History of Standard Market Design
Standard Market Design (SMD) is an evolution from earlier plans to adopt a new approach to wholesale electricity markets in New England. ISO New England first launched a single energy clearing price wholesale market in 1999. At that time, free market competition was new to the electric power industry, so the early days of wholesale market operation in the U.S. were considered somewhat experimental. Each area of the country that developed wholesale markets created their own unique market design. This provided an opportunity to learn about wholesale market structures in New England and elsewhere.
By March 2000, ISO New England completed its assessment of the new market and planned to apply changes known as Congestion Management and Multi-Settlement Systems (CMS and MSS), systems already in place in other successful markets around the world.
The aim of CMS was to address transmission congestion in the New England market through the implementation of locational prices for electricity. MSS was geared toward moving the New England market from a single settlement to a multi-settlement system, including day-ahead and real-time markets.
Over time, CMS and MSS evolved to what is now SMD. During the development process, it was determined that adopting the PJM Interconnection's successful market design as a base market, which contained CMS and MSS features, while maintaining New England's own best practices, would allow ISO New England to derive the same benefits that implementing its own version of CMS and MSS promised. At the same time, by borrowing from PJM's model, New England could significantly reduce the costs associated with the market design overhaul-an estimated savings of up to $30 million.
ISO New England prepared to develop a market design that would incorporate specialized needs of the New England market with core features of the PJM market. ISO New England also began to work with the New York ISO to standardize market rules between those regions as well. The result: a set of fair and understandable rules and procedures that hold promise for becoming the model for wholesale electricity market design.
In March 2001, ISO New England announced its plan to begin development of SMD, making New England one of the first regions to further the FERC's goal of standardizing markets nationwide. Two years later, ISO New England implemented the new market design that benefits market participants and energy consumers alike.
The following is a brief overview of the core components of SMD.
