1. Presented to: Eastern RTO/ISO Conference Washington, DC May 11, 2005 The Importance of Teamwork in Multi-Jurisdictional Energy Market Monitoring William F. Hederman, Director Office of Market Oversight and Investigations Federal Energy Regulatory Commission WH-5/11/05

2. 2 Outline FERC Strategy OMOI Organization Delineation of Responsibilities Diversity of MMU Models Markets Overview Program and Policy Options (Views expressed are Hederman’s, not the Commission’s.)

3. 3 FERC has 3-prong strategy. Effective Rules Infrastructure Rules Enforcement Competitive Markets Just & Reasonable Outcomes Strategic Approach

4. 4 Energy Market Progress Requires: Integrity AND Public Confidence In That Integrity

5. 5 OMOI has 3 essential processes to “Trust and Verify”. Professionally skeptical Diverse (private/public sectors, disciplines) Highly skilled Team-oriented C O I OutsIdeOutsIde FERCFERC

6. 6 * Report to Board *Discuss Emerging *Report to PUCs Issues/Trends *Regional State of Market *Watch for Anomalous or *Mitigation Inappropriate Market Behavior *Supply Detailed Market Data *Confer on Market Developments Evaluations *Analyze Markets *Contribution to Market Design *Report to Commission *Coordinate with all MMUs *National State of the Markets *Seasonal Look-Aheads *Audit -Market Participants -RTO/ISOs *Enforce Regulations *Monitor Non-RTO Areas and Fuels (esp., Natural Gas) *Market Surveillance Reports/Market Snapshots *Order Development *EQR Implementation *Coordinate With Other Federal Agencies RTO/ISO Market Monitors FERC OMOI Feds and Monitors share tasks and have distinct tasks.

7. 7 Common Market Metrics - MMUS Category MetricNYISOPJMISO-NECAISOMISOTotal Energy Market Metrics DA and RT Prices 1 Price Duration Curve 4 All-in Price 4 Volatility Congestion Costs 3 Secondary Market Metrics Capacity Market Volume and Price 2 Load Metrics Load Duration Curve 5 Imports and Exports 5 Offer Sufficiency 2 Generation Metrics Outages and Deratings 5 Generation by Fuel 2 Additional Market Metrics Virtual Transactions 2 Spot Market Activity 1 RSI Duration Curve 4 Reserve Margin OMOI and Market Monitors agreed to add this metric at June 22 MMU meeting. Net Revenue Analysis 4 Total108 97 Status of MMU Common Metrics from State of the Market Presentations

8. 8 There is no dominant market monitoring model PJMISO-NENYISOCAISOMISOSPPERCOT Internal Monitor Reports to: Employees President and Board of Managers Employees ISO CEO & Markets Committee of ISO Board of Directors Employees (Note 1) Director, Corp. and Market Risk Management Employees General Counsel (Note 2)Employees (Note 3) CEO External Monitor Reports to: Contractor Markets Committee of ISO Board of Directors Contractor (Note 4) Markets Committee of NYISO Board Contractor (Note 5) FERC and ISO Contractor Markets Committee of the MISO Board Contractor Compliance Committee of Board of Directors Texas PUC employees (Note 6) Texas PUC Other Monitor Reports to: NYPSC staff NYPSC Market Surveillance Committee CEO and Board of Governors Contractor Texas PUC Notes: (1) Lead for: real time, physical audits; (2) No Internal Monitor, staff liaison to the External Monitor; (3) Skeletal staff now, change likely; (4) Lead for: longer term, analytics; (5) Limited role setting DEC reference prices; (6) Pending legislation would require ERCOT to Fund, through administrative fees, an independent market monitor (contractor) that would be hired by the PUC and would report directly to the PUC

9. The relevant markets and jurisdictions are complex. Natural Gas & Electric Market Space Gas Supply Trading Venues Futures (NYMEX) Electronic Platforms Bilateral Trading Voice Brokers Pipelines & Storage Players Delivered Market Physical Nat Gas Generation Transmission & Pumped Storage Delivered Market Phys Electric Power Gas to fuel power generation RTO’s & ISO’s Price Contributors -Fixed price buyers & sellers -Speculators Price Takers -Indexed price buyers & sellers Source: FERC-OMTR&OMOI 9 Nat Gas & Electric Derivatives Nat Gas & Electric Clearing

10. 10 There are many dimensions to crafting Market Monitoring programs and policies. Monitor Qualifications (none/independent judgment/minimum/certification) Monitor Reporting Requirements - FERC- RTO Board - PUCs- RTO Management Monitor Independence/Incentives Monitor Confidentiality Restrictions Inter-monitor/Agency Interaction Responses: Timeliness/QA-QC Just a few examples:

11. 11 There is lots to discuss. Questions and Answers