets.
respond in real time in a way consistent increased, or buyers whose load can be
with their bids. Specifically, the price decreased, from their scheduled level in b. Real-Time Ancillary Services
used to settle real-time deviations from the hour by as little as 1 MW. Thus, for Markets
day-ahead schedules could be the price- example, the marginal cost of supplying 320. As discussed earlier, Order No.
bid associated with the energy observed load in an hour would not be based on 888 requires transmission providers to
ex post to be produced by the marginal the bid of any generator that is operating offer to provide to transmission
supplier in the 5-minute period (but not in the hour solely because of a customers energy imbalance service,
higher than the advisory price minimum run constraint, because regulation and frequency response,
announced ex ante). Such an ex post changes in load would not change the operating reserve—spinning and
price rule would encourage suppliers to output of the generator.154 operating reserve—supplemental. Under
supply the full amount of energy 318. However, we are concerned that Standard Market Design, energy
promised in their bids. by excluding generators whose output is
315. We propose to adopt the ex post adjustable in increments greater than 1 in order to match the 30 MW increase in load with
rule because it creates incentives for MW, on an hourly basis, from setting the net increase in generated output. Once the
the energy price may not promote flexible $60 generator is backed down, incremental
bidders to act consistent with their bids. load would be met with output from the flexible
We seek comment on the choice efficient results.155 These potential generator, so the marginal cost of meeting load
between ex post and ex ante pricing. would be $60. However, it would not be efficient
153 This penalty would be in addition to any to meet the additional load unless the load valued
Other Charges for Uninstructed penalties incurred for violating curtailment orders. electricity at more than $80, the cost of the
Deviations From Schedules 154 Also, a generator that is operating at its low combustion turbine.
operating limit would not be able to set the market- 156 In the real-time market, some market
316. We seek comment on whether clearing price. participants that have not submitted bids may
market participants should face 155 When such ‘‘lumpy’’ generators are needed to nevertheless adjust their production or
additional charges for ‘‘uninstructed’’ meet incremental load, it may be necessary to consumption. Thus, the rules for setting energy
deviations in real time from their reduce the output of cheaper but more flexible prices in the real-time market should consider these
generators (i.e., generators whose output can be possible effects on market participants that have not
schedules, i.e., for producing or taking adjusted in 1 MW increments.) For example, to submitted bids. By contrast, day-ahead schedules
a different amount of energy in real time meet a 30 MW increase in load, the cheapest are based only on bids and self-schedules submitted
than was scheduled without permission available generator (with a bid of $80/MWh) may to the Independent Transmission Provider, so day-
or direction from the Independent be a combustion turbine with a capacity of 50 MW ahead prices cannot result in any unexpected
that can produce only at its maximum capacity. By changes in the day-ahead schedule.
Transmission Provider. Uninstructed operating the combustion turbine at 50 MW, the 157 These payments would be recovered through
deviations from schedules may increase output of a cheaper flexible generator (with a bid an uplift charge to loads that purchase from the
the amount of regulation service or of $60/MWh) would need to be reduced by 20 MW Independent Transmission Provider’s markets.
imbalance service would be provided There do not appear to be any System operators have also traditionally
through the transmission provider’s incremental costs associated with called on emergency supplies from
real-time energy market. The providing these ancillary services in real neighboring systems (in the past, these
Independent Transmission Provider time, other than the opportunity costs of emergency purchases have taken place
would procure its expected forgoing sales in another market at pre-defined prices; increasingly, they
requirements for the remaining three operated by the Independent are being made at market prices).
ancillary services through day-ahead Transmission Provider, and these Finally, steps are taken for voluntary
ancillary service markets discussed opportunity costs would be reflected in and involuntary load-shedding. States
above. the way that ancillary service prices are typically approve in advance the retail
321. We propose that the Independent determined.159 curtailment plans of utilities.
Transmission Provider operate a real- 323. The Independent Transmission 327. In the markets proposed in the
time ancillary services market to Provider would consider all bids to sell SMD Tariff, we envision that with more
accommodate adjustments in the supply ancillary services in real time and select extensive demand-side participation,
of ancillary services from the day-ahead those bids that minimize the overall cost the potential for these types of capacity
schedule. In real time, there may be of procuring additional ancillary shortage or emergency situations will
entities that can provide ancillary services required in real time. substantially diminish. However,
services more efficiently than those that 324. Based on the bids accepted in the system emergencies may occur. The
were scheduled in the day-ahead real-time market, the Independent existing pro forma tariff gives
market. The real-time market would Transmission Provider would establish transmission providers the authority to
permit such efficient substitutions. real-time ancillary service prices for curtail transmission service and take
Higher-cost suppliers scheduled in the each hour that reflect the marginal cost any other preventive action necessary to
day-ahead market would buy back their of each service. All participants preserve system reliability. The SMD
offer to provide ancillary services at the supplying a given type of ancillary Tariff would continue to grant the
applicable real-time price, and other, service in a given hour in real time (and Independent Transmission Provider this
lower-cost entities would be paid the to a given location, if there are same authority. However, the actions
real-time price to take over the supply locational ancillary service taken to ensure system reliability can
of ancillary services. In addition, the requirements) would be paid the affect prices in the energy and ancillary
Independent Transmission Provider applicable market clearing price. service markets. Market participants
may need an amount of ancillary 325. Transmission customers that should be aware of how these actions
services that differs from the amounts have not self-supplied or procured will affect pricing in the markets
procured in the day-ahead market, for through third parties their full assigned operated by the Independent
several reasons. For example, the ancillary service requirement would be Transmission Provider. To that end, the
requirements expected in the day-ahead assessed a pro rata share of the costs SMD Tariff requires Independent
market may differ from actual, real-time incurred by the Independent Transmission Providers to file proposals
requirements, or participants scheduled Transmission Provider for procuring with the Commission regarding the
to provide ancillary services may ancillary services in real time. implications for market pricing of each
experience outages in real time. Under 4. Market Rules for Shortages or reliability procedure. These proposals
Standard Market Design, the Emergencies would need to be consistent with the
Independent Transmission Provider resource adequacy mechanisms
326. We believe the market rules discussed below, but could vary to
would procure any additional ancillary
discussed above in combination with reflect regional differences in reliability
services needed in real time through the
the market mitigation measures and the requirements. We seek comments on
real-time ancillary service markets that
resource adequacy requirement will what, if any, more specific requirements
it operates.
result in an efficient system for should be included in the Final Rule.
322. In the real-time market, the
matching supply and demand under
Independent Transmission Provider G. Other Changes To Remove Undue
most operating conditions. However, we
would accept bids for each ancillary Discrimination and Improve the
recognize that when emergency
service. As in the day-ahead market, a Efficiency of the Markets Under
situations do occur, changes may be
participant could offer the same Standard Market Design
needed to the market rules to comply
capacity in more than one ancillary
with reliability requirements. In the 328. The existing pro forma tariff was
service market. The real-time bids
event of a capacity shortage or constructed primarily to apply to
would contain the same types of
emergency, local reliability rules and vertically integrated public utilities. It
information as those submitted into the
procedures (which typically combine was the first step toward competitive
day-ahead ancillary service markets, NERC, regional reliability council and
with one exception—we propose to electric power markets since it allowed
system operator guidelines) prescribe a alternate suppliers to access loads
exclude availability bids for spinning series of actions that the system operator
reserves and supplemental reserves in through an open access transmission
takes to maintain reliability. For tariff. It sought to replicate the terms
real time. The types of costs reflected in example, procurement of reserves is
the availability bid to ensure that the and conditions under which the host
reduced, typically in order of reserve public utility served its own loads. It
supplier will be available to provide quality (that is, supplemental reserve
these reserves are incurred in the day- also was the first step in separating the
quantities are reduced before spinning generation and transmission arms of a
ahead time frame, not in real time.158 reserve quantities). The system may be public utility.
158 For example, the supplier may need to commit
re-dispatched to adjust the location and 329. But more changes are needed to
in advance to pay workers to staff its facility. responsiveness of remaining reserves. further the development of regional
However, the supplier would be able to offer to competitive wholesale electric markets
supply spinning reserves and supplemental 159 Providing regulation service, however, would
and assure comparable and non-
reserves in real time if its workers were already typically impose incremental out-of-pocket costs on
staffing its facility, so in real time the supplier the supplier, due to the additional wear and tear on
discriminatory treatment of all market
would not incur increment costs to provide equipment associated with frequent adjustments in participants. Accordingly, the following
ancillary services. output that regulation suppliers must make. revisions must be made to the pro forma
tariff to change the market rules in ways apply to an Independent Transmission the causes were the lack of regional
that will improve the efficiency of Provider’s responsibility to set aside planning and coordination of
wholesale electric markets. transfer capability to ensure transmission needs and siting issues.
transmission reliability (e.g., to ensure 336. Transmission planning and
1. Capacity Benefit Margin expansion have generally been
that a line can take up the power flows
330. Capacity Benefit Margin is the it must absorb if a parallel line should performed for a single control area
set-aside of transmission capability by a go out of service or other uncertainties rather than on a regional basis. This
transmission provider to ensure the in system conditions arise). Such a set- yields sub-optimal solutions, as
ability to import external resources to aside is called Transmission Reliability individual transmission providers
meet generation reliability requirements Margin and must be consistent with consider power flows across a limited
or in case of a generation capacity good utility practice and should not be area and do not adequately consider
deficiency. During the Commission’s implemented in a way that favors entire markets. Parallel path flows that
outreach process, many commenters particular transmission customers (e.g., occur on neighboring systems may make
asserted that Capacity Benefit Margin by release of the set-aside capability for the construction of specific facilities
ties up valuable transfer capability use by native load). less cost-effective than a regional
without a specific reservation and solution. This effect can be properly
payment by the customers who receive 2. Regional and Independent considered by performing transmission
the benefit of the set-aside. The subsidy Calculation of Available Transfer planning and expansion on a regional
occurs because, while part of the Capability, Performance of Facilities basis. Moreover, facilities that, if
transfer capability is withheld from the Studies and OASIS constructed in one system would be the
market as Capacity Benefit Margin, the 333. The Commission has found optimal solution for a neighboring
wholesale transmission customers using specific instances of abuse by system, might never be considered
the system pay the entire transmission transmission providers regarding the under a single control area-based
cost (including that of the Capacity Available Transfer Capability planning model.
Benefit Margin) through their calculation process and delays in the 337. Implementation of Standard
transmission charges, thus subsidizing completion of transmission facilities Market Design will only increase the
the Capacity Benefit Margin studies.161 There are obvious incentives importance of examining these issues on
beneficiaries. The use of a Capacity for a vertically integrated transmission a regional basis. More open and
Benefit Margin has also been regularly provider to favor its own generation by transparent markets will enable
challenged on the grounds that the host delaying facilities studies or customers to purchase from distant
transmission provider is withholding manipulating the Available Transfer suppliers, increasing use of the grid.
transfer capability under the guise of Capability calculations or postings on Locational marginal prices that result
Capacity Benefit Margin in order to its OASIS. Under Standard Market from the spot markets operated by an
thwart competition. Design, calculations of transmission Independent Transmission Provider
331. We propose to standardize the capability and the performance of would signal to all market participants
treatment of Capacity Benefit Margin to facilities studies for transmission the value of additional supply and
ensure that (1) only customers expansions must be performed by an demand response at particular locations.
benefitting from it pay for it, and (2) independent entity to reduce the Based on these prices over time, market
transfer capability needed to access opportunity for preferential treatment participants will be able to decide
resources on a neighboring system is by the transmission provider. whether additional investment—in
treated consistent with all other 334. More broadly, the SMD Tariff transmission or generation facilities or
portions of the transmission grid. Thus, must recognize the regional nature of demand response—is warranted. The
an Independent Transmission Provider today’s energy markets. Transmission ability of individual market participants
itself would not be permitted to set capabilities must be calculated not for a to see the economics of possible
aside transfer capability for generation single utility’s service territory, but solutions and make market-driven
reliability reasons. Rather, a load- regionally to encompass existing trading decisions concerning the addition of
serving entity wanting access to patterns and power flows, particularly infrastructure is the fundamental
resources on a neighboring transmission parallel path flows on neighboring mechanism that induces efficient
system to meet its resource adequacy systems. All transmission providers that investment under Standard Market
requirement should instead acquire are not part of a Commission-approved Design. The policy relies primarily on a
Congestion Revenue Rights from the RTO must contract with an independent ‘‘ground-up’’ planning process that
interface to its load to ensure that entity to perform transmission encourages construction by private
access. This will free up transfer capability calculations on a regional companies yet also recognizes the need
capability now unavailable to wholesale basis. Likewise, we propose to require a for a regional evaluation process for
transmission customers and prevent common OASIS for the region. loop flow effects and cost-effectiveness.
cross-subsidization of transmission It is neutral with respect to the type of
customers that serve load within the 3. Regional Planning Process investment market participants may
Independent Transmission Provider’s 335. Competitive and reliable regional make in response to these price signals.
service area by point-to-point power markets require adequate However, due to loop flow, all system
transmission system users.160 transmission infrastructure to allow modifications would need to be
332. This prohibition of the generic geographically broad supply choices coordinated through a regional process
set-aside of transfer capability by the and minimize the complications created and would have to meet any criteria
Independent Transmission Provider for by loop flow. The recent DOE National needed to maintain reliability and
generation reliability reasons does not Grid Study documented the problems stability, and assure that existing
resulting from recent under-investment customer rights are not impaired.
160 To the extent that an Independent
in transmission infrastructure and 338. Given the need for transmission
Transmission Provider’s load ratio share access
charge calculation does not pick up this reservation, identified a number of causes. Among investment in much of the country and
the amount of interface capability can be imputed the time it will take to implement
and added to the customer’s peak day amount. 161 See Section III and Appendix C. Standard Market Design and for
investors to observe and respond to for PJM, MISO, and SPP. Consequently, decisions, not supplant them. The
price signals, we propose that a regional we propose that the area covered by regional planning process must provide
planning process be instituted within these organizations would also be a a review of all proposed projects to
six months of the effective date of the regional planning area. assess whether the project would create
Final Rule. This process should be 343. Similarly, New York ISO and loop flow issues that must be resolved
designed to identify beneficial ISO-New England are currently on a regional basis. In addition, because
transmission needed for both reliability pursuing discussions on the merger of of the externalities involved, there may
and economic reasons to support these two organizations into a Northeast be no private investment sponsor for
regional markets and reduce the effects RTO. Both are also members of the some projects that would benefit the
of generation concentration. The Northeast Power Coordinating Council region. Private investment decisions in
regional planning process should allow which has recently conducted studies of response to prices may not result in
the market to respond to those transmission needs in the region.163 We adequate expansions for two reasons.
identified needs. propose to build on these efforts and use First, private parties may not be eligible
339. A critical piece of the the area covered by these organizations to ask the state to exercise its eminent
transmission planning process is state- as a planning area. domain rights. Second, some needed
level siting decisions. We note a recent 344. Finally, we recognize that there and beneficial expansions may not
National Governors’ Association report has been ongoing discussion create enough identifiable financial
that recommends Multi-State Entities to development of regional markets in the benefits to compensate private investors
facilitate regional transmission planning Southeast. SETrans Regional adequately, so those projects will not be
decisions.162 Multi-State Entities, along Transmission Organization proposes to built under a system that relies solely on
with an open regional planning process, encompass a broad area in the private investment to expand the grid. A
would preserve the states’ role in siting Southeast. The Tennessee Valley regional planning process can identify
decisions, while promoting regional Authority (TVA) has signed a both the projects that would benefit the
solutions. A Multi-State Entity could be Memorandum of Understanding with planning area and potential alternatives
an important component of the regional Southern Companies and Entergy, two in a fair and unbiased manner.
planning process. sponsors of SETrans, to work together to Additionally, a regional planning
340. Certain areas of the country and develop coordination agreements. process, would evaluate the benefits of
organizations already have proposals or Additionally, the SETrans and alternative proposals and provide an
processes to consider regional planning GridSouth Transco, LLC parties signed independent assessment of which
or development of regional markets. a Memorandum of Understanding in projects are the most cost effective and/
Building off of these existing efforts will January 2002 calling for similar regional or have the least environmental impact.
help facilitate the development of a coordination. Thus we propose to build 347. To complement private
regional planning process in the near on these efforts and propose a Southeast investment initiatives, we propose that
term. We emphasize that a planning planning area composed of the Independent Transmission Providers
area need not coincide with the Southeastern Electric Reliability establish a mechanism for regional
geographic area of a Commission- Council and the Florida Reliability transmission planning and expansion
approved RTO or Independent Coordinating Council. guided by the following principles.
Transmission Provider required by this 345. We propose that all public First, the planning process should
rule. Also, because of the utilities that own, control, or operate identify all expansion needs on the
interrelationships between Canadian transmission facilities must participate system, including both reliability and
and U.S. energy markets, we encourage in a regional planning process for the economic needs (e.g., to reduce
participation by Canadian entities and planning areas discussed above. We congestion). The planning process
provincial authorities in the regional propose that this process start within six should leave open the question of how
planning process. months after the effective date of the and by whom those needs should be
341. Current processes such as the Final Rule and that the first regional met, without favoring one solution
Committee on Regional Electric Power transmission plan be completed within (whether it is transmission, generation
Cooperation in the West provide for twelve months after the effective date of or demand response) over another. The
state and provincial advice in the the Final Rule. Reliance on these planning process should be open to all
planning across the entire Western grid. existing regional efforts should facilitate industry segments. Additionally, all
Therefore, we propose to use the area the start-up of the regional planning entities could propose projects. As long
covered by Western Electricity process before Standard Market Design as the project did not make existing
Coordinating Council (WECC) that is implemented and all areas have Congestion Revenue Rights infeasible
encompasses the geographic area due to loop flow problems, the entity
covered by the Western Grid for regional would be free to complete the project as
operating transmission facilities.
planning purposes. 346. After Standard Market Design is long as it is willing to assume any
342. In the Eastern Interconnection market or regulatory risk. However, to
fully implemented, we believe the
there have been several efforts at the extent the entity sought to roll-in the
regional planning process will change as
developing regional wholesale costs of the facilities, the rate treatment
electricity markets that we propose to should be reviewed through the
play a greater role in that process. There
build on for the regional planning planning process.
will still remain a significant need for a
process. PJM and MISO developed a 348. Second, an Independent
regional planning process to
Memorandum of Cooperation dated May Transmission Provider should have the
supplement private ‘‘ground up’’
9, 2002 that commits to develop a joint responsibility to issue requests for
and common wholesale electric market investment decisions. The regional
planning process is intended to proposals when the planning process
supplement these private investment determines that additional resources are
162 See Interstate Strategies for Transmission
needed to serve the regional market.
Planning and Expansion, National Governors’
Association, posted on July 18, 2002, available in 163 Northeast Power Coordinating Council Parties may respond with proposals to
<http://www.nga.org/center/divisions/ Collaborative Planning Initiative Phase I issued expand the grid, add generation
1,1188,ClISSUElBRIEF∧Dl4110,0.html>. March 13, 2002. (including distributed generation), or
implement demand response.164 The even abandoned due to software on software issues. Among the topics
Independent Transmission Provider constraints or software development discussed were market operational
would approve transmission expansions costs. Software and data systems software capabilities, software
that would be paid for by all customers inherited from the old structure are standardization, ISO experiences with
only when planned private investments often idiosyncratic, making changes and implementing software, cyber-security
are judged to be inadequate to meet the seams issues more difficult than they and the need to achieve some
reliability and market needs of the should be. Market participants often standardization within the electric
region. If the bidding process fails to find software to be impenetrable ‘‘black market and grid operations software
produce a satisfactory outcome, such boxes.’’ Software development and modules across vendors.
that the Independent Transmission modifications have become expensive 356. The conference established that
Provider determines that additional and software ‘‘wheels’’ are being for most applications, software does not
facilities are needed, the affected reinvented. Consequently, the software appear to be a binding constraint on the
transmission owner(s) would be used to implement the Standard Market size of RTOs or the implementation of
required to expand or upgrade the Design’s real-time and day-ahead Standard Market Design. Participants
transmission system.165 markets will be a critical element in the noted that the computational algorithms
349. Finally, the Independent feasibility and success of Standard inside the models are continually
Transmission Provider would act as a Market Design. improving, as is the speed of the
clearinghouse for proposed projects. It 352. The Standard Market Design processors used to solve the models, so
could identify separate projects that software should have the following it is reasonable to expect that software
could be constructed at a lower cost if characteristics: transparency (the ability and associated hardware needs should
the projects were combined. Also, if to understand what the software does), keep pace with market span.
there are alternative projects that have testability (the ability to understand and 357. The Commission’s goal is to
been proposed, the Independent compare performance) and modularity assure that the best software is available
Transmission Provider could evaluate (the ability to change software modules for use in the nation’s wholesale
the relative advantages of the alternative without changing other software). markets. This can best be attained by
projects. Transparency, modularity and promoting competition among vendors,
350. This approach to regional testability help break down entry in a way that assures that no vendor
planning and expansion is fully barriers and allow for competition in comes to ‘‘own’’ a market niche or
consistent with Standard Market software development. Modularity impose barriers to entry by new
Design’s goal of inducing efficient requires standard interfaces (well- software companies with innovative
investment by relying primarily on price defined data inputs and outputs and analytical approaches.
signals and independently administered ease of access). Since we expect 358. Many vendors have particular
Congestion Revenue Rights. At the same Standard Market Design to evolve over areas of expertise and their software is
time, it recognizes that private time and wholesale markets to grow, the often integrated with other software in
investment decisions may not be fully underlying software must be able to complete software systems. We propose
adequate in all cases because of eminent accommodate change. Scalability, to encourage the development of ‘‘plug-
domain and the possibility that private security and robustness are desirable and-play’’ software designs so that the
benefits of investment could be design features. best modules can be integrated into
significantly less than social benefits. 353. All market and operations complete market operational systems for
The planning process would have a software approximates the actual Independent Transmission Providers.
regional scope, permit direct operation of the system. However, To accomplish this we need to
competition among all types of computational and feasibility issues are standardize data transfer between
investment, include all market not well understood. Issues include modules. Participants at the conference
participants equally, and minimize the performance, AC vs. DC models and proposed two ways of accomplishing
need to rely on eminent domain and the consistency if both are used. Unit this—open systems and standardization.
support of captive customers. Because commitment models use different The open systems approach would leave
existing transmission owners are the heuristics that were not important in the it to each vendor to develop and publish
transmission builder of last resort, it old vertical structure, but can be very the interface to the next module in the
also respects the reality that not all important for new demand and supply system. The standardization approach
entrants in a decentralized market. To would define a set of minimum specific
states allow non-traditional utilities to
instill confidence in the software, standard functions for each software
build in their state or to obtain eminent
testing, validation and evaluation module and specify the interfaces to be
domain, thus creating a legal barrier to
should be a part of an open process. used between modules. We believe that
entry.
354. We propose to require that the the standardization approach is best
4. Modular Software Design software meet the characteristics set suited to the close time frame needed
351. Software and data issues have forth above and that the input and for Standard Market Design
become an important part of the market output data systems and other implementation, and invite comment on
design and changes to market design. Electronic Data Interchange be the best process to develop these
On many occasions over the past several standardized in a common data model standards—should we use the evolving
years, market designs and including a data dictionary (glossary NAESB process or forums set up by the
improvements have been delayed or and/or data definitions) and common Electric Power Research Institute for
network description. We seek comment this purpose, or use another approach?
164 We recognize that the states have the ultimate on the following questions. 359. The discussion of a suite of
authority over siting. 355. The Commission held a benchmark problems to test software
165 See existing pro forma tariff §§ 13.5 and 15.4 conference on July 18, 2002, to discuss illustrated the importance of
(transmission provider required to expand its the operational data and software benchmarking to facilitate testing and
transmission system if transmission customer
agrees to compensate the transmission provider).
needed to implement Standard Market comparison of candidate software with
This requirement extends to the transmission Design and large regional wholesale respect to solution outcomes and
owners. markets, following an earlier conference processing time. We therefore encourage
the industry to develop such a suite of Commission approached this allocation pool transmission facilities and non-
benchmark or test problems. issue by defining an integrated pool transmission facilities among
360. As a follow-up to the July 18, transmission grid as those facilities that transmission owners in New England. A
2002 Standard Market Design software operate in a single cohesive fashion to generator located on a lower voltage
conference, the Commission will hold deliver bulk power and allocating portion of the ISO’s grid must pay an
another conference on these topics on wholesale (and stand-alone additional non-PTF charge to access the
October 3, 2002. This conference will transmission customers) a proportional New England market, but other,
focus particularly and in detail on what share of the embedded costs of those generators do not, putting the first
process or body should be used to set facilities on a rolled-in basis with generator at a competitive disadvantage.
standards for data standardization for postage stamp pricing. 366. The issue of transmission/
inputs and outputs to software modules; 363. Infrequently, the Commission distribution classification in Order No.
whether the standards already would consider rate treatments 888 was in the context of unbundled
developed by the Ontario Independent premised on the distinction between retail transmission service and the
Market Operator for this purpose might transmission and subtransmission (high Federal Power Act’s legal jurisdiction
be applicable for United States and low voltage transmission). If there distinction between ‘‘transmission’’
markets;166 and how to proceed with the were delivery facilities (transmission or facilities (subject to Commission
development of test problems for distribution) that were not part of the jurisdiction) and ‘‘local distribution’’
evaluating and comparing software integrated grid, but were used by a facilities (subject to state or local
modules. specific wholesale customer (e.g., radial jurisdiction). To determine what
tap line or stepdown substation), the facilities would be under Commission
5. Transmission Facilities That Must Be
Commission would allow the direct jurisdiction for purposes of the Order
Under the Control of an Independent
assignment of those facility costs in No. 888 open access requirements and
Transmission Provider
wholesale rates. what facilities would remain subject to
361. In a variety of public forums, 364. These issues were discussed at state jurisdiction for purposes of retail
including RTO conferences and length in Commission cases in the 1970s stranded cost adders or other retail
comments to RTO proceedings, much when IOUs attempted to bifurcate the regulatory purposes, the Commission
uncertainty has been expressed pricing (effectively pancaking) and developed a seven factor test to
concerning two questions: which thereby increase their wholesale determine what facilities are
facilities belong under the control of the revenues. Customers, on the other hand, transmission facilities and what
RTO; and which customer-owned wanted to classify facilities as facilities are local distribution
transmission facilities that are turned transmission and thereby decrease their facilities.168 With respect to the seven
over to RTO control are entitled to a delivered energy charges by only paying factor test, the Commission also stated
credit? 167 In some instances, the one charge for these facilities. While the that it would defer to the state
dispute centers on whether the facilities issue was often framed as a commission’s findings as to what
are integrated. Other disputes involve transmission/distribution issue, it was facilities constitute local distribution
the voltage level at which a facility is mostly a battle over utilities trying to facilities if the state’s determination was
determined to be transmission. Under pancake rates (through charging a consistent with our comparability
this proposed rule, the question rolled-in rate plus a direct assignment principles. In addition, dual purpose
becomes which transmission facilities charge) for transmission facilities or facilities, i.e., those used both for
must be under the control or an facilities that provided both transmission or wholesale sales and for
Independent Transmission Provider, be transmission and distribution functions local distribution, would fall under the
it an RTO or not. (dual-function facilities). Commission’s jurisdiction. To the extent
b. Order No. 888 use of particular facilities changed over
a. Before Order No. 888
time, the Commission would revisit
362. Before Order No. 888, much of 365. Order No. 888 did not require a these determinations. The Supreme
the industry consisted of vertically change in traditional rate treatments. Court upheld these determinations upon
integrated investor-owned utilities However, since the Commission issued appellate review.169
(IOUs) that, for the most part, provided its open access rules, a number of
a single service—bundled requirements utilities have proposed c. Test for Transmission Facilities
power—to retail and wholesale subclassifications of transmission, e.g., 367. Order No. 888’s seven factor test
customers alike. The classification of transmission and subtransmission. was designed to determine the local
delivery facilities between transmission Protestors (generally transmission- distribution component of an
and distribution came up only in a dependent utilities) have argued that unbundled retail sale. The test did not
ratemaking context. Because wholesale this rate treatment favors transmission exist prior to Order No. 888 and in fact
requirements customers purchased bulk users that are connected to the was created to do something the
power, they often did not require transmission system at higher voltages Commission had never done before—
service over distribution facilities. (i.e., the transmission owners’ own identify local (retail) distribution
Often, only a stepdown substation or a generation) by reducing their rates for facilities. Thus, the test identifies all
feeder line was involved. For those few open access transmission service facilities that are not local distribution
stand-alone transmission services that (because they pay only the high-voltage facilities. We propose that this is the
an IOU might provide, the cost charge) and that reclassification is just appropriate starting point for
allocation issue was the same. The another way to pancake rates and determining which facilities belong
increase charges to low-voltage users. under the control of an Independent
166 See http://www.oeb.gov.on.ca/english/ During the Commission’s public Transmission Provider. To the extent
electroniclbusinesslstandards.htm last visited outreach, commenters pointed to such that a transmission owner or
July 30, 2002. splits as the pool transmission facilities
167 See, e.g., City of Vernon, California, 93 FERC
Independent Transmission Provider
¶ 61,103 (2000), 94 FERC ¶ 61,344 and 61,148
(PTF)/non-pool transmission facilities
(2001); 95 FERC ¶ 61,274 (2001); and 96 FERC ¶ in ISO New England as an example. 168 Order 888 at 31,771.
61,312 (2001). This is not a consistent classification of 169 New York v. FERC, 122 S. Ct. 1012.
believes that certain facilities should not We note that the determination of which would be required to take service under
be under the Independent Transmission facilities are under the operational the new Network Access Service pro
Provider’s control, the Independent control of the Independent forma tariff in order to meet its
Transmission Provider may request an Transmission Provider does not dictate contractual obligations to serve those
exception to this presumptive transmission pricing.177 customers.
determination. 369. We request comment whether, 371. Standard Market Design is
368. This proposed test focuses on the either in addition to or in lieu of the intended to cure undue discrimination,
presumption that, if a facility is seven factor test, the Commission more efficiently use the transmission
transmission, it belongs under the should use a bright line voltage test grid and give customers additional
control of the Independent (e.g., 69 kV) to determine which options. To help ensure that the
Transmission Provider. Thus, once a facilities are placed under the control of transition process satisfies these
determination is made with the seven the Independent Transmission Provider. objectives, the proposed rule would
factor test, there would be no need for If so, we seek comment on the bright allow certain regional flexibility in the
an additional review under the line, whether we should allow regional implementation process to the SMD
Commission’s previous integrated variation, and how transmission Tariff. In particular, the regions would
facilities test. In MidAmerican Energy facilities that are not placed under the have flexibility in converting the rights
Company,170 the Commission explained control of the Independent of existing customers to Congestion
that the Commission’s determination of Transmission Provider’s tariff are Revenue Rights or auction revenues
which facilities are transmission is fluid treated with respect to open access and under the new tariff. Also, the regions
and dependent on actual use of the rates. would have flexibility in establishing
facilities: the rate design for the new Independent
H. Transition to Single Transmission
Although we are accepting the state Tariff Transmission Providers. It is anticipated
commissions’ classification, we reiterate our that the state representatives, through
finding in Order No. 888 that to the extent 370. This section discusses the
the Regional State Advisory Committees
that any facilities, regardless of their original transition process that will be used to
discussed in Section IV.K., will play an
nominal classification, in fact, prove to be move from the existing pro forma tariff
used by public utilities to provide
active role in these regional decisions.
to the SMD Tariff. First, we discuss the
transmission service in interstate commerce provisions of the revised tariff that 1. Treatment of Customers Under
in order to deliver power and energy to remain the same as those in the existing Existing Wholesale Contracts
wholesale purchasers, such facilities become
pro forma tariff, but may change based 372. When the Commission issued
subject to this Commission’s jurisdiction and
review.171 In addition, the rates, terms and on the comments received in response Order No. 888 it faced the issue of what
conditions of all wholesale and unbundled to our questions. Second, we discuss the to do with existing contracts. The
retail transmission service provided by provisions we propose to change. When
Commission decided that it would not
public utilities in interstate commerce are Standard Market Design is
subject to this Commission’s jurisdiction and
generically abrogate existing
implemented, the revised tariff would
review.172 requirements and transmission
apply to nearly all transmission services
Further, our deference in this proceeding contracts, but that under all post-Order
on the system. All customers would
does not affect the Commission’s separate No. 888 contracts were to conform to the
receive the same quality and quantity of
determination of what facilities must be Order No. 888 pro forma tariff.
under the operational control of RTOs, service they currently receive.
373. Similarly, we propose not to
including ISOs and Transcos.173 The Customers currently taking transmission
abrogate existing pre-Order No. 888
Commission will make this latter service under an open access
contracts. On a nationwide basis, these
determination, taking into account the seven transmission tariff would continue to do
factors formulated for purposes of so, but now would be served under the contracts should represent a relatively
determining jurisdiction as set forth in Order new Network Access Service under a small portion of the total load and
No. 888,174 the ISO principles set forth in revised open access transmission tariff. should be able to be accommodated
Order No. 888,175 and the principles set forth
Bundled retail customers would within the Standard Market Design.178
in the RTO Final Rule.176 The customers with these contracts will
continue to receive service from their
existing load-serving entity; however, be able to convert these existing
170 90 FERC ¶ 61,105 (2000).
the load-serving entity would be contracts, consistent with their contract
171 In Order No. 888, the Commission explained
required to take service under the new terms, to the new Network Access
that ‘‘a public utility’s facilities used to deliver
electric energy to a wholesale purchaser, whether Network Access Service pro forma tariff Service upon implementation of
labeled ‘‘transmission,’’ ‘‘distribution,’’ or ‘‘local in order to serve those retail customers. Standard Market Design. However, as
distribution,’’ are subject to the Commission’s
Similarly, while wholesale customers discussed below, if customers choose
exclusive jurisdiction under sections 205 and 206 not to convert to the new service, the
of the FPA.’’ Order No. 888 at 31,969; accord with pre-Order No. 888 contracts would
Nevada Power Company, 88 FERC ¶ 61,234 at be given the opportunity to convert to transmission owner would be required
61,768 (1999). the new transmission service under a to take service under the new tariff in
172 Transmission service in interstate commerce
revised open access transmission tariff, order to meet its contractual obligations
by public utilities, including the rates, terms and to serve the pre-Order No. 888 contract
conditions for such service, remains within this if they choose not to do so, the
Commission’s exclusive jurisdiction. 16 U.S.C. 824, transmission owner that provides customers.
824d, 824e (1994). See generally Order No. 888–A service under the pre-888 contract 374. If pre-Order No. 888 contracts
at 30,339–41. remain in effect, the contracting
173 Which facilities will or will not be under an
177 As noted in MidAmerican, present ISO transmission owner would be required
RTO’s operational control also does not
predetermine transmission pricing, cost allocation,
agreements obligate transmission owners to provide to take service from the Independent
access over facilities that are not under the control Transmission Provider in order to serve
or rate design determinations at either a state
of the ISO if those facilities are needed to provide
commission or at this Commission. wholesale transmission service regardless of its existing wholesale power or
174 Order No. 888 at 31,771.
ownership or whether those facilities are labeled
175 Order No. 888 at 31,730–32. 178 It appears that these contracts would be less
transmission, distribution (i.e., distribution
176 Regional Transmission Organizations, Order facilities other than local distribution), or local than 10 percent of total load on a nationwide basis
No. 2000, FERC Stats. & Regs. ¶ (1999) (RTO Final distribution. The same holds for Independent based on data from Form No. 1 filings by public
Rule). Transmission Providers. utilities for calendar year 2000.
transmission contract. The Independent Design is implemented.180 This would users. If those needs cannot all be met
Transmission Provider will assess the include firm Point-to-Point simultaneously, then not all customers
transmission owner for all charges and Transmission Service under an open can have annual Congestion Revenue
payments for providing the transmission access transmission tariff,181 firm Rights equal to their peak usage,183 then
service. The transmission owner will transmission under pre-Order No. 888 the initial allocation of Congestion
receive the allocation of initial contracts, designated resources for Revenue Rights would be limited to the
Congestion Revenue Rights (or auction network transmission service pursuant amount that is simultaneously feasible.
revenues associated with Congestion to an open access transmission tariff, The Congestion Revenue Rights could
Revenue Rights) to provide protection and bundled retail load (which is served be allocated between customers on a pro
against congestion costs for these under an implicit contract with the rata basis or customers could be given
existing contracts. If the ultimate transmission owner). For firm Point-to- the opportunity to change receipt points
transmission customer prefers having a Point Transmission Service, the existing to achieve a simultaneously feasible
direct allocation of these rights, it can rights would be those specified in result, or the Congestion Revenue Rights
convert the contract, subject to any existing service agreements. For could be restricted to certain periods.184
contractual limitations, so that the network transmission service and 378. Either of two methods could
customer directly receives service bundled retail transmission service, the ensure that current customers receive
through a service agreement under the existing rights would be limited to the the value of their current contracts
SMD Tariff and would take service designated resources in effect at the (actual or implicit)—direct assignment
directly from the Independent time, up to an amount equal to the and an auction with a revenue
Transmission Provider.179 We expect customer’s current peak load since this assignment.185 First, Congestion
that the Congestion Revenue Rights or would replicate the service the customer Revenue Rights could be directly
auction revenues for Congestion is currently receiving. The Congestion assigned to the customers that currently
Revenue Rights that the transmission Revenue Rights would go to the entity have the receipt points and delivery
owner will receive in association with taking service under the Independent points identified in their existing
these contracts will be sufficient to Transmission Provider’s tariff. In contracts (actual or implicit). Under this
cover increased congestion costs that general, these customers would not be approach, a customer that currently has
would result from having the granted an initial allocation based on a firm point-to-point transmission
transmission owner take service under additions for future load growth, but contract for 100 MW from point A to
the new tariff in order to serve its would have to secure those rights. point B would receive 100 MW of
wholesale requirements customers. However, there are instances where the Congestion Revenue Rights from point
However, the transmission owner would vertically integrated transmission A to point B for the length of its
have the right to make a filing pursuant provider has identified load growth and contract. A network customer or a load-
to section 205 of the Federal Power Act limited the term (and rollover rights) of serving entity serving retail load that
to demonstrate that its revenue point-to-point transmission contracts. has identified a network resource for
requirement should be adjusted to We seek comment as to whether and 100 MW of capacity would receive a
recover additional costs caused by under what circumstances load growth Congestion Revenue Right for 100 MW
implementation of this provision. should be accommodated in the direct from that receipt point to the customer’s
allocation of Congestion Revenue load.186 The delivery points would be
375. The Commission is concerned Rights. The initial Congestion Revenue
that pre-Order No. 888 contracts could defined as the customer’s interface
Rights would be receipt point-to- points with the Transmission Provider.
permit the parties to extend a contract delivery point obligations.
indefinitely through the use of roll-over For network contracts and implicit
377. Next, the catalogue of firm contract, it is likely that customers
or evergreen provisions in the contracts. obligations would be subject to a
The Commission seeks comment on would continue service for the
simultaneous feasibility test.182 On foreseeable future (without a contract
whether it should limit the ability of the some systems, it may not be possible to
parties to extend these contracts past termination date). Thus, we seek
award Congestion Revenue Rights that comment on what type of term should
their initial term, or if that has passed are simultaneously feasible to all of the
the end of the next roll-over period and, be used for purposes of the Congestion
existing firm transmission customers on Revenue Rights allocation for these
if so, what limitations are appropriate. the system, because the system may be contracts.
2. Allocation of Congestion Revenue leveraging load diversity—different
Rights customers using the grid at different 183 Congestion Revenue Rights that give a holder
times—to meet the peak needs of all different seasonal quantities could be an option in
376. The initial allocation of such a case.
Congestion Revenue Rights is important 180 Network transmission contracts are not 184 If the simultaneous feasibility tests indicate
to ensure that the implementation of currently assignable because they do not consist of there are additional Congestion Revenue Rights that
Standard Market Design preserves the reservations from particular receipt points to could be offered, these Congestion Revenue Rights
delivery points in specific stated amounts. will be offered through an auction open to all
service rights of existing customers, Therefore, some measure of historical usage on a customers.
provides access to all available capacity point-to-point basis will have to be imputed to each 185 For the sake of simplification, this discussion
and minimizes cost shifts. We offer a network customer in order to assign Congestion assumes that simultaneously feasible Congestion
process for this transition. First, the Revenue Rights. Revenue Rights could be issued to replicate current
181 Short-term firm contracts would expire before rights. If adjustments need to be made to ensure a
Independent Transmission Provider the implementation of Standard Market Design and simultaneously feasible result, the numbers may
would compile a catalogue of all the would thus not be included in the catalogue. change, but the same basic methodology would be
existing long-term firm obligations for 182 Simultaneously feasibility means that power used for the conversion process.
its transmission system that would still can be simultaneously transmitted from the receipt 186 In states that have retail competition,
be in effect when Standard Market points to the delivery points specified in the provisions would also be needed to ensure that the
Congestion Revenue Rights in a contingency- Congestion Revenue Rights stay with the load. So
constrained dispatch. If this power flow does not if a new retail marketer starts serving load
179 To the extent that there are contractual cause overloads on the system (either pre- or post- previously served by the local utility, the retail
limitations, the customer could seek modification of contingency), then the power flow is marketer would get a proportionate share of the
the contract through a filing with the Commission. simultaneously feasible. Congestion Revenue Rights.
379. Alternatively, current firm market. This could be problematic developed a voluntary safe harbor
customers could be given the auction particularly with Congestion Revenue procedure under which non-public
revenues from the sale of Congestion Rights held by vertically-integrated utilities could submit to the
Revenue Rights. Thus, the existing utilities. Second, experience to date has Commission a transmission tariff and a
customers would receive the market been that there is a more vibrant request for declaratory order that the
value of those rights. Under this secondary market where Congestion tariff meets the Commission’s
approach, all of the Congestion Revenue Revenue Rights are auctioned rather comparability (non-discrimination)
Rights available on the system would be than directly assigned.187 standards. If the Commission found it to
sold through an auction. At a minimum, 382. This proposed rule establishes a be an acceptable reciprocity tariff, the
the Congestion Revenue Rights sold in preference for the auction of Congestion Commission would require the public
the initial auction would have to Revenue Rights. After a transition utility to provide open access service to
include point-to-point obligations. If period, all Independent Transmission that particular non-public utility.189
there is interest from market Providers would be required to auction 384. We propose to continue this
participants and it is technically their Congestion Revenue Rights. approach to reciprocity. Further, we
feasible, the auction could also include However, for an initial transition period propose to grandfather all reciprocity
point-to-point options and flowgate of four years, this rulemaking proposes tariffs that the Commission previously
rights. to allow regional flexibility on this found met the comparability standards
380. The terms of the Congestion issue. During a transition period, the of Order No. 888. We request comment
Revenue Rights would vary. Initially, a Independent Transmission Provider on this proposal.
set percentage would be auctioned on a after consultation with the Regional
monthly basis, another set percentage State Advisory Committee and 4. Force Majeure and Indemnification
would be auctioned for six months and stakeholders in a region, could decide to Provisions
another for one year. This rulemaking directly assign Congestion Revenue 385. In Order No. 888, the
proposes that the regions be given Rights. At the end of the transition Commission recognized that the risk
flexibility in setting the initial terms for period, the Independent Transmission allocations regarding liability and
the Congestion Revenue Rights sold in Provider would be required to submit a indemnification ‘‘must be carefully
auctions. Since congestion patterns can filing to move to an auction for drafted so that transmission providers
change significantly after the Congestion Revenue Rights with the and customers can accurately assess and
implementation of LMP, there may be a auction revenues allocated to those that account for their respective risks.’’ 190
benefit to delaying the auction of multi- pay the access charge, or justify why a The Order No. 888 pro forma tariff
year Congestion Revenue Rights until longer transition period is necessary. contains a force majeure provision and
after a start-up period. On the other The customer that previously had been an indemnification provision.191 The
hand, customers may desire long-term allocated the Congestion Revenue Rights force majeure provision provides that
Congestion Revenue Rights to would now receive the auction neither the transmission provider nor
correspond to the term of the long-term revenues. The customer could the transmission customer will be liable
contracts used to satisfy the long-term participate in the auction if it wished to to the other when they behave properly,
resource adequacy requirement. We retain the Congestion Revenue Rights. but unpredictable and uncontrollable
seek comment on whether we should We seek comment on whether to allow force majeure events prevent
require long-term Congestion Revenue a transition period before the start of compliance with the tariff.
Rights in such cases. The Congestion Congestion Revenue Rights auction 386. Under the indemnification
Revenue Rights that would be sold allocations and, if so, what the length of provision, the transmission customer
during the initial auction would be the such a transition should be. indemnifies the transmission provider
set of Congestion Revenue Rights that against third-party claims that arise
3. Reciprocity Provision
maximizes the value of the awarded from the performance of obligations
Congestion Revenue Rights based on 383. In Order No. 888, the under the tariff. The Commission
buyers’ bids that is simultaneously Commission included a reciprocity explained that the purpose of the
feasible. The revenues from the auction provision in the pro forma tariff. Under indemnification provision was to
would be given to the customers that are this provision, all customers (and their
allocate the risks of a transaction, and
paying for the embedded costs of the affiliates), including non-public utility
costs of the risks, to the party on whose
system through an access charge. entities, that own, control or operate
behalf the transaction was conducted.192
381. In the long-term, the auction interstate transmission facilities and
Further, as the tariff did not obligate the
methodology has a number of that take service under a public utility’s
customer to perform services on behalf
advantages over the allocation open access transmission tariff, must
of the transmission provider there was
methodology in a competitive wholesale offer comparable (not unduly
no comparable basis for imposing an
market. First, the auction methodology discriminatory) services in return.188
indemnification obligation on the
makes it easier for load-serving entities The Commission also recognized that a
transmission provider. The Commission
to change receipt points (and thus public utility may deny service simply
on a claim that the open access offered found it inappropriate to require the
supply sources) and obtain protection
by a non-public utility was not customer to indemnify the transmission
against congestion costs because of the
satisfactory. Thus, the Commission provider from damages arising from the
more frequent auctions for Congestion
transmission provider’s own negligence.
Revenue Rights. The same would also
187 New York ISO auctions Congestion Revenue Thus, a transmission customer is not
apply to sellers seeking to sell to
Rights and PJM directly assigns Congestion required to indemnify the transmission
different buyers. In contrast, if Revenue Rights. MISO has also proposed to initially provider in the case of negligence or
Congestion Revenue Rights are directly directly assign Congestion Revenue Rights but to
assigned, holders of the Congestion transition to an auction of Congestion Revenue 189 Id.
Rights with an allocation of auction revenues to the at 31,761.
Revenue Rights on congested paths may 190 Order No. 888 at 31,765.
customers that pay the embedded costs of the
be reluctant to offer these in the system. 191 See Sections 10.1 and 10.2 of the pro forma
secondary market. This could limit the 188 See Order No. 888 at 31,760; Order No. 888– tariff.
ability of new suppliers to enter the A at 30,285. 192 See Order No. 888–A at 30,301.
intentional wrongdoing by the wholesale electric markets are not yet generator can withhold physical power
transmission provider.193 The structurally competitive in all respects. (physical withholding) or cause
Commission further explained that The two significant structural flaws are physical power to be withheld through
while it was appropriate to protect the the lack of price-responsive demand and inflated bids (economic withholding).196
transmission provider when it provides generation concentration in Competitive prices over the long run
service without negligence, the transmission-constrained load pockets. should recover both the fixed and
determination of liability in other Given these structural defects, the variable costs of efficient generating
instances should be left to other Commission cannot rely on the units. The challenge for market power
proceedings. interaction of supply and demand in all mitigation on the supply side is to
387. Since Order No. 888, several instances to ensure that prices are assure that it allows long-term
entities have sought to revise their open competitive and thus just and competitive prices, which allows the
access transmission tariffs to include reasonable. opportunity to recover the fixed costs of
liability provisions arguing, among 391. Cost-of-service regulation is not the investment as well as the short-term
other things, that no current federal effective for spot market pricing of variable costs of producing electricity. If
forum exists for entities that are now commodities such as electricity. In the some degree of scarcity pricing is not
subject to Commission jurisdiction only past, customers were served by a allowed, and generation only recovers
and can no longer seek relief at the state monopoly supplier under cost-of-service short-term marginal costs, then some
level. rates, in which the fixed and variable generators needed for reliability could
388. We recognize that there may be costs of a company’s generation fail to recover their full costs and may
a need to include liability provisions in portfolio were allocated over the be retired. Worse yet, prices could be
the Commission’s pro forma tariff in expected hours of service to determine held so low that investors decline to
circumstances in which there are no a cost per kWh. But today, the power invest in needed generation,
liability provisions available in a state needs of load-serving entities are met transmission and demand-side projects
tariff; however at this time, we are not through a mix of sources, including the because they do not see a reasonable
prepared to propose a specific companies’ generation portfolios, and expectation of recovering their costs.
provision.194 long-term and spot market purchases 394. The market power mitigation
389. We seek comment on the from a variety of sellers, including measures proposed here are designed to
following issues: Is there a need to independent producers and marketers. address the major structural defects in
include liability provisions in the These do not match the long-term wholesale electric markets. The major
Commission’s pro forma tariff? Under arrangements needed for cost-of-service structural defect on the demand side is
what circumstances should liability regulation. In this competitive context, the lack of price-responsive demand;
protection be provided in a Commission cost-of-service regulation designed for when customers cannot respond to high
open access transmission tariff (e.g., long-term cost recovery is not well prices by lowering their consumption,
should we provide such protection only suited for determining appropriate spot they cannot discipline price increases
where it is not available through state market prices. When applied to spot from suppliers. Absent demand
tariffs)? If we adopt liability provisions, markets, cost-of-service regulation response, market prices will reflect
should they be generic or do they need blunts price signals and leads to
to be adopted on a regional basis? inefficient investment and consumption significantly above a competitive level for a
Should the standards adopted in a sustained period. Alternatives to Traditional Cost-
decisions which over the long run of-Service Ratemaking for Natural Gas Pipelines, 74
Commission pro forma tariff reflect increase costs for all customers. FERC ¶ 61,076 at p. 61,230 (1996); and cases cited
what was previously provided under 392. When markets do not produce id at n. 52. See also, Alternatives to Traditional
state law? How do we resolve the issue competitive outcomes, the Commission Cost-of-Service Ratemaking for Natural Gas
in the multi-state context of an ISO or must use new regulatory tools to Pipelines, 70 FERC ¶ 61,139 at p. 61,403 (1995)
(concerning transportation and storage services).
RTO? The Commission will review the produce just and reasonable results. We These factors recognize that it is difficult to identify
comments filed and then hold a staff propose new market power mitigation market power with precision, both because it is
technical conference in the fall to measures to deal with the consequences difficult to precisely identify the competitive price
further discuss this issue. of major structural defects in wholesale (which should recover both fixed and variable costs
over the long run) and because it can be difficult
electric markets, by approximating the to isolate the impact of one entity on the
I. Market Power Mitigation and
outcomes that a competitive market competitive price. These factors also recognize that
Monitoring in Markets Operated by the
would produce. These measures should there is an implicit cost/benefit assessment to
Independent Transmission Provider decisions to intervene in the exercise of market
function in markets that are not
power. The cost of intervention in transient price
1. Principles and Objectives workably competitive, but not inhibit increases could be greater than the public benefit
390. In a structurally competitive market operation in more competitive gained by the intervention. Commission decisions
market, one with many buyers and markets. Effective market monitoring about when to intervene in an exercise of market
and market power mitigation are critical power are important, but need to be tailored to the
sellers who cannot influence price, the circumstances of the product and the industry. In
market can assure an overall efficient elements of the Commission’s plan to the electric industry, electricity prices can spike for
outcome where prices indicate the value create and sustain competitive regional one hour or a few hours in ways that are less likely
of additional supplies and conservation. bulk power markets. Therefore, the for natural gas pipeline transportation and storage
Commission proposes rules for the spot rates, and the consequences can be quite different.
The development of structurally Since the definition of market power and the
competitive markets is the markets to be operated by the decision when to intervene in its exercise are
Commission’s long-term goal. However, Independent Transmission Provider to analytically distinct issues, in this rulemaking the
at this stage of the industry’s evolution, mitigate market power. Commission incorporates the concept of when to
393. Market power is the ability to intervene in an exercise of market power into the
choice of triggers for the market power mitigation
193 See Order No. 888–A at 30,299–300; Order No. raise price above the competitive mechanisms, rather than in the definition of what
888–B at 62,080. level.195 This can be accomplished if the constitutes market power.
194 We have included the indemnification and 196 Market power can also be exercised by
liability provisions from the existing pro forma 195 The Commission’s natural gas pipeline cases creating barriers to entry so other suppliers cannot
tariff in the SMD Tariff pending review of the have used a definition of market power that reach the market or by causing other supplier’s
comments in this proceeding. examines the company’s ability to raise prices production costs to increase.
suppliers’ bids alone, so we cannot rely prices, or mask scarcity prices, 402. While it is clear that the first
on market prices to ration scarce providing the wrong economic signals three measures must be part of the
supplies in all situations. Therefore, the for efficient investment or demand Standard Market Design market power
market power mitigation needs to response. mitigation plan, there may be market
compensate for the lack of price- conditions in which a fourth measure is
2. Overview of the Market Power needed. The fourth mitigation measure
responsive demand in the market.
Mitigation Measures would deal with situations when non-
395. On the supply-side, structural
problems tend to be more location- 398. The Commission proposes a competitive conditions may exist, by
specific and time-dependent. For market power mitigation plan composed examining and possibly limiting bids
example, binding and sometimes of three mandatory components that are from individual suppliers into the day-
unpredictable transmission constraints specifically tailored to the structural ahead and real-time spot markets if
may restrict competitive alternatives flaws in the wholesale electric markets those bids are high due to withholding
and create opportunities for some sellers and a voluntary fourth measure that rather than scarcity. Exercise of this
to increase prices above a competitive could apply in unusual market mitigation could be triggered by
level, at least for any seller that knows conditions to assure that the high prices predetermined conditions or triggers
some of its output will be required to are not the result of market power. (such as a sustained period of prices
meet load reliably. This problem is often 399. The first measure addresses the significantly above competitive levels),
described as a load pocket problem. In local market power problem and is or by significant infrastructure problems
some load pockets, a specific generator similar in concept to the reliability must in the market (e.g., sustained tight
may be identified as needed for run agreements that exist in the ISOs reserve conditions, as might be due to
reliability, which gives it a local today. The market monitor will identify drought). This mechanism is like the
monopoly.197 In other situations certain conditions in which certain Automatic Mitigation Procedure (AMP)
without severe constraints, the generators are in concentrated used by the New York ISO, and adopted
geographic market may be broader but if geographic markets created by recently for the California ISO. This
little generation divestiture or entry by transmission congestion or reliability mechanism would not be required for
non-affiliated generators has occurred, needs of the grid. These would include every region but may be adopted if the
concentration of ownership may remain units needed to run to support the market monitor’s analysis determines
high. Market power mitigation needs to reliable operation of the grid or a set of this measure is needed.
mitigate local market power, whether it units owned by a small number of 403. The implementation of the
arises because of a load pocket, companies. At those times, those units market power mitigation plan
transmission constraints, or ownership will have localized market power so that summarized above and described in
concentration. when they are required to provide their more detail below will rely on the
396. To be effective, market power energy or ancillary services to the grid results of an initial competitive market
mitigation measures must be applied their bids into the market should be analysis by the Independent
before the fact, since remedies after the capped.198 The conditions when their Transmission Provider’s market monitor
withholding has occurred are disruptive power must be supplied to the grid (a in each region. This will identify at the
to the market and increase regulatory must-offer obligation) and the bid cap to outset the persistent load pockets or
risk to its participants, which increases apply would be specified in their other conditions that create local market
costs to customers. participating generator agreement with power. This analysis will be filed with
397. In sum, the challenge in the Independent Transmission Provider. the Commission as part of the
developing an effective market power 400. The second component, a safety- implementation process for Standard
mitigation plan is to design a plan that net bid cap such as the $1000 per Market Design and subject to comment
allows markets to function where they megawatt-hour cap currently used in from all interested parties. After
are competitive and, where they are not, Northeast markets and Texas, addresses Commission review, it will form the
uses market mechanisms to facilitate the the lack of price-responsive demand. basis for the mitigation measures that
transition to competitive markets. Sellers could freely offer any amount of are applied by the Independent
Market mechanisms can be used to energy to the spot markets constrained Transmission Provider. It then will be
approximate the outcomes that a only by the safety-net bid cap. The updated annually to review the
competitive market would produce to safety-net bid cap should allow markets continuing effectiveness of the market
provide the price signals for efficient to produce prices that reflect some (and power mitigation.
perhaps a significant) amount of scarcity 404. The market power mitigation
investment and demand response.
when shortages of reserves or power measures proposed rely principally on
Because of the characteristics of
exist. But absent demand response, it mitigating market power in spot
electricity (it can be stored only in
sets an outer bound on suppliers’ ability markets. Mitigation would only apply to
limited instances—pumped storage,
to exercise economic withholding. products traded in the spot markets
compressed air, batteries) and the
401. The third component of the operated by the Independent
electric grid (flows follow the path of Transmission Provider, not to products
least resistance), even in regions where market power mitigation plan is the
resource adequacy requirement traded under bilateral contracts outside
markets are generally competitive, the Independent Transmission
transmission constraints may create discussed in Section J. The resource
adequacy requirement does not directly Provider’s spot markets. This is the least
non-competitive conditions during intrusive framework for market power
certain hours. In addition, when market prevent withholding, but by expanding
the resource alternatives it diminishes mitigation but at the same time provides
power exists, the market power very effective protection against market
mitigation plan should be calibrated so the incentive and the ability of suppliers
to practice and profit from either power.
that it does not inefficiently suppress 405. Although power and operating
physical or economic withholding.
197 This is also true for certain types of ancillary
reserves purchased in the organized
services (e.g., reactive power) where specific 198 This would include a broader group of units spot market are only a small percentage
generators may have the ability to exercise market than what are often referred to as reliability must of total purchases, mitigating the
power because of their location. run units. organized spot market is an effective
way of mitigating market power energy to the spot markets. This would bidding into the spot market. The need
generally.199 Bilateral contracts be a must-offer requirement. The for the generator to be producing could
generally reflect buyer and seller requirement would apply when the be identified either in the day-ahead
expectations of prices in spot markets. generator’s power is needed to maintain market based on projected system
Therefore, market power mitigation in the reliable operation of the grid, and conditions or in real time. In the day-
the organized spot market will also when there are insufficient ahead market, all available capacity
effectively discipline market power in competitive alternatives. The would include all capacity not sold
bilateral markets as well.200 However, if participating generator agreement would bilaterally and scheduled or on an
spot market prices are over-mitigated, it specify the conditions that would give outage. In the real-time market, all
may weaken incentives for buyers to rise to a generator’s must-offer available capacity would include all
contract in bilateral markets and expose requirement, and would also specify bid non-producing capacity (not delivered
spot market prices to greater price caps that would apply when the to the market) i.e., capacity not on a
volatility. Regular reassessment of the generator was required to bid into the planned or forced outage.204
market power mitigation practices can day-ahead and real-time markets. In 411. The Commission invites
prevent this outcome, and, as discussed non-competitive conditions, the comment on how to structure the local
infra, the market monitor will be generator’s bids could not exceed the market power mitigation, particularly
required to annually reassess the capped values. Although the on how to define the noncompetitive
effectiveness of the market power participating generator agreement may conditions which should trigger the
mitigation. restrict a generator’s energy and mitigation, and on how bid caps should
operating reserves bids, the generator be structured for generators operating
3. Market Power Mitigation for Local would still receive a market-clearing under a participating generator
Market Power price and additional revenue to cover agreement.
406. Local market power principally start-up and no-load costs.202 The 412. There are some options for
arises either from the concentration of capped bid could also set the market dealing with the risk of a forced outage
generator ownership within a load clearing price. inside a load pocket. One is for a
pocket, or the need for local units to 409. In addition to the bid caps portion of available day-ahead capacity
operate to assure system reliability and specified in the participating generator to be exempt from the bid-in
stability within the load pocket. Local agreements, local market power also requirement to reflect forced outage risk
market power can arise from both will be limited through bilateral in real time. Another possibility is to
persistent and foreseeable congestion, or contracts between load-serving entities allow generators to provide all available
from sporadic transmission congestion. and the generators. Under the resource capacity in real time at a capped bid in
Although local market power can arise adequacy requirement, load-serving lieu of bidding in the day-ahead market
from these different conditions, the entities must have enough resources to to accommodate generators that have
mitigation method proposed here can be meet their demand to ensure the significant risk or opportunity costs. A
effective at mitigating the local market reliability of the grid. It can be expected third option would vary depending on
power regardless of how it arises. that some of those resource whether the generator receives a reserve
407. In the existing ISOs in California requirements will need to be fulfilled capacity payment. If the generator
and the Northeast, participating with contracts with generators within receives a capacity payment, that
generator agreements are used to set out their load pocket to ensure that the payment compensates for the outage
the operating terms, conditions and resource is deliverable during peak or risk so the generator should be obligated
obligations concerning the dispatch of a congested periods. Bilateral contracts to deliver energy or to pay for substitute
generating unit, serving principally a are an effective way for a buyer to supply from some other source. If the
reliability purpose. Under the Standard mitigate the market power of a seller.203 generator does not receive a capacity
Market Design pro forma tariff all The load-serving entities can be payment, then it should not have to bear
generators dispatched by the expected to include provisions in these the risk for a legitimate outage. Units
Independent Transmission Provider contracts specifying when a generator declaring a forced outage would be
would enter into a participating must run to meet any reliability needs subject to audit by the market monitor.
generator agreement.201 Standard in that location and the price to be paid. If the outage is found to be unjustified,
Market Design will require these Whenever a generator is scheduled to then the generator should be subject to
participating generator agreements to run under a bilateral contract, this will a penalty. The Commission requests
include provisions to mitigate local fulfill its must-offer obligation in the comment on the penalty that would be
market power. participating generator agreement with appropriate to deter unjustified forced
408. The participating generator the Independent Transmission Provider. outages.
agreements, which would be filed with 410. Under the participating generator
the Commission, would identify the agreements, when conditions are not 4. The Safety-Net Bid Cap
non-competitive conditions when the competitive, that is, when there are 413. If bid-in capacity is generally
generator with local market power insufficient alternatives available to insufficient to meet both operating
would be required to offer its energy meet load in that location, a generator reserve requirements and load, capacity
either by scheduling a bilateral must run to provide all its available rights associated with the resource
transaction or by offering all available capacity to the grid, either by adequacy requirement may be exercised
scheduling a bilateral transaction or by load-serving entities that have
199 Stoft, Steven. Power System Economics. New
secured sufficient capacity so that they
York, NY: Wiley-IEEE Press, 2002, Section 2–4.5, 202 SMD Tariff section F.1.11. The generator’s
‘‘How Real-Time Price-Setting Caps the Forward legitimate minimum run times would also be
will not be interrupted. However, in this
Markets,’’ p. 150. honored under the provisions of SMD Tariff section situation, lack of demand response can
200 Relying on mitigating market power in the F.1.5.
spot market has been an effective mitigation method 203 See Comment of the Staff of the Bureau of 204 Under the Standard Market Design tariff, all
in the New York ISO under its AMP, and the Economics and the Office of the General Counsel units scheduled day ahead under a must-offer
California ISO since May, 2001. of the Federal Trade Commission, Docket No. obligation, but not needed in real time would get
201 SMD Tariff Section A.9.2. RM01–12–000 (July 23, 2002). paid their start-up and no-load costs.
result in dramatic increases in market- maintain the same level of resource that satisfied the pre-determined triggers
clearing prices, even with adequacy in the absence of price. for the mechanism, it would be the
comprehensive mitigation on the market monitor’s responsibility to give
5. Mitigation Triggered by Market
supply-side, if imports can bid in at notice to the public and the Commission
Conditions
unrestrained levels. In this case, that the tariff mechanism had been
imported power from adjacent markets 415. The Commission proposes a triggered. The mechanism would then
could set a market-clearing price above fourth voluntary market power automatically take effect until the
the marginal cost of the highest cost unit mitigation measure which may be conditions developed that satisfied the
dispatched within the market.205 recommended by the market monitor pre-determined triggers for the
Current markets in the Northeast and during the Standard Market Design suspension of this market power
Texas rely on a $1000 per megawatt- implementation process, or any time mitigation mechanism. If a market
hour bid cap, regardless of market thereafter. This measure, if needed, monitor proposes to use this form of
conditions, as a safety-net that may be would apply to unanticipated and market power mitigation, the details of
binding in this situation. The sustained market conditions that would the mechanism and the triggers would
Commission proposes to adopt a safety- give the ability and the incentive to be subject to comment by all interested
net bid cap as part of the market power exercise market power. For example, parties, and review by the Commission.
mitigation plan here. Under this extreme supply or demand conditions to
proposal, no bid to supply can exceed which the market cannot quickly adapt, 6. Establishing Bid Caps or Competitive
this level, regardless of cost or risk or such as the loss of significant Reference Bids
location, even if the market is hydropower capacity because of 418. The mitigation for local market
confronted with a genuine operating drought, or force majeure events such as power, through the participating
reserve shortage. However, if the a major transmission line outage. These generator agreements, relies on must-
monitor establishes that some units may kinds of events, which are not offer obligations to mitigate physical
provide power at a cost that exceeds the transitory, can provide opportunities to withholding and bid caps to mitigate
safety-net, a higher price for those units exercise market power even in a market economic withholding. Mitigating
would be justified. In California, for that is normally workably competitive. economic withholding entails
example, imports are not allowed to set It may be appropriate for other determining appropriate bid caps for all
the market clearing price. However, in conditions to trigger this mechanism. bid-in parameters.207 The unit-specific
the market power mitigation framework We seek comment on what these triggers bid caps in the participating generator
proposed here imports would be should be. Although market-clearing agreements serve as proxy competitive
allowed to set the market clearing price prices would be expected to rise in bids for energy, regulation service, and
in order to get a proxy for a scarcity these situations, and perhaps sharply operating reserves, and for other unit-
price, up to a capped value. If and significantly, it may be important specific operating parameters such as
requirements cannot be satisfied with for the market to have the assurance that minimum run times and high and low
bid-in imports that would be subject to the price increases are attributable to the operating levels. Bid caps should reflect
the safety-net bid cap, then load that has extreme circumstances and not to the the marginal cost—including
not met its resource adequacy exercise of market power. An AMP opportunity cost—of offering all
requirement should be penalized as mechanism such as those approved by capacity, including power that may be
described in the Resource Adequacy the Commission in New York ISO and supplied only under limited conditions.
section. A safety-net bid cap, such as the California could provide this kind of Other bid-in parameters should
$1000 per megawatt-hour cap in the assurance.206 reasonably reflect operating conditions
Northeast and Texas, can serve as a 416. This kind of mechanism may not consistent with good engineering
proxy scarcity price under Standard be necessary in every region. If a market practice under competition.
Market Design. The Commission monitor proposes such a mechanism, 419. The development of bid caps,
requests comment whether the safety- the proposal must include the specific especially for generators with significant
net bid cap should be uniform across an triggers that would be used to initiate opportunity costs such as hydropower
interconnection, so that there would be this form of market power mitigation and energy-limited units, is difficult and
one cap applicable in the East and along with the details of the mitigation can be controversial. Nevertheless, this
another applicable in the West. method. Since this form of market mitigation plan would require that each
414. Comment is requested on how to power mitigation is for temporary generator, including hydropower and
determine an appropriate value for such market conditions, it will be equally energy-limited units, that may have
a cap. It is important to examine the important for the market monitor to local market power would need to have
implicit trade-off between bilateral indicate the criteria to determine when an agreement establishing bid caps for
capacity payments, the safety-net bid the market has returned to normal all bid-in parameters if its power is
cap and local market power mitigation. competitive conditions and this market needed for the grid or local market
That is, a bid cap that constrains power mitigation method will be power mitigation is necessary.
scarcity prices would be expected to suspended. 420. The Commission has approved
translate into higher bilateral capacity 417. The details of this market power several options for setting default energy
payments under a contract to fulfill the mitigation method, including the bids that in some circumstances serve as
long-term resource adequacy triggers, would be set out in the energy bid caps. They include: (1)
requirement. With a higher safety-net Independent Transmission Provider’s Default bids based on various averages
bid cap, perhaps one based on the value tariff. If market conditions developed of previously selected in-merit bids; (2)
of lost load, smaller bilateral capacity default bids based on various cost
payments would be required to 206 See California Independent System Operator
measures, usually a measure of
Corp., 100 FERC ¶ 61,060 (2002). See New York
205 Generators outside the region would not have Independent System Operator, Inc. et al., 99 FERC operating cost adjusted for fuel costs;
participating generator agreements with the ¶ 61,246 (2002). Although AMP was in effect in all
Independent Transmission Provider, with of New York, it was only triggered on four 207 These same considerations would apply if the
provisions for addressing local market power, and occasions, reflecting conditions in eastern New Commission adopted an AMP-like mechanism with
neither would marketers. York. bid caps or competitive reference bids.
and (3) default bids agreed through opportunity costs. In other words, there the Commission requests comment on
contract or negotiation. For many fossil- appears to be no economic reason why how to identify the options for
fired units, an estimate of operating such units should not always be fully determining competitive bid caps for
costs plus a margin, such as ten percent, committed either to the bilateral market regulation service and operating
could provide a reasonable bid cap for or spot markets for operating reserves. reserves, including availability bids,
a unit’s energy bid when competitive Consequently, it appears unnecessary to that should be established for day-ahead
forces cannot be relied on, similar to cap energy bids from such resources and real-time markets.
PJM’s approach for mitigating reliability below the safety-net bid cap as long as 425. In the New York and PJM day-
must run units.208 Although fossil-fired their bids to provide operating reserves ahead markets, the unit-specific energy
units may have opportunity costs not were always in-merit. Alternatively, bid cap applies to the day-ahead market
fully reflected by operating costs, an other energy-limited resources might be where separate bids for start-up and no-
adder, such as that used by PJM, is one allowed to submit a bid that states a load costs are also available and would
way to allow flexibility to respond to total megawatt-hour availability over the also be available under Standard Market
these uncertain costs. The Commission day and allow the market operator to Design. Market power mitigation should
requests comment on whether the level schedule the power from the unit in the also establish caps for these bids and a
of the adder should be reviewed on a hours when the price is highest. variety of bid-in operating parameters,
region-by-region basis or if the Comment is requested on these and such as low and high operating levels
Commission should establish a uniform other approaches to establishing and minimum run times, if non-
adder, and if so, at what level. reasonable caps for energy bids. competitive circumstances would
421. For peaking units that are likely 423. Another alternative for
permit sellers to manipulate these
to set market clearing prices when they hydropower, and other energy-limited
parameters to get unjustified higher up-
are dispatched, the must-offer resources, would be for the unit
lift payments. PJM, for example, does
requirement coupled with mitigation operator to submit a seasonal or
not mitigate the start-up and no-load
that sets bid caps at marginal cost could monthly schedule for when the unit
result in revenues that fail to recover would not be expected to operate. This bids or certain operating parameters, but
fixed costs over a reasonable period of would enable, for example, hydropower it only allows units to change these
time. Although such units may recover units to specify the periods when they values once every six months. New York
additional revenue in capacity and would expect to need to preserve water permits greater flexibility and uses
reserves markets, bid caps for these or flow water to satisfy environmental various screens to assess whether a
units could also reflect a ‘‘scarcity’’ conditions. While these units have seller is behaving non-competitively
premium or adder to compensate for the many legitimate competing needs for and should be mitigated.
lack of price-responsive demand that the water flow, it is still possible for a 426. Several approaches could be
would otherwise set the price when hydropower generator to engage in used for establishing bid caps for these
these units were dispatched. The physical or economic withholding. In particular parameters. One possibility
average cost of a new peaking unit at a the existing ISOs, generators must would be to rely on engineering data,
given location operated over a given submit a schedule for planned outages, such as from the manufacturer about the
number of hours could form the basis which is coordinated by the ISO to specific type of unit, to establish caps
for setting such a premium. This kind of ensure that outages occur when they are for start-up and no-load bids and certain
adjustment to bid caps for peaking units the least disruptive to the markets. The operating parameters, and give
could help support reliability until Independent Transmission Provider is generators the flexibility to bid within
demand-side measures for responding to expected to continue to perform this those ranges without mitigation. These
price were more fully incorporated in outage coordination function under ranges would also be included in the
markets. The Commission requests Standard Market Design. Scheduling generators’ participating generator
comments on whether this approach or outages in advance, coupled with agreements. Just as with energy bids, a
other adjustments to bid caps for auditing by the market monitor, would bid above the range could be mitigated
peaking units might usefully substitute provide a way to evaluate whether if the bid raised market-clearing prices
for demand response in the near term. failures to run were from withholding or or uplift payments above a competitive
422. For hydropower and other legitimate limitations. For hydropower benchmark level by a significant
energy-limited resources much of the units, for which the marginal costs are amount. Because factors that might
difficulty in determining an appropriate primarily opportunity costs, this cause generators to modify start-up and
energy bid cap for these units comes method may be a sufficient check no-load bids and parameters such as
from the difficulty of assigning a value against withholding so that it might be minimum run times generally are
to their temporal opportunity costs. unnecessary to have a bid cap for these thought to be less variable than factors
However, the times when it would be units. The Commission requests that may influence energy bids, caps for
necessary for the transmission provider comment on these alternatives. these variables may be quite tight.209 In
to call on power from these sources are 424. Any parameters that a generator fact, PJM’s approach to permit changes
likely to be times when prices are high may include in its bid may require a cap to these parameters once every six
and these units would want to be or other restraint. For example, PJM months may be a simpler alternative
scheduled in any event. At all other caps regulation service at $100 per that does not unduly restrict
times, hydropower units, in particular, megawatt-hour, and New England uses competitive generator behavior.
should be offering all available capacity energy prices to cap prices for spinning Comment is requested on this approach
as operating reserves since their reserves. Standard Market Design would and on other ways to prevent sellers
marginal operating costs are close to also allow availability bids for these from manipulating these bids and
zero, but they may have high temporal products. The participating generator operating parameters to increase market-
agreements should also contain bid caps clearing prices and uplift payments.
208 This method may not work for fossil-fired
for these operating reserves when they
units that are only permitted to run a limited are needed for the operation of the
number of hours due to environmental restrictions. 209 For example, energy prices could change
These energy-limited resources are discussed transmission system and non- frequently because of differences in the cost of fuels
below. competitive conditions exist. However, such as natural gas.
427. In the implementation filing, the out its advisory functions in an market for Congestion Revenue Rights,
market monitor would propose tariff informed manner. and how the balance between resources
language that sets forth the process for 431. The market monitor must focus and demand in the region affects the
setting the bid caps for individual units both on the functioning of the markets market’s ability to efficiently serve load
or any formulas that might be used for run by the Independent Transmission at least cost. In addition, the market
this purpose. The market monitor would Provider as well as the conduct of monitor must also annually assess the
be responsible for collecting and individual market participants. The effectiveness of any mitigation actions
verifying data from these units to market monitor should focus on taken and review the terms, conditions,
establish appropriate caps for energy bid identifying factors that might contribute and bid caps in the participating
values consistent with the procedures in to economic inefficiency. Such factors generator agreements. Finally, the
the Independent Transmission include market design flaws, inefficient market monitor must engage in
Provider’s tariff. This could be market rules, entry barriers to new surveillance to insure that market
controversial, especially for generators generation, including distributed participants comply with the rules in
in load pockets that may effectively face generation, barriers to demand-side the Independent Transmission
‘‘mitigation’’ in most situations. The resources, transmission constraints and Provider’s tariff.
Commission requests comment whether market power. In monitoring for 434. The work and findings of the
the Commission should establish a exercises of market power, the market market monitor must be integrated into
formula for determining the bid caps or monitor should focus principally on the regional planning process. The
whether the Commission should review detecting economic and physical market monitor’s analysis of the markets
the proposals developed in each region. withholding (as distinct from the will identify load pockets and can help
normal operation of supply, demand, provide direction for needed investment
7. Exemptions and true scarcity). For entities that own in generation, including distributed
428. It is appropriate to exempt both transmission and generation assets, generation, demand response capability,
certain sellers from the market power withholding behavior could include and transmission infrastructure to
mitigation. Specifically, sellers who both generator and transmission improve the competitive structure of the
control a small amount of capacity in outages. For example, instead of directly markets.
the market, for example no more than withholding a generator’s power, a 435. The Commission proposes here
fifty megawatts, would be exempt from market participant with transmission the basic elements of a market
mitigation. Sellers with little capacity assets could effect the same end by monitoring plan to be used by each
would have little incentive to exercise derating a transmission line needed to market monitor. The Commission staff
market power since a non-competitive deliver the generator’s power to the will convene a conference in the Fall to
bid could eliminate their only unit from market. Monitoring should be designed discuss and further develop the
the dispatch. However, the Commission to detect this kind of behavior. essential elements that should be
requests comment whether any other 432. The Commission requests required in a standard market
sellers should be exempt from the comment on whether the market monitoring plan. After getting
mitigation because they have monitor should also be responsible for additional public input at the
insufficient incentives to withhold. monitoring the Independent conference, Staff may propose
Transmission Provider’s operations, in additional detail for the market
8. Monitoring
addition to the markets and the market monitoring plan, which the Commission
429. Market monitoring should be participants. Specifically, should the may adopt, after an opportunity for
conducted on an on-going basis by a market monitor evaluate whether the public comment.
market monitoring unit that is Independent Transmission Provider
autonomous of the Independent a. Framework for Analyzing Market
treats market participants neutrally, Structure and Market Conduct
Transmission Provider’s management without undue discrimination?
and market participants. The market 433. To meet its responsibilities, the 436. The Commission intends to
monitoring unit may be located within market monitor must have the ability to require the use of a core set of questions
the offices of the Independent collect and evaluate necessary data and analytical techniques to be used by
Transmission Provider, to permit easy provided by the Independent each market monitor to assess market
access to the market data and operations Transmission Provider and market structure, participant behavior, market
personnel, or it may be physically participants. The market monitor would design, and market power mitigation.
located elsewhere. have the responsibility to propose to the This will facilitate inter-regional
430. The market monitor will be Commission, and the Independent comparisons. Examining this core set of
expected to report directly to the Transmission Provider’s board changes issues using techniques reflecting ‘‘best
Commission, and the independent to market rules, if they provide practices’’ would be an essential part of
governing board of the Independent inefficient incentives to market the monitor’s responsibilities that
Transmission Provider. This will participants, and to promptly identify allows inter-regional comparisons.
include reporting at regular intervals on circumstances that may require However, specifying these core
the general performance of the markets additional market power mitigation so requirements here should not prohibit
in its region and reporting, on a timely that remedies can be put in place or discourage monitors from expanding
basis, observed attempts at market prospectively.210 The market monitor their analyses where regional
manipulation or factors that impair the would also be required to provide a differences or unanticipated events
efficiency of the market. Although the comprehensive analysis and report of warrant it. In fact, because markets and
market monitor will be accountable only market structure and individual monitoring are in a formative stage, the
to the Commission and the governing generator conduct in the spot markets, Commission would need to continue to
board, it should share its analyses and at least annually, to evaluate the overall facilitate communication between
reports with the management of the efficiency of spot market operations, the market monitors to share insights and
Independent Transmission Provider and develop common approaches.
the Regional State Advisory Committee. 210 The changes would only go into effect after 437. An important focus of market
This will enable the committee to carry Commission approval. monitoring will be structural market
conditions since the Commission’s constraints and load pockets that give incentive and ability to manipulate
ultimate goal is to foster structurally sellers the ability and incentive to market-clearing prices or up-lift
competitive regional bulk power exercise market power. This analysis payments. The monitor should also
markets. Academic analysts and market would be performed prior to the evaluate the effectiveness of the
monitors have examined the implementation of the Standard Market participating generator agreements in
competitiveness of current spot markets Design, in order to implement the mitigating market power where market
using various approaches and data. market power mitigation. It also would structure is not sufficiently competitive.
Some have focused on developing a be performed annually to reassess and 443. Finally, the monitor must
simulated competitive benchmark that adjust the market power mitigation, and analyze the operation of the congestion
can serve as a reasonable measure of the to evaluate the conditions of the management system and the market for
market’s overall efficiency.211 Others market.216 the resale of Congestion Revenue Rights
have examined whether specific 440. In addition, the Commission for evidence of market power or
generator bidding behavior has been proposes to require an annual manipulation. The monitor must also
consistent with profit maximization assessment of the performance of the assess whether those who collect
under competitive conditions.212 markets operated by the Independent congestion revenues are in a position to
438. Some monitors have estimated Transmission Provider. This assessment influence transmission expansion plans
whether average generator profitability would use a competitive benchmark to that can affect congestion revenues and
would cover costs of a gas-fired peaking assess market performance as an report on the incentive structure of
unit and provide sufficient inducement additional means of assessing the those arrangements.
for entry.213 Most monitors also track effectiveness of the market power 444. Any flaws in the market rules
bidding patterns so that sudden, mitigation. that may be identified by the monitor
inexplicable changes can be investigated 441. Comment is requested on how and any market participant conduct that
promptly to evaluate whether market the monitor should address these and indicates the ability to exercise market
power is a cause of the change.214 other topics, to develop useful measures power under the market rules in effect
Monitors also track changes in that permit inter-regional comparisons. would be remedied prospectively after
concentration, unplanned generator and For example, concentration measures Commission authorization of changes to
transmission outages, and changes in stratified by generator type might better the market rules. However, if the
various operating parameters that may identify competitive alternatives under conduct violates existing rules, the
signify market power problems.215 various demand conditions. Estimates of market monitor must have the necessary
Although the reports have been very generator profitability, such as PJM and tools to investigate the conduct and to
useful in enhancing our understanding ISO-New England have used in the past, penalize it. These will be discussed in
of a wide range of issues, the might be a useful measure of incentives the sections below.
approaches have been varied, key for generator entry. These estimate the 445. An important adjunct to the
questions have been framed differently degree to which a hypothetical unit market power mitigation and
and, importantly, the markets have not operating in all profitable hours would monitoring plan will be a clear set of
had the same design. As a consequence, have recovered its costs. Although it is rules governing market participant
results have not been comparable across not a definitive profit estimate for any conduct with the penalties for violations
markets. With the widely varying particular generator, it may be a useful clearly spelled out. The Commission
market designs of the past, greater measure for comparing incentives for proposes to require the Independent
comparability across regions was not generator entry across market or regions. Transmission Provider to include in its
feasible. However, these analyses have 442. A core set of questions and tariff certain minimum behavioral rules,
served as a useful starting point for analytical techniques must also be which will be monitored by the market
developing a standard analytical developed for monitors to use to monitor. These will include, at a
framework. evaluate conduct of market participants minimum, the following rules:
439. The Commission proposes to in the transmission and spot markets (1) Physical Withholding: Entities may
require each monitor to perform a operated by the Independent not physically withhold the output of an
structural analysis of the region that Transmission Provider. Analysis of Electric Facility (Generating unit or
would include: (1) Market concentration generation and transmission outages is Transmission Facility) by (a) falsely
including by type of generation, (2) central because these can be forms of declaring that an Electric Facility has
conditions for entry of new supply, (3) withholding. Because some owners of been forced out of service or otherwise
demand response, and (4) transmission generation also own transmission, become unavailable, or (b) failing to
monitors must review any planned comply with the must-offer conditions
211 See, e.g., Borenstein, S., J.B. Bushnell, and F. transmission outages, for example, to of a participating generator agreement.
Wolak (1999). ‘‘Diagnosing Market Power in make sure that scheduling outages could (2) Economic Withholding: Entities
California’s Deregulated Wholesale Electricity not be used to enhance or create may not economically withhold by
Market.’’ POWER Working Paper PWP–064, opportunities to exercise generator submitting high bids that are not
University of California Energy Institute, available
in http://www.ucei.berkeley.edu/ucei/pwrpubs/ market power. Analysis of generator consistent with the caps specified in the
pwp064.html. conduct might also include a review of tariff or the participating generator
212 Joskow, P.J., and E.P. Kahn (2001). ‘‘A bidding behavior in the spot markets agreements.
Quantitative Analysis of Pricing Behavior in operated by the Independent (3) Availability Reporting: Entities
California’s Wholesale Electricity Market During must comply with all reporting
Summer 2000.’’ NBER Working Paper No. W8157.
Transmission Provider to identify any
National Bureau of Economic Research. auction design flaws that may give requirements governing the availability
213 See, e.g., PJM Interconnection State of the market participants an unanticipated and maintenance of a Generating Unit or
Market Report 2000. Transmission Facility, including proper
214 See, e.g., New York Market Advisor Annual 216 The monitor should particularly pay attention Outage scheduling requirements.
Report on The New York Electricity Market for to concentration in the regulation and operating Entities must immediately notify the
Calendar Year 2000, by David B. Patton, Ph.D., reserves markets, and consider the amount of
Capital Economics, April, 2001. supply relative to demand, and propose specific
215 See, e.g., Annual Market Report, May 2000– market power mitigation measures for these markets when capacity changes or resource
April 2001, ISO New England, August 1, 2000. if necessary. limitations occur that affect the
availability of the unit or facility or the environmental, fuel, maintenance, ramp (3) an evaluation of the effectiveness of
ability to comply with dispatch rates, low and high operating levels, and mitigation measures taken; (4) an overall
instructions. heat rates—may also be relevant to assessment of market efficiency perhaps
(4) Factual Accuracy: All establishing appropriate bid caps for using a simulated competitive
applications, schedules, reports, or participating generator agreements. benchmark as some have developed; (5)
other communications to the These data when combined with an evaluation of barriers to entry for
Independent Transmission Provider or information acquired in the normal generating, demand-side, and
the Market Monitor must be submitted course of business operations and transmission resources; and (6) any
by a responsible company official who schedules for planned outages should recommended changes to market design
is knowledgeable of the facts submitted. give monitors the information they need or market power mitigation measures to
All information submitted must be true to fully analyze the competitiveness of improve market performance. The
to the best knowledge of the person the markets operated by the report would also include a discussion
submitting the information. Independent Transmission Provider. and analysis of any region-specific
(5) Information Obligation: Entities 449. As a condition for participating issues that the monitor judges important
must comply with requests for in the spot markets, and using the to achieving a competitive outcome.
information or data by the Market transmission grid, market participants This could also be particularly useful to
Monitor or the Independent must agree to provide the market the planning process in determining
Transmission Provider that are monitor with any information where expanded transmission capacity
consistent with the tariff. requested. Since the ability of the might reduce market power problems in
(6) Cooperation: Entities must assist market monitor to perform his or her load pockets. The annual report would
and cooperate in investigations or audits monitoring role is dependent upon the be made public, with appropriate
conducted by the Market Monitor. ability to acquire the necessary protections to maintain confidentiality,
(7) Physical Feasibility: All bids or information, the monitor must have the if necessary.
schedules that designate resources must ability to require market participants to 452. In addition, the market monitor
be physically feasible within the limits provide information. This is an will be required to report to the
of the resource, i.e., the resource is important enforcement tool. The Commission, through the Office of
physically capable of supplying the Independent Transmission Provider’s Market Oversight and Investigation, any
energy, ancillary service, or demand tariff should specify the penalties that instances of conduct by market
response needed to fulfill a schedule or would apply to market participants who participants that appear to be
bid according to the physical limitations fail to comply with an information inconsistent with the Independent
of the resource. request from the market monitor. Market Transmission Provider’s tariff. Early
446. These rules must be participant objections to market monitor reporting of questionable conduct will
accompanied by predetermined information requests will be resolved by permit coordination between the market
penalties, as discussed below in the the Commission on an expedited basis monitor and the Commission’s
Enforcement section. because delays in providing information investigative staff to determine the best
b. Data Requirements and Data could result in continuing harm to the methods for developing the facts and
Collection market. In any such dispute the addressing conduct that could be
Commission will give substantial harmful to the market.
447. Data collection should be deference to the market monitor’s stated 453. The Commission requests
targeted to providing monitors with need for the information. comment whether additional reporting
information necessary to answer the 450. All information obtained by the requirements are needed.
required questions covering critical monitor that is specific to a market
issues regarding market structure, d. Enforcement of the Tariff Rules
participant would be treated
participant behavior, and market design. confidentially. Any disputes concerning 454. The market monitor must play an
These data would be acquired from how the confidential information could important role in the enforcement of the
various public sources and in the be used would be resolved by the market rules contained in the
normal course of operating the markets. Commission, before the data are Independent Transmission Provider’s
They would include: (1) Market released to the public. Since the tariff. In this role the market monitor
statistics and indices, such as market- Commission has oversight responsibility will need to coordinate closely with the
clearing prices and system-wide for wholesale electric markets, any data Commission’s investigative and
congestion costs; (2) data on system collected by the market monitor would enforcement staff. However, to ensure
conditions, such as transfer capability be available to the Commission and the effective enforcement, the market
and planned and forced outages; (3) confidentiality of the data would be monitor must have adequate authority
information on other prices, such as fuel protected by the Commission under its to investigate market participant
prices and prices in adjacent markets; regulations. conduct and the Independent
(4) information on load served from the Transmission Provider must have a set
spot market; (5) data relating to c. Reporting Requirements of predetermined penalties to apply to
generator bidding patterns; and (6) 451. At a minimum, the monitor conduct that is in violation of the rules
information on Congestion Revenue would be required to submit an annual of the Independent Transmission
Rights. report to the Commission and the Provider’s tariff.
448. In addition, monitors must have Independent Transmission Provider’s 455. As a condition of participating in
the ability to obtain data on generator governing board, and share that report the markets operated by the
production and opportunity costs and with the Regional State Advisory Independent Transmission Provider and
information on the operating status of Committee. The report would include: using the transmission grid operated by
transmission and generation facilities (1) A general description of the market the Independent Transmission Provider,
that relate to claimed outages or operations, supply and demand, and the Commission proposes to require
deratings. Generator-specific data on all market prices; (2) an analysis of market market participants and transmission
relevant costs and operating structure and participant behavior customers to agree to predetermined
parameters—e.g., start-up, no-load, following guidelines described above; penalties that would apply to violations
of the tariff rules. Since the tariff rules transmission system operation. Because industrial customers can be more price
are intended to ensure the fair and electricity cannot be generated and responsive, for many of them electricity
efficient operation of the markets, the easily stored for future delivery, extra is a small fraction of their cost of doing
penalties should be designed to deter generating and demand response business and may receive little
conduct that is inconsistent with the fair resources are needed to serve a function managerial attention. It takes time to
and efficient operation of the markets. similar to storage in the natural gas develop the administrative rules and the
Specifically, the penalties should deter industry; other commodity markets technical capability to reduce
conduct that results in an economic would call these a supply inventory. consumption. As a result, most demand
benefit derived from a violation of the The cost of necessary reserves is today is unable to respond to real-time
rules. The penalties should, at a analogous to the necessary cost of prices because of insufficient price
minimum, require payment of the storage or inventory. information, inflexible rate designs, and
economic benefit derived by the violator 461. A requirement to assure adequate metering limitations.
from violating the rules. Where the long-term resources is currently needed 464. The response of new generating
violation could result in conduct that because spot market prices do not capacity to price is slow because it takes
could be harmful to the reliability of the consistently signal the need for new time to plan, site and construct new
grid, it would be appropriate for the infrastructure in the electric power electric power generating facilities.
penalty to be significantly higher to industry. Most resources take years to Development of a new power plant
serve as a deterrent for the conduct. The develop and spot market prices alone takes two to five years or more,
Independent Transmission Provider’s may not signal the need to begin depending on the type of plant and its
tariff must specify the conditions that development of new resources in time location. It can take even longer to site
would apply for each level of penalty. to avert a shortage. Moreover, spot the transmission lines needed to
456. It may be appropriate to build market prices that are subject to transmit the power to customers.
into the tariff standards for mitigating mitigation measures may not produce 465. These factors together can lead to
the penalty. Some standards that could an adequate level of infrastructure sustained periods of inadequate
be used are: the impact on the operation investment even after a shortage occurs. supplies, threatening the reliable
of the grid, the financial impact on the Further, as long as regional resources operation of the bulk power system.
violator, and any good faith efforts to are made available to all regional load- Insufficient demand response to price
maintain compliance. The Commission serving entities and their customers and the slow supply response to price
requests comment on the conditions during a shortage, such entities have the can combine to produce electricity
that would justify mitigation of the incentive to lower their supply costs by shortages that not only threaten
penalty. depending on the resource development reliability but also can raise day-ahead
investments of others, a strategy that and real-time market prices
J. Long-Term Resource Adequacy significantly.
leads to systematic under-investment in
457. To operate the transmission 466. Further, rushing to relieve
infrastructure by all load-serving
system reliably, the transmission inadequate regional supplies and reduce
entities in the region.217
operator must be able to balance high regional spot prices may bias
generation and load at all times. This a. Spot Market Prices Alone Will Not construction choices toward supply
requires adequate electric generating, Signal the Need To Begin Development resources that can be constructed
transmission, and demand response of New Resources in Time to Avert a quickly, perhaps sacrificing long-term
infrastructure. Some lead time is needed Shortage cost minimization, environmental
to develop adequate infrastructure for 462. The spot market price does not concerns and fuel diversity goals. Most
the future through self supply or yet work well to produce long-term customers prefer spreading out resource
bilateral contracting. reliability investment, even without capital costs over time to concentrating
458. Resource adequacy today must price mitigation, for several reasons. them into a peak period. A resource
be assessed at the regional level. Extra resources need to be planned in adequacy requirement accomplishes
Because all customers in an advance for electricity because, when this.
interconnected region are prices rise, demand is not reduced b. Spot Market Prices That Are Subject
interdependent, a shortage of resources quickly and new generation cannot be to Mitigation Measures May Not
for some customers in the region can added quickly. Both the demand for Produce an Adequate Level of
lead to a shortage for the entire region, electricity and the supply of new Investment When a Shortage Occurs
which threatens reliable grid operations generating capacity generally respond
and risks sustained shortages with 467. Customers object strongly to
very slowly to price. inadequate supplies—and high prices
attendant high prices for the region. 463. Regarding demand response,
459. We propose a resource adequacy when supplies are inadequate—because
most retail customers buy power at a electricity is essential for many uses and
requirement to provide for sufficient
regulated fixed price. Even in states that customers cannot turn to substitutes to
supply and demand resources to avert
have approved retail competition, reduce electricity demand. Electric
such shortages. Under these procedures,
customers are often shielded for years power drives modern life, and there is
we believe that involuntary curtailment
from price changes by a rate freeze. significant societal disruption from even
will rarely if ever be employed.
They are unaware of hourly changes in short supply interruptions.
However, consistent with current
the cost of producing electricity. Electric 468. For these reasons, customers
policies, the proposal must include
meters are read monthly, and customers want protection from the exercise of
procedures for such emergency
see only the imperfect price signal of a market power that may occur when
conditions.
monthly bill rendered after electricity is supplies are short, and some form of
1. The Reason for the Requirement used. Although larger commercial and market power mitigation is needed
460. The Commission proposes to 117 For further discussion of these topics, see e.g.,
under these circumstances, as discussed
adopt a resource adequacy requirement Steven Stoft, Power System Economics (IEEE Press,
in the market power mitigation section.
to help ensure development of the Wiley-Interscience, 2002) especially ‘‘Fallacy: The However, market power mitigation may
infrastructure needed for reliable ‘Market’ Will Provide Adequate Reliability.’’ tend to suppress the scarcity price that
would otherwise stimulate new resource and rely on the resources of others. The must apply standards, discussed below,
development. As a result, investors may result is that all load-serving entities to audit the adequacy of the plans of
not develop adequate infrastructure— will tend to follow this strategy, leading load-serving entities to meet the future
making the problem worse—unless to a systematic underinvestment in resource needs of its area. Moreover, the
there is a provision for resource resources needed for reliability.218 The Independent Transmission Provider
adequacy. Such a provision helps current physical configuration of the must check that resources are not
customers by assuring adequate transmission grid often exacerbates this double-counted by different load-
supplies and helps generation problem because it is often difficult to serving entities. In a region with more
developers by creating a demand for impose the results of one party’s than one Independent Transmission
resources in advance of electricity resource shortfall solely on that party. Provider, each Independent
prices doing so alone. For example, if several competing load- Transmission Provider must coordinate
serving entities serve customers in the this checking responsibility with all the
c. Load-serving Entities Will
same electrical neighborhood, it may Independent Transmission Providers in
Underinvest in Resources Needed for
not be technically feasible to curtail the region.
Reliability if They Can Depend on the
some of these customers and not others 476. If a power shortage occurs during
Resource Development Investments of
during a shortage. which the Independent Transmission
Others 473. These arguments persuade us to Provider is unable to satisfy demand in
469. In an interconnected region, the propose a long-term resource adequacy the spot market and also meet its
failure of some market participants to requirement in the Standard Market reliability requirement for a minimum
secure sufficient long-term electricity Design rule. A resource adequacy level of operating reserves, the
resources can contribute to a shortage requirement provides for timely Independent Transmission Provider
that affects reliability and spot market development of supply and demand must add a per-megawatt-hour penalty
prices for all participants in the response resources to assure regional during the shortage to the price of
wholesale power market. resource adequacy. It helps smooths out energy taken from the spot market by a
470. Under retail competition, load- the price swings of the electricity load-serving entity that did not meet its
serving entities competing for customers business cycle. A well-designed share of the regional needs for that year.
may compete on the basis of cutting the resource adequacy requirement supports 477. Further, if the operating reserve
cost of forward contracting for resources competitive markets if it allows level decreases to the point that the
unless they all are held to the same suppliers to compete to provide Independent Transmission Provider
resource adequacy requirement. infrastructure and buyers to choose the must curtail load, the Independent
Without such a uniform requirement, infrastructure with the best combination Transmission Provider must, to the
those suppliers that contract for reserves of features such as cost, reliability, extent possible, curtail the spot energy
may lose market share, and those who environmental effects, and service life. purchases of the load-serving entity that
do not may gain a market share—at least
2. Basic Features of the Requirement did not meet its resource adequacy
for a short period of time. For this
requirement before curtailing the spot
reason, a load-serving entity has an 474. We propose to require, as set out
energy purchases of load-serving
incentive to minimize its own costs by in the proposed regulations, that an
entities that did. The load-serving entity
procuring few or no reserves and relying Independent Transmission Provider
is subject to such first curtailment
on others to develop reserves. If the must forecast the future demand for its
during a shortage only in the amount by
rules allow it, some load-serving entities area, facilitate determination of an
will try to have the reliability benefit of which it falls short of meeting its share
adequate level of future regional
adequate regional resources that other of the resource adequacy requirement
resources by a Regional State Advisory
load-serving entities pay for or that for the year in which the shortage
Committee, and assign each load-
uncontracted-for generation must offer occurs.219
serving entity in its area a share of the
478. If a shortage remains after all
pursuant to market power mitigation. needed future resources based on the
471. Severe power shortages lead to such first curtailments are completed
ratio of its load to the regional load.
public insistence on government and additional curtailment is necessary,
475. The Independent Transmission
intervention. Both historical practice the remaining loads of the first-curtailed
Provider must assure that each load-
and recent events indicate that during a load-serving entities and the loads of
serving entity in its area acts to meet its
shortage those load-serving entities that other load-serving entities that have
share of the future regional needs—
have reserves are required by satisfied their resource adequacy
through self-supply, contracts to
government to share them with those requirement would be curtailed under
purchase generation, biddable demand
that do not have reserves. There are at the same protocol. In this case the
or other demand response program. The
times state regulatory and gubernatorial shortage may be attributable to certain
requirements to protect customers from load-serving entities of either type that,
blackouts or high prices, a U.S. 218 This is the well-known ‘‘free rider’’ problem
whether or not they may have met their
Department of Energy requirement for for public goods, those for which consumption resource adequacy requirement. We
utilities to share power reserves in an cannot be limited to those who paid for them (such expect that those load-serving entities
as parks and national defense) and that are available that are short of their own reserves
emergency, or a Commission to all users even if only some users pay for them.
requirement to bid all available power See, e.g., Lee S. Friedman, The Microeconomic of
would lose service ahead of those that
into an organized spot market. Public Policy Analysis, Princeton University Press are not short.
472. Some market participants (Princeton, NJ 2002), which states at pages 597–598: 479. The approach to resource
depend on government intervention If their provision were left to the marketplace, adequacy proposed here is intended to
public goods would be underallocated. The reason assure the development of both new
during severe shortages as an alternative is that individuals would have incentives to
to paying their share of the cost of understate their own preferences in order to avoid supply and demand response resources.
developing adequate regional resources. paying and free-ride on the demands of others.
Thus, public goods provide one of the strongest 219 A load-serving entity that continues to take
As long as regional reserves are made arguments for government intervention in the spot market energy despite the curtailment order of
available to all, a load-serving entity can marketplace: not only does the market fail, but it the Independent Transmission Provider would be
reduce its own reserve resource costs can fail miserably. subject to a very high penalty under the tariff.
This approach focuses on encouraging basic characteristics. We are reluctant to export power to another area or region.
payment to fund construction of future impose a national ICAP requirement, in Single-utility forecasting is also more
resources instead of avoiding payment part because of our concern about the difficult today because power market
of a penalty for inadequate current effectiveness of the existing ICAP information is considered very
resources as in some current programs. programs and in part because they were sensitive. Competitive suppliers are
The forward-looking planning horizon based on former voluntary tight power reluctant to share this information with
provides time for market entry by new pools. The three ISOs play a strong role a utility that is a potential competitor.
suppliers, which will help to check any in administering the program, a role that A regional assessment of regional
market power among existing may not suit regions without a history supply adequacy by one or more
suppliers.220 of tightly coordinated reserve sharing. independent entities in the region
480. This proposal is designed to 484. The basic features of the would help overcome these difficulties.
complement, not replace, existing state proposed requirement are set out next, 488. Further, close coordination is
resource adequacy programs. A including discussion of the demand needed between those planning
vertically integrated utility satisfying a forecast, the level of resource adequacy, generation and transmission because the
current state resource requirement that the role of the load-serving entity, the location of planned generation affects
equals or exceeds its share of the load-serving entity’s share of the the location of planned transmission
resource adequacy requirement would regional resource adequacy requirement, and vice versa, and an Independent
not have to do anything more. For those the types of resources that can satisfy Transmission Provider (or a group of
states that have retail choice programs the resource requirement, the standards Independent Transmission Providers
in which retail customers or their that each type of resource must meet, acting collectively in a region with more
suppliers buy power from a multistate the planning horizon, enforcement of than one Independent Transmission
region, we intend this approach to the requirement, and regional flexibility. Provider) is in the best position to
provide for regional adequacy in a way a. Demand Forecast coordinate these planning functions.
that no one state alone may be able to 489. Once the future level of supply
accomplish. 485. An Independent Transmission and demand resources is determined,
481. The proposed approach is like Provider would be required to do an the region must assess whether this
the traditional reserve margin annual demand forecast for its area. The level is adequate. This requires a
requirement imposed by states on forecast would look ahead for the time regional determination of the
monopoly utilities. It worked well period needed to add new supply and appropriate level of resource reserves,
during most of the last century to ensure demand response resources. We will for example, whether the reserve margin
adequate supplies, and is still in use in refer to this time period as the planning (if reserve margin is the region’s
most states, especially states that have horizon, a topic discussed further measure of resource adequacy) should
no retail choice program. However, below. be 12, 15, 18 percent, or another level.
486. Demand forecasts have long been We seek comment on and encourage
because the traditional approach relies
used in the utility industry to determine regional discussion of appropriate
on individual utility plans and
the need for future resources and to plan planning targets in energy-limited areas,
resources, it might not continue to work
new infrastructure investments. The specifically on how to incorporate
well in a region where utilities now rely
Independent Transmission Provider volatility of annual hydropower supply.
on independent power producers in
may undertake a ‘‘bottom up’’ method of 490. Each region should take its own
several states for new resources instead
demand forecasting by adding up the characteristics into account when
of their own new generation. The
demand forecasts of its component areas determining the appropriate level,
traditional reserve margin requirement
where they can be relied on.221 This subject to a minimum level of resource
may also not work well in a region
may be accomplished through a adequacy for all regions discussed
where some states have traditional
collaborative process with all below. This determination has been
monopoly utilities and others have
stakeholders. made by load-serving entities under the
retail choice because a shortages in one
state can affect all states in the region. b. Level of Resource Adequacy oversight of the states, and we want this
482. To continue to rely on the state oversight to continue. We propose
487. After the area’s demand is
traditional reserve margin requirement, that the level should be set by a
forecast, the Independent Transmission
it has to be adapted to have a regional Regional State Advisory Committee.222
Provider must assess whether the
focus and to fit with competitive States in the region should have this
collective resource plans of load-serving
procurement. We propose a resource strong role in determining the level of
entities in this area are adequate to meet
adequacy requirement of this type. resource adequacy because a higher
the projected future peak need with
483. The resource adequacy level provides greater reliability and
allowance for adequate reserves. In
requirement proposed here is unlike also incurs higher costs that affect most
today’s more competitive environment,
that of the three Northeast ISOs. ISO- retail customers. State representatives
the effectiveness of single-utility supply
New England, the New York ISO and are in the best position to determine on
forecasts may be reduced. Under open
PJM each impose an obligation on load- behalf of retail customers the trade-off
wholesale transmission access, regional
serving entities known as an Installed between the cost to the customers of
patterns of energy flow can change
Capacity (ICAP) requirement. The three extra generation and demand response
quickly, making single-utility
requirements differ, but share some reserves and the difficult-to-quantify
transmission planning difficult.
benefits to the customers of increased
Generators sited in a utility’s service
220 A regional resource adequacy requirement reliability and reduced exposure of the
territory, if not under contract, may
should also provide substantial evidence of need for region to the effects of a power shortage.
infrastructure to investors as well as to siting 491. We will require the Independent
authorities. This should aid suppliers in acquiring 221 A load-serving entity has an incentive to
financing and should facilitate siting decisions. An underestimate its future load if doing so would Transmission Provider (or the several
added benefit may be the ability to better predict, reduce its share of the resource adequacy
plan, and finance new transmission system requirement. For an analysis of bias in demand 222 See the following section, State Participation
facilities associated with these resource forecasts, see Mark Bock, ‘‘Analysts hunt for bias in in RTO Operations, for a discussion of the
requirements. NERC forecasts,’’ Electric Light & Power, July 2002. composition of the advisory committee.
Independent Transmission Providers in reliability. We selected a 12 percent retired before needed, or otherwise
a region with more than one such reserve margin as a minimum in that it made unavailable. For these reasons, it
Provider) to provide a forum and is two-thirds of the typical historical is important that resources not be
assistance to the Regional State reserve margin target of 18 percent for considered merely regional but be
Advisory Committee to establish the large utilities.224 We emphasize that associated with and committed to
appropriate level of resource adequacy most utilities historically used a reserve particular load-serving entities.
for the region. Because many margin well above 12 percent. This 12 498. We request comment on two
Independent Transmission Providers percent reserve margin is intended to be methods for determining each load-
encompass more than one state (or a safety-net level in planning for reliable serving entity’s share of the regional
province), the Independent future transmission and market requirement. One is to allocate the
Transmission Provider’s role as a operations and not to be the target future resource adequacy needs to loads
facilitator will be helpful in establishing reserve level for the region that should based on each load’s forecasted future
the regional reserve level. be established by the Regional State demand. For example, if the load
492. However, we ask for comment on Advisory Committee. forecast is for three years ahead and a
what fallback provision should be particular load is growing faster than the
employed if the Regional State Advisory c. Load-serving Entities regional average, its share of the
Committee does not reach agreement on 494. Each load-serving entity must adequacy requirement could be based
the appropriate level of resource satisfy a portion of the regional resource on its forecast load ratio share for three
adequacy. We believe that having adequacy requirement. Load-serving years ahead, not on the present load
different reserve levels in different entity here means any entity that uses ratio share. This method assigns more
states in the same region maintains the transmission in interstate commerce to adequacy responsibility—and cost—to
problem of some customers relying on provide power to load, whether a faster growing loads. However, if the
the reserves of others. traditional distribution utility or an Independent Transmission Provider’s
493. We are concerned that the energy service supplier that aggregates forecast is made through a ‘‘bottom up’’
requirement be set so that the retail loads under a retail access method that adds up individual load
Independent Transmission Provider can program. forecasts, it must rely on each load to
operate the interstate transmission 495. A large retail industrial or report its growth rate accurately. This
system reliably with real-time commercial customer that has retail approach creates an incentive for loads
operational resource adequacy. We are access rights and buys power directly to understate their growth to lower their
also concerned that inadequate from suppliers is also considered a load- resource costs.
resources could lead to poor market serving entity. If it does not buy power 499. The other method is to allocate
liquidity and even shortages with from another load-serving entity but the future adequacy requirement to
sustained high wholesale power prices. uses the interstate grid to buy power loads based on each load’s most recently
For these reasons, we propose to adopt directly from a supplier, it too would be documented load ratio share. This
a 12 percent reserve margin 223 as a required to meet its share of the method is less subject to manipulation.
minimum regional reserve margin for all resource adequacy requirement. As for However, an area with a slow load
regions with the understanding that this other load-serving entities, their growth located within a region of
is low by traditional generation reserves may include the ability to generally high load growth may
adequacy standards and that the reduce their own demand on the grid. subsidize the high reserve needs of its
Regional State Advisory Committee in 496. A load-serving entity may choose neighbors.
each region may set this number higher a higher level of reliability by 500. We ask for comment on which of
for the region to achieve greater developing more supply or demand these two methods the Commission
response resources than required. should choose in the Final Rule.
223 The reserve for a period is the amount of
Further, a load-serving entity may Alternatively, we ask whether this issue
resources expected to be available during the period
less the forecast peak load during the period. The choose greater reliability and price should be left to regional determination.
reserve margin is the ratio of the reserves to the assurance by procuring additional 501. Once each load-serving entity’s
forecast peak load during the period, expressed as reserves for its own use. In particular, share of the regional adequacy
a percentage. A region may use another measure of
customers in a load pocket that is served requirement is determined, the
adequacy as long as the minimum level is the Independent Transmission Provider
arithmetic equivalent of a 12 percent reserve by a few large generating units may
margin. For example, many use capacity margin, need a higher reserve margin to have the must inform each load-serving entity of
which is the ratio of the reserves to the amount of same level of reliability as customers its share. It must require each load-
resources expected to be available during the
outside a load pocket. serving entity to report and document
period, expressed as a percentage. A capacity how it plans to meet its adequacy
margin of 10.7 percent is the same as a reserve d. Load-Serving Entity’s Share of the
margin of 12 percent. Some may measure adequacy requirement.
with a loss-of-load probability, called LOLP, which Regional Resource Requirement 502. The time available to the load-
is a statistical measure of the expected total time 497. Once the future regional serving entity from being informed of its
during a period that generation will be unable to resource share to having to report to the
meet load. The common U.S. standard is one day requirement is determined, each load-
in ten years, which means that the sum of the hours serving entity’s share of the regional Independent Transmission Provider
(or fractions of hours) during a ten-year period requirement must be determined. must be adequate to allow it to develop
when generation is expected to be short is 24 hours. Meeting a regional resource adequacy arrangements for meeting future
Reserve margin cannot be translated directly into resource needs. We ask for comment on
LOLP without studying a particular system. For level does not assure that every part of
example, an area served by a few large generators the region has adequate resources if how much time is needed for these
is more vulnerable to a shortage caused by an there are internal transmission purposes.
outage of one or two large generators than a similar constraints or if resources are counted
area served by many smaller generators. The area e. Resources That Can Satisfy the
with a few large generators may need a larger that may be sold outside the region, Resource Needs
reserve margin to achieve the same LOLP. A general
rule-of-thumb for a large U.S. utility system is that 224 The target level of these reserves, often called 503. Each region’s resource adequacy
an LOLP of one-day-in-ten-years is achieved with planning reserves, is not the same as the operating requirement could be satisfied by a
a reserve margin of about 18 percent. reserve level, a subject treated further below. combination of generation,
transmission, and demand response requirement as well as generation.225 A for a load on Long Island to claim a
infrastructure. load-serving entity that does not want to generator in western New York as a
pay for generating reserves can resource if the power cannot be
(1) Generation and Transmission
substitute a demand response delivered to Long Island during a Long
504. The supply requirement could be alternative to meet its resource Island shortage.
satisfied by self-owned generation, local adequacy requirement. Under some 512. Because the purpose of this
distributed generation, or firm bilateral state programs, the larger retail requirement is to encourage the
contracts for power that are backed by customer may be rewarded for reducing development of new resources
specific generating units (or a portfolio its electric use in addition to enjoying including new generation, generation
of designated generation units). The a reduced bill for reduced consumption. under contract for development within
firm bilateral contract could be either a Several states have this type of biddable the planning horizon should satisfy the
forward contract for the purchase of load reduction; it is one way to allow requirement. Should the Commission
power or an option to purchase energy the customer to determine how much it specify the contract content needed to
under specified shortage or price is willing to pay for power. Further, rely on generation under development?
conditions, as long as the firm contract competitive energy service suppliers If so, should we refer this matter to
is backed by specified generating units. can compete for load by offering lower NAESB to determine the content?
505. In any of these cases, the rates to customers who agree to 513. For these reasons also, a contract
generator must be committed to supply participate in demand response with a marketer to deliver power at a
power to the load-serving entity, at least programs such as remote air conditioner future time from unspecified sources
under certain conditions. Self-owned cycling, aggregate building load cannot satisfy the requirement. The
generation that is committed to another management, and other proven demand purpose here is not to transfer financial
load-serving entity, unless it can be response and load management options. risk for nonperformance to a marketer
recalled during a shortage, would but to ensure performance, that is, to
3. Resource Standards ensure that enough actual, deliverable
contribute to the other load-serving
entity’s requirement, not the 509. The Independent Transmission generating capacity is available or
requirement of the load-serving entity Provider must determine if each load- developed at satisfactory locations to
that owns it. Generation under contract serving entity’s planned resources meet avert a future shortage. However, a
must specify that the generator will be certain standards. The resources must forward contract with a marketer that is
available to the load-serving entity—or meet the standards to count toward linked to specific generation and
at least to the market that the load- satisfying the entity’s share of the demonstrates transmission adequacy
serving entity participates in—under regional resource requirement. Both would satisfy the requirement. We ask
conditions set out in the contract. These generation and interruptible or biddable for comment on whether we should
conditions, discussed further below load must meet standards to satisfy the allow a liquidated damages contract for
requirement. power from unspecified sources to be
under generation standards, must be
510. We propose here certain included in the resource adequacy plan,
adequate to meet the region’s need for
minimum standards for comment. We and also on whether we should allow a
reserve resources.
also are considering in the Final Rule to load-serving entity that initially fails to
506. The firm contract would be for a
ask the North American Energy satisfy the resource adequacy contract,
forward-looking period that would at
Standards Board (NAESB) to develop but later brings in new resources under
least cover the planning horizon, which
more detailed standards for determining a liquidated damages contract for the
(as discussed further below) would be
whether resources satisfy the resource amount of its resource deficiency, to
selected regionally and should be based
adequacy requirement, and we seek avoid the penalty price and first
on the time needed to develop new
comments on this approach. curtailment in the spot market during a
resources in the region. The load-
shortage.
serving entities must also demonstrate a. Generation Standards
that future use of the designated b. Transmission Standards
resources is physically feasible and, in 511. Generation must be owned by or
under contract to the load-serving entity 514. Generation must be deliverable
particular, that transmission is or will to satisfy the requirement. A Congestion
be available to deliver energy from a and committed to meet the resource
needs of the load-serving entity at least Revenue Right for the appropriate year
generator to the load-serving entity that is one way to satisfy this requirement.
claims it in its resource plan. during certain conditions such as an
operating reserve shortage. The We propose to adopt a practice (used in
(2) Demand Response Independent Transmission Provider PJM) that allows a resource owner to
must be satisfied that the generation is pay for the development of adequate
507. Allowing demand response transmission to deliver its energy to a
infrastructure to satisfy the requirement physically feasible; that is, the
generating units are capable of load and then to sell its Congestion
removes bias toward exclusive reliance Revenue Rights while still satisfying the
on new generation to meet regional generating the power planned, and
enough transmission is available to requirement that its generation be
needs. Better demand response to high deliverable. Should a commitment by
prices when a shortage condition deliver the power from the generating
station to the particular load. The any load-serving entity to pay
approaches will lower demand and congestion costs no matter how high
reduce the use of high-cost power generating units under contract must be
real and specific generators. This is so also satisfy the requirement? If so, how
resources. Demand response will help should the Independent Transmission
ensure reliability, prevent a shortage that only real generation that can avert
a supply shortage is counted and so that Provider respond if the sum total of all
that could produce a curtailment, act as such commitments exceeds the
a check against market power, and its transmission over the grid can be
assured. For example, it does no good available capacity of a bottleneck
provide a yardstick for the value that interface?
buyers place on supply. 225 The traditional reliability reserve margin 515. A robust transmission system
508. Biddable and interruptible load allows interruptible load to be counted equally with with few constraints may allow a load
can satisfy the resource adequacy generation resources, with some exceptions. to rely on generation and demand
response reserves that are farther away buying some of that other area’s freed- 523. We propose to make the planning
than if the transmission system is weak. up generation), the transmission needed horizon a matter for regional choice.
Supply reserves that are not deliverable to deliver the freed-up generation to the Regions should consider several factors
to the load claiming them when needed load that relies on it must be available. in selecting the planning horizon. Most
cannot be counted as satisfying that important, the planning horizon chosen
4. Planning Horizon
load’s reserve requirement. should not be so short that it fails to
516. For transmission as well as for 520. The purpose of a forward-looking motivate and achieve construction of
generation and demand response, the resource adequacy requirement is to generation and demand response
purpose of this requirement is to create a demand for new resource entry resources in time to avert a shortage.
encourage the development of least-cost in advance of a shortage so that enough Greater fuel diversity may be achieved
resources, which may include new supply construction and demand with a longer planning horizon. If the
transmission needed to access existing response infrastructure installation are horizon is short, two years for example,
or new generation. We believe therefore begun in time to avert the shortage. The load-serving entities may have an
that planned transmission with full planning horizon for each region is the incentive to select resources that can be
siting approval and completion number of years ahead for which the developed in two years or less, such as
expected within the planning horizon Independent Transmission Provider peaking units and some other gas-fired
should satisfy the adequacy must forecast annually its area’s load, as generators. A longer planning horizon
requirement. well as the number of years ahead for allows time for development of other
c. Demand Response Standards which load-serving entities must show resources such as coal-fired generation,
that they have adequate resources. For hydroelectric resources, and some
517. Demand response must also be example, the Independent Transmission advanced demand response programs.
verifiable to satisfy the adequacy Provider could forecast its area’s peak Load-serving entities in retail choice
requirement. The Independent load three years from the present and states would benefit from a shorter
Transmission Provider must have require that each load-serving entity in planning horizon because it would
confidence that the demand response its area have acceptable plans today to reduce their business risk associated
resource will be able to contribute when with demand forecast error. Also, they
have enough resources three years from
called on during a shortage. Demand may not want to enter into bilateral
now to meet the forecast peak with a
response may be obtained through contracts for supplies for a time period
reserve margin of 12 percent. In this
biddable demand reduction, that is longer than the duration of their
example, the planning horizon is three
interruptible load, or other dependable contracts with their customers.
years and the reserve level is the
load management program. Distributed 524. We propose to have the Regional
minimum 12 percent.
generation that is interconnected with a State Advisory Committee determine
customer, a load-serving entity, or an 521. The choice of the planning
horizon affects the lead time for the planning horizon for the region. The
energy services company, although it is Independent Transmission Provider
technically generation and not demand construction and the duration of
forward contracts that can satisfy a (including each Independent
response, can also be used by a local Transmission Provider in a region with
distributor to reduce the demand that resource adequacy requirement.226 The
more than one Independent
the distribution system places on the traditional state-required electric
Transmission Provider) must provide
grid. With biddable demand reduction, company planning horizon was 10 to 20
information and support to the
certain loads will be assured of years. The horizons were established
Committee, as requested, to help it to
dropping off the system at known price when the industry relied on new large
determine the region’s planning
levels; the amount of load dropped hydroelectric, coal, or nuclear facilities
horizon. We request comment on how to
should increase with the price. to meet growing load, and these
resolve any lack of consensus within the
518. With interruptible load, a facilities could take 10 or more years to
Committee regarding the appropriate
customer pays a lower power price year site and construct. Today, most new
planning horizon. We also ask for
round but will be interrupted under resources are planned and developed
comment on whether the Commission
defined shortage conditions; the load is over a much shorter time frame, in part
should establish limits on the region’s
subject to a simple on-off criterion. An because of the reliance on low cost
choice of planning horizon, such as at
important feature of this proposal is that natural gas. However, this planning
least three years and no more than five
the load-serving entity plan that horizon could change again if natural
years.
depends on interruptible load to meet gas were no longer the main fuel of 525. We also ask for comment on
its resource adequacy requirement must choice. whether to have a resource adequacy
be capable of being implemented. The 522. Because the planning horizon requirement before the end of the first
Independent Transmission Provider should be no less than the time frame planning horizon period. For example,
may require, for example, that the load- for developing new resources and if the horizon is three years, should
serving entity install equipment that development times vary from region to there be a requirement for resource
gives it direct control over the loads of region, the planning horizon can adequacy in the first two years?
the customers that are subject to the depend on that region’s reliance on coal,
interruption. We recognize, however, gas, wind, hydropower or new demand- 5. Enforcement
that installation of such equipment may response technology for new supply. 526. Here we explain in more detail
be too costly or otherwise impractical in This argues for allowing each region to our proposal to enforce the resource
some situations. In that case, the load- determine its own appropriate planning adequacy requirement, along with some
serving entity must have a satisfactory horizon. alternative enforcement procedures, and
arrangement for implementing its ask for comment on the most effective
interruptible load program under the 226 For example, forward-contracting for supply
enforcement method.
instructions of the Independent with one-year contracts that begin today and end 527. Unlike some ICAP requirements,
after one year would not satisfy an adequacy
Transmission Provider. requirement with a three-year planning horizon. A
the approach adopted here does not
519. If load in an area ‘‘buys’’ demand one-year contract for the third year forward would require a load-serving entity to pay a
reduction from another area (in effect satisfy the goal for that year. penalty in the near term for failure to
have adequate future resources. Our develop adequate supply and demand minimum level, $700 when operating
proposed approach relies primarily on resources. If shortage conditions reserves are more than 2 percent below
two enforcement mechanisms: (1) a develop to the point where the the minimum level, and so on. We ask
Commission-set tariff penalty imposed Independent Transmission Provider for comment on having such a
on a load-serving entity that threatens cannot serve all load and maintain the graduated penalty and the appropriate
reliable transmission operation by minimum level of operating reserves, it penalty rates.
taking energy from the spot market must take some action to maintain 531. This first enforcement
during a shortage in a year for which it reliable operation. Some load must be mechanism provides a price-based
fails to meet its resource adequacy given either an economic incentive to mechanism to enforce a resource
requirement, and (2) a Commission exit the spot market or an order to stop adequacy requirement and to restore the
requirement that the spot market taking power from the spot market. We transmission system to a reliable
electric service of such a load-serving propose that these measures be applied condition. Most system operators—and
entity must be curtailed first when the first to the load of the load-serving their regulators—treat load curtailment
shortage that is severe enough to require entities that did not meet their share of (voltage reductions and blackouts) as a
that some customers be curtailed. Each the resource adequacy requirement. last resort measure, and operators may
of these mechanisms, the penalty rate However, the load-serving entity is violate the reliability rule for minimum
and the load curtailment, would occur subject to a penalty and first curtailment operating reserves rather than
at the end of the planning horizon, not during a shortage only for spot energy implement a load curtailment to satisfy
the beginning.227 purchases 229 and only in the amount by the minimum operating reserve
528. The first mechanism applies which it falls short of meeting its criterion.230 We believe that the penalty
during a power shortage in which the resource adequacy requirement. price should be set high enough to bring
Independent Transmission Provider is 529. Specifically, we propose that about voluntary load reduction by a
unable to satisfy demand in the spot during such a shortage the Independent load-serving entity and thus restore the
market and also meet its reliability Transmission Provider must add a per- system to a reliable condition.
requirement for a minimum level of megawatt-hour penalty price to the 532. The second enforcement
operating reserves.228 As a shortage price of energy taken from the spot mechanism is applied when the
develops, price is expected to increase market by a load-serving entity that did operating reserve level decreases to the
in the spot energy market. A load- not meet its share of the regional needs point that some load must be
serving entity that is short on self- for that year. This rate would apply only curtailed.231 The spot energy purchases
generation, bilateral contracts (including to spot energy purchases, not to power of that load-serving entity load would be
affiliate generation and call contracts), received from the load-serving entity’s reduced by the amount of its resource
and demand response resources will be self-generation or bilaterally contracted deficiency and consequently some of its
dependent on the spot markets to meet energy. However, it would apply to spot customers would be curtailed before the
its resource needs. The rising price in market energy sales needed to correct loads of other load-serving entities.232
the spot market is, of course, a principal 533. In support of this second
for imbalances associated with energy
incentive for the load-serving entity to mechanism, we will require the
from these sources. We would set the
Independent Transmission Provider to
penalty price high enough that we do
227 For example, if the planning horizon is three
not suggest that failing to meet a 230 We will not overturn this practice by requiring
years, a demand forecast would be made in 2004
for the year 2007. The Independent Transmission
resource adequacy requirement and curtailment of load immediately to restore the
Provider would assess the adequacy of resources for paying a penalty rate is an acceptable minimum operating reserve level. Some regions
2007 and allocate the resource adequacy alternative to developing new resources, have a regional policy of taking action to reduce
requirement for 2007 among the load serving which would be the case if the paying voltage or shed load only when operating reserves
entities. The entities would submit to the fall to some fraction, such as three-fourths or three-
Independent Transmission Provider in 2004 their
the penalty appears to be less costly fifths, of the minimum operating reserve
plans to meet their share of the 2007 resource over time. requirements of the reliability organizations.
adequacy requirement. An entity fails to submit in 530. The penalty price would increase 231 Regional practice will determine when load
2004 a satisfactory resource plan for 2007 would in stages as the shortage becomes more must be curtailed to maintain reliable operation.
not be subject to the penalty rate or be among the Operators may continue to follow their existing
first curtailed during a shortage in 2004 but would
severe. For example, the penalty price reliability practices: those that do not curtail service
be subject to the penalty rate and be among the first could be $500 (in addition to the spot immediately when the operating reserve level goes
curtailed during a shortage in 2007. Next year, in market energy price) when operating below the minimum must impose the penalty price
2005, the same process repeats: the Independent reserves are just below the minimum on resource-deficient load-serving entities.
Transmission Provider would forecast demand in However, it is not our intent to require an operator
2008, and so on.
level, $600 when operating reserves are to violate a reliability rule by providing service with
228 Operating reserves are generation and demand more than below 1 percent below the a penalty price instead of enforcing its reliability
response resources needed to keep the system in rule through load curtailment. We believe that a
balance, follow changes in load, and make up for 229 These actions apply to spot energy purchases high penalty price may result in the needed load
a ‘‘contingency’’ such as the loss of the largest onluy. In the event that the load-serving entity that reduction. Whenever the operator must curtail load
generating unit or of a major transmission line that failed to meet its share of the resource adequacy to maintain reliability, it should do so. Our
delivers more power than any one generating unit. requirement has adequate supply and demand requirement goes to which load must be curtailed
The North American Electric Reliability Council resources outside the spot market available to it at first when curtailment of load is necessary, not to
and the regional reliability councils set rules the time of the shortage, the Independent when curtailment becomes necessary.
regarding the minimum operating reserves that Transmission Provider would continue to provide 232 An individual load-serving entity may run
must be maintained by the system operator for transmission to support delivery of these resources. short of planned-for resources when its region is not
reliable operation. The rules are expressed in a This proposal gives deference to the ownership and experiencing a regionwide shortage, for example,
formula so that the value of the minimum operating contractual right to use self-generation, bilateral because of a combination of high demand on its
reserves changes during the day with load contracts, and demend response resources, and it own system and unplanned outages of its own
conditions and with the sources of supply. encourages the development of such resources resources. In this case it is not required to be
Typically, for a large utility, the minimum during the planning horizon period by those curtailed because that load-serving entity may
operating reserves are in the range of 5 to 8 percent entities that failed to plan adequately at the procure additional supplies from the short-term or
of load, but this can vary significant with changing beginning. It also discourages contracting with long-term bilateral market or from the spot market.
conditions. An operator that operates with less than unreliable resources to meet the resource adequacy Since the region is not short, others are likely to sell
minimum operating reserves threatens not only its requirement because each load-serving entity must power, including perhaps a portion of their reserves
own reliable operation but the reliability of its actually rely on its resources to meet its resource on the basis that the reserves can be recalled if a
electrical neighbors. needs. regionwide shortage occurs.
inform the load-serving entity’s state mentioned, under our proposal the including transmission service from
regulatory authority 233 if the load- penalty rate or load curtailment would resources acquired outside the spot
serving entity fails to submit a occur at the end of the planning market, freeing up those resources for
satisfactory plan for adequate future horizon, not the beginning. However, the use of those that planned
resources, thereby exposing its we ask for comment on this approach adequately.
customers to possible penalties and compared to an alternative approach 539. Finally, our proposed
future first curtailment during a that may provide a more immediate and enforcement mechanisms are designed
shortage. Our intent is to rely on the effective incentive to a load-serving to create an incentive to avoid a future
traditional state role of enforcing a load- entity to take action to provide for penalty or first curtailment. During the
serving entity’s reserve obligation. We future resources well in advance of public outreach process for developing
believe that in most cases the state facing a penalty or first curtailment. this proposed rule, some commenters
regulatory authority would prefer to This is to impose a penalty on the load- recommended a stronger Independent
have the load-serving entity meet the serving entity immediately (that is, in Transmission Provider role in
adequacy requirement as a condition of year 2004 to continue the example in an compliance with a mandatory resource
doing business in the state, rather than earlier footnote) if it fails to submit a adequacy requirement. One proposal is
expose its retail customers to first satisfactory plan to meet its 2007 for the Commission to require the
curtailment. The state regulatory resource adequacy requirement. We did Independent Transmission Provider to
authority may wish to consider any not propose this option as our first procure resources on behalf of load-
decision of a load-serving entity not choice because it has some of the serving entities that fail to meet fully
meet its resource adequacy requirement. unfavorable features of some ICAP their requirement and charge them for
It may want to ask the load-serving programs that focus more on avoiding the cost of the resources.236 Another is
entity to identify which of its customers immediate penalties than on motivating for us to require the Independent
will be subject to first curtailment if the long term resource development. Transmission Provider to either (1)
region is short of power.234 However, we ask for comments on the calculate an expected capacity
534. If the Independent Transmission merits of this alternative approach. deficiency and purchase the call options
Provider does not have direct control of 537. As presented, the Independent necessary to meet the adequacy
the circuit equipment needed to Transmission Provider audits the plan requirement on behalf of the load-
implement a curtailment and relies on of each load-serving entity only at the serving entities, allocating costs pro
the load-serving entity to follow its beginning of the planning period (in rata, or (2) require load-serving entities
instructions to implement a curtailment, 2004 in the example above). We are to purchase reserves at the price
the load-serving entity would be subject concerned that a load-serving entity produced by an Independent
to a severe penalty for the unauthorized may submit a satisfactory plan but fail Transmission Provider-run auction.237
taking of power from the spot energy to fully implement the plan. The 540. These approaches have
market because this jeopardizes grid proposal permits but does not require advantages as well as disadvantages.
reliability. We propose to charge the the Independent Transmission Provider Among the advantages are that they
applicable Locational Marginal Price to audit each year the progress of the provide a greater assurance of achieving
plus $1000/MWh for all unauthorized load-serving entity in implementing its adequate resources and avoid the
energy taken following an instruction to plan, and we ask whether we should possible pitfalls of applying penalty
implement curtailment.235 We also seek explicitly require this. If the load- rates or first curtailment. Among the
comment on whether the $1000/MWh serving entity’s progress is disadvantages are that they take away
penalty would be sufficient to deter unsatisfactory, should the Independent one demand response option, namely
unauthorized taking of energy and, if Transmission Provider find that it fails curtailment, from the range of policy
these penalties are paid, who should to satisfy its resource adequacy choices. Also, the latter approaches
receive these revenues. requirement? If the load-serving entity appear to require the Independent
535. We believe that load-serving implements its plan but some of its Transmission Provider to take a position
entities, under these enforcement resources fail to perform when needed in the capacity market, which places the
provisions and under the oversight of during a shortage, should that load- Independent Transmission Provider in a
state regulatory authorities, will meet serving entity, in addition to having a role that may be incompatible with its
their resource adequacy requirement greater need for spot market energy at a independence.238
presumably higher spot market price, 541. What is the effect of these
and not be subject to these curtailment
also be subject to either of the alternate enforcement mechanisms on
penalty and first curtailment provisions
enforcement mechanisms set out above? the incentives and business risks of the
at all. If most meet the requirement as 538. Another feature of our proposal
we expect, shortages and first is that it would not affect electric 236 See, e.g., Electricity Market Design and
curtailment of any that do not should service from the self-generation and Structure, Docket No. RM01–12–000, comments of
occur infrequently. bilateral contracts of a load-serving Reliant Resources, Inc., filed May 3, 2002, at pages
536. Having presented our 11–12, in Docket No. RM01–12–000.
entity that fails to meet its resource
enforcement proposal, we suggest adequacy requirement (except that it
237 See, e.g., Electricity Market Design and
variations of this proposal and ask for Structure, Docket No. RM01–12–000, comments of
would be subject to a penalty price Mirant Americas, Inc. and Mirant Americas Energy
comments on these alternatives. As during a shortage for balancing energy Marketing, L.P. filed May 2, 2002.
233 In this section, the term ‘‘state regulatory
in the spot energy market). We ask for 238 They also raises difficult jurisdictional
comment on whether this proposal questions, in that Commission has regulated the
authority’’ includes the retail rate regulating seller’s side of wholesale transactions and the states
authority for load-serving entities not regulated by unduly weakens the incentive to have regulated the buyer’s side. Under some of
a state utility commission. develop regional resources and whether, these proposals, we would have to distinguish a
234 Any necessary curtailment action, whether a
in the alternative, the Independent transmission penalty levied by the Independent
first curtailment or any subsequent curtailment Transmission Provider should first Transmission Provider for a load-serving entity’s
action may have to satisfy applicable state or local failure to procure the resources needed to maintain
rules for ensuring that essential retail services (such curtail service to the load serving transmission security from a Commission-enforced
as police, hospitals, fire stations) are maintained. entities that failed to meet their share of mandatory purchase of reserves by the load-serving
235 See SMD Tariff, Appendix B, Section I.5. the resource adequacy requirement, entity.
load serving entities in the region? Is region to set its own level of resource provide the board as well as market
there another enforcement mechanism adequacy, set its own planning horizon, participants and the Commission with a
that is both appropriate and effective? and select from a combination of supply consensus view from states in the area.
and demand response resources for The specifics of how this advisory
6. Regional Flexibility
meeting its needs. committee would be formed and operate
542. We propose to apply the 549. Our proposal permits but does would be decided on a regional basis.
requirement set out above to all regions, not require a region to have its This coordinated oversight will ensure
including regions that already have an Independent Transmission Provider fulfillment of federal public interest
ICAP requirement that has been establish a market for acquiring and responsibilities in a manner that
previously approved by the trading adequate resources. We believe includes the views of states throughout
Commission. This requirement would that the bilateral market and other the region. In this regard, we also
replace the current ICAP program. means can be adequate for acquiring encourage the participation of Canadian
543. Some regulators, customers, and and trading resources. Nevertheless, we provincial authorities in this process.
market participants have expressed ask for comment on whether, under the 553. We take note of the recent report
dissatisfaction with the ICAP models approach to resource adequacy by the National Governors’ Association
presently in place. Some customers proposed here, we should require an entitled ‘‘Interstate Strategies for
view ICAP as an added cost with no Independent Transmission Provider to Transmission Planning,’’ which
tangible benefits; they assert that the create a market to facilitate load-serving recommends establishing ‘‘Multi-State
commodity being traded has little value entities meeting their resource adequacy Entities’’ to facilitate state coordination
because customers are paying for requirement efficiently. on transmission planning, certification,
installed capacity but not receiving any 550. Despite the flexibility of our and siting at a regional level.239 The
greater assurance that generation proposed approach, regions with a report recognizes the critical role states
adequacy is maintained. Some historical reliance on a tight pool for currently play in siting as well as the
commenters say that, in some ICAP sharing reserve may argue for a need to address regional needs. The
programs, a generator can receive an continuation of some form of ICAP institution we propose here appears
ICAP payment and later be released program. We ask for comment on how complementary to the National
from the ICAP obligation for a relatively existing Commission-approved ICAP Governors Association’s
small penalty to sell its capacity in mechanisms can be transitioned and recommendation. In fact, it may be
another market with a high wholesale modified so as to be made consistent useful to have a single Regional State
price. with our resource adequacy proposal Advisory Committee rather than
544. Existing local generators are said here without disrupting financial separate committees for siting and other
to have preferential ability to participate commitments made under existing issues. We seek comment on whether
in the ICAP market. The ICAP payment rules. What are the disadvantages of there should be a single Regional State
goes to the existing generators and does particular elements of the ICAP Advisory Committee, or separate
not necessarily lead others to enter the approach that should be avoided in the committees for siting and other issues.
market to increase capacity. Depending approach proposed here? Do any of the We also seek comment on how the state
on how the ICAP rules are designed, enforcement proposals or alternatives representatives should be selected (e.g.,
existing generators may be able to discussed above re-introduce any such whether the governor should select
exercise market power, forcing up ICAP disadvantageous elements?
them or some other process should be
prices. In some markets, trading has K. State Participation in RTO used).
been so thin at times that there is a Operations 554. The Regional State Advisory
question about whether there is a Committee may work with the regional
competitive market price. 551. States have an important role in
the process of creating and sustaining an transmission organization to seek
545. In some such cases, the ISO has regional solutions to issues that may fall
intervened to set the price efficient competitive wholesale market
for electricity. The Commission has under federal, state, or shared
administratively, and market jurisdiction, which may include but are
participants are concerned that the price already established state-federal RTO
panels as a forum for the Commission not limited to:
does not reflect the forward value of
generating capacity. Some contend that and state commissioners to discuss a. Resource adequacy standards;
issues related to RTO development. b. Transmission planning, expansion;
prices in the spot markets and bilateral c. Rate design and revenue
markets, including long-term forward However, there currently is not a formal
process for state representatives to requirements;
contract markets, appear to be not well d. Market power and market monitoring;
correlated with ICAP market prices. engage in a similar dialogue with the
e. Demand response and load
546. The generators object to ICAP independent entity that will operate the
management;
price controls. Some power generators electric grid under Standard Market f. Distributed generation and
see short-term ICAP payments as Design. Therefore, the Commission is interconnection policies;
providing inadequate assurance of proposing to establish a formal role for g. Energy efficiency and environmental
capital cost recovery to motivate new state representatives to participate on an issues;
investment. They prefer longer-term ongoing basis in the decision-making h. RTO management and budget review.
contracts to ensure that their investment process of these organizations. Further duties may evolve with the
costs will be recovered. 552. We envision that the
development and operation of the
547. Finally, many parties object that Independent Transmission Provider that
regional councils.
ICAP focuses on power generation, operates the grid would have a Regional
555. As discussed, the Commission is
ignoring the potential of demand State Advisory Committee. The Regional
proposing to require that the
response. State Advisory Committee should be
independent entity that operates the
548. Although we propose that every formed and should have direct contact
region must adopt our approach, this with the governing board, in a manner 239 Available in http://www.ng.org/center/
approach offers significant regional which recognizes its public interest divisions/
flexibility. Our approach allows each responsibilities, and be designed to 1,1188,ClISSUElBRIEF∧Dl4110,00.html.
markets under Standard Market Design not mandate detailed governance manner. The board’s focus should be on
will have a Market Monitoring Unit requirements for RTO boards in Order the interests of the wholesale market,
(MMU). The MMU will be required to No. 2000, we stated that we would not the interests of particular market
report directly to the Commission and review on a case-by-case basis the RTO participants or classes of market
the independent governing board of the governance proposals and judge them participants. The board should not be
Independent Transmission Provider. against the overarching standard that regarded as a partner or a contractor of
The MMU should also provide its the RTO’s decisionmaking process must the market participants. Further, the
reports directly to the Regional State be independent of individual market board should be composed of members
Advisory Committee. Finally, because of participants and classes of market that are not part of the management of
the regional nature of these participants. We also required an audit the Independent Transmission Provider.
organizations, there are many new of the independence of an ISO’s This Commission has the overall
issues involving rate design and revenue governance process two years after its responsibility for the function of the
requirements. We believe that the approval as an RTO.240 wholesale electric market, including
Regional State Advisory Committees can 557. The Commission has considered setting overall policy for the market.
bring a valuable regional perspective to on a case-by-case basis whether
these issues and should play a role in Independent Transmission Providers are
individual RTO proposals satisfy the public utilities subject to the
deciding these issues in partnership Commission’s requirements for
with the Commission. Once the Commission’s jurisdiction under the
independence.241 We have required
advisory committees are established, we Federal Power Act because they own,
changes where they did not.242
intend to work with them to establish control or operate jurisdictional
However, we are concerned that the lack
protocols for deciding these regional of more definitive guidance from the transmission facilities and will
rate issues. Additionally, the Commission on governance may be administer jurisdictional wholesale
Independent Transmission Provider will hindering the development of larger energy markets. In order to carry out the
be required to develop regional plans for RTOs. Also, we are concerned that the functions required by Standard Market
transmission planning and expansion. existing stakeholder process may not Design, the board must be fully
We believe this is also an area where the provide adequate representation for all independent of any market participants.
Regional State Advisory Committee can market participants and interested The board is responsible for overseeing
bring a valuable regional perspective parties. The lack of adequate the Independent Transmission
and should be consulted in developing representation may hinder development Provider’s administration of the tariff
these regional plans. of alternative energy resources, such as and market rules that have been
L. Governance for Independent distributed generation, renewable approved by the Commission. It also
Transmission Providers energy, or demand response programs, must monitor the operation of the
since these programs may be contrary to markets within its region to identify
556. The Commission has previously
the business interests of certain market problems, e.g., the ability to exercise
recognized the importance of
participants. Therefore, we are market power, and to propose solutions.
independent governance of regional
proposing to require that all In both of these areas, the board is
organizations in both Order No. 888 and
Independent Transmission Providers accountable to the Commission, not the
Order No. 2000. In Order No. 888, the
satisfy specific governance market participants and should ensure
Commission required that ISO
governance be structured in a fair and requirements. Specifically, we are the following: system reliability and
non-discriminatory manner and that the proposing to more clearly define the operating efficiency, efficiently
ISO be independent of any individual responsibilities of the Board of functioning markets, and short- and
market participant or any one class of Directors, more clearly define the role of long-term planning objectives. Indeed,
participants. The Commission also stakeholders in selection of the board the board should ensure that any
required that the ISO’s rules of and in the management of the instance of perceived or real market
governance should prevent control, and Independent Transmission Provider, power or market dysfunction is reported
appearance of control, of decision- and to establish a process that would be directly and immediately by the MMU
making by any class of participants. used for selecting the Board of Directors to the Commission.
Order No. 2000 built upon and extended by Independent Transmission Providers.
559. An important implication of
this independence requirement to RTOs. 1. Responsibilities of the Board of these principles is that the board must
In Order No. 2000, we reaffirmed our Directors not be a stakeholder board with industry
commitment to independence as a segments given specific seats on the
bedrock principle for regional 558. As we have previously stated in
both Order No. 888 and Order No. 2000, board. The interest of all board members
organizations, and in this rulemaking should be a well-functioning market,
we find that our commitment to it is critical that the board be
independent. The board’s primary not representation of a specific industry
independence also is critical to the segment. Similarly, board members
successful implementation of Standard responsibility is to ensure that the
markets operated by the Independent must have no financial interests in
Market Design. Compliance with the
Transmission Provider are operated in a market participants so that there is no
independence requirement of Order No.
fair, efficient and non-discriminatory appearance of bias or benefit.
2000 is based on the independence of
the Board of Directors and all employees 240 See California Operational Audit of the
2. Stakeholder Participation
of the RTO. The governance California Independent System Operator issued
requirements for the Board of Directors January 25, 2002 in PA02–1–000 and Order 560. Stakeholders have an important
is critical to ensuring that the RTO is Concerning Governance of the California role in advising the boards of
independent and that the RTO’s Independent System Operator 100 FERC ¶61,059 Independent Transmission Providers.
(2002). Most current regional organizations
interests are aligned with the interests of 241 See Avista Corporation, et al.., 95 FERC
the market as a whole rather than with ¶61,114 (2001). have established stakeholder
particular market participants of classes 242 See Carolina Power & Light Company, 94 committees that act either as advisors or
or market participants. While we did FERC ¶61,273 (2001). in some cases vote on proposals that go
before the board.243 We continue to We believe that six stakeholder classes more of these fields: senior corporate
believe that an active stakeholder provides better representation for leadership of a major publicly traded
process is needed and that to fully certain market participants, e.g., company; professional disciplines of
satisfy the independence principles of transmission-dependent utilities and finance, accounting, or law; electrical
Standard Market Design, these new technologies that have not been engineering; regulation of utilities;
stakeholder committees must be used to adequately represented in the past. transmission system operation or
advise the Board of Directors rather than Also, we propose that a company planning; trading or risk management;
function as a decision making body. (including all of its affiliates) may have information technology; and generation
561. We are concerned that the a representative in only one stakeholder planning or operation. The candidate
current composition of these advisory sector. For example, a vertically could have experience in the electric
committees may not adequately integrated utility that has a marketing industry in either an Investor-Owned
represent all segments of the industry. affiliate would have to choose whether Utility or public power entity. The
The current structure of many ISO it would be represented in the objective is to have a board that
stakeholder committees tends to transmission owner sector or the collectively possesses experience in
replicate the functions of vertically generator/marketer sector. This will many, if not all, of these areas.
integrated utilities. For example, PJM prevent large corporations from 564. Board members or their
currently has five classes, Generation dominating sector representation by immediate families should not have
Owners, Transmission Owners, Other placing their affiliates and subsidiaries current or recent ties (within the last
Suppliers, Electric Distributors, and in several sectors. Initially, the company two years) as a director, officer or
End-Use Customers. Four of these would be allowed to choose which employee of a market participant in the
classes represent interests that would sector it wished to join. However, region or its affiliates. Board members or
benefit from higher levels of demand. requests to change sectors may be their immediate families should also not
Only one represents customers or end- subject to limitations to avoid frequent have direct business relationships with
users, and none represents demand-side changes that could be used to affect market participants or their affiliates.
technologies or alternative load control sector voting results for advisory actions Finally, to the extent that the board
services such as demand resource recommended to the board. For member owns stocks or bonds of
management. This sector structure example, the corporation may be companies that are market participants,
could discourage the introduction of required to decide which sector it will these must be divested within six
changes that implement new demand join on an annual basis. This would months of being elected to the board.
management technologies and services, allow corporations to change sectors to Prior to divestiture, the board member
one of the biggest potential outgrowths reflect changes in corporate business would not be able to participate in any
of the move towards a competitive models, but not allow frequent changes decisions affecting that market
market. Financial entities, which are that could be used to change voting participant or its affiliates. These
usually financial trading firms such as results on particular proposals. We also requirements are necessary to ensure
banks or other financial institutions that seek comment on whether or under that the board member does not have
provide the needed capital to the what circumstances, a stakeholder class any financial interest in a market
industry, are also poorly represented, if should be able to take an issue directly
participant that could influence the
at all. Therefore, we propose to require to the board outside the stakeholder
board member’s decision. We propose
that an Independent Transmission process.
Provider approved by the Commission that board members, their immediate
must have at a minimum committees 3. Initial Selection Process for Board of families and senior management be
that reflect six stakeholder classes: (1) Directors required to fill out annual financial
Generators and marketers, (2) 562. The initial selection process for disclosure statements to ensure that
transmission owners (this sector would the Board of directors must be there is no conflict of interest. The
include vertically integrated utilities), structured to ensure that board members financial disclosure statements would
(3) transmission-dependent utilities,244 are independent and have expertise in be available for audit by the
(4) public interest groups (e.g., a variety of transmission and electric Commission.
consumer advocates, environmental market areas. We propose that the 565. Second, a nationally recognized
groups, citizen participation), (5) following process be used.245 search firm should be retained by the
alternative energy providers (e.g., 563. First, the qualifications of the nominating committee to identify
distributed generation, demand board members should be established. candidates that satisfy these criteria.
response technologies, renewable We believe it is important that the The search firm should supply at least
energy), and (6) end-users and retail qualifications be more widely focused two names for each available board seat.
energy providers (i.e., load-serving than just experience with electric The use of a nationally recognized
entities that do not own transmission or transmission systems. Experience in search firm to develop the list of
distribution assets). In addition, we additional areas such as risk potential board members helps ensure
propose to require that there be a management, generation planning and the integrity of the process since the
separate Regional State Advisory operation, or technology and innovation search firm would not have a financial
Committee that would advise the board. would provide the board with a wider interest in proposing candidates that
background of knowledge in areas represent specific market participants or
243 In Order No. 2000, 23 required that these types crucial to market development. We classes of market participants. The
of stake holder committees be advisory in RTOs. propose that board candidates be search firm should not have a
This meant that the board would have the ability significant ongoing business
to propose changes to market rules to the
required to have experience in one or
commission whether those changes we approved by relationship with the market
the stakeholder committees. We propose to 245 We are not proposing any specific participants in the region. The search
continue this policy for Independent Transmission requirements on the number of board members. We firm must disclose to the nominating
Providers. anticipate that the board will have between five and
244 These are utilities that must take transmission nine members, which is consistent with the current
committee any ongoing business
service from public utilities to provide retail service size of the Board of Directors for ISOs and proposed relationships it has with market
to their customers. for RTOs. participants in the region.
566. A nominating committee be for four years. The staggered terms by their respective boards, after
composed of two members from each of will provide a degree of continuity to consultation with stakeholders on the
the stakeholder classes would be formed the board in its decision making expertise and experience needed by the
to review the list of candidates process. We seek comment on whether new organization.
presented by the search firm. The the proposed staggered terms would 574. A nominating committee will
nominating committee would vote for lead to too rapid a turnover in the nominate all candidates (except the
the individual board candidates as composition of the board. Board initial members that originate from the
follows. Each nominating committee members would be permitted to serve original boards of ISOs, RTOs or
member would have the right to cast no more than two consecutive terms. Independent Transmission Providers)
votes equal to the number of open board This limitation will ensure that there for the initial election of new board
seats. A member shall not cast more will be a change in board membership members. The initial nominating
than one vote for any one candidate and over time to allow for the introduction committee will be composed of two
is not required to cast all of its votes. of board members with different board members from each of the
567. Board seats are filled by a simple experience. respective merging organizations and
majority. Candidates with the highest 571. The same process that was used the Chairs of two committees
vote totals are elected to open board to select the initial Board of Directors representing market operations,
seats. Ties for the last open board seats would be used in the selection process reliability and/or management.
will have a runoff subject to the same for subsequent board members in the M. System Security
rules as the initial selection process. case of resignation, death or removal for
The elected board members would vote cause. Namely a nationally recognized 575. System security is critical to the
to designate one of the members as search firm would be retained to reliable operation of the interstate
Chairman of the Board. We seek identify board candidates. A nominating transmission grid. Wholesale electric
comment on whether the Chief committee would be formed to review grid operations are highly
Executive Officer of the Independent the list of candidates and propose new interdependent, and a failure of one part
Transmission Provider should be a non- board members. of the generation, transmission, or grid
voting member of the board. 572. When the first set of board management system can compromise
568. We recognize that allowing a members terms start expiring a two the reliable operation of a major portion
vote on candidates by stakeholders stage process would be used for electing of the regional grid. The wholesale
could be perceived as allowing a sector board members. First, existing board electric market relies on the continuing
to dominate the board selection process members whose terms are expiring reliable operation of not only physical
or result in less than a fully would indicate whether they wished to grid resources, but also the operational
independent board. While we recognize remain on the board for a second term. infrastructure of monitoring, dispatch
the concern, we believe that it is The stakeholders would vote on and market software and systems.
important that stakeholders have a voice whether these existing board members Because of this mutual vulnerability and
in the selection process. We do not would remain on the Board of Directors. interdependence, it is necessary to
believe that it is the Commission’s role Second, if there were any remaining safeguard the electric grid and market
to be the primary decision-maker in vacancies, then a search firm would be resources and systems by establishing
determining the candidates that are retained to provide candidates for the minimum standards for public utilities
selected for the board. We seek that own, control or operate facilities
vacant seats on the Board of Directors.
comment on what protections should be used for transmitting electric energy in
The same process that was used for
built into the selection process to ensure interstate commerce as well as entities
filling the initial Board of Directors
that a class of market participants does that use these facilities.
would be used for filling these 576. NERC’s Critical Infrastructure
not dominate the stakeholder voting vacancies.
process. Nevertheless, we solicit Protection Advisory Group has recently
comment on whether to require the 5. Mergers of Independent Transmission developed a set of recommended
nominating committee to vote on an Providers minimum requirements (standards) for
entire slate of candidates rather than on 573. We propose the following initial securing information assets that support
individual candidates. governance structure in the event of a grid reliability and market operations
merger of ISOs, RTOs or Independent and the physical environments in which
4. Succession of Board Members these information assets operate. These
Transmission Providers. Initially, the
569. The governance process also board members of the newly formed standards are designed to ensure that
needs to include ongoing procedures for entity will be comprised of a number of the entity has a basic security program
the selection of new board members. We board members from each of the protecting the electric grid and market
believe that the process should seek to respective organizations in addition to from the impact of acts, either
maintain a degree of continuity of board new members. We propose that there accidental or malicious, that could
membership to ensure stability and should be equal representation from cause wide-ranging harmful impacts on
consistency in decisionmaking, while at each former organization plus an equal grid operations. These standards would
the same time ensuring that the board number of new board members.246 This be administered through an annual self-
does change membership over time to type of composition will provide the certification due January 31, 2004, and
allow the introduction of new new merged Independent Transmission every January 31 thereafter. The
viewpoints and encourage innovation. Provider with the expertise, knowledge proposed form for the self-certification
570. To accomplish these two is attached as Appendix G.
and experience during start-up while
objectives, we propose that the board 577. We propose to require that all
new board members would bring fresh
members have staggered terms. public utilities that have tariffs on file
ideas and perspective. The members
Approximately half of the first board with the Commission must file the self-
from the existing boards will be chosen
should have initial terms of four years. certification by January 31, 2004, and
The remaining board members should 246 For example, a nine member board for a every January 31 thereafter.
have initial terms of three years. All merger of two RTOs would reflect 3 members from Additionally, on and after February 1,
subsequent board members’ terms will each of the former RTOs plus three new members. 2004, as a condition of receiving
transmission service provided by a have Standard Market Design A. Pursuant to section 206 of the FPA,
public utility that owns, controls or implemented on all jurisdictional we propose to require all public utilities
operates transmission facilities, a transmission systems no later than that own, control or operate facilities
customer must demonstrate that it has a September 30, 2004, or such time as the used for the transmission of electric
basic security program in place. The Commission may establish. The energy in interstate commerce to file the
customer can satisfy this requirement by Commission does not believe it is in the Interim Tariff, no later than July 31,
supplying the public utility with a copy public interest to delay implementation 2003. The Interim Tariff will become
of the executed self-certification form. of the remedial action to cure undue effective on September 30, 2003, after
In the case of entities seeking discrimination or to develop necessary the peak summer season.
transmission service that are not public infrastructure until the time when all of 583. Although a transmission tariff
utilities subject to the Commission’s the software changes necessary for rate is already in effect for all public
regulations, the entity would still be standard market design are completed. utilities that own, operate or control
required to demonstrate that it has a Consequently, the Commission proposes facilities used for the transmission of
basic security program in place to a multi-step process that will be used to electric energy in interstate commerce,
receive transmission services. This bring these rates, terms and conditions we acknowledge that changes to
could be done by supplying the of service into conformity with the individual utility rates may be necessary
transmission provider with an executed regulations. as a result of the changes to non-rate
self-certification using the terms and conditions that the Interim
Commission’s form. Alternatively, the 30 Days After Effective Date of Final Tariff requires. Should a public utility
transmission provider and the customer Rule determine that such rate changes are
could develop an alternative 581. The Commission will require all warranted by the new non-rate terms
arrangement for ensuring that the public utilities that own, control or and conditions, it may file a new rate
customer has a basic security program operate interstate transmission facilities proposal pursuant to FPA section 205,
in place. to begin discussions with stakeholders no later than July 31, 2003. We will
578. Finally, when the SMD Tariff is and state representatives within 30 days impose a blanket suspension on any
implemented, we propose to extend the after the effective date of the Final Rule such filings that we receive and make
requirement to cover the additional about how they will implement the them effective, subject to refund, 61
services being provided by the transition process and comply with the days after they are filed.
Independent Transmission Provider. At requirements of the Final Rule. These 584. We also propose a new tariff
that time, any customer seeking to buy discussions should address selection of (SMD Tariff), attached as Appendix B,
or sell through the markets operated by an Independent Transmission Provider to supersede the Interim Tariff and
the Independent Transmission Provider that will manage the transmission implement Standard Market Design. The
or take transmission service under the facilities, establishment of a regional new SMD Tariff includes many areas in
Network Access Service would be state advisory committee, development which the Independent Transmission
required to demonstrate that it has a of a regional transmission planning and Provider would propose provisions
basic security program in place. expansion program, development of a consistent with the policy framework
579. We expect that these standards long-term resource adequacy set forth in the Final Rule, but designed
will be revised and refined over time in requirement and identification of areas to meet the specific circumstances of the
light of changes in technology and such as load pockets where mitigation region. We propose to give regions
operational experience with the or appropriate infrastructure will be discretion in developing a transition
standards. Therefore, the regulations necessary. program for existing contracts that is
will also identify the specific version consistent with the guidelines set forth
number of the system security July 31, 2003 in the Final Rule.
standards. When NERC revises the 582. The Commission recognizes that 585. The Commission recognizes that
standards, the revisions will be filed it has accepted many changes to the pro public utilities will need time to ensure
with the Commission. The Commission that transmission facilities are operated
forma tariffs of individual transmission
will issue a Notice that it is considering by an Independent Transmission
providers that deviate from the pro
revising the updated system security Provider, implement Network Access
forma tariff contained in Order No. 888.
standards, and we will seek comments Service, establish day-ahead and real-
To the extent these changes involve
on the proposed changes. These security time markets, adopt LMP for congestion
bundled retail load or give preference to
standards for electric market management, incorporate market power
either native load customers or the
participants can be found in Appendix mitigation measures customized for the
transmission provider’s use of its
G, along with the proposed self- region, develop a market monitoring
system, we propose to direct the
certification form, discussed above. program and develop a resource
transmission provider to eliminate
adequacy requirement for the region.
V. Implementation them. We have revised the Order No.
Thus, for these requirements the
580. The Commission proposes to 888 pro forma tariff to place bundled
Commission proposes a process for
find in the Final Rule that rates, terms retail load under the open access
implementation that provides an
and conditions of transmission service transmission tariff, and to eliminate
opportunity for active participation by
and wholesale electric sales that do not undue preferences for native load
state representatives and market
comport with the regulations adopted customers and the transmission owner’s
participants and that gives the
by the Final Rule are unjust, use of its own system.247 The revised
Commission opportunities to review
unreasonable or unduly discriminatory. Order No. 888 pro forma tariff, which is
progress and require changes if
Many of the elements included in referred to as the Interim Tariff in this
sufficient progress is not being made.
Standard Market Design will require proposed rule, is attached as Appendix 586. To implement the requirements
computer software development and 247 The public utility would make the revisions to
of Standard Market Design, we propose
changes that public utilities may not be its currently effective Open Access Transmission
to require every public utility that owns,
able to fully implement for a couple of Tariff. The changes to the Order No. 888 tariff are controls or operates facilities used for
years. The Commission’s objective is to intended to identify the changes that must be made. the transmission of electric energy in
interstate commerce to select an more quickly than others. The dates several months before the planned
Independent Transmission Provider to proposed in the Implementation Plan implementation date any changes that
operate its transmission facilities. A should reflect the level of changes that are required in these filings.
public utility may meet this requirement are required. The Commission intends 592. As a result of the changes
by: (1) Itself satisfying the definition of to be flexible in setting compliance required by the Final Rule, the
Independent Transmission Provider; (2) dates for Standard Market Design. The Independent Transmission Provider or
turning over its transmission facilities to Commission expects that those public transmission owners may believe that
a Commission-approved RTO that meets utilities that do not require significant other changes are needed in their
the definition of Independent changes could implement Standard transmission rates for jurisdictional
Transmission Provider; or (3) Market Design much sooner than others. service. Transmission owners and
contracting with an entity that meets the While the Commission’s objective is to Independent Transmission Providers
definition of Independent Transmission have Standard Market Design in place should file these types of changes under
Provider to operate its transmission everywhere by September 30, 2004, it section 205 of the FPA at least 60 days
facilities. will consider requests to extend this prior to the date on which they propose
587. The Commission will require all date if the public utility can document to implement Standard Market Design.
public utilities that own, operate or that additional time is necessary. The Commission intends the
control interstate transmission facilities 589. Finally, the public utility must implementation process to be a
to file an Implementation Plan for cooperate with others in its region to collaborative one. The Commission
compliance with the regulations no later have a Regional State Advisory directs public utilities to meet with
than July 31, 2003. In the Committee in place by July 31, 2003. stakeholders and state commissions on
Implementation Plan, the public utility a regular basis to discuss the changes
Six Months After Effective Date of Final
must identify the independent entity that are necessary to comply with the
Rule
that will serve as the Independent Final Rule. Based on the filings that are
Transmission Provider for the 590. The Commission proposes to received, the Commission may also
transmission facilities that the public require all public utilities that own, establish technical conferences,
utility owns, controls or operates. (A control or operate facilities used for the mediation efforts or other procedures as
public utility that is already a member transmission of electric energy in necessary to ensure that all public
of an entity that satisfies the definition interstate commerce to begin a regional utilities that own, control or operate
of Independent Transmission Provider transmission planning process within interstate transmission facilities will be
may request a waiver from this six months and produce a plan within operating under Standard Market Design
requirement in its Implementation Plan one year of the effective date of the no later than September 30, 2004, or
filing.) Additionally, the Final Rule. This will be an intermediate such time as the Commission may
Implementation Plan must include time step in the process of satisfying the establish.
lines and a proposal for compliance planning and expansion requirements 593. Further, the Commission intends
with the long-term resource adequacy contained in section 35.34(k)(7) of the this phased compliance process to
requirements of the Final Rule. Further, Commission’s regulations.248 The encourage joint compliance filings.
the Implementation Plan must identify Independent Transmission Provider will Public utilities may submit a single,
the software vendor(s) that the public take over this process when it becomes joint application to meet the
utility will use for implementation of operational. requirements of Standard Market
Standard Market Design and a time line Design, and Independent Transmission
December 1, 2003 and September 30,
that identifies implementation Providers may make necessary filings on
2004
milestones and indicates the projected behalf of their public utility members.
timing of their completion. The 591. Pursuant to section 206 of the Such joint filings may streamline the
Commission wants to ensure that the FPA, by December 1, 2003 all compliance process and reduce its costs.
cost of implementation of Standard Independent Transmission Providers
will be required to file the SMD Tariff, January 31, 2004
Market Design is reasonable, and
intends to closely monitor the including language that explains the 594. The Commission proposes to
expenditures incurred to implement the Independent Transmission Provider’s require all public utilities to provide
Final Rule. Therefore, we propose to proposals for market monitoring, market assurances to the Independent
require that all public utilities include power mitigation, long-term resource Transmission Provider with which they
in their Implementation Plan a detailed adequacy, transmission planning and are affiliated that the public utilities
estimate of their projected cost of expansion, transmission pricing and any comply with minimum security
implementing the Final Rule. The changes to the SMD Tariff necessary to standards. We propose to require public
estimate should include projected accommodate regional needs. The filing utilities that have transmission tariffs on
software costs as well as other costs that must also indicate the date, which must file with the Commission to file the self-
the public utility may incur. The public be no later than September 30, 2004, or certification of compliance with security
utility will also be required to file status such date as the Commission may standards that is attached as Appendix
reports on the Implementation Plan on establish, when the Independent G. The self-certification must be
a quarterly basis. The Commission will Transmission Provider will be able to submitted by January 31, 2004, and
review the Implementation Plans and fully implement Standard Market every January 31 thereafter. On and after
quarterly reports to ensure compliance Design. The Commission must approve February 1, 2004, any transmission
with the regulations. Also, the the tariff filing before the Independent customer (including a non-jurisdictional
Commission will establish appropriate Transmission Provider will be able to entity) that seeks to receive transmission
procedures, if needed, for resolving implement Standard Market Design. We service from a public utility that owns,
concerns of state representatives and anticipate acting on these filings on a controls or operates facilities used for
market participants. timely basis so that the Independent the transmission of electric energy in
588. The Commission recognizes that Transmission Providers will know interstate commerce must provide
some public utilities will be able to assurances to the transmission provider
implement Standard Market Design 248 18 CFR 35.34(k)(7) (2002). that it has a basic security system in
place. This may be done by providing 0258 or by e-mail to efiling@ferc.gov. Do public utility that owns, controls or
the transmission provider with a copy of not submit comments to the e-mail operates facilities used for the
the executed self-certification form, or address. transmission of electric energy in
the transmission provider and customer 598. The Commission will place all interstate commerce must (a) meet the
may make alternate arrangements. comments in the Commission’s public definition of Independent Transmission
Following the implementation of files and they will be available for Provider, (b) turn over the operation of
Standard Market Design, we propose to inspection in the Commission’s Public its transmission facilities to a regional
extend this self-certification Reference Room at 888 First Street, NE., transmission organization that meets the
requirement to apply to any customer Washington, DC 20426, during regular
definition of Independent Transmission
seeking to buy or sell through the business hours. Additionally, all
Provider, or (c) contract with an entity
Independent Transmission Provider’s comments may be viewed, printed, or
downloaded remotely via the Internet that meets the definition of Independent
markets or take Network Access Service.
through FERC’s home page using the Transmission Provider to operate its
VI. Public Comment Procedures FERRIS link. transmission facilities. We do not expect
595. The Commission invites that any entity that must file an SMD
interested persons to submit comments, VII. Regulatory Flexibility Act Tariff would be a small entity as defined
data, views and other information 599. The Regulatory Flexibility Act 249 by the Regulatory Flexibility Act.
concerning matters set out in this requires rulemakings to contain either a 602. We do not, therefore, believe that
proposed rule. To facilitate the description and analysis of the effect the requirement of filing the Interim
Commission’s review of the comments, that the proposed rule will have on Tariff and SMD Tariff will impose a
the Commission requests commenters to small entities or a certification that the significant economic impact on small
provide an executive summary (not to rule will not have a significant
entities. Consequently, the Commission
exceed ten pages) of their positions. To economic impact on a substantial
certifies that this proposed rule will not
the greatest degree possible, number of small entities.
600. This rule applies to public have a significant economic impact
commenters should use the topic
utilities that own, control or operate upon a substantial number of small
headings that the proposed rule uses
and arrange their comments in the order interstate transmission facilities, not to entities.
of topics presented in this proposed electric utilities per se. The total VIII. Environmental Statement
rule, and cite the specific referenced number of public utilities that, absent
paragraph numbers. Commenters should waiver, would have to modify their 603. In furtherance of the National
identify separately any additional issues current open access transmission tariffs Environmental Policy Act of 1969, the
that they may wish to address. by filing the Interim Tariff is 176.250 Of Commission will prepare an
Commenters should double-space their these only 6 public utilities, or less than environmental assessment (EA) that will
comments. Comments must refer to two percent, dispose of 4 million MWh consider the environmental impacts of
Docket No. RM01–12–000, and may be or less per year.251 We do not consider the proposed rule. A notice of intent to
filed on paper or electronically via the this a substantial number, and in any prepare the EA, including a request for
Internet. The Commission must receive event, these small entities may seek comments on the scope of the EA and
all comments no later than October 15, waiver of the Standard Market Design notice of a public scoping meeting was
2002. Comments should include an Final Rule requirements.252 issued on July 26, 2002.253
executive summary that should not 601. With respect to the Interim
exceed ten pages. Those filing Tariff, the Commission will specify IX. Public Reporting Burden and
electronically do not need to make a precisely the terms and conditions that Information Collection Statement
paper filing. Reply comments will not public utilities will have to incorporate
be entertained. into their existing tariffs, and this will 604. The Commission is submitting
596. Those making paper filings considerably reduce the burden of the following collections of information
should submit the original and 14 modifying transmission tariffs. In order contained in this proposed rule to the
copies of their comments to the Office to implement the SMD Tariff, every Office of Management and Budget
of the Secretary, Federal Energy (OMB) for review under section 3507(d)
Regulatory Commission, 888 First 249 5 U.S.C. 601–612 (1994). of the Paperwork Reduction Act of 1995.
250 The sources for this figure are FERC Form No.
Street, NE., Washington, DC 20426. The Commission identifies the
1 and FERC Form No. 1–F data.
597. The Commission strongly 251 Id.
information provided under Part 35 as
encourages electronic filings. 252 The Regulatory Flexibility Act defines a FERC–516.
Commenters filing their comments via ‘‘small entity’’ as ‘‘one which is independently 605. The Commission solicits
the Internet must prepare their owned and operated and which is not dominant in
comments on the Commission’s need for
comments in WordPerfect, MS Word, its field of operation.’’ See 5 U.S.C. 601(3) and
601(6) (1994); 15 U.S.C. 632(a)(1) (1994). In Mid- this information, whether the
Portable Document Format, or ASCII Tex Elec. Coop. v. FERC, 773 F.2d 327, 340–343 information will have practical utility,
format (see http://www.ferc.gov/ (D.C. Cir. 1985), the court accepted the
the accuracy of the provided burden
documents/electronicfilinginitiative/efi/ Commission’s conclusion that, since virtually all of
the public utilities that it regulates do not fall estimates, ways to enhance the quality,
efi.htm, in particular ‘‘User Guide’’). To
file the document, access the
within the meaning of the term ‘‘small entities’’ as utility and clarity of the information
defined in the Regulatory Flexibility Act, the that the Commission will collect, and
Commission’s Web site at www.ferc.gov Commission did not need to prepare a regulatory
and click on ‘‘e-Filing’’ and then follow flexibility analysis in connection with its proposed any suggested methods for minimizing
the instructions for each screen. First rule governing the allocation of costs for respondent’s burden, including the use
construction work in progress (CWIP). The CWIP of automated information techniques.
time users will have to establish a user rules applied to all public utilities. The Standard
name and password. The Commission Market Design rules will apply only to those public 253 Notice of Intent to Prepare an Environmental
will send an automatic acknowledgment utilities that own, control or operate interstate
Assessment and Request for Comments on the
transmission facilities. These entities are a subset of
to the sender’s e-mail address upon the group of public utilities found not to require Scope of Issues to be Addressed for the Proposed
receipt of comments. User assistance for preparation of a regulatory flexibility analysis for Rulemaking on Electricity Market Design and
electronic filing is available at 202–208– the CWIP rule. Structure, Docket No. RM01–12–000 (July 26, 2002).
The burden estimates for complying

