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Market Monitoring and Mitigation Under SMD
ISO New England's market monitoring plan provides broad authority to monitor and investigate many aspects of market behavior and outcomes. With the increased complexity of SMD, the scope of monitoring has also increased. Specifically, monitoring includes the day-ahead market's virtual bids and offers, day-ahead and real-time supply offers, Financial Transmission Rights, Forward Reseve Market, Regulation Market, and ICAP market. In addition, rules have been enhanced to more clearly specify the conditions under which sanctions may be imposed for physical withholding.
With the locational marginal pricing (LMP) feature of SMD, ISO New England's market monitoring group can better address locational market power--market power that occurs in specific areas or locations--in New England. Locational market power stems from a supplier's ability to withhold resources and effectively raise prices within areas affected by transmission congestion.
The monitoring and mitigation structure under SMD reduces the likelihood of the exercise of locational market power by a particular supplier in congested areas while still allowing important local price signals. ISO New England has the authority to mitigate or replace inappropriate offers by generating units in congested areas.
Thresholds have been established for the assessment and mitigation of locational market power in areas that experience congestion. The thresholds for acceptable conduct set under SMD recognize that areas with congestion pose a higher threat of negative market impacts and could unjustly increase costs in those areas. These thresholds determine when conduct is anti-competitive and can trigger immediate action by ISO New England. This action is designed to occur prior to the clearing of the market and thus to prevent unwarranted price increases in congested areas.
What Are the Benefits?
Market monitoring benefits the entire marketplace by continually evaluating market behavior and performance to ensure fair and competitive markets. When inefficient rules or anti-competitive behavior is detected, the market monitoring group acts to improve the rules or change the behavior. In known problem areas, market monitoring has the ability to immediately intervene in the market to prevent anti-competitive behavior. This combination of approaches is designed to ensure that the markets running today work as well as possible, including areas where competition may be limited and that in the long-run the markets adapt and evolve to ensure continued reliability, competitiveness and efficiency.
