Insight Information Company

ONTARIO POWER SUMMIT

Policing the Market: Upholding Conduct & Performance

Harry ChandlerDirector, Market Assessment & Compliance Division

Independent Electricity Market Operator June 11, 2002

Summary

• 42nd Day of the Market and all is quiet - so far

• Market oversight institutions in place and working effectively

• “Policing” guided by pragmatism and dialogue

What Does Policing Mean?

• Ensuring compliance with the Market Rules

• Monitoring for inappropriate market conduct and flaws in the Market Rules or in the overall structure of the market - surveillance

The Players• Ontario Energy Board - broad regulatory powers• Competition Bureau - investigations; applications to

Competition Tribunal or prosecutions before criminal courts

• Market Surveillance Panel - monitors, investigates, reports and recommends

• IMO - makes Market Rules; sanctions, including financial penalties

Coordination Among Players

• Shared jurisdiction in many areas• Shared goals:

– to facilitate competition in the generation & sale of electricity in Ontario

– to facilitate a smooth transition to competition– to work together to avoid duplication

• See “Joint Statement”

International Dimension

• Energy Intermarket Surveillance Group– membership: all surveillance units in North

America, Australia and New Zealand

– exchange of information on issues and approaches

• Bilateral arrangements under development with surveillance units of neighbouring Independent System Operators

Market Surveillance Panel

• Independent arms-length body appointed by and accountable to the Independent Directors of IMO

• MSP’s mission :

“to promote an efficient, competitive and reliable market for the wholesale sale and purchase of electricity and ancillary services in Ontario”

Market Surveillance Panel

• Monitors IMO-administered markets and participant conduct for:– inappropriate or anomalous market conduct including

abuse of market power and gaming

– flaws in market rules and IMO procedures

– flaws in overall structure of marketplace

• Market Assessment Unit (IMO) monitors under direction of MSP

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Market OperationMarket Operation& Forecasts& Forecasts

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Market AssessmentMarket Assessment and Compliance Divisionand Compliance Division

Committee of Independent DirectorsCommittee of Independent DirectorsCommittee of Independent DirectorsCommittee of Independent Directors

Market Assessment UnitMarket Assessment UnitMarket Assessment UnitMarket Assessment UnitCompliance & Compliance & Dispute ResolutionDispute Resolution

Compliance & Compliance & Dispute ResolutionDispute Resolution

Market Surveillance System

• Daily monitoring of key market indicators to identify unexpected outcomes for further analysis

• Review of market conduct in light of watch list of potential gaming or anomalous conduct

• Review of benchmark models to shed light on market performance from a different perspective

• Close contact with IMO system control office to identify and understand anomalous conduct or operational problems

Compliance with Market Rules

• Shift from vertically integrated (Ontario Hydro) to market-based electricity sector requires framework of procedures and market participant obligations - the Market Rules.

• Market Rules establish sanctions, including financial penalties, as incentives for market participants to satisfy their obligations

• IMO’s Market Assessment & Compliance Division administers sanction regime

Non Compliance Levels & Financial Penalties

• L1 - Partial compliance, self report (< $2,000)

• L2 - Non compliance, self report ( < $4,000)

• L3 - Non compliance, non-report follow-up co-operation ( < $6,000)

• L4 - Non compliance, non-report, failure to respond to IMO ($1,000 - 10,000)

* Penalties may exceed recommended range

Month of May Results

• Congestion Management Settlement Credit payments:– averaged $110,000 per day, thus lower than

estimated– local market power reviews (in 1st 8 days):

• reductions totaling $40,000 sought from 3 Market Participants

• most facilities caught in initial screen saved by cost consistency or because not transmission induced

May Results Cont’d

• Non-Compliant Events:– roughly 350, most related to failed intertie transactions

& deviations from dispatch instructions

• Compliance Sanctions:– contingency arrangements penalties:

• total $48,000 to 5 market participants

– no other penalties

• Notice of Dispute to Dispute Resolution Panel:– none

Non-Compliant Events

• Deviations from dispatch instructions:– learning for both IMO and market participants– IMO guidelines would be helpful

• Failed intertie transactions– roughly 100 failed transactions, mainly offtakes

to NYISO– exploring why these are occurring– dialogue with market participants & NYISO

Intertie Transactions

• Important component to enhancing competition and assuring supply in Ontario and other markets

• Rules and procedures should facilitate trade between control areas, but penalize inappropriate practices

• Commitments in pre-dispatch are expected to be followed except for bona fide and legitimate reasons

Intertie Transactions

MR7/7.5.8A

• Market participants shall other than for bona fide and legitimate reasons, schedule energy and operating reserve across an intertie after being accepted in the pre-dispatch market schedule

• formula penalty and provision for multiplier

Summary

• 42nd Day of the Market and all is quiet - so far

• Market oversight institutions in place and working effectively

• “Policing” guided by pragmatism and dialogue

Reference Information• Market Rules

Chapter 3, Sections 3, 5, 6

Chapter 7, Appendix 7.6• Market Manual 2: Market Administration:

Part 2.0: Market Administration Overview

Part 2.1: Dispute Resolution

Part 2.5: Maintaining Surveillance Data and Amending the Data Catalogue

Part 2.6: Treatment of Compliance Issues

Part 2.7: Treatment of Market Surveillance Issues

Part 2.12: Treatment of Local Market Power

Part 2.15: Intertie Transaction Non-Compliance Financial Penalty

Reference Information cont’d

• Joint Statement of Competition Bureau, Independent Electricity Market Operator & Ontario Energy Board:Competition Oversight of the Ontario Electricity Marketplace

• Backgrounder: The Market Surveillance Panel In Ontario’s Electricity Market: Monitoring, Investigating and Reporting

• See “Market Integrity” on left-hand ribbon of the homepage: www.theIMO.com