with this proposed rule are as follows:
Number of re- Number of Hours per Total annual

Data collection spondents responses response hours
FERC–516 ............................................................................................................... 176 1 *1,199 211,024

176 4 3 2,112
12 1 164 1,968
Totals ................................................................................................................ 1,366 215,104

*Rounded off.
Respondent Document Recipient Required content Hours per response
All public utilities that (no document re- Stakeholders and Public utilities must discuss with stake- 430 hours
own, operate or quired). state representa- holders and state representatives how
control transmission tives. they will implement the transition process
facilities. and comply with the Final Rule:
1. Selection of Independent Transmission
Provider.
2. Establishment regional state advisory
committee.
3. Development of regional transmission
planning /expansion program.
4. Development of a long-term resource ade-
quacy requirement.
5. Identification of areas where mitigation or
appropriate infrastructure will be needed.
All public utilities that Revisions to Order FERC ......................... Tariff language to place service to bundled 182 hours
own, operate or No. 888 tariff (In- retail customers under OATT, eliminate
control transmission terim Tariff) or re- preferences for native load and for a trans-
facilities. quest for waiver of mission provider’s own use of its system.
this requirement.
All public utilities that Implementation plan FERC ......................... 1. Identify Independent Transmission Pro- 193 hours
own, operate or for compliance with vider (or request waiver of this require-
control transmission proposed regula- ment).
facilities. tions.
2. Time lines and proposed procedures for
regional transmission planning process.
3. Time line and proposal for compliance
with long-term resource adequacy require-
ments.
4. Identify software vendor(s) to be used for
implementation of SMD.
5. Implementation time line showing pro-
jected timing and completion of milestones
for software development.
6. Detailed estimate of costs of implementing
SMD.
Public utilities ............. Quarterly Reports ...... FERC ......................... Implementation Plan Status ........................... 3 hours
Transmission Provider Proposed tariff lan- FERC ......................... 1. SMD Tariff, including proposed language 124 hours
guage. for market monitoring and market power
mitigation; long-term resource adequacy;
transmission planning and expansion;
changes to SMD Tariff needed to accom-
modate regional needs.
2. Date by which transmission provider will
fully implement SMD.
Transmission Provider Section 205 filing re- FERC ......................... Section 205 filing demonstrating that trans- *If respondent decides
questing approval of mission provider’s revenue requirement to submit a § 205 fil-
adjustment of rev- should be adjusted to recover additional ing, the burden is
enue requirement costs associated with conversion pre- already covered
(optional). Order No. 888 contracts to service under under existing re-
new tariff and allocation of congestion rev- quirements
enue rights directly to customers.
Respondent Document Recipient Required content Hours per response
Transmission Pro- Participator Generator FERC ......................... 1. Identify noncompetitive conditions in which 34 hours
vider/participating agreements. generator would have to selfschedule or
generators. supply all capacity to spot markets.
2. Specify bid caps that would apply to gen-
erator’s day-ahead and real-time bids.
Transmission Provider Reliability proposals ... FERC ......................... Proposal regarding implications of each reli- 63 hours
ability procedure (e.g. curtailment) for mar-
ket prices in energy and ancillary services
markets.
Transmission Provider Transmission Expan- FERC ......................... Have in place a regional transmission plan- 120 hours
sion Plan. ning process and complete first trans-
mission expansion plan pursuant to 18
CFR 35.34(k)(7).
Market Monitoring Unit Initial competitive mar- FERC ......................... 1. Identify load pockets that require different 78 hours
ket analysis. bid mitigation triggers.
2. Identify generators that may be required
for reliability.
Market Monitoring Unit Annual report on mar- FERC & Independent 1. General description—market operations, 86 hours
ket operations. Transmission Pro- supply and demand, market prices.
vider’s Governing
Board.
2. Analysis of market structure and partici-
pant behavior.
3. Evaluation of effectiveness of mitigation
measures taken.
4. Overall assessment of market efficiency.
5. Evaluation of barriers to entry for gener-
ating, demand-side, and transmission re-
sources.
6. Recommended changes to market design
or market power mitigation measures to
improve market performance.
Load serving entities .. Resource adequacy RTO ........................... Report and document plan to meet share of 38 hours
report. regional adequacy requirement.
RTOs .......................... Regional Demand RTO ........................... Regional demand forecast for its region for To be determined
Forecast. the planning horizon.
All public utilities with Self-certification of FERC ......................... Completed and executed form contained in 2 hours
a transmission tariff compliance with Appendix G to Notice of Proposed Rule-
on file with the system security making.
Commission. standards.
All public utilities with Annual recertification FERC ......................... Completed and executed form contained in .5 hours
a transmission tariff of compliance with Appendix G to Notice of Proposed Rule-
on file with the system security making.
Commission. standards.
Total Annual Hours for Collection (reporting + record keeping (if appropriate) = 215,104 hours.
Information Collection Costs conducting outreach sessions with all developing or employing software that
affected entities) associated with this may be sufficient to implement the SMD
606. Because of the regional proposed rule. The estimated cost is Tariff, and the entities’ software
differences and the various staffing anticipated to be $10,755,200 (215,104 packages are at different stages of
levels that will be involved in preparing
hours × $50) for this portion of the rule. development. There are also regional
the documentation (legal, technical and
support) the Commission is using an 607. In addition, there is a separate differences to consider (as noted above)
hourly rate of $50 to estimate the costs component that must also be considered with respect to labor compensation. For
for filing and other administrative when implementing the requirements of these reasons, the Commission seeks
processes (reviewing instructions, this proposed rule, the costs for comments on the anticipated costs for
adjusting existing ways to comply with information technology (IT) needed to IT development associated with this
previously applicable instructions or implement the SMD Tariff. The number proposed rule. When preparing their
requirements, training personnel to be of entities to be impacted at this phase estimates, commenters should take into
able to respond to the information of the rule’s implementation will be consideration design, procurement and
collection, searching data sources, fewer than at the Interim Tariff stage, operation costs for the following: (1)
completing and transmitting the but is still unknown at this time. Data collection systems (including
collection of information and Further, several entities are already monitors, detection systems, control
systems and other equipment necessary to projected load levels, and the load transmission markets, as well as for
to obtain information or data of interest, levels that actually develop. Through general industry oversight. These
as well the facilities and equipment these proposed SMD rules, sellers will information requirements conform to
necessary to house and operate such be able to more effectively sell into the the Commission’s plan for efficient
systems); (2) data management systems market and buyers will be able to more information collection, communication,
necessitated by the data collection(s) efficiently buy from the market because and management within the electric
(including computers and other they will not need to be directly power industry.
hardware, programs and other software, matched up at the last minute on a real-
610. Interested persons may obtain
storage media and facilities); and (3) time hourly and day-ahead basis. In
information on the reporting
data reporting systems necessitated by addition, the proposed SMD rules will
the information collection (including bolster the ability of many smaller requirements by contacting the
electronic links, installing and operating customers, as well as larger customers, following: Federal Energy Regulatory
the reporting components of an to profitably participate in programs Commission, 888 First Street, NE.,
information management system and designed to encourage reductions in Washington DC 20426 [Attention
the burden of maximizing public loads to offset electricity supply Michael Miller, Capital Planning and
accessibility). These investments in shortages. Finally, the proposed SMD Policy Group, Phone: (202) 502–8415,
information technology are for systems rules will foster the trading of fax: (202) 208–2425, e-mail:
whose useful lifetime exceeds the transmission rights among transmission michael.miller@ferc.gov.]
expiration of the data collection (which customers that will allow them to hedge 611. Please send your comments
must be reviewed and approved by against transmission congestion concerning the collection of
OMB after three years), so the costs for surcharges. information(s) and the associated
this reporting burden needs to be 609. Up to 176 public utilities that burden estimates to the contact listed
estimated based on the costs of a longer own, operate or control transmission above and to the Office of Management
lived investment. OMB regulations would be required to implement the and Budget, Office of Information and
require OMB to approve certain Commission’s SMD Rule. The revised Regulatory Affairs, Washington, DC
information collection requirements open access transmission component of 20503 [Attention: Desk Officer for the
imposed by agency rule.254 Accordingly, the SMD Rule would be incorporated as Federal Energy Regulatory Commission,
pursuant to OMB regulations, the an interim amendment to the existing phone: (202) 395–7856, fax: (202) 395–
Commission is providing notice of its transmission tariffs of all jurisdictional 7285].
proposed information collections to transmission providers operating in
OMB. interstate commerce. Independent X. Document Availability
Title: FERC–516, Electric Rate Transmission Providers would also be
required to file SMD Tariffs contained 612. In addition to publishing the full
Schedule Filings.
in the Final Rule to implement Network text of this document in the Federal
Action: Proposed Data Collections.
OMB Control No.: 1902–0096. Access Service and Standard Market Register, the Commission provides all
The applicant shall not be penalized Design. To the extent an affected public interested persons an opportunity to
for failure to respond to this collection utility participates in an RTO, or view and/or print the contents of this
of information unless the collection of contracts with an Independent document via the Internet through
information displays a valid OMB Transmission Provider, the RTO or FERC’s home page (http://www.ferc.gov)
control number. Independent Transmission Provider and in FERC’s Public Reference Room
Respondents: Business or other for would make the required filing on during normal business hours (8:30
profit. behalf of the affected public utility. a.m., to 5 p.m. Eastern time) at 888 First
Frequency of Responses: One time. Public utilities also will be permitted to Street, NE., Room 2A, Washington, DC
Necessity of Information: The file Implementation Plans jointly with 20426.
proposed rule would revise the other utilities. Further, the Commission 613. From FERC’s home page on the
requirements contained in 18 CFR part proposes to entertain requests for Internet, this information is available in
35. The Commission is seeking to waivers of the requirement to make the Federal Energy Regulatory Records
standardize wholesale electric market compliance filings. These features of the Information System (FERRIS). The full
design and transmission service. The proposed rule would lessen the text of this document is available on
Commission proposes to develop a incidence of SMD compliance filings. FERRIS in PDF and WordPerfect format
standardized set of electricity market We have estimated for purposes of this for viewing, printing, and/or
rules that reflects many of the analysis that RTOs and ITPs may downloading. To access this document
recommendations and suggestions number from 5 to 12 entities in the in FERRIS, type the docket number of
elicited from all market participants. lower 48 states. this document, excluding the last three
608. The proposed SMD rules are Internal Review: The Commission has
digits in the docket number field.User
intended to have a generally positive assured itself, by means of internal
impact on these market participants. For assistance is available for FERRIS and
review, that there is specific, objective
example, the proposed SMD rules will the FERC’s Web site during normal
support for the burden estimates
facilitate direct dealings between market business hours from our Help Line at
associated with the information
participants who want to secure long- requirements. The Commission’s Office (202) 208–2222 (e-mail to
term bilateral power supply of Markets, Tariffs and Rates will use WebMaster@ferc.gov) or the Public
arrangements. The proposed SMD rules the data included in filings under Reference at (202) 208–1371 Press 0,
will also facilitate short-term Sections 203 and 205 of the Federal TTY (2020) 208–1659 (e-mail to
transactions that are made in the spot Power Act to evaluate efforts for the public.reference.room@ferc.gov).
market to make up for imbalances interconnection and coordination of the List of Subjects in 18 CFR Part 35
(differences) between scheduled United States electric transmission
electricity supplies that were matched system and to ensure the orderly Electric power rates, Electric utilities,
formation and operation of a standard Electricity, Reporting and recordkeeping
254 See 5 CFR 1320.11 (2002). design in wholesale electric requirements.
By direction of the Commission. section 2(a)(11) of the Public Utility public utility must inform the
Commissioner Breathitt concurred with a Holding Company Act (15 U.S.C. Commission which Independent
separate statement attached. 79b(a)(11)), in any market participant in Transmission Provider will operate the
Magalie R. Salas, the region in which it provides public utility’s transmission facilities,
Secretary. transmission services or in neighboring and provide further information about
In consideration of the foregoing, the regions). its plans to implement Standard Market
Commission proposes to amend Part 35, (2) Market Participant. As used herein Design as specified in Order No. ll,
Chapter I, Title 18, Code of Federal the term Market Participant shall mean: FERC Stats. & Regs. ¶ ll, no later than
Regulations, as follows. (i) Any entity that, either directly or July 31, 2003. Every public utility that
through an affiliate, sells or brokers owns, controls or operates facilities
Regulatory Text electric energy, or provides ancillary used for the transmission of electric
services to the Independent energy in interstate commerce after the
PART 35—FILING OF RATE
Transmission Provider, unless the effective date of this rule must comply
SCHEDULES
Commission finds that the entity does no later than 60 days prior to the time
1. The authority citation for Part 35 not have economic or commercial its facilities are used for transmission in
continues to read as follows: interests that would be significantly interstate commerce.
Authority: 16 U.S.C. 791a–825r, 2601– affected by the Independent (ii) A public utility that is a member
2645; 31 U.S.C. 9701; 42 U.S.C. 7101–7352. Transmission Provider’s actions or of an approved regional transmission
2. Part 35 is amended by adding a decisions; and organization or an independent system
(ii) Any other entity that the operator or other entity that meets the
new Subpart G, Procedures and
Commission finds has economic or definition of Independent Transmission
Requirements Regarding Non-
commercial interests that would be Provider may file a request for a waiver
Discriminatory Open Access
significantly affected by the of the filing requirements of this
Transmission Services and Standard
Independent Transmission Provider’s paragraph on the ground that it has
Market Design, including new §§ 35.35,
actions or decisions. already complied with the requirement.
35.36, 35.37 and 35.38 to read as (c) Non-discriminatory open access
follows: An application for a waiver must be
transmission services and standard filed no later than July 31, 2003, or no
Subpart G—Procedures and Requirements market design. later than 60 days prior to the time the
Regarding Non-Discriminatory Open (1) Every public utility that owns, public utility’s transmission facilities
Access Transmission Services and controls or operates facilities used for are used for transmission in interstate
Standard Market Design the transmission of electric energy in commerce.
35.35 Standard Market Design Tariff. interstate commerce, shall provide non- (3) Pursuant to section 206 of the
35.36 Market monitoring and market power discriminatory open access services Federal Power Act, any entity that meets
mitigation. through the interim tariff contained in the definition of Independent
35.37 Long-term electric energy resource Order No. ll, FERC Stats. & Regs. Transmission Provider must file with
adequacy. ¶ ll(Final Rule on Electricity Market
35.38 Long-term transmission planning and the Commission a tariff of general
expansion.
Design and Structure) no later than applicability for the provision of
September 30, 2003. Such tariff shall transmission services, including
Subpart G—Procedures and remain on file with the Commission ancillary services and the
Requirements Regarding Non- until it is superseded by the pro forma administration of the day-ahead and
Discriminatory Open Access tariff contained in Order No. ll, FERC real-time energy and ancillary services
Transmission Services and Standard Stats. & Regs. ¶ ll (Final Rule on markets. Such tariff must be the pro
Market Design Electricity Market Design and forma tariff contained in Order No. ll,
Structure). FERC Stats. & Regs. ¶ll (Final Rule on
§ 35.35 Standard Market Design Tariff. (2) To implement the requirements of Electricity Market Design and Structure)
(a) Applicability. This section applies Non-Discriminatory Open Access or such other open access tariff as may
to any public utility that owns, controls Transmission Services and Standard be approved by the Commission
or operates facilities used for the Market Design, every public utility that consistent with Order No. ll, FERC
transmission of electric energy in owns, controls or operates facilities Stats. & Regs. ¶ll (Final Rule on
interstate commerce and to any used for the transmission of electric Electricity Market Design and
Independent Transmission Provider. energy in interstate commerce must Structure). Such tariff must include
(b) Definitions— meet the definition of Independent proposed language that explains the
(1) Independent Transmission Transmission Provider, turn over the Independent Transmission Provider’s
Provider. As used herein the term operation of its transmission facilities to proposals for market monitoring, market
Independent Transmission Provider a regional transmission organization, as power mitigation, long-term resource
shall mean any public utility that owns, defined in § 35.34(b)(1) of this title, that adequacy, transmission planning and
controls or operates facilities used for meets the definition of Independent expansion, transmission pricing,
the transmission of electric energy in Transmission Provider, or contract with changes to the pro forma tariff necessary
interstate commerce, that administers an entity that meets the definition of to accommodate regional needs, and
the day-ahead and real-time energy and Independent Transmission Provider to further information as specified in the
ancillary services markets in connection operate its transmission facilities. pro forma tariff contained in Order No.
with its provision of transmission (i) Every public utility that owns, ll, FERC Stats. & Regs. ¶ll (Final
services pursuant to the pro forma tariff controls or operates facilities used for Rule on Electricity Market Design and
contained in Order No. ll, FERC the transmission of electric energy in Structure). The filing also shall specify
Stats. & Regs. ¶ ll (Final Rule on interstate commerce as of [effective date the date on which the Independent
Electricity Market Design and of Standard Market Design Rule] must Transmission Provider proposes to
Structure), and that is independent (i.e., comply with this requirement by implement Standard Market Design.
has no financial interest, either directly September 30, 2004, or such other date (4) The Independent Transmission
or through an affiliate, as defined in as determined by the Commission. Such Provider shall file, pursuant to section
205 of the Federal Power Act, any public utility open access tariff, for good to perform its functions under these
changes to its transmission rates cause shown. An application for waiver rules and the Independent Transmission
necessary to implement Standard may be filed at any time. Provider’s tariff, and
Market Design, no later than 60 days (3) If a non-public utility has on file (2) To agree to penalties specified in
prior to the date on which it proposes with the Commission, as of [effective the Independent Transmission
to implement Standard Market Design, date of Standard Market Design Rule], a Provider’s tariff for the violation of any
or 60 days prior to the time its facilities reciprocity tariff accepted by the tariff provisions.
are used for transmission in interstate Commission, the non-public utility is (e) The market monitoring unit is
commerce. not required to make a filing under responsible for administering the market
(5) One or more public utilities may paragraph (d) of this section. power mitigation provisions of the
jointly file an application to meet the Independent Transmission Provider’s
requirements of this paragraph. § 35.36 Market monitoring and market tariff.
(6) An Independent Transmission power mitigation.
(a) The Independent Transmission § 35.37 Long-term electric energy resource
Provider may make necessary filings on
Provider must have a market monitoring adequacy.
behalf of public utilities required to
meet the requirements of this paragraph. unit that is independent of the (a) Each Independent Transmission
(7) The interim tariff and pro forma Independent Transmission Provider’s Provider must ensure that the level of
tariff contained in Order No. ll, FERC management and that is accountable to planned regional resources for a future
Stats. & Regs. ¶ll (Final Rule on the Commission. The market monitoring year (the last year of the planning
Electricity Market Design and Structure) unit will provide information and horizon) is adequate. Annually, each
will not apply to transmission of electric recommendations to the Commission Independent Transmission Provider
energy pursuant to contracts that were and the governing board of the must:
Independent Transmission Provider. (1) Perform an electric energy demand
executed on or before July 9, 1996 and
(b) The market monitoring unit will forecast for the last year of the planning
remain in effect as of [effective date of
monitor all markets run by the horizon;
Standard Market Design Rule]. (2) Apportion the regional resource
Customers under such contracts may Independent Transmission Provider and
the operation of the transmission grid adequacy requirement for the last year
elect to convert their contracts, of the planning horizon among the load
consistent with their contract terms, to for exercises of market power, flaws in
the Independent Transmission serving entities in its area on the basis
service under the pro forma tariff of the ratio of their loads;
contained in Order No. ll, FERC Provider’s tariff rules or operations that
contribute to economic inefficiency, and (3) Require each load-serving entity in
Stats. & Regs. ¶ll (Final Rule on its area to submit to the Independent
Electricity Market Design and Structure) market participants’ compliance with
the Independent Transmission Transmission Provider a plan (including
at any time after [effective date of generation, transmission and demand-
Standard Market Design Rule]. Provider’s tariff. The market monitoring
unit also shall perform further duties as side options) to meet the load-serving
(8) Waivers. A public utility subject to entity’s share of the regional resource
the requirements of this section may file instructed by the Commission.
(c) The market monitoring unit will adequacy requirement for the last year
a request for waiver of all or part of the of the planning horizon; and
requirements of this section, for good report at least annually on the structure
and performance of the markets in the (4) Ensure that each load-serving
cause shown. An application for waiver entity’s electric energy resource plan
must be filed no later than [effective Independent Transmission Provider’s
region. The report must include, at a meets standards approved by the
date of Standard Market Design Rule], or Commission and is feasible, including
no later than 60 days prior to the time minimum: a description of market
operations, supply and demand, and ensuring that resources are not double
the Independent Transmission Provider counted by different load serving
would otherwise have to comply with market prices; an structural analysis of
the market, including an evaluation of entities.
the requirement. (b) This requirement shall replace
(d) Non-public utility procedures for barriers to entry; an assessment of
installed capacity requirements
tariff reciprocity compliance. market performance, including an
approved by the Commission prior to
(1) A non-public utility may submit a assessment of market participant
[effective date of Standard Market
transmission tariff and a request for behavior; an evaluation of the
Design Rule].
declaratory order that its voluntary effectiveness of the existing market
transmission tariff provides power mitigation; and recommendations § 35.38 Long-term transmission planning
transmission service that is comparable for improving the market design or and expansion.
to the service that the non-public utility market power mitigation measures to (a) Each Independent Transmission
provides itself. improve the efficiency of the market. Provider shall keep on file with the
(i) Any submittal and request for The market monitoring unit also shall Commission a regional transmission
declaratory order submitted by a non- provide further reports as directed by expansion plan.
public utility will be provided an NJ the Commission. (b) Each Independent Transmission
(non-jurisdictional) docket designation. (d) The Independent Transmission Provider’s regional transmission
(ii) If the submittal is found to be an Provider must include in its tariff expansion plan shall, at a minimum:
acceptable transmission tariff, an provisions requiring market (1) permit all market participants to
applicant in a Federal Power Act (FPA) participants, as a condition of participate equally in a facilitated
section 211 case against the non-public participating in the markets operated by process to identify transmission projects
utility shall have the burden of proof to the Independent Transmission Provider that would best serve the needs of the
show why service under the open access and using the interstate transmission region; and
tariff is not sufficient and why a section facilities operated by the Independent (2) require the Independent
211 order should be granted. Transmission Provider. Transmission Provider to issue requests
(2) A non-public utility may file a (1) To agree to provide to the market for proposals to address transmission
request for waiver of all or part of the monitoring unit all information and data planning needs identified through such
reciprocity conditions contained in a requested by the market monitoring unit a process.
(c) Independent Transmission the terms of Section 27. To the extent the competing request: (a) Immediately for
Providers shall satisfy the provisions of Transmission Provider can relieve any hourly Non-Firm Point-To-Point
§ 35.34(k)(7) of this title no later than system constraint more economically by Transmission Service after notification by the
redispatching the Transmission Provider’s Transmission Provider; and, (b) within 24
the date on which service commences
resources than through constructing Network hours (or earlier if necessary to comply with
under Standard Market Design. Upgrades, it shall do so, provided that the the scheduling deadlines provided in section
Note: The following Appendices will not Eligible Customer agrees to compensate the 14.6) for Non-Firm Point-To-Point
be published in the Code of Federal Transmission Provider pursuant to the terms Transmission Service other than hourly
Regulations. of Section 27. Any redispatch, Network transactions after notification by the
Upgrade or Direct Assignment Facilities costs Transmission Provider. Transmission service
APPENDICES to be charged to the Transmission Customer for Network Customers from resources other
on an incremental basis under the Tariff will than designated Network Resources will have
A. INTERIM PRO FORMA TARIFF be specified in the Service Agreement prior a higher priority than any Non-Firm Point-
REVISIONS to initiating service. To-Point Transmission Service. Non-Firm
B. STANDARD MARKET DESIGN 13.6 Curtailment of Firm Transmission Point-To-Point Transmission Service over
TARIFF (SMD TARIFF) Service: In the event that a Curtailment on secondary Point(s) of Receipt and Point(s) of
C. EXAMPLES OF FLAWS IN THE the Transmission Provider’s Transmission Delivery will have the lowest reservation
CURRENT REGULATORY System, or a portion thereof, is required to priority under the Tariff.
ENVIRONMENT maintain reliable operation of such system, 22.1 Modifications On a Non-Firm Basis:
D. CONVERSION OF THE ORDER NO. Curtailments will be made on a non- The Transmission Customer taking Firm
discriminatory basis to the transaction(s) that Point-To-Point Transmission Service may
888 PRO FORMA TARIFF TO THE effectively relieve the constraint. If multiple request the Transmission Provider to provide
REVISED STANDARD MARKET transactions require Curtailment, to the transmission service on a non-firm basis over
DESIGN PRO FORMA TARIFF extent practicable and consistent with Good Receipt and Delivery Points other than those
E. STANDARD MARKET DESIGN AND Utility Practice, the Transmission Provider specified in the Service Agreement
TRADING STRATEGIES will curtail service to Network Customers, (‘‘Secondary Receipt and Delivery Points’’),
ENCOUNTERED IN INDEPENDENT including transmission service taken by the in amounts not to exceed its firm capacity
SYSTEM OPERATORS Transmission Provider for native load, and reservation, without incurring an additional
F. ACCESS CHARGES AND Transmission Customers taking Firm Point- Non-Firm Point-To-Point Transmission
CONGESTION REVENUE RIGHTS To-Point Transmission Service on a basis Service charge or executing a new Service
G. FORM FOR ANNUAL SELF- comparable to the curtailment of service to Agreement, subject to the following
CERTIFICATION OF COMPLIANCE the Transmission Provider’s Native Load conditions.
Customers. All Curtailments will be made on (a) Service provided over Secondary
WITH FERC SECURITY STANDARDS a non-discriminatory basis, however, Non- Receipt and Delivery Points will be non-firm
Appendix A—Proposed Revisions to Firm Point-To-Point Transmission Service only, on an as-available basis and will not
Order No. 888—A Pro Forma Open shall be subordinate to Firm Transmission displace any firm or non-firm service
Access Transmission Tariff Service. When the Transmission Provider reserved or scheduled by third-parties under
determines that an electrical emergency the Tariff.
Among the revisions that the Commission exists on its Transmission System and 28.2 Transmission Provider
proposes to require the Transmission implements emergency procedures to Curtail Responsibilities: The Transmission Provider
Provider to file are revisions to Sections 1.19, Firm Transmission Service, the Transmission will plan, construct, operate and maintain its
13.5, 13.6, 14.2, 22.1(a), 28.2, 28.3, 33.2, 33.3, Customer shall make the required reductions Transmission System in accordance with
33.5, and 33.7 to recognize that the upon request of the Transmission Provider. Good Utility Practice in order to provide the
preferences contained in the tariff for native However, the Transmission Provider reserves Network Customer with Network Integration
load customers and for the Transmission the right to Curtail, in whole or in part, any Transmission Service over the Transmission
Provider’s use of its system have been Firm Transmission Service provided under Provider’s Transmission System. The
eliminated. The changes are set forth below: the Tariff when, in the Transmission Transmission Provider, as a Network
1.19 Native Load Customers: The Provider’s sole discretion, an emergency or Customer, shall be required to designate
wholesale and retail power customers of the other unforeseen condition impairs or resources and loads on behalf of its Native
Transmission Provider on whose behalf the degrades the reliability of its Transmission Load Customers, in the same manner as any
Transmission Provider, by statute, franchise, System. The Transmission Provider will Network Customer under Part III of this
regulatory requirement, or contract, has notify all affected Transmission Customers in Tariff. This information must be consistent
undertaken an obligation to construct and a timely manner of any scheduled with the information used by the
operate the Transmission Provider’s system Curtailments. Transmission Provider to calculate available
to meet the reliable electric needs of such 14.2 Reservation Priority: Non-Firm transmission capability. The Transmission
customers. The Transmission Provider will Point-To-Point Transmission Service shall be Provider shall include the Network
take Network Integration Transmission available from transmission capability in Customer’s Network Load in its Transmission
Service under Part III of the Tariff on their excess of that needed for reliable service to System planning and shall, consistent with
behalf. Network Customers and other Transmission Good Utility Practice, endeavor to construct
13.5 Transmission Customer Obligations Customers taking Long-Term and Short-Term and place into service sufficient transmission
for Facility Additions or Redispatch Costs: In Firm Point-To-Point Transmission Service. A capacity to deliver the Network Customer’s
cases where the Transmission Provider higher priority will be assigned to Network Resources to serve its Network Load
determines that the Transmission System is reservations with a longer duration of on a basis comparable to the Transmission
not capable of providing Firm Point-To-Point service. In the event the Transmission Provider’s delivery of its own generating and
Transmission Service without (1) degrading System is constrained, competing requests of purchased resources to its Native Load
or impairing the reliability of service to all equal duration will be prioritized based on Customers.
customers taking firm service, or (2) the highest price offered by the Eligible 28.3 Network Integration Transmission
interfering with the Transmission Provider’s Customer for the Transmission Service. Service: The Transmission Provider will
ability to meet prior firm contractual Eligible Customers that have already reserved provide firm transmission service over its
commitments to others, the Transmission shorter term service have the right of first Transmission System to all Network
Provider will be obligated to expand or refusal to match any longer term reservation Customers for the delivery of capacity and
upgrade its Transmission System pursuant to before being preempted. A longer term energy from designated Network Resources
the terms of Section 15.4. The Transmission competing request for Non-Firm Point-To- on a basis that is comparable to the
Customer must agree to compensate the Point Transmission Service will be granted if Transmission Provider’s historical use of the
Transmission Provider for any necessary the Eligible Customer with the right of first Transmission System to reliably serve its
transmission facility additions pursuant to refusal does not agree to match the Native Load Customers.
33.2 Transmission Constraints: During notice as is practicable in the event of such Appendix B—SMD Tariff
any period when the Transmission Provider Curtailment. Any Curtailment of Network
determines that a transmission constraint Standard Market Design Pro Forma Open
Integration Transmission Service will be not
exists on the Transmission System, and such Access Transmission Tariff Table of
unduly discriminatory. The Transmission Contents
constraint may impair the reliability of the Provider shall specify the rate treatment and
Transmission Provider’s system, the Part I. General Terms and Conditions
all related terms and conditions applicable in
Transmission Provider will take whatever
actions, consistent with Good Utility the event that the Network Customer fails to A. Common Service Provisions
Practice, that are reasonably necessary to respond to established Load Shedding and 1. Definitions
maintain the reliability of the Transmission Curtailment procedures. 2. Open Access Same Time Information
Provider’s system. To the extent the In addition, the Commission proposes to System (OASIS)
Transmission Provider determines that the require Transmission Providers to make the 3. Local Furnishing Bonds
reliability of the Transmission System can be following changes to section 2 of the pro 3.1 Transmission Owners That Own
maintained by redispatching resources, the forma tariff: Facilities Financed by Local Furnishing
Transmission Provider will initiate Bond
procedures pursuant to the Network 2. Reservation Priority for Existing Firm 3.2 Alternate Procedures for Requesting
Operating Agreement to redispatch all Service Customers Transmission Service
Network Resources and the Transmission 2.1 Right of First Refusal: Existing firm 4. Reciprocity
Provider’s own resources on a least-cost basis service customers (wholesale requirements 5. Billing and Payment
without regard to the ownership of such and transmission-only, with a contract term 5.1 Billing Procedure
resources. 5.2 Interest on Unpaid Balances
of one-year or more), have the right to
33.3 Cost Responsibility for Relieving 5.3 Customer Default
continue to take transmission service from 6. Regulatory Filings
Transmission Constraints: Whenever the
Transmission Provider implements least-cost the Transmission Provider when the contract 7. Force Majeure and Indemnification
redispatch procedures in response to a expires, rolls over or is renewed. This 7.1 Force Majeure
transmission constraint, all Network transmission reservation priority is 7.2 Indemnification
Customers, including network service taken independent of whether the existing 8. Creditworthiness
by the Transmission Provider on behalf of its customer continues to purchase capacity and 9. Eligibility for Independent Transmission
Native Load Customers, will bear a energy from the Transmission Provider or Provider Services
proportionate share of the total redispatch elects to purchase capacity and energy from 9.1 Requirements for Network Access
cost based on their respective Load Ratio another supplier. If at the end of the contract Service
Shares. term, the Transmission Provider’s 9.2 Requirements for Market Services
33.5 Allocation of Curtailments: The Transmission System cannot accommodate 9.3 Participating Generator Agreements
Transmission Provider shall, on a non- 9.4 Requirements Common to All
all of the requests for transmission service
discriminatory basis, Curtail the Customers: Completed Application and
transaction(s) that effectively relieve the the existing firm service customer must agree
Minimum Technical Requirements
constraint. However, to the extent practicable to accept a contract term at least equal to a 9.4.1 Application
and consistent with Good Utility Practice, competing request by any new Eligible 9.4.2 Completed Application
any Curtailment will be shared by all Customer and to pay the current just and 9.4.3 Approval of Application and/or
Network Customers, including the reasonable rate, as approved by the Notice of Deficient Application
Transmission Provider on behalf of its Native Commission, for such service. This 10. Dispute Resolution Procedures
Load Customers in proportion to their transmission reservation priority for existing 10.1 Internal Dispute Resolution
respective Load Ratio Shares. The firm service customers is an ongoing right Procedures
Transmission Provider shall not direct the that may be exercised at the end of all firm 10.2 External Arbitration Procedures
Network Customer to Curtail schedules to an contract terms of one-year or longer. 10.3 Arbitration Decisions
extent greater than the Transmission Provider 10.4 Costs
2.2 Notice of Rollover: Consistent with
would Curtail the Transmission Provider’s 10.5 Rights Under the Federal Power Act
schedules under similar circumstances. requests for new service described in Section
11. Metering
33.7 System Reliability: Notwithstanding 13.2 of Part II of the Tariff, a Transmission 11.1 Customer Requirements
any other provisions of this Tariff, the Customer must submit its request to exercise 11.2 Load-Serving Entities
Transmission Provider reserves the right, rollover rights no later than sixty (60) days 11.3 Ancillary Service Providers
consistent with Good Utility Practice and on prior to the date the current service 11.4 Third Party Metering Services
a not unduly discriminatory basis, to Curtail agreement expires. 11.5 Estimation of Metering
Network Integration Transmission Service 2.3 Future Load Growth: The 12. Data and Confidentiality Provisions
without liability on the Transmission Transmission Provider may reserve existing 12.1 Access to Complete and Accurate
Provider’s part for the purpose of making transmission capacity needed for future load Data
necessary adjustments to, changes in, or growth reasonably forecasted within the 12.2 Independent Transmission Provider
repairs on its lines, substations and facilities, Procedures
Transmission Provider’s current planning
and in cases where the continuance of 12.3 Access to Confidential Information
Network Integration Transmission Service horizon. The Transmission Provider may
12.4 Use of Confidential Information
would endanger persons or property. In the decline a Customer the ability to roll over its
12.5 Disclosure of Bid Information
event of any adverse condition(s) or firm transmission service with a term of one 12.6 Survival
disturbance(s) on the Transmission year or longer only if the Transmission
Provider’s Transmission System or on any Provider includes in the original service Part II. Transmission Services
other system(s) directly or indirectly agreement a specific, reasonably forecasted B. Network Access Service
interconnected with the Transmission need for the transfer capability to serve load Preamble
Provider’s Transmission System, the growth at the end of the term of the service 1. Nature of Network Access Service
Transmission Provider, consistent with Good agreement. 1.1 Scope of Service
Utility Practice, also may Curtail Network 2.4 Redirects: A Customer receiving firm 1.2 Independent Transmission Provider
Integration Transmission Service in order to Responsibilities
transmission service with a term of one year
(i) limit the extent or damage of the adverse 1.3 Service at Points without Concurrent
or longer which requests to use alternate
condition(s) or disturbance(s), (ii) prevent Congestion Revenue Rights
damage to generating or transmission point(s) of receipt or delivery retains its right 2. Initiating Service
facilities, or (iii) expedite restoration of of first refusal for service the original point(s) 2.1 Condition Precedent for Receiving
service. The Transmission Provider will give of receipt and delivery at the time the current Service
the Network Customer as much advance service agreement expires. 2.2 Application Procedures
2.2.1 Applications That Do Not Require 8.1 Conditions Required of Customers 7.5.1 Bids to Sell Congestion Rights
the Integration of Resources and Load 8.2 Customer Responsibility for Third- 7.6 Selection of Winning Bids and
2.2.2 Applications That Require the Party Arrangements Determination of Market Clearing Price
Integration of Resources and Load 9. Load Shedding and Curtailments 7.7 Auction Settlement
2.3 Technical Arrangements to be 9.1 Procedures 7.8 Simultaneous Feasibility
Completed Prior to Commencement of 9.2 Transmission Constraints 7.9 Responsibilities of the Independent
Service 9.3 Curtailments of Scheduled Deliveries Transmission Provider upon Completion
2.4 Customer Facilities 9.4 Load Shedding of the Auction
2.5 Filing of Service Agreement 9.5 System Reliability 8. Exchanging Congestion Revenue Rights
2.6 Notice of Deficient Application 10. Rates and Charges 8.1 Condition for Exchanging Congestion
2.7 Response to a Completed Application 10.1 Monthly Access Charge Revenue Rights
2.8 Execution of Service Agreement 10.2 Determination of Customer’s 9. Direct Sales of Congestion Revenue
2.9 Initiating Service in the Absence of an Monthly Network Load Rights over OASIS
Executed Service Agreement 10.3 Transmission Usage Charges 10. Congestion Revenue Rights Associated
2.10 Scheduling of Network Access 11. Operating Agreements with Transmission Expansion
Service 11.1 Operation Under the Network
3. Network Resources Operating Agreement Part III. Day-Ahead and Real-Time Market
3.1 Designation of Network Resources 11.2 Network Operating Agreement Services
3.2 Designation of New Network 11.3 Network Operating Committee E. General Responsibilities and Requirements
Resources 12. Reservation Priority for Existing Firm Preamble
3.3 Designation of Alternate Resources Service Customers 1. Day-Ahead and Real-Time Market
3.4 Substitution of Resources and 12.1 Right of First Refusal Services
Congestion Revenue Rights 12.2 Notice of Rollover 2. Independent Transmission Provider
3.5 Termination of Network Resources C. Ancillary Service Authority
3.6 Customer Redispatch Obligation 1. Scheduling, System Control and 3. Information and Reporting Requirements
3.7 Transmission Arrangements for Dispatch Service 4. Communication Requirements for
Network Resources Not Physically 1.1 Billing Units and Calculation of Rates Market Services
Connected with the Independent 2. Reactive Supply and Voltage Control F. Day-Ahead Scheduling and Markets
Transmission Provider from Generation Sources Service Preamble
3.8 Limitation on Designation of Network 3. Regulation Service 1. Day-Ahead Scheduling Procedures
Resources 4. Energy Imbalance Service 1.1 Day-Ahead Trading Deadline
3.9 Customer Owned Transmission 5. Operating Reserves
1.2 Rules for Self Schedules
Facilities D. Congestion Revenue Rights
1.2.1 Supplier-Committed Self Schedules
4. Designation of Network Load Preamble
1.2.2 Independent Transmission
4.1 Network Load 1. Types of Congestion Revenue Rights
Provider-Committed Self Schedules
4.2 New Network Load Connected with 1.1 Receipt Point-to-Delivery Point
1.2.3 Self Supply of Ancillary Services
Independent Transmission Provider Congestion Revenue Rights
4.3 New Interconnection Points 1.1.1 Obligation Rights 1.3 Rules for Bilateral Transactions
4.4 Changes in Service Requests 1.1.2 Option Rights Schedules
4.5 Annual Load and Resource 1.1.3 Types of Receipt Point and Delivery 1.3.1 Internal Transactions
Information Updates Points 1.3.2 External Transactions
5. Service Availability 1.2 Flowgate Congestion Revenue Rights 1.4 Rules for Bidding
5.1 General Conditions 1.2.1 Definition of Flowgates and 1.5 Bid-Based Security Constrained Unit
5.2 Determination of Available Transfer Flowgate Rights Commitment and Determination of the
Capability 2. Term of Congestion Revenue Rights Day-Ahead Schedule
5.3 Notice of Need for System Impact 3. Scheduling Priority for Holders of 1.6 Determination of the Day-Ahead
Study Congestion Revenue Rights in the Event Prices
5.4 System Impact Study Agreement and of Curtailment 1.7 Load Forecasts
Cost Reimbursement 4. Existing Transmission Contracts 1.8 Reliability-Based Security
5.5 System Impact Study Procedures 4.1 Conversion of Existing Transmission Constrained Unit Commitment
5.6 Facilities Study Procedures Contracts 1.9 Reliability Forecast
5.7 Facilities Study Modifications 5. Allocation of Congestion Revenue Rights 1.10 Posting the Day-Ahead Schedule
5.8 Due Diligence in Completing New 5.1 Allocation of Congestion Revenue 1.11 Day-Ahead Bid Revenue Sufficiency
Facilities Rights Guarantee
5.9 Obligation to Provide Transmission 5.2 Requirement to Conduct Periodic 2. Day-Ahead Market for Energy
Service that Requires Expansion or Auctions for Congestion Revenue Rights 2.1 General
Modification of the Transmission System 6. Resale of Congestion Revenue Rights 2.2 Independent Transmission Provider
5.10 Partial Interim Service 7. Auctions for Congestion Revenue Rights Obligations
5.11 Expedited Procedures for New 7.1 General Description of the Auction 2.3 Purchaser Rules and Obligations
Facilities Process 2.3.1 Specification of Bids
5.12 Compensation for New Facilities and 7.2 Frequency of Congestion Revenue 2.3.2 Specification of Virtual Bids
Congestion Costs Rights Auction 2.3.3 Period of Bids
6. Procedures if The Independent 7.3 Responsibilities of the Independent 2.4 Supplier Rules and Obligations
Transmission Provider is Unable to Transmission Provider Prior to Each 2.4.1 Eligibility to Supply
Complete New Transmission Facilities Auction 2.4.2 Specification of Bids
for Transmission Service 7.3.1 Establish Auction Rules 2.4.3 Bids to Supply Virtual Incremental
6.1 Delays in the Construction of New 7.3.2 Evaluate Creditworthiness Energy
Facilities 7.3.3 Information to be Made Available to 2.4.4 Bids to Supply Decremental Energy
6.2 Alternatives to the Original Facility Bidders 2.4.5 Periods of Bids to Supply Energy
Additions 7.3.4 Other Responsibilities 2.5 Calculation of Day-Ahead Locational
6.3 Refund Obligation for Unfinished 7.4 Responsibilities of each Buying Marginal Prices for Energy
Facility Additions Bidder 2.5.1 Energy LMP Calculation
7. Provisions Relating to Transmission 7.4.1 Creditworthiness Information 2.5.2 Hub Price Calculation
Construction and Services on Systems of 7.4.2 Bids to Buy Congestion Revenue 2.5.3 Zone Price Calculation
Other Utilities Rights 2.6 Calculation of Additional Payments
8. Network Access Service Customer 7.5 Responsibilities of each Selling and Charges
Responsibilities Bidder 2.6.1 Bid Revenue Sufficiency Guarantee
2.6.2 Other Payments and Charges 5.6.2 Other Payments and Charges 3.8.3 Settlement when Actual Energy
2.7 Market Rules for Shortages or 5.7 Market Rules for Shortages Withdrawals are Less than Scheduled
Emergencies 5.8 Settlement Energy Withdrawals
2.8 Settlement 5.8.1 Payments to Suppliers 3.8.4 Settlement when Actual Energy
2.8.1 Payments by Purchasers 6. Day-Ahead Markets for Operating Withdrawals are Greater than Scheduled
2.8.2 Payments to Suppliers Reserve - Supplemental Energy Withdrawals
2.8.3 Payments by Suppliers 6.1 General 4. Real-Time Scheduling for Transmission
3. Day-Ahead Scheduling of Transmission 6.2 Independent Transmission Provider 4.1 General
and Settlement Functions for Congestion Obligations 4.2 Transmission Bids
Revenue Rights 6.3 Purchaser Rules and Obligations 4.3 Real-Time Transmission Usage
3.1 General 6.4 Supplier Rules and Obligations Charges
3.2 Day-Ahead Transmission Requests 6.4.1 Eligibility to Supply 4.3.1 Marginal Congestion Component
3.2.1 Information Provided by the 6.4.2 Specification of Bids 4.3.2 Marginal Losses Component
Customer 6.5 Calculation of Market Clearing Prices 4.4 Calculation of Flowgate LMPs
3.3 Calculation of the Day-Ahead for Supplemental Reserves 4.5 Marginal Loss Charge Collection
Transmission Usage Charges 6.5.1 Methodology for Calculation of 4.5.1 Determination and Disposition of
3.3.1 Marginal Congestion Component Prices Marginal Loss Revenue Surplus
3.3.2 Marginal Losses Component 6.5.2 Calculation of Zonal or Locational 4.6 Disposition of Other Real-Time
3.4 Flowgate LMP Calculation Prices Revenue Surplus
3.5 Settlement of Congestion Revenue 6.5.3 Transmission for Operating 5. Real-Time Market for Regulation
Rights Reserves 5.1 General
3.5.1 Settlement of Receipt Point-to- 6.6 Calculation of Additional Payments 5.2 Independent Transmission Provider
Delivery Point Congestion Revenue and Charges Obligations
Rights 6.6.1 Bid Revenue Sufficiency Guarantee 5.3 Purchaser Rules and Obligations
3.5.2 Settlement of Flowgate Right 6.6.2 Other Payments and Charges 5.4 Supplier Rules and Obligations
3.6 Disposition of Congestion Revenue 6.7 Market Rules for Shortages 5.4.1 Eligibility to Supply
Surplus or Deficit 6.8 Settlement 5.4.2 Specifications of Bids
3.6.1 Hourly Congestion Charge 6.8.1 Payment to Suppliers 5.4.3 Bidding and Scheduling Process
Collection G. Post Day-Ahead Scheduling and Real- 5.5 Calculation of Market Clearing Price
3.6.2 Hourly Net Congestion Revenue Time Markets Preamble 5.6 Calculation of Additional Payments
Owed to Congestion Revenue Rights 1. Post Day-Ahead Bidding and Scheduling and Charges
Holders Procedures 5.6.1 Bid Revenue Sufficiency Guarantee
3.6.3 Determination and Disposition of 1.1 General 5.6.2 Failure to Provide Regulation in
Congestion Revenue Surplus or Deficit 1.2 Rules for Self Schedules Real-Time
3.7 Disposition of Marginal Loss Revenue 1.2.1 Supplier-Committed Self-Schedules 5.6.3 Other Payments and Charges
Surplus 1.3 Rules for Bilateral Transactions 5.7 Market Rules for Shortages or
3.7.1 Hourly Marginal Loss Charge 1.3.1 Internal Transactions Emergencies
Collection 1.3.2 External Transactions 5.8 Settlement
3.7.2 Determination and of Marginal Loss 1.4 Rules for Bidding 5.8.1 Payments by Purchasers
Revenue 2. Security Constrained Intra-Day Unit 5.8.2 Payments to Suppliers
4. Day-Ahead Market for Regulation and Commitment and Dispatch 5.9 Monitoring Suppliers and Generators
Frequency Response 2.1 Intra-Day Security-Constrained Unit 6. Real-Time Market for Operating
4.1 General Commitment and Dispatch Reserve—Spinning Reserve
4.2 Independent Transmission Provider 2.2 Security Constrained Dispatch 6.1 General
Obligations 2.3 Intra-Day Revenue Sufficiency 6.2 Independent Transmission Provider
4.3 Purchaser Rules and Obligations Guarantee Obligations
4.4 Supplier Rules and Obligations 3. Real-Time Market for Energy 6.3 Purchaser Rules and Obligations
4.4.1 Eligibility to Supply 3.1 General 6.4 Supplier Rules and Obligations
4.4.2 Specification of Bids 3.2 Independent Transmission Provider 6.4.1 Eligibility to Supply
4.5 Calculation of Market Clearing Price Obligations 6.4.2 Specification of Bids
4.6 Calculation of Additional Payments 3.3 Purchaser Rules and Obligations 6.5 Calculation of Market Clearing Price
and Charges 3.3.1 Specification of Bids 6.5.1 Methodology for Calculation of
4.6.1 Bid Revenue Sufficiency Guarantee 3.4 Supplier Rules and Obligations Prices
4.6.2 Other Payments and Charges 3.4.1 Eligibility to Supply 6.5.2 Calculation of Zonal or Marginal
4.7 Market Rules for Shortages 3.4.2 Specification of Bids Clearing Prices
4.8 Settlement 3.4.3 Period of Bids to Supply Energy 6.5.3 Transmission for Operating
4.8.1 Payments to Suppliers 3.5 Calculation of Real-Time Locational Reserves
5. Day-Ahead Market for Operating Marginal Prices for Energy 6.6 Calculation of Additional Payments
Reserve—Spinning Reserve 3.5.1 Ex Post LMP Calculation and Charges
5.1 General 3.5.2 Determination of Energy LMPs by 6.6.1 Bid Revenue Sufficiency Guarantee
5.2 Independent Transmission Provider Fixed Block Resources 6.6.2 Failure to Perform in Real-Time
Obligations 3.5.3 Five Minute Real-Time LMPs 6.6.3 Other Payments and Charges
5.3 Purchaser Rules and Obligations 3.6 Calculation of Additional Payments 6.7 Market Rules for Shortages or
5.4 Supplier Rules and Obligations and Charges Emergencies
5.4.1 Eligibility to Supply 3.6.1 Bid Revenue Sufficiency Guarantee 6.8 Settlement
5.4.2 Specification of Bids 3.6.2 Undergeneration by Suppliers 6.8.1 Payments by Purchasers
5.5 Calculation of Market Clearing Price 3.6.3 Other Payments and Charges 6.8.2 Payments to Suppliers
5.5.1 Methodology for Calculation of 3.7 Market Rules for Shortages or 6.8.3 Payments by Suppliers
Market Clearing Price Emergencies 6.9 Failure to Provide Operating Reserves
5.5.2 Calculation of Zonal or Locational 3.8 Settlement 7. Real-Time Markets for Operating
Prices 3.8.1 Settlement when Actual Injections Reserves—Supplement Reserves
5.5.3 Transmission for Operating are Less than Scheduled Energy 7.1 General
Reserves Injections 7.2 Independent Transmission Provider
5.6 Calculation of Additional Payments 3.8.2 Settlement when Actual Injections Obligations
and Charges are Greater than Scheduled Energy 7.3 Purchaser Rules and Obligations
5.6.1 Bid Revenue Sufficiency Guarantee Injections 7.4 Supplier Rules and Obligations
7.4.1 Eligibility to Supply 3.1 Physical Withholding in the physical transmission network for
7.4.2 Specification of Bids 3.2 Economic Withholding further commercial activity over and above
7.5 Calculation of Market Clearing Price 3.3 Availability Reporting already committed uses. ATC is defined as
for Supplemental Reserve 3.4 Factual Accuracy the Total Transfer Capability, less the sum of
7.5.1 Methodology for Calculation of 3.5 Information Obligation existing transmission commitments
Prices 3.6 Cooperation (including transmission which is used for
7.5.2 Calculation of Zonal or Locational 3.7 Physical Feasibility reliability purposes).
Prices 3.8 Enforcement Base Point Signal: Signals sent from the
7.5.3 Transmission for Operating I. Long-Term Resource Adequacy Independent Transmission Provider and
Reserves 1. Data Submission for annual forecast of ultimately received by Resources specifying
7.6 Calculation of Additional Charges and future regional load the scheduled MW level for the Resource.
Payments 2. Assignment of Resource Adequacy Bid: Offer to purchase and/or sell products
7.6.1 Bid Revenue Sufficiency Guarantee Requirements or services in an Auction, including Energy,
7.6.2 Failure to Perform in Real-Time 3. Load-Serving Entity’s Submission for Demand Reductions, Transmission Service,
7.6.3 Exceptions Resource Adequacy Requirements Congestion Revenue Rights and/or Ancillary
7.6.4 Other Payments and Charges 4. Resource Adequacy Requirements Services at a specified location, quantity, and
7.7 Market Rules for Shortages or Standards time-period that is duly submitted to the
Emergencies 5. Penalties Independent Transmission Provider pursuant
7.8 Settlement 6. Curtailment to Independent Transmission Provider
7.8.1 Payments by Purchasers Part V. Other Procedures. The Bid should indicate either a
7.8.2 Payments to Suppliers specific price or the Bidder’s desire to have
7.8.3 Payments by Suppliers J. Generation Interconnection Procedures (to the Bid accepted regardless of the market
be provided in separate rule) clearing price.
8. Other Real-Time Payments and Charges
8.1 Bid Revenue Sufficiency Guarantee Part VI. Transmission Planning and Bid Revenue Sufficiency Guarantee: A
Payments for Replacement Reserves Expansion guarantee by the Independent Transmission
8.1.1 Payments to Suppliers Provider that ensures the minimum recovery
K. Transmission Planning and Expansion
8.1.2 Charges to Customers of the Bid prices for Resources scheduled
8.1.3 Unrecovered Bid Revenue Part VII. Pro Forma Service Agreements through the Day-Ahead Market, in
Sufficiency Guarantee Payments Form of Service Agreement for Network subsequent post Day-Ahead Market
8.2 Other Real-Time Bid Revenue Access Service commitments for reliability, and in the Real-
Sufficiency Guarantee Payments Form of Service Agreement for Market Time Market.
8.2.1 Payments to Customers Services Bilateral Transaction Schedule:
8.2.2 Charges to Customers Form of Participating Generator Agreement Simultaneous schedules of Load and
Generation of the same MW level by a Market
Part IV. Market Monitoring Part VIII. Attachments Participant.
H. Market Power Mitigation and Market ATTACHMENT A Methodology to Assess Boundary Interface: Point(s) used to
Monitoring Transfer Capability indicate Point(s) of Receipt and Point(s) of
1. Market Power Mitigation ATTACHMENT B Methodology for Delivery outside of the Service Area.
1.1 Participating Generator Agreements Completing System Impact Study Commission (‘‘FERC’’): The Federal Energy
1.2 Determination of Bid Caps ATTACHMENT C Network Operating Regulatory Commission, or any successor
1.2.1 The Safety-Net Bid Cap Agreement agency.
1.2.2 Generator-Specific Bid Caps ATTACHMENT D Index of Network Access Completed Application: An application for
1.3 Determination of Available Capacity Customers Transmission or Market Service that satisfies
1.3.1 Adjustments to Capacity to Reflect ATTACHMENT E Index of Market Services all of the information and other requirements
Risk of Forced Outages in Real-Time Customers of the Tariff, including any required deposit.
Market ATTACHMENT F Rates Congestion: The state of a Transmission
1.3.2 Available Capacity Reduced by ATTACHMENT G List of Existing System when a binding limit (constraint) on
Forced Outages Subject to Audit Transmission Contracts the system’s Transfer Capability is reached
1.4 Determination of Non-Competitive Part I. General Term and Conditions that must be addressed.
Conduct Congestion Charges: Charges relating to the
1.4.1 Local Non-Competitive Conditions A. Common Service Provisions Marginal Congestion Component of Energy
1.4.2 Other Non-Competitive Conditions 1. Definitions Purchases or Transmission Usage Charges.
1.5 Triggering Mechanisms These charges reflect the increased cost that
Access Charge: A charge designed to
1.5.1 Market Power Mitigation result from dispatching the Transmission
recover the embedded costs of the
Independent of Market Conditions System to respect Transmission System (or
Transmission System.
1.5.2 Market Power Mitigation Triggered Flowgate) constraints.
Ancillary Services: Those services that are
by Section H.1.4.1 necessary to support the transmission of Congestion Revenue Deficit: In the Day-
1.5.3 Market Power Mitigation Triggered Energy from Resources to Loads while Ahead Market, the absolute value of the
by Section H.1.4.2 maintaining reliable operation of the difference between the Hourly Congestion
2. Market Monitoring Plan Independent Transmission Provider’s Charge Collection and the Hourly Net
2.1 Data Requirements and Data Transmission System in accordance with Congestion Revenue Owed to Congestion
Collection Good Utility Practice. Revenue Rights Holders when the difference
2.1.1 Obligations of Market Participants Automatic Generation Control (‘‘AGC’’): is negative.
2.1.2 Generator-Specific Data The automatic regulation of the power output Congestion Revenue Right: A property
2.1.3 Data Acquired in the Course of of electric generating facilities within a right held by a Customer that entitles and/or
Conducting Market Operations prescribed range in response to a change in obligates the holder of the right to receive
2.1.4 Other Publically Available Data system frequency, or tie-line loading, to specified Congestion revenues.
2.1.5 Confidentiality maintain system frequency or scheduled Congestion Revenue Surplus: In the Day-
2.2 Framework for Analyzing Market interchange with other areas within Ahead Market, the difference between the
Structure and Generator Conduct predetermined limits. Hourly Congestion Charge Collection and the
2.2.1 Obligations of the Market Monitor Availability Bid: Bid by a Resource that Hourly Net Congestion Revenue Owed to
2.2.2 Structural Analysis indicates the minimum price at which Congestion Revenue Rights Holders when the
2.2.3 Conduct Analysis Regulation or Operating Reserves is offered to difference is positive.
2.3 Annual Reports be supplied. Contingency: An actual or potential
2.4 Periodic Reports Available Transfer Capability (‘‘ATC’’): A unexpected failure or outage of a system
3. Rules for Market Participant Conduct measure of the Transfer Capability remaining component, such as a Generator,
transmission line, circuit breaker, switch or or manual action to prevent or limit loss of Flowgate Right: A Congestion Revenue
other electrical element. A Contingency also transmission facilities or Generators that Right specified by a portion of the total MW
may include multiple components, which are could adversely affect the reliability of the capacity over a particular transmission
related by situations leading to simultaneous electric system. Flowgate in a specified direction. Flowgate
component outages. Energy: A quantity of electricity that is Bid, Rights entitle the holder to collect congestion
Control Center: The equipment, facilities produced, purchased, consumed, sold or revenues associated with the specified MW
and personnel used by the Independent transmitted over a period of time and flow over the identified Flowgate in the
Transmission Provider to coordinate and measured or calculated in megawatt-hours. specified direction.
direct the operation of the Service Area and Energy Bid: For an Energy Supplier, a Bid Generation Capacity: The sustained
to administer the Day-Ahead and Real-Time curve that indicates an entity’s willingness to maximum net output of a Generator,
Markets, including facilities and equipment supply Energy at certain prices to markets measured in megawatts, as demonstrated by
used to communicate and coordinate with operated by the Independent Transmission the performance of a test or through actual
the Market Participants in connection with Provider. For an Energy Purchaser, Bid curve operation as defined in the Independent
transactions in the Day-Ahead and Real-Time that indicates an entity’s willingness to Transmission Provider Procedures.
Markets or the operation of the Service Area. purchase Energy at certain prices in markets Generator: A facility capable of supplying
Curtailment: Reduced transmission service operated by the Independent Transmission Energy, capacity and/or Ancillary Services
or provision of electricity to a Customer in Provider. that is accessible to the Service Area.
response to a transmission capability for Energy Limited Resource: Capacity Good Utility Practice: Any of the practices,
reliability purposes. Resources that, due to design considerations, methods and acts engaged in or approved by
Customer: An entity which has complied environmental restrictions on operations, a significant portion of the electric utility
with the requirements contained in this cyclical requirements, such as the need to industry during the relevant time period, or
Tariff, including having signed a Service recharge or refill, or other non-economic any of the practices, methods and acts which,
Agreement, and is eligible to utilize the reasons, are unable to operate continuously in the exercise of reasonable judgment in
services provided by the Independent on a daily basis. light of the facts known at the time the
Transmission Provider under this Tariff; Ex Ante Real-Time Energy LMP: The LMP decision was made, could have been
provided, however, that a party taking that is produced by the Independent expected to accomplish the desired result at
services under this Tariff pursuant to an Transmission Provider’s Security a reasonable cost consistent with good
unsigned Network Access Service Agreement Constrained Dispatch and communicated to business practices, reliability, safety and
filed with the Commission by the Resources under dispatch instructions in expedition. Good Utility Practice is not
Independent Transmission Provider shall be advance of real time. Under SMD, the LMP intended to be limited to the optimum
deemed a Customer. used for settlement is the Ex Post LMP. practice, method, or act to the exclusion of
Ex Post Real-Time Energy LMP: The LMP all others, but rather to be acceptable
Day-Ahead: Nominally, the twenty-four
that is produced following the evaluation of practices, methods, or acts generally accepted
hour period directly preceding the Operating
actual dispatch relative to dispatch in the region.
Day, except when this period may be
instructions. It is the LMP used for settlement Hourly Economic Maximum Level: The
extended by the Independent Transmission
purposes in the Real-Time Market. maximum MW level a Resource may operate
Provider to accommodate holidays and
Existing Transmission Contract: A contract under normal system conditions.
weekends. for Transmission Service or wholesale Hourly Economic Minimum Level: The
Day-Ahead Market: The market requirements service currently in effect minimum MW level a Resource may operate
administered by the Independent between two or more Transmission Owners, under normal system conditions.
Transmission Provider in which Energy, or between a Transmission Owner and Hourly Emergency Maximum Level: The
Ancillary Services, and Transmission another entity, that was executed on or before maximum MW level a Resource may operate
Services are scheduled and sold Day-Ahead, July 9, 1996, or earlier. under Emergency system conditions.
consistent of the Day-Ahead scheduling Export: Energy that is delivered from the Hourly Emergency Minimum Level: The
process, price calculations, and settlements. Independent Transmission Provider Service maximum MW level a Resource may operate
Decremental Energy Bid: A Bid Price curve Area Interconnection to another Service under Emergency system conditions.
provided by an entity engaged in a bilateral Area. Hub: A mathematical simplification of a set
Import or Internal Transaction to indicate the External Transaction: A Bilateral of buses to emulate a single bus for financial
LMP below which that entity is willing to Transaction in which either the Receipt Point and trading purposes. A Hub is defined by
reduce its Generator’s output and purchase or the Delivery Point must be a point at the a set of buses that are each associated with
Energy in the LMP Markets. boundary of the Independent Transmission a fixed numerical weights such that the sum
Delivering Party: The entity supplying Provider Service Area. If the Receipt Point is of weights equal one.
capacity and Energy to be transmitted at a Boundary Interface, then the External Hub Price: The weighted average of Energy
Point(s) of Receipt. Transaction is an Import. If the Delivery LMP’s at the buses that comprise the Hub.
Delivery Point: The location where a Point is a Boundary Interface, then the Import: Energy that is delivered to an
transaction terminates. A Delivery Point can External Transaction is an Export. Independent Transmission Provider Service
be a delivery Node, an aggregation of delivery Facilities Study: An engineering study Area Interconnection from another Service
Nodes, an Interface, or a Trading Hub. For conducted by the Independent Transmission Area.
purposes of this Tariff, the Delivery Point Provider to determine the required Incremental Energy Bid: A Bid Price curve
does not have to be a location where power modifications to the Independent for Energy generated above the Hourly
is consumed. Transmission Provider’s Transmission Minimum Economic Level.
Direct Assignment Facilities: Facilities or System, including the cost and scheduled Independent Transmission Provider: The
portions of facilities that are constructed for completion date for such modifications, that entity that operates the facilities used for the
the sole use/benefit of a particular Customer will be required to provide the requested transmission of Energy in interstate
requesting service under the Tariff. Direct transmission service. commerce and provides transmission service
Assignment Facilities shall be specified in Federal Power Act (‘‘FPA’’): The Federal under the Tariff.
the Service Agreement that governs service to Power Act, as may be amended from time-to- Independent Transmission Provider’s
the Customer and shall be subject to time (See 16 U.S.C. § 796 et seq.) Monthly Transmission System Peak: The
Commission approval. Fixed Block Resource: A unit that, due to maximum usage of the Independent
Dispatch Hour: The sixty (60) minute operational characteristics, can only be in Transmission Provider’s Transmission
period commencing at the beginning of each one of two states: either turned completely System in a calendar month.
hour (0000 hour). off, or turned on and run at a fixed capacity Interface: A defined set of transmission
Dispatch Interval: Length of time between level. facilities (see also Boundary Interface).
dispatch instructions from the Independent Flowgate: A transmission facility (such as Internal Transaction: Bilateral Transactions
Transmission Provider. a transmission line or a transformer or some whose Receipt Point and Delivery Point are
Emergency: Any abnormal system other component of the electrical network) or both within the Independent Transmission
condition that requires immediate automatic group of facilities (e.g., an Interface). Provider’s service territory.
Load: A term that refers to either a Independent Transmission Provider the Obligation Right: A Congestion Revenue
consumer of Energy or the amount of Energy results and recommendations derived from Right that requires the Customer to receive
(MWh) or demand (MW) consumed. its study of the markets operated by the the Congestion revenues (either positive or
Load Forecast: Independent forecasts by Independent Transmission Provider. negative).
the Independent Transmission Provider of Market Services: Services provided by the Open Access Same-Time Information
Load within the Independent Transmission Independent Transmission Provider under System (OASIS): The information system and
Provider’s Service Area used in its the Tariff related to the markets for Energy, standards of conduct contained in Part 37 of
scheduling decisions to ensure reliable capacity and Ancillary Services. the Commission’s regulations and all
operation of the system. Maximum Curtailment Time: Maximum additional requirements implemented by
Load Ratio Share: The ratio of a Load- time (in hours) that a supplier of demand subsequent Commission orders dealing with
Serving Entity’s Load to total Load within the response Resources is willing to respond to OASIS.
Service Area during a specified time period. Curtailment dispatch instructions. Operable Capacity: Capacity that is readily
Load-Serving Entity: An entity, including a Maximum Run Time: Maximum length of converted to Energy and is measured in MW.
municipal electric system and an electric time (in hours) that a Generator can be Operating Day: The daily 24 hour period
cooperative, authorized by law, regulatory reliably expected to operate. beginning at midnight for which transactions
authorization or requirement, agreement, or Maximum Shut Down Limit: Maximum on the Energy Market are scheduled.
contractual obligation to supply Energy, to number of times a Generator is able to shut Operating Reserves: Generator Capacity
retail Customers located within the down in a 24 period. that is available to supply Energy, or Load
Independent Transmission Provider’s Service Maximum Start-up Limit: Maximum Resources that are available to Curtail Energy
Area, including an entity that takes service number of times a Generator is able to start- usage, in the event of Contingency
directly from the Independent Transmission up in a 24 period. conditions, which meet the requirements of
Provider to supply its own Load in the Minimum Curtailment Time: Minimum the Independent Transmission Provider.
Independent Transmission Provider’s Service time (in hours) that a supplier of demand Operating Reserves include Spinning
Area. response Resources is willing to respond to Reserves and Supplemental Reserves.
Load Shedding: The systematic reduction Curtailment dispatch instructions. Opportunity Cost: The cost of giving up the
of system demand by temporarily decreasing Minimum Down Time: Minimum length of opportunity to sell (or consume) a product
Load in response to Transmission System or time (in hours) required for a Generator to (or service) at a location and time in order
area capacity shortages, system instability, or begin operations following an outage due to to sell a related product (requiring the same
voltage control considerations. operational constraints. inputs), at the same location and time or the
Locational Marginal Pricing (‘‘LMP’’): A Minimum Generation Bid: The payment same product at another location and time.
pricing methodology under which the price required by a Supplier to operate at the unit’s Optimal Power Flow (‘‘OPF’’): A Power
of Energy at each location in the Hourly Economic Minimum. Flow that maximizes the value (as expressed
Transmission System is equivalent to the cost Minimum Generation Emergency: An in the Bids) of the Congestion Revenue
to supply or the value to purchase the next Emergency declared by the Independent Rights, subject to the constraint that the
increment of Load at that location taking into Transmission Provider in which the selected set of Bids must be simultaneously
account the physical aspects of the Independent Transmission Provider feasible.
Transmission System. The term LMP also anticipates requesting one or more generating Option Right: A Congestion Revenue Right
refers to the price of Energy bought or sold Resources to operate at or below Normal that allows the Customer to receive the
at a specific location. Minimum Generation, in order to manage, positive Congestion revenues without the
Lower Regulation Limit: The lowest alleviate, or end the Emergency. obligation to pay Congestion revenues when
operating point that the Independent Minimum Run Time: Minimum length of they are negative.
Transmission Provider may dispatch a unit time (in hours) required for a Generator to be Planning Horizon: The number of years
for Regulation under normal operating in operation due to operational constraints. ahead in each region for which the Load-
conditions. Network Access Service: Transmission Serving Entities must demonstrate to the
Marginal Congestion Component (‘‘MCC’’): service offered by the Independent Independent Transmission Provider that they
Component of Locational Marginal Price and Transmission Provider under this Tariff. It have procured adequate Energy Resources.
Transmission Usage Charge reflecting the offers use of the transmission grid by Power Flow: A simulation tool that
cost of dispatching the Resources available to allowing Customers to: (1) Serve Load with provides an estimate of Energy flows on the
the Independent Transmission Provider such any Resource on the system, (2) access any Transmission System and adjacent
that transmission constraints are respected. Interface to import power from a neighboring transmission systems under a given set of
Marginal Loss Charge Collection: The net system, (3) integrate, economically dispatch assumed characteristics.
amounts charged to purchasers associated and regulate its current and planned Primary Holder: The Owner of a
with the Marginal Loss Component of the Resources to serve its Load; (4) transmit Congestion Revenue Right recognized as such
hourly LMPs at the purchasers’ buses less the power through and out of the Independent by the Independent Transmission Provider
net amounts paid to sellers associated with Transmission Provider’s system, and (5) for settlement purposes.
the Marginal Loss Component of the hourly aggregate Resources for resale and hub-to-hub Real Power Losses: The loss of Energy,
LMPs at the sellers’ buses. transfer. resulting from transporting power over the
Marginal Losses: The Transmission System Network Operating Agreement: Agreement Transmission System, between the Point of
Real Power Losses associated with each that contains the terms and conditions under Injection and Point of Withdrawal of that
additional MWh of consumption by Load, or which the Customer shall operate its Energy.
each additional MWh transmitted under a facilities and the technical and operational Real Time: Referring to the time period in
Bilateral Transaction as measured at the matters associated with the implementation which transmission and generation dispatch
Points of Withdrawal. of the Tariff. instructions are ultimately given.
Marginal Losses Component (‘‘MLC’’): The Network Operating Committee: Committee Real-Time Market: The market
component of LMP at a bus that accounts for responsible for coordinating operating administered by the Independent
the Marginal Losses, as measured between criteria to determine each Party’s Transmission Provider for Energy, Ancillary
that bus and the Reference Bus. responsibilities under the Network Operating Services, and Transmission Services in real
Market Clearing Price: The price of a Agreement. time, consisting of the real time scheduling
product or service determined by the No-load Cost: Hourly costs associated with process, dispatch, price calculations, and
Independent Transmission Provider at a generating at a unit’s Hourly Economic settlements.
given location and time at which the total Minimum. Receipt Point: The location where a
amounts offered for sale and purchase are Node: A location where Energy can be Transaction originates. A Receipt Point can
equal. injected and/or withdrawn from the grid. be a Generator Node, an aggregation of
Market Monitor(ing Unit): Entity required Normal Response Rate: The expected Generator Nodes, an Interface, or a Trading
to report directly to the Commission and to response rate of an Energy supplying Hub. For purposes of this Tariff, a Receipt
the independent governing board of the Resource measured in MW/min. Point does not have to be a Generator.
Receipt Point-to-Delivery Point Congestion Response Rate: The capability (in MW/ reliability authority to be procured by the
Revenue Right Obligation: Congestion minute) of a Resource to adjust its generation Independent Transmission Provider to
Revenue Rights that confer: (i) The right to level in response to dispatch signals. ensure system reliability.
collect revenues equal to the applicable Scheduled Amount: Megawatt supply or Start Time: The number of hours required
Marginal Congestion Component of the demand obligation as indicated by the by a generating Resource to reach its Hourly
hourly Transmission Usage Charge from the Independent Transmission Provider’s Economic Minimum Level.
Receipt Point to the Delivery Point when the Schedule. Start-up Cost: Payment needed by the
Marginal Congestion Component is positive, Scheduled Resource: Resource incurring a Purchaser of Energy to cover the fixed costs
and (ii) the obligation to pay an amount to supply or demand obligation as indicated by associated with its Energy Bid or payment
the Independent Transmission Provider the Independent Transmission Provider’s required by Generator to Start-up and reach
equal to the absolute value of the applicable Schedule. its minimum operating level.
Marginal Congestion Component of the Security Constrained Dispatch: The Supplemental Commitment: Scheduling of
hourly Transmission Usage Charge when the determination of the dispatch that Resources by the Independent Transmission
Marginal Congestion Component is negative. incorporates all transmission constraints Provider following the posting of the Day-
Receipt Point-to-Delivery Point Congestion necessary for reliability. Ahead Schedule to meet the reliability needs.
Revenue Right Option: Congestion Revenue Security Constrained Unit Commitment: Supplemental Reserves: Operating
Rights that confer to the holder the right to The allocation of Load to Generators by the Reserves provided by Resources that can be
collect revenues equal to the applicable Independent Transmission Provider through started, synchronized and loaded within a
Congestion Charge component of the hourly the operation of a computer algorithm which specified time period.
Transmission Usage Charge from the Receipt continuously calculates individual Generator Supplemental Reserves Requirement:
Point to the Delivery Point when the loading at minimum Bid cost, balancing Load Quantity of Supplemental Reserves identified
Marginal Congestion Component is positive, and scheduled interchange with generation by the local reliability authority to be
but do not obligate the holder to pay the while meeting all reliability rules and procured by the Independent Transmission
absolute value of the applicable Marginal Generator performance constraints. Provider to ensure system reliability.
Congestion Component of the hourly Self-Schedule: The Supplier’s provision to Supplier: A Party that is supplying the
Transmission Usage Charge when the the Independent Transmission Provider with Demand Reduction, Energy and/or associated
Marginal Congestion Component is negative. its hourly Energy schedule in the Day-Ahead Ancillary Services to be made available
Receiving Party: The entity receiving the Market and Real-Time Market independent of under the Tariff, including Generators and
capacity and Energy transmitted by the market prices. demand side Resources that satisfy all
Independent Transmission Provider to Self-Supply: The provision of certain applicable Independent Transmission
Point(s) of Delivery. Ancillary Services, or the provision of Energy Provider requirements.
Reference Bus: The location on the to replace Marginal Losses, by a Customer
System Impact Study: An assessment by
Transmission System relative to which all using either the Customer’s own Generators
the Independent Transmission Provider of (i)
mathematical quantities, including Shift or generation obtained from an entity other
the adequacy of the Transmission System to
Factors and penalty factors relating to than the Independent Transmission Provider.
accommodate a request for Congestion
physical operation, will be calculated. Seller: Market Participant whose Bid to
Revenue Rights or (ii) whether any additional
Regulation: The capability of a specific supply into either the Day-Ahead or Real-
generating unit with appropriate Time Market has been accepted and who has costs may be incurred in order to provide
telecommunications, control and response incurred the associated supply obligations. Congestion Revenue Rights.
capability to increase or decrease its output Service Agreement: The initial agreement System Marginal Price (SMP): The LMP of
in response to a regulating control signal, in and any amendments or supplements thereto Energy at the Reference Bus.
accordance with the specifications in the entered into by the Customer and the Total Transfer Capability: The amount of
Manuals. Regulation also encompasses Independent Transmission Provider for electric power that can be transferred over
regulation and frequency response service i.e. service under the Tariff. the interconnected transmission network in a
the continuous balancing of Resources Service Area: The geographic region and reliable manner.
(generation and interchange) with Load transmission facilities therein that are under Transaction: The purchase and/or sale of
variations in order to maintain scheduled the operational control of the Independent Energy, Congestion Revenue Rights,
Interconnection frequency. Transmission Provider. Ancillary Services, or Transmission Service.
Regulation Capability: The maximum Service Commencement Date: The date the Transfer Capability: The measure of the
amount of Regulation Service in MW a Independent Transmission Provider begins to ability of interconnected electrical systems to
Resource can operationally provide to the provide service pursuant to the terms of an reliably move or transfer power from a set of
Independent Transmission Provider. executed Service Agreement, or the date the Receipt Points to a set of Delivery Points over
Regulation Requirement: Quantity of Independent Transmission Provider begins to all transmission facilities (or paths) between
Regulation identified by the local reliability provide service in accordance with the Tariff. those areas under specified system
authority to be procured by the Independent Settlement: The process of determining the conditions.
Transmission Provider to ensure system charges to be paid to or by a Customer in the Transmission Owner: Entity with financial
reliability. markets operated by the Independent ownership of the transmission assets used in
Reliability Rules: Those rules, standards, Transmission Provider under this Tariff. the provision of Transmission Service by the
procedures and protocols, including Local Shift Factor: A ratio, calculated by the Independent Transmission Provider.
Reliability Rules, developed in accordance Independent Transmission Provider, that Transmission Owner’s Monthly
with NERC, regional reliability councils, compares (1) the change in power flow Transmission System Peak: The maximum
FERC, PSC and NRC standards, rules and through a transmission facility resulting from hourly firm usage as measured in megawatts
regulations, and other criteria. an incremental change in injection of power (MW) of the Transmission Owner’s
Reserve Location: Geographic area for at a Receipt Point and withdrawal of power transmission system in a calendar month.
which there is a specific Operating Reserve at the Delivery Point to (2) the incremental Transmission Planned Outage: Any
requirement applies. change in injection of power at the Receipt transmission outage scheduled in advance for
Resource: Either a Generator or a Load that Point. a pre-determined duration and which meets
can reliably adjust its electricity usage by Shortage: A situation in which the markets the notification requirements for such
some specified range and rate at a specific for Energy, Regulation or Operating Reserves outages specified by the Independent
Withdrawal Point in response to Day-Ahead are not able to clear because of insufficient Transmission Provider.
or Real-Time prices or by instruction by the Bid-in capacity. Transmission Service: Services needed to
Independent Transmission Provider. Spinning Reserves: Operating Reserves move Energy from a Receipt Point to a
Resource Adequacy Requirement: The provided by synchronized Resources that can Delivery Point provided to Customers by the
Resource reserve margin, stated as a ratio of respond immediately to dispatch Independent Transmission Provider in
the reserves to the forecast peak load during instructions. accordance with this Tariff.
the final year of the Planning Horizon, Spinning Reserves Requirement: Quantity Transmission System: The facilities
expressed as a percentage. of Spinning Reserves identified by the local controlled and operated by the Independent
Transmission Provider that are used to (i) If the Independent Transmission corporate affiliates. A Customer that is a
provide transmission service under the Provider determines that the provision of member of a power pool or Regional
Tariff. transmission service requested by a Customer Transmission Group also agrees to provide
Transmission Usage Charge: A per unit would jeopardize the tax-exempt status of comparable transmission service to the
charge for Transmission Service to support a any outstanding local furnishing bond(s) members of such power pool and Regional
Bilateral Transaction. The Transmission used, in whole or part, to finance any of the Transmission Group on similar terms and
Usage Charge is equal to the difference of the Transmission Owner’s facilities, regardless of conditions over facilities used for the
LMP at the Delivery Point and the LMP at the whether such facilities financed with these transmission of Energy owned, controlled or
Receipt Point (in $/MWh). bonds are transmission, distribution, or operated by the Customer and over facilities
Unit-Specific Opportunity Cost: The generation facilities, or would jeopardize the used for the transmission of Energy owned,
Opportunity Cost calculation for specific Transmission Owner’s entitlement to income controlled or operated by the Customer’s
Resources that are selected to provide tax deductions for interest expense in corporate affiliates.
Regulation or Operating Reserves in either connection with such tax-exempt bonds, it This reciprocity requirement applies not
the Day-Ahead or the Real-Time Markets. shall advise the Customer within thirty (30) only to the Customer that obtains
Upper Regulation Limit: The highest days of receipt of the Completed Application transmission service under the Tariff, but
operating point that the Independent of (a) such determination and (b) the also to all parties to a transaction that
Transmission Provider will dispatch a unit reasonably expected amount of any costs involves the use of transmission service
for Regulation under normal operating resulting from such loss of tax-exempt status under the Tariff, including the power seller,
conditions. and/or income tax deductions (or from the buyer and any intermediary, such as a power
Virtual Demand Bid: A Demand Bid in the prevention of any such loss). For purposes of marketer. This reciprocity requirement also
Day-Ahead Market without a physical this section, the costs resulting from such applies to any Customer that owns, controls
Resource capable of withdrawing Energy in loss of tax exempt status and/or income tax or operates transmission facilities that uses
the Real-Time Market. deductions (or from the prevention of any an intermediary, such as a power marketer,
Virtual Energy: Energy purchased or sold such loss) due to the provision of such to request transmission service under the
in the Day-Ahead Energy Market that is not transmission service shall include, without Tariff. If the Customer does not own, control
backed by physical Resources. limitation, any reasonable transactions costs or operate transmission facilities, it must
Virtual Supply Bid: A Supply Bid in the (including any redemption premium) of include in its Application a sworn statement
Day-Ahead Market without a physical defeasing and/or redeeming any outstanding of one of its duly authorized officers or other
Resource capable of injecting Energy in the local furnishing bonds and/or from any such representatives that the purpose of its
Real-Time Market. refinancing with taxable debt and/or from Application is not to assist a Customer to
Voltage Support Service: The provision of any disallowance or loss of a deduction for avoid the requirements of this provision.
reactive power support necessary to maintain tax purposes of the interest in respect of such
transmission voltage. 5. Billing and Payment
bonds.
Wheel Through: Transmission Service (ii) If the Customer thereafter renews its 5.1 Billing Procedure: Within a
through the Service Area of the Independent request for the same transmission service reasonable time after the first day of each
Transmission Provider that originates and referred to in (i) by tendering an application month, the Independent Transmission
terminates outside the Service Area of the under Section 211 of the Federal Power Act, Provider shall submit an invoice to the
Independent Transmission Provider. the Independent Transmission Provider, Customer for the charges for all services
Zonal-LMP: Load weighted average of within ten (10) days of receiving a copy of furnished under the Tariff during the
Energy LMPs over a set of buses and weights the Section 211 application, will waive its preceding month. The invoice shall be paid
defined by a zone. rights to a request for service under Section by the Customer within twenty (20) days of
Zone: A set of buses in a geographic area. 213(a) of the Federal Power Act and to the receipt. All payments shall be made in
Zone Price: Load weighted average price issuance of a proposed order under Section immediately available funds payable to the
over the defined set of buses in a zone. 212(c) of the Federal Power Act. The Independent Transmission Provider, or by
2. Open Access Same-Time Information Commission, upon receipt of the wire transfer to a bank named by the
System (OASIS) Independent Transmission Provider’s waiver Independent Transmission Provider.
of its rights to a request for service under 5.2 Interest on Unpaid Balances: Interest
Terms and conditions regarding Open on any unpaid amounts (including amounts
Access Same-Time Information System and Section 213(a) of the Federal Power Act and
to the issuance of a proposed order under placed in escrow) shall be calculated in
standards of conduct are set forth in 18 CFR
Section 212(c) of the Federal Power Act, shall accordance with the methodology specified
§ 37 of the Commission’s regulations (Open
issue an order under Section 211 of the for interest on refunds in the Commission’s
Access Same-Time Information System and
Federal Power Act specifying that such regulations at 18 CFR § 35.19a(a)(2)(iii).
Standards of Conduct for Public Utilities).
service is provided subject to the Customer’s Interest on delinquent amounts shall be
3. Local Furnishing Bonds calculated from the due date of the bill to the
payment of all costs deemed by the
3.1 Transmission Owners That Own Commission to be eligible for recovery under date of payment. When payments are made
Facilities Financed by Local Furnishing Section 212(a) of the Federal Power Act. by mail, bills shall be considered as having
Bonds: This provision is applicable only to Upon issuance of the order under Section been paid on the date of receipt by the
Transmission Owners that have financed 211 of the Federal Power Act, the Independent Transmission Provider.
facilities for the local furnishing of Energy Independent Transmission Provider shall be 5.3 Customer Default: In the event the
with tax-exempt bonds, as described in required to provide the requested Customer fails, for any reason other than a
section 142(f) of the Internal Revenue Code transmission service in accordance with the billing dispute as described below, to make
of 1986, as amended, or corresponding terms and conditions of this Tariff and such payment to the Independent Transmission
provisions of predecessor statutes (‘‘local order. Transmission service shall not Provider on or before the due date as
furnishing bonds’’). Notwithstanding any commence until after the Customer complies described above, and such failure of payment
other provision of this Tariff, the with the creditworthiness provisions of is not corrected within thirty (30) calendar
Independent Transmission Provider shall not Section 8 of this Tariff. days after the Independent Transmission
be required to provide transmission service Provider notifies the Customer to cure such
to any Customer pursuant to this Tariff if the 4. Reciprocity failure, a default by the Customer shall be
provision of such transmission service would A Customer receiving transmission service deemed to exist. Upon the occurrence of a
jeopardize the tax-exempt status of any local under this Tariff agrees to provide default, the Independent Transmission
furnishing bond(s) used, in whole or in part, comparable transmission service that it is Provider may initiate a proceeding with the
to finance the Transmission Owner’s capable of providing on similar terms and Commission to terminate service but shall
facilities, regardless of whether such facilities conditions over facilities used for the not terminate service until the Commission
financed with these bonds are transmission, transmission of Energy owned, controlled or so approves any such request. In the event of
distribution, or generation facilities. operated by the Customer and over facilities a billing dispute between the Independent
3.2 Alternative Procedures for Requesting used for the transmission of Energy owned, Transmission Provider and the Customer, the
Transmission Service: controlled or operated by the Customer’s Independent Transmission Provider will
continue to provide service under the Service reasonable credit review procedures. This obtaining any services under the
Agreement as long as the Customer (i) review shall be made in accordance with Independent Transmission Provider’s Tariff.
continues to make all payments not in standard commercial practices. In addition, A Customer also shall demonstrate to the
dispute, and (ii) pays into an independent the Independent Transmission Provider may Independent Transmission Provider’s
escrow account the portion of the invoice in require the Customer to provide and reasonable satisfaction that it is capable of
dispute, pending resolution of such dispute. maintain in effect during the term of the performing all functions required by the
If the Customer fails to meet these two Service Agreement, an unconditional and Independent Transmission Provider’s Tariff
requirements for continuation of service, irrevocable letter of credit as security to meet including operational, financial and
then the Independent Transmission Provider its responsibilities and obligations under the settlement requirements.
may provide notice to the Customer of its Tariff, or an alternative form of security 9.4.1 Application: Each Customer
intention to suspend service in sixty (60) proposed by the Customer and acceptable to requesting to schedule, take or provide any
days, in accordance with Commission policy. the Independent Transmission Provider and services under the Tariff must apply to the
6. Regulatory Filings consistent with commercial practices Independent Transmission Provider in
established by the Uniform Commercial Code writing at least sixty (60) days in advance of
Nothing contained in the Tariff or any that protects the Independent Transmission the month in which service is to commence.
Service Agreement shall be construed as Provider against the risk of non-payment. The Independent Transmission Provider will
affecting in any way the right of the consider requests for such services on shorter
jurisdictional Independent Transmission 9. Eligibility for Independent Transmission
Provider Services notice when feasible. Service commencement
Provider to unilaterally make application to will depend on the Independent
the Commission for a change in rates, terms In order to purchase Network Access Transmission Provider’s ability to
and conditions, charges, classification of Service, purchase or supply Energy, or to accommodate the request. To apply, the
service, Service Agreement, rule or regulation supply Ancillary Services in the Independent Customer shall complete and deliver a
under Section 205 of the Federal Power Act Transmission Provider Administered Service Agreement (in the form of Part VII)
and pursuant to the Commission’s rules and Markets, Customers must satisfy the and an Application to the Independent
regulations promulgated thereunder. requirements of this Article. Transmission Provider.
Nothing contained in the Tariff or any 9.1 Requirements for Network Access 9.4.2 Completed Application: A
Service Agreement shall be construed as Service: A Customer eligible for Network
Completed Application shall provide all of
affecting in any way the ability of any Party Access Service is: (i) any electric utility
the information reasonably required by the
receiving service under the Tariff to exercise (including the Load-Serving Entity or any
its rights under the Federal Power Act and power marketer), Federal power marketing
permit the Independent Transmission
pursuant to the Commission’s rules and agency, or any person generating Energy for
Provider to perform its responsibilities under
regulations promulgated thereunder. sale is eligible to be a Customer for Network
the Independent Transmission Provider’s
Access Service under the Tariff. Energy sold
7. Force Majeure and Indemnification Tariff. A Customer taking or providing
or produced by such entity may be Energy
7.1 Force Majeure: An event of Force service under the Tariff shall provide the
produced in the United States, Canada or
Majeure means any act of God, labor Independent Transmission Provider, upon
Mexico. However, with respect to
disturbance, act of the public enemy, war, transmission service that the Commission is application for service, with a list identifying
insurrection, riot, fire, storm or flood, prohibited from ordering by Section 212(h) of its parent company as well as any affiliate.
explosion, breakage or accident to machinery the Federal Power Act, such entity is eligible The Customer shall notify the Independent
or equipment, any Curtailment, order, only if the service is provided pursuant to a Transmission Provider within 30 days of the
regulation or restriction imposed by state requirement that the Independent effective date of any change to the original
governmental military or lawfully established Transmission Provider offer the unbundled list. Any Customer shall notify the
civilian authorities, or any other cause transmission service, or pursuant to a Independent Transmission Provider within
beyond a Party’s control. A Force Majeure voluntary offer of such service by the 30 days of the effective date of any change
event does not include an act of negligence Independent Transmission Provider. (ii) Any to the original list. Any Customer shall
or intentional wrongdoing. Neither the retail Customer taking unbundled respond within 10 days to a request by the
Independent Transmission Provider nor the transmission service pursuant to a state Independent Transmission Provider to
Customer will be considered in default as to requirement that the Independent update the list of affiliates and/or parent
any obligation under this Tariff if prevented Transmission Provider offer the transmission company. The Independent Transmission
from fulfilling the obligation due to an event service, or pursuant to a voluntary offer of Provider shall treat the information provided
of Force Majeure. However, a Party whose such service by the Independent in the Application as Confidential
performance under this Tariff is hindered by Transmission Provider, is eligible to be a Information except to the extent that
an event of Force Majeure shall make all Customer under the Tariff. disclosure of the information is required by
reasonable efforts to perform its obligations 9.2 Requirements for Market Services: the Independent Transmission Provider’s
under this Tariff. The Independent Transmission Provider and Tariff, by regulatory or judicial order or for
7.2 Indemnification: The Customer shall each market participant shall execute a reliability purposes pursuant to Good Utility
at all times indemnify, defend, and save the Service Agreement for Market Services which Practice.
Independent Transmission Provider harmless sets forth the terms and conditions under 9.4.3 Approval of Application and/or
from, any and all damages, losses, claims, which a market participant shall either Notice of Deficient Application:
including claims and actions relating to supply or purchase market services, The Independent Transmission Provider
injury to or death of any person or damage consistent with the Form of Service will promptly review the Application and
to property, demands, suits, recoveries, costs Agreement for Market Services in Part VII. may request additional information to
and expenses, court costs, attorney fees, and 9.3 Participating Generator Agreements: determine whether the applicant meets the
all other obligations by or to third parties, The Independent Transmission Provider and Independent Transmission Provider’s
arising out of or resulting from the the owners of each Generator shall enter into minimum financial and technical
Independent Transmission Provider’s a Participating Generator Agreement which requirements. The Independent Transmission
performance of its obligations under this shall be filed with the Commission. Each Provider will notify the applicant within
Tariff on behalf of the Customer, except in Participating Generator Agreement shall set thirty (30) days of receipt of a Completed
cases of negligence or intentional forth the operating terms, conditions, and Application.
wrongdoing by the Independent obligations concerning the dispatch of a If the Independent Transmission Provider
Transmission Provider. generating unit. rejects an Application, the Independent
9.4 Requirements Common to All Transmission Provider shall provide a
8. Creditworthiness Customers: Completed Application and written explanation within fourteen (14) days
For the purpose of determining the ability Minimum Technical Requirements of the rejection. The Independent
of the Customer to meet its obligations A Customer shall submit a Completed Transmission Provider will attempt to
related to service hereunder, the Independent Application and shall receive Independent remedy minor deficiencies in the Application
Transmission Provider may require Transmission Provider approval prior to through informal communications with the
applicant. If such efforts are unsuccessful, 10.4 Costs: Each Party shall be Provider may use estimates to determine
the Independent Transmission Provider shall responsible for its own costs incurred during Customer’s rights and responsibilities under
return the Application. the arbitration process and for the following the Independent Transmission Provider’s
10. Dispute Resolution Procedures costs, if applicable: Tariff.
(A) the cost of the arbitrator chosen by the 12. Data and Confidentiality Provisions
10.1 Internal Dispute Resolution Party to sit on the three member panel and
Procedures: Any dispute between a Customer one half of the cost of the third arbitrator 12.1 Access to Complete and Accurate
and the Independent Transmission Provider chosen; or Data: Customers under the Tariff shall
involving transmission or Market Services (B) one half the cost of the single arbitrator provide to the Independent Transmission
under the Tariff (excluding applications for jointly chosen by the Parties. Provider such information and data as the
rate changes or other changes to the Tariff, 10.5 Rights Under the Federal Power Act: Independent Transmission Provider
or to any Service Agreement entered into Nothing in this section shall restrict the reasonably deems necessary in order to
under the Tariff, which shall be presented rights of any party to file a Complaint with perform its functions and fulfill its
directly to the Commission for resolution) the Commission under relevant provisions of responsibilities under the Tariff and in
shall be referred to a designated senior the Federal Power Act. accordance with the Independent
representative of the Independent Transmission Provider Market Monitoring
Transmission Provider and a senior 11. Metering Program. Such information will be provided
representative of the Customer for resolution 11.1 Customer Requirements: The on a timely basis and in the formats
on an informal basis as promptly as Independent Transmission Provider shall prescribed in the Independent Transmission
practicable. In the event the designated establish metering specifications and Provider Procedures.
representatives are unable to resolve the standards for all metering that is used as a 12.2 Independent Transmission Provider
dispute within thirty (30) days [or such other data source by the Independent Transmission Procedures: The Independent Transmission
period as the Parties may agree upon] by Provider. Customers shall install and Provider shall develop, and modify as
mutual agreement, such dispute may be maintain such metering at their own expense appropriate, procedures for the efficient and
submitted to arbitration and resolved in and deliver data to the Independent non-discriminatory operation of the
accordance with the arbitration procedures Transmission Provider without charge. A Independent Transmission Provider
set forth below. Customer taking service under the Administered Markets and for the safe and
10.2 External Arbitration Procedures: Independent Transmission Provider’s Tariff reliable operation of the Independent
Any arbitration initiated under the Tariff will make available to the Independent Transmission Provider’s Service Area in
shall be conducted before a single neutral Transmission Provider metered data that accordance with the terms and conditions of
arbitrator appointed by the Parties. If the meets Independent Transmission Provider the Tariff. All such procedures must be
Parties fail to agree upon a single arbitrator requirements by one of the following means: consistent with Good Utility Practice.
within ten (10) days of the referral of the (i) Direct transmission to the Independent Whenever requested by the Independent
dispute to arbitration, each Party shall choose Transmission Provider; (ii) direct Transmission Provider, each Load-Serving
one arbitrator who shall sit on a three- transmission to the Independent Entity shall provide the Independent
member arbitration panel. The two arbitrators Transmission Provider through Transmission Transmission Provider with a forecast of the
so chosen shall within twenty (20) days Owner communications equipment, or (iii) Loads for which it is responsible for the
select a third arbitrator to chair the indirectly through metering provided by the particular time period designated by the
arbitration panel. In either case, the Transmission Owner within whose area its Independent Transmission Provider.
arbitrators shall be knowledgeable in electric Load is located. The Customer also shall Customers shall inform the Independent
utility matters, including electric provide its metered data to the Transmission Transmission Provider of the Availability of
transmission and bulk power issues, and Owner within whose area its Load is located, Generators within the Independent
shall not have any current or past substantial to the extent that the Transmission Owner Transmission Provider Service Area subject
business or financial relationships with any determines that the metered data provided to to a Customer’s control by Energy contract,
party to the arbitration (except prior the Independent Transmission Provider is ownership or otherwise. Additionally, the
arbitration). The arbitrator(s) shall provide required for its system operation and Transmission Owners will provide megawatt,
each of the Parties an opportunity to be heard planning functions, for the billing of services megavar, voltage readings, Transmission
and, except as otherwise provided herein, it provides to the Customer, or to perform System data (facility ratings and impedance
shall generally conduct the arbitration in calculations required by the Independent data), and maintenance schedules for all
accordance with the Commercial Arbitration Transmission Provider. Transmission Facilities under the
Rules of the American Arbitration 11.2 Load-Serving Entities: Any Load that Independent Transmission Provider’s
Association and any applicable Commission is not directly metered, as described above, Operational Control. For Transmission
regulations or Regional Transmission Group will have its Load determined by the Facilities Requiring Independent
rules. Transmission Owner within whose area its Transmission Provider Notification, the
10.3 Arbitration Decisions: Unless Load is located in accordance with the Transmission Owners shall inform the
otherwise agreed, the arbitrator(s) shall Transmission Owner’s Retail Access plan on Independent Transmission Provider of all
render a decision within ninety (90) days of file with the (state commission) or otherwise changes in the status of the designated
appointment and shall notify the Parties in authorized. transmission facilities. Suppliers will
writing of such decision and the reasons 11.3 Ancillary Service Suppliers: provide data on Generator status and output
therefor. The arbitrator(s) shall be authorized Suppliers shall ensure that adequate including maintenance schedules, Generator
only to interpret and apply the provisions of metering data is made available to the scheduled return dates (inclusive of return to
the Tariff and any Service Agreement entered Independent Transmission Provider as service from maintenance, forced outages or
into under the Tariff and shall have no power described above. partial unit outages that resulted in a
to modify or change any of the above in any 11.4 Third Party Metering Services: significant reduction in a generating unit’s
manner. The decision of the arbitrator(s) Customers whose metering services are ability to produce Energy in any hour), and
shall be final and binding upon the Parties, provided by third parties qualified under Generator machine data. These data shall
and judgment on the award may be entered rules, regulations and procedures of also include Generator Incremental/
in any court having jurisdiction. The applicable state regulatory authorities shall Decremental Bids, operating limits, response
decision of the arbitrator(s) may be appealed be responsible to ensure that all data rates, megawatt, megavar, and voltage
solely on the grounds that the conduct of the described in this Section are satisfactorily readings.
arbitrator(s), or the decision itself, violated made available to the Independent 12.3 Access to Confidential Information:
the standards set forth in the Federal Transmission Provider and applicable The Independent Transmission Provider may
Arbitration Act and/or the Administrative Transmission Owner(s) by those third request, and the Customer shall provide,
Dispute Resolution Act. The final decision of parties. Confidential Information consistent with the
the arbitrator must also be filed with the 11.5 Estimation of Metering: In the event disclosure requirements set forth in the
Commission if it affects jurisdictional rates, of a meter malfunction or inadequate Independent Transmission Provider’s Tariff.
terms and conditions of service or facilities. metering data, the Independent Transmission The Independent Transmission Provider
shall prevent the disclosure of Confidential Interface to import power from a neighboring Service may be performed under an umbrella
Information and shall not publish, disclose or system, (3) integrate, economically dispatch Service Agreement pursuant to Part VII of the
otherwise divulge Confidential Information and regulate its current and planned Tariff. A request for Network Access Service
to any person or entity without the prior Resources to serve its Load; (4) transmit must contain a written Application to: [the
written consent of the party supplying such power within, through, and out of the Independent Transmission Provider Name
Confidential Information, except as provided Independent Transmission Provider’s system; and Address], submitted at least sixty (60)
for under the Independent Transmission and (5) aggregate Resources for resale and days in advance of the calendar month in
Provider Market Power Monitoring Plan. The hub-to-hub transfer. which service is to commence. The
provisions of this Section shall not apply to 1. Nature of Network Access Service Independent Transmission Provider will
any Confidential Information: (i) Which was consider requests for such service on shorter
in the public domain at the time of disclosure 1.1 Scope of Service: Network Access notice when feasible. Requests for Network
hereunder; (ii) which thereafter passes into Service allows all Customers to access all Access Service for periods of less than one
points (i.e., all Receipt Point and Delivery year shall be subject to expedited procedures
the public domain by acts other than the acts
Points) on the Independent Transmission that shall be negotiated between the Parties
of the Independent Transmission Provider;
Provider’s system so that every Customer can within the time constraints provided in
(iii) that the Independent Transmission
move power from any Generator to any Load, Section B.2.8.
Provider is required to make publicly
from any Generator to any Trading Hub, from 2.2 Application Procedures: A Customer
available by the Commission, the (state
one Trading Hub to another, or from a requesting Network Access Service must
commission) or other legal process, or for
Trading Hub to a Load. Using Network submit an Application, with a deposit
reliability purposes pursuant to Good Utility
Access Service, a Customer can integrate approximating the charge for one month of
Practice; or (iv) information required to be
Resources and Load, transfer power through service, to the Independent Transmission
provided to the Commission, which will be
or out of the Independent Transmission Provider as far as possible in advance of the
protected under the Commission’s rules for Provider’s system or deliver power between month in which service is to commence.
non-public material. A Customer may request specified Receipt and Delivery Points. The Applications should be submitted by
that the Independent Transmission Provider embedded costs of the Transmission System entering the information listed below on the
keep confidential from another entity will be recovered through an Access Charge. Independent Transmission Provider’s OASIS,
Confidential Information that the other entity Any Congestion costs and loss costs which will provide a time-stamped record for
does not require to perform its obligations associated with a transaction will be the Application.
and duties hereunder. The Customer must recovered through the applicable 2.2.1 Applications That Do Not Require
state in writing that the information is to be Transmission Usage Charge in which the the Integration of Resources and Load: A
treated as Confidential Information and the Customer causing the Congestion and losses Completed Application shall provide all of
reasons for treating it as Confidential bears the full cost of its Transaction. To the the information included in 18 CFR 2.20
Information, otherwise information will be extent the Customer is willing to pay the including, but not limited to, the following:
treated as non-Confidential Information. applicable Transmission Usage Charge for its (i) The identity, address, telephone number
12.4 Use of Confidential Information: The requested Receipt Point-to-Delivery Point and facsimile number of the party requesting
Independent Transmission Provider shall use combinations(s), service will be available and service;
Confidential Information for the exclusive will be provided to the extent physically and (ii) A statement that the party requesting
purpose of performing its obligations operationally feasible. The Customer must service meets, or will be upon
hereunder and under any Service Agreement. obtain or self-supply Ancillary Services commencement of service, will meet the
12.5 Disclosure of Bid Information: pursuant to Part II.C of the Tariff. eligibility requirement under Part I of this
Pursuant to Commission requirements, the 1.2 Independent Transmission Provider Tariff;
Independent Transmission Provider shall Responsibilities: The Independent (iii) The location of the specific Receipt
make public Bid information from the Transmission Provider shall plan, construct, Points and Delivery Points and the identities
Energy, Ancillary Services, and Transmission operate and maintain its Transmission of the Delivering Parties and the Receiving
markets (but not the names of the Bidders System in accordance with Good Utility Parties;
making these Bids) three months after the Practice in order to provide all Customers (iv) The location of the generating
Bids are submitted. The Independent with Network Access Service over the facility(ies) supplying the capacity and
Transmission Provider shall post the data in Independent Transmission Provider’s Energy and the location of the Load
a way that permits third parties to track each Transmission System. The Independent ultimately served by the capacity and Energy
individual Bidder’s Bids over time. Prior to Transmission Provider shall endeavor to transmitted. The Independent Transmission
such disclosure, Bid information submitted have constructed and placed into service Provider shall treat this information as
to the Independent Transmission Provider by sufficient transmission capability to deliver confidential except to the extent that
Market Participants shall be considered all Network Access Service Customers’ disclosure of this information is required by
Confidential Information. Resources to serve Load. The Independent this Tariff, by regulatory or judicial order, for
12.6 Survival: This section 12 will Transmission Provider will offer a reliability purposes pursuant to Good Utility
survive the termination of the Independent mechanism for participants to identify long- Practice or pursuant to transmission
Transmission Provider’s Tariff and any term planning and expansion needs and to information sharing agreements. The
associated Service Agreement. propose solutions (transmission, generation, Independent Transmission Provider shall
or demand-side). treat this information consistent with the
Part II. Transmission Services standards of conduct contained in Part 37 of
1.3 Service at Points without Concurrent
B. Network Access Service Congestion Revenue Rights: Once a Customer the Commission’s regulations;
agrees to pay the applicable Access Charge, (v) A description of the supply
Preamble
it may use the Independent Transmission characteristics of the capacity and Energy to
The Independent Transmission Provider Provider’s Transmission System to deliver be delivered; an estimate of the capacity and
will provide Network Access Service Energy to its Network Loads from Resources Energy expected to be delivered to the
pursuant to the applicable terms and when the Customer does not have Congestion Receiving Party; and the transmission
conditions contained in the Tariff and Revenue Rights between the requested transfer capability requested for each Receipt
Service Agreement. Network Access Service Receipt and Delivery Points. Such Energy Point and Delivery Point on the Independent
allows all Customers to access all points (i.e., shall be transmitted subject to the Customer Transmission Provider’s Transmission
all Receipt Points and all Delivery Points on paying the applicable Transmission Usage System; Customers may combine their
the Independent Transmission Provider’s Charge. A Customer may revise or add requests for service in order to satisfy the
system) so that every Generator can reach Receipt Points or Delivery Points without an minimum transmission capability
every Load, subject to physical feasibility. additional Access Charge. requirement; and
Specifically, Network Access Service offers a (vi) Service Commencement Date and the
flexible use of the transmission grid by 2. Initiating Service term of the requested Network Access
allowing Customers to: (1) Serve Load with 2.1 Condition Precedent for Receiving Service: The minimum term for Network
any Resource on the system, (2) access any Service: A request for Network Access Access Service is one hour.
2.2.2 Applications That Require the type, including normal and Emergency capacity and Energy from the Independent
Integration of Resources and Load: A ratings of all transmission equipment in Transmission Provider’s Transmission
Completed Application shall provide all of a Load flow format compatible with that System to the Customer. The Customer shall
the information included in 18 CFR 2.20 used by the Independent Transmission be solely responsible for constructing or
including, but not limited to, the following: Provider installing all facilities on the Customer’s side
(i) The identity, address, telephone number —Operating restrictions needed for reliability of each such Delivery Point or
and facsimile number of the party requesting —Operating guides employed by system interconnection.
service; operators 2.5 Filing of Service Agreement: The
(ii) A statement that the party requesting —Contractual restrictions or committed uses Independent Transmission Provider must file
service meets, or upon commencement of of the Customer’s Transmission System, Service Agreements or related agreements
service will meet, the eligibility requirement other than the Customer’s Network with the Commission to the extent required
under Part I of this Tariff; Loads and Resources by applicable Commission regulations.
(iii) A description of the Load at each —Location of Network Resources described 2.6 Notice of Deficient Application: If an
Delivery Point. This description must in subsection (v) above Application fails to meet the requirements of
separately identify and provide the —Ten (10) year projection of system the Tariff, the Independent Transmission
Customer’s best estimate of the total Loads to expansions or upgrades Provider shall notify the entity requesting
be served at each transmission voltage level, —Transmission System maps that include service within fifteen (15) days of receipt of
and the Loads to be served from each any proposed expansions or upgrades; the reasons for such failure. The Independent
Independent Transmission Provider and Transmission Provider shall attempt to
substation at the same transmission voltage (vii) Service Commencement Date and the remedy minor deficiencies in the Application
level. The description must include a ten (10) term of the requested Network Access through informal communications with the
year forecast of service for summer and Service: The minimum term for Network Customer. If such efforts are unsuccessful,
winter Load and Resource requirements Access Service is one hour. the Independent Transmission Provider shall
beginning with the first year after the service The Independent Transmission Provider return the Application, along with any
is scheduled to commence and extending for shall acknowledge the Completed deposit, with interest. Upon receipt of a new
the duration of the service request; Application within ten (10) days of receipt. or revised Application that fully complies
(iv) The amount and location of any The acknowledgment must include a date by with the requirements of the Tariff, the
demand responsive Loads included in the which a response, including a Service Customer shall be assigned a new priority
Network Load. This shall include the Agreement, will be sent to the Customer. If consistent with the date of the new or revised
summer and winter capacity requirements for an Application fails to meet the requirements Application.
each demand responsive Load, that portion of this section, the Independent 2.7 Response to a Completed Application:
of the Load subject to demand response, the Transmission Provider shall notify the Following receipt of a Completed
conditions under which a response can be Customer filing the Application requesting Application for Network Access Service, the
implemented and any limitations on the service or Congestion Revenue Rights within Independent Transmission Provider shall
amount and frequency of demand response. fifteen (15) days of receipt and specify the make a determination of physical feasibility
Customer should identify the amount of reasons for such failure. Wherever possible, as required in Section B.5.2. The
demand responsive Load (if any) included in the Independent Transmission Provider shall Independent Transmission Provider shall
the ten (10) year Load forecast provided in attempt to remedy deficiencies in the notify the Customer as soon as practicable,
response to (iii) above. Application through informal but not later than thirty (30) days after the
(v) A description of Network Resources communications with the Customer. If such date of receipt of a Completed Application,
(current and term of request projection), efforts are unsuccessful, the Independent either (i) if it will be able to offer Network
which shall include, for each Network Transmission Provider shall return the Access Service without performing a System
Resource: Application without prejudice to the Impact Study or (ii) if such a study is needed
—Unit size and amount of capacity from that Customer filing a new or revised Application to evaluate the impact of the Application
unit to be designated as Network that fully complies with the requirements of pursuant to Section B.5.3. Responses by the
Resource this section. The Customer will be assigned Independent Transmission Provider must be
—VAR capability (both leading and lagging) a new priority consistent with the date of the made as soon as practicable to all Completed
of all Generators new or revised Application. The Independent Applications and the timing of such
—Operating restrictions Transmission Provider shall treat this responses must be made on a non-
—Any periods of restricted operations information consistent with the standards of discriminatory basis.
throughout the year conduct contained in Part 37 of the 2.8 Execution of Service Agreement:
—Maintenance schedules Commission’s regulations. Whenever the Independent Transmission
—Minimum loading level of unit 2.3 Technical Arrangements to be Provider determines that a System Impact
—Normal operating level of unit Completed Prior to Commencement of Study is not required and that the service can
—Any must-run unit designations required Service: Network Access Service shall not be provided, it shall notify the Customer as
for system reliability or contract reasons commence until the Independent soon as practicable but no later than thirty
—Approximate variable generating cost ($/ Transmission Provider and the Customer, or (30) days after receipt of the Completed
MWh) for redispatch computations a third party, have completed installation of Application. Where a System Impact Study is
—Arrangements governing sale and delivery all equipment specified under the Network required, the provisions of Section B.2.5 will
of power to third parties from generating Operating Agreement consistent with Good govern the execution of a Service Agreement.
facilities located in the Independent Utility Practice and any additional Failure of a Customer to execute and return
Transmission Provider’s Service Area, requirements reasonably and consistently the Service Agreement or request the filing of
where only a portion of unit output is imposed to ensure the reliable operation of an unexecuted Service Agreement pursuant
designated as a Network Resource the Transmission System. The Independent to Section B.2.9 within fifteen (15) days after
—Description of purchased power designated Transmission Provider shall exercise it is tendered by the Independent
as a Network Resource including source reasonable efforts, in coordination with the Transmission Provider will be deemed a
of supply, Control Area location, Customer, to complete such arrangements as withdrawal and termination of the
transmission arrangements and Delivery soon as practicable taking into consideration Application and any deposit submitted shall
Point(s) to the Independent the Service Commencement Date. be refunded with interest. Nothing herein
Transmission Provider’s Transmission 2.4 Customer Facilities: To the extent limits the right of a Customer to file another
System; Customer owns transmission facilities, the Application after such withdrawal and
(vi) A description of Customer’s provision of Network Access Service shall be termination.
Transmission System, if applicable: conditioned upon the Customer’s 2.9 Initiating Service in the Absence of an
—Load flow and stability data, such as real constructing, maintaining and operating the Executed Service Agreement: If the
and reactive parts of the Load, lines, facilities on its side of each Delivery Point or Independent Transmission Provider and the
transformers, reactive devices and Load interconnection necessary to reliably deliver Customer requesting Network Access Service
cannot agree on all the terms and conditions Markets. Alternate Resources enable the specified in the Service Agreement and shall
of the Service Agreement, the Independent Customer to substitute one Resource for include actual deliveries at Interfaces.
Transmission Provider shall file with the another, generally on a short-term basis. An 4.2 New Network Loads Connected with
Commission, within thirty (30) days after the alternate Resource does not have to be the Independent Transmission Provider: The
date the Customer provides written committed to the Customer on a firm basis Customer shall provide the Independent
notification directing the Independent as does a Network Resource. Transmission Provider with as much advance
Transmission Provider to file, an unexecuted 3.4 Substitution of Resources and notice as reasonably practicable of the
Network Access Service Agreement Congestion Revenue Rights: The Customer designation of new Network Load that will be
containing terms and conditions deemed may replace one designated Resource with added to its Transmission System. A
appropriate by the Independent another. The Customer may request a designation of new Network Load must be
Transmission Provider for such requested reconfiguration of the Congestion Revenue made through a modification of service
Transmission Service. The Independent Rights it holds for the current Resource and pursuant to a new Application. The
Transmission Provider shall commence request Congestion Revenue Rights for the Independent Transmission Provider will use
providing Transmission Service subject to new Resource pursuant to B.6 of the Tariff. due diligence to install any transmission
the Customer agreeing to (i) compensate the 3.5 Termination of Network Resources: facilities required to interconnect a new
Independent Transmission Provider at The Customer may terminate the designation Network Load designated by the Customer.
whatever rate the Commission ultimately of all or part of a generating Resource as a The costs of new facilities required to
determines to be just and reasonable, and (ii) Network Resource at any time, but must interconnect a new Network Load shall be
comply with the terms and conditions of this provide notification to the Independent determined in accordance with the
Tariff including posting appropriate security Transmission Provider as soon as reasonably procedures provided in Section B.5.12 and
deposits in accordance with the terms of practicable. shall be charged to the Customer in
Section B.2.2. 3.6 Customer Dispatch Obligation: As a accordance with Part VIII of this Tariff.
2.10 Scheduling of Network Access condition to receiving Network Access 4.3 New Interconnection Points: To the
Service: Under Network Access Service, a Service, the Customer agrees to dispatch its extent the Customer desires to add a new
Customer can schedule transmission service Network Resources as requested by the Delivery Point or interconnection point
or procure Energy through the Day-Ahead between the Independent Transmission
Independent Transmission Provider,
and Real-Time Markets. The scheduling Provider’s Transmission System and a
consistent with Part II of this Tariff. To the
procedures for both options are contained in Network Load, the Customer shall provide
extent practicable, the redispatch of
Part III of this Tariff. the Independent Transmission Provider with
Resources pursuant to this section shall be on
3. Network Resources as much advance notice as reasonably
a least cost, non-discriminatory basis
practicable.
To the extent a Customer desires the between all Customers.
4.4 Changes in Service Requests: Under
Independent Transmission Provider to 3.7 Transmission Arrangements for
no circumstances shall the Customer’s
integrate, economically dispatch, and Network Resources Not Physically
decision to cancel or delay a requested
regulate the Customer’s Resources to serve Interconnected with the Independent
change in Network Access Service (e.g., the
the Customer’s Load, the Customer must Transmission Provider: The Customer shall
addition of a new Network Resource or
designate Resources as described below. All be responsible for any arrangements designation of a new Network Load) in any
other Customers will identify Receipt Points necessary to deliver capacity and Energy way relieve the Customer of its obligation to
and Delivery Points through the Day-Ahead from a Network Resource not physically pay the costs of transmission facilities
and Real-Time Markets pursuant to Part III of interconnected with the Independent constructed by the Independent
this Tariff. Transmission Provider’s Transmission Transmission Provider and charged to the
3.1 Designation of Network Resources: System. The Independent Transmission Customer as reflected in the Service
All Customers desiring the Independent Provider will undertake reasonable efforts to Agreement. However, the Independent
Transmission Provider to integrate, assist the Customer in obtaining such Transmission Provider must treat any
