Former FERC Chairman Jon Wellinghoff commented in a recent podcast that it is likely time to bring back the Standard Market Design spearheaded by FERC Chairman Pat Woods in the early 2000s. It is unclear what Boris Johnson’s nationalization of the electric grid means, but the “Future System Operator” resonates with many energy transformation efforts underway in Europe and here in the United States.

The US grid is better served if FERC takes steps to standardize market design across the current six (CAISO, MISO, SPP, PJM, NYISO, ISO-NE) regional transmission organizations within its jurisdiction and insists ERCOT comes under FERC jurisdiction. FERC should mandate that all transmission providers join an Independent System Operator because we need to look past the California energy crisis in early 2000.

What is Standard Market Design?

Standard Market Design (SMD) got a bad reputation because it was associated with the California energy market crisis driven by Enron in 2000. As this July 2003 paper notes, there are 4 main elements in the SMD:
1) A standard transmission tariff that would apply to wholesale and retail customers of transmission
2) Transmission owners give functional control of transmission assets to an independent grid operator
3) Establishing a transparent wholesale price at the transmission nodes and enabling financial transmission rights to hedge for transmission congestion costs
4) Have a process in place for the long-term resource adequacy needs.

If we look back at the US in the past 20 years, the six organized markets under FERC jurisdiction perform all these functions. So, we know and have evidence to show that SMD works. But none of the current ISOs are perfect by any means.

Aggregation of distributed energy resources needs a standard market design

To prove that none of the current ISOs are perfect, we can look at the current compliance frameworks proposed by 4 ISOs – CAISO, NYISO, PJM, and ISO-NE. The remaining ISOs – MISO and PJM, will submit their plans later this month.

As the Voltus comments filed in response to ISO-NE’s FERC Order 2222 compliance note, none of the ISOs have fully met the overall objectives of aggregating distributed energy resources on par with other resources on the grid.

Without an SMD, FERC must first follow this whole ritual of issuing a Notice of Proposed Rulemaking (NOPR) and then a FERC Order. All this takes time, as we see with Order 2222 issued in September 2000 after issuing NOPR in November 2016. An SMD would fix this issue because stakeholders do not have to comment at FERC one issue at a time and convince FERC on what works at one ISO should be allowed at another ISO. See multi-nodal aggregation, for instance.

FERC should gather stakeholder feedback on new elements to add to the old SMD in one instance rather than this piecemeal approach of releasing NOPR-Order on each major issue.

What is the Future System Operator?

Boris Johnson’s Future System Operator is driven by the need to reduce carbon emissions and become net-zero. While details are sketchy on what happens with UK’s current grid operators and what is exactly new with a nationalized grid operator, it is worth noting that the British Prime Minister realizes we need a concerted effort to balance the grid with more renewables on the transmission and distribution systems.

If we forget the debate about natural gas and other fossil fuels and focus on keeping the lights on, a grid operator is needed to administer access to the transmission and distribution system impartially. That impartial “open access” is similar to the SMD’s Open Access Transmission Tariff (OATT). Hence, the future system operator concept may not be new compared to Pat Wood’s SMD concept.   

FERC Chairman Glick’s focus on the “grid of the future“

Reverting to the US regulatory policy space, FERC Chairman Glick has been laser-focused on the grid of the future as evidenced by the Advanced NOPR on transmission planning and generator interconnection, a FERC order on Ambient Adjusted Ratings, and a Notice of Inquiry on Dynamic Line Ratings, to mention a few. The Minimum Offer Pricing Rule (MOPR) proceedings at PJM and ISO-NE have also taken up space on this FERC’s agenda.  

Chairman Glick’s term is ending this summer because he was appointed in November 2017. FERC must soon decide on those 2222 compliance filings to provide clarity to Aggregators of DERs. Under a future Chairman, FERC should bring back the SMD and mandate participation at these ISOs.

The US Congress must give FERC this authority. If US Congress is behind SMD, FERC will have a clear mandate. As July 2003 paper suggests, some states were not behind the 2001 SMD because they saw FERC as inept in managing the California energy crisis. But those same states have taken steps towards organized markets since the early 2000s – southeast (where Southwest Energy Exchange Market or SEEM is established) and northwest (where Western Energy Imbalance Market EIM is functioning).

The time for voluntary participation in ISOs is over

Chairman Glick didn’t want to force transmission owners to participate in the ISOs. After two decades of market operations, we know that the SMD works. FERC can deal with thorny resource adequacy issues in the Western Interconnection and the lack of an independent market monitor in SEEM at the same time with an SMD.

By mandating participation in the ISOs, FERC would level the playing field for transmission providers in the organized markets with utilities such as Duke Energy in the southeast.

Texas needs to come under Federal jurisdiction

Texas is left out if transmission providers in the Eastern and Western interconnection states join an ISO. Some suggest that ERCOT would not have faced hardship in February 2021 if it were part of the Eastern interconnection. It is worth remembering that the 2011 winter caused problems to the Texas grid, and FERC and NERC had jointly released a report. We should also note that the current FERC Chairman Glick does not want the 2021 FERC and NERC joint report to gather dust. If ERCOT comes under FERC jurisdiction and enhances interconnections with both the Western and Eastern grid, the likelihood of transmission support in an emergency drastically increases for Texans.     

Conclusion

In 2001, Pat Wood, the FERC Chairman, brought the Standard Market Design to standardize the wholesale market frameworks across the US. FERC should bring back the SMD 20 years later with the hindsight and experience of grid operations and an eye toward the future. Renewables and distributed energy resources will benefit from a standard design now, given that both are forecasted to increase their participation in the future.