economically dispatch, and regulate its arrangements, including without limitation, requested change in Network Access Service
Resources to serve its load must designate providing any information or data required in a non-discriminatory manner.
sufficient Network Resources to meets its by such other entity pursuant to Good Utility 4.5 Annual Load and Resource
Load on a non-interruptible basis. Network Practice. Information Updates: The Customer shall
Resources shall include all generation 3.8 Limitation on Designation of Network provide the Independent Transmission
owned, purchased or leased by the Customer Resources: The Customer must demonstrate Provider with annual updates of Network
designated to serve Network Load under the that it owns or has committed to purchase Load and Network Resource forecasts
Tariff. Network Resources may not include generation pursuant to an executed contract consistent with those included in its
Resources, or any portion thereof, that are in order to designate a generating Resource Application for Network Access Service
committed for sale to non-designated third- as a Network Resource. Alternatively, the under the Tariff. The Customer also shall
party Load or otherwise cannot be called Customer may establish that execution of a provide the Independent Transmission
upon to meet the Customer’s Network Load contract is contingent upon the availability of Provider with timely written notice of
on a non-interruptible basis. Any owned or transmission service under the Tariff. material changes in any other information
purchased Resources that were serving the 3.9 Customer Owned Transmission provided in its Application relating to the
Customer’s Loads under firm agreements Facilities: The Customer that owns existing Customer’s Network Load, Network
entered into on or before the Service facilities that are determined by the Order Resources, Transmission System or other
Commencement Date shall initially be No. 888 seven factor test to be Transmission aspects of its facilities or operations affecting
designated as Network Resources until the Facilities may be eligible to receive the Independent Transmission Provider’s
Customer terminates the designation of such consideration either through a billing credit ability to provide reliable service.
Resources. or some other mechanism.
3.2 Designation of New Network 5. Service Availability
4. Designation of Network Load
Resources: The Customer may designate a 5.1 General Conditions: The Independent
new Resource by providing the Independent To the extent a Customer desires the Transmission Provider shall provide Network
Transmission Provider with as much advance Independent Transmission Provider to Access Service over, on or across its
notice as practicable. A designation of a new integrate, economically dispatch, and Transmission System to any Customer that
Network Resource must be made by a request regulate the Customer’s Resources to serve has met the requirements of Section A.9.
for modification of service pursuant to an the Customer’s Load, the Customer must 5.2 Determination of Available Transfer
Application under Section B.2. designate Loads as described below. Capability: A description of the Independent
3.3 Designation of Alternate Resources: 4.1 Network Load: The Customer must Transmission Provider’s specific
The Customer has the right to obtain designate the individual Network Loads on methodology for assessing Available Transfer
alternate Resources, whether through a whose behalf the Independent Transmission Capability posted on the Independent
bilateral contract or through the Independent Provider will provide Network Access Transmission Provider’s OASIS is contained
Transmission Provider-Administered Service. The Network Loads shall be in Attachment A of the Tariff. In the event
sufficient transmission capability may not required studies. A copy of the completed Completed Application and shall be deemed
exist to accommodate a Congestion Revenue System Impact Study and related work terminated and withdrawn.
Rights request, the Independent papers shall be made available to the 5.7 Facilities Study Modifications: Any
Transmission Provider shall respond by Customer. The Independent Transmission change in design arising from an inability to
performing a System Impact Study. Provider shall notify the Customer site or construct facilities as proposed will
5.3 Notice of Need for System Impact immediately upon completion of the System require development of a revised good faith
Study: After receiving a request for Impact Study if the Transmission System estimate. New good faith estimates also will
Congestion Revenue Rights or for the will be adequate to accommodate all or part be required in the event of new statutory or
reconfiguration of Congestion Revenue of a request for service, all or part of a request regulatory requirements that are effective
Rights, the Independent Transmission for Congestion Revenue Rights before the completion of construction or
Provider shall conduct, to the extent reconfiguration, or if no costs are likely to be other circumstances beyond the control of
necessary, a System Impact Study. A incurred for new transmission facilities or the Independent Transmission Provider that
description of the Independent Transmission upgrades. In order for a request to remain a significantly affect the final cost of new
Provider’s methodology for completing a Completed Application, within fifteen (15) facilities or upgrades to be charged to the
System Impact Study is provided in days of completion of the System Impact Customer pursuant to the provisions of Part
Attachment B. The Independent Study the Customer must execute a Service II of the Tariff.
Transmission Provider shall within thirty Agreement or request the filing of an 5.8 Due Diligence in Completing New
(30) days of receipt of a Completed unexecuted Service Agreement, or the Facilities: The Independent Transmission
Application, tender a System Impact Study Application shall be deemed terminated and Provider shall use due diligence to add
Agreement pursuant to which the Customer withdrawn. necessary facilities or upgrade its
shall agree to reimburse the Independent 5.6 Facilities Study Procedures: If a Transmission System within a reasonable
Transmission Provider for performing the System Impact Study indicates that additions time. The Independent Transmission
required System Impact Study. For a service or upgrades to the Transmission System are Provider will not upgrade its existing or
request to remain a Completed Application, needed to supply the Customer’s service planned Transmission System in order to
the Customer shall execute the System request, Congestion Revenue Rights Request, provide the requested Transmission Service
Impact Study Agreement and return it to the or Congestion Revenue Rights or Congestion Revenue Rights if doing so
Independent Transmission Provider within Reconfiguration request, the Independent would impair system reliability or otherwise
fifteen (15) days. If the Customer elects not Transmission Provider, within thirty (30) impair or degrade existing service or
to execute the System Impact Study days of the completion of the System Impact Congestion Revenue Rights.
Agreement, its Application shall be deemed Study, shall tender to the Customer a 5.9 Obligation to Provide Transmission
withdrawn and its deposit shall be returned Facilities Study Agreement pursuant to Service that Requires Expansion or
with interest. which the Customer shall agree to reimburse Modification of the Transmission System: If
5.4 System Impact Study Agreement and the Independent Transmission Provider for the Independent Transmission Provider
Cost Reimbursement performing the required Facilities Study. For determines that it cannot accommodate a
a service request to remain a Completed request for service or Congestion Revenue
(i) The System Impact Study Agreement
must clearly specify the Independent Application, the Customer shall execute the Rights because of insufficient transmission
Transmission Provider’s estimate of the Facilities Study Agreement and return it to capability on its Transmission System, the
actual cost and time for completion of the the Independent Transmission Provider Independent Transmission Provider must use
System Impact Study. The charge shall not within fifteen (15) days. If the Customer due diligence to expand or modify its
exceed the actual cost of the study. In elects not to execute the Facilities Study Transmission System to provide the
performing the System Impact Study, the Agreement, its Application shall be deemed requested transmission service, provided the
Independent Transmission Provider shall withdrawn and its deposit shall be returned Customer agrees to compensate the
rely, to the extent reasonably practicable, on with interest. Upon receipt of an executed Independent Transmission Provider for such
existing transmission planning studies. The Facilities Study Agreement, the Independent costs pursuant to the terms of Section B.5.12.
Customer will not be assessed a charge for Transmission Provider will use due diligence The Independent Transmission Provider will
such existing studies; however, the Customer to complete the required Facilities Study conform to Good Utility Practice in
will be responsible for charges associated within sixty (60) days. If the Independent determining the need for new facilities and
with any modifications to existing planning Transmission Provider is unable to complete in the design and construction of such
studies that are reasonably necessary to the Facilities Study in the allotted time facilities. The obligation applies only to those
evaluate the impact of the Customer’s request period, the Independent Transmission facilities that the Independent Transmission
for service on the Transmission System. Provider shall notify the Customer and Provider along with the Transmission Owner
(ii) If in response to multiple Customers provide an estimate of the time needed to has the right to expand or modify.
requesting service in relation to the same reach a final determination along with an 5.10 Partial Interim Service: If the
competitive solicitation, a single System explanation of the reasons that additional Independent Transmission Provider
Impact Study is sufficient for the time is required to complete the study. When determines that it will not have adequate
Independent Transmission Provider to completed, the Facilities Study shall include transmission capability to satisfy the full
accommodate the service requests, the costs a good faith estimate of (i) the cost of Direct amount of a Completed Application for
of that study shall be prorated among the Assignment Facilities to be charged to the service, the Independent Transmission
Customers. Customer, (ii) the Customer’s appropriate Provider nonetheless shall be obligated to
5.5 System Impact Study Procedures: share of the cost of any required Network offer and provide the portion of the requested
Upon receipt of an executed System Impact Upgrades, and (iii) the time required to Network Access Service that can be
Study, the Independent Transmission complete such construction and initiate the accommodated without addition of any
Provider shall use due diligence to complete requested service. The Customer shall facilities and through redispatch. Partial
the required System Impact Study within provide the Independent Transmission service could be of an amount (MW) or
sixty (60) days. The System Impact Study Provider with a letter of credit or other duration. However, the Independent
shall identify any system constraints and reasonable form of security acceptable to the Transmission Provider shall not be obligated
dispatch options, additional Direct Independent Transmission Provider to provide the incremental amount of
Assignment Facilities or Network Upgrades equivalent to the costs of new facilities or requested Transmission Service (or
required to provide the requested service. In upgrades consistent with commercial Congestion Revenue Rights) that requires the
the event that the Independent Transmission practices as established by the Uniform addition of facilities or upgrades to the
Provider is unable to complete the required Commercial Code. The Customer shall have Transmission System until such facilities or
System Impact Study within such time thirty (30) days to execute a Service upgrades have been placed in service. To the
period, it shall so notify the Customer and Agreement or request the filing of an extent the Customer disagrees with the
provide an estimated completion date along unexecuted Service Agreement and provide Independent Transmission Provider’s
with an explanation of the reasons why the required letter of credit or other form of determination of insufficient Available
additional time is required to complete the security or the request no longer will be a Transfer Capability (or redispatch capability),
the Customer may request and the Completed Application subject to Provider identifying such systems and
Independent Transmission Provider shall construction of the alternative facilities, it authorizing them to schedule the capacity
provide its workpapers and analysis. may request the Independent Transmission and Energy to be transmitted by the
5.11 Expedited Procedures for New Provider to submit a revised Service Independent Transmission Provider pursuant
Facilities: In lieu of the procedures set forth Agreement for Network Access Service and a to Part II of the Tariff on behalf of the
above, the Customer shall have the option to request for associated Congestion Revenue Receiving Party at the Point of Delivery or the
expedite the process by requesting the Rights. If the alternative approach solely Delivering Party at the Point of Receipt.
Independent Transmission Provider to tender involves Network Access Service and the However, the Independent Transmission
at one time, together with the results of Customer is willing to pay any applicable Provider will undertake reasonable efforts to
required studies, an ‘‘Expedited Service Congestion Charges, the Independent assist the Customer in making such
Agreement’’ pursuant to which the Customer Transmission Provider shall promptly tender arrangements, including without limitation,
would agree to compensate the Independent a Service Agreement for Network Access providing any information or data required
Transmission Provider for all costs incurred Service providing for the service. In the event by such other electric system pursuant to
pursuant to the terms of the Tariff. In order the Independent Transmission Provider Good Utility Practice.
to exercise this option, the Customer shall concludes that no reasonable alternative 9. Load Shedding and Curtailments
request in writing an expedited Service exists and the Customer disagrees, the
Agreement covering all of the above-specified Customer may seek relief under the dispute 9.1 Procedures: Prior to the Service
items within thirty (30) days of receiving the resolution procedures pursuant to Section Commencement Date, the Independent
results of the System Impact Study A.10 or it may refer the dispute to the Transmission Provider and the Customer
identifying needed facility additions or Commission for resolution. shall establish Load Shedding and
upgrades or costs incurred in providing the 6.3 Refund Obligation for Unfinished Curtailment procedures in accordance with
requested service. While the Independent Facility Additions: If the Independent this Tariff with the objective of responding to
Transmission Provider agrees to provide the Transmission Provider and the Customer contingencies on the Transmission System.
Customer with its best estimate of the new mutually agree that no other reasonable The Parties shall implement such programs
facility costs and other charges that may be alternatives exist and the requested service during any period when the Independent
incurred, such estimate shall not be binding cannot be provided out of existing capability Transmission Provider determines that a
and the Customer must agree in writing to under the conditions of Part II of the Tariff, system contingency exists and such
compensate the Independent Transmission the obligation to provide the requested procedures are necessary to alleviate such
Provider for all costs incurred pursuant to the Transmission Service shall terminate and any contingency. [The Independent Transmission
provisions of the Tariff. The Customer shall deposit made by the Customer shall be Provider shall notify all affected Customers
execute and return such an Expedited returned with interest pursuant to and other market participants (e.g., suppliers)
Service Agreement within fifteen (15) days of Commission regulations 35.19a(a)(2)(iii). in a timely manner of any scheduled
its receipt or the Customer’s request for However, the Customer shall be responsible Curtailment.]
service will cease to be a Completed for all prudently incurred costs by the 9.2 Transmission Constraints: During any
Application and will be deemed terminated Independent Transmission Provider through period when the Independent Transmission
and withdrawn. the time construction was suspended. Provider determines that a transmission
5.12 Compensation for New Facilities: constraint exists on the Transmission System
7. Provisions Relating to Transmission that cannot be handled through the LMP
Whenever a System Impact Study performed Construction and Services on the Systems of
by the Independent Transmission Provider in Congestion Management System, and such
Other Utilities constraint may impair the reliability of the
connection with the provision of Network
Access Service identifies the need for new Part VI of this Tariff details Transmission Independent Transmission Provider’s system,
facilities, the Customer shall be responsible Planning and Expansion. the Independent Transmission Provider shall
for such costs to the extent consistent with 8. Network Access Service Customer take whatever actions, consistent with Good
Commission policy. Responsibilities Utility Practice, that are reasonably necessary
to maintain the reliability of the Independent
6. Procedures if The Independent 8.1 Conditions Required of Customers: Transmission Provider’s system. To the
Transmission Provider is Unable to Complete Network Access Service shall be provided by extent the Independent Transmission
New Transmission Facilities for the Independent Transmission Provider only Provider determines that the reliability of the
Transmission Service if the following conditions are satisfied by Transmission System can be maintained by
6.1 Delays in Construction of New the Customer: redispatching resources, the Independent
Facilities: If any event occurs that will (i) The Customer has pending a Completed Transmission Provider shall initiate
materially affect the time for completion of Application for service; procedures to redispatch resources on the
new facilities, or the ability to complete (ii) The Customer has met the Independent Transmission Provider’s
them, the Independent Transmission creditworthiness and eligibility criteria set Transmission System on a least-cost basis
Provider shall promptly notify the Customer. forth in Sections A.8 and A.9; without regard to the ownership of such
In such circumstances, the Independent (iii) The Customer will have arrangements resources.
Transmission Provider shall within thirty in place for any other transmission service 9.3 Curtailments of Scheduled Deliveries:
(30) days of notifying the Customer of such necessary to effect the delivery from the If a transmission constraint on the
delays, convene a technical meeting with the generating source to the Independent Independent Transmission Provider’s
Customer to evaluate the alternatives Transmission Provider prior to the time Transmission System cannot be relieved
available to the Customer. The Independent service under Part II of the Tariff commences; through the implementation of least-cost
Transmission Provider also shall make (iv) The Customer has agreed to pay for any redispatch procedures and the Independent
available to the Customer studies and work facilities constructed and chargeable to such Transmission Provider determines that it is
papers related to the delay, including all Customer under Part II of the Tariff, whether necessary to Curtail scheduled deliveries, the
information that is in the possession of the or not the Customer takes service for the full Independent Transmission Provider shall, on
Independent Transmission Provider that is term of its reservation; and a non-discriminatory basis, Curtail the
reasonably needed by the Customer to (v) The Customer has executed a Network transaction(s) that effectively relieve the
evaluate any alternatives. Access Service Agreement or has agreed to constraint. To the extent operationally
6.2 Alternatives to the Original Facility receive service pursuant to Section B.2.9. feasible, the Independent Transmission
Additions: When the review process of 8.2 Customer Responsibility for Third- Provider shall curtail transactions in the
Section B.5.5 determines that one or more Party Arrangements: Any scheduling following order. Parties who do not have
alternatives exist to the originally planned arrangements that may be required by other Congestion Revenue Rights in adequate
construction project, the Independent electric systems shall be the responsibility of amounts for their Receipt Point-Delivery
Transmission Provider shall present such the Customer requesting service. The Point combinations, shall be curtailed first.
alternatives for consideration by the Customer shall provide, unless waived by the All other transactions that have a material
Customer. If, upon review of any alternatives, Independent Transmission Provider, impact on the transmission constraint will be
the Customer desires to maintain its notification to the Independent Transmission curtailed on a pro rata basis. [The
Independent Transmission Provider must 10.1 Monthly Access Charge: The Operating Agreement is included under Part
develop procedures addressing non- Customer that is a Load-Serving Entity shall VII.
discriminatory Curtailment of parallel flows pay a monthly Access Charge, which shall be 11.3 Network Operating Committee: A
involving more than one transmission determined by multiplying its Load Ratio Network Operating Committee (Committee)
system.] Share times one twelfth (1/12) of the shall be established to coordinate operating
9.4 Load Shedding: To the extent that a Independent Transmission Provider’s Annual criteria for the Parties’ respective
system Contingency exists on the Transmission Revenue Requirement responsibilities under the Network Operating
Independent Transmission Provider’s specified in Part VIII. The Access Charge Agreement. Each Customer shall be entitled
Transmission System and the Independent applies only to deliveries to load on the to have at least one representative on the
Transmission Provider determines that it is Independent Transmission Provider’s Committee. The Committee shall meet from
necessary for the Independent Transmission System. The Access Charge does not apply to time to time as need requires, but no less
Provider and the Customer to shed Load, the any deliveries to hubs, wheel throughs, or than once each calendar year.
Customers shall be directed by the Exports to neighboring transmission systems. 12. Reservation Priority for Existing Firm
Independent Transmission Provider to shed 10.2 Determination of Customer’s Service Customers
Load on a non-discriminatory basis to Monthly Network Load: The Customer’s 12.1 Right of First Refusal: Prior to the
alleviate the Emergency/reliability monthly Load is its hourly Load coincident effectiveness of a full auction mechanism for
contingencies. with the Independent Transmission all Congestion Revenue Rights, Congestion
(i) The Independent Transmission Provider Provider’s Monthly Transmission System Revenue Rights will be allocated to
will act first, whenever feasible, to direct Peak. Customers with long-term firm contracts
Customers who have not met their assigned 10.3 Transmission Usage Charges: The under which the Customer continues to pay
share of Resource Adequacy Requirements, Customer shall pay a Transmission Usage the Access Charge. To ensure that these
pursuant to Section I of this Tariff, to shed Charge for the quantity in MWh scheduled Customers are able to maintain that right
load, before requiring other Customers to for Transmission Service. The Transmission until the time that Congestion Revenue
shed load, up to the amount of the lesser of: Usage Charge will recover applicable Rights are auctioned, existing firm service
(1) The Resource deficiency; or (2) the Congestion Charges and losses, consistent Customers (wholesale requirements and
Customers’ Day-Ahead Energy market with Sections F.3.3 and G.4.3, as applicable. transmission-only, with a contract term of
schedules. Failure to comply with the 11. Operating Arrangements one-year or more), have the right to continue
Independent Transmission Provider’s to take Network Access Service and agreeing
direction to shed load shall subject 11.1 Operation Under the Network
Operating Agreement: The Customer shall to pay the Access Charge when the existing
Customers to the penalty provisions of contract expires, rolls over or is renewed. If
Section I.6.3. plan, construct, operate and maintain its
facilities in accordance with Good Utility at the end of the contract term, the
9.5 System Reliability: Notwithstanding Independent Transmission Provider’s
any other provisions of this Tariff, the Practice and in conformance with the
Transmission System cannot accommodate
Independent Transmission Provider reserves Network Operating Agreement.
all of the requests for Congestion Revenue
the right, consistent with Good Utility 11.2 Network Operating Agreement: The
Rights, the existing firm service Customer
Practice and on a not unduly discriminatory terms and conditions under which the
must agree to accept a contract term at least
basis, to Curtail Network Access Service Customer shall operate its facilities and the
equal to a competing request by any new
without liability on the Independent technical and operational matters associated
Customer and to pay the Access Charge, as
Transmission Provider’s part for the purpose with the implementation of Part II of the
approved by the Commission, for such
of making necessary adjustments to, changes Tariff shall be specified in the Network
service. This priority for existing firm service
in, or repairs on its lines, substations and Operating Agreement. The Network
Customers is an ongoing right that may be
facilities, and in cases where the continuance Operating Agreement shall provide for the exercised at the end of all firm contract terms
of Network Access Service would endanger Parties to (i) operate and maintain equipment of one-year or longer. This section will
persons or property. In the event of any necessary for integrating the Customer within remain in effect until the Independent
adverse condition(s) or disturbance(s) on the the Independent Transmission Provider’s Transmission Provider places into effect an
Independent Transmission Provider’s Transmission System (including, but not auction mechanism for allocating all
Transmission System or on any other limited to, remote terminal units, metering, Congestion Revenue Rights.
system(s) directly or indirectly communications equipment and relaying 12.2 Notice of Rollover: Consistent with
interconnected with the Independent equipment), (ii) transfer data between the requests for new service described in Section
Transmission Provider’s Transmission Independent Transmission Provider and the B.2.1 of the Tariff, a Customer must submit
System, the Independent Transmission Customer (including, but not limited to, heat its request to exercise rollover rights no later
Provider, consistent with Good Utility rates and operational characteristics of than sixty (60) days prior to the date the
Practice, also may Curtail Network Access Resources, generation schedules for units current service agreement expires.
Service in order to (i) limit the extent or outside the Independent Transmission
Provider’s Transmission System, interchange C. Ancillary Services
damage of the adverse condition(s) or
disturbance(s), (ii) prevent damage to schedules, unit outputs for dispatch, voltage Ancillary Services are needed with
generating or transmission facilities, or (iii) schedules, loss factors and other real time transmission service to maintain reliability
expedite restoration of service. The data), (iii) use software programs required for within and among the Service Areas affected
Independent Transmission Provider will give data links and constraint dispatching, (iv) by the transmission service. The Independent
the Customer as much advance notice as is exchange data on forecasted Loads and Transmission Provider is required to provide,
practicable in the event of such Curtailment. Resources necessary for long-term planning, and the Customer is required to purchase, the
[The Independent Transmission Provider and (v) address any other technical and following Ancillary Services (i) Scheduling,
shall specify the rate treatment and all operational considerations required for System Control and Dispatch Service, (ii)
related terms and conditions applicable in implementation of Part III of the Tariff, Reactive Supply and Voltage Control from
the event that the Customer fails to respond including scheduling protocols. The Network Generation Sources Service; and (iii) Energy
to established Load Shedding and Operating Agreement will recognize that the Imbalance Service.
Curtailment procedures. The Independent Customer shall either (i) self-supply, contract The Independent Transmission Provider is
Transmission Provider can assess a penalty for, or purchase from the Independent required to offer to provide the following
for failure to curtail after a reasonable period Transmission Provider all necessary Ancillary Services only to the Customer
of time.] Ancillary Services consistent with Good serving Load within the Independent
Utility Practice, which satisfies NERC and Transmission Provider’s Service Area (i)
10. Rates and Charges the [applicable regional reliability council] Regulation and Frequency Response Service,
For any Direct Assignment Facilities, requirements. The Independent Transmission (ii) Operating Reserve-Spinning Reserve
Ancillary Services, and applicable study Provider shall not unreasonably refuse to Service, and (iii) Operating Reserve-
costs, consistent with Commission policy, accept contractual arrangements with another Supplement Reserve Service. The Customer
along with the following: entity for Ancillary Services. The Network serving Load within the Independent
Transmission Provider’s Service Area is 3. Regulation Service Transmission Provider Service Area that are
required to acquire these Ancillary Services, Regulation and Frequency Response already synchronized to the Power System
whether from the Independent Transmission Service is necessary to provide for the and can respond to instructions to change
Provider or a market operated by the continuous balancing of Resources output level within ten (10) minutes;
Independent Transmission Provider, from a (generation and interchange) with Load in (ii) Supplemental Reserve: Operating
third party, or by self-supply. The Customer order to maintain scheduled Interconnection Reserves provided by Resources (Generation
may not decline the Independent frequency. Regulation and Frequency and Demand) that can respond to
Transmission Provider’s offer of Ancillary Response Service is accomplished by instructions to change output or
Services unless it demonstrates that it has committing on-line generation whose output consumption level within ten (10) minutes or
acquired the Ancillary Services from another is raised or lowered (predominantly through some other specified time period.
source. The Customer must list in its the use of automatic generating control Operating Reserves can be ranked in terms
Application which Ancillary Services it will equipment) as necessary to follow the of quality. Spinning Reserves are a higher
purchase from the Independent Transmission moment-by-moment changes in Load. The quality reserve product than Supplemental
Provider. obligation to maintain this balance between Reserves. Supplemental Reserves that can
The Independent Transmission Provider Resources and Load lies with the respond to instructions on a shorter time
can fulfill its obligation to provide Ancillary Independent Transmission Provider. Each frame (e.g., 10 minutes) than other
Services by acting as the Customer’s agent to Load-Serving Entity must either purchase Supplemental Reserves (e.g., 30-minutes)
secure these Ancillary Services from others also have a higher quality ranking. The
this service through the Independent
or by operating a market for the services. The Independent Transmission Provider must
Transmission Provider or make alternative
Customer may elect to (i) have the substitute higher quality operating reserves
comparable arrangements to satisfy its
Independent Transmission Provider act as its for lower quality operating reserves when it
Regulation and Frequency Response Service
agent and procure Regulation and Frequence is economical to do so.
obligation.
Response Service and Operating Reserves The Independent Transmission Provider
The Independent Transmission Provider
through the markets in Part III or (ii) secure shall establish Day-Ahead and Real-Time
shall establish Day-Ahead and Real-Time
Regulation and Frequency Response Service Markets for Operating Reserves. The full
Markets for Regulation to procure through
and Operating Reserves from a third party or
the Day-Ahead and Real-Time Markets that requirement for Operating Reserves shall be
by self-supply when technically feasible.
portion of Regulation Requirement not met cleared through the Day-Ahead Market. The
1. Scheduling, System Control and Dispatch through Self-Supply. The full Regulation Real-Time Markets will provide an alternate
Service Requirement shall be cleared through the supply for Operating Reserves during the
This service is required to schedule the Day-Ahead Market. The Real-Time Market Operating Day where (i) Suppliers scheduled
purchase, sale and movement of power will provide an alternate supply for in the Day-Ahead Market are inadequate; (ii)
through, out of, within, or into the Regulation Service during the Operating Day a scheduled Supplier is unable to provide
Independent Transmission Provider’s Service where (i) Suppliers scheduled in the Day- Operating Reserves (e.g., the Generator
Area. This service can be provided only by Ahead Market are inadequate; (ii) a tripped); (iii) the demand for Operating
the Independent Transmission Provider. The scheduled Supplier is unable to provide Reserves increases beyond the scheduled
Customer must purchase this service from Regulation Service (e.g., the Generator supply; or (iv) other adjustments to the
the Independent Transmission Provider. The tripped); (iii) the demand for Regulation supply or demand of operating reserves can
charges for Scheduling, System Control and Service increases beyond the scheduled be efficiently made. The Independent
Dispatch Service are set forth below. supply; or (iv) other adjustments to the Transmission Provider shall select Suppliers
1.1 Billing Units and Calculation of Rates: supply or demand of Regulation can be in the Real-Time Market, during the
The Independent Transmission Provider efficiently made. The Independent Operating Day, to provide Operating Reserves
shall charge each Customer based on the Transmission Provider shall select Suppliers for each hour in which an insufficient supply
product of: in the Real-Time Market, during the of Operating Reserves exists or when a
(i) the Scheduling, System Control and Operating Day, to provide Regulation Service supplier Bidding in the Real-Time market
Dispatch Service charge rates; and for each hour in which an insufficient supply can provide Operating Reserves at lower
(ii) the Customer’s applicable billing units of Regulation Service exists or when a costs than a supplier than has been
for the month, as follows: [Independent supplier Bidding in the Real-Time market scheduled in the Day-Ahead Market.
Transmission Provider to propose rate can provide Regulation service at a lower The Market Rules for the Day-Ahead
methodology.] cost than a supplier that has been scheduled Markets for Operating Reserves are set forth
2. Reactive Supply and Voltage Control from in the Day-Ahead Market. in Sections F.5 and F.6. The Market Rules for
Generation Sources Service The Market Rules for the Day-Ahead the Real-Time Markets for Operating
Market for Regulation are set forth in Section Reserves are set forth in Sections G.6 and
In order to maintain transmission voltages F.4. The Market Rules for the Real-Time
on the Transmission System within G.7.
Market for Regulation are set forth in Section
acceptable limits, generation facilities under D. Congestion Revenue Rights
G.4.
the control of the Independent Transmission
Provider are operated to produce (or absorb) 4. Energy Imbalance Service Preamble
reactive power. Thus, Reactive Supply and Energy Imbalance Service is provided A Congestion Revenue Right is a right held
Voltage Control from Generation Sources when a difference occurs between the by a Customer which provides the Customer
Service (‘‘Voltage Support Service’’) must be scheduled and the actual delivery of Energy with a hedge against uncertain future
provided for each Transaction on the to a Load located within the Independent Congestion Charges by paying the holder of
Transmission System. The amount of Voltage Transmission Provider’s Service Area. This the right a stream of specified congestion
Support Service that must be supplied with service will be provided through the Real- revenues. This section details the specific
respect to the Customer’s Transaction will be Time Energy Market operated by the types of Congestion Revenue Rights, the
determined based on the reactive power Independent Transmission Provider. The specific properties of Congestion Revenue
support necessary to maintain transmission procedures that will be used are described in Rights, and how Congestion Revenue Rights
voltages within limits that are generally Part III below. are acquired.
accepted in the region and consistently
adhered to by the Independent Transmission 5. Operating Reserves 1. Types of Congestion Revenue Rights
Provider. Voltage Support Service is to be The Independent Transmission Provider The Independent Transmission Provider
provided directly by the Independent shall provide procedures to establish shall make available, through the processes
Transmission Provider. The methodologies adequate Operating Reserves that comply identified in Section D.3, Receipt Point-to-
that the Independent Transmission Provider with applicable Reliability Rules. Operating Delivery Point Congestion Revenue Right
will use to obtain Voltage Support Service Reserves are classified as follows: Obligation as described below. In addition,
and the associated charges for such service (i) Spinning Reserve: Operating Reserves upon request of Market Participants, the
are set forth below. [To be provided by the provided by Resources (Generation and Independent Transmission Provider shall
Independent Transmission Provider.] Demand) located within the Independent make available Receipt Point-to-Delivery
Congestion Revenue Right Options as well as Independent Transmission Provider’s Bid- Capability of the transmission system shall
Flowgate Congestion Revenue Rights, as soon based markets, the Independent not be reduced by the transfer capability
as technically feasible. Transmission Provider shall offer Congestion needed to support existing Customers.
1.1 Receipt Point-to-Delivery Point Revenue Rights with terms of 10 years, 5 5.2 Requirement to Conduct Periodic
Congestion Revenue Rights: A Receipt Point- years, 1 year, 6 months, and 1 month. Upon Auctions for Congestion Revenue Rights. The
to-Delivery Point right is specified by a request of Market Participants, the Independent Transmission Provider shall
Receipt Point and a Delivery Point, the total Independent Transmission Provider may also conduct periodic auctions over its OASIS,
MW that are to be injected at the Receipt offer Congestion Revenue Rights for other consistent with Section D.5, that will provide
Point and withdrawn at the Delivery Point, terms. These term limitations will not apply Bid-based markets to buy and sell Congestion
whether the right is an Obligation or an to Congestion Revenue Rights acquired Revenue Rights for a variety of terms. Each
Option, and the period of time for which the through the initial allocation procedures for auction shall provide for the opportunity to
right is in effect. implementation of Standard Market Design. buy and sell Receipt Point-to-Delivery Point
1.1.1 Obligation Rights: Receipt Point-to- 3. Scheduling Priority for Holders of Congestion Revenue Right Obligations, as
Delivery Point Congestion Revenue Right Congestion Revenue Rights in the Event of described in Section D.1. Upon the request of
Obligations confer to the holder (i) the right Curtailment Market Participants, auctions shall provide
to collect revenues equal to the applicable for the opportunity to buy and sell Receipt
Marginal Congestion Component of the In any hour in which the Independent Point-to-Delivery Point Transmission Option
hourly Transmission Usage Charge from the Transmission Provider is unable to accept all Rights and Flowgate Rights, as soon as it is
Receipt Point to the Delivery Point when the requested schedules for Transmission Service technically feasible to do so.
Marginal Congestion Component is positive, at the applicable Day-Ahead Transmission The periodic Congestion Revenue Rights
and (ii) the obligation to pay an amount to Usage Charges, holders of Receipt Point-to- auctions will also provide for the sale of
the Independent Transmission Provider Delivery Point Congestion Revenue Rights Congestion Revenue Rights associated with
equal to the absolute value of the applicable shall have scheduling priority from their transmission capability that becomes
Marginal Congestion Component of the designated Receipt Points to their designated available after the initial allocation of
hourly Transmission Usage Charge from the Delivery Points over Customers that do not Congestion Revenue Rights, for example, due
Receipt Point to the Delivery Point when the hold Congestion Revenue Rights. [The to the expiration of initially allocated
Marginal Congestion Component is negative. Independent Transmission Provider shall Congestion Revenue Rights.
1.1.2 Option Rights: Receipt Point-to- develop a method for determining how to
[The Independent Transmission Provider
Delivery Point Transmission Option Rights implement such priority, which shall be
shall file procedures which may have either
confer to the holder the right to collect inserted here.]
an allocation of Congestion Revenue Rights
revenues equal to the applicable Congestion 4. Existing Transmission Contracts or an allocation of auction revenues from the
Charge component of the hourly sale of Congestion Revenue Rights.]
Transmission Service pursuant to each
Transmission Usage Charge from the Receipt
Existing Transmission Contract shall be 6. Resale of Congestion Revenue Rights
Point to the Delivery Point when the
provided by the Independent Transmission All holders of Congestion Revenue Rights
Marginal Congestion Component is positive,
Provider for the account of the Existing may resell their Congestion Revenue Rights
but do not obligate the holder to pay the
Transmission Contract Transmission Owner, outside the auction held pursuant to Section
absolute value of the applicable Marginal
acting as agent for the Existing Transmission D.3.2. However, the Independent
Congestion Component of the hourly
Contract Customer. The Independent Transmission Provider shall make all
Transmission Usage Charge when the
Transmission Provider shall assess to the Settlements with Primary Holders. Buyers of
Marginal Congestion Component is negative.
1.1.3 Types of Receipt Points and Existing Transmission Contract Transmission resold Congestion Revenue Rights that elect
Delivery Points: The Receipt Points and Owner all charges and payments associated to become Primary Holders must meet the
Delivery Points specified in the Receipt with providing Transmission Service eligibility criteria in Section A.9 of this
Point-to Delivery Point Congestion Revenue pursuant to this Tariff. Consistent with the Tariff.
Right can be a Generator bus, a load bus, an provisions of this Tariff, the Transmission Sellers and potential buyers shall
Interface between the Independent Owner may acquire Congestion Revenue communicate all offers to sell and buy
Transmission Provider’s Service Area and an Rights to hedge against the Congestion costs Congestion Revenue Rights, solely over the
adjacent Service Area, or a pre-defined set of associated with Transmission Service Independent Transmission Provider’s OASIS.
buses (which can be either Zones or Hubs). provided pursuant to its Existing
Transmission Contracts. 7. Auctions for Congestion Revenue Rights
1.2 Flowgate Congestion Revenue Rights 4.1 Conversion of Existing Transmission The Independent Transmission Provider
1.2.1 Definition of Flowgates and Contracts: Upon the mutual agreement of the shall conduct periodic auctions to allow
Flowgate Rights: A Flowgate is a parties to any Existing Transmission Market Participants to buy and sell
transmission facility (such as a transmission Contract, the Existing Transmission Contract Congestion Revenue Rights.
line or a transformer or some other Customer may terminate its Existing 7.1 General Description of the Auction
component of the electrical network) or Transmission Contract in exchange for Process: In each auction, Market Participants
group of facilities (e.g., an Interface) that receiving Congestion Revenue Rights will have the opportunity to submit Bids to
constrains the power transfer capability of previously held by the Transmission Owner buy and sell Congestion Revenue Rights for
the network. A Flowgate Right is specified by to support the Existing Transmission a specified term. In each auction, the
a portion of the total MW capability over a Contract described in Section D.3 with the Independent Transmission Provider shall
particular transmission Flowgate in a same MW level of service and with the same consider all Bids and shall select a
specified direction. Flowgate Rights entitle Receipt Points and Delivery Points and combination of Bids that (i) is
the holder to collect Congestion revenues (as termination date as specified in the Existing Simultaneously Feasible in light of the
determined consistent with Section F.3.5.2) Transmission Contract. Transmission Capability that is expected to
associated with the specified MW flow over be available over the term of the transactions
5. Allocation of Congestion Revenue Rights and (ii) maximizes the combined net
the identified Flowgate in the specified
direction in the Day-Ahead Market. 5.1 Allocation of Congestion Revenue economic value (as expressed in the Bids) of
Rights: The aggregate set of Congestion the selected Bids. In order to maximize the
2. Term of Congestion Revenue Rights Revenue Rights allocated to Customers shall net economic value of the selected Bids, the
During the first two years of operation of not exceed an amount that is Simultaneously auction shall allow for the reconfiguration of
the Independent Transmission Provider’s Feasible, as determined pursuant to Section Congestion Revenue Rights. That is, the
Bid-based markets, the Independent D.5.8, in light of the total transmission Congestion Revenue Rights that are offered
Transmission Provider shall offer Congestion capability in the Independent Transmission for sale may be converted into Congestion
Revenue Rights for sale through the auction Provider’s Service Area under normal Revenue Rights of a different type or with
procedures in Section D.7 with terms of 1 operating conditions. In determining whether different Receipt and Delivery Points.
year, 6 months, and 1 month. Beginning in a set of Congestion Revenue Rights is 7.2 Frequency of Congestion Revenue
the third year of operation of the Simultaneously Feasible, the Total Transfer Rights Auction: The Independent
Transmission Provider shall conduct an eligibility criteria established in this Tariff Revenue Rights, consistent with Section 6.6.
Auction for Congestion Revenue Rights no and will implement the auction Bidding Each Bidder awarded Congestion Revenue
less frequently that once in every calendar rules previously established by the Rights in the auction shall pay the applicable
month. Independent Transmission Provider. Market Clearing Price for those Congestion
7.3 Responsibilities of the Independent The Independent Transmission Provider Revenue Rights that is awarded in the
Transmission Provider Prior to Each Auction will properly utilize an Optimal Power Flow auction. Similarly, each Congestion Revenue
7.3.1 Establish Auction Rules: The program to determine the set of winning Bids Right holder selling Congestion Revenue
Independent Transmission Provider shall use for each auction and calculate the Market Rights through the Auction shall be paid the
the auction rules and procedures consistent Clearing Price of all Congestion Revenue applicable Market Clearing Price for those
with this Tariff. [Independent Transmission Rights at the conclusion of the auction, in the Congestion Revenue Rights that are sold in
Provider may file to add additional auction manner described in this Tariff. the auction.
rules.] 7.4 Responsibilities of each Buying Bidder 7.8 Simultaneous Feasibility: The set of
7.3.2 Evaluate Creditworthiness: The winning Bids selected in each auction shall
Independent Transmission Provider shall 7.4.1 Creditworthiness Information: Each be simultaneously feasible based on the
evaluate each Bidder’s ability to pay for Bidder must submit such information to the Transfer Capability available for purchase
Congestion Revenue Rights, consistent with Independent Transmission Provider within the Independent Transmission
the creditworthiness provisions of Section regarding the Bidder’s creditworthiness as Provider’s Service Area under normal
A.8. As a result of this evaluation, the the Independent Transmission Provider may operating conditions. A set of Bids shall be
Independent Transmission Provider shall require consistent with Section A.8, along deemed simultaneously feasible if both of the
state a limit before the auction on the value with a statement signed by the Bidder, following Conditions, A and B, are met:
of the Congestion Revenue Rights that the representing that the Bidder is financially Condition A: Each set of injections and
entity may be awarded in the auction, and able and willing to pay for the Congestion withdrawals associated with (i) winning, as
collect signed statements from each entity Revenue Rights for which it is Bidding. The well as outstanding previously-awarded,
Bidding into the auction committing that aggregate value of the Bids submitted by any Receipt Point-to-Delivery Point Congestion
entity to pay for any Congestion Revenue Bidder into the auction shall not exceed that Revenue Right Obligations along with (ii) any
Rights that it is awarded in the auction. Bidder’s ability to pay or the maximum value combination of winning, as well as
Bidders will not be permitted to submit Bids of Bids that Bidder is permitted to place, as previously awarded, Receipt Point-to-
that exceed this allowable limit. determined by the Independent Transmission Delivery Point Congestion Revenue Right
7.3.3 Information to be Made Available to Provider (based on an analysis of that Option Rights, would not exceed any
Bidders: To aid Market Participants in their Bidder’s creditworthiness). thermal, voltage, or stability limits within the
participation in the auction, the Independent Each Bidder must pay the Market Clearing Independent Transmission Provider’s Service
Transmission Provider shall make the Price for each Congestion Revenue Right it is Area under normal operating conditions or
awarded in the auction.
following information available before each for monitored contingencies.
auction: 7.5 Responsibilities of Each Selling Bidder Condition B: For each Flowgate in each
(i) for each Generator bus, Load bus, 7.5.1 Bids to Sell Congestion Revenue direction, the power flow on the Flowgate in
external bus and Load Zone for each of the Rights: Each Market Participant desiring to the specified direction resulting from the set
previous 5 years, if available, (a) the average sell Congestion Revenue Rights Shall include of injections and withdrawals identified in
Marginal Congestion Component of the LMP, the following information in its Bid: Condition A, when added to the total
relative to the Reference Bus, and (b) the (i) The type of Congestion Revenue Right Flowgate Rights awarded on the Flowgate in
average Marginal Losses Component of the (i.e., Receipt Point-to-Delivery Point the specified direction, would not exceed the
LMP, relative to the Reference Bus; Congestion Revenue Right Obligation, capability of the Flowgate available in the
(ii) for each of the previous two 6-month Receipt Point-to-Delivery Point Transmission Auction.
periods, (a) historical flow histograms for Option Right, or Flowgate Congestion The Power Flow simulations shall take into
each of the closed Interfaces, and (b) Revenue Right). consideration the effects of parallel flows on
historically, the number of hours that the (ii) The Receipt and Delivery Points, if a the Transfer Capability of the Independent
most limiting facilities were physically Receipt Point-to-Delivery Point Right is Transmission Provider’s transmission system
constrained; offered. when determining which sets of injections
(iii)(a) Power Flow data to be used as the (iii) The location and direction of the and withdrawals are simultaneously feasible.
starting point for the auction, including all Flowgate, if a Flowgate Right is offered. When performing the above Power Flows,
assumptions, (b) assumptions made by the (iv) The MWs injections for Receipt Point-to Delivery Point
Independent Transmission Provider relating (v) The minimum acceptable price, if any. Congestion Revenue Rights that specify a
to transmission maintenance outage (vi) The term. Zone or a Hub as the injection location will
schedules, (c) all limits associated with Each seller that offers Congestion Revenue be modeled as a set of injections at each bus
transmission facilities, contingencies, Rights for sale that it has been awarded must in the injection Zone or Hub equal to the
thermal, voltage and stability to be monitored provide verification of the award to the product of the number of Receipt Point-to-
as Constraints in the Optimum Power Flow Independent Transmission Provider when Delivery Point Congestion Revenue Rights
determination, and (d) the Independent the Bid is submitted. and the percentage weights for each bus in
Transmission Provider summer and winter 7.6 Selection of Winning Bids and the Zone or Hub.
operating study results (non-simultaneous Determination of the Market Clearing Price: When performing the above Power Flows,
Interface Transfer Capabilities). The Independent Transmission Provider withdrawals for Receipt Point-to Delivery
7.3.4 Other Responsibilities: The shall determine the winning set of Bids in Point Congestion Revenue Rights that specify
Independent Transmission Provider will each auction as the set of Bids that a Zone or Hub as the withdrawal location
establish an auditable information system to maximizes the value (as expressed in the will be modeled as a set of withdrawals at
facilitate analysis and acceptance or rejection Bids) of the Congestion Revenue Rights, each bus in the withdrawal Hub equal to the
of Bids, to provide a record of all Bids, and subject to the constraint that the selected set product of the number of Receipt Point-to
to provide all necessary assistance in the of Bids must be simultaneously feasible Delivery Point Congestion Revenue Rights
resolution of disputes that arise from consistent with Section D.5.8. and the percentage weights for each bus in
questions regarding the acceptance, rejection, The Market Clearing Price for each the Zone.
award and recording of Bids. The Congestion Revenue Right shall equal the 7.9 Responsibilities of the Independent
Independent Transmission Provider will change in the net economic value of all other Transmission Provider upon Completion of
establish a system to communicate auction- Bidders that would result from awarding an the Auction: The Independent Transmission
related information to all auction additional 1 MW of that Congestion Revenue Provider shall not reveal the Bid Prices
participants. Right to a Market Participant. submitted by any Bidder in the Auction until
The Independent Transmission Provider 7.7 Auction Settlement: The Independent three months following the date of the
will receive Bids to buy Congestion Revenue Transmission Provider will determine prices auction, except as permitted by Section A.12.
Rights from any entity that meets the in the auction for feasible Congestion When these Bid Prices are posted, the names
of the Bidders shall not be publicly revealed, to-Delivery Point Obligation Rights that meet Ancillary Services, and Transmission Service
but the data shall be posted in a way that the requirements for Simultaneously in accordance with the terms of the Tariff
permits third parties to track each individual Feasibility. Such Market Participants shall and related agreements.
Bidder’s Bids over time. also be allowed to choose any set of Receipt The Independent Transmission Provider
Upon completion of the auction, the Point-to-Delivery Point Option Rights and shall be the sole point of Application for all
Independent Transmission Provider will Flowgate Rights that meet the requirements Market Services for Energy, Ancillary
collect payment for all Congestion Revenue for Simultaneous Feasibility, as soon as it is Services, and Transmission Service provided
Rights awarded in the auction. The it is feasible to issue such rights. Such Market in the Independent Transmission Provider’s
Independent Transmission Provider will Participants may elect to receive no Service Area. Each Market Participant that
disburse the revenues collected from the sale Congestion Revenue Rights if, but only if, all sells or purchases Energy, including demand
of Congestion Revenue Rights to the Primary outstanding Congestion Revenue Rights are side Resources, provides Ancillary Services,
Holders upon completion of the Auction Simultaneously Feasible in light of the Total or Schedules Transmission Services subject
process. Each holder of a Congestion Transfer Capability available after the to Transmission Usage Charges in the
Revenue Right that offers that Congestion additions under normal operating conditions. Independent Transmission Provider
Revenue Right for sale in the auction shall be [The Independent Transmission Provider file Administered Markets, utilizes Market
paid the Market Clearing Price for each a Commission-approved, non-discriminatory Services and must take service as a Customer
Congestion Revenue Right sold by that methodology for allocating Congestion under the Tariff.
holder. All remaining Auction revenues from Revenue Rights among multiple Market The Independent Transmission Provider
the auction shall be allocated among those Participants that fund any single has the right to schedule and dispatch
who pay the Access Charge. [The transmission capability addition.] Scheduled Resources and to direct that
Independent Transmission Provider will file
Part III. Day-Ahead and Real-Time Market schedules be changed in an Emergency.
procedures explaining how these revenues
Services Following the start of the markets, the
will be allocated.]
Independent Transmission Provider shall
8. Exchanging Congestion Revenue Rights E. General Responsibilities and Requirements have the right to file changes to these market
The Independent Transmission Provider Preamble rules with the Commission to improve the
shall allow a Customer to exchange its The Independent Transmission Provider competitiveness and efficiency of the
Receipt Point-to-Delivery Point Congestion will operate Day-Ahead and Real-Time markets.
Revenue Right Obligation for a different Markets for Energy and certain Ancillary 3. Informational and Reporting Requirements
Receipt Point-to-Delivery Point Congestion Services in conjunction with Day-Ahead and The Independent Transmission Provider
Revenue Right Obligation with different Real-Time markets for transmission services.
Receipt and/or Delivery Points as long as the shall operate and maintain an OASIS that,
These markets will allocate transmission among other things, will facilitate the posting
exchange meets the condition specified in Transfer Capability and Generation Capacity
Section D.6.1 is met. In addition, as soon as of Bids to supply Energy, Ancillary Services
among competing uses in different markets
it is technically feasible, the Independent and Demand Reductions by Suppliers for use
through Locational Marginal Pricing (LMP).
Transmission Provider shall allow a by the Independent Transmission Provider
The markets will be operated jointly to
Customer to acquire Receipt Point-to- and the posting of LMP, clearing prices for
ensure that the prices for the products and
Delivery Point Transmission Option Rights Bid-based Ancillary Services, and schedules
services are internally consistent. The
and Flowgate Rights in exchange for other for accepted Bids for Energy, Ancillary
procedures for operating these markets are
Congestion Revenue Rights that the Customer Services and Demand Reductions. The
detailed below.
may hold, as long as the exchange meets the OASIS will be used to post schedules for
condition specified in Section D.6.1. The 1. Day-Ahead and Real-Time Market Services Bilateral Transactions. The OASIS also will
MW levels of the original Congestion This Part III contains the procedures for provide historical data regarding market
Revenue Rights and the new Congestion Bidding and Scheduling of Energy and Bid- clearing prices for each market in addition to
Revenue Rights in the exchange need not be Based Ancillary Services, Bilateral Transmission Usage Charges.
the same, as long as the exchange meets the Transaction Schedules and Self-Schedules in 4. Communication Requirements for Market
condition specified in Section D.6.1. the Day-Ahead Market. Part III also contains Services
8.1 Condition for Exchanging Congestion the time requirements, notice provisions and
Customers may utilize a variety of
Revenue Rights: In order for the Independent sequence followed in administering Day-
communications facilities to access the
Transmission Provider to approve a request Ahead financial Settlement. These
Independent Transmission Provider’s OASIS,
to exchange Congestion Revenue Rights, scheduling requirements support the including but not limited to, conventional
pursuant to Section D.6, the new Congestion operations of the Day-Ahead Markets for Internet service providers, wide area
Revenue Right (after being exchanged for the Energy, Regulation and Frequency Response, networks, and dedicated communications
original Congestion Revenue Right), in and Operating Reserves, the determination of circuits. Customers shall arrange for and
combination with all other outstanding the Day-Ahead Transmission Usage Charge, maintain all communications facilities for the
Congestion Revenue Rights held by others, and the Day-Ahead financial Settlement of purpose of communication of commercial
must be Simultaneously Feasible as defined Congestion Revenue Rights. data to the Independent Transmission
in Section D.5.8 in light of the total Part III also contains the procedures for Provider. Each Customer shall be the
Transmission Capability in the Independent Scheduling and Bidding of Energy and Bid- Customer of record for the
Transmission Provider’s Service Area under Based Ancillary Services, and modification telecommunications facilities and services it
normal operating conditions. of, or submission of new, Bilateral Schedules uses and shall assume all duties and
9. Congestion Revenue Rights Associated and Self-Schedules, that will be used responsibilities associated with the
with Transmission Expansions following the close of the Day-Ahead Market. procurement, installation and maintenance of
These procedures include the time
The Independent Transmission Provider the subject equipment and software.
requirements, notice provisions and
shall award to all Market Participants that sequence followed in administering Real- F. Day-Ahead Scheduling and Markets
fund additions to the transmission system Time Financial Settlement. These Bidding
Congestion Revenue Rights to equal the Preamble
and scheduling requirements support the
capability created by the expansion. The operations of the Real-Time Markets for The Independent Transmission Provider
Congestion Revenue Rights awarded in Energy, Regulation and Frequency Response, will operate a Day-Ahead Market in order to
combination with all other awarded Operating Reserves, and the determination of develop a joint Day-Ahead Schedule for
Congestion Revenue Rights, must be the Real-Time Transmission Usage Charge. Transmission Service, Energy, and Ancillary
Simultaneously Feasible as described in Services. The Day-Ahead Schedule will be
Section D.5.8 in light of the Total Transfer 2. Independent Transmission Provider developed so as to maximize the combined
Capability available under normal operating Authority economic value of Transmission Service,
conditions. Such Market Participants shall be The Independent Transmission Provider Energy, and Ancillary Services, based on the
allowed to choose any set of Receipt Point- shall provide all Market Services for Energy, Bids submitted.
1. Day-Ahead Scheduling Procedures Ahead scheduling. (1) External Transactions Ahead Energy LMPs are calculated,
1.1 Day-Ahead Trading Deadline: Market can be scheduled without a Price Bid. The according to the Independent Transmission
Participants may submit Bids for purchase Independent Transmission Provider shall Provider decision, for each Generator bus,
and sale of Energy, Ancillary Services and take all appropriate steps to accommodate load bus, and sets of buses that comprise
Transmission, Bilateral Transaction such transactions, such as reservation of Zones or Hubs. The Transmission Usage
Schedules, Self-Schedules, and Ancillary ramping capacity. (2) External Transactions Charge for Bilateral Transactions that are
Services Self-Supply Schedules no later than can be scheduled in the Day-Ahead Market scheduled Day-Ahead is the difference
[to be supplied by Independent Transmission with a Price Bid ($/MW) over some or all of between the Energy LMP for the Delivery
Provider] for use in establishing the Day- the MW quantity being scheduled. Point and the Energy LMP at the Receipt
Ahead Schedule. Transactions with a Bid will only enter the Point. The methodology for calculating the
1.2 Rules for Self Schedules Day-Ahead Schedule if the price is at or different types of LMPs is described in
1.2.1 Supplier-Committed Self Schedules below the LMP at the transaction sink node. Sections F.2.4 and 3.3.
(i) Suppliers of Generation Resources for (iii) External Transactions will be The Day-Ahead prices for Ancillary
Energy may Self-Schedule these Resources in scheduled on a hourly basis. Services will be determined according to
the Day-Ahead Markets. 1.4 Rules for Bidding: The Independent procedures described in Sections F.4.5, 5.5,
(ii) Self-Schedules by Suppliers of Energy Transmission Provider shall evaluate all 6.5 and 6.6.
are required only to submit a MW quantity eligible Bids for Energy Supply and Demand, 1.7 Load Forecasts: All Load-Serving
and a location. Regulation and Frequency Response, Entities shall provide their Day-Ahead Load
1.2.2 Independent Transmission Operating Reserves and Day-Ahead forecasts to the Independent Transmission
Provider-Committed Self Schedules Transmission Service. The requirements for Provider. The Independent Transmission
(i) Upon request of a Supplier, the Bid eligibility and the Bid Specifications are Provider shall develop an advisory forecast
Independent Transmission Provider shall in Sections F.2.3, F.3.1, F.4.4, F.5.4 and F.6.4. based on these forecasts and its own analysis
develop a schedule for Generation or 1.5 Bid-Based Security Constrained Unit of next day Load and shall post this forecast.
Demand Resources in which the Schedule Commitment and Determination of the Day- 1.8 Reliability-Based Security
optimizes the revenues over the Operating Ahead Schedule: The Independent Constrained Unit Commitment: In cases in
Day for the Resource. These are referred to Transmission Provider will develop a which the sum of all Bilateral Schedules and
in this Tariff as Independent Transmission Security Constrained Unit Commitment all Day-Ahead Market purchases to serve
Provider- Committed Self Schedules. This schedule over the Operating Day using a Load within the Independent Transmission
option will typically be used by Energy- computer algorithm that accepts all Self- Provider’s Service Area in the Day-Ahead
Limited Resources, however this option is Schedules and simultaneously maximizes the schedule is less than the Independent
available to all Generation or Demand total value of the Bids, including Virtual Transmission Provider’s Day-Ahead forecast
Resources. Bids, submitted to (i) supply to of Load, the Independent Transmission
(ii) Independent Transmission Provider- (incorporating the costs of Start-up, No-load Provider will commit Resources in addition
Committed Self-Schedules are required only and Incremental Energy) and purchase from to the reserves it normally maintains to
to submit a MW quantity and a location. the Day-Ahead Market for Energy; (ii) enable it to respond to contingencies. These
provide sufficient Ancillary Services to additionally-committed Resources are called
1.2.3 Self Supply of Ancillary Services support Energy purchased from the Day- Replacement Reserves. This commitment of
(i) Suppliers of Resources for Regulation Ahead Market; and (iii) receive Transmission Replacement Reserves will be the result of a
and Operating Reserves may Self-Supply Service to support Bilateral Transaction Bid-Based Reliability-Based Security
these Resources in the Day-Ahead Markets. schedules and Self-Schedules submitted Day- Constrained Unit Commitment conducted
(ii) The specific rules for Self-Supply of Ahead. The Independent Transmission following the Day-Ahead Security
Regulation and Operating Reserves are in Provider may substitute higher quality Constrained Unit Commitment. The purpose
Sections F.4–F.6. Ancillary Services (i.e., shorter response of this additional commitment of Resources
1.3 Rules for Bilateral Transactions time) for lower quality Ancillary Services is to ensure that sufficient capacity is
Schedules when doing so would result in an overall available to the Independent Transmission
least Bid cost solution. Provider in Real-Time to enable it to meet its
1.3.1 Internal Transactions In developing the Day-Ahead Schedule, the Load forecast (including associated Ancillary
(i) All Internal Transactions must specify a Independent Transmission Provider shall Services).
Receipt Point, a Delivery Point, a MW select Suppliers for Energy, Regulation and In considering which additional Resources
quantity injected at the Receipt Point and a Frequency Response, and Operating Reserves to schedule to meet the Independent
MW quantity withdrawn at the Delivery for each hour of the upcoming day through Transmission Provider’s Load forecast, the
Point. its Day-Ahead Security-Constrained Unit Independent Transmission Provider will
(ii) Internal Transactions may also, Commitment, using Bids and/or schedules evaluate whether unscheduled Imports can
voluntarily, submit a price Bid ($/MW) over provided by the Suppliers. The Day-Ahead provide additional power at a price within
some or all of the MW range. This makes the schedule will include commitment of any Bid Price caps set by the Independent
transaction under the control of the sufficient Generators and price-sensitive Transmission Provider.
Independent Transmission Provider. Demand Bids to provide for the safe and The Independent Transmission Provider
reliable operation of the power system will develop the Reliability-Based Security
1.3.2 External Transactions operated by the Independent Transmission Constrained Unit Commitment schedule over
(i) All External Transactions must specify Provider. The schedule shall honor all the Operating Day using a computer
a Receipt Point, a Delivery Point, a MW operating constraints included in the algorithm that minimizes the total cost of
quantity injected at the Receipt Point and a scheduled Bids. The Day-Ahead schedule committing the additional Generation and
MW quantity withdrawn at the Delivery shall list the twenty-four (24) hourly Demand Resources that provide Replacement
Point. Either the Receipt Point or the injections and withdrawals for: (a) each Reserves based solely on the Start-up and No-
Delivery Point must be a point at the Customer whose Bid the Independent load Bids of the additionally committed
boundary of the Independent Transmission Transmission Provider accepts for the Resources. The Independent Transmission
Provider’s Service Area. If the Receipt Point following Operating Day; and (b) Self- Provider shall use Bids submitted into the
is a boundary point, then the External Schedules of Energy, Ancillary Services, and Day-Ahead Market. If such Bids are not
Transaction is an Import. If the Delivery Transmission Service. sufficient to meet the forecast load, the
Point is a boundary point, then the External 1.6 Determination of the Day-Ahead Independent Transmission Provider may
Transaction is an Export. All External Prices: The Independent Transmission solicit additional Bids; these additional Bids
Transactions must specify a minimum run Provider shall calculate the Day-Ahead will be considered eligible for the Real-Time
time. Energy LMPs and Flowgate LMPs based on Market in addition to the Reliability-Based
(ii) The Independent Transmission a dispatch of committed Generation Security Constrained Unit Commitment.
Provider shall offer Market Participants with Resources to meet the Load that has Bid in Resources committed in the Reliability-Based
External Transactions two options for Day- and been scheduled Day-Ahead. The Day- Security Constrained Unit Commitment are
obligated to Start-up and operate at their No- four (24) hour day exceeds its maximum (iv) Start-up Cost ($). This Bid component
load level. willingness to pay, as reflected by the is an additional payment needed by the
1.9 Reliability Forecast: In the Security difference of its selected Day-Ahead Energy Purchaser of Energy to curtail its load This
Constrained Unit Commitment program, Bids and Start-up Cost Bid, the Demand is an optional Bid component.
system operation shall be optimized based on Resource shall be augmented by a payment, (v) Minimum Curtailment Time (hours).
Bids over the Operating Day. However, to the Demand Bid Revenue Sufficiency This Bid component is up to a maximum of
preserve system reliability, the Independent Guarantee Payment, in the amount of the 24 hours. This is an optional Bid component.
Transmission Provider may take steps to overcharge. This payment is supported If a Minimum Curtailment Time is not
ensure that there will be sufficient Resources through revenues collected from the Demand indicated, then the default time will be one
available to meet forecasted Load and reserve Bid Revenue Sufficiency Guarantee Charge. hour.
requirements over the day beginning with the (vi) Maximum Curtailment Time (hours).
next Operating Day, typically completing a 2. Day-Ahead Market for Energy This Bid component is up to a maximum of
one week look ahead. 2.1 General: The Day-Ahead Market for 24 hours. This is an optional Bid component.
1.10 Posting the Day-Ahead Schedule: By Energy establishes clearing prices and If a Maximum Curtailment Time is not
[a pre-defined deadline to be supplied by settlement rules for Suppliers of Energy that indicated, then the default time will be 24
Independent Transmission Provider] on the have offered eligible Generation Capacity to hours.
day prior to the Operating Day, the the market and for Purchasers of Energy that (vii) Minimum Purchase Time (at least one
Independent Transmission Provider shall have chosen not to Self-Supply or procure hour). This is an optional Bid component
close the Day-Ahead scheduling process and through bilateral contracts. (viii) Maximum Purchase Time (hours).
post on its OASIS the Day-Ahead schedule 2.2 Independent Transmission Provider This is an optional Bid component.
for Energy, Regulation and Frequency Obligations: The Independent Transmission (ix) Hours that the purchaser desires to
Response, and Operating Reserves for each Provider has the obligation to provide purchase the designated MWs of power. This
entity that submits a Bid or Self-Schedule. services (i) to (v) for the Day-Ahead Market is a required Bid component.
All schedules shall be considered for Energy. The rules governing these 2.3.2 Specification of Virtual Bids:
proprietary, with the posting only visible to services are contained in this section: Purchasers of Day-Ahead Virtual Energy
the appropriate scheduling Customer and (i) Establish and post on its OASIS rules must provide Bid components 2.3.1 (i) to
Transmission Owners subject to the that are consistent with this Tariff for (iii). In addition, the Bid shall identify that
applicable Code of Conduct. The eligibility to supply Energy in the Day-Ahead the Energy purchase is Virtual Energy if the
Independent Transmission Provider will post Market. purchase is not backed by actual load.
on the OASIS the aggregate Resources (Day- (ii) Establish and post on its OASIS the Bid 2.3.3 Period of Bids: The Demand Bids
Ahead Energy, Regulation and Frequency data requirements and rules and provide the shall be hourly Bids for each hour of the
Response and Operating Reserves schedules) Operating Day in which the price ($) and
market functions that are consistent with this
and Load (Day-Ahead scheduled and quantity (MW) components can vary hour by
Tariff required for determination of hourly
forecast) for each Load bus or Zone, and the hour.
Day-Ahead LMPs for Energy and selection of
Day-Ahead LMP prices (including the
Day-Ahead Energy Market Suppliers and 2.4 Supplier Rules and Obligations
Marginal Congestion cost Component and the
Purchasers.
Marginal Losses component) for each 2.4.1 Eligibility to Supply: Suppliers of
Generation Bus, Load Bus or Load Zone and (iii) Establish and post on its OASIS the
Day-Ahead Energy shall provide the Bid
Hub in each hour of the upcoming Operating rules that are consistent with this Tariff for
information specified in Section 2.4.2 .
Day. determination of any additional payments
Suppliers of Day-Ahead Virtual Energy shall
The Independent Transmission Provider necessary to support efficient operations of
provide the Bid information specified in
shall conduct the Day-Ahead Settlement the Day-Ahead Market for Energy and/or the 2.4.3- 2.4.4 .
based upon the Day-Ahead Prices determined efficient operation of other Day-Ahead 2.4.2 Specification of Bids. Suppliers are
in accordance with this Section. Markets. required to include the following price,
1.11 Day Ahead Bid Revenue Sufficiency (iv) Provide the Settlement functions quantity and data components in their
Guarantee: The Independent Transmission associated with purchase and sale of Energy Generation Bid. Suppliers must supply all
Provider shall ensure the minimum recovery in the Day-Ahead Market. information that is identified as a required
of each Resource’s Bid prices for Resources (v) Post the Day-Ahead LMPs for Energy. Bid component. Suppliers may, but are not
scheduled through the Day-Ahead Market or 2.3 Purchaser Rules and Obligations: required to, submit information that is
in subsequent commitments for reliability. Purchasers of Energy in the Day-Ahead identified as an optional Bid component. The
The is called the Bid Revenue Sufficiency Market shall provide the Bid information Bid Data requirements are additional data on
Guarantee. specified in Sections 2.3.1 to 2.3.3. Generator characteristics needed by the
(i) The Independent Transmission Provider 2.3.1 Specification of Bids: Purchasers of Independent Transmission Provider for
shall determine, on a daily basis, if any Day-Ahead Energy must provide the market operations and reliability purposes.
Resource committed by the Independent following Bid information. Purchasers must
supply all information that is identified as a Bid Prices and Quantities
Transmission Provider in the Day-Ahead
Market will not recover Start-Up, No Load, required Bid component. Purchasers may, (i) Start-Up ($). This is an optional Bid
and Energy Bid Price through revenues in the but are not required to, submit information component (Market Participants can opt to
Day-Ahead Energy and Ancillary Services that is identified as an optional Bid exclude Start-up Costs in their Energy Bid by
markets. component. setting this cost to $0). Limits on the
(ii) If the Start-Up and No Load Bids plus (i) MW desired to be purchased, with a frequency with which Start-up Bid Costs can
the net Energy and Ancillary Services Bid default value of 0 MW. This is a required Bid be changed must be consistent with the
Price over the twenty-four (24) hour day of component. requirements of Part IV, Market Power
any Supply Resource exceeds the sum of its (ii) Location (transmission zone, aggregate, Monitoring and Mitigation.
Day-Ahead LMP revenue and Ancillary or single bus) that the purchaser desires to (ii) Minimum Generation (No-load) ($/
Service revenue over the twenty-four (24) purchase the designated MWs of power. This hour). This is an optional Bid component
hour day, then that Supplier’s Day-Ahead is a required Bid component. (Market Participants can opt to exclude No-
LMP revenue and Ancillary Service revenue (iii) Maximum price ($/MW) at which the load Costs in their Energy Bid by setting this
shall be augmented by an additional purchaser desires to purchase the designated cost to $0/hour). Limits on the frequency
payment, the Supply Bid Revenue MW of power. (A purchaser may indicate its with which Minimum Generation Bid Costs
Sufficiency Guarantee Payment, in the desire to purchase the designated MWs of can be changed must be consistent with the
amount of the shortfall. This payment shall power regardless of price, if the purchaser requirements of Part IV, Market Power
be supported through revenue collected from has demonstrated to the Independent Monitoring and Mitigation.
the Supply Bid Revenue Sufficiency Transmission Provider in advance that it is (iii) Incremental Energy ($/MWh). Market
Guarantee Charge. financially capable of paying the highest Participants must provide prices for the full
(iii) If the total Day-Ahead Energy charges possible price for the designated MWs.) This MW range of their Operable Capacity, from
to any Demand Resource over the twenty- is a required Bid component. the Hourly Economic Minimum Level to the
Hourly Economic Maximum Level. This is a 2.4.3 Bids to Supply Virtual Incremental 2.5.1 Energy LMP Calculation: The
required Bid component. [Independent Energy Independent Transmission Provider will
Transmission Provider may add requirements (i) A Virtual Incremental Energy Bid ($/ calculate for each bus on its system in each
regarding the number of steps or pieces in the MWh) is an Incremental Energy Bid that hour the Energy LMP, equal to the marginal
Bid function.] The Incremental Energy Bid specifies that the Bid is a Virtual Transaction, cost of making an additional increment of
may be negative, indicating the price that the i.e., it is not backed by a physical supply Energy available at the bus in the hour, based
Supplier is willing to pay for the Generator on the Bids of sellers and buyers selected in
Resource. Virtual Incremental Energy Bids
not to be dispatched below its Hourly the Day-Ahead Security Constrained unit
must include (1) a price, (2) a MW quantity,
Economic Minimum Level. The upper limit Commitment for Energy supply and
and (3) a location. The upper limit on the Bid
on the Bid price of Incremental Energy over purchase. The Independent Transmission
price of Virtual Incremental Energy must be
the full MW range of the Operable Capacity Provider shall designate one bus as the
consistent with the requirements of Part IV,
must be consistent with the requirements of Reference Bus, r, for all other buses in the
Market Power Monitoring and Mitigation.
Part IV, Market Power Monitoring and system. The System Marginal Price (SMPr), is
2.4.4 Bids to Supply Decremental Energy the cost of making an additional increment
Mitigation. Any other limits on the Bid price
of Incremental Energy must also be (i) A Decremental Energy Bid ($/MWh) is of Energy available to the Reference Bus,
a Bid to reduce the output of a Generator. based on Bids selected in the Day-Ahead
consistent with the requirements of Part IV,
Decremental Energy Bids must include (1) a Security Constrained Unit Commitment for
Market Power Monitoring and Mitigation.
price, (2) a MW quantity, and (3) a location. Energy supply and Purchase. For each bus
(iv) Emergency Incremental Energy ($/
The upper limit on the Bid price of other than the Reference Bus, the
MWh). Market Participants must provide a
Decremental Energy must be consistent with Independent Transmission Provider shall
price for the Emergency MW range of their
the requirements of Part IV, Market Power determine separate components of the Energy
Operable Capacity, from the Hourly LMP for the marginal costs of Congestion and
Economic Maximum Level to the Hourly Monitoring and Mitigation.
(ii) A Virtual Decremental Energy Bid ($/ losses relative to the Reference Bus,
Emergency Maximum Level. This is a consistent with the following equation:
required Bid component. The upper limit on MWh) is a Decremental Energy Bid that
the Bid price of Emergency Incremental specifies that the Bid is a Virtual transaction. Energy LMPi = SMPr + MCCi + MLCi,
Energy must be consistent with the The upper limit on the Bid price of Virtual where SMPr is the system marginal price in
Decremental Energy must be consistent with each hour at the Reference Bus, r, in the
requirements of Part IV, Market Power
the requirements of Part IV, Market Power system, MCCi is the LMP component
Monitoring and Mitigation. Pricing rules for
Monitoring and Mitigation. representing the marginal cost of Congestion
Emergency uses of Generation Resources are
(iii) A Decremental Emergency Energy Bid at bus i relative to the Reference Bus, and
in Section G, 3.7(iii).
($/MWh) is a Decremental Energy Bid to MLCi is the LMP component representing the
Bid Data Requirements reduce the output of a Generator below its marginal cost of losses at bus i relative to the
(v) Normal Response Rate (MW/min). The Hourly Economic Minimum Level down to Reference Bus.
expected response rate for Security its Hourly Emergency Minimum Level. The (i) Calculation of Marginal Congestion
Constrained Dispatch. This is a required Bid upper limit on the Bid price of Decremental Component: The Independent Transmission
component. Emergency Energy must be consistent with Provider will calculate the marginal costs of
(vi) Regulation Response Rate (MW/min). the requirements of Part IV, Market Power Congestion at each bus as a component of the
The response rate for units providing Monitoring and Mitigation. Pricing rules for bus-level LMP. The Marginal Congestion
regulation. This is a required Bid component Emergency uses of Generation Resources are Component (MCC) component of the Energy
for Resources offering Regulation service. in Section G, 3.7(iii). LMP at bus i is calculated using the equation:
(vii) Hourly Economic Minimum Level 2.4.5 Period of Bids to Supply Energy: A
Customer may submit Bids to Supply
(MW). This is a required Bid component.  K 
Limits on the frequency with which the Incremental Energy or Decremental Energy MCC i = −  ∑ GSFik FMPk  ,
Hourly Economic Minimum Level can be pursuant to Sections F.2.4.2–2.4.4 that can  k =1 
changed must be consistent with the vary by price ($) and quantity (MW) in each
Hour of the Day-Ahead Market. where: K is the number of thermal or
Interface Transmission Constraints; GSFik is
Monitoring and Mitigation. 2.5 Calculation of Day-Ahead Locational
Shift Factor for the Generator at bus i on
(viii) Hourly Economic Maximum Level Marginal Prices for Energy
Flowgate k which limits flows across that
(MW). This is a required Bid component. The Independent Transmission Provider Constraint when an increment of power is
(ix) Hourly Emergency Minimum Level shall calculate the price of Energy at the Load injected i and an equivalent amount of power
(MW). This is the Minimum Level for a buses and Generation buses in the is withdrawn at the Reference Bus, and FMPk
Generator in the event of an Emergency. This Independent Transmission Provider Service is the Flowgate LMP on Flowgate k and is
is a required Bid component. Area and at the Interface buses between the equivalent to the reduction in system cost
(x) Hourly Emergency Maximum Level Independent Transmission Provider Service expressed in $/MWh that results from an
(MW). This is the Maximum Level for a Area and adjacent Service Areas on the basis increase of 1 MW of the capacity on Flowgate
Generator in the event of an Emergency. This of Energy LMPs. LMPs can be set by Bids to k.
is a required Bid component. sell or purchase Energy, including External (ii) Calculation of Marginal Losses
(xi) Start-up Time (hours). The number of Transaction Imports with Bids, and by Component: The Independent Transmission
hours required to start the Generator. This is transmission Bids. If requested by Market Provider will calculate the Marginal Losses
a required Bid component. Participants the Independent Transmission Component (MLC) at each Load bus i. The
(xii) Minimum Run Time (hours). This Bid Provider will establish Hubs and Zones based MLC of the LMP at any bus i within the
component is up to a maximum of 24 hours. on a pre-defined set of buses. The Independent Transmission Provider Service
This is a required Bid component. Limits on Independent Transmission Provider will Area is calculated using the equation:
the Minimum Run Time of particular calculate load-weighted average Energy LMPs
Generators must be consistent with the
for this pre-defined set of buses, defined as MLC i = (DFi − 1) SMPi ,
Hub Prices or Zone Prices (or Zonal-LMPs).
Monitoring and Mitigation. The Energy LMPs, Hub Prices and Zone where DFi = delivery factor for bus i to the
(xiii) Maximum Run Time (hours). This is Prices shall include separate components for system Reference Bus, and DFi = (1 - ∂ L/ ∂
an optional Bid component. the marginal costs of Congestion and the Gi), where: L is system losses, Gi is generation
injection at bus i, ∂ L/ ∂Gi is the partial
EP29AU02.004</GPH>
(xiv) Minimum Down Time (hours). This is marginal costs of losses. Energy LMPs
an optional Bid component. determined in accordance with this Section derivative of system losses with respect to
(xv) Maximum Start-up Limit or Maximum shall be calculated and posted on a Day- generation injections at bus i, that is, the
Shut Down Limit in 24 Hours (integer Ahead basis for each hour of the Day-Ahead incremental change in system losses
number). This is an optional Bid component. Energy Market by [time to be provided by associated with an incremental change in the
EP29AU02.003</GPH>
(xvi) Location. Independent Transmission Provider]. generation injections at bus i holding
constant other injections and withdrawals at 2.6.2 Other Payments and Charges: [The 2.8.2 Payments to Suppliers
all buses other than the Reference Bus and Independent Transmission Provider may (i) Suppliers of Day-Ahead Energy shall be
bus i. include in this section market rules for any paid for all Energy scheduled to be delivered
2.5.2 Hub Price Calculation: If requested other payments or charges associated with in the Day-Ahead Energy Market at the Day-
by Market Participants, the Independent the efficient and reliable operations of the Ahead LMPs applicable to each relevant
Transmission Provider shall calculate a Hub Day-Ahead Market for Energy.] generation bus.
Price based on the Energy LMPs for a set of (ii) The Independent Transmission
2.7 Market Rules for Shortages or
buses that comprise the Hub. These Hub Provider shall pay Suppliers any additional
Emergencies
Prices are the weighted average of the Energy payments necessary to provide Day-Ahead
LMPs at the buses that comprise the Hub. (i) [The Independent Transmission Energy in accord with efficient market
The weights will be pre-determined by the Provider may include in this section market operations, as specified in Section 2.5
Independent Transmission Provider and rules, including specification of quantities of
2.8.3 Payments by Suppliers
remain fixed. [The Independent Energy purchased, calculation of market
Transmission Provider may add procedures prices, and determination of out-of-market (i) Market Participant’s Day-Ahead
for determining the buses that comprise the payments in the event of a shortfall in Energy Demand Bid Revenue Sufficiency Guarantee
Hub and procedures for changing the weights due to a shortage of available capacity. The Charge on any given day shall equal the
over time.] The Price for Hub j can be written market rules shall be in accord with regional product of (i) the Market Participant’s total
as: or local reliability authority rules and quantity (in MWh) scheduled in the Day-
procedures and NERC guidelines.] Ahead Market (which shall equal the sum of
n (ii) [The Independent Transmission the Market Participant’s total sales of Energy
Hub Price j = ∑ ( WHi × LMPi ) , Provider may include in this section in the Day-Ahead Market for Energy plus the
Market Participant’s total supply scheduled
i =1 procedures for soliciting additional Bids for
to be met from Bilateral Transactions) and (ii)
where n is the number of buses in Hubj and Energy in the event that Bids and self-
the per unit Day-Ahead Demand Bid Revenue
WHi is the weighting factor for bus i in Hub scheduled provision of Energy submitted in
Sufficiency Guarantee Charge.
j. The sum of the weighting factors shall add the Day-Ahead Markets fall short of the Bid-
The per unit Day-Ahead Demand Bid
up to 1. in Load.] Revenue Sufficiency Guarantee Charge for
2.5.3 Zone Price Calculation 2.8 Settlement any given day shall equal (i) the aggregate
(i) If requested by Market Participants, the Demand Bid Revenue Sufficiency Guarantee
2.8.1 Payments by Purchasers
Independent Transmission Provider shall payments payable to Resources in the Day-
(i) Each purchaser of Day-Ahead Energy Ahead Market for that day, divided by (ii) the
calculate a Zone Price based on the Energy
shall be charged for all of its Load scheduled sum of the total supply (in MWh) of all
LMPs for a set of buses that comprise the
to be served from the Independent Market Participants that are to be charged
Zone. These Zone Prices are the weighted
Transmission Provider’s Day-Ahead Energy Day-Ahead Demand Bid Revenue Sufficiency
average of the Energy LMPs at the set of
Market at the Day-Ahead LMPs applicable to Guarantee Charges for that day.
buses that comprise the Zone. The Zone bus
weights will equal the fractional share of each relevant Load bus and hour. 3. Day-Ahead Scheduling of Transmission
each load bus in the total load in the Zone (ii) If a Market Buyer elects to calculate and and Settlement Functions for Congestion
in the Hour. [The Independent Transmission settle Energy purchases at Zonal-LMPs, and Revenue Rights
Provider may add procedures for determining the Zonal price meets the conditions for
3.1 General: Day-Ahead scheduling of
the buses that comprise the Zone, and settlement specified in Section 2.4(c)(ii), then
Transmission Service allows Market
assigning weights to those buses, in response the market buyer shall be charged for all of
Participants to obtain Transmission Service
to changes in retail load.] its load scheduled to be served from the Day- to support Bilateral Transactions. This
Ahead Energy Market at the Day-Ahead section establishes (1) rules for Bidding and/
n Zonal-LMPs applicable to each relevant Load or scheduling Transmission Service, (2)
Zone Price j = ∑ ( WZi × LMPi ) , Zone and time period. determining prices (i.e., Transmission Usage
(iii) On any day when a Market Participant Charges, Transmission Usage Charges) for
i =1
is scheduled to purchase any Energy in the Transmission Service, and (3) settling with
where n is the number of Load buses in Zone Day-Ahead Market for Energy and/or does
j and WZi is the load weighting factor for bus Market Participants that are scheduled for
not Self-Supply a sufficient amount of its Transmission Service in the Day-Ahead
i in Zone j. The sum of the weighting factors forecasted obligation (based on the Day- Market. The Day-Ahead Energy LMPs shall
adds up to 1. Ahead Schedule) for Regulation and be used to provide (1) the prices for sales and
(ii) If the Zone price is used for Settlement Operating Reserves, the Market Participant purchases of Energy and (2) Transmission
purposes, it is subject to the following rules. shall be charged a Day-Ahead Bid Revenue Usage Charges (Transmission Usage Charges)
(1) Each Zone shall include only the buses Sufficiency Guarantee Charge. The Market for Transmission Service to support Bilateral
of Market Participants who agree to be in the Participant’s Day-Ahead Supply Bid Revenue Transactions. Because Transmission Usage
Zone (and thus, who agree that their Charges are based on the differences between
Sufficiency Guarantee Charge on any given
settlements will be calculated based on the Energy LMPs at the point of injection and
day shall equal the product of (i) the Market
zonal price). Alternatively, any one zone point of withdrawal associated with an
Participant’s total load (in MWh) scheduled
shall include only the buses of a single internal or external Bilateral Transaction, in
in the Day-Ahead Market (which shall equal
Market Participant. (2) A Market Participant their schedules requesting Transmission
the sum of the Market Participant’s total
who wants to be billed at a Zonal Price must Service, Market Participants have the right to
purchases of Energy in the Day-Ahead
include in its Zone all of the buses where express willingness to pay for the
Market for Energy plus the Market
Energy deliveries will be billed at the Zonal Transmission Usage Charges—or
Participant’s total load scheduled to be met
Price. A Market Participant shall not be equivalently, for the differences in the Energy
from Bilateral Transactions) and (ii) the per
allowed to settle Energy purchases at a bus LMPs.
unit Day-Ahead Supply Bid Revenue
or aggregation of buses if that bus or buses In addition, the Day-Ahead Energy LMPs
Sufficiency Guarantee Charge.
are not included in the Zone. and Flowgate LMPs are used for Settlement
The per unit Day-Ahead Supply Bid
2.6 Calculation of Additional Payments and Revenue Sufficiency Guarantee Charge for of Congestion Revenue Rights. Holders of
Charges Receipt Point-to-Delivery Point Congestion
any given day shall equal (i) the aggregate
Revenue Rights that seek to settle them
2.6.1 Bid Revenue Sufficiency Guarantee: Bid Revenue Sufficiency Guarantee payments
against Real-Time Energy LMPs can do so by
EP29AU02.006</GPH>
The Independent Transmission Provider payable to Resources in the Day-Ahead scheduling transactions in the Day-Ahead
shall calculate, for each Resource scheduled Market for that day, divided by (ii) the sum Energy Market.
for Energy in the Day-Ahead Market, the of the total loads (in MWh) of all Market
amount of the Bid Revenue Sufficiency Participants that are to be charged Day-Ahead 3.2 Day-Ahead Transmission Requests
Guarantee payment, pursuant to Section Supply Bid Revenue Sufficiency Charges for 3.2.1 Information Provided by the
EP29AU02.005</GPH>
F.1.11. that day. Customer: Each Customer seeking to be
scheduled for Transmission Service in the (vi) The maximum total Transmission 3.3.1 Marginal Congestion Component:
Day-Ahead Market shall be required to Usage Charge (in $ per MW) that the The Marginal Congestion Component of the
provide the Independent Transmission Customer is willing to pay to receive Transmission Usage Charge shall be
Provider the information in (i) through (iii) Transmission Service over the total number calculated as the Marginal Congestion
below. In addition, the Customer shall be of scheduled hours. Component of the Day-Ahead LMP at the
required to provide the information either in (vii) Whether the Customer desires to Delivery Point minus the Marginal
(iv) or (vi), or both. The Customer shall provide additional Energy at the receipt Congestion Component of the Day-Ahead
provide this information separately for each point, in an amount that reflects the Marginal
LMP at the Receipt Point, as described in
transaction involving a different Receipt and/ Losses associated with the Transmission
Service (which the Independent Section F.2.5(i).
or Delivery Point. The Customer shall have 3.3.2 Marginal Losses Component: The
the option of providing the information in Transmission Provider shall determine at the
close of the Day-Ahead Market) in lieu of Marginal Losses Component of the
(v). Transmission Usage Charge shall be
(i) MW to be transmitted; paying the charge for Marginal Losses.
3.3 Calculation of Day-Ahead calculated as the Marginal Losses Component
(ii) The Point of Receipt and the Point of of the Day-Ahead LMP at the Delivery Point
Transmission Usage Charges: The
Delivery;
Independent Transmission Provider shall minus the Marginal Losses Component of the
(iii) The hours when the power is to be
charge a Transmission Usage Charge to all Day-Ahead LMP at the Receipt Point, as
transmitted; Bilateral Transactions whose transmission described in Section F.2.5(ii).
(iv) The maximum Transmission Usage service was scheduled in the Day-Ahead
Charge ($ per MW) that the Customer is 3.4 Flowgate LMP Calculation: The
Market. This charge is the product of (a) the Independent Transmission Provider will, in
willing to pay to receive the Transmission amount of Energy scheduled to be withdrawn
Service. The Customer may indicate that it addition to the calculation of the Energy
by that Customer in each hour in MWh; and LMPs, calculate Flowgate Locational
desires the indicated Transmission Service (b) the Day-Ahead LMP at the Point of
regardless of the Transmission Usage Charge, Marginal Prices (FMPs) on the set of
Delivery (which could be a Load Zone in transmission constraints. The calculation for
if the Customer has demonstrated to the which Energy is scheduled to be withdrawn
Independent Transmission Provider that it is the Flowgate LMP (FMP) for each
or the external bus where Energy is
capable of paying the highest possible scheduled to be withdrawn if Energy is Transmission Constraint is defined in
Transmission Usage Charge. The Customer scheduled to be withdrawn at a location Section F.2.5.1(i). Independent Transmission
may separately indicate the maximum Charge outside the Independent Transmission Providers that offer Flowgate Rights must
for Marginal Costs of Congestion and the Provider Service Area), minus the Day-Ahead also calculate the Day-Ahead Flowgate LMPs
maximum charge for Marginal Losses that it LMP at the Point of Receipt, in $/MWh. The (FMPs) on the Transmission Elements
is willing to pay. Independent Transmission Provider shall designated as Flowgates, based on a weighted
(v) The minimum number of consecutive divide each Transmission Usage Charge into average of the Transmission LMPs on the
hours that the Customer desires to receive the separate components for Marginal Costs of Transmission Elements that comprise the
Transmission Service. Congestion and Marginal Costs of Losses. Flowgate:
m
Marginal Price on Flowgate f = ∑ ( Wk × FMPk ) ,
k =1
where: f is the index of Flowgates; k is a In each instance when the applicable any hour of the Day-Ahead Market as (i) the
Transmission Element in the set of Marginal Congestion Component is negative, net amounts charged to purchasers of Energy
Flowgates, K; m is the subset of the the Independent Transmission Provider shall in the Independent Transmission Provider’s
Transmission Elements that comprise charge to each Primary Holder of an Day-Ahead Market associated with the
Flowgate f; and Wk are the weights attached Obligation Right (but not the Primary Holder Marginal Congestion Component of the
to each of the m Transmission Elements that of an Option Right) an amount equal to the hourly LMPs at the purchasers’ buses, less
comprise Flowgate f. The sum of the absolute value of the applicable Marginal (ii) the net amounts paid to sellers of Energy
weighting factors adds up to 1. For Flowgates Congestion Component multiplied by the in the Independent Transmission Provider’s
comprised of one Transmission Element, the specified MWs. Day-Ahead Market associated with the
Wk for that element is equal to 1. The 3.5.2 Settlement of Flowgate Rights: For Marginal Congestion Component of the
Independent Transmission Provider shall each hour in the Day-Ahead Market, the hourly LMPs at the sellers’ buses. The Hourly
determine the Wk for Transmission elements Independent Transmission Provider shall Transmission Congestion Charge Collection
defined as Flowgates. determine, consistent with the provisions in is defined for any hour of the Day-Ahead
3.5 Settlement of Congestion Revenue Section F.3.4, the Flowgate LMP in each Market as the net amounts charged to
Rights direction associated with each Flowgate on Customers for Transmission Service
the transmission system operated by the scheduled in the Day-Ahead Market
3.5.1 Settlement of Receipt Point-to- Independent Transmission Provider.
Delivery Point Congestion Revenue Rights: associated with the Marginal Congestion
(i) Holders of Flowgate Rights. For each Component of the applicable hourly
For each hour in the Day-Ahead Market, the hour of the Day-Ahead Market, the
Independent Transmission Provider shall Transmission Usage Charges.
Independent Transmission Provider shall pay 3.6.2 Hourly Net Congestion Revenue
determine the Marginal Congestion each Primary Holder of a Flowgate Right an
Component of each Transmission Usage Owed to Congestion Revenue Rights Holders:
amount equal to the applicable hourly The Hourly Net Congestion Revenue owed to
Charge associated with Transmission Service Flowgate LMP multiplied by the MWs
from a designated Receipt Point to a Congestion Revenue Rights Holders for any
specified in the Primary Holder’s Flowgate
designated Delivery Point specified in each hour in the Day-Ahead Market is defined
Right.
Receipt Point-to-Delivery Point Congestion here as the net hourly amounts payable to
Revenue Right (including both Obligation 3.6 Disposition of Congestion Revenue Primary Congestion Revenue Rights Holders
and Option Rights), consistent with Section Surplus or Deficit pursuant to Sections F.3.5.1 and F.3.5.2.
F.3.3.1. In each instance when the applicable 3.6.1 Hourly Congestion Charge 3.6.3 Determination and Disposition of
Marginal Congestion Component is positive, Collection: The Hourly Congestion Charge Congestion Revenue Surplus or Deficit: For
the Independent Transmission Provider shall Collection is defined here as the sum of the each hour of the Day-Ahead Market, the
pay to the Primary Holder of the Congestion Hourly Energy Congestion Charge Collection Independent Transmission Provider shall
Revenue Right an amount equal to the plus the Hourly Transmission Congestion calculate the Hourly Congestion Charge
applicable hourly Marginal Congestion Charge Collection. The Hourly Energy Collection and the Hourly Net Congestion
EP29AU02.007</GPH>
Component multiplied by the specified MWs. Congestion Charge Collection is defined for Revenue Owed to Congestion Revenue Rights
Holders. For each hour of the Day-Ahead the Day-Ahead Market if they meet the obligations and rights set forth in (i) through
Market where the Hourly Congestion Charge criteria for eligibility. (iv):
Collection exceeds the Hourly Net 4.2 Independent Transmission Provider (i) Each Load-Serving Entity is required to
Congestion Revenue Owned to Congestion Obligations: The Independent Transmission fulfill its Operating Day Regulation obligation
Revenue Rights Holders, the Independent Provider has the obligation to provide on the basis of either or both Self-Supply or
Transmission Provider shall allocate the services (i) to (vii) for the Day-Ahead Market procurement from the Day-Ahead and Real-
revenue surplus to the Transmission Owners. for Regulation. The rules governing these Time markets for Regulation. The
For each hour of the Day-Ahead Market services are contained in this section: Transmission Provider shall procure
where the Hourly Congestion Charge (i) Establish and post on its OASIS Regulation Reserve on behalf of Load-Serving
Collection is less than the Hourly Net Regulation criteria and requirements in Entities and determine the final cost of each
Congestion Revenue Owned to Congestion accord with regional or local reliability MW purchased.
Revenue Rights Holders, the Independent authority rules and NERC guidelines. (ii) A Load-Serving entity may meet its
Transmission Provider shall charge the (ii) Establish and post on its OASIS a Total Regulation obligation through Self-Supply by
revenue deficit to the Transmission Owners. Regulation Requirement for the Independent offering into the Day-Ahead Market for
3.7 Disposition of Marginal Loss Revenue Transmission Provider’s Service Area for Regulation its own Resources capable of
Surplus each hour of the Operating Day. This hourly supplying Regulation or Resources for which
requirement enters the Day-Ahead Security it has made contractual arrangements with
3.7.1 Hourly Marginal Loss Charge Constrained Unit Commitment. The Total
Collection: The Hourly Marginal Loss Charge third parties able to provide Regulation on a
Regulation Requirement may be subdivided comparable basis. Such self-supplied
Collection is defined here as the sum of the into locational Regulation Requirements; that
Hourly Energy Marginal Loss Charge Resources must be placed under the
is, those assigned to specific locations (or Independent Transmission Provider’s
Collection plus the Hourly Transmission Zones) within the Service Area.
Marginal Loss Charge Collection. The Hourly control, and must meet the Independent
(iii) Allocate the obligation for meeting the Transmission Provider’s rules for eligibility
Energy Marginal Loss Charge Collection is Total Regulation Requirement among Load-
defined for any hour of the Day-Ahead to supply Regulation (see Section 5.2 and
Serving Entities. The obligation of each Load- 5.4.1). These self-supplied Resources are
Market as (i) the net amounts charged to Serving Entity in any hour shall be equal to
purchasers of Energy in the Independent scheduled in the Day-Ahead Market for
the product of (1) the Load-Serving Entity’s Regulation at a Supply Bid Price of $0/MWh.
Transmission Provider’s Day-Ahead Market Real-Time load in the hour as a percentage
associated with the Marginal Losses Also, a Load-Serving Entity shall be paid the
of the total Real-Time load in the applicable Day-Ahead Market Clearing Price
Component of the hourly LMPs at the Independent Transmission Provider’s Service
purchasers’ buses, less (ii) the net amounts for any Regulation self-supplied in excess of
Area in the hour and (2) the total Day-Ahead its obligation.
paid to sellers of Energy in the Independent Total Regulation Requirement for the hour.
Transmission Provider’s Day-Ahead Market (iii) A Load-Serving Entity that has not
The Load-Serving entity’s forecasted fulfilled all of its Regulation obligation
associated with the Marginal Losses
Regulation obligation for purposes of Section through Self-Supply is required to allow the
Component of the hourly LMPs at the sellers’
F.2.8.1(iii) shall be equal to the product of (1) Independent Transmission Provider to
buses. The Hourly Transmission Marginal
the Load-Serving Entity’s Day-Ahead procure sufficient Regulation that it has not
Loss Charge Collection is defined for any
scheduled load in an hour and (2) the total self-supplied through the Day-Ahead, and if
hour of the Day-Ahead Market as the net
Day-Ahead Regulation requirement in the necessary, the Real-Time Regulation Market
amounts charged to Customers for
hour. to fulfill the obligation that is not self-
Transmission Service scheduled in the Day-
(iv) Establish and post on its OASIS rules supplied.
Ahead Market associated with the Marginal
for eligibility to supply Regulation in the
Cost Component of the applicable hourly 4.4 Supplier Rules and Obligations
Transmission Usage Charges. Day-Ahead Market that are consistent with
3.7.2 Determination and Disposition of this Tariff, including minimum technical 4.4.1 Eligibility to Supply: To be eligible
Marginal Loss Revenue Surplus: For each requirements and performance standards for to supply Regulation in the Day-Ahead
hour of the Day-Ahead Market, the a Generator or Load to provide Regulation in Market for Regulation, a Supplier or a
Independent Transmission Provider shall response to signals sent by the Independent Generator contracted by a Supplier must
calculate the Hourly Marginal Loss Charge Transmission Provider. meet criteria (i) to (v), as follow.
Collection and the Hourly Net Energy (v) Establish and post on its OASIS the Bid (i) Suppliers of Regulation may use only
Revenue Owed to Generators for losses data requirements and rules for self- Generators and/or Load that are electrically
associated with all Transactions. For each scheduling and Bidding, and provide the within the Independent Transmission
hour of the Day-Ahead Market where the market functions required for determination Provider’s Service Area.
Hourly Marginal Loss Charge Collection of hourly Day-Ahead Spinning Regulation (ii) Suppliers of Regulation may use only
exceeds the Hourly Net Energy Revenue Market Clearing Prices and selection of Day- Generators and/or Load that are able to
Owed to Generators for Losses associated Ahead Regulation Market Suppliers. respond to AGC Base Point Signals sent by
with all Transactions, the Independent Establish and post on its OASIS how these the Independent Transmission Provider
Transmission Provider shall allocate the pricing and selection rules are modified to pursuant to the Independent Transmission
revenue surplus to reduction in the charge account for locational Regulation Provider procedures.
for Network Access Service. [The requirements. Establish how these pricing (iii) Suppliers of Regulation may use only
Independent Transmission Provider shall and selection rules are modified in the event Generators and/or Load that meet
determine the exact allocation to each of shortages in Bid-in Regulation capacity. Independent Transmission Provider
Customer and will file procedures for [The Independent Transmission Provider standards for Generator or Load performance.
determining the allocation of the revenue shall include procedures for self-supply.] (iv) Suppliers of Regulation shall not use,
surplus to each Customer.] (vi) Establish and post on its OASIS the contract to provide, or otherwise commit the
rules for determination of any additional capability that is designated to provide
4. Day-Ahead Market for Regulation and payments necessary to support efficient Regulation to provide Energy or Spinning
Frequency Response operations of the Day-Ahead Regulation Reserve to any party other than the
4.1 General: The Day-Ahead Market for Market and the efficient joint operation of the Independent Transmission Provider.
Regulation establishes clearing prices and Day-Ahead Market for Regulation and other (v) Suppliers of Regulation shall provide
settlement rules for Suppliers that have Day-Ahead Markets. the Bid information specified in Section
offered eligible Regulation capacity to the (vi) Provide the Settlement functions F.4.4.2.
market. The Transmission Provider shall associated with purchase and sale of 4.4.2 Specification of Bids: Suppliers of
procure Regulation through this market on Regulation in the Day-Ahead Market. Regulation must provide the Bid information
behalf of Load-Serving Entities that have (vii) Post the Day-Ahead Regulation Market in (i) to (vii), as follows.
chosen not to Self-supply or purchase Clearing Prices. (i) Availability Bid price ($/MWh).
through bilateral contracts. Both Generation 4.3 Purchaser Rules and Obligations: The (ii) Regulation Capability (MW) of the
and Load may Bid to provide Regulation in Purchaser of Regulation Service has the Generator supplying Regulation.
(iii) Response Rate (MW/Minute) of the Regulation Requirement for the Operating with this Tariff, including minimum
Generator supplying Regulation. Day. technical requirements and performance
(iv) Upper and Lower Regulation Limits 4.8 Settlement: The Independent standards for a Generator or Load to provide
(MW). Transmission Provider will provide timely Spinning Reserve.
(v) Hours of availability to provide settlement of sales of Regulation in the Day- (v) Establish and post on its OASIS the Bid
Regulation. Ahead Market for Regulation pursuant to data requirements and rules for self-
(vi) Any additional physical data required Section 4.8.1. scheduling and Bidding that are consistent
by the Independent Transmission Provider 4.8.1 Payments to Suppliers with this Tariff, and provide the market
(vii) Location of Resources functions required for determination of
4.5 Calculation of Market Clearing Price: (i) The Independent Transmission Provider hourly Day-Ahead Spinning Reserve Market
The Independent Transmission Provider shall pay each Supplier, the hourly Day- Clearing Prices and selection of Day-Ahead
shall calculate a Market Clearing Price for the Ahead Market Clearing Price for Regulation Spinning Reserve Market Suppliers. Establish
Day Ahead Market for Regulation, using the times the Quantity (MW) of the Supplier’s how these pricing and selection rules are
following methodology. Regulation scheduled (i.e., selected) in the modified to account for locational Spinning
The Independent Transmission Provider hour. Reserve requirements. Establish how these
shall establish a Supplier Regulation Price for 5. Day-Ahead Market for Operating Reserve— pricing and selection rules are modified in
each Supplier based on the sum of the Spinning Reserve the event of shortages in Bid-in Spinning
Supplier’s Availability Bid and its Day- Reserve capacity.
5.1 General: The Independent (vi) Establish and post on its OASIS the
Ahead Unit-Specific Opportunity Cost (as Transmission Provider shall establish bid-
defined below). The hourly Day-Ahead rules for determination of any additional
based markets for the types of Operating payments necessary to support efficient
Regulation Market Clearing Price shall be the Reserve—Spinning Reserves (e.g., 10-minute,
higher of (i) the highest Supplier Regulation operations of the Day-Ahead Market for
30-minute) necessary to meet local reliability Spinning Reserve and the efficient joint
Price needed to meet the Independent authority rules or NERC guidelines. Day-
Transmission Provider’s Regulation operation of the Day-Ahead Market for
Ahead Markets for Spinning Reserve shall be Spinning Reserve and other Day-Ahead
Requirement for each hour of the Next Day, used to provide clearing prices and
or (ii) the highest Market Clearing Price in Markets.
settlement rules for Suppliers of Spinning (vii) Provide the Settlement functions
the hour for Operating Reserves. Reserve that have offered eligible Spinning
The Unit-Specific Opportunity Costs of a associated with sale of Spinning Reserve in
Reserve capacity to the market. The the Day-Ahead Market.
Resource Bidding to sell Regulation each Transmission Provider shall procure
hour shall be equal to the product of: (vii) Post the Day-Ahead Market Clearing
Spinning Reserves in this market on behalf Prices for Spinning Reserve.
(i) the deviation of the Regulation set point of Purchasers of Spinning Reserve that have
of the Generator that is required in order to chosen not to self-supply or procure through 5.3 Purchaser Rules and Obligations
provide Regulation from the Resource’s bilateral contracts. Both Generation and Load (i) Each Load-Serving Entity is required to
expected output level if it had been may Bid to provide Spinning Reserve in the fulfill its Operating Day Spinning Reserve
scheduled or dispatched in economic merit Day-Ahead Market if they meet criteria for obligation on the basis of either or both self-
order to provide Energy, times eligibility. supply or procurement from the Day-Ahead
(ii) the greater of (a) the $/MWh difference 5.2 Independent Transmission Provider and Real-Time markets for Spinning Reserve.
between the expected Energy LMP at the Obligations: The Independent Transmission The Independent Transmission Provider
generation bus for the Resource and the Bid Provider has the obligation to provide shall procure Spinning Reserve on behalf of
price for Energy from the Resource (at the services (i) to (vii) for the Day-Ahead Market Load-Serving Entities and determine the final
megawatt level of the Regulation set point for for Spinning Reserve. The rules governing cost of each MW purchased.
the Resource) in the Real-Time Energy these services are contained in this section: (ii) A Load-Serving Entity may meets its
Market and (b) zero. (i) Establish and post on its OASIS Spinning Reserve obligation through Self-
4.6 Calculation of Additional Payments and Spinning Reserve criteria and requirements Supply by offering its own Resources capable
Charges in accord with regional or local reliability of supplying Spinning Reserves or Resources
authority rules and NERC guidelines. for which it has made contractual
4.6.1 Bid Revenue Sufficiency Guarantee:
(ii) Establish and post on its OASIS a Total arrangements with third parties able to
The Independent Transmission Provider
Spinning Reserve Requirement for the provide Spinning Reserves on a comparable
shall calculate for each Resource scheduled
Independent Transmission Provider’s Service basis. Such self-supplied Resources must be
for Regulation in the Day-Ahead Market the placed under the Independent Transmission
amount of the Bid Revenue Sufficiency Area for each hour of the Operating Day. This
hourly requirement enters the Day-Ahead Provider’s control, and must meet the
Guarantee payment, pursuant to Section Independent Transmission Provider’s rules
F.1.11. Security Constrained Unit Commitment. The
Total Spinning Reserve Requirement may be for eligibility (see Section 5.2 and 5.4.1).
4.6.2 Other Payments and Charges: [The These self-supplied Resources are scheduled
Independent Transmission Provider may sub-divided into locational Spinning Reserve
Requirements; that is, assigned to specific in the Day-Ahead Spinning Reserves Market.
include in this section market rules for any A Load-Serving Entity shall be paid the
other payments or charges associated with locations (or Zones) within the Service Area.
(iii) Allocate the obligation for meeting the applicable Day-Ahead Market clearing price
the efficient and reliable operations of the for any Spinning Reserve self-supplied in
Day-Ahead Market for Regulation.] Total Spinning Reserve Requirement among
Load-Serving Entities. The obligation of each excess of its obligation.
4.7 Market Rules for Shortages Load-Serving Entity in any hour shall be (iii) A Load-Serving Entity that has not
(i) [The Independent Transmission equal to the product of (1) the Load-Serving fulfilled all of its Spinning Reserve obligation
through Self-Supply is required to allow the
Provider may include in this section market Entity’s Real-Time load in the hour as a
rules, including calculation of market prices percentage of the total Real-Time load in the
procure sufficient Spinning Reserve that it
and determination of out of market Independent Transmission Provider’s Service
has not Self-Supplied through the Day-Ahead
payments, in the event of a shortfall in Area in the hour and (2) the total Day-Ahead
and, if necessary, Real-Time Spinning
Regulation in the Day-Ahead Market due to Total Spinning Reserve Requirement for the Reserve market to fulfill the obligation that
a shortage of available capacity. The market hour. The Load-Serving Entity’s forecasted is not Self-Supplied.
rules shall be in accord with regional or local Spinning Requirement obligation for
reliability authority rules and procedures and purposes of Section F.2.8.1(iii) shall be equal 5.4 Supplier Rules and Obligations
NERC guidelines.] to (1) the Load-Serving Entity’s Day-Ahead 5.4.1 Eligibility to Supply: To be eligible
(ii) [The Independent Transmission scheduled load in an hour multiplied by (2) to supply Spinning Reserve in the Day-Ahead
Provider may include in this section the total Day-Ahead Spinning Reserve Market for Spinning Reserve, a Supplier or a
procedures for soliciting additional Bids for requirement in the hour. Generator contracted by a Supplier must
Regulation in the event that Bids and self- (iv) Establish and post on its OASIS rules meet criteria (i) to (iv), as follow.
supplied provision of Regulation submitted for eligibility to supply Spinning Reserve in (i) Suppliers of Spinning Reserve may use
in the Day-Ahead Markets fall short of the the Day-Ahead Market that are consistent only Generators and/or Load that are
electrically within the Independent Reserve shall be the same in each of the Reserves that have chosen not to Self-supply
Transmission Provider’s Service Area. locations. or procure through bilateral contracts. Both
(ii) Suppliers of Spinning Reserve may use 5.5.3 Transmission for Operating Generation and Load may Bid to provide
only Generators and/or Load that meet Reserves: A Supplier located outside of a Supplemental Reserves in the Day-Ahead
Independent Transmission Provider particular Reserve Location may provide Market if they meet criteria for eligibility.
standards for Generator performance; Spinning Reserves if the necessary 6.2 Independent Transmission Provider
similarly, Demand Resources must meet transmission arrangements to deliver Energy Obligations: The Independent Transmission
Independent Transmission Provider from the Supplier’s capacity to the Reserve Provider has the obligation to provide
standards for response capability. Location are made. The cost of any services (i) to (viii) for the Day-Ahead
(iii) Suppliers of Spinning Reserve shall transmission service would have to be Markets for Supplemental Reserves. The
not use, contract to provide, or otherwise included in evaluating the total cost of rules governing these services are contained
commit the capability that is designated to Operating Reserves. in this section:
provide Spinning Reserve to provide Energy, 5.6 Calculation of Additional Payments and (i) Establish and post on its OASIS
Regulation or Supplemental Reserve to any Charges Supplemental Reserve criteria and
party other than the Independent requirements in accord with regional or local
Transmission Provider. 5.6.1 Bid Revenue Sufficiency Guarantee: reliability authority rules and NERC
(iv) Suppliers of Spinning Reserve shall The Independent Transmission Provider guidelines.
provide the Bid information specified in shall calculate, for each Resource scheduled (ii) Establish and post on its OASIS Total
Section 5.4.2. for Spinning Reserve in the Day-Ahead Supplemental Reserves Requirements for the
5.4.2 Specification of Bids: Suppliers of Market the amount of the Bid Revenue Independent Transmission Provider’s Service
Spinning Reserve must provide the Bid Sufficiency Guarantee payment, pursuant to Area for each Hour of the Operating Day.
information in (i) to (vi), as follows. Section F.1.11. This hourly requirement enters the Day-
(i) Availability Bid price ($/MWh). 5.6.2 Other Payments and Charges: [The Ahead Security Constrained Unit
(ii) Response Rate (MW/Minute) of the Independent Transmission Provider may
Commitment. The Total Supplemental
Generator supplying Spinning Reserve. include in this section market rules for any
Reserve Requirements may be subdivided
(iii) Hours of availability to provide other payments or charges associated with
into locational Supplemental Reserve
Spinning Reserve. the efficient and reliable operations of the
Requirements; that is, assigned to specific
(iv) Any additional physical data required Day-Ahead Markets for Spinning Reserves.]
locations (or zones) within the Service Area.
by the Independent Transmission Provider. 5.7 Market Rules for Shortages (iii) Allocate the obligation for meeting the
(v) Location of Resource. (i) [The Independent Transmission Total Supplemental Reserve Requirement
5.5 Calculation of Market Clearing Price Provider may include in this section market among Load-Serving Entities. The obligation
rules, including specification of quantities, of each Load-Serving Entity in any hour shall
5.5.1 Methodology for Calculation of
calculation of market prices, and be equal to the product of (1) the Load-
Clearing Price: The Independent
determination of out of market payments in Serving Entity’s Real-Time load in the hour
Transmission Provider shall calculate a
the event of a shortfall in the required system as a percentage of the total Real-Time load in
Market Clearing Price for the Day Ahead
Market for Spinning Reserve, using the requirements for Spinning Reserves due to a the Independent Transmission Provider’s
following methodology. shortage of available capacity. The market Service Area in the hour and (2) the Total
The Independent Transmission Provider rules shall be in accord with regional or local Day-Ahead Total Supplemental Reserve
shall establish a Supplier Spinning Reserve reliability authority rules and procedures and Requirement for the hour. The Load-Serving
Price for each Supplier based on the sum of NERC guidelines.] Entity’s forecasted Supplemental Reserve
the Supplier’s Availability Bid and its Day- (ii) [The Independent Transmission obligation for purposes of Section F.2.8.1 (iii)
Ahead Unit-Specific Opportunity Cost (as Provider may include in this section shall be equal to the product of (1) the Load-
defined below). The hourly Day-Ahead procedures for soliciting additional Bids for Serving Entity’s Day-Ahead scheduled load
Spinning Reserve Market Clearing Price shall Spinning Reserves in the event that Bids and in the hour as a percent of the total Day-
be the higher of (i) the highest Supplier self-supplied provision of Spinning Reserves Ahead load in the Independent Transmission
Spinning Reserve Price needed to meet the submitted in the Day-Ahead Markets fall Provider’s Service Area in the hour and (2)
Independent Transmission Provider’s short of the required system requirements for the Total Day-Ahead Supplemental Reserve
Spinning Reserve Requirement for each hour Spinning Reserves.] Requirement in the hour.
of the Next Day, or (ii) the highest Market 5.8 Settlement: The Independent (iv) Establish and post on its OASIS rules
Clearing Price in the hour for Supplemental Transmission Provider will provide timely for eligibility to supply Supplemental
Reserves. settlement of purchases and sales of Spinning Reserves in the Day-Ahead Market that are
The Unit-Specific Opportunity Costs of a Reserve in the Day-Ahead Market for consistent with this Tariff, including
Resource Bidding to sell Spinning Reserve Spinning Reserve pursuant to Sections 5.8.1. minimum technical requirements and
each hour shall be equal to the product of: 5.8.1 Payments to Suppliers performance standards for a Generator and/
(i) the deviation of the set point (MWh) of or Load to provide Supplemental Reserves.
(i) The Independent Transmission Provider
the Generator that is required in order to (v) Establish and post on its OASIS the Bid
shall pay each Supplier the hourly Day-
provide Spinning Reserve from the data requirements and rules for self-
Ahead Spinning Reserve Market Clearing
Resource’s output level if it had been scheduling and Bidding that are consistent
Price times the quantity (MW) of the
scheduled or dispatched in economic merit with this Tariff, and provide the market
Supplier’s Spinning Reserve capability
order to provide Energy, times functions required for determination of
provided in the hour.
(ii) the greater of (a) the $/MWh difference hourly Day-Ahead Supplemental Reserves
between the Energy LMP at the generation 6. Day-Ahead Markets for Operating Reserve- Market Clearing Prices and selection of Day-
bus for the Resource and the Bid price for Supplemental Reserve Ahead Supplemental Reserves Market
Energy from the Resource (at the megawatt 6.1 General: The Independent Suppliers. Establish how these pricing and
level of the Spinning Reserve set point for the Transmission Provider shall establish the selection rules are modified to account for
Resource) in the Day-Ahead Energy Market types of Supplemental Reserves (e.g., 10- locational Supplemental Reserves
and (b) zero. minute, 30-minute, 60-minute) necessary to requirements. Establish how these pricing
5.5.2 Calculation of Zonal or Locational meet local reliability authority rules and and selection rules are modified in the event
Prices: Separate Day-Ahead Spinning Reserve NERC guidelines. Day-Ahead Markets for of a shortage of Bid-in Supplemental Reserve
Market Clearing Prices will be calculated for Supplemental Reserves establish clearing capacity.
Spinning Reserve located in each distinct prices and settlement rules for Suppliers of (vi) Provide the Settlement functions
Reserve Location for which there is a Supplemental that have offered eligible associated with purchase and sale of
separate Spinning Reserve requirement. Supplemental Reserve capacity to the market. Supplemental Reserves in the Day-Ahead
When there are no binding transmission The Transmission Provider shall procure Market.
constraints between Reserve Locations, the Supplemental Reserves in this market on (vii) Post the Day-Ahead Supplemental
Day-Ahead Ancillary Price for Spinning behalf of Purchasers of Supplemental Reserves Market Clearing Prices.
6.3 Purchaser Rules and Obligations: (iv) Any additional physical data required include in this section market rules for any
(i) Each Load-Serving Entity is required to by the Independent Transmission Provider. other payments or charges associated with
fulfill its Operating Day Supplemental (v) Location of Resource. the efficient and reliable operations of the
Reserves obligation on the basis of either or 6.5 Calculation of Market Clearing Prices Day-Ahead Markets for Supplemental
both Self-Supply or procurement from the for Supplemental Reserves Reserves.]
Day-Ahead and Real-Time markets for 6.5.1 Methodology for Calculation of 6.7 Market Rules for Shortages
Supplemental Reserves. The Independent Prices: The Independent Transmission (i) [The Independent Transmission
Transmission Provider shall procure Provider shall calculate a Market Clearing Provider may include in this section market
Supplemental Reserve on behalf of Load- Price for each Day-Ahead Market for rules, including specification of quantities of
Serving Entities and determine the final cost Supplemental Reserves, using the following Supplemental Reserve purchased, calculation
of each MW purchased.
methodology. of market prices, and determination of out-
(ii) A Load-Serving Entity may meet its
The Independent Transmission Provider of-market payments in the event of a shortfall
Supplemental Reserve obligation through
shall establish a Supplier Estimated in the required system requirements for
Self-Supply by offering into the Day-Ahead
Supplemental Reserve Price for each Supplemental Reserves due to a shortage of
Market for Supplemental Reserves its own
Supplier based on the sum of the Supplier’s available capacity. The market rules shall be
Resources capable of supplying
Availability Bid and its Day-Ahead Unit- in accord with regional or local reliability
Supplemental Reserves or Resources for
Specific Opportunity Cost (as defined below). authority rules and procedures and NERC
which it has made contractual arrangements
The hourly Day-Ahead Supplemental guidelines.]
with third parties able to provide
Supplemental Reserves on a comparable Reserve Market Clearing Price shall be the (ii) [The Independent Transmission
basis. Such self-supplied Resources must be higher of (i) the highest Supplier Provider may include in this section
placed under the Independent Transmission Supplemental Reserve Price needed to meet procedures for soliciting additional Bids for
Provider’s control, and must meet the the Independent Transmission Provider’s Supplemental Reserves in the event that Bids
Independent Transmission Provider’s rules Supplemental Reserve Requirement for each and self-supplied provision of Supplemental
for eligibility (see Sections 6.2 and 6.4.1). hour of the Next Day, or (ii) the Market Reserves submitted in the Day-Ahead
These self-supplied Resources are scheduled Clearing Price in the hour for a lower quality Markets fall short of the required system
in the Day-Ahead Reserves Market. A Load- Supplemental Reserve. requirements for Supplemental Reserves.]
Serving Entity shall be paid the applicable The Unit-Specific Opportunity Costs of a 6.8 Settlement: The Independent
Day-Ahead Market clearing price for any Resource Bidding to sell Supplemental Transmission Provider will provide timely
Supplemental Reserve self-supplied in excess Reserves each hour shall be equal to the settlement of sales of Supplemental Reserves
of its obligation. product of: in the Day-Ahead Markets for Supplemental
(iii) A Load-Serving Entity that has not (i) the deviation of the set point (MWh) of Reserves pursuant to Sections 6.8.1.
fulfilled all of its Supplemental Reserves the Generator that is expected to be required 6.8.1 Payments to Suppliers
obligation through self-supply is required to in order to provide Supplemental Reserve
from the Resource’s output level if it had (i) The Independent Transmission Provider
allow the Independent Transmission shall pay each Supplier the hourly Day-
Provider to procure sufficient Supplemental been scheduled or dispatched in economic
merit order to provide Energy, times Ahead Supplemental Reserve Market
Reserves that it has not Self-Supplied Clearing Price times the quantity (MW) of the
through the Day-Ahead and, if necessary, (ii) the absolute value of the difference
between the Energy LMP at the generation Supplier’s Supplemental Reserve capability
Real-Time Supplemental Reserves market to provided in the hour.
fulfill the obligation that is not Self-Supplied. bus for the Resource and the Bid price for
Energy from the Resource (at the megawatt G. Post-Day-Ahead Scheduling and Real-
6.4 Supplier Rules and Obligations level of the Supplemental Reserve set point Time Markets
6.4.1 Eligibility to Supply: To be eligible for the Resource) in the Day-Ahead Energy
to supply Supplemental Reserves in the Day- Market. Preamble
Ahead Markets for Supplemental Reserve, a 6.5.2 Calculation of Zonal or Locational The Independent Transmission Provider
Supplier or a Generator contracted by a Prices: Separate Day-Ahead Supplemental will operate a Real-Time Market in order to
Supplier must meet criteria (i) to (iv), as Reserve Market Clearing Prices will be develop a post Day-Ahead Schedule and Real
follow. calculated for Supplemental Reserve located Time Dispatch Schedule for Transmission
(i) Subject to Independent Transmission in each distinct Reserve Location for which Service, Energy, and Ancillary Services. The
Provider requirements, Suppliers of there is a separate Supplemental Reserve Real-Time Schedule will be developed so as
Supplemental Reserves may use Generators requirement. When there are no binding to maximize the combined economic value of
and/or Load that are electrically within or transmission constraints between Reserve transmission service, Energy, and Ancillary
outside the Independent Transmission Locations, the Day-Ahead Ancillary Price for Services, based on the Bids submitted.
Provider’s Service Area. Supplemental Reserve shall be the same in 1. Post-Day-Ahead Bidding and Scheduling
(ii) Suppliers of Supplemental Reserves each of the locations. Procedures
may use only Generators and/or Load that 6.5.3 Transmission for Operating
meet Independent Transmission Provider Reserves: A Supplier located outside of a 1.1 General: The Independent
standards for Generator performance. particular Reserve Location may provide 10- Transmission Provider shall establish
(iii) Suppliers of Supplemental Reserves Minute Supplemental Reserve if the procedures for modification of the Day-
shall not use, contract to provide, or necessary arrangements Energy from the Ahead Schedule and development of the
otherwise commit the capability that is Supplier’s capacity to the Reserve Location Real-Time Schedule and dispatch that
designated to provide Supplemental Reserves are made. The cost of any transmission incorporate components (i) to (vi), as follow.
to provide Energy, Regulation and Frequency service would have to be included in (i) The Independent Transmission Provider
Response, or Spinning Reserve to any party evaluating the total cost of Operating will allow Market Participants that have had
other than the Independent Transmission Reserves. selected in the Day-Ahead Schedule (1) a
Provider. Quantity of Energy, whether a purchase or
6.6 Calculation of Additional Payments and sale, Regulation or Operating Reserve, (2) a
(iv) Suppliers of Supplemental Reserves
shall provide the Bid information specified Charges Bilateral Transaction, or (3) a Self-Schedule
in Section 4.2. 6.6.1 Bid Revenue Sufficiency Guarantee: or Self-Supply, to change the Quantities in
6.4.2 Specification of Bids: Suppliers of The Independent Transmission Provider the Schedule at any time following the close
Supplemental Reserves must provide the Bid shall calculate, for each Resource scheduled of the Day-Ahead Market but before the
information in (i) to (iv), as follows. for Supplemental Reserves in the Day-Ahead [Scheduling Deadline to be provided by the
(i) Availability Bid price ($/MWh). Market the amount of the Bid Revenue Independent Transmission Provider] prior to
(ii) Response Rate (MW/Minute) of the Sufficiency Guarantee payment, pursuant to each Dispatch Hour in the Operating Day.
Resource supplying Supplemental Reserve. Section F.1.11. (ii) The Independent Transmission
(iii) Hours of availability to provide 6.6.2 Other Payments and Charges: [The Provider will allow Suppliers or Purchasers
Supplemental Reserve. Independent Transmission Provider may of Energy and Suppliers of Regulation or
Operating Reserves that have capacity not retaining the amount of Energy withdrawn at 2.2 Security Constrained Dispatch: The
selected in the Day-Ahead Schedule to the Delivery Point) when the Real-Time Independent Transmission Provider shall run
submit new Bids, including Prices ($/MW) Energy LMP at the Receipt Point falls below a Security Constrained Dispatch every five
and Quantities (MW), into the Real-Time the Decremental Energy Bid. minutes to minimize the total Bid Production
Market. [Independent Transmission Provider 1.3.2 External Transactions Costs of meeting the system Load and
will provide schedule.] maintaining scheduled interchanges with
(iii) The Independent Transmission (i) All External Transactions submitted or adjacent Service Areas over the next Security
Provider will allow Market Participants to modified after the Day-Ahead Schedule must Constrained Dispatch Interval. Bid
submit new Bilateral Transactions and Self- specify a Receipt Point, a Delivery Point, a Production Costs, for this purpose, will be
Schedules at any time following the close of MW quantity injected at the Receipt Point calculated using selected Day-Ahead and
the Day-Ahead Market but before the and a MW quantity withdrawn at the Real-Time Bids for Energy and Ancillary
[Scheduling Deadline to be provided by the Delivery Point. Either the Receipt Point or Services submitted into the Real-Time
Independent Transmission Provider] prior to the Delivery Point must be a point at the Market. The Independent Transmission
each Dispatch Hour in the Operating Day. boundary of the Independent Transmission Provider shall dispatch the Power System
(iv) The Independent Transmission Provider Service Area. All External consistent with the Bids that are submitted
Provider will post on its OASIS the Transactions must specify a minimum run by Suppliers and accepted by the
Deadlines for Scheduling Revised or New time. Independent Transmission Provider, while
Quantities and for submission of Price Bids (ii) The Independent Transmission satisfying the actual system Load.
into the Real-Time Market, consistent with Provider shall offer Market Participants with 2.3 Intra-Day Bid Revenue Sufficiency
the Tariff. External Transactions submitted after the Guarantee: The Independent Transmission
(v) The Independent Transmission Day-Ahead Schedule or modifying the Day- Provider shall ensure the minimum recovery
Provider shall establish scheduling Ahead Schedule two options for scheduling. of each Reserve’s Bid prices for Resources
procedures for External Transactions during (1) External Transactions can be scheduled scheduled after the close of the Day-Ahead
each Hour and Quarter-Hour of the Operating without a Price Bid. (2) External Transactions Market, committed on an intra-day basis, or
Day, consistent with the requirements can be scheduled with a Price Bid ($/MW) dispatched through the Real-Time Market.
established by the Commission. over some or all of the MW quantity being (i) The Independent Transmission Provider
(vi) A Supplier or Purchaser in the Real- scheduled. shall determine, on a daily basis, if any
Time Market, as well as a Bilateral Schedule (iii) External Transactions that are Exports Resource committed by the Independent
or Self-Schedule that submits a Price Bid, may voluntarily submit a Decremental Transmission Provider in the Real-Time
that follows Independent Transmission Energy Bid (in $/MW) over some or all of the Market will not recover its Start-Up, No Load
Provider Dispatch Instructions that deviate MW range, which indicates the Customer’s and Energy Bid Price through revenues in the
from the previously selected schedules willingness to reduce the amount of Energy Real-Time Energy and Ancillary Services
submitted by the Supplier or Purchaser in the supplied at the Receipt Point at the markets.
Day-Ahead Market, shall be provided with a Independent Transmission Provider’s (ii) If the Start-Up and No Load Bids plus
Bid Revenue Sufficiency Guarantee, pursuant instruction (while retaining the amount of the net Energy and Ancillary Services Bid
to Section G.2.3. Energy withdrawn at the Delivery Point) Price over the twenty-four (24) hour day of
when the Real-Time Energy LMP at the any Supply Resource scheduled, committed,
1.2 Rules for Self Schedules Receipt Point falls below the Decremental or dispatched by the Independent
1.2.1 Supplier-Committed Self Schedules Energy Bid. External Transactions that are Transmission Provider exceeds its Real-Time
imports may voluntarily submit an LMP revenue and Ancillary Service Revenue
(i) Suppliers that wish to increase the Incremental Energy Bid (in $/MW) over some
amount of Energy scheduled above the over the twenty-four (24) hour day, then that
or all of the MW range, which indicates the Supplier’s Real-Time LMP revenue, the Real-
amounts scheduled in the Day-Ahead Customer’s willingness to reduce the amount
Market, regardless of the applicable Real- Time Supply Bid Revenue Sufficiency
of Energy withdrawn at the Delivery Point at Guarantee payment, shall be augmented by
Time Energy LMP, may so inform the the Independent Transmission Provider’s
Independent Transmission Provider [before an additional payment in the amount of the
instruction (while retaining the amount of shortfall. Resources not scheduled,
the scheduling deadline provided by the Energy injected at the Receipt Point) when
Independent Transmission Provider] prior to committed, or dispatched by the Independent
the Real-Time Energy LMP at the Delivery Transmission Provider, but which continue
each Dispatch Hour in the Operating Day. Point rises above the Incremental Energy Bid.
(ii) Such Suppliers of Energy are required to operate shall not receive such a payment.
(iv) The Independent Transmission This payment shall be supported through
to submit a MW quantity and a location. Provider will adjust External Transactions revenue collected from the Supply Bid
1.3 Rules for Bilateral Transactions schedules on quarter hour notice. Revenue Sufficiency Guarantee Charge.
1.3.1 Internal Transactions (v) The Independent Transmission (iii) If the total Real-Time Energy charges
Provider shall accept Short Notice External to any Demand Resource over the twenty-
(i) All Internal Transactions submitted or Transactions (SNETs) following the Real- four (24) hour day exceeds its maximum
modified after the Day-Ahead Schedule must Time Trading Deadline up to some later willingness to pay, as reflected by the
specify a Receipt Point, a Delivery Point, a SNET Deadline set by the Independent difference of its Real-Time Energy Bids and
MW quantity injected at the Receipt Point Transmission Provider. SNETs are not Start-up Cost Bid, the Demand Resource shall
and a MW quantity withdrawn at the eligible to set Real-Time LMPs. SNETs have be augmented by a payment, the Demand Bid
Delivery Point. the lowest priority in the event of Revenue Sufficiency Guarantee Payment, in
(ii) Internal Transactions may voluntarily Curtailment of Customers. the amount of the overcharge. This payment
submit a Price Bid ($/MW) over some or all 1.4 Rules for Bidding: The Independent is supported through revenues collected from
of the MW range which indicates the Transmission Provider shall evaluate accept the Demand Bid Revenue Sufficiency
Customer’s willingness to reduce or all eligible Bids for Energy Supply and Guarantee Charge.
eliminate the Transaction in the next Demand, Regulation, and Operating Reserves.
Security Constrained Dispatch time period at 3. Real-Time Market for Energy
The requirements for Bid eligibility and the
the Independent Transmission Provider’s Bid Specifications are in Sections G 3.4, 3.1 General: The Real-Time Market for
instruction when the applicable Real-Time G.5.4 and G.7.4. Energy establishes clearing prices and
Transmission Usage Charge reaches or settlement rules for Suppliers of Energy that
exceeds the price Bid. 2. Security Constrained Intra-Day Unit have offered eligible Energy capacity to the
(iii) Internal Transactions may voluntarily Commitment and Dispatch market and for Purchasers of Energy that
submit a Decremental Energy Bid (in $/MW) 2.1 Intra-Day Security Constrained Unit have chosen not to self-supply or procure
over some or all of the MW range, which Commitment: The Independent Transmission through bilateral contracts.
indicates the Customer’s willingness to Provider may undertake a periodic intra-day 3.2 Independent Transmission Provider
reduce the amount of Energy supplied at the Security-Constrained Unit Commitment for Obligations: The Independent Transmission
Receipt Point at the Independent Resources with Start-up and No-load costs Provider has the obligations to provide
Transmission Provider’s instruction (while not committed in the Day-Ahead Schedule. services (i) to (v) for the Real-Time Market for
Energy. The rules governing these services (ii) Power system operations in the Real- including market-based penalties, for
are contained in this section. Time Market, including, but not limited to, Suppliers of Energy that persistently provide
(i) Establish and post on its OASIS rules the determination of the least costly means less Energy in Real-Time than instructed.
that are consistent with this Tariff for of serving Load, depend upon the availability One market-based penalty is to require the
eligibility to supply Energy in the Real-Time of a complete and consistent representation Supplier to buy Regulation at the Real-Time
Market. of Generator outputs, Loads, and power flows Market Clearing Price for Regulation in a
(ii) Establish and post on its OASIS the Bid on the network. In calculating LMPs, the quantity equivalent to the Energy not
data requirements and rules that are Independent Transmission Provider shall provided.]
consistent with this Tariff and provide the obtain a complete and consistent description (ii) [Exemptions: If the Independent
market functions required for determination of conditions on the electric network by Transmission Provider proposes penalties,
of hourly Real-Time Energy Market Clearing using the most recent power flow solution suppliers, such as intermittants, that have
Prices and selection of Real-Time Energy produced by the Independent Transmission constraints on following Dispatch
Market Suppliers. Provider’s dispatch software and/or software Instructions or other operating limitations
(iii) Establish and post on its OASIS the that measures actual system conditions in should be exempt from these penalties.]
rules that are consistent with this Tariff for Real-Time, such as a State Estimator. (iii) Replacement Reserve Penalty [The
determination of any Additional Payments 3.5.1 Ex Post Energy LMP Calculation: At Transmission Provider may file to establish
necessary to support efficient operations of the close of each Security Constrained market-based penalties for Suppliers of
the Real-Time Energy Market and/or the Dispatch Interval, the Independent Regulation that provide less Regulation in
efficient operation of other Real-Time Transmission Provider shall calculate Energy Real-Time than instructed.]
Markets. LMPs for each bus on its system that shall 3.6.3 Other Payments and Charges: [The
(iv) Provide the Settlement functions be used for settlement of the Real-Time Independent Transmission Provider may
associated with purchase and sale of Energy Market. These LMPs shall be called Ex Post include in this section market rules for any
in the Real-Time Market. Energy LMPs. The Ex Post Energy LMP for other payments or charges associated with
(v) Post the Real-Time LMPs for Energy. a Security Constrained Dispatch Interval at a the efficient and reliable operations of the
3.3 Purchaser Rules and Obligations given bus shall be equal to the lower of (a) Real-Time Markets for Energy.]
3.3.1 Specification of Bids. Bids to the Ex Ante Energy LMP for that bus; and (b) 3.7 Market Rules for Shortages or
Purchase Energy in the Real-Time Market for the marginal cost of making available to the Emergencies
Energy shall have the same price, quantity bus the Energy actually produced during the (i) [The Independent Transmission
and data requirements as Bids to Purchase Security Constrained Dispatch Interval by Provider may include in this section market
Energy in the Day-Ahead Market for Energy, suppliers that submitted Real-Time Energy rules, including calculation of market prices
as set forth in Section F.2.3.1. Virtual Bids. and determination of out-of-market
Demand Bids are not permitted in the Real- 3.5.2 Determination of Energy LMPs by payments, in the event of a shortfall in
Time Market. Fixed Block Resources: In calculating LMPs Energy in the Real-Time Market due to a
3.4 Supplier Rules and Obligations in the Day-Ahead Market, the Bid of any shortage of available capacity or an
3.4.1 Eligibility to Supply Fixed Block Unit (i.e., a unit whose output Emergency. The market rules shall be in
(i) Suppliers of Real-Time Energy may not cannot be adjusted in increments as small as accord with regional or local reliability
re-submit capacity selected for Energy in the 1 MW) will not be considered in calculating authority rules and procedures and NERC
Day-Ahead Market. Suppliers of Real-Time the Day-Ahead LMP at any bus. In guidelines.]
Energy may lower the Bid Price of capacity calculating LMPs in the Real-Time Market, (ii) After the Day-Ahead Schedule is
not selected for Energy in the Day-Ahead the price Bid of a Fixed Block Unit may set published, and up to a pre-specified period
Market. LMP, but only when some portion of its prior to each Dispatch Hour, the Independent
(ii) Suppliers of Real-Time Energy shall Energy is necessary to meet Load, displace Transmission Provider may, after giving
provide the Bid information specified in higher cost Energy, or satisfy Operating notice to affected Resources, in order to
Section F.2.4.2. Reserves Requirements. The marginal cost of prevent or address an Emergency, raise their
3.4.2 Specification of Bids: Bids to a Fixed Block Unit that forces more economic Bid-in upper operating limits to their
Supply Energy in the Real-Time Energy units to be backed down will not set Real- maximum and make the additional capacity
Market, including Incremental and Time LMP unless needed to meet Load, available to the Scheduling for the Real-Time
Decremental Energy, have the same price, displace higher price Energy or meet Market.
quantity and data requirements as Bids to Reserves requirements. The marginal cost of (iii) In the event of Emergency, Incremental
Supply Energy in the Day-Ahead Market for a Fixed Block Unit will not set Real-Time Energy purchased above a Generator’s Hourly
Energy, as set forth in Sections F.2.3 (b)–(d). LMP at any other time, including those times Economic Maximum Level and up to the
Virtual Supply Bids are not permitted in the when it is scheduled solely to meet its Generator’s Hourly Emergency Maximum
Real-Time Market. minimum runtime requirements or because Level will be settled at the Real-Time LMPs.
3.4.3 Period of Bids to Supply Energy: of inflexibilities in its operation. Decremental Energy purchased below the
Bids to Supply Incremental Energy or 3.5.3 Five Minute Real-Time LMPs: Hourly Economic Minimum Level and up to
Decremental Energy pursuant to Sections During the Operating Day, the LMP the Hourly Emergency Minimum Level will
F.3.4.1–3.4.2 can vary by price ($) and calculation shall be performed every [five be settled at the higher of (1) the Bid Price
quantity (MW) in each Hour of the Real-Time minutes, or some other minute by minute for the Decremental Emergency Energy and
Market. interval determined by the system technology (2) Real-Time LMPs.
3.5 Calculation of Real-Time Locational and software], using the Independent 3.8 Settlement: The Independent
Marginal Prices for Energy Transmission Provider’s LMP methodology, Transmission Provider will provide timely
(i) Immediately in advance of each Security producing a set of Real-Time Prices based on settlement of purchases and sales of Energy
Constrained Dispatch Interval, the system conditions during the preceding in the Real-Time Market for Energy pursuant
Independent Transmission Provider shall interval. to Sections G.3.7.1 and G.3.7.2.
post the Real-Time Energy LMPs for each bus 3.6 Calculation of Additional Payments 3.8.1 Settlement when Actual Energy
on its system that it estimates will clear the and Charges Injections are Less than Scheduled Energy
market and match Generation with Load 3.6.1 Bid Revenue Sufficiency Guarantee: Injections: When the actual Energy injections
during the upcoming Security Constrained The Independent Transmission Provider from a Supplier over a Security Constrained
Dispatch Interval, based on the Real-Time shall calculate, for each Resource scheduled, Dispatch Interval are less than its Energy
Bids submitted. These estimated Energy committed or dispatched for Energy in the scheduled in the Day-Ahead Market to be
LMPs shall be called Ex Ante LMPs. The Real-Time Market, the amount of the Bid injected over that SCE interval, the Supplier
pricing calculations for each of these LMPs Revenue Sufficiency Guarantee payment, shall pay for the difference in a charge equal
should be the same as those for the Day- pursuant to Section G.2.3. to the product of: (a) the Real-Time Energy
Ahead Market, as set forth in Section F.2.4, 3.6.2 Undergeneration by Suppliers LMP calculated for that Security Constrained
with the modifications contained in this (i) [The Independent Transmission Dispatch Interval at the applicable Supplier’s
Section G.3.5. Provider may file to establish pricing rules, bus; and (b) the difference between the
scheduled Energy injections and the actual regardless of the Marginal Congestion Charge interval exceed its Energy scheduled in the
Energy injections at that bus. in the Real-Time Market. Day-Ahead Market to be injected over that
3.8.2 Settlement when Actual Energy 4.3 Real-Time Transmission Usage Charges SCD interval and (d) each Purchaser whose
Injections are Greater than Scheduled Energy actual Energy withdrawals over the SCD
Injections: When the actual Energy injections The Independent Transmission Provider interval are less than its Energy scheduled in
shall charge a Transmission Usage Charge to the Day-Ahead Market to be withdrawn over
from a Supplier over a Security Constrained
all Bilateral Transactions whose transmission that SCD interval. The Real-Time
Dispatch Interval are greater than the Energy
service was scheduled after the Transmission Marginal Loss Charge
scheduled in the Day-Ahead Market to be
determination of the Day-Ahead schedule, or Collection for any SCD interval is defined for
injected over that Security Constrained who schedule additional transmission
Dispatch Interval, the Supplier shall be paid any SCD interval of the Real-Time Market as
service after the determination of the Day- the net amounts charged to Customers for
for the difference in a payment equal to the Ahead schedule. This charge is the product
product of: (a) the Real-Time Energy LMP Transmission Service scheduled in the Real-
of (a) the amount of Energy scheduled (as of Time Market for the SCD interval associated
calculated for that Security Constrained pre-determined trading deadline) to be
Dispatch Interval at the applicable Supplier’s with the Marginal Cost Component of the
withdrawn by that Customer in each hour, applicable hourly Transmission Usage
bus; and (b) the difference between the actual minus the amount of Energy scheduled Day-
Energy injections and the scheduled Energy Charges; less the net amounts associated with
Ahead to be withdrawn by that Customer in the Marginal Cost Component of the
injections at that bus. that hour, in MWh; and (b) the Real-Time
3.8.3 Settlement when Actual Energy applicable hourly Transmission Usage
LMP at the Point of Delivery (which could be Charges paid to Customers for Transmission
Withdrawals are Less than Scheduled Energy a Load Zone in which Energy is scheduled
Withdrawals: When a Customer’s actual Service scheduled in the Day-Ahead Market
to be withdrawn or the external bus where for reductions in Transmission Service in the
Energy withdrawals over a Security Energy is scheduled to be withdrawn if
Constrained Dispatch Interval are less than Real-Time Market during the SCD interval.
Energy is scheduled to be withdrawn at a 4.5.1 Determination and Disposition of
its Energy withdrawals scheduled in the Day- location outside the Independent
Ahead Market over that Security Constrained Marginal Loss Revenue Surplus: For each
Transmission Provider Service Area), minus SCD interval of the Real-Time Market, the
Dispatch Interval, the Customer shall be paid the Real-Time LMP at the Point of Receipt,
the product of: (a) the Real-Time Energy LMP Independent Transmission Provider shall
in $/MWh. The Independent Transmission calculate the Marginal Loss Charge Collection
calculated for that Security Constrained Provider shall divide each Transmission and the Net Energy Revenue Owed to
Dispatch Interval at the applicable Usage Charge into separate components for Generators for Losses associated with all
Customer’s bus (or at the Customer’s zone, if Marginal Costs of Congestion and Marginal Transactions. For each SCD interval of the
the Customer elects to calculate and settle Costs of Losses. Real-Time Market where the Marginal Loss
Energy purchases at Zonal-LMPs and meets 4.3.1 Marginal Congestion Component: Charge Collection exceeds the Net Energy
the conditions specified in Section The Marginal Congestion Component of the Revenue Owed to Generators for Losses
F.2.4(c)(ii)); and (b) the difference between Transmission Usage Charge shall be associated with all Transactions, the
the scheduled Energy withdrawals and the calculated as the Marginal Congestion Independent Transmission Provider shall
actual Energy withdrawals at that bus. Component of the Real-Time LMP at the allocate the revenue surplus to reduction in
3.8.4 Settlement when Actual Energy Delivery Point minus the Marginal the charge for Network Access Service. [The
Withdrawals are Greater than Scheduled Congestion Component of the Real-Time Independent Transmission Provider shall
Energy Withdrawals: When a Customer’s LMP at the Receipt Point, as described in determine the exact allocation to each
actual Energy withdrawals over a Security Section F.2.5(i). Customer and will file procedures for
Constrained Dispatch Interval are greater 4.3.2 Marginal Losses Component: The determining the allocation of the revenue
than its Energy withdrawals scheduled in the Marginal Losses Component of the surplus to each Customer.]
Day-Ahead Market over that Security Transmission Usage Charge shall be 4.6 Disposition of Other Real-Time
Constrained Dispatch Interval, the Customer calculated as the Marginal Losses Component Revenue Surplus or Deficit: The Independent
shall pay for the difference in a charge equal of the Real-Time LMP at the Delivery Point Transmission Provider shall calculate, for
to the product of: (a) The Real-Time Energy minus the Marginal Losses Component of the each Operating Day, the interval of the Real-
LMP calculated for that Security Constrained Real-Time LMP at the Receipt Point, as Time Market, and the net revenue surplus or
Dispatch Interval at the applicable described in Section F.2.5(ii). deficit from the operation of the Real-Time
Customer’s bus (or at the Customer’s zone, if 4.4 Calculation of Flowgate LMPs: The Market (defined as the difference between the
the Customer elects to calculate and settle Independent Transmission Provider shall revenues collected from all sources and all
Energy purchases at Zonal-LMPs and meets calculate and post Ex-Post Flowgate LMPs for payment made to all sources, excluding the
the conditions specified in Section the Real-Time Market. surplus for losses calculated pursuant to
F.2.4(c)(ii)); and (b) the difference between 4.5 Marginal Loss Charge Collection: The Section G.4.5). The Independent
the actual Energy withdrawals and the Real-Time Marginal Loss Charge Collection Transmission Provider shall allocate the
scheduled Energy withdrawals at that bus. for any SCD interval is defined here as the revenue surplus or deficit for the Operating
4. Real-Time Scheduling for Transmission sum of the Real-Time Energy Marginal Loss Day to the Transmission Owners. [The
Charge Collection plus the Real-Time Independent Transmission Provider shall file
4.1 General: As in the Day-Ahead Market, Transmission Marginal Loss Charge procedures for determining the allocation of
Real-Time Energy LMPs serve dual functions, Collection for that SCD interval. The Real- the surplus or deficit to Transmission
providing (1) the prices for sales and Time Energy Marginal Loss Charge Collection Owners.]
purchases of Energy and (2) market-based is defined for any SCD interval of the Real-
prices for Congestion Management, including Time Market as (i) the sum of the net 5. Real-Time Market for Regulation
Congestion Charges to Bilateral Transactions, amounts associated with the Marginal Loss 5.1 General: The Transmission Provider
and Marginal Losses. Component of the applicable Real-Time may require additional Regulation capability
4.2 Transmission Bids: Customers may Energy LMP charged to: (a) each Supplier in response to system conditions in the
submit Bilateral Transaction Schedules that whose actual Energy injections over the SCD Operating Day. The Real-Time Market for
indicate whether or not they are willing to interval are less than its Energy scheduled in Regulation establishes clearing prices and
pay the Marginal Congestion Charge the Day-Ahead Market to be injected over settlement rules for eligible Suppliers of
component of the Transmission Usage that SCD interval and (b) each Purchaser Regulation that have offered Regulation
Charge. If the Bid indicates that the Customer whose actual Energy withdrawals over the capacity following the close of the Day-
is not willing to pay Congestion Charges, SCD interval exceed its Energy scheduled in Ahead Market. The Transmission Provider
then the Bilateral Transaction will be the Day-Ahead Market to be withdrawn over shall procure Regulation in this market on
scheduled only if there is no Marginal that SCD interval; less: (ii) the sum of the net behalf of Purchasers who choose not to Self-
Congestion Charge in the Real-Time Market. amounts associated with the Marginal Loss supply or purchase through bilateral
If the Bid indicates that the Customer is Component of the applicable Real-Time contracts. Both Generation and Load may to
willing to pay Congestion Charges, then the Energy LMP paid to (c) each Supplier whose provide Regulation in the Real-Time Market
Bilateral Transaction will be scheduled actual Energy injections over the SCD if they meet criteria for eligibility.
5.2 Independent Transmission Provider (v) Suppliers of Regulation shall provide Regulation from the Resource’s output level
Obligations: The Independent Transmission the Bid information specified in Section 4.2. if it had been scheduled or dispatched in
Provider has the obligation to provide (vi) Suppliers of Real-Time Regulation may economic merit order to provide Energy,
services (i) to (viii) for the Real-Time Market not re-submit capacity selected for Energy in times
for Regulation. The rules governing these the Day-Ahead Market. Suppliers of Real- (ii) the greater of (a) the $/MWh difference
services are contained in this section: Time Regulation may lower the Bid Price of between the Real-Time Energy LMP at the
(i) Establish and post on its OASIS criteria capacity selected for Energy in the Day- generation bus for the Resource and the Real-
and requirements in accord with local Ahead Market. Time Bid price for Energy from the Resource
reliability authority rules and NERC 5.4.2 Specification of Bids (at the megawatt level of the Regulation set
guidelines such that there is sufficient point for the Resource) in the Real-Time
provision of Regulation in the Real-Time Suppliers of Regulation must provide the Energy Market or (b) zero.
Dispatch. following Bid information: 5.6 Calculation of Additional Payments
(ii) Establish and post on its OASIS rules (i) Availability Bid price ($/MWh).
and Charges
for eligibility to supply Regulation in the (ii) Regulation Capability (MW) of the
5.6.1 Bid Revenue Sufficiency Guarantee:
Real-Time Market. Generator supplying Regulation.
Resources scheduled for Regulation in the
(iii) Provide Base Point Signals to (iii) Response Rate (MW/Minute) of the
Real-Time Market are eligible for the Bid
Generators providing Regulation to direct the Generator supplying Regulation.
Revenue Sufficiency Guarantee, pursuant to
Generator’s output. (iv) Upper and Lower Regulation Limits
Section G.2.3.
(iv) Establish and post on its OASIS the (MW).
5.6.2 Failure to Provide Regulation in
Bid data requirements and rules and provide (v) Hours of availability to provide
Real-Time: The Independent Transmission
the market functions required for Regulation.
Provider shall, if a Resource providing
determination of hourly Real-Time (vi) Any additional physical data required
by the Independent Transmission Provider. Regulation Service trips off line, immediately
Regulation Market Clearing Prices and attempt to re-establish a supply for the
selection of Real-Time Regulation Market 5.4.3 Bidding and Scheduling Process remainder of that Resource’s commitment.
Suppliers. Establish how the pricing rules (i) Bids rejected by the Independent Any additional cost incurred by the
and selection procedures will be modified in Transmission Provider in the Day-Ahead Independent Transmission Provider as a
the event of a shortage of Regulation capacity Market may be modified and resubmitted result of covering the defaulting Resource’s
during the Operating Day. into the Real-Time Market by the Supplier to remaining commitment shall be reimbursed
(v) Monitor the Suppliers’ performance to the Independent Transmission Provider. [The to the Independent Transmission Provider by
ensure that they provide Regulation Service Independent Transmission Provider Tariff the defaulting Supplier. If the Availability
as required. will provide Procedures]. payment for the replacement Regulation
(vi) Establish and post on its OASIS the (ii) Bids in the Day-Ahead Market that are Service decreases, the Independent
rules for determination of any Additional not accepted by the Independent Transmission Provider shall not pay the
Payments necessary to support efficient Transmission Provider shall be automatically defaulting Supplier the difference in cost.
operations of the Real-Time Regulation considered for the Real-Time Market, unless 5.6.3 Other Payments and Charges: [The
Market and/or the efficient operation of other withdrawn by the Supplier. Independent Transmission Provider may
Real-Time Markets. (iii) If a Supplier reduces its available MW include in this section market rules for any
(vii) Provide the Settlement functions subsequent to being scheduled to provide other payments or charges associated with
associated with purchase and sale of Regulation or Operating Reserves (either Day- the efficient and reliable operations of the
Regulation in the Real-Time Market. Ahead or in a Supplemental Commitment), Real-Time Markets for Regulation.]
(viii) Post the Real-Time Regulation Market and if it, as a result, can no longer provide
Clearing Prices. 5.7 Market Rules for Shortages or
both the amount of Energy it was scheduled Emergencies
5.3 Purchaser Rules and Obligations to provide Day-Ahead and the amount of
(i) Market Participants with a Regulation Regulation and Operating Reserves it was (i) [The Independent Transmission
Requirement may fulfill their requirement by scheduled to provide, the Independent Provider may include in this section market
(1) self-scheduling an eligible Generator or Transmission Provider will first reduce the rules, including specification of quantities
Demand-Side Resource, (2) a bilateral amount of Operating Reserves it is scheduled and calculation of prices, in the event of a
contract with an eligible Supplier, or (3) to provide, and then will reduce the amount shortfall in the required system requirements
purchasing from the Regulation Market. of Regulation it is scheduled to provide, until for Regulation in the Real-Time Market. The
(ii) Self-suppliers and purchasers of the total amount of Energy, Regulation and market rules shall be in accord with regional
Regulation through Bilateral Contract must Operating Reserves it is scheduled to provide or local reliability authority rules and
provide data on location and physical is equal to its available MW (or until it is no procedures and NERC guidelines.]
capabilities of the Generator or Supplier longer scheduled to provide Regulation or 5.8 Settlement: The Independent
providing Regulation (see Section 4.2). Operating Reserves). Transmission Provider will provide timely
5.4 Supplier Rules and Obligations 5.5 Calculation of Market Clearing Price: settlement of purchases and sales of
The Independent Transmission Provider Regulation in the Real-Time Market for
5.4.1 Eligibility to Supply
shall calculate a Market Clearing Price for the Regulation pursuant to Sections 5.8.1and
(i) Suppliers of Regulation may only use Real-Time Market for Regulation, using the 5.8.2.
Generators and/or Load that are electrically following methodology. 5.8.1 Payments by Purchasers
within the Independent Transmission The Independent Transmission Provider
Provider’s Service Area. shall establish a Supplier Regulation Price for (i) The Independent Transmission Provider
(ii) Suppliers of Regulation may only use each Supplier based on the sum of the shall calculate the total obligation for
Generators and/or Load that are able to Supplier’s Availability Bid and its Real-Time Regulation for each Load-Serving Entity for
respond to AGC Base Point Signals sent by Unit-Specific Opportunity Cost (as defined each hour of the Operating Day. The total
the Independent Transmission Provider below). The Real-Time Regulation Market hourly obligation for each Load-Serving
pursuant to the Independent Transmission Clearing Price shall be the higher of (i) the Entity in an Operating Day shall equal the
Provider Procedures. highest Supplier Regulation Price needed to product of (a) the total Regulation
(iii) Suppliers of Regulation may only use meet the Independent Transmission requirement for the Independent
Generators and/or Load that meet Provider’s Regulation Requirement for each Transmission Provider’s Service Area for the
Independent Transmission Provider Dispatch Interval, or (ii) the highest Market hour of the Operating Day and (b) the ratio
standards for Generator performance. Clearing Price in Dispatch Interval for of (1) the Load-Serving Entity’s total actual
(iv) Suppliers of Regulation shall not use, Spinning Reserves or Supplemental Reserves. Load in the hour to (2) the total actual Load
contract to provide, or otherwise commit the The Unit-Specific Opportunity Costs of a in the Independent Transmission Provider’s
capability that is designated to provide Resource for bidding to sell Regulation shall Service Area in the hour of the of the
Regulation to provide Energy or Spinning be equal to the product of: Operating Day. The net obligation for
Reserve to any party other than the (i) the deviation of the Regulation set point Regulation of a Load-Serving Entity in an
Independent Transmission Provider. of the Generator that is required to provide hour of the Operating Day shall be equal to
the greater of (a) the Load-Serving Entity’s Generation and Load may Bid to provide Independent Transmission Provider
total obligation minus the amount of Spinning Reserve in the Real-Time Market if standards for Generator performance.
Regulation that it has Self-Supplied in the they meet criteria for eligibility. (iii) Suppliers may not contract to provide,
Day-Ahead Market or (b) zero. 6.2 Independent Transmission Provider or otherwise commit any Capacity from a
(ii) For each hour of the Operating Day, Obligations: The Independent Transmission Generator that has been scheduled to operate
each Load-Serving Entity shall be charged an Provider has the obligation to provide or to provide Operating Reserves, in either
amount equal to the product of (1) the services (i) to (viii) for the Real-Time Market the Day-Ahead commitment or any
aggregate net amount paid by the for Spinning Reserve. The rules governing supplemental commitment conducted by the
Independent Transmission Provider in the these services are contained in this section: Independent Transmission Provider.
Day-Ahead and Real-Time Markets to (i) Establish and post on its OASIS (iv) Suppliers of Spinning Reserve shall
procure Regulation for the hour, and (2) the Spinning Reserve criteria and requirements not use, contract to provide, or otherwise
ratio of (a) the Load-Serving Entity’s net in accord with local reliability authority rules commit the capability that is designated to
obligation for Regulation in the hour to (b) and NERC guidelines. provide Spinning Reserve to provide Energy,
the sum of the net obligations for Regulation (ii) Establish and post on its OASIS rules Regulation or Supplemental Reserve to any
of all Load-Serving Entities in the for eligibility to supply Spinning Reserve in party other than the Independent
Independent Transmission Provider’s Service the Real-Time Market. Transmission Provider. Suppliers may enter
Area in the hour. (iii) Establish and post on its OASIS into alternate sales arrangements utilizing
5.8.2 Payments to Suppliers minimum technical requirements and any capacity that has not been scheduled to
performance standards for a Generator and/ operate or to provide Operating Reserves.
(i) The Independent Transmission Provider or Load to provide Spinning Reserve.
shall pay Suppliers the Real-Time Regulation (v) Suppliers of Spinning Reserve shall
(iv) Establish and post on its OASIS the provide the Bid information specified in
Market Clearing Price times the quantity Bid data requirements and rules and provide
(MW) of Regulation capability. Section 4.2.
the market functions required for (vi) Suppliers may not increase the Energy
(ii) The Independent Transmission determination of hourly Real-Time Spinning
Provider shall pay Suppliers any Additional Bids made for the portions of those
Reserve Market Clearing Prices and selection Generators that have been scheduled Day-
Payments necessary to provide Real-Time of Real-Time Spinning Reserve Market
Regulation in accord with efficient market Ahead to provide Spinning Reserve.
Suppliers. It shall make this selection with (vii) Suppliers selected for Spinning
operations. the objective of minimizing the cost of Reserve in the Day-Ahead Market may not re-
5.9 Monitoring Suppliers and Generators meeting Load and providing all necessary submit that capacity at a higher price into the
(i) The Independent Transmission Provider Ancillary Services in that hour. Establish Real-Time Market for Spinning Reserve. They
may establish: how the pricing rules and selection
may lower the Bid Price of the capacity not
procedures will be modified in the event of
(1) Resource performance measurement selected Day-Ahead to ensure selection in the
a shortage of Spinning Reserve capacity
criteria; Real-Time Market.
during the Operating Day.
(2) Procedures to disqualify Suppliers 6.4.2 Specification of Bids: Suppliers of
(v) Establish and post on its OASIS the
using Resources that consistently fail to meet Spinning Reserve must provide the following
rules for determination of any Additional
such criteria; and Bid information:
Payments necessary to support efficient
(3) Procedures to re-qualify disqualified (i) Response Rate (MW/Minute) of the
operations of the Real-Time Spinning
Suppliers, which may include a requirement Generator supplying Spinning Reserve.
Reserve Market and/or the efficient operation
to first demonstrate acceptable performance (ii) Hours of availability to provide
of other Real-Time Markets.
for a time. (vi) Provide the Settlement functions Spinning Reserve.
(ii) The Independent Transmission associated with purchase and sale of (iii) Any additional physical data required
Provider shall establish and implement a Spinning Reserve in the Real-Time Market. by the Independent Transmission Provider.
Performance Tracking System to monitor the (vii) Post the Real-Time Spinning Reserve 6.5 Calculation of Market Clearing Price
performance of Resources that provide Market Clearing Prices.
Regulation Service. 6.5.1 Methodology for Calculation of
(iii) Payments by the Independent 6.3 Purchaser Rules and Obligations Prices: The Independent Transmission
Transmission Provider to each Supplier of 6.3.1 Market Participants with a Spinning Provider shall calculate a Market Clearing
Regulation Service may be based on the Reserve Requirement may fulfill their Price for the Real-Time Market for Spinning
Resource’s performance with respect to the requirement by Reserve, using the following methodology.
performance indices. Suppliers that fail to (i)(1) self-supplying an eligible Generator The Independent Transmission Provider
perform at a level consistent with these or Demand-Side Resource; (2) a bilateral shall establish a Supplier Spinning Reserve
indices may forfeit all or a substantial portion contract with an eligible Supplier; or (3) Price for each Supplier based on its Real-
of their Availability payments, which would purchasing from the Spinning Reserve Time Unit-Specific Opportunity Cost (as
otherwise be payable for the subject hour. Market. defined below). The Real-Time Spinning
Suppliers that consistently fail to perform (ii) Self-suppliers and purchasers of Reserve Market Clearing Price shall be the
adequately may be disqualified by the Spinning Reserve through Bilateral Contract higher of (i) the highest Supplier Spinning
Independent Transmission Provider, must provide data on location and physical Reserve Price for each Dispatch Interval
pursuant to Independent Transmission capabilities of the Generator or Supplier needed to meet the Independent
Provider Procedures. [The Independent providing Spinning Reserve (see Section 4.2) Transmission Provider’s Spinning Reserve
Transmission Provider would include such 6.4 Supplier Rules and Obligations: Requirement, or (ii) the highest Market
procedures in this section.] Suppliers whose Generators or demand side Clearing Price in the Dispatch Interval for
Resources have not been scheduled to Supplemental Reserves.
6. Real-Time Market for Operating The Unit-Specific Opportunity Costs of a
Reserve—Spinning Reserve provide Spinning Reserve and which still
have Capacity that is synchronized with the Resource Bidding to sell Spinning Reserve
6.1 General: The Transmission Provider grid and has not been committed for use in shall be equal to the product of:
may require additional Spinning Reserves any other way may submit Bids to provide (i) the deviation of the set point (MWh) of
capability in response to system conditions Spinning Reserve to the Independent the Generator that is required to provide
in the Operating Day. The Real-Time Market Transmission Provider. Spinning Reserve from the Resource’s output
for Spinning Reserve establishes clearing level if it had been scheduled or dispatched
prices and settlement rules for eligible 6.4.1 Eligibility to Supply in economic merit order to provide Energy,
Suppliers of Spinning Reserve that have (i) Suppliers of Spinning Reserve may only times
offered Spinning Reserve capacity to the use Generators and/or Load that are (ii) the greater of (a) the $/MWh difference
market. The Transmission Provider shall electrically within the Independent between the Real-Time Energy LMP at the
procure Regulation in this market on behalf Transmission Provider’s Service Area. generation bus for the Resource and the Bid
of Purchasers who choose not to Self-supply (ii) Suppliers of Spinning Reserve may price for Energy from the Resource (at the
or purchase through Bilateral Contracts. Both only use Generators and/or Load that meet megawatt level of the Spinning Reserve set
point for the Resource) in the Real-Time 6.8.1 Payments by Purchasers If it is still necessary to reduce the amount
Energy Market or (b) zero. (i) The Independent Transmission Provider of Operating Reserves that Supplier is
6.5.2 Calculation of Zonal or Locational shall calculate the total obligation for scheduled to provide, the Independent
Prices: Separate Real-Time Spinning Reserve Spinning Reserve for each Load-Serving Transmission Provider will reduce the
Market Clearing Prices will be calculated for Entity for each hour of the Operating Day. amount, in order of quality, of the higher
Spinning Reserve located in each distinct The hourly total obligation of each Load- quality Supplemental Reserves that
Reserve Location for which there is a Generator is scheduled to provide.
Serving Entity in an Operating Day shall
separate Spinning Reserve requirement. Finally, if it is still necessary to reduce the
equal the product of (a) the total Spinning
When there are no binding transmission amount of Operating Reserves that Supplier
Reserve Requirement for the Independent
constraints between Reserve Locations, the is scheduled to provide, the Independent
Transmission Provider’s Service Area for the
Real-Time Spinning Reserve Market Clearing Transmission Provider will reduce the
hour of the Operating Day and (b) the ratio amount of Spinning Reserve that Generator is
Price shall be the same in each of the of (1) the Load-Serving Entity’s total actual
locations. scheduled to provide.
Load in the hour to (2) the total actual Load If a Supplier scheduled Day-Ahead to
6.5.3 Transmission for Operating in the Independent Transmission Provider’s provide Operating Reserves trips off-line and
Reserves. A Supplier located outside of a Service Area in the hour of the Operating consequently is unable to provide Spinning
particular Reserve Location may provide Day. The net obligation for Spinning Reserve Reserve, or if the amount of Operating
Spinning Reserves if the necessary of a Load-Serving Entity in an hour of the Reserves a Supplier is scheduled to provide
transmission arrangements to deliver Energy Operating Day shall be equal to the greater is decreased due to a reduction in that
from the Supplier’s capacity to the Reserve of the Load-Serving Entity’s total obligation Supplier’s capacity, it shall be charged the
Location are made. The cost of any minus the amount of Spinning Reserve that Real-Time Operating Reserve price at its
transmission service would have to be is Self-Supplied in the Day-Ahead Market or location in each hour for the relevant
included in evaluating the total cost of (b) zero. category of Operating Reserves applied to the
Operating Reserves. (ii) For each hour of the Operating Day, reduction in the amount of Operating
Suppliers scheduled for Spinning Reserve each Load-Serving Entity shall be charged an Reserves it was scheduled Day-Ahead to
shall not receive Opportunity Cost payments amount equal to the product of (1) the provide at that location.
for capacity that was not available to be aggregate net amount paid by the If the Independent Transmission Provider
scheduled to generate Energy. Independent Transmission Provider in the calls for a Supplier of any category of
Day-Ahead and Real-Time Markets to Operating Reserves (other than a Supplier
6.6 Calculation of Additional Payments and
procure Spinning Reserve for the hour and that has previously tripped off-line) to
Charges
(2) the ratio of the Load-Serving Entity’s net generate Energy with part or all of the
6.6.1 Bid Revenue Sufficiency Guarantee: obligation for Spinning Reserve in the hour capacity that the Independent Transmission
Resources scheduled for Spinning Reserve in to the sum of the net obligations for Spinning Provider has scheduled to provide any
the Real-Time Market are eligible for the Bid Reserve of all Load-Serving Entities in the category of Operating Reserves, and that
Revenue Sufficiency Guarantee, pursuant to Independent Transmission Provider’s Service Supplier fails to provide the amount of
Section G.2.3. Area in the hour. Energy requested by the Independent
6.6.2 Failure to Perform in Real-Time: 6.8.2 Payments to Suppliers Transmission Provider within the time
When reserve is activated, the Independent applicable for the scheduled Operating
Transmission Provider shall measure actual (i) The Independent Transmission Provider
shall pay each Supplier selected to provide Reserves, the Independent Transmission
performance against expected performance Provider shall:
and may charge financial penalties to more Spinning Reserve in an hour than it
was scheduled Day-Ahead the Real-Time (i) not pay the non-performing Supplier for
Suppliers of Spinning Reserve which fail to any shortfall in the amount of Energy
perform in accordance with their accepted Spinning Reserve Market Clearing Price at its
location, multiplied by the amount (MW) of provided;
Bids. [The Independent Transmission (ii) charge the Supplier for any shortfall in
Provider may file penalties.] Spinning Reserve that Supplier provided that
was in excess of the amount scheduled to be the amount of Energy provided, at the Real-
6.6.3 Other Payments and Charges: [The Time LMP for Energy at that Supplier’s
Independent Transmission Provider may provided Day-Ahead, if any.
location;
include in this section market rules for any 6.8.3 Payments by Suppliers (iii) charge the Supplier a regulation
other payments or charges associated with (i) The Supplier shall pay the Independent penalty; and
the efficient and reliable operations of the Transmission Provider for any Spinning (iv) reduce any Availability payments for
Real-Time Markets for Spinning Reserves.] Reserve that it was scheduled Day-Ahead to the scheduled Operating Reserves, and any
6.7 Market Rules for Shortages or provide in an hour but did not provide. The Opportunity Cost payments, if applicable,
Emergencies payment will be the Real-Time Spinning that the Supplier would otherwise have
(i) [The Independent Transmission Reserve Market Clearing Price at its location, received for the 24-hour billing period in
Provider may include in this section market multiplied by the amount (MW) of scheduled which that Supplier failed to perform as
rules, including specification of quantities, Spinning Reserve that Supplier did not scheduled. The Availability payments and
calculation of market clearing prices, and provide. the Opportunity Cost payments, if applicable,
determination of out of market payments in (ii) The Supplier shall pay the Independent that the Supplier would have received will
the event of a shortfall in the required system Transmission Provider any Additional be calculated by multiplying the average ratio
requirements for Spinning Reserves due to a Payments associated with failure to perform of the amount of Energy supplied to the
shortage of available capacity or an according to its Real-Time schedule, amount of Energy scheduled, during any
Emergency.] pursuant to Section 6.6. activation of that Supplier during that 24-
(ii) In the event of a shortfall of total 6.9 Failure to Provide Operating hour billing period by the applicable
capacity available for Operating Reserves in Reserves: If a Supplier reduces its available Availability payments and Opportunity Cost
the Real-Time Market, the Independent capacity subsequent to being scheduled to payments, if applicable, that the Supplier
Transmission Provider shall first reduce the provide Regulation Service or Operating would otherwise have received.
amount of Supplemental Reserve that is Reserves (either Day-Ahead or in a If a Generator providing Operating
procured, followed by the amount of commitment of Replacement Reserves), and Reserves has repeatedly failed to provide
Supplemental Reserve, followed by the if the Independent Transmission Provider Energy when called upon by the Independent
amount of Spinning Reserve. must, as a result, reduce the amount of Transmission Provider, the Independent
6.8 Settlement: The Independent Operating Reserves that Supplier is Transmission Provider may preclude that
Transmission Provider will provide timely scheduled to provide in accordance with this Generator from providing Operating Reserves
settlement of purchases of Spinning Reserves Tariff, the Independent Transmission in the future. If a specific Generator has been
and sales of Spinning Reserve in the Real- Provider will first reduce the lowest quality precluded from supplying Operating
Time Market for Spinning Reserve pursuant Supplemental Reserve that Generator is Reserves, the Independent Transmission
to Sections 6.8.1 and 6.8.2. scheduled to provide. Provider shall require that Generator to pass
a re-qualification test before accepting any 7.4 Supplier Rules and Obligations: Provider shall calculate a Market Clearing
additional Bids to supply Operating Reserves (i) During the day, Suppliers that have not Price for each Real-Time Market for
from that Generator. been scheduled to provide Supplemental Supplemental Reserves, using the following
7. Real-Time Markets for Operating Reserves and which still have capacity that methodology.
Reserves—Supplemental Reserves has not been committed for use in any other The Independent Transmission Provider
way may submit Bids to provide shall establish a Supplier Supplemental
7.1 General: The Transmission Provider Reserve Price for each Supplier based on
may require additional Supplemental Supplemental Reserves to the Independent
Transmission Provider. Unit-Specific Opportunity Cost (as defined
Reserves capability in response to system below). The Real-Time Supplemental Reserve
conditions in the Operating Day. The Real- (ii) The Real-Time Bids may differ from
Bids that were made by those Suppliers in Market Clearing Price shall be the higher of
Time Markets for Supplemental Reserves (i) the highest Supplier Supplemental
establish clearing prices and settlement rules the Day-Ahead commitment subject to
possible Bid restrictions imposed to mitigate Reserve Price needed to meet the
for eligible Suppliers of Supplemental Independent Transmission Provider’s
Reserve that have offered Supplemental market power.
(iii) Suppliers Bidding to supply Supplemental Reserve Requirement for each
Reserve capacity to the market. The Dispatch Interval, or (ii) the Market Clearing
Transmission Provider shall procure Supplemental Reserves that have not already
been scheduled to provide Supplemental Price in any Dispatch Interval for any lower
Supplemental Reserves for Purchasers that quality Supplemental Reserve.
have chosen not to Self-supply or purchase Reserves may change their Real-Time Bids
from one hour to the next subject to possible The Unit-Specific Opportunity Costs of a
through Bilateral Contracts. Both Generation Resource Bidding to sell Supplemental
and Load may Bid to provide Supplemental Bid restrictions imposed to mitigate market
power. Reserve in each Dispatch Interval shall be
Reserves in the Real-Time Market if they
(iv) The Independent Transmission equal to the product of:
meet criteria for eligibility.
Provider shall notify each Supplier of (i) the deviation of the set point (MWh) of
7.2 Independent Transmission Provider
Supplemental Reserves that has been the Generator that is required in order to
Obligations: The Independent Transmission
scheduled in the Real-Time dispatch of the provide Supplemental Reserve from the
Provider has the obligation to provide
amount of Supplemental Reserves it must Resource’s output level if it had been
services (i) to (vii) for the Real-Time Markets
provide. Any Supplier whose Bid to provide scheduled or dispatched in economic merit
for Supplemental Reserves. The rules
Supplemental Reserves is accepted by the order to provide Energy, times
governing these services are contained in this
Independent Transmission Provider in the (ii) the absolute value of the difference
section:
(i) Establish and post on its OASIS Real-Time dispatch must make its Generators between the Real-Time Energy LMP at the
Supplemental Reserves criteria and or demand side Resources available for generation bus for the Resource and the Bid
requirements in accord with local reliability dispatch by the Independent Transmission price for Energy from the Resource (at the
authority rules and NERC guidelines. Provider. Suppliers of Supplemental megawatt level of the Supplemental Reserve
(ii) Establish and post on its OASIS rules Reserves shall respond to direction by the set point for the Resource) in the Real-Time
for eligibility to supply Supplemental Independent Transmission Provider to Energy Market.
Reserves in the Real-Time Market. activate. 7.5.2 Calculation of Zonal or Locational
(iii) Establish and post on its OASIS Prices. Separate Real-Time Supplemental
7.4.1 Eligibility to Supply Reserve Market Clearing Prices will be
minimum technical requirements and
performance standards for a Generator to (i) Subject to Independent Transmission calculated for Supplemental Reserve located
provide Supplemental Reserves. Provider requirements, Suppliers of in each distinct Reserve Location for which
(iv) Establish and post on its OASIS the Supplemental Reserves may use Generators there is a separate Supplemental Reserve
Bid data requirements and rules and provide and/or Load that are electrically within or requirement. When there are no binding
the market functions required for outside the Independent Transmission transmission constraints between Reserve
determination of hourly Real-Time Provider’s Service Area. Locations, the Real-Time Ancillary Price for
Supplemental Reserves Market Clearing (ii) Suppliers of Supplemental Reserve may Supplemental Reserve shall be the same in
Prices and selection of Real-Time only use Generators and/or Load that meet each of the locations.
Supplemental Reserves Market Suppliers. Independent Transmission Provider 7.5.3 Transmission for Operating
Establish how the pricing rules and selection standards for Generator performance. Reserves. A Supplier located outside of a
procedures will be modified in the event of (iii) Suppliers of Supplemental Reserves particular Reserve Location may provide
a shortage of Supplemental Reserves capacity shall not use, contract to provide, or Supplemental Reserve if the necessary
during the Operating Day. otherwise commit the capability that is transmission arrangements to deliver Energy
(v) Establish and post on its OASIS the designated to provide Supplemental Reserves from the Supplier’s capacity to the Reserve
rules for determination of any Additional to provide Energy, Regulation or Spinning Location are made. The cost of any
Payments necessary to support efficient Reserve to any party other than the transmission service would have to be
operations of the Real-Time Supplemental Independent Transmission Provider. included in evaluating the total cost of
Reserves and/or the efficient operation of (iv) Suppliers of Supplemental Reserves Operating Reserves.
other Real-Time Markets. shall provide the Bid information specified 7.6 Calculation of Additional Payments and
(vi) Provide the Settlement functions in Section 4.2. Charges
associated with purchase and sale of (v) Suppliers may not use, contract to
Supplemental Reserves in the Real-Time provide or otherwise commit any capacity on 7.6.1 Bid Revenue Sufficiency Guarantee:
Market. any Resource that has been scheduled to Resources scheduled for Supplemental
(vii) Post the Real-Time Supplemental provide Supplemental Reserves in the Day- Reserves in the Real-Time Market are eligible
Reserves Market Clearing Prices. Ahead commitment or in the Real-Time for the Bid Revenue Sufficiency Guarantee,
dispatch. pursuant to Section G.2.3.
7.3 Purchaser Rules and Obligations 7.6.2 Failure to Perform in Real-Time:
7.4.2 Specification of Bids: Suppliers of
(i) Market Participants with Supplemental Supplemental Reserves must provide the When reserve is activated, the Independent
Reserves requirements may fulfill their following Bid information: Transmission Provider shall measure actual
requirement by (1) self-supplying an eligible (i) Response Rate (MW/Minute) of the performance against expected performance
Generator or Demand-Side Resource, (2) a Generator supplying Supplemental Reserve. and shall charge financial penalties as
bilateral contract with an eligible Supplier, or (ii) Hours of availability to provide detailed in Section 6.9, to Suppliers of
(3) purchasing from the Supplemental Supplemental Reserve. Reserves which fail to perform in accordance
Reserves Market. (iii) Any additional physical data required with their accepted Bids. [The Independent
(2) Self-suppliers and purchasers of by the Independent Transmission Provider. Transmission Provider may file penalties.]
Supplemental Reserves through Bilateral 7.6.3 Exceptions: Notwithstanding
Contracts must provide data on location and 7.5 Calculation of Market Clearing Price for anything to the contrary in this Rate
physical capabilities of the Generator or Supplemental Reserve Schedule, no payments shall be made to any
Supplier providing Supplemental Reserve 7.5.1 Methodology for Calculation of Supplier providing Operating Reserves for
(see Section 4.2). Prices: The Independent Transmission reserves provided by that Supplier in excess
of the amount of Operating Reserves 7.8.2 Payments to Suppliers committed over the Operating Day, then the
scheduled by the Independent Transmission (i) The Independent Transmission Provider Replacement Reserve charge for each
Provider either Day-Ahead or in any shall pay each Supplier selected to provide Customer i shall be calculated as:
subsequent schedule. more Supplemental Reserve in an hour than Replacement Reserve charge for Customer i =
The market clearing price paid to Suppliers it was scheduled Day-Ahead the Real-Time (P/U) × ui;
of any category of Operating Reserve shall Supplemental Reserve Market Clearing Price where:
not be determined by any Bid to supply at its location, multiplied by the amount P is the sum of the aggregate payments made
Operating Reserve that has not been accepted (MW) of Supplemental Reserve that Supplier pursuant to Section G.8.1.1 for the
by the Independent Transmission Provider. provided that was in excess of the amount Operating Day;
7.6.5 Other Payments and Charges: [The scheduled to be provided Day-Ahead, if any.
Independent Transmission Provider may U is the sum of all uninstructed purchases of
include in this section market rules for any 7.8.3 Payments by Suppliers Real-Time Energy by all Customers (in
other payments or charges associated with MWhs) over the Operating Day; and
(i) The Supplier shall pay the Independent ui is the aggregate uninstructed purchases of
the efficient and reliable operations of the Transmission Provider for any Supplemental
Real-Time Markets for Supplemental Real-Time Energy by Customer i over the
Reserves that it was scheduled Day-Ahead to Operating Day.
Reserves.] provide in an hour but did not provide. The (ii) If the sum of all uninstructed purchases
7.7 Market Rules for Shortages or payment will be the Real-Time Supplemental of Real-Time Energy is less than the aggregate
Emergencies: Reserve Market Clearing Price at its location, MWhs of Replacement Reserves committed
multiplied by the amount (MW) of Day- over the Operating Day, then the
(i) [The Independent Transmission
Ahead scheduled Supplemental Reserve that Replacement Reserve charge for each
Provider may include in this section market
the Supplier did not provide. Customer i shall be calculated as:
rules, including specification of quantities,
(ii) The Supplier shall pay the Independent
calculation of market clearing prices, and Replacement Reserve charge for Customer i =
Transmission Provider any Additional
determination of out of market payments in
Payments associated with failure to perform (P/R) × d;
the event of a shortfall in the required system where:
requirements for Supplemental Reserves due according to its Real-Time schedule,
pursuant to Section 7.6.3. P is the sum of the aggregate payments made
to a shortage of available capacity or an
pursuant to Section G.8.1.1 for the
Emergency.] 8. Other Real-Time Payments and Charges
Operating Day;
(ii) In the event of a shortfall of total
8.1 Bid Revenue Sufficiency Guarantee R is the aggregate MWhs of Replacement
capacity available for Supplemental Reserves
Payments for Replacement Reserves Reserves that the Independent
in the Real-Time Market, the Independent
8.1.1 Payments to Suppliers. The Transmission Provider has committed
Transmission Provider shall first reduce the
Independent Transmission Provider shall over the Operating Day pursuant to
amount of any lower quality Supplemental
Reserve that is procured, in order of quality, determine, on a daily basis, if any Resource Section F.1.8.
followed by the amount of higher quality that it has committed to provide Replacement ui is the aggregate uninstructed purchases of
Supplemental Reserves. Reserves for the operating day pursuant to Real-Time Energy by Customer i over the
7.8 Settlement: The Independent Section F.1.8 has not recovered its Start-up, Operating Day.
Transmission Provider will provide timely No-load, and Energy Bid Prices through 8.1.3 Unrecovered Bid Revenue
settlement of purchases of Supplemental revenues in the Real-Time Energy and Sufficiency Guarantee Payments. Any
Reserves and sales of Supplemental Reserves Ancillary Services Markets. If the Start-up, amounts of Bid Revenue Sufficiency
in the Real-Time Market pursuant to Sections No-load, and Energy Bids over the twenty- Guarantee payments for an Operating Day
7.8.1 and 7.8.2. four (24) hour Operating Day of any such made pursuant to Section G.8.1.1 that are not
Resource exceed its combined Revenue from recovered through Replacement Reserve
7.8.1 Payments by Purchasers charges for the Operating Day pursuant to
the Real-Time Markets for Energy and
(i) The Independent Transmission Provider Ancillary Services, then that Resource’s Section G.8.1.2 shall be recovered in a
shall calculate the total obligation for revenue shall be augmented by an additional separate charge to all Load-Serving Entities
Supplemental Reserve for each Load-Serving payment, called the Real-Time Bid Revenue in the Independent Transmission Provider’s
Entity for each hour of the Operating Day. Sufficiency Guarantee payment, in the Service Area. The charge for each Load-
The hourly total obligation of each Load- amount of the revenue shortfall. Serving Entity for the Operating Day shall
Serving Entity in an Operating Day shall equal to the product of (a) the total amounts
8.1.2 Charges to Customers. A purchase
equal the product of (a) the total of Bid Revenue Sufficiency Guarantee
of Real-Time Energy is deemed to be made
Supplemental Reserve Requirement for the payments for an Operating Day made
by any Customer whose actual Energy
Independent Transmission Provider’s Service pursuant to Section G..8.1.1 that are not
injections in any hour of the Operating Day
Area for the hour of the Operating Day and recovered through Replacement Reserve
(b) the ratio of (1) the Load-Serving Entity’s is less than its injections scheduled for that
charges for the Operating Day pursuant to
total actual Load in the hour to (2) the total hour in the Day-Ahead Market, and by any
G.8.1.2 and (b) the ratio of (1) the Load-
actual Load in the Independent Transmission Customer whose actual Energy withdrawals
Serving Entity’s total actual Load over the
Provider’s Service Area in the hour of the in any hour in the Operating Day exceed its
Operating Day to (2) the total actual Load
Operating Day. The net obligation for withdrawals scheduled for that hour in the
within the Independent Transmission
Supplemental Reserve of a Load-Serving Day-Ahead Market. All uninstructed
Provider’s Service Area over the Operating
Entity in an hour of the Operating Day shall purchases of Real-Time Energy, i.e., Real-
Day.
be equal to the greater of the Load-Serving Time Energy purchased by a Customer
without being instructed to do so by the 8.2 Other Real-Time Bid Revenue
Entity’s total obligation minus the amount of
Supplemental Reserve that is Self-Supplied Independent Transmission Provider, shall be Sufficiency Guarantee Payments
in the Real-Time Market or (b) zero. subject to a Replacement Reserves charge. 8.2.1 Payments to Suppliers. The
(ii) For each hour of the Operating Day, The Independent Transmission Provider Independent Transmission Provider shall pay
each Load-Serving Entity shall be charged an shall calculate Replacement Reserves charges each Resource scheduled, committed, or
amount equal to the product of (1) the for the Operating Day as follows. The dispatched by the Independent Transmission
aggregate net amount paid by the Independent Transmission Provider shall Provider after the close of the Day-Ahead
Independent Transmission Provider in the calculate the sum of all uninstructed Market (other than a Resource committed to
Real-Time Markets to procure Supplemental purchases of Real-Time Energy over the supply Replacement Reserves) the real-time
Reserve for the hour and (2) the ratio of the Operating Day and shall compare that sum to Bid Revenue Sufficiency Guarantee payment
Load-Serving Entity’s net obligation for the aggregate MWhs of Replacement Reserves for the Operating Day, calculated pursuant to
Spinning Reserve in the hour to the sum of that it committed over the Operating Day Section G.2.3(ii).
the net obligations for Supplemental Reserve pursuant to Section F.1.8. 8.2.2 Charges to Customers. A purchase
of all Load-Serving Entities in the (i) If the sum of all uninstructed purchases of Real-Time Energy is deemed to be made
Independent Transmission Provider’s Service of Real-Time Energy greater than or equal to by any Customer whose actual Energy
Area in the hour. the aggregate MWhs of Replacement Reserves injections in any hour of the Operating Day
is less than its injections scheduled for that 1.4 Determination of Non-competitive maintenance costs, heat rates, ramp rates,
hour in the Day-Ahead Market, and by any Conditions high and low operating levels, and minimum
Customer whose actual Energy withdrawals 1.4.1 Local Non-competitive Conditions: run times.
in any hour in the Operating Day exceed its The MMU shall identify specific Generators 2.1.3 Data Acquired in the Course of
withdrawals scheduled for that hour in the that are frequently needed to support the Conducting Market Operations: The MMU
Day-Ahead Market. Each Customer operation of the grid and sellers that own shall have immediate access to all Bid data
purchasing Real-Time Energy shall pay a facilities in identified Load pockets with submitted to the Independent Transmission
Real-Time Bid Revenue Sufficiency fewer than llindependent suppliers. Provider.
Guarantee payment. The Bid Revenue Participating Generator Agreements for these 2.1.4 Other Publically Available Data:
Sufficiency Guarantee payment for any entities will require that they be subject to The Market Monitor shall collect all data
Customer i for the Operating Day shall be Local Market Power Mitigation. needed to assess the overall competitiveness
calculated based on the following formula: 1.4.2 Other Non-competitive Conditions: of its markets. The data would include, but
Bid Revenue Sufficiency Guarantee for The MMU shall identify other non- not be limited to, information on market
Customer i = G × (Ci / D) competitive conditions as necessary. shares of Generation Capacity by type and
where: location, information on planned and
1.5 Triggering Mitigation unplanned Generator and transmission
G is the sum of all Bid Revenue Sufficiency
1.5.1 Market Power Mitigation outages, and plans for transmission
Guarantee payments made for the
Independent of Market Conditions: The expansions and upgrades, and Generator
Operating Day pursuant to Section
Independent Transmission Provider may not interconnection requests.
G.8.2.1;
accept any Bid into the Day-Ahead or Real- 2.1.5 Confidentiality: All information
Ci is the total purchases of Real-Time Energy
Time markets that exceeds the higher of: (a) obtained by the MMU, that is specific to a
by Customer i during the Operating Day;
the safety-net Bid cap specified in Section Market Participant, shall be treated
and
H.1.2.1; or (b) the bid cap specified in a confidentially.
D is the sum of the total purchases of Real-
Participating Generator Agreement. 2.2 Framework for Analyzing Market
Time Energy by all Customers over the
1.5.2 Market Power Mitigation Triggered Structure and Generator Conduct
Operating Day.
by Section H.1.4.1: When mitigation is 2.2.1 Obligations of the Market Monitor:
Part IV. Market Monitoring triggered by Section H.1.4.1, the units will be The MMU shall conduct a structural analysis
Each Independent Transmission Provider required to offer all available capacity to the of the markets in the region to include in a
must file a market monitoring plan in Day-Ahead and Real-Time markets at bids state of the market report to the Commission,
accordance with the Commission’s that do not exceed applicable bid caps the committee of state representatives, and
regulations as part of this Tariff. determined in H.1.2.2. the transmission provider’s Board of
1.5.3 Market Power Mitigation Triggered Directors. In addition, the MMU must
H. Market Power Mitigation and Market by Section H.1.4.2: To be specified. evaluate the conduct of Market Participants.
Monitoring 2. Market Monitoring Plan Any flaws in the market rules that are
1. Market Power Mitigation identified by the Market Monitor, and any
The transmission and power markets
1.1 Participating Generator Agreements: administered by the Independent Market Participant conduct that indicates
The participating generator agreement Transmission Provider will be monitored on exercises of market power, shall be remedied
between the Independent Transmission an on-going basis by the Market Monitoring prospectively, unless the conduct violates
Provider and a generator will include a Unit (MMU). The MMU reports directly to existing rules, in which case the
provision to require that all available the Commission and the governing board of consequences shall be predetermined and
capacity of the generator must be scheduled the transmission provider. specified in this Tariff.
or offered to the Day-Ahead and Real-Time 2.1 Data Requirements and Data 2.2.1 Structural Analysis: The MMU shall
markets at bids that do not exceed specified Collection: The MMU shall collect and develop an analysis of the overall
Bid caps under non-competitive conditions evaluate data provided by the Independent competitiveness of the markets operated by
to be specified in the agreement. Transmission Provider and Market the Transmission Provider. The analysis will
Participants in order to identify inefficiencies be performed at least annually and will
1.2 Determination of Bid Caps report on the following at a minimum:
in the markets or the market design, and
1.2.1 The Safety-Net Bid Cap: The MMU individual Market Participant behavior that market concentration by Generator type and
will establish a safety-net Bid cap that will may be a prohibited exercise of market power region, transmission constraints and Load
apply to all markets at all times. or a violation of this Tariff or other market pockets that may give rise to market power
1.2.2 Generator-specific Bid Caps: The rules. concerns, conditions for entry or new supply,
MMU will establish for each Generator 2.1.1 Obligations of Market Participants: the development of demand response, and
identified in Section H.1.4.1 below Bid caps As a condition of participating in the markets development of a competitive benchmark.
that may apply to each Bid-in parameter operated by the Independent Transmission 2.2.2 Conduct Analysis: The MMU will
when mitigation is warranted. These shall Provider, all Market Participants shall be monitor the conduct of individual Market
include: Bid caps for Energy, regulation required to comply with information requests Participants. The Market Monitor shall
service, operating reserves, start-up costs, from the MMU. Any disputes concerning review planned transmission and generation
no-Load costs, incremental and decremental whether the information is necessary or how outages to ensure that scheduling outages are
Energy costs, and any other parameter the information is to be provided or how any not used to enhance or create opportunities
allowed to vary in Day-Ahead and Real-Time confidential information could be used to exercise Generator market power. Analysis
markets. should first be attempted to be resolved of Market Participant conduct may include a
1.3 Determination of Available Capacity: either through dispute resolution or the review of Bidding behavior to identify any
Available capacity is all capacity not Commission’s Office of Market Oversight and auction design flaws that may give Market
scheduled or on an outage. Investigations (Hotline). If the parties are Participants an unanticipated incentive and
1.3.1 Adjustments to Available Capacity then unable to resolve the dispute, a ability to manipulate market-clearing prices
to Reflect Risk of Forced Outages in Real- complaint under Section 206 of the Federal or up-lift payments. Finally, the Market
Time Market: Independent Transmission Power Act may be filed. Monitor shall evaluate the effectiveness of
Provider may file provisions. 2.1.2 Generator-Specific data: The MMU the Participating Generator Agreements in
1.3.2 Available Capacity Reduced by shall have the responsibility to collect all mitigating market power where market
Forced Outages Subject to Audit: Units Generator-specific data needed to evaluate structure is not sufficiently competitive.
declaring a forced outage would be subject to whether a seller is exercising market power 2.3 Annual Reports: No later than May 31
audit by the MMU. If the outage was not and to establish Bid restrictions that may be of each year, the Market Monitor shall file a
proved to be justified, then the Generator imposed when markets are not sufficiently State of the Markets Report with the
shall be subject to a penalty. [The competitive. The data shall include, at a Commission which includes the results of
Independent Transmission Provider shall minimum: start-up, no Load, and shut-down the Market Monitor’s structural and conduct
specify the type of penalty.] costs, environmental restrictions, fuel costs, analyses. This report shall address such
items as market concentration, demand will have secured generation, transmission, share of the Resource Adequacy
response programs, Load pockets, and and demand response resources sufficient to Requirement.]
transmission constraints and an assessment meet real-time load and a reasonable 5. Penalties
of the performance of the markets operating reserve margin necessary to
administered by the Transmission Provider. maintain the stable and reliable operation of [Each Independent Transmission Provider
In addition, this report shall identify any the transmission system. shall list in its open access electricity
actions taken by the Market Monitor. transmission Tariff specific penalties it
[Additional details will be completed and
2.4 Periodic Reports: The Market Monitor intends to impose.]
filed by each Independent Transmission
shall submit a report to the Commission if it (i) Each Load-Serving Entity that has not
Provider as part of its compliance filing.]
detects behavior that cannot be cured within met its allocated share of the Resource
1. Data Submission for the annual forecast of Adequacy Requirement, shall be subject to
the Market Monitor’s authority or if it detects
future regional load penalty rates for spot market energy
behavior that would require a change in
market rules. These reports should be made (i) [There may be regional variation in purchases during the last year of the
as soon as practicable after the behavior is forecast methodology. Some regions may Planning Horizon to the extent of the
detected. wish to do a bottom up forecast. The resource shortage whenever the Independent
following wording will then be needed.] Transmission Provider’s market has available
3. Rules for Market Participant Conduct: less than a minimally acceptable level of
Market Participants must comply with the [Annually, on or before lllll (each
Independent Transmission Provider shall operating reserves.
following rules: (ii) Penalties will increase on a graduated
insert the relevant date here), each Load
3.1 Physical Withholding: Entities may Serving Entity shall submit its demand basis as the Independent Transmission
not physically withhold the output of an forecast for the Planning Horizon.] Provider’s operating reserves level falls
Electric Facility (Generating unit or below minimally acceptable levels. (For
Transmission Facility) by (a) falsely declaring 2. Assignment of Resource Adequacy example, for deficiencies up to 1 percent, the
that an Electric Facility has been forced out Requirements penalty would be $500/MWh, plus the
of service or otherwise become unavailable, (ii) Annually, on or before lllll [each prevailing market price for energy. As the
or (b) failing to comply Section H.1.5.2. Independent Transmission Provider shall operating reserve level falls, the premium of
3.2 Economic Withholding: Entities may insert the relevant date here], the the penalty over the prevailing market price
not economically withhold by submitting Independent Transmission Provider shall for energy would increase: over 1 percent up
high bids that are not consistent with the assign a share of the region’s Resource to 2 percent, the penalty would be $600/
caps specified in Section H.1.2. Adequacy Requirement to each Load Serving MWh; over 2 percent up to 3 percent, the
3.3 Availability Reporting: Entities must Entity within the region based on the ratio of penalty would be $700/MWh; and so forth.)
comply with all reporting requirements the load. 6. Curtailment
governing the availability and maintenance 3. Load Serving Entity’s submission for
of a Generating Unit or Transmission (i) A Load-Serving Entity that fails to
Resource Adequacy Requirements implement curtailment (load shedding) when
Facility, including proper Outage scheduling
requirements. Entities must immediately (i) Annually, on or before lllll [each ordered by the Independent Transmission
notify the Transmission Provider when Independent Transmission Provider shall Provider shall be assessed a penalty of $1,000
capacity changes or resource limitations insert the relevant date here], each Load per MWh, in addition to the LMP, for all
occur that affect the availability of the unit Serving Entity shall submit a proposed plan unauthorized energy taken following an
or facility or the ability to comply with to meet its assigned Resource Adequacy instruction to implement curtailment (load
dispatch instructions. Requirement to the Independent shedding).
3.4 Factual Accuracy: All applications, Transmission Provider. Part V. Other
schedules, reports, or other communications (ii) Plans for meeting the assigned Resource
to the Transmission Provider or the Market Adequacy Requirement may rely upon J. Generation Interconnection Procedures (to
Monitor must be submitted by a responsible generation, transmission, and/or demand be provided in a separate rule)
company official who is knowledgeable of response, subject to the standards set forth in Part VI. Transmission Planning and
the facts submitted. All information this section of the Tariff, and Independent Expansion
submitted must be true to the best knowledge Transmission Provider’s review of
of the person submitting the information. operational feasibility. K. Transmission Planning and Expansion
3.5 Information Obligation: Entities must (iii) The Independent Transmission Each Independent Transmission Provider
comply with requests for information or data Provider shall audit each plan for compliance must file its transmission planning and
by the Market Monitor or the Transmission with the standards set forth in Section I.4 and expansion plan as part of this Tariff.
Provider that are consistent with the Tariff. for operational feasibility. [Each Independent
3.6 Cooperation: Entities must assist and Transmission Provider shall establish a Part VI. Pro Forma Service Agreements
cooperate in investigations or audits review and resubmission process, with Form Of Service Agreement For Network
conducted by the Market Monitor. reasonable time frames, to achieve compliant Access Transmission Service
3.7 Physical Feasibility: All Bids or and operationally feasible plans within a
schedules that designate Resources must be specified end date.] 1.0 This Service Agreement, dated as
physically feasible within the limits of the ofllllll, is entered into, by and
4. Resource Adequacy Requirement betweenllllll (the Independent
Resource, i.e., the Resource is physically Standards
capable of supplying the Energy, Ancillary Transmission Provider), and llllll
Service, or demand response needed to fulfill (ii) Each Load-Serving Entity must satisfy (‘‘Customer’’).
a schedule or Bid according to the physical the Independent Transmission Provider that 2.0 The Customer has been determined
limitations of the Resource. the resources to be relied upon for future by the Independent Transmission Provider to
3.8 Enforcement: The Market Monitor is Resource Adequacy Requirements are in have a Completed Application for Network
responsible for the enforcement of the rules compliance with the standards of this section Access Service under the Tariff.
in this section. Violations of these rules will of the Tariff and are operationally feasible, 3.0 The Customer has provided to the
be subject to the following penalties: [to be dedicated to serving the Load-Serving Entity Independent Transmission Provider an
added] without prior or conflicting claim, and can be Application deposit, if applicable, in
delivered to the load to be served as and if accordance with the provisions of Section
I. Long-Term Resource Adequacy needed to meet future requirements. B.2.2 of the Tariff.
This section sets forth terms and (ii) [Each Independent Transmission 4.0 Service under this agreement shall
conditions requiring each Load-Serving Provider shall list in its open access commence on the later of (1) the requested
Entity to meet its share of the region’s electricity transmission Tariff specific service commencement date, or (2) the date
Resource Adequacy Requirement. The requirements it intends to impose on each on which construction of any Direct
Resource Adequacy Requirement will ensure Load-Serving Entity such that the Load Assignment Facilities and/or Network
that in the future each Load-Serving Entity Serving Entity’s resources qualify to meet its Upgrades are completed, or (3) such other
date as it is permitted to become effective by lllllllllllllllllllll (d) This Service Agreement is the legal,
the Commission. Service under this lllllllllllllllllllll valid, and binding obligation of the Customer
agreement shall terminate on such date as 8.3 Direct Assignment Facilities Charge: l enforceable in accordance with its terms,
mutually agreed upon by the parties. lllllllllllllllllllll except as it may be rendered unenforceable
5.0 The Independent Transmission 8.4 Ancillary Services Charges: lllll by reason of bankruptcy or other similar laws
Provider agrees to provide and the Customer affecting creditors’ rights, or general
lllllllllllllllllllll
agrees to take and pay for Network Access principles of equity.
Service in accordance with the provisions of The Customer warrants and covenants that,
Part II of the Tariff and this Service during the term of the Service Agreement, the
Agreement. Customer shall be in compliance with all
6.0 Any notice or request made to or by federal, state, and local laws, rules, and
either Party regarding this Service Agreement regulations related to the Customer’s
shall be made to the representative of the Form of Service Agreement for Market performance under the agreement.
other Party as indicated below. Services 4. Service under this Service Agreement
Independent Transmission Provider: 1. This Service Agreement dated as of shall commence on the later of:
lllllllllllllllllllll llllllll is entered into by and lllllll, or such other date as it is
lllllllllllllllllllll between llllllll (Independent permitted to become effective by the
lllllllllllllllllllll Transmission Provider) and Commission. Service under this Service
Customer: llllllll (Customer). Agreement shall terminate on llllll.
lllllllllllllllllllll 2. The Customer represents and warrants 5. The Independent Transmission Provider
lllllllllllllllllllll that it has met all applicable requirements set agrees to provide and the Customer agrees to
lllllllllllllllllllll forth in the Independent Transmission take and pay for, or to supply to the
7.0 The Tariff is incorporated herein and Provider’s Tariff and has complied with all Independent Transmission Provider, Energy,
made a part hereof. applicable Procedures under the Tariff. capacity, and Ancillary Services in
IN WITNESS WHEREOF, the Parties have 3. The Independent Transmission Provider accordance with the provisions of the
caused this Service Agreement to be executed agrees to provide and the Customer agrees to Independent Transmission Provider’s Tariff
by their respective authorized officials. pay for Market Services in accordance with and this Service Agreement.
the provisions of the Independent 6. Any notice or request made to or by
Independent Transmission Provider: either Party regarding this Service Agreement
Transmission Provider’s Tariff and to satisfy
By: lllllllllllllllllll all obligations under the terms and shall be made to the representative of the
Name conditions of the Independent other Party as indicated below:
Title llllllllllllllllll Transmission’s Provider’s Tariff, as may be Independent Transmission Provider:
Date llllllllllllllllll amended from time-to-time, filed with the lllllllllllllllllllll
Customer: Federal Energy Regulatory Commission lllllllllllllllllllll
By: lllllllllllllllllll (Commission). The Independent lllllllllllllllllllll
Name Transmission Provider and the Customer all
Customer:
Title llllllllllllllllll agree that this Service Agreement shall be
Date llllllllllllllllll subject to, and shall incorporate by reference,
all of the terms and conditions of the
Specifications For Network Access Service lllllllllllllllllllll
Independent Transmission Provider’s Tariff
for Customers with Designated Resources 7. Cancellation Rights:
and Procedures.
and for Long-Term Customers without If the Commission or any regulatory agency
4. It is understood that, in accordance with
Designated Resources having authority over this Service Agreement
the Independent Transmission Provider’s
1.0 Term of Transaction: llllllll determines that any part of this Service
Tariff, the Independent Transmission
Start Date: lllllllllllll Provider may amend the terms and Agreement must be changed, the
Termination Date: llllllllll conditions of this Service Agreement by Independent Transmission Provider shall
notifying the Customer in writing and make offer to the Customer an amended Service
2.0 Description of capacity and Energy to be Agreement reflecting such changes. In the
transmitted by Independent Transmission the appropriate filing with the Commission.
5. The Customer represents and warrants event that the Customer does not execute
Provider including the electric Service Area such an amendment within thirty (30) days,
in which the transaction originates. llll that:
(a) The Customer is an entity duly or longer if the Parties mutually agree to an
lllllllllllllllllllll extension, after the Commission’s action, this
organized, validly existing and/or otherwise
3.0 Receipt Points or Network Resource(s): Service Agreement and the amended Service
qualified to do business under the laws of the
lllllllllllllllllllll Agreement shall be void.
State of llllll and is in good standing
Delivering Party: lllllllllll 8. Early Termination by the Customer:
under its [insert organizational document]
4.0 Delivery Points or Network Load: lll and the laws of the State of [insert state of The Customer may terminate service under
Receiving Party: lllllllllll organization]; this Service Agreement no earlier than ninety
5.0 Designation of party(ies) subject to re- (b) This Service Agreement, or any (90) days after providing the Independent
ciprocal service obligation: llllllll Transaction entered into pursuant to the Transmission Provider with written notice of
lllllllllllllllllllll Service Agreement, as applicable, has been the Customer’s intention to terminate; except
lllllllllllllllllllll duly authorized; that a Load-Serving Entity must continue to
lllllllllllllllllllll (c) The execution, delivery and take service under the Independent
performance of this Service Agreement will Transmission Provider’s Tariff as long as it
6.0 Name(s) of any Intervening Systems
not materially conflict with, constitute a continues to serve Load within the
providing transmission service: llllll
material breach of, or a material default Independent Transmission Provider’s Service
lllllllllllllllllllll Area. In the event that tax-exempt financing
under, any of the terms, conditions, or
8.0 Service under this Agreement may be of a Customer is jeopardized by its
provisions of any law or order of any agency
subject to some combination of the charges participation under this Service Agreement,
of government, the [insert organizational
detailed below plus any applicable the Customer is jeopardized by its
document] of the Customer, any contractual
Congestion Charges. (The appropriate charges participation under this Service Agreement,
limitation, organizational limitation or
for individual transactions will be the Customer may terminate this Service
outstanding trust indenture, deed of trust,
determined in accordance with the terms and Agreement upon thirty (30) days written
mortgage, loan agreement, other evidence of
conditions of the Tariff.) notice to the Independent Transmission
indebtedness, or any other agreement or
8.1 Network Access Charge: lllllll instrument to which Customer is a party or Provider. The Customer’s provision of notice
lllllllllllllllllllll by which it or any of its property is bound, to terminate service under this Service
8.2 System Impact and/or Facilities Study or in a material breach of, or a material Agreement shall not relieve the Customer of
Charge(s): llllllllllllllll default under, any of the foregoing; and its obligation to pay any rates, charges, or
fees due under this Service Agreement, and Form of Participating Generator Agreement Attachment B—Methodology for Completing
which are owed as of the date of termination. [To be provided by Independent a System Impact Study
9. The Customer hereby appoints the To be filed by the Independent
Transmission Provider.]
Independent Transmission Provider as its
Transmission Provider.
agent for the limited purpose of effectively Part VII. Attachments
transacting on the Customer’s behalf in Attachment C—Network Operating
accordance with the Customer’s written Attachment A—Methodology To Assess Agreement
instructions, listed herein and the terms of Available Transfer Capability
the Independent Transmission Provider’s To be filed by the Independent
To be filed by the Independent Transmission Provider.
Tariff and Procedures. The Customer agrees Transmission Provider based on the
to pay all amounts due and chargeable to the Attachment D—Index Of Network Access
following guidelines:
Customer in accordance with the terms of the Service Customers
Independent Transmission Provider’s Tariff Available Transfer Capability must be
and Procedures. calculated on a regional basis by an
independent entity. In an RTO or ISO, the Customer Date of Service Agreement
IN WITNESS WHEREOF, the Parties have
caused this Service Agreement to be executed Independent Transmission Provider may
by their respective authorized officials. calculate Available Transfer Capability. Attachment E—Index Of Market Services
Independent Transmission Provider: lll Vertically integrated utilities not a part of an Customers
By: lllllllllllllllllll RTO or ISO must contract with an
Dated: lllllllllllllllll independent entity to calculate Available Customer Date of Service Agreement
Title: llllllllllllllllll Transfer Capability on its system. The
Customer: llllllllllllllll calculation of Available Transfer Capability
Attachment F—Rates
By: lllllllllllllllllll must take into account the effect of other
Dated: lllllllllllllllll transmission systems in the interconnection To be filed by the Independent
Title: llllllllllllllllll (e.g., loop flow and parallel path flows). Transmission Provider.
Attachment G—List of Existing Transmission Contracts
Commission
Customer Date of Contract Termination Date
Designation
Appendix C—Examples of Flaws in the discretion in, its calculation, and will be very western generation, 8,000 MW to meet its
Current Regulatory Environment conservative in its estimates of expected western load and 1,000 to meet the
contingencies, outages and the like. In this remainder of the 2,000 MW load in the east.
We set forth below specific examples of example, the transmission provider assumes This means that 1,000 MW of generation
undue discrimination and impediments to two generating units will be unavailable, would usually flow across the constrained
competition that continue to exist in the reducing Available Transfer Capability below line for CentralCo to meet its own load,
electric industry. Some of the examples that the level where the requested transmission leaving 500 MW of west-to-east ATC on the
we provide do not use specific names can occur, so it denies the request for constrained line.
because they are for the most part based on summer service. But after the competitor’s
complaints made through the Commission’s NewGen, a generator located in WestCo’s
request is denied, the transmission provider’s
Enforcement Hotline, which are handled on affiliate can ask in May for weekly firm service area, wants to sell 100 MW for one
a confidential basis. Other examples, which service over the summer. So, when the day to a buyer in EastCo’s service area.
illustrate the potential for discrimination, affiliate’s request is made, it is granted. NewGen’s cost of generation is $22 per MWh.
establish that transmission providers have Discretion on the part of the transmission To make the sale, NewGen must secure 100
both the incentive and ability to exercise provider in calculating Available Transfer MW of transmission across CentralCo’s
transmission market power against Capability coupled with the affiliate’s system (including the constrained line), to
competitors in the market to supply energy. knowledge of how the calculations work make the sale. Therefore, NewGen requests
enable the affiliate to secure the necessary transmission service through CentralCo’s
Available Transfer Capability and Affiliates firm service and win the sale opportunity. system. Under normal operating conditions,
The following is an example derived from CentralCo’s constrained line has available
informal, non-public inquiries to the Discretionary Use of TLRs
500 MW of Available Transfer Capability,
Commission 1 regarding a transmission The following is another example derived leaving plenty of transfer capability to
provider favoring itself or its affiliate using from informal, non-public inquiry by the accommodate the sale. Since its OASIS lists
Available Transfer Capability postings: Commission regarding how TLRs are used.2 500 MW of Available Transfer Capability,
In February, a competing generator The facts: There are three neighboring, CentralCo grants the request.
recognizes an opportunity to sell power into interconnected transmission systems, If CentralCo were an RTO, it would have
a vertically integrated transmission WestCo, CentralCo, and EastCo. (Their no financial interest in which generator
provider’s system during the summer months relative locations match their names). makes any particular sale, and would focus
(June, July, and August) and, therefore, CentralCo has 10,000 MW of generation
on ensuring optimal and reliable system
requests monthly firm service for the desired and 8,000 MW of load west of a constrained
points for that time period. The transmission operation. Thus, it would dispatch the
line that divides its system. The line is
provider, which would prefer that its limited to 1,500 MW of transfer capability. system to ensure that the 100 MW NewGen
merchant function capture the sales CentralCo has 1,000 MW of generation and transaction would flow, since it could do so
anticipated by the competitor, now must 2,000 MW of load east of the constraint. Its while still optimizing the dispatch of the
evaluate whether sufficient Available cost of generation on either side of the CentralCo generators. But CentralCo has a
Transfer Capability will be available to honor constraint is comparable, and averages about financial incentive to block the NewGen
its competitor’s request. Although the $25 per MWh. transaction in order to make the sale itself
formula for calculating Available Transfer Under its normal dispatch pattern, and it has the information to make it happen.
Capability is required to be public, the CentralCo would generate 1,000 MW from its CentralCo, as transmission provider, knows
transmission provider has the sole generation in the east to serve the eastern the flow patterns on its system and the
responsibility for, and a great deal of load, and would generate 9,000 MW from its identity (and affiliation) of all generators
flowing power on its system. This means that
1 Because this example is based on non-public 2 Because this example is based on non-public CentralCo’s transmission arm would not need
inquiries, we have not identified the companies. inquiries, we have not identified the companies. to engage in any prohibited off-OASIS
communications to dispatch the system in a generating resources that it may call on for writing new rules to alleviate this problem.7
way that favors its own affiliate. balancing but also may rely on a neighboring Because compliance with NERC’s rules is
CentralCo can block a portion of the balancing authority for balancing energy, voluntary, one NERC region filed on behalf
competitor’s transaction by changing its own which it must pay back. The payback is of the public utilities in its region so that its
dispatch pattern and declaring a TLR across typically accomplished by returning energy rule relating to balancing would be
the constrained line. CentralCo would reduce at a later time. mandatory. On May 31, 2000, the
generation on the east side to 500 MW and A transmission customer outside the Commission approved a tariff filed by the
increase generation from the west by the organized spot market of an ISO or RTO is East Central Area Reliability Council, which
same amount to meet the eastern load. This expected to keep its own grid energy inputs is the NERC regional reliability council for an
would increase its own use of the and withdrawals in balance. For example, the area centered around Indiana, Ohio, and
constrained line to 1,500 MW which, in customer may be a municipal utility that western Pennsylvania.8 The tariff, designed
addition to the 100 MW of scheduled use by buys 50 megawatts from noon to 1 o’clock to to maintain reliability in an increasingly
NewCo, would exceed the thermal limits of meet a load that is expected to hover around competitive region, is intended to eliminate
the line. CentralCo, as security coordinator 50 megawatts at that hour. The transmission any economic incentive that may exist under
for its own system, has great discretion as to customer cannot achieve exact balance in current reliability rules for a particular
when and for how long to declare a TLR part because retail loads are not completely balancing authority to borrow large amounts
across the constrained line. In this situation, predictable.6 To the extent the customer does of energy from neighboring authorities when
rather than redispatching its own generators not achieve exact balance, the balancing the price of power is high and return it in
to accommodate NewGen’s transaction, it authority supplies or absorbs energy for kind when the price is low.9 It does not,
could declare a TLR and curtail a portion of balancing, charging the customer for the however, fully eliminate the economic
the NewGen’s transmission transaction. energy. For an excessive deviation from the advantage that a balancing authority that is
By curtailing transmission for a portion of scheduled amount of energy delivery, the also a market participant may have over other
the competitor’s sale, this TLR allows transmission customer may have to pay a energy suppliers.
CentralCo to step in to provide EastCo’s penalty rate under the public utility’s tariff, The Commission, in the proposed rule
needed 100 MW (following NewCo’s intended to encourage good scheduling leading to Order No. 2000, using the then-
transmission curtailment), possibly at an behavior so as to maintain reliable system current terminology of the control area
inflated price due to the TLR and the buyer’s operation. operator, said that, in an RTO,
need to immediately secure replacement A balancing authority outside an RTO or unequal access to balancing options can lead
power. ISO is today typically also a market to unequal access in the quality of
The Commission is concerned that the use participant that serves its own power transmission service, and that this could be
of emergency procedures offers opportunities customers. In most cases, it is a large a significant problem for RTOs that serve
for discrimination. A high incidence of TLRs vertically integrated public utility that some customers who operate control areas
reduces certainty in the market because it generates and buys power to meet the power and other customers who do not.10
frustrates the expectations of bulk power needs of its native load. Such a balancing The Commission concluded in Order No.
sellers and their customers.3 In turn, it authority may be able to lower the cost of 2000 that
provides a disincentive for market acquiring balancing energy and achieve a control area operators should face the same
participants to take transmission risks and competitive advantage over other market costs and price signals as other transmission
decreases overall liquidity in the participants that do business on its customers and, therefore, also should be
transmission market.4 The practice of using transmission system. It can rely on a required to clear system imbalances through
TLRs to manage congestion contributes to neighboring balancing authority to loan it a real-time balancing market. We believe that
transmission and energy prices that are not energy without having to pay for the energy. providing options for clearing imbalances
just and reasonable and must be remedied. Further, it may avoid a penalty for excessive that differ among customers would be unduly
Lack of Common Set of Rules Governing deviation. It can later return the energy taken discriminatory.11
Transmission in kind to the neighboring authority and may The Commission has not addressed this
thus face a lower balancing cost than other issue generically, however, for public utility
1. Balancing Authority energy providers. Although this problem may transmission providers that are not in an
A market participant that operates a incur infrequently, it results in an undue cost RTO. There is a need for a tariff that
control area may derive a market benefit. The preference for the investor-owned utility and
primary function of a control area operator is addresses this issue explicitly for all public
its customers vis-a-vis the costs that other utility transmission providers.
to maintain a balance between the energy energy providers incur and pass on to their
coming onto the grid and the energy being customers. 2. Receipt and Delivery Point Flexibility
taken off. The North American Electric NERC has recognized a related reliability The Order No. 888 pro forma tariff
Reliability Council (NERC) refers to this problem associated with excessive provides nondiscriminatory rules governing
primary function as balancing and the unplanned borrowing of energy in a highly the designation of receipt points, where
responsible entity as the balancing competitive market and is in the process of power enters the transmission provider’s
authority.5 The balancing authority has system, and delivery points, where power
new terminology for use in rewriting its reliability exits the system. There are different such
3 See Staff Report to the Federal Energy standards. It is eliminating the terms ‘‘control area’’ rules for network integration and point-to-
Regulatory Commission on the Bulk Power Markets and ‘‘control area operator’’ and replacing these point transmission customers, as required by
In The United States (Nov. 1, 2000), available in with several other terms that describe more the Order No. 888 pro forma tariff.
<http://www.ferc.gov/electric/bulkpower/ precisely the functions performed. NERC refers to
midwest.pdf>, at 2–32. See Staff Report to the Transmission customers say that these tariff
the entity responsible for maintaining system
Federal Energy Regulatory Commission on the Bulk frequency by arranging for generation to balance provisions allow a vertically integrated
Power Markets In The United States (Nov. 1, 2000), load as the ‘‘balancing authority.’’ It is this function public utility with a native load to provide
available in <http://www.ferc.gov/electric/ that is the subject of the first example. See The itself with greater flexibility regarding
bulkpower/southeast.pdf>, at 3–38. NERC Functional Model: Functions and designation of receipt and delivery points
4 See Staff Report to the Federal Energy Relationships for Interconnected Systems Operation through practices that have become known in
Regulatory Commission on the Bulk Power Markets and Planning (visited June 11, 2002) <http:// the industry as ‘‘parking’’ and ‘‘hubbing.’’
In The United States (Nov. 1, 2000), available in www.ferc.gov/Electric/RTO/mrkt-strct-comments/
<http://www.ferc.gov/electric/bulkpower/ 02–19–02/CACTR-Final-Report-Functional- 7 See, e.g., Board of Trustees Meeting Highlights
midwest.pdf>, at 2–33 (reporting eroded confidence Model.pdf> for more information on the NERC
and decreased liquidity in the Midwest market). functional model. See also Transcript of (visited May 31, 2002) <http://www.nerc.com/pub/
5 Because most transmission systems were Assignment of RTO Characteristics and Functions sys/all_updl/docs/bot/bot0106h.pdf>
8 See East Central Area Reliability Council, 91
operated by vertically integrated utilities that Technical Conference, Docket No. RM01–12–000, at
performed many types of control functions, the 12–34 (Feb. 19, 2002). FERC ¶ 61,197 (2000).
9 See id. at 61,693–94.
term ‘‘control area operator’’ now lacks precision 6 A customer can achieve such balance through
10 Order No. 2000 at 31,142.
regarding which of these functions is being referred dynamic scheduling, which effectively takes it out
to in a particular context. Recently, NERC adopted of the control area. 11 Id.
To illustrate, a point-to-point transmission one described above, are resulting in undue The second issue is best explained with an
customer, such as a power marketer, may be preferences and thereby impeding the most example. Suppose a transmission-owning
required to reserve transmission for a efficient trading of power over the interstate public utility sets aside 100 MW of transfer
complete transaction, that is, from an actual transmission grid. Accordingly, the capability at its interface with a neighboring
generator to an actual power-consuming load. Commission proposes to create a single utility to help ensure adequate generation for
If it is announced today, for example, that transmission service and equalize the playing the public utility’s native load customers.
generation will be available tomorrow from a field so that all transmission customers can Suppose further that the public utility’s
particular generator, the marketer may be park, hub or exercise equal creativity and native load is 600 MW, and the collective
able to buy the power but unable to reserve flexibility in structuring transactions and amount of point-to-point transmission
the transmission if it has not yet identified serving customers. customer imports is 200 MW and the line’s
a buyer and named its location on the grid. total capacity is 900 MW. Under the usual
3. Transmission Transfer Capability Set method of allocating transmission costs to
That is, it can name a point of receipt but
Aside for Reliability customers, the point-to-point customer
cannot yet name a point of delivery, so it may
be denied a reservation for firm transmission Transmission transfer capability may be set would pay for and receive 200 MW of
service. aside by the transmission provider for either transmission service and the public utility
A vertically integrated transmission of two reliability-related reasons. One relates would pay for 600 MW of transmission
provider with a native load, however, can to the reliability of the transmission system system cost but receive 600 MW of
buy the power from the same generator, itself and the other relates to generation transmission service and 100 MW of reserved
naming that generator as the point of receipt reliability. As an example of the first, the capacity. In some cases, the transmission
and its native load network as the point of power loading on a transmission line may be provider’s merchant affiliate has used the
delivery, saying it intends to reduce its own less than the line’s capacity so that it can take CBM set-aside on a non-firm basis to make
generation to meet its native load power up the power flows it must absorb if a sales without paying for the transmission
needs. The transmitting public utility is parallel line should go out of service. The capacity used.
given a transmission reservation. Later, the industry refers to this type of unused In 1998 the Commission received
public utility can find a buyer for the power transmission capacity as a transmission complaints alleging that some transmission-
and say it is making a sale from its freed-up reliability margin, or TRM. While reliability owning utilities were inappropriately
generation, designated as the point of receipt, rules forbid a transmission provider from reducing Available Transfer Capability to
to the buyer’s point of delivery—taking a loading a line beyond its reliability limit, reflect transmission reliability requirements
second transmission reservation for the same these rules are not necessarily mandatory or and capacity benefit margins.15 The
power. In effect, the public utility will have enforceable. However, there have been few Commission observed in WPPI that the
complaints about discriminatory violations of determination of CBM was made differently
reserved transmission for a purchase from the
TRM reliability limits. in the Available Transfer Capability
generator and a sale to the buyer in a manner
Most complaints have related to calculations of various utilities and was not
that is not available to the marketer. The
transmission transfer capability that is set explained in one tariff.16 The Commission
public utility is said to have ‘‘parked’’ the
aside to provide for adequate generation. A stated that it was ‘‘concerned that the
power at its native load location while it exercise of this discretionary adjustment can
sought a buyer for the power. Parking can vertically integrated public utility may have
turn on considerations (such as the reduction
also occur if the buyer is known and decided in the past that, to achieve adequate
of power supply costs and limiting the
transmission to the buyer is reserved, generation resources (including reserves), it
generation supply options of competitors)
allowing the public utility time to search for was more economical to build stronger
that involve the transmission provider’s
a seller to match the buyer’s power needs. transmission interconnections with merchant arm rather than its transmission
The time delay involved in parking affords neighbors that could share their extra function.’’ 17
flexibility to a vertically integrated generation when needed than to build extra In 1999, the Commission initiated a generic
transmission provider that is not available to generation in its own service area. When inquiry into policies for transmission
all transmission customers. Order No. 888 was under consideration, such reliability set-asides. In particular, the
‘‘Hubbing’’ is similar but does not utilities argued that some transmission Commission convened a conference in May
necessarily involve a time delay. Instead, it transfer capability should be set aside for this 1999 in which it examined the practices of
involves having more than one seller or more generation reliability function.12 They use, and the alleged abuses, of CBM.18
than one buyer, or both. Using the method asserted that, if others were allowed to Transmitting utilities had been accused of
just described for parking, a transmitting purchase firm rights to this transmission using CBM designations to withhold
public utility with a native load may reserve capability, it would not be available to the transmission transfer capability from the
transmission to buy power from several public utility when needed for the generation wholesale electric transmission market. The
sellers and to sell power to several buyers. In reliability purpose for which it was built.13 Commission also requested comments on the
effect, it may use its combined native load The term used for this type of transmission subject. One commenter stated:
transmission network location as a hub for set aside is capacity benefit margin (CBM). Even NERC acknowledges that there is a
trading. It may acquire a portfolio of Order No. 888 permitted utilities to have wide disparity in the magnitudes of TRM
generators from which to obtain power to CBM if they fully explained and justified the [transmission reliability margin] and CBM
meet the power needs of a collection of amount set aside.14 The CBM set-aside applied by transmission providers across an
power buyers, without having to match practice is not used universally; some interconnection, especially in the
individual buyers and sellers. This hubbing utilities do not claim a capacity benefit quantification of CBM. The reason for this
allows the public utility to capture market margin. Moreover, where it is used, there is disparity is the absence of an enforceable
efficiencies by combining resources to satisfy regional variation in its implementation. industry standard—or more appropriately, a
collective needs, and to gain a competitive Since Order No. 888 issued, at least two Commission rule—for the definition of
advantage over others who cannot establish issues related to CBM have been CBM.19
a hub because they are required by Point-to- controversial. One is whether all network
Point Transmission Service rules to match a transmission customers, including for 15 See Wisconsin Public Power Inc. SYSTEM. v.
particular generator with a particular load for example municipal utilities within the Wisconsin Public Service Corporation, et al., 83
each transmission reservation. transmission owner’s service territory, have FERC ¶61,198 (1998) [hereinafter WPPI].
This example shows another undesirable an equal opportunity to set aside 16 See id. at 61,857–58.
difference between two transmission services transmission for this purpose. The second is 17 Id. at 61,858.
available to both wholesale and unbundled whether those who set aside transmission for 18 See Capacity Benefit Margin in Computing
retail customers, Network Integration CBM are reserving it and paying for it under Available Transmission Capacity, 64 Fed. Reg.
the terms of the pro forma tariff. 16730–31 (March 31, 1999), 86 FERC ¶61,313
Transmission Service and Point-to-Point (1999), (hereinafter CBM Notice).
Transmission Service. 19 The Electricity Consumers Resource Council
Today, the Commission concludes that the 12 See Order No. 888 at 31,693–94. and the American Iron and Steel Institute
inherent differences in flexibility between 13 See id. (Industrial Consumers), Docket No. EL99–46–000,
the two types of tariff services, including the 14 See id. at 31,694. written comments at 3 (footnote omitted).
In July 1999, the Commission issued an 4. Transmission Curtailment Preference for success after several years. If each RTO in the
order clarifying the method for computing Bundled Retail Load Nation were to implement different rules,
ATC, including provisions dealing with The Commission continues to receive processes, and market mechanisms, these
CBM.20 There, the Commission stated that: complaints that transmission service to differences combined could produce and
‘‘[t]he measures that we are requiring deliver power to bundled retail customers exacerbate significant barriers to
transmission providers to take at this time continues to be superior to transmission transmission and electric power sales in
consist of short-term solutions, which, for services for wholesale and unbundled retail
now, take no position on the transmission interstate commerce.32
transmission customers. In Northern States As an example of a specific seams problem,
provider’s ability to set aside CBM for Power Company (NSP), the United States
generation reliability requirements.’’ 21 The incompatible ramping rules have made
Court of Appeals for the Eighth Circuit held
Commission acknowledged that NERC had that the Commission had exceeded its power sales among the ISO systems in the
already started a process to establish a authority when it rejected proposed Northeast unnecessarily difficult and
standardized methodology for deriving CBM, transmission curtailment provisions, prevented some trades. Among the operating
and directed public utility transmission contained in a public utility’s wholesale protocols of a transmission provider are rules
providers, working through NERC, to open access transmission tariff, that favored for increasing and decreasing the power
complete this process by the end of 1999.22 the utility’s retail customers over its output of a generator (called ‘‘ramping’’)
NERC called on each region to develop and wholesale customers.29 On remand, the connected to the transmission system. To
document its own methodologies and Commission permitted NSP to amend its
guidelines for determining TRM and CBM.23 implement a transaction between two
open access transmission tariff to reflect its systems, generation in the supplying system
It reported that its ATC Working Group was proposed transmission curtailment
continuing to develop CBM and TRM, and must be increased, or ‘‘ramped’’ up, and
procedures to be effective in the ‘‘rare
that the draft standards would require each circumstances’’ where generation redispatch generation in the receiving system must be
region to develop a region-wide CBM is inadequate or unavailable to fully relieve decreased, or ‘‘ramped’’ down. The ramping
methodology.24 It also noted that many the transmission constraint.30 However, the up and ramping down in the two systems
methods for calculating CBM were used by Commission also told NSP that if it amends should begin at the same time, last for the
transmission providers within each region.25 its tariff to reflect its proposed transmission same length of time, and end at the same
Although a single North American standard curtailment procedures, ‘‘NSP must revise its time. But different systems can have different
CBM method was called for by transmission rates for firm point-to-point transmission
customers, NERC reported that it was not rules about the timing and rate of ramping.
service * * * to recognize the inferior For example, PJM allows ramping to occur
able, at that time, to develop such a standard quality of that service compared to the
for CBM.26 NERC noted that the every fifteen minutes; it can occur, for
service provided by NSP to its native load
consideration of a standard CBM method example, at 1 p.m., 1:15 p.m., 1:30 p.m, 1:45
and network customers. * * *’’ 31
would follow the completion of regional Although NSP later withdrew its objection p.m., 2 p.m., and so forth. New York and
methods,27 a process that is still ongoing. to equal transmission curtailment treatment New England require ramping to occur on the
The lack of standards for TRM and CBM for all transmission customers, the case hour, at 1 p.m or 2 p.m. but not within an
impedes the development of basic points out a difficulty the Commission has in hour. Thus, PJM’s ramping rules permit a
information required by Order Nos. 888 and ensuring transmission access that is not sale from PJM to New York to begin on the
889 as a basis for eliminating undue unduly discriminatory for all transmission half hour by ramping up generation in PJM,
discrimination in the provision of interstate customers—retail and wholesale—unless all but New York’s ramping rules do not allow
transmission services. Further impeding transmission customers take service under
competition is continued uncertainty about a buyer in New York to receive the power
the same tariff. because it cannot ramp down generation on
whether and how to account for CBM in Seams Problems. Even apparently minor
determining ATC and how CBM costs should the half hour. Also, systems may place
differences in rules can create seams
be allocated. The industry needs Commission different limits on the amount of ramping
problems. The three Northeastern ISOs,
guidance to achieve standardization in these which have substantially similar market that may occur on the interface with a
areas.28 designs and transmission congestion neighboring system. Then, one system may
management systems, have struggled to allow an amount to be exported that the
20 Capacity Benefit Margin in Computing
coordinate their rules to lower trading neighbor will not allow to be imported.33
Available Transmission Capacity, 88 FERC ¶61,099 barriers, but have achieved only limited These differences must be reconciled to
(1999).
21 Id. at 61,237. The order, among other things,
maximize opportunities for constructive
also directed each transmission provider to post The existing definition of ATC coordination does trade at minimal transaction costs and
specific CBM information and practices on its not meet the needs of all members of the obstacles.
OASIS site within 30 days of the order, and to marketplace (all market participants) because there Several efforts are underway at the
reevaluate generation reliability needs periodically are too many diverse opinions that will not allow Commission or within the industry to
so as to make known the availability of CBM for consensus. * * * It is impossible to meet the
capacity to others. See id. existing definition of coordination due to differing address seams problems and the
22 See id. at 61,238. market objectives, and regional business practices 32 For perspectives on this topic and its possible
23 See Response of the North American Electric and transmission provider tariffs, and corporate
objectives. Until these issues are resolved, economic consequences, see Mirant Corporation,
Reliability Council to the CBM Order, Docket No. Northeast Power Markets: The Argument for a
EL99–46–000 (Aug. 12, 1999), at 3. coordination will not occur. Available Transfer
24 See id. at 3–4. Capability Coordination Task Force, ATC Unified Grid, 139 Public Utilities Fortnightly, at
Coordination and Related Issues at 8–9 (July 12, 36–45, Sept. 1, 2001. See also Hartshorn, Andrew
25 See id. at 5.
2000), available in ftp://www.nerc.com/pub/sys/ P. and Harvey, Scott M., Assessing the Short-Run
26 See id.
alllupoll/pc/minutes/ac–0007m.pdf. Benefits from a Combined Northeast Market, LECG,
27 See Letter from Virginia C. Sulzberger, North
29 Northern States Power Company, et al. v. LLC, October 23, 2001.
American Electric Reliability Council, to David P. 33 An extensive list of seams issues, ISO rule
Federal Energy Regulatory Commission, 176 F.3d
Boergers, FERC, Docket No. EL99–46–000 (Dec. 23, differences, and a discussion of efforts to reduce
1999), at 2. There have been no further Commission 1090, 1096 (8th Cir. 1999), cert. denied sub nom.
Enron Power Marketing, Inc. v. Northern States seams problems among the Northeast systems is
proceedings on a generic basis addressing CBM.
Parties did raise the CBM issue in the proceedings Power Company, 528 U.S. 1182 (2000). available at the ISO Memorandum of Understanding
leading to Order No. 2000, but the Commission
30 See Northern States Power Company Web site. See Seams Issues—High Priority Items
determined that ‘‘[t]hese issues are too detailed for (Minnesota) and Northern States Power Company http://www.isomou.com/workingl groups/
this proceeding and we will not address them at (Wisconsin), 89 FERC ¶ 61,178 at 61,552–53 (1999). businesslpractices/documents/general/
this time.’’ Order No. 2000 at 31,146. Development Subsequently, the Commission has applied NSP bpwglmatrix.pdf≤. At the June 12, 2002
of methods for calculating ATC and CBM at NERC narrowly and indicated that it continues to believe Commission meeting, New York ISO presented a
are continuing. that it has the authority to treat such customers list of 40 seams issues in the Northeast and a time
28 Addressing the topic of ATC coordination, comparably. See North American Electric line for resolving these issues. See Transcripts of
which includes the ‘‘[p]roper quantification of Reliability Council, et al., 96 FERC ¶ 61,079 at Commission Meetings, June 12, 2002, available in
transmission reliability margin (TRM)’’ the NERC 61,345 (2001). http:www.ferc.gov/calendar/commissionmeetings/
ATC Coordination Task Force concluded that: 31 89 FERC at 61,553. transcripts.htm.
development of standards. The Commission California.38 But these mitigation measures 2. Overly Restrictive Ancillary Service
issued a Notice of Proposed Rulemaking to did not apply to sales from these generators Market Designs. Although the specific
standardize rules for interconnecting to buyers outside California. As a result, designs were different, both the California
generators to the grid.34 The Commission some California generators sold power to ISO and ISO New England initially attempted
also issued an Advanced Notice of Proposed parties outside California, that sold the to require sellers to separately bid into each
Rulemaking to extend the standardization power back into the state without facing the of several ancillary services markets. The
requirements of Order No. 889 to include same price mitigation rule, a practice that hope with this design was to establish
electronic scheduling, among other matters.35 was dubbed ‘‘megawatt laundering.’’ The vibrant markets for each of the various
In response to the latter, the industry formed Commission shortly thereafter applied ancillary services. However, the market
the Electronic Scheduling Collaborative uniform mitigation measures throughout the design did not allow the substitution of a
(ESC) to develop recommendations for the United States portion of the Western higher quality product (operating reserve—
proposed rule but reported that the diversity interconnection to remedy this problem. spinning) for a lower quality product
of business, operating and other practices Uniformity of rules eliminated the seams (operating reserve—supplemental), even if
around the country made it very difficult to problem in that circumstance.39 the higher quality product was available at a
develop standards and protocols for Market Design Flaws. The ISO markets lower price. This resulted in thin markets for
electronic scheduling that would apply to all have experienced numerous design flaws. A certain ancillary services because sellers had
public utility systems. In its October 5, 2001 few of the more fundamental flaws are no incentive to offer in one market if another
report to the Commission, the Electronic detailed below: market paid more. The perverse result was
Scheduling Collaborative identified ten key 1. Transmission Congestion Pricing by that lesser quality product markets (such as
policy issues that would give significant Zones Rather than Nodes. On all single operating reserve—supplemental) cleared at
impetus to standards development. All of utility transmission systems, the cost of higher prices than higher quality products
these issues are addressed in this proposed (operating reserve—spinning). Sellers had to
congestion is allocated to all users of the grid
rule. NERC is working to achieve more guess, based on limited information, which
on a load ratio share basis. ISOs have tried
uniform and enforceable reliability rules, and service would be the most highly valued. The
various ways to allocate these costs to the
the North American Energy Industry market design failed to recognize that certain
customer or customers whose transactions
Standards Board was formed in the autumn ancillary services were substitutes, e.g.,
caused the congestion. Several ISO markets spinning reserves can ‘‘provide’’
of 2001 in part to develop standards for attempted to price transmission congestion
electric wholesale business practices and supplemental reserves because operating
based on the average cost of congestion for reserves—spinning are more responsive to
communications protocols. Regional groups transfers of power between defined zones on
have formed to address seams issues, the ISO’s dispatch signal. This design flaw
the system, rather than pricing the created artificial barriers to entry for certain
including the Seams Steering Group for the transmission congestion on a point-to-point
Western Interconnection and a Memorandum products, increasing market power and
basis. The zonal method tries to allocate inefficiency, causing customers to pay prices
of Understanding among the three Northeast congestion costs without too much pricing
ISOs and the Ontario Independent Market higher than necessary for ancillary services.42
complexity. The theory of the method is that 3. The Absence of a Day-Ahead Market.
Operator to address seams issues. In the zones can be established within which little
Midwest, over the last several years various Certain ISO markets, including PJM and ISO
transmission congestion will occur (if any New England, began operations with only
groups have met to deal with seams issues congestion does occur within the zone, all
between two or more proposed RTOs for the real-time energy markets. All prices for
customers receiving power within the zone power sold through the balancing market and
central United States. The Tennessee Valley must share the cost of congestion). Variants
Authority (TVA) has also negotiated ancillary service markets were cleared based
of zonal pricing were tried in California, PJM, on schedules and actual purchases in real
memoranda of understanding with Midwest
Texas (ERCOT) and New England.40 In all time. In all cases, ISOs with only a real-time
Independent System Operator, Entergy and
cases the methods contained a similar flaw: market concluded that a day-ahead market
Southern Companies to pursue development
using the zonal price signal did not induce settlement system was also needed so that
of a coordination agreement to address seams
short-term efficiency in the region, and it transmission customers could better protect
issues in the Southeast. In its RTO orders, the
spread the congestion costs too broadly to against congestion costs, and so buyers and
Commission has been concerned about seams
clearly identify the transactions causing the sellers of energy too could better protect
between neighboring RTOs with different
congestion or the location of the structural against energy price uncertainty.43 A day-
rules, and also about seams between entities ahead market enhances reliability because it
fixes necessary to resolve it. It has also been
that are part of one large RTO.36 allows the system operator to assess the next
difficult to determine in advance the
Many panelists at the Commission’s seams day’s likely load and available resources. The
appropriate zones, as flows have changed
conference urged us to develop standards for California ISO has had difficulty operating
after restructuring.41
RTOs before they begin operating—indeed the system reliably since the California PX
before they invest heavily in software ceased operations. A financially binding day-
38 See San Diego Gas & Electric Company v.
development for a unique set of regional ahead market serves a critical reliability
Sellers of Energy and Ancillary Services into
transmission rules and market designs.37 function by facilitating planning, unit
Markets Operated by the California Independent
This urging played a significant role in the System Operator and the California Power scheduling, and load balancing.
genesis of this rulemaking. Exchange, et al., 95 FERC ¶ 61,115 (2001). The
Another seams problem can arise from Commission’s order on price mitigation provided in Appendix D—Conversion of the Order
different market price mitigation rules in part that certain California generators that had not No. 888—A Pro Forma Tariff to the
neighboring regions. When western electric already sold their power were required to bid into Revised Standard Market Design Pro
power prices were high in 2001, for a short the ISO’s real-time market at a constrained bid Forma Tariff
time the Commission applied price price.
mitigation to certain generators in California
39 See New York Independent System Operator, The following outlines the Order No. 888–
Inc., et al., 92 FERC ¶ 61,073 (2000); NSTAR A pro forma tariff and indicates where the
for spot market sales of power within
Services Company v. New England Power Pool, et various sections appear in the SMD Tariff.
al., 92 FERC ¶ 61,065 (2000); and PJM Where there are modifications or additions,
34 See Standardization of Generator
Interconnection, L.L.C., 96 FERC ¶ 61,233 (2001) they are identified and described. In
Interconnection Agreements and Procedures, 62 (orders accepting a uniform $1000 bid cap).
Fed. Reg. 22,249 (May 2, 2002), FERC Stats. & Regs. 40 See New England Power Pool, 88 FERC ¶
addition, throughout the SMD Tariff, we have
¶ 32,560 (2002). revised our terminology to match the new
61,147 (1999); PJM Interconnection, LLC, 81 FERC
35 Open Access Same-Time Information System
¶ 61,257 (1997), order on reh’g, 92 FERC ¶ 61,282 NERC terminology.
(Phase II), Docket No. RM00–10–000, Advance (2000); Order Proposing Remedies for California
Notice of Proposed Rulemaking, 92 FERC ¶ 61,047 Wholesale Electric Markets, 93 FERC ¶ 61,121 42 See AES Redondo Beach, L.L.C., et al., 84 FERC
(July 14, 2000). (2000). ¶ 61,046 (1998); New England Power Pool, 85 FERC
36 See Alliance Companies, et al., 97 FERC 41 This zonal cost allocation for congestion ¶ 61,379 (1998).
¶ 61,327 at 62,530 (2001). management is different from and should not be 43 See PJM Interconnection, LLC, 91 FERC ¶
37 Conference on RTO Interregional Coordination, confused with proposals to aggregate energy prices 61,148 (2000); New England Power Pool, et al., 96
Docket No. PL01-5-000, June 19, 2001. at several points into hubs. FERC ¶ 61,317 (2001).
Order No. 888—A Pro Forma Tariff Table of Contents SMD tariff location
I. COMMON SERVICE PROVISIONS .................................................................................................................................... Part I

1 Definitions ...................................................................................................................................................................... A.1
[revised to include new transmission service, LMP, Congestion Revenue Rights, and market services]
2 Initial Allocation and Renewal Procedures ................................................................................................................... revised
2.1 Initial Allocation of Available Transmission Capability ....................................................................................... deleted
[the section was for the initial conversion to an open access tariff; it is no longer needed]
2.2 Reservation Priority for Existing Firm Service Customers ................................................................................. B.12
[Revised to reflect transition to Congestion Revenue Rights. Ensures that existing customers keep the right
to roll over long-term firm service until implementation of the Congestion Revenue Rights auction (B.12.1)]
3 Ancillary Services .......................................................................................................................................................... C
[Slight modification to definitions to match best practices of the Northeast ISOs]
3.1 Scheduling, System Control and Dispatch Service ............................................................................................ C.1
3.2 Reactive Supply and Voltage Control From Generation Sources Service ........................................................ C.2
3.3 Regulation and Frequency Response Service ................................................................................................... C.3
3.4 Energy Imbalance Service .................................................................................................................................. C.4
[imbalances will be priced at real-time LMP price, making deviation band and delayed (30 days) resolution
unnecessary]
3.5 Operating Reserve—Spinning Reserve Service ................................................................................................ C.5
3.6 Operating Reserve—Supplemental Reserve Service ........................................................................................ C.5
4 Open Access Same-Time Information System (OASIS) .............................................................................................. A.2
5 Local Furnishing Bonds ................................................................................................................................................ A.3
5.1 Transmission Providers That Own Facilities Financed by Local Furnishing Bonds .......................................... A.3.1
[reflects that Transmission Owner will not be the Transmission Provider; also modified to define the applica-
ble provisions of the Internal Revenue Code; and to add language from the preamble of Order No. 888–A
clarifying that this provision also applies if a customer requests service that would jeopardize the tax-ex-
empt status of bonds used to finance the transmission provider’s generation or distribution facilities, even
if no transmission facilities were financed with such bonds]
5.2 Alternative Procedures for Requesting Transmission Service ........................................................................... A.3.2
[modified to make transmission provider advise the customer of expected costs resulting from loss of tax-ex-
empt status within thirty days of receipt of an application for service. Also modified to clarify that any
Commission order issued pursuant to section 211 of the FPA would specify that service under this section
is provided subject to the customer’s payment of all costs deemed eligible for recovery]
6 Reciprocity ..................................................................................................................................................................... A.4
7 Billing and Payment ...................................................................................................................................................... A.5
7.1 Billing Procedure ................................................................................................................................................. A.5.1
7.2 Interest on Unpaid Balances .............................................................................................................................. A.5.2
7.3 Customer Default ................................................................................................................................................ A.5.3
8 Accounting for the Transmission Provider’s Use of the Tariff ...................................................................................... deleted
[no longer needed as Transmission Provider is an independent entity—transmission owners that are load-serving
entities will now take service under the revised tariff]
9 Regulatory Filings ......................................................................................................................................................... A.6
10 Force Majeure and Indemnification ............................................................................................................................ A.7
10.1 Force Majeure ................................................................................................................................................... A.7.1
10.2 Indemnification .................................................................................................................................................. A.7.2
11 Creditworthiness .......................................................................................................................................................... A.8
12 Dispute Resolution Procedures .................................................................................................................................. A.10
12.1 Internal Dispute Resolution Procedures ........................................................................................................... A.10.1
12.2 External Arbitration Procedures ........................................................................................................................ A.10.2
12.3 Arbitration Decisions ......................................................................................................................................... A.10.3
12.4 Costs ................................................................................................................................................................. A.10.4
12.5 Rights Under the Federal Power Act ................................................................................................................ A.10.5
Additions to Part I of the Tariff
(1.11) Eligibility for Transmission Provider Services ....................................................................................................... A.9
[replaces definition of Eligible Customer so that ‘‘Customer’’ could apply to transmission and market services]
—Data and Confidentiality Provisions ................................................................................................................................ A.12
[ensures that Transmission Provider and market monitoring unit have access to operational and bid data; addi-
tional changes to ensure Commission access to data for investigations]
II. POINT-TO-POINT TRANSMISSION SERVICE
[PTP service replaced by Network Access Service. Section replaced entirely (except as noted) by Network Access
Service—many provisions here that are comparable to Network Integration Transmission Service retained]
Preamble
13 Nature of Firm Point-To-Point Transmission Service
13.1 Term .................................................................................................................................................................. B.2.2.1.(vi)
[modified to be as short as one hour of service]
13.2 Reservation Priority ........................................................................................................................................... deleted
[first-come, first served priority system replaced with LMP, ‘‘who values it the most’’ system of rationing ca-
pacity]
13.3 Use of Firm Transmission Service by the Transmission Provider ................................................................... deleted
[‘‘Transmission Provider’’ will take service under a service agreement like all other customers]
13.4 Service Agreements .......................................................................................................................................... B.2.5
[modified for Network Access Service]
13.5 Transmission Customer Obligations for Facility Additions or Redispatch Costs .............................................
13.6 Curtailment of Firm Transmission Service ....................................................................................................... deleted
[use NITS procedures]
13.7 Classification of Firm Transmission Service .....................................................................................................

13.8 Scheduling of Firm Point-To-Point Transmission Service ................................................................................ B.2.10
[revised to incorporate scheduling through the Day-Ahead and Real-Time markets]
14 Nature of Non-Firm Point-To-Point Transmission Service ......................................................................................... deleted
[all scheduled service is firm under Network Access Service]
15 Service Availability
15.1 General Conditions ........................................................................................................................................... B.5.1
15.2 Determination of Available Transmission Capability ........................................................................................ B.5.2
15.3 Initiating Service in the Absence of an Executed Service Agreement ............................................................. B.2.9
15.4 Obligation To Provide Transmission Service That Requires Expansion or Modification of the Transmission B.5.9
System.
15.5 Deferral of Service ............................................................................................................................................
15.6 Other Transmission Service Schedules ........................................................................................................... B.13
[modified to add service continues until contracts ‘‘expire or’’ are modified by the Commission]
15.7 Real Power Losses ........................................................................................................................................... B.10.3.2
[revised to reference markets and cost of marginal losses]
16 Transmission Customer Responsibilities .................................................................................................................... B.8
16.1 Conditions Required of Transmission Customers ............................................................................................ B.8.1
16.2 Transmission Customer Responsibility for Third-Party Arrangements ............................................................ B.8.2
17 Procedures for Arranging Firm Point-To-Point Transmission Service.
17.1 Application ......................................................................................................................................................... deleted
[Network Access Service will use comparable NITS procedures]
17.2 Completed Application ...................................................................................................................................... B.2.2.1
[section retained with minor modifications in order and to establish minimum term of service of one hour;
questions in preamble ask whether different procedures should be used by load-serving entity customers
(who have load and/or generation and transmission facilities and need integration service) and non-load-
serving entity transmission customers (who do not)]
17.3 Deposit .............................................................................................................................................................. B.2.2
17.4 Notice of Deficient Application .......................................................................................................................... B.2.6
17.5 Response to a Completed Application ............................................................................................................. B.2.7
17.6 Execution of Service Agreement ...................................................................................................................... B.2.8
17.7 Extensions for Commencement of Service ...................................................................................................... deleted
[related to PTP reservations which will not be used by Network Access Service]
18 Procedures for Arranging Non-Firm Point-To-Point Transmission Service ................................................................ deleted
[all scheduled Network Access Service is firm]
19 Additional Study Procedures for Firm Point-To-Point Transmission Service Requests
19.1 Notice of Need for System Impact Study ......................................................................................................... B.5.3
19.2 System Impact Study Agreement and Cost Reimbursement ........................................................................... B.5.4
19.3 System Impact Study Procedures .................................................................................................................... B.5.5
19.4 Facilities Study Procedures .............................................................................................................................. B.5.6
19.5 Facilities Study Modifications ............................................................................................................................ B.5.7
19.6 Due Diligence in Completing New Facilities ..................................................................................................... B.5.8
19.7 Partial Interim Service ....................................................................................................................................... B.5.10
19.8 Expedited Procedures for New Facilities .......................................................................................................... B.5.11
20 Procedures if the Transmission Provider Is Unable To Complete New Transmission Facilities for Firm Point-To- B.6
Point Transmission Service.
20.1 Delays in Construction of New Facilities .......................................................................................................... B.6.1
20.2 Alternatives to the Original Facility Additions ................................................................................................... B.6.2
20.3 Refund Obligation for Unfinished Facility Additions ......................................................................................... B.6.3
21 Provisions Relating to Transmission Construction and Services on the Systems of Other Utilities ......................... B.7
21.1 Responsibility for Third-Party System Additions .............................................................................................. B.7.1
21.2 Coordination of Third-Party System Additions ................................................................................................. B.7.2
22 Changes in Service Specifications
22.1 Modifications On a Non-Firm Basis .................................................................................................................. deleted
22.2 Modification On a Firm Basis ........................................................................................................................... deleted
23 Sale or Assignment of Transmission Service ............................................................................................................. D.3, 7, and 8
[revised—replaced with the resale of Congestion Revenue Rights]
24 Metering and Power Factor Correction at Receipt and Delivery Points(s) ................................................................ A.11
24.1 Transmission Customer Obligations ................................................................................................................. A.11
[revised—additional detail added consistent with New York ISO Market Services Tariff]
24.2 Transmission Provider Access to Metering Data ............................................................................................. A.11
24.3 Power Factor ..................................................................................................................................................... A.11
25 Compensation for Transmission Service .................................................................................................................... deleted
[charges based on NITS rates and charges instead (Section 34)]
26 Stranded Cost Recovery ............................................................................................................................................. deleted
[the Transmission Provider is now an independent entity; recovery of stranded costs remains permissible, but will
no longer be part of the tariff]
27 Compensation for New Facilities and Redispatch Costs ........................................................................................... deleted
[assignment of redispatch costs replaced by LMP system]
III. NETWORK INTEGRATION TRANSMISSION SERVICE
[Replaced by Network Access Service; certain similar provisions retained and revised, as noted. Others added from
PTP]
Preamble .................................................................................................................................................................................... preamble
28 Nature of Network Integration Transmission Service ................................................................................................. B.1
[revised to become Network Access Service]
28.1 Scope of Service ............................................................................................................................................... B.1.1
28.2 Transmission Provider Responsibilities ............................................................................................................ B.1.3
28.3 Network Integration Transmission Service ....................................................................................................... deleted
[requires OATT service to be comparable to native load service; all service now the same by definition]
28.4 Secondary Service ............................................................................................................................................ B.1.4
[revised to include Congestion Revenue Rights]
28.5 Real Power Losses ........................................................................................................................................... B.10.3.2
[revised—losses can also be provided through the market]
28.6 Restrictions on Use of Service ......................................................................................................................... deleted
[no restrictions on service—third part sales must be PTP; now one service for all]
29 Initiating Service .......................................................................................................................................................... B.2
29.1 Condition Precedent for Receiving Service ...................................................................................................... B.2.1
29.2 Application Procedures ..................................................................................................................................... B.2.2.2
[section retained with minor modifications to establish minimum term of service of one hour; but questions in
preamble ask whether different procedures should be used by load-serving entity customers (who have
load and/or generation and transmission facilities and need integration service) and non-load-serving enti-
ty transmission customers (who do not)]
29.3 Technical Arrangements To Be Completed Prior to Commencement of Service ........................................... B.2.3
29.4 Network Customer Facilities ............................................................................................................................. B.2.4
29.5 Filing of Service Agreement ............................................................................................................................. B.2.5
30 Network Resources ..................................................................................................................................................... B.3
[section retained, but questions in preamble ask whether different procedures should be used by load-serving
entity customers (who have load and/or generation and transmission facilities and need integration service)
and non-load-serving entity transmission customers (who do not)]
30.1 Designation of Network Resources .................................................................................................................. B.3.1
30.2 Designation of New Network Resources .......................................................................................................... B.3.2
30.3 Termination of Network Resources .................................................................................................................. B.3.3
30.4 Operation of Network Resources ..................................................................................................................... B.3.4
30.5 Network Customer Redispatch Obligation ........................................................................................................ B.3.6
[redispatch obligation fulfilled through market structure—all generators will bid into market and follow Trans-
mission Provider’s dispatch instructions; section removes reference to Transmission Provider’s own gen-
eration]
30.6 Transmission Arrangements for Network Resources Not Physically Interconnected With the Transmission B.3.7
Provider.
30.7 Limitation on Designation of Network Resources ............................................................................................ deleted
[no limitations on amount of use of resources; any excess takes or deliveries priced at market clearing price]
30.8 Use of Interface Capacity by the Network Customer ....................................................................................... deleted
[customers can use as much interface capacity as they want as long as they are willing to pay congestion
charges]
30.9 Network Customer Owned Transmission Facilities .......................................................................................... B.3.9
31 Designation of Network Load ...................................................................................................................................... B.4
[largely revised to remove the formal designation and replace with an identification of load and new loads]
31.1 Network Load .................................................................................................................................................... B.4.1
31.2 New Network Loads Connected With the Transmission Provider ................................................................... B.4.2
31.3 Network Load Not Physically Interconnected With the Transmission Provider ............................................... deleted
[required load on other systems to be counted as Network Load or served under PTP; now no charge for
exports]
31.4 New Interconnection Points .............................................................................................................................. B.4.3
31.5 Changes in Service Requests .......................................................................................................................... B.4.4
31.6 Annual Load and Resource Information Updates ............................................................................................ B.4.5
32 Additional Study Procedures for Network Integration Transmission Service Requests ............................................ B.5
[now under Section 5, Service Availability. All sections modified to include requests for Congestion Revenue
Rights]
32.1 Notice of Need for System Impact Study ......................................................................................................... B.5.3
32.2 System Impact Study Agreement and Cost Reimbursement ........................................................................... B.5.4
32.3 System Impact Study Procedures .................................................................................................................... B.5.5
32.4 Facilities Study Procedures .............................................................................................................................. B.5.6
33 Load Shedding and Curtailments ............................................................................................................................... B.9
33.1 Procedures ........................................................................................................................................................ B.9.1
[places curtailment procedures in the tariff rather than in Network Operating Agreements]
33.2 Transmission Constraints ................................................................................................................................. B.9.2
[narrows focus of section to address only constraints not first resolved by the LMP system]
33.3 Cost Responsibility for Relieving Transmission Constraints ............................................................................ deleted
[load ratio share allocation of redispatch costs is replaced by LMP system]
33.4 Curtailments of Scheduled Deliveries ............................................................................................................... B.9.3
[narrows focus of section to address only constraints not first resolved by the LMP system; gives priority to
customers with adequate resources who are also using Congestion Revenue Rights (question in preamble
on whether we should grant this priority)]
33.5 Allocation of Curtailments ................................................................................................................................. deleted
[revised to no longer refer to sharing of curtailments between Transmission Provider and other customers—
all load-serving entities will now be customers]
33.6 Load Shedding .................................................................................................................................................. B.9.4
[provision in tariff, not Network Operating Agreement; done on a non-discriminatory basis]
33.7 System Reliability .............................................................................................................................................. B.9.5
[Transmission Provider can propose penalties for failure to follow a curtailment order]
34 Rates and Charges ..................................................................................................................................................... B.10
34.1 Monthly Demand Charge .................................................................................................................................. B.10.1
[revised to only apply the load ratio share Access Charge to deliveries to load located on the Transmission
Provider’s system; through and out service customers would not pay the Access Charge unless they
wanted to receive a direct allocation of Congestion Revenue Rights]
34.2 Determination of Network Customer’s Monthly Network Load ........................................................................ B.10.2
[would only include load located on the Transmission Provider’s system]
34.3 Determination of Transmission Provider’s Monthly Transmission System Load ............................................. deleted
[this section accounted for PTP service, which will no longer exist—may still need a transitional calculation]
34.4 Redispatch Charge ........................................................................................................................................... B.10.3
[revised to describe the Usage Charge, which consists of the congestion charge and the loss charge]
34.5 Stranded Cost Recovery ................................................................................................................................... deleted
[the Transmission Provider is now an independent entity; recovery of stranded costs remains permissible,
but will no longer be part of the tariff]
35 Operating Arrangements ............................................................................................................................................. B.11
35.1 Operation under the Network Operating Agreement ........................................................................................ B.11.1
35.2 Network Operating Agreement ......................................................................................................................... B.11.2
35.3 Network Operating Committee ......................................................................................................................... B.11.3
SCHEDULE 1
Scheduling, System Control and Dispatch Service ............................................................................................................ C.1
SCHEDULE 2
Reactive Supply and Voltage Control From Generation Sources Service ........................................................................ C.2
SCHEDULE 3
Regulation and Frequency Response Service ................................................................................................................... C.3
SCHEDULE 4
Energy Imbalance Service .................................................................................................................................................. C.4
SCHEDULE 5
Operating Reserve—Spinning Reserve Service ................................................................................................................ C.5
SCHEDULE 6
Operating Reserve—Supplemental Reserve Service ........................................................................................................ C.5
SCHEDULE 7 deleted
Long-Term Firm and Short-Term Firm Point-To-Point Transmission Service ................................................................... deleted
[all rates in Part VIII]
SCHEDULE 8 deleted
Non-Firm Point-To-Point Transmission Service ................................................................................................................. deleted
[no non-firm service]
ATTACHMENT A
Form of Service Agreement for Firm Point-To-Point Transmission Service ...................................................................... Part VI
[name change for Network Access Service]
ATTACHMENT B
Form of Service Agreement for Non-Firm Point-To-Point Transmission Service .............................................................. deleted
[no non-firm service]
ATTACHMENT C
Methodology To Assess Available Transmission Capability .............................................................................................. Attachment A
[to be filed by Transmission Provider; must be done by an independent entity]
ATTACHMENT D
Methodology for Completing a System Impact Study ........................................................................................................ Attachment B
[to be filed by Transmission Provider]
ATTACHMENT E
Index of Point-To-Point Transmission Service Customers ................................................................................................ Attachment D
[name change for Network Access Service]
ATTACHMENT F
Service Agreement for Network Integration Transmission Service ................................................................................... deleted
[one for all Network Access Service Customers—Part VI]
ATTACHMENT G
Network Operating Agreement ........................................................................................................................................... Attachment C
[to be filed by Transmission Provider]
ATTACHMENT H
Annual Transmission Revenue Requirement for Network Integration Transmission Service ........................................... Part VIII
[all rates addressed in Part VIII]
ATTACHMENT I
Index of Network Integration Transmission Service Customers ........................................................................................ deleted
[one for all Network Access Service Customers—Attachment D]
New Sections of the Pro Forma Tariff:
Part II.D. Congestion Revenue Rights
Part III. Day-Ahead and Real-Time Market Services
Part IV. Market Monitoring
Part V. Generation Interconnection Procedures
[will be the outcome of the Standardization of Generator Interconnection Agreements and Procedures, Notice of
Proposed Rulemaking, 99 FERC ¶61,086 (2002)]
Part VI. Transmission Planning and Expansion
Part VIII. Appendices (Details for calculation of rates and market clearing prices)
Appendix E energy and transmission services.1 Thus, not present in Standard Market Design. The
there is no need to make separate payments day-ahead schedule for energy developed by
Standard Market Design and Trading in real time to relieve congestion in the day- the PX market did not take into account
Strategies Encountered in the Independent ahead schedule, as there was in California. transmission constraints. As such, the
System Operators The day-ahead schedules under Standard schedule that was developed was often not
Currently, five ISOs operate organized Market Design would also be financially physically feasible. Second, entities were
markets for energy and ancillary services, binding so that a marketer that changed its then paid to relieve the congestion in real-
California ISO, PJM, New York ISO, ISO-New schedule in real time would still be time that resulted from the infeasible day-
England and ERCOT. This appendix financially liable for its day-ahead schedule. ahead schedule. In contrast, Standard Market
discusses how Standard Market Design This also reduces the opportunities and Design uses a security constrained day-ahead
incentives for market manipulation strategies schedule for energy. This means the day-
would handle various trading strategies that
that rely on differences between day-ahead ahead schedule accounts for all transmission
were allegedly used for market manipulation
and real-time prices. system constraints needed for reliable system
in these ISOs, including those described by operations. Thus, the day-ahead schedules in
A few of the strategies in the Enron
Enron Corporation in two memoranda as the Standard Market Design will not have the
memoranda appear to depend on the
being used in the California wholesale type of manufactured congestion discussed
marketer providing false information to the
markets. Standard Market Design ISO. Thus, these strategies rely on evading or in the Enron memoranda. Standard Market
incorporates lessons we have learned from violating the market rules rather than on Design also uses a more efficient congestion
experience in these organized markets. In market design flaws. Standard Market Design management system, LMP, than that used by
many cases the proposed market rules have addresses these types of strategies by the California ISO. Under LMP, the entities
been designed to avoid the market design requiring an active market monitoring that cause congestion are charged for that
flaws that were the basis for these trading program that will detect violations of market congestion. Thus, there would be no need for
strategies. For others, Standard Market rules and take appropriate action against separate payments by the ISO to relieve
Design relies on strong market monitoring by entities that violate the market rules. congestion as occurred in California.
the Independent Transmission Provider’s The specific strategies in the Enron B. Representative Trading Strategies
Market Monitoring Unit and the Commission memoranda are discussed below.
Office of Market Oversight and Investigation 1. Exports of California Power—buying
to ensure compliance with the market rules A. The Big Picture energy for export and then importing that
and to detect new market manipulation 1. ‘‘Inc-ing Load’’ (Fat Boy)—artificially energy to evade the price caps in California.
strategies. increasing load on schedules submitted to The strategy was designed to take
the Cal PX; dispatching the generation as advantage of the fact that there was a price
Enron Strategies and Standard Market scheduled, which was in excess of actual cap in effect in only part of the market. This
Design load; being paid by the California ISO for the problem was eliminated in California when
In memoranda dated December 6, 2000 and excess generation at the market clearing West-wide mitigation measures were
price. imposed. Standard Market Design will apply
December 8, 2000, attorneys for Enron
This strategy appears to be designed to consistent market mitigation measures across
detailed various trading strategies that were
evade the requirement for balanced day- all regions. Thus, the incentive for this type
being used in California wholesale markets. of strategy is significantly reduced. Also,
The strategies discussed in the Enron ahead schedules by the California ISO.
Standard Market Design does not require Standard Market Design includes a resource
memoranda were mainly tailored to take adequacy requirement for load serving
advantage of flaws in the California market load or generation to submit balanced day-
ahead schedules. Therefore, such a strategy is entities that avoids or minimizes the energy
design, particularly its congestion shortage conditions that made this strategy
management system. Standard Market Design not necessary to offer excess generation to the
possible.
uses a different congestion management market. The market rules provide sellers with
2. Non-firm Export—scheduling non-firm
system that would make most of these varying methods to do this. However, there
energy from a point in California to a control
are scheduling requirements and entities that
strategies infeasible. area outside of California and then cutting
do not follow them may be subject to
Most of the strategies described in the the non-firm energy after it receives payment
penalties.
Enron memoranda depended on the for relieving congestion.
2. Relieving Congestion—creating
development of a day-ahead schedule for This strategy appears to exploit a loophole
congestion in the PX market (i.e., the energy
power sales that was developed without in the California congestion management
scheduled for delivery exceeds the capacity
determining whether that day-ahead system that allowed an entity to get a
of the transmission path) and ‘‘relieving’’
schedule was physically feasible. In real payment for shipping power that wasn’t
such congestion in the real-time market. actually shipped. In contrast, under Standard
time, the California ISO made payments to Accomplished by reducing schedules or
entities to relieve congestion. This created an Market Design the day-ahead schedule would
scheduling transmission in the opposite be financially binding so a marketer could
incentive for an entity to create congestion in direction, for which congestion payment is
the day-ahead schedule at no cost so that the not cancel the arrangement without a
made by the ISO. financial penalty. Also, Standard Market
same entity would be paid to relieve that This strategy appears designed to exploit a Design uses LMP to manage congestion rather
congestion in real time. flaw in the California market design that is than separate payments to relieve congestion.
Standard Market Design uses a nodal
3. Death Star—scheduling energy in the
congestion management system, Locational 1 California used a zonal congestion management
opposite direction of congestion
Marginal Pricing (LMP) together with a system that was designed to manage congestion (counterflow) without putting energy onto or
physically feasible and financially binding between zones, but not within a zone. A nodal
taking it off of the grid, yet still receiving
day-ahead schedule. The use of a nodal congestion management system is designed to
manage congestion between any locations or nodes
congestion payments.
congestion management system ensures that This strategy appears designed to exploit a
within the transmission system. In California, the
all transmission constraints are considered in flaw in the way that congestion charges were
day-ahead schedule for energy sales was developed
developing day-ahead schedules and any by the PX and there was no requirement that this paid in California. Under LMP, the entity
congestion is reflected in the prices for schedule be physically feasible would only be paid in real time for power
that actually flowed. Congestion charges completely constrained or that a line is out day-ahead schedule for energy developed by
would be computed as the difference of service. Even though no energy is the Cal PX did not account for transmission
between two locational energy prices under delivered, the trader will be paid a constraints. CA ISO then paid congestion
a LMP system rather than a separate charge congestion charge for cutting the transaction. charges to entities to relieve the congestion
as in California. This particular strategy also This strategy appears designed to exploit they had created through their scheduling.
appears to depend on different congestion two flaws in the California system that do not The security constrained day-ahead
management systems being in effect in exist in Standard Market Design. First, schedules required in Standard Market
contiguous areas. That is, the California ISO’s because Standard Market Design uses Design takes into account transmission
congestion charges did not reflect the security-constrained unit commitment and constraints. So, there is not the same
availability of additional transmission dispatch procedures in operating their energy opportunity for this type of market
capacity along a parallel path in an adjacent markets, market participants could not manipulation.
system. As long as that happens there likely schedule transactions day-ahead or real-time
are some opportunities for market Market Manipulation in the Eastern ISO
that are physically impossible. Second, the
manipulation. The long-term fix for this type Markets: Implications for Standard Market
congestion management system under
of problem is a standard market design that Design
Standard Market Design is fully integrated
applies to all areas within the market. Also, with the energy markets and therefore would Because several components of Standard
large regional organizations that cover not provide separate payments for relieving Market Design are based on market designs
natural markets will fix this problem. In congestion as in California. Under LMP, if in effect in the Eastern ISOs markets—PJM,
Order No. 2000, the Commission encouraged more entities were trying to schedule an New York and New England—it is important
the formation of these types of regional export than the physical capacity of the line, to turn to these markets to verify that the
organizations. this excess would be reflected in the market Standard Market Design rules protect against
4. Load Shift—submitting artificial clearing prices for the energy exports, which market manipulation. In this regard, the
schedules in order to receive inter-zonal in turn would be used to compute following points are important. First, the
congestion payments. Shifting load to receive appropriate congestion charges. Thus, there Eastern ISO markets have recognized almost
congestion payments. would be nothing to gain in using this from the start of market operations that no
The strategy relies on the flaws in the strategy. market design can protect against market
congestion management system in California. 7. Ricochet—Buying energy from the Cal power due to structural conditions, such as
The zonal congestion system used in PX and exporting it to another entity which the high concentration of firms in a region or
California provides more opportunities to charges a small fee. The energy is resold in load pocket and/or the lack of price-sensitive
game congestion than the nodal congestion the real-time market. demand. For this reason, the Standard
system under LMP. Because of the separation The main purpose of this strategy is to Market Design includes market power
of the day-ahead market (formerly mitigation rules.
evade California’s price caps which apply to
administered by the PX) and the real-time Second, there have been several years of
in-state generation, but not to external
balancing market (administered by the ISO), learning in the Eastern ISO markets on
generation purchased ‘‘out of market.’’ Under
there are numerous ways that market market design. Small details of market design
Standard Market Design there would be
participants can create artificial congestion in can turn out to have major effects on market
consistent market mitigation measures across
the day-ahead market and then be paid to performance. We have used this experience
relieve the congestion in real time. Under the country. Therefore, there would not be
in developing the market rules for Standard
LMP, the entity that caused the congestion the opportunity to take advantage of the
Market Design.
would pay for the congestion. differences in market rules. In California, the
Like the California markets, the Eastern
5. ‘‘Get Shorty’’—paper trading of ancillary ‘‘Ricochet’’ strategy ended when consistent
ISO markets have been alleged to be subject
services. Enron has to submit false West-wide mitigation rules went into effect.
periodically to physical and economic
information to the CA ISO on the location of 8. Selling non-firm as firm—selling or
withholding of capacity by firms and other
the plants to sell the ancillary services. reselling what is actually non-firm energy to
measures employed as a means to increase
Standard Market Design proposes a day- the Cal PX but claiming that it is firm energy.
market prices for energy, ancillary services
ahead and real-time market for ancillary The reason for this strategy is that Enron
and installed capacity, and to manipulate the
services. Financial bids for ancillary services would get paid for ancillary services if the
prices for transmission rights. However, these
are not permitted. Bidders would be required energy was labeled as firm, but would not get attempts have been more sporadic and have
to identify specific units that would be used paid for ancillary services if it was labeled as had a far less significant economic impact
to provide the ancillary services. Market non-firm. Under Standard Market Design all than California. This is due in part to the fact
monitoring would be used to ensure that transmission service would be under that approximately 85 percent of demand is
ancillary service bids are backed by real Network Access Service so there would be no covered under long-term contracts and
resources. difference in the ancillary service therefore is unaffected by spot price
This strategy is also based on virtual requirements. Thus, there would be no volatility. In general, the Eastern markets are
bidding, something that is allowed under reason for this strategy. considered relatively competitive and have a
Standard Market Design for energy markets. 9. Scheduling energy to collect congestion range of measures in place to monitor and
Virtual bidding should cause the prices in charge—scheduling a counterflow even mitigate locational market power.2 Several
the day-ahead and real-time markets to though a company does not have any problematic markets, especially for installed
converge. This by itself does not harm available generation. The entity is charged capacity, have been eliminated or
customers. It means that a customer that buys the real-time price for energy that it is short substantially modified. In addition, at least
power in real time will pay approximately but receives a congestion payment for the some types of market manipulation that have
the same as a customer that buys power day scheduled counterflow. This activity is occurred in the New England market are
ahead. However, under Standard Market profitable whenever the congestion payment associated with its interim market design,
Design, bidders would be required to is greater than the charge associated with the
specifically identify energy bids that are not energy that was not delivered. 2 Each of the Eastern ISOs produces reports on
backed by physical resources. This is This strategy exploited a loophole in the market performance and on market power
important for reliability purposes, to ensure CA ISO congestion management system that monitoring and mitigation. These reports are
that the transmission provider can ensure does not exist under the LMP system used in available on the ISO Web-sites; particular reports
that sufficient physical resources are Standard Market Design. As the referenced in this section will be cited. In addition,
committed to meet the projected load. In memorandum notes, CA ISO paid congestion filings before the Commission and Commission
contrast, Enron apparently indicated the charges whether any power flowed or not. orders address these issues and will also be cited
Under Standard Market Design if an entity when referenced. See also FERC, ‘‘Investigation of
ancillary bids were backed by physical
Bulk Power Markets: Northeast Region,’’ November
resources when they were not. This could sold energy in the day-ahead market it would 1, 2000, available on the FERC web-site; State of
have affected reliability if Enron was actually either have to provide the energy in real time New York Department of Public Service, ‘‘Interim
called on to supply the ancillary services. or buy back its position (it would be charged Pricing Report On New York State’s Independent
6. Wheel Out—scheduling a transmission the real-time price for the energy). Also, the System Operator,’’ Department of Public Service
flow while knowing that an intertie is strategy may be related to the fact that the Pricing Team, December 2000.
and will not recur under the Standard Market importance of the two factors could not be payments to just one plant of $8 million
Design. Similarly, in New York, many initial determined.5 resulted from this bidding technique. The
poor design decisions and software choices During periods of shortage, interactions Commission approved PJM’s market rule
made within a framework similar to the between the energy markets and the markets revision to address this problem, which
proposed Standard Market Design have been for ancillary services and installed capacity restricted the bid sufficiency guarantee only
modified and improved, yielding some are also more significant. Market power in to the hours in which the generator bid was
lessons for future attempts to implement each type of market can affect the other. Price economic during the emergency.8
Standard Market Design markets.3 increases in the energy markets will lead to Under the proposed Standard Market
The previous section examined whether higher prices for ancillary services, since the Design market rules, as in PJM, a generator’s
the Enron strategies in California could be prices in the latter markets reflect the bid offer must be considered over the full
used to manipulate prices under the opportunity costs associated with forgone day. Hence in normal circumstances, as in
Standard Market Design. This section energy sales.6 Maintenance of the operating
PJM, changing the generator’s minimum run
reviews some of the publicly known reserve requirement can also drive up prices
in the energy market, because the ISO time should not confer any competitive
examples of market manipulation in the advantage. The Standard Market Design rules
Eastern ISO markets and discusses whether markets require that all energy should be
taken to preserve the reserve margins prior to explicitly require that the Transmission
and how the Standard Market Design would
having to reduce them (see example 1(a), Provider must evaluate how emergency
prevent such activity.4 The ISO market
below); hence withholding of reserves could conditions affect market prices. In complying
monitoring reports and filings before the
Commission provide many further examples drive up not just reserve prices but also with this requirement, the Commission will
of market manipulation in the Eastern ISO energy prices.7 evaluate whether the rules prevent market
markets that concern either minor events, 1. Manipulation of physical bid parameters manipulation, whether by adopting the PJM
transitory problems, or market rule changes to extend the operating time or increase the rules or some other measures.
made in anticipation of potential market output level of a generator and increase the (b) In New England, generators were
manipulation. The Standard Market Design market price—Several ISO markets have bidding very high low operating levels—that
may not specifically require many of those experienced firms’ use of the bid-in physical is, setting a high minimum output level. By
rules, but the Commission will review parameters of generators, such as minimum the existing rules in New England, these
Standard Market Design compliance filings to run times and low operating levels, to extend generators were not eligible to set the Energy
evaluate whether proposed market rules are the operating time and/or output of the Clearing Price but were eligible for uplift
susceptible to manipulation. generator and possibly set a higher market payments based on their bid. The ISO
clearing price than was economically proposed, and the Commission accepted, that
A. Energy Markets necessary. Typically, these problems are generators would be required to bid their
The Eastern ISO energy markets have been combined with specific market rules that physical low operating levels, subject to
subject to forms of market manipulation and allow the change in physical bid parameters adjustment for emissions or economic
market power, including both economic and to impact the price (under a purely efficiency reasons.9 This kind of problem
physical withholding. Most exercise of competitive market assumption, changes in would be less likely in an LMP-based system
market power in the energy markets occurs these parameters should not affect the price with a revenue sufficiency guarantee.
in two types of system conditions: (1) The in the market). Two specific cases follow. Under Standard Market Design, the
existence of persistent transmission (a) In PJM, certain generators were
Transmission Provider is given authority to
constraints in some locations and (2) periods increasing their minimum run times to the
put limits on the frequency with which
of system-wide shortage of energy, such as full 24 hours of the day and submitting high
physical bid parameters can be changed, and
exists on peak-load days or during price bids. Under the PJM energy market
other limits on how the operating
emergencies. Locations that are on the import rules, the bids were evaluated over the full
characteristics of the generators are bid.
side of persistently congested transmission day; hence, under normal conditions, high
price bids would be rejected. However, in These potential bid restrictions can be used
lines (sometimes called ‘‘load pockets’’) to address any evidence of market
present the most opportunity for exercise of Maximum Generation Emergencies, PJM was
required to take all economic offers, manipulation or to anticipate such behavior.
market power due to the high concentration
that occurs in these locations. Generators in regardless of the number of hours of the day B. Ancillary Service Markets
these locations are typically closely in which such offers were economic, prior to
taking other emergency measures, such as Bid-based ancillary service markets
monitored and/or placed under contract to typically have fewer eligible suppliers
prevent bid price increases. Hence, this recalling capacity resources. This allowed
these generators to run at a high price all day (particularly until demand-side resources
section will not consider market power in participate) than the energy markets as well
these locations. and set LMPs higher than the $1,000 bid cap.
PJM estimated that in 1999, excess energy as inelastic demand (unless demand curves
During capacity shortages or system for reserves are established). Locational
emergencies, market power is more diffuse, reserve requirements may narrow the markets
5 PJM Market Monitoring Unit (MMU), ‘‘PJM
reflecting the possibility that all generation further. Finally, as noted above, market
will have to be dispatched. For example, the Interconnection State of the Market Report 1999,’’
June 2000. The report explains that long-term net power in the energy markets is transferred to
PJM market monitor believes that high energy
revenue results indicate that prices were the ancillary service markets through
prices in the summer of 1999 were the result
competitive in 1999. opportunity cost payments and other market
of the interaction of high demand levels with 6 The standard pricing rule for regulation and rules.10 These factors make monitoring of
supply curves that exhibited steep slopes operating reserves is to compensate generators that
over very narrow ranges of output. Some these markets important. Under normal
would have been scheduled for energy but are conditions, it is expected that regulation and
firms appear to have withheld capacity and withheld for regulation or reserves for the forgone
changed bid parameters during peak hours as operating reserves should account for under
energy revenues. This pricing rule is continued in
a means to drive up prices (see discussion the Standard Market Design. 10 percent of total market costs, and in the
below). However, these prices also appear to 7 In addition to the example in 1(a), there are Eastern ISO markets are often under 5
have attracted imports into PJM. The market some significant instances in which the reliability percent. In contrast, in a few cases, poorly
monitor thus concluded that the high prices rules that require ISOs to purchase energy from any designed ancillary service markets and/or
were due both to scarcity and to the exercise external or internal source to maintain the reserve exercise of market power in these markets
margin can increase the energy price. For example, have resulted in ancillary services
of market power, but that the relative
prior to the imposition of the $1000 energy bid cap
in the Eastern ISOs, ISO New England experienced
3 David B. Patton and Michael T. Wander, ‘‘2001 8 See PJM Interconnection, L.L.C., 92 FERC ¶
an $6000/MWh energy clearing price for four hours
Annual Report on The New York Electric Markets,’’ in May 2000 due to an import purchase that was 61,013 (2000).
Independent Market Advisor to the New York ISO, taken to avoid degrading the internal reserve 9 See ISO New England, Inc., 99 FERC ¶ 61,124
June 2002. margin. However, this case was not deemed to be (2002).
4 Some paragraphs in this section are excerpted exercise of market power. See FERC, ‘‘Investigation 10 PJM Market Monitoring Unit (MMU), ‘‘PJM
from FERC, ‘‘Investigation of Bulk Power Markets: of Bulk Power Markets: Northeast Region,’’ Interconnection State of the Market Report 2001,’’
Northeast Region,’’ November 1, 2000. November 1, 2000. PJM Interconnection, L.L.C., June 2002, p. 108.
temporarily accounting for a much higher some evidence of manipulation of these This problem is generic to electricity
percentage of total electricity costs.11 design elements in the Eastern ISO markets, markets with transmission rights. The rights
1. Withholding of Operating Reserves—The although nothing that has disrupted the established under Standard Market Design,
New York ISO markets for operating reserves markets. Nevertheless, under Standard which include financial rights analogous to
experienced withholding of operating Market Design, such behavior will be FTRs in PJM, are susceptible under some
reserves in the Spring of 2000, resulting in monitored for and mitigated if found. conditions to manipulation by transmission
substantially higher prices for these products Care must be taken to discriminate owners and their affiliates. The Standard
for several months.12 In particular, ten- between legitimate transactions and those Market Design requires market monitoring
minute non-spinning reserves were both aiming to favor owners of certain generation and appropriate transmission maintenance
withheld from the market physically or bid or transmission assets. Increasing congestion oversight and incentives to mitigate such
in at a high level by the three major is not necessarily a sign of intentional problems.
suppliers. The high price for this reserve in activity to congest; all the Eastern ISOs report
turn drove up prices for regulation and the increasing congestion as market trading D. Installed Capacity Markets
other operating reserves. In response, the increases simply because there is more Each of the Eastern ISO markets has an
Commission approved a bid cap on ten- demand for distant resources and associated installed capacity requirement and an ISO-
minute non-spinning reserves and the New transmission. In addition, changes in
York ISO took additional measures to operated capacity market (with the exception
congestion accounting may increase the of New England, in which the market was
increase supply.13 The Commission amount of apparent congestion17 and
subsequently imposed a bid cap on non- terminated). The design of these markets is
transmission maintenance or outages can also
spinning reserves in the ISO New England different in each ISO, as is the market
have a major effect.
markets for similar reasons.14 PJM delayed structure (that is, the degree of firm
An important financial linkage in the
the start of a ten-minute spinning reserve concentration in the market); hence, the
Standard Market Design is between the
market in part due to concerns about the congestion management system and the problems experienced in each market have
potential for limited sellers of the product. holding of Congestion Revenue Rights. The also been different. As discussed in this
As in the energy markets, Standard Market Standard Market Design rules aim to find a proposed rule preamble (Section H), for
Design auctions alone cannot solve structural method of allocation, trade and settlement of various reasons the proposed Standard
sources of market power in the regulation such rights that is equitable, transparent, Market Design includes a resource adequacy
and operating reserves markets. Rather, these provides appropriate incentives for requirement similar in purpose to what is
problems must be addressed through a maintenance of and investment in called here ‘‘installed capacity’’ but does not
combination of market power mitigation transmission assets, and is resistant to include either specific rules for a tradable
measures, such as bid caps, and structural manipulation. The following example shows capacity product or a centralized market to
solutions, such as encouraging entry into how market manipulation can occur. provide such adequacy. However, regions
these markets by generators with flexible 1. Sharing of information about may choose to establish such markets. This
start-times. Transmission Maintenance by Transmission section discusses some of the market
C. Congestion Management Systems and Owners to affect the value of affiliates manipulation that has been experienced in
Transmission Rights holdings of Transmission Rights—In PJM, the existing ICAP markets. The Commission
information acquired during a non-public will evaluate any proposals for new markets
The congestion management system based
investigation suggested that subsidiaries of for resource adequacy on the basis that they
on LMP and financial transmission rights
Exelon, may have shared information that do not result in a repeat of the flaws detected
proposed in the Standard Market Design and
gave the marketing subsidiary an in the existing ISO installed capacity
in use in PJM and New York presents a clear
informational advantage in its bidding for markets.
advantage over the transmission line-loading
Fixed Transmission Rights (FTRs) in the 1. Bid Manipulation of poorly defined
relief (TLR) methods used in other parts of
monthly FTR auctions. After the bidding ICAP products (New England)—The original
the country. The LMP-based method has
caused far fewer instances of transmission closed in three auctions held in September, ISO New England ICAP market was
curtailments.15 At the same time, any October, and November 1999, PECO recognized as a flawed market almost from its
transmission network with congestion announced maintenance outages on inception (along with other aspects of the
pricing and financial transmission rights is transmission facilities within PJM. The New England markets),20 but the true
susceptible to some degree to market Commission directed Exelon, PECO and problems and attempts at market
manipulation.16 Heretofore, there has been Exelon Power Team to show cause whether manipulation did not emerge until several
they violated section 205(b) of the Federal months into operations. The basic flaw was
11 For example, New York ISO experienced one
Power Act (FPA) and the standards of that the ICAP product did not have any recall
month, February 2000, in which regulation and
conduct and the Commission’s regulations by obligations or deliverability requirements
operating reserves accounted for almost 30 percent operating PECO’s transmission system in an and had only seasonal availability
of total market costs. This was an aberration due to unduly preferential manner or sharing non- requirements. Hence, its value in the
the market power in the reserves markets discussed public information regarding the timing and monthly auction was determined not by the
in example (1); following market power mitigation location of maintenance outages in PJM’s value of ICAP but by the ability to
measures, the costs of these ancillary services system or both. The Commission also manipulate the price. The auction clearing
dropped to under 5 percent of total market costs. directed PJM to report, to the Commission on
See Patton, David B., ‘‘New York Market Advisor price tended to swing between $0/MW and
its current transmission oversight processes very high prices. In early 2000, the ISO
Annual Report on The New York Electric Markets
for Calendar Year 2000,’’ ISO New York, April
and procedures regarding maintenance and determined that the ICAP price was due to
2001, p. ix. de-rating decisions.18 PJM subsequently
12 See id. modified its transmission oversight
procedures to eliminate incentives for such Procedures, Docket No. EL01–122–000 (November
13 New York Independent System Operator, Inc.,
2, 2001).
et al., 91 FERC ¶ 61,218 (2000). behavior.19 20 The preliminary New England market design
14 See ISO New England, Inc., 99 FERC ¶ 61,124
was developed by NEPOOL committees over the
(2002). 17 For example, PJM reports a notable increase in
course of 1998. Problems with this design were
15 See, e.g., FERC, ‘‘Investigation of Bulk Power congestion over low-voltage facilities, which is at suggested by independent experts under contract to
Markets: Southeast Region,’’ November 1, 2000; and least in part associated with PJM assuming the ISO (See Peter Cramton and Robert Wilson, ‘‘A
FERC, ‘‘Investigation of Bulk Power Markets: monitoring and control of these facilities from Review of ISO New England’s Proposed Market
Midwest Region,’’ November 1, 2000. transmission owners. See PJM Market Monitoring Rules,’’ Report to ISO New England, Market Design
16 Although electricity flows in complex patterns Unit (MMU), ‘‘PJM Interconnection State of the Inc., September 1998). However, these experts, the
determined by physical laws and subject to the Market Report 2001,’’ PJM Interconnection, L.L.C., ISO and NEPOOL supported beginning market
simultaneous interaction of all injections and June 2002, p. 126. operations and addressing market design problems
18 See PJM Interconnection, L.L.C., 97 FERC ¶
withdrawals on the systems, the ways in which with the markets in progress. NEPOOL proposed a
generators load certain lines can be calculated 61,010 (2001). phased implementation which was approved by the
(through so-called ‘‘generation shift factors’’) or 19 See PJM Interconnection, L.L.C. ‘‘Report of PJM Commission. Market trials were run in January 1999
understood through experience. Interconnection, L.L.C. on Transmission Oversight and the markets were started on May 1, 1999.
market power and revised the price for capacity to all compliant load-serving entities a. Load-Serving Entity (service to load
several months. rather than to the single firm.22 within a single Transmission Provider’s
The subsequent modifications of the New area)—These customers currently pay and
England ICAP requirements and markets will Appendix F would continue to pay the access charge, and
not be reviewed here. In a June 28, 2000, Access Charges and Congestion Revenue would receive a direct allocation of
order, the Commission agreed with the ISO Rights Congestion Revenue Rights.
that the existing installed capability auction b. Internal, Non-Load Serving Transactions
market was not useful and that it could Allocation of Congestion Revenue Rights (service within a single Transmission
produce inflated prices unrelated to the Phase I (Initial Allocation)—Through Direct Provider’s area from generator to hub, hub-
actual harm created by installed capability Assignment Based on Historical Use to-hub, or to support sales to the spot
deficiencies.21 The Commission permitted All existing customers using transmission market)—The customer currently has specific
the elimination of the auction market service, whether through bundled contracts, rights to capacity between stated points and,
effective August 1, 2000, and required the service agreements under the pro forma tariff, for this, pays the access charge. Under
ISO to revert to administratively-determined or pre-Order No. 888 transmission contracts, Standard Market Design, it would be
deficiency charge for failure to meet installed pay the transmission rate, i.e., the access permitted to retain its priority rights, albeit
capability requirements. charge, which enables the transmission in the form of Congestion Revenue Rights
2. Withholding of ICAP (PJM)—In the ICAP owner to recover the fixed, or embedded, rather than firm transmission capacity rights
markets in PJM and New York, both costs of its transmission system. Moreover, through Phase I. For this continued right,
structural problems and market design issues the existing pro forma tariff grants priority however, the customer must continue to pay
have resulted in ongoing refinement of for transmission capacity to existing long- the access charge to receive a direct
market design and measures to limit the term firm customers. allocation of Congestion Revenue Rights. In
This proposed rule gives the region a other words, it could choose to either (1)
exercise of market power. An in-depth
choice between an initial allocation or an continue the point-to-point contract,
explanation of the designs of these markets
auction of Congestion Revenue Rights. The including paying the access charge, and for
is beyond the scope of this section; rather,
first portion, ‘‘Phase I,’’ deals with regions that would receive a direct allocation of
the focus will be on the exercise of market
that start with an allocation of Congestion Congestion Revenue Rights; or (2) terminate
power in the PJM daily capacity credit
Revenue Rights to existing long-term the contract, meaning the customer would no
market in early 2001. The PJM market
customers based on their historical use of the longer pay the access charge, no longer
monitor has noted potentially high
system. In this sense there is a link between receive specific transmission capacity rights
concentration and design flaws in this market
paying the access charge and receiving between points, and, therefore, would not
since its inception on January 1, 1999, and
Congestion Revenue Rights. However, this is receive a direct allocation of Congestion
there have been modifications of the market
not a one-to-one link, i.e., not all customers Revenue Rights. Under the second choice,
rules several times. the customer would instead schedule service
paying the access charge will receive
In PJM, each load-serving entity has the in the day-ahead and real-time markets and
Congestion Revenue Rights—customers with
obligation to own capacity, have a bilateral pay the applicable congestion and loss
short-term or non-firm service under the
contract for capacity, or purchase capacity charges.
existing pro forma tariff currently pay an
credits through a centralized market equal to c. Through and Out (export by generator or
access charge but would receive no
its peak load plus a reserve margin. To marketer)—Consistent with internal, load-
Congestion Revenue Rights through the
qualify as a capacity resource, a generating initial allocation process. This is consistent serving transactions (above), the customer
unit must pass tests regarding overall with Section 2.2 of the existing pro forma currently has specific rights to capacity
capability and the ability to deliver energy to tariff, which grants rollover rights (which between stated points and, for this, pays the
PJM load, which requires adequate guarantee access to firm service) only to access charge, but would no longer be
transmission capability. Load-serving entities longer-term contracts. required to pay the access charge to export
can use their capacity resources to produce power to another region. It would be
energy for export from the PJM control area, Phase I: Specific Examples—What the permitted to retain its priority rights, albeit
but such transactions are subject to recall by Customer Pays and What the Customer Gets in the form of Congestion Revenue Rights
PJM in emergencies. If a load-serving entity’s The following answers the question of rather than firm transmission capacity rights
capacity resources are less than its obligation, whether and how the following customers through Phase I so long as it continued to pay
then it is considered deficient and subject to currently receiving various services will pay an access charge on the source Transmission
a penalty. In 2001, the capacity credit market access charges or receive Congestion Revenue Provider’s system. In addition, the access (or
was operated on a daily, monthly and multi- Rights. All service in the following examples scheduling) charge paid by all load-serving
monthly basis as well as on an ‘‘interval’’ would be performed under Network Access entities taking power off of the grid on the
basis defined by seasons (the daily market Service upon implementation of Standard sink side of a transaction involving two
serves residual demand after the markets for Market Design. Transmission Providers’ systems would
longer-term credits close). A. Short-Term and Non-Firm Contracts (less include a portion of the transmission costs
Between January and April 2001, a single than one year in duration) from the source side of the transaction, as
firm raised the price in the daily capacity explained below.
credit market for a sustained period of time These customers would receive no
Congestion Revenue Rights (however, 3. Existing Pre-888 Transmission
by essentially being in a position that Contract—These contracts are not standard
required all buyers that were short of transactions under which power is taken off
the grid pay an access charge; those under and may have characteristics of Network
capacity to have to purchase some or all of Integration Transmission Service or Point-to-
their capacity from it. The determination that which power is not taken off the grid do not
pay an access charge). These contracts would Point Transmission Service. Customers
this price increase was the exercise of market currently pay an access charge (though likely
power through economic withholding was be converted to Network Access Service at
the time Standard Market Design is a different charge than under the pro forma
made on the basis of the excess capacity tariff). In either case, the load-serving entity
available at the time as well as calculation of implemented through the SMD Tariff.
(the transmission owning public utility who
the opportunity cost of that capacity, which B. Long-Term Contracts (one year or longer) currently is the transmission provider),
is the sale of the firm energy output forward 1. Existing Network Integration would pay the Transmission Provider the
into a neighboring market. Effective June Transmission Service—These customers access charge on behalf of the pre-888
2001, the Commission approved market rule currently pay and would continue to pay the customer, and would receive any direct
changes that diminished the incentive to access charge, and would receive a direct allocation of the Congestion Revenue Rights
economically withhold by spreading the allocation of Congestion Revenue Rights. associated with the contracts, unless the
revenues accruing to owners of excess 2. Existing Point-to-Point Service. customer converted its contract to Network
Access Service. Continued payment of the
21 See ISO New England, Inc., et al., 91 FERC ¶ 22 See PJM Interconnection, L.L.C., 95 FERC ¶ access charge and direct allocation of
61,311 (2000). 61,175 (2001). Congestion Revenue Rights would be based
on the nature of the service and would be Are There Differences in the Allocation of associated with the expansion offered in an
determined consistent with the pattern Congestion Revenue Rights Based on How auction.
established above. the Rates Are Paid? 5. Generator that receives credits for
4. Bundled Wholesale Contract—Like pre- 1. Service with rate based on open access network upgrades.
888 transmission contracts, these contracts tariff’s embedded cost charge. a. At the time of direct allocation—
are not standard and may have characteristics a. At the time of direct allocation—this is currently, the interconnecting generator pre-
of Network Integration Transmission Service defined above (long-term customers pay the pays for transmission service and receives
or Point-to-Point Transmission Service. access charge and get the direct allocation of credits against the monthly cost of
Customers currently pay an access charge Congestion Revenue Rights) transmission service, whether the generator
(though likely a different charge than under b. At the time of the auction—this is is the customer or it is chosen as a network
the pro forma tariff). Like the pre-888 defined above for various categories of resource by a load-serving entity. To the
contracts, the load-serving entity (the customers (some customers will continue to extent the generator is a long-term
transmission owning public utility who pay the access charge, which will be reduced transmission customer, it would receive
currently is the transmission provider), by auction revenues, but all Congestion Congestion Revenue Rights associated with
would pay the Transmission Provider the Revenue Rights will be auctioned) its transmission service (otherwise the
access charge on behalf of the bundled 2. Service with rate based on incremental network customer that chose the generator as
wholesale customer, and would receive any cost of new transmission facilities. a network resource would receive the
direct allocation of the Congestion Revenue a. At the time of direct allocation—When Congestion Revenue Rights).1 If participant
Rights associated with the contracts, unless a customer requests firm service under the funding is adopted, the customer would
the customer converted its contract to existing pro forma tariff and network receive the Congestion Revenue Rights
Network Access Service. Continued payment upgrades must, on occasion, be built to associated with the additional transfer
of the access charge and direct allocation of accommodate the service. The Commission capability made possible by the transmission
Congestion Revenue Rights would be based has historically allowed rates for expansion. This pricing is subject to the
on the nature of the service and would be transmission service to be set at the higher outcome of the Generator Interconnection
determined consistent with the pattern of the incremental cost or the average proposed rule in Docket No. RM02–1–000.
established above. embedded cost. Thus, the allocation of b. At the time of the auction—a generator
5. Bundled Retail Customers—There is no Congestion Revenue Rights for customers would be treated in the same fashion as other
specific contract defining transmission rights who are currently paying an incremental rate customers under the pro forma tariff both
for this type of service. Customers currently for transmission service will, therefore, be with respect to payment of the access charge
pay an access charge through the bundled the same as for customers paying the and receipt of Congestion Revenue Rights. If
rate. The load-serving entity, often the embedded cost charge under the pro forma participant funding is adopted, the customer
transmission owning public utility who tariff for transmission service. would receive the Congestion Revenue Rights
currently is the transmission provider, would b. At the time of the auction—Under associated with the additional transfer
pay the Transmission Provider the access Standard Market Design, customers generally capability made possible by the transmission
charge on behalf of the bundled retail will no longer request to build facilities to expansion. This pricing is subject to the
customer, and would receive a direct receive ‘‘firm’’ service, since all service will outcome of the Generator Interconnection
allocation of the Congestion Revenue Rights. be allocated based on the customer’s proposed rule in [Docket No. RM02–1–000.
6. Retail Choice—Customers in states with willingness to pay congestion costs. Rather,
6. Merchant transmission owner.
retail choice are either transmission customers will request an economic
a. At the time of direct allocation—A
customers under the pro forma tariff, or they expansion in order to avoid paying the cost
merchant transmission owner does not
are buying power from a supplier who is of congestion. For economic expansions that
receive service, but rather is a transmission
acting as the transmission customer on their are not rolled in to the embedded cost charge,
owner. A customer using this facility would
behalf. They currently directly (or indirectly the customer will pay the Transmission
Provider the cost of the new facilities in also have to pay for service across the RTO
through the supplier) pay the access charge. plus a rate for service on the merchant
The transmission customer in these order to acquire the Congestion Revenue
Rights, and will continue to pay the access facility. Accordingly, the merchant
transactions would receive the direct transmission owner would pay for the full
allocation of Congestion Revenue Rights. charge to receive Network Access Service.
3. Economic Expansions—once an cost of constructing the new facilities and
However, if the retail customer switched would receive the Congestion Revenue Rights
suppliers, this proposed rule establishes the Independent Transmission Provider is in
place, it (with state participation) would associated with its facility for the economic
principle that the Congestion Revenue Rights life of the facility. The full amount of those
move with the load (i.e., the Transmission make a decision on pricing. Most likely, the
beneficiary(ies) of the economic expansion of rights may be subject to change based on
Provider would have to periodically changes in the overall grid over time (e.g.,
reallocate the Congestion Revenue Rights the network would pay for the cost of the
new facilities in return for any Congestion changes in flow patterns or deterioration of
based on each load-serving entities’ load ratio transfer capability of other lines may
share). Revenue Rights created by an increase in
transfer capability, and will continue to pay diminish the amount of Congestion Revenue
Phase II (within four years of adoption of the access charge to receive Network Access Rights associated with the merchant facility).
Standard Market Design)—Through an Service. Otherwise, all network expansions b. At the time of the auction—the
Auction would be rolled in either regionally or to a introduction of the full auction will not
Under Phase II, Congestion Revenue Rights license plate zone and, therefore, all newly change the way merchant facilities are
(other than those assigned to an entity on a created Congestion Revenue Rights would be addressed—the merchant transmission owner
‘‘life of the facility’’ basis as a result of the auctioned. would pay for the full cost of constructing
customer paying for the network upgrades) 4. Reliability Expansions. the new facilities and would receive the
will be auctioned off rather than allocated to a. At the time of direct allocation— Congestion Revenue Rights associated with
particular customers. The link between reliability expansions benefit all users of the its facility for the economic life of the
paying the access charge and receiving grid; therefore, the costs are rolled-in to the facility.
Congestion Revenue Rights will no longer access charge either regionally or to a license
exist once we move to a full auction, since plate zone. Accordingly, any newly created 1 There could be situations where the transition
any entity can acquire Congestion Revenue Congestion Revenue Rights associated with to Network Access Service occurs prior to a
Rights through the auction, with no the expansion will be auctioned. customer receiving transmission credits it is
requirement to pay an access charge to get b. At the time of the auction—the entitled to. To the extent that such a customer
would no longer be required to pay the access
them. Instead, the link moves to the revenue introduction of the full auction would have charge, we would expect the RTO or Independent
side, i.e., the auction revenues would be no impact on reliability expansions, which Transmission Provider to return the remaining
returned to those customers paying the will continue to be rolled-in either regionally amounts to the customer at the same rate as if the
embedded costs of the system through an or to a license plate zone with any newly current transmission charge were still in place until
access charge. created Congestion Revenue Rights the balance is returned.
Cost Shifts Due to Eliminating the Access cheaper generation available across a broader referred to as market resources) shall cover
Charge for Inter-Regional Transfers area, which leads to a more optimal dispatch governance, planning, prevention,
This rulemaking proposes to eliminate and lower generation cost for all customers. operations, incident response, and business
transaction fees (the access charge) on For example, assume load is served at a continuity.
through and out transactions. This, by particular location in RTO A at an LMP of Security standards for market resources
definition, raises the possibility of cost shifts, $25, and that there is a generator on will primarily focus on electronic systems,
resulting in winners and losers. This scenario neighboring RTO B willing and able to sell which include hardware, software, data,
has been previously faced and resolved at $24 (i.e., it has available capacity and there related communications networks, control
within a Transmission Provider’s service is no transmission constraint between the systems as they impact the grid or market,
area, with the result being the elimination of sink and source). However, RTO B has an and personnel (hereafter the word cyber shall
pancaked rates, and can be resolved across access charge of $2, making the competing refer to all of these aspects). In addition,
multiple service areas as well. generator’s delivered cost non-competitive at physical security will be addressed to the
Currently, all transmission customers pay $26. Removing the $2 transaction fee reduces extent that it is necessary to assure a secure
a share of the embedded costs of the the generator’s delivered cost to $24, saving physical environment for cyber resources.
transmission system. Under Standard Market all customers at that location $1, since the This initial set of security standards
Design, only load-serving entities (i.e., LMP is reduced from $25 to $24. Moreover, represent a minimum set of measures derived
customers taking load off of the grid) will pay to the extent that other load within RTO A from commonly accepted industry standards
a share of the embedded costs of the system is served with generation cost in excess of and practices, such as the Common Criteria,
through an access charge.2 This means that $25, the $25 generator in RTO A that was CTSEC, ITSEC, IPSEC, ISO 17799, NIST
the portion of embedded costs currently paid displaced by the $24 generator in RTO B is Guidelines, and the NERC Security
by customers transmitting power through or now available to meet this load, providing Guidelines. Market participants are
out of a Transmission Provider’s service area greater generation savings across RTO A. encouraged to review their individual
must be picked up by load-serving entities. Given that generation costs far exceed access situation and tolerance for risk and
However, while this may seem like a rate charges, customers’ overall savings implement a Security Program that goes
increase, the benefits from the elimination of (generation plus transmission costs) can be beyond these basic security standards herein.
the interregional access charge should exceed reduced far below the increase in
transmission costs resulting from the Application
the costs. Specifically, this occurs through
the reduction in generation costs across the elimination of the access charge on inter- These standards are intended to ensure
region, as we will explain below. regional transactions. There could be that appropriate mitigating plans and actions
Current situation on a hypothetical RTO additional savings to the load-serving entities are in place, recognizing the role of the
(or transmission provider’s system): 90 in that they would receive additional participant in the marketplace and the risks
percent of the embedded costs are paid for Congestion Revenue Rights (or the associated being managed. For the purpose of these
by bundled retail customers, network auction revenues) that would otherwise be security standards, participants are defined
customers, and point-to-point customers who held by the point-to-point customers. as, and the standards shall apply to:
serve load within the RTO. 10 percent of the The precise details of how current • The market operations of RTO’s and
embedded costs are paid for by point-to-point contracts will be transitioned and how ISO’s, and their market connections to
customers exporting power to another RTO embedded transmission costs associated with Control Areas,
or moving power within the RTO but not to inter-regional transactions will be netted • Marketers,
load. across regions should be left to regions to • Transmission Owners,
Standard Market Design will have two work out in compliance filings. • Power Producers,
transmission rate impacts: First, the non-load • Load-serving entities and other power
serving transactions will no longer pay the Appendix G purchasers,
access charge. Second, the inter-regional Security Standards for Electric Market • NERC and the Reliability Authorities,
transfers will be netted across RTOs and the Participants and
load-serving entities on the net importing • Tagging (or other similar dispatching)
RTO will pay a load ratio share of the Purpose Organizations.
embedded costs of the exporting RTO. On Wholesale electric grid operations are Further, if a power-generating unit
first blush, it would appear that the load- highly interdependent, and a failure of one participates directly in the grid (i.e., it is
serving entities on both RTOs will pay more part of the generation, transmission or grid electronically dispatched by control centers),
of the embedded costs to make up for the fact management system can compromise the the plant control system shall comply with
that exporting generators will no longer pay reliable operation of a major portion of the these security standards. If a power-
an access charge. While this is true with regional grid. Similarly, the wholesale generating unit participates directly in the
respect to transmission costs, it ignores the electric market—as a network of economic electric market (i.e., submits tagging
intended benefit of this rate change—lower transactions and interdependencies—relies requests), its market systems shall also
generation costs. on the continuing reliable operation of not comply with these security standards.
First, access charges paid by generators for only physical grid resources, but also the
the first leg of a transaction, whether to serve Compliance
operational infrastructure of monitoring,
load in the same or a neighboring RTO, are dispatch and market software and systems. These security standards shall become
ultimately paid by the purchaser of the Because of this mutual vulnerability and effective on January 1, 2004. Beginning 2004,
power. So, recovering these costs directly interdependence, it is necessary to safeguard on January 1 of each year, every participant
from the load-serving entities will not the electric grid and market resources and shall file with FERC a self-certification
increase the overall cost of delivered power.3 systems by establishing minimum standards signed by an officer of the company
More importantly, removing this additional for all market participants, to assure that a indicating compliance with these standards
transaction fee reduces the cost of reaching lack of security for one resource does not and identifying any areas of non-compliance.
generation on a neighboring RTO. The compromise security and risk grid and Failure to comply with these security
removal of the transaction cost makes market failure for the market or grid as a standards will result in loss of direct access
whole. privileges to the electric market.
2 This may also include point-to-point customers
The purpose of these standards is to ensure Malicious acts directed against the electric
who continue to pay the access charge to receive that electric market participants have a basic market, shall be prosecuted by FERC and law
Congestion Revenue Rights. Security Program protecting the electric grid enforcement agencies to the full extent of the
3 It is possible that there will be instances where
and market from the impacts of acts, either law, including the recovery of damages.
a bundled purchase contract, if not reformed to
reflect this change in transmission rate design, will
accidental or malicious, that aren’t authentic Security Standards
result in the customer paying twice for transmission or could cause wide-ranging, harmful
impacts on grid operations and market Governance
service. Affected customers could file under section
206 of the FPA to seek reformation of their resources. A basic Security Program for Participant senior management shall
contracts. electric grid and market resources (hereafter designate a management official to be
responsible for establishing and managing a perimeter shall be developed that establish • Doors,
basic Security Program for electric market and monitor controls for: • Windows,
functions and resources. (1) The assignment of both logical and • Floor space,
Security Scope physical access rights (as defined in the • Environmental systems,
classification system); • Backup power systems—whether owned
Participants shall define their security (2) The prompt disabling of access rights or leased.
perimeter and identify the boundaries and when positions are terminated or job At a minimum, these procedures shall
defenses for physical and cyber security that responsibilities no longer require access; and address:
delineate and protect the critical resources (3) The annual re-evaluation of assigned (1) Appropriate security barriers and entry
under their control. The security perimeter access rights. controls;
shall identify all entry and exit points and Such authorized personnel—including (2) Mechanical and electronic key and
the requirements for access controls. visitors and service vendors—shall only have badge programs;
A Security Program and policy based on access (whether logical or physical) to (3) Access locking of unattended assets;
these security standards shall be developed electric market resources within the security and,
to protect critical electric grid and market perimeter that they are authorized for. Any (4) Protection from environmental threats
functions and resources within the security and all unauthorized personnel allowed and hazards (e.g., loss of cooling).
perimeter and at entry and exit points where temporary access within the security Critical electric facilities shall restrict the
personnel, supplies or communications may perimeter shall be escorted at all times. distribution of maps, floor plans and
come and go. Additionally, related Systems Management equipment layouts pertaining to those
procedures shall be created that guide facilities, and restrict the use of signage
Procedures for critical electric market
implementation and enforcement of the indicating critical facility locations.
resources within the security perimeter shall
security standards. Policy and procedures be developed to monitor and protect cyber Planning
shall be reviewed for appropriateness (due to assets, such as:
changes in personnel, technology, equipment Security requirements for critical electric
configuration, vulnerabilities and threats) as • Computers systems within the security perimeter shall
necessary, and at least annually. • Software be identified, documented and agreed upon
• Data, as stored and transmitted prior to development, procurement,
Asset Classification and Control • Servers enhancement to, installation of and
Electric market assets within the security • Routers acceptance testing for cyber resources or
perimeter shall be classified as to their • Modems related physical features. For critical control
criticality in maintaining and protecting • Communications channels, whether systems, this means developing cyber
electric market functions. A classification owned or leased security procedures to augment existing test
system shall further define appropriate levels At a minimum, these procedures shall and/or acceptance procedures.
of protection for each level of criticality, and address: Development and testing of critical electric
access rights that will be granted for each (1) The use of effective password routines market systems shall be conducted in system
level of criticality. All critical assets within that periodically require changing of environments that are not interconnected
the perimeter (computers, networks, passwords, including the replacement of with operational system environments.
doorways, etc.) shall have a custodian who default passwords on newly installed
equipment; Incident Response
ensures that those assets are handled in
accordance with their assigned classification (2) Authorization and re-validation of Organizations with critical electric market
scheme. computer accounts; resources shall have incident response
(3) Disabling of unauthorized (invalidated, procedures, which define roles,
Personnel expired) or unused computer accounts; responsibilities and actions to rapidly detect
Any personnel who are authorized access (4) Disabling of unused network services and protect electric resources in the event of
within the security perimeter, or are and ports; harmful or unusual incidents, whether
authorized access to administer, operate or (5) Secure dial-up modem connections; accidental or malicious.
maintain assets within the security perimeter (6) Firewall software (for routed Internet Organizations with critical electric market
shall be trained on the Security Program and access); resources shall report incidents to the
security standards related to their respective (7) Intrusion Detection Systems (for Electricity Sector—Information Sharing and
positions. This training shall start upon networked routers and firewalls); Analysis Center (ES–ISAC) and use reporting
employment, be repeated annually and at (8) Patch management; criteria, thresholds and procedures contained
career points where significant (9) Installation and update of anti-virus in NERC’s Indications, Analysis and Warning
responsibilities change. Security awareness software checkers. (IAW) Program.
training shall be provided to all staff. For critical electric systems, operator logs
Business Continuity
To the extent permitted by law, personnel and Intrusion Detection System logs shall be
required to administer or operate assets maintained for the purpose of checking Every participant operating a critical
classified as critical (according to the system anomalies and for evidence of electric resource shall have contingency
participant’s classification system) shall suspected unauthorized activity. Appropriate plans that define roles, responsibilities and
undergo background investigation conducted procedures for securing control systems that actions for protecting the rest of the electric
prior to employment, upon promotion to are critical to the grid or market shall be grid and market from the failure of its own
such positions (if not a new hire), and at developed and employed. The procedures critical resources. Those plans should further
periodic intervals (not to exceed five years). shall address: define the roles, responsibilities and actions
The participant shall review the results of the (1) Remote access including modems and needed to quickly recover or reestablish
background checks and take appropriate other means; electric grid and market functions, processes
action. Individuals shall be disqualified from (2) Security patch management, as and systems, in the event that a critical
administering, operating or accessing critical appropriate; physical or cyber resource fails or suffers
assets if the individual meets any (3) Assurance that communication harm or attack. Such plans shall be tested or
disqualifying criteria specified by the Federal channels are adequate so as not to impact the exercised regularly.
Bureau of Investigation, Office of Homeland performance of the control system and its
critical functions; and References
Security, RCMP, or other federal agency.
(4) Assurance that system procedures do The North American Electric Reliability
Access Control not impact the performance of the control Council (NERC) has established and
A process such as transaction logs shall be system and its critical functions. maintains Security Guidelines for the
in place to identify individual users of Procedures for critical electric resources Electricity Sector. NERC also provides a list
critical systems and their time of access. within the security perimeter shall be of additional sources for security best
Procedures for critical electric grid and established to monitor and control physical practices. These references shall be helpful in
market resources within the security features, such as: developing organization-specific security
standards and procedures for critical market

resources.
BILLING CODE 6717–01–P
EP29AU02.001</GPH>
BILLING CODE 6717–01–C regulate are practical in implementation, fair People will be pouring over this NOPR to
Electricity Market Design and Structure to consumers and respectful of state see if it is practical and if it is doable. During
Breathitt, Commissioner, concurring: jurisdiction. They have also asked us to the October SMD/RTO week we were advised
I am writing separately on the Notice of recognize that not all regions of the country to keep it simple. This is anything but
Proposed Rulemaking (NOPR) on Standard are the same or have the same historical ways simple. It is a comprehensive proposal and
Market Design (SMD) to express some of my of providing electricity to retail and it’s very complicated. Over time it will result
thoughts on certain of its provisions and
wholesale customers. in a sophisticated market. Parties are going to
design elements. We have been discussing
For example, the way the Northeast has need time to understand its complexities and
the broad contours of the SMD NOPR with
interested parties for months through the evolved with their power pools is vastly implement its many features. The
staff white paper, the options paper and different from how the Southeast and the Commission is going to need patience and
technical conferences. Many of the NOPR’s Southwest has traded bulk power. The flexibility. We have not assigned a cost to
features have been welcomed and embraced northwest has a heavy reliance on this proposal but we know that each FERC
by various entities, associations, company hydroelectric generated power. Even with jurisdictional entity is required to hire an
representatives and academics. Just as many these differences, all the regions have independent transmission provider (ITP) if
participants have cautioned us to make sure provided reliable and steady service they are not already in an RTO. The ITPs
that the procedures, protocols and standards especially in times of extreme weather must set up locational marginal pricing
EP29AU02.002</GPH>
that we wish to impose on the industry we conditions. (LMP), day-ahead and real time energy
markets, as well as ancillary services through this NOPR process and in my tenure My second concern with cost shifts relates
markets. here at the Commission. To this end, I have to the determination of how these costs will
In Order 2000 we paired a voluntary rule continued to be a proponent of Independent be apportioned among different types of
with very tight compliance deadlines, Transmission Companies (ITCs) and continue customers. Even if costs are allocated to
deadlines that I believe we all knew at the to believe that ITCs show great promise to import zones instead of to each ITP, one
time would be difficult to meet. Today’s address grid problems through profit driven customer in the zone that relies solely on
proposed rule pairs many complicated and activities. I am pleased that the NOPR generation within the zone could subsidize a
mandatory requirements with short proposes to adopt a form of participant customer that imports all of its requirements.
implementation time lines. For example, the funding once independent transmission This is due to the fact that the embedded
LMP system paired with energy and ancillary entities are in place. I am also pleased that costs for imports would be spread across all
services markets has not been proven outside the Commission is willing to consider load within the zone. My hope is that parties
of the tight power pools in the Northeast. proposals submitted by Regional State will comment on these and other costs shifts
Also, allocation of initial Congestion Advisory Committees for participant funding giving us concrete examples of the kind and
Revenue Rights will be complicated, if not prior to nation-wide adoption. This order level of shifts that may occur. I would also
problematic for some areas of the country. gives a push to state and regional entities that ask for recommendations on how best to
But, I am pleased that today’s order already have significant momentum and I address cost shifts, especially if they have a
recognizes that not all areas of the country hope to see the fruit of the Regional-State significant impact on retail customers.
will be able to move ahead with all groups efforts in the form of actionable plans In Order 888, Imbalance service was an
requirements of SMD at lightning speed. The for cost allocation of expanded transmission. ancillary service that could be provided by
Commission intends to be flexible in some However, if these groups have difficulty the transmission provider or it could be self-
compliance dates and while it is the objective getting organized and implemented, there is supplied. In staff’s initial thinking on SMD
to have SMD in place within two years of the a default mechanism that would allocate the as expressed in their concept paper, the
effective date of the Final Rule, the costs of expanded transmission locally if the markets for both real-time and day ahead
Commission will consider requests to extend facilities are below 138 kV and regionally if energy would only require voluntary
that date. the facilities are above the 138 kV level. I participation. As we worked through the
The fundamental goal of SMD urge the parties, especially the states, to details of SMD, this idea morphed a bit to
requirements in conjunction with the carefully consider this section of the NOPR now require imbalance service to be taken
standardized transmission service is to create and comment on this. I still have some through the real-time energy market set up by
‘‘seamless’’ wholesale power markets that uncertainty whether we reached the right the ITP. Participation in the day-ahead
allow sellers to transact easily across balance here. market is still left to the buyer’s discretion
transmission grid boundaries. Once the final Furthermore, the states have been asking and bilateral contracts are encouraged. But,
for some time for certain responsibilities in
rule is in place and implemented my hope the requirement for load to buy their
RTOs, particularly in the area of reliability
is that the squabbling over which entities imbalance service through the real-time
and planning. In SMD it is envisioned that
belong in what RTO will end. We should be market is a significant change. Loads will be
they will play important roles in developing
able to put our magic markers away for good. subject to spot prices for that small portion
the resource adequacy standards and
Today’s NOPR puts forward a detailed of their load that varies from their load
transmission expansion pricing methods. We
vision of the roles that ITPs, this commission will give deference to areas that are not as far forecasts. I hope that parties will comment on
and states will play in planning for along in standardizing markets, allowing this change to imbalance service.
expansion of the transmission grid. I am states to manage the pace of the required I believe that one of the fundamental
pleased that the governors have requested a changes. Additionally, the proposed rule, underpinnings of this rule is to give equal
significant role in transmission planning while it asserts jurisdiction over native load, access to the transmission grid to all and I
through the formation of Multi State Entities does not abrogate either actual or implicit support that notion. However, I recognize
(or MSEs). I am also pleased that we propose contracts. I am not so Pollyanna as to believe that giving everyone equal access means that
to give MSEs a role in both overseeing the that everyone will be happy with our decisions will be made based on each party’s
plans developed by the ITPs and in assertion of jurisdiction over native load, in willingness to pay. This means that the price
developing a fair pricing methodology for fact this is likely to be a big bone of certainty that we gave through Order 888 will
these expansions. I feel very positive about contention. But take a look at the rule, as I disappear. But, this does not mean that all
the bottom up approach that is described in think states will find that it tries to be price certainty will disappear because SMD
the planning section of this NOPR. This balanced and allows them significant say in provides mechanisms for customers to use to
approach allows merchant transmission determining outcomes. hedge the volatility in transmission markets
companies and utilities, as well as generators Another area that I have focused on in this and in real-time markets. My concern is that
and demand resources, to bring economic process is cost shifts. I agree that embedded both small players and less sophisticated
solutions to the table to solve the problems costs charges for wheel through and export players will have increased transaction costs
of under-built infrastructure. These projects transactions should be eliminated or and steep learning curves in finding their
must be vetted by the ITP to determine their minimized while at the same time assuring way through these markets and in hedging
impact on the grid in terms of loop flows and recovery of the transmission owner’s revenue these price risks. I don’t want this rule to
other regional impacts, but the real tests will requirement. My concern with respect to cost result in two classes of SMD participants—
be the demand for the projects much as we shifts resulting from this removal of inter- those that know how to participate
see in gas pipeline certificates. regional rates is two-fold. effectively and those that have difficulty and
I do have concerns about the planning First, I fear that areas with low-cost energy, incur higher costs without competitive
protocols that would be enacted by the ITP such as my state of Kentucky, will see those benefits.
once it is determined that economic projects resources flow to high-cost areas located Also, after consulting several economic
cannot fulfill all of the reliability several states or regions away. It is a textbooks, we have defined market power for
requirements of the grid. My concern is that mathematical fact that when costs are the first time in an electric order as ‘‘the
this ‘‘central planning’’ aspect may direct averaged that someone’s costs will go up. ability to raise price above the competitive
projects that are uneconomic with costs This particular concern is in part alleviated level’’. We caveat that definition by stating
socialized to all users of the grid. It is hard by the ability for those in low-cost areas to that the determination of when to intervene
to imagine gold plating of the transmission lock up their low-cost power resources in in a market, i.e. when the price is
grid when we are in an era of under-built long term contracts. I also note that these significantly raised for a sustained period,
infrastructure, but I believe that once we get transactions which will flow over greater will be incorporated into our triggers for
the incentives right for building needed distances, now that they no longer face the intervention rather that the definition. I am
infrastructure there will be no need for the fixed cost of the transmission system, will be not positive that we have the definition right
ITP to direct the construction of possibly subject to marginal losses and congestion and I hope that parties will let us know if
‘‘uneconomic’’ projects. charges. I believe that marginal losses in they think we have used the right definition.
Getting the incentives right in grid excess of actual losses should be credited The three prongs of mitigation proposed in
expansion has been on my top ten list back to the areas where the power originated. this NOPR, local market mitigation, a safety-
net bid cap, and the resource adequacy imposing on certain governance proposals. I grandfathered and require no further changes
requirement, along with the requirement for don’t think the Commission should be to those tariffs to meet the new SMD
an active independent market monitor dictating with such specificity so many rules requirements. This provides necessary relief
should protect these markets during what concerning the explicit makeup of to small transmission owners, including
could be a rocky inception. My hope is that stakeholder committees, who can sit on municipalities and cooperatives.
over time there will be less reliance on which committees, and exactly how boards I urge my colleagues to carefully consider
mitigation measures as the structural should be selected. This could have the effect the comments and not be shy about
problems in these markets subside. Further, of disbanding boards of RTOs that are in the considering changes to the proposal. We are
I believe this proposed rule holds promise for formative stages and boards that might have asking over seventy-five questions which
solving the disagreements that we have today met our Order 2000 independence indicates that we still need industry’s and the
on the ability to exercise market power under requirements. public’s advice on a number of issues. I will
our current methods for granting market- And last, but definitely not least, I am be anxiously awaiting the comments and
based rates. With these stringent new pleased that today’s proposed rule keeps the look forward to what parties have to say on
mitigation measures in place the Commission same provisions for reciprocity as that of the these and other issues.
should reassess its reliance on the Supply OATT. Entities that already have waivers of Linda K. Breathitt,
Margin Assessment test and study the need the reciprocity provision will not have to Commissioner.
for the 206 refund obligation. come in again and request additional waiver
With respect to governance, I do not agree from the SMD provisions. Today’s proposed [FR Doc. 02–21479 Filed 8–28–02; 8:45 am]
with the level of prescription that we are rule also would allow reciprocal OATTs to be BILLING CODE 6717–01–P

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August 29, 2002

I. Introduction issued Order No. 2000.2 The competitive electricity markets.

decision-making processes of In Appendix E, we discuss various transmission and wholesale power

discrimination in interstate transmission-owning public utilities Inc., 97 FERC ¶ 61,326 (2001).

TABLE 1.—INVESTOR-OWNED UTILITIES’ TOTAL PURCHASES, 1989–2000, AS A PERCENTAGE OF ENERGY PURCHASED

1989 ............................................................................................................................................. 460,627 2,132,065 17.8

1992 ............................................................................................................................................. 297,076 520,348 36.3

1997 ............................................................................................................................................. 349,641 674,725 34.1

1992 ............................................................................................................................................. 85,226 136,417 38.5

congestion charges. applicable congestion charges. curtailed for reliability reasons.

135 The right is direction-specific. The holder is

losses. However, since actual marginal losses would

The burden estimates for complying

Number of re- Number of Hours per Total annual

FERC–516 ............................................................................................................... 176 1 *1,199 211,024

Totals ................................................................................................................ 1,366 215,104

Respondent Document Recipient Required content Hours per response

Respondent Document Recipient Required content Hours per response

(xvi) Location. Independent Transmission Provider]. generation injections at bus i holding

F.1.11. that day. Customer: Each Customer seeking to be

Attachment G—List of Existing Transmission Contracts

I. COMMON SERVICE PROVISIONS .................................................................................................................................... Part I

13.7 Classification of Firm Transmission Service .....................................................................................................

standards and procedures for critical market

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