ISO Department of Market Monitoring plays an important – and required – role in markets transparency and effectiveness
It’s now 26 years since the California electricity crisis and a lot has been learned about what is needed to ensure efficient, competitive and transparent energy markets – and create the confidence in these markets needed for regional expansion in the West.
One of the key pillars of efficient electricity markets is thorough, objective and transparent market oversight and monitoring. The Federal Energy Regulatory Commission (FERC) requires every regional transmission organization to have an independent market monitor analyze and report on the performance of these markets. The California ISO’s (ISO) Department of Market Monitoring (DMM) serves in that role for the markets run by the ISO, including the Extended Day-Ahead Market (EDAM) and the real-time Western Energy Imbalance Market (WEIM).
We at the DMM monitor market performance on an ongoing basis and provide public reports and presentations through quarterly, annual and special publications. DMM’s reports include analysis of the competitiveness and efficiency of the ISO’s wholesale markets, and the effectiveness of various rules designed to mitigate potential gaming and exercises of market power. We have been doing this for over 25 years now and take great care in examining market performance thoroughly and transparently.
“By providing independent analysis and transparency on market performance and associated issues, DMM seeks to provide stakeholders and regulators with confidence in the efficiency and fairness of these markets,” explains Ryan Kurlinski, DMM’s senior manager of Monitoring and Reporting. “If a participant or regulator has questions about anything in the markets, we welcome the opportunity to set up individual meetings to discuss topics of interest.”
Another core DMM responsibility is identifying market rules or operational practices that may be limiting efficiency and recommending improvements to the ISO, stakeholders and policymakers. In addition to initiating its own recommendations, DMM also works to help address issues through the ISO’s various stakeholder processes. DMM gets involved early by participating in working groups and submitting written comments as issues and potential rule changes are discussed and developed.
As Adam Swadley, DMM’s manager of Market and Policy Analysis, explains: “DMM is often in a unique position to contribute to the stakeholder process based on the extensive access to market information, analytical capabilities and experience that we have built over the years. We combine this empirical foundation with sound economic principles to evaluate proposals and develop recommendations.”
DMM’s third responsibility is monitoring market conduct that may undermine market efficiency or violate market rules, including prohibitions against market manipulation or conduct based on false or misleading information. DMM works proactively to minimize opportunities for gaming or manipulative behavior before they occur through effective market design. When we do identify conduct that may violate market rules, DMM refers the matter to the FERC’s Office of Enforcement. Although DMM does not have authority to sanction market participants, FERC can take action to recover profits and issue additional penalties and sanctions on market participants.
As the ISO markets expand across the West, DMM’s role is also expanding. The West-Wide Governance Pathways Initiative “Step 2” proposal recommends that DMM serve as market monitor for the new Regional Organization for Western Energy (ROWE) currently being formed. Entities planning to participate in EDAM have also expressed a preference for having DMM serve as the independent evaluator for a resource adequacy program they are working to establish.
DMM has long supported regional market expansion and integration as a means of enhancing competition, efficiency, and reliability across the Western Interconnection. The growth of the ISO’s regional markets has also increased DMM’s access to information needed to effectively monitor and report on regional market conditions. DMM looks forward to continuing to support the success and growth of the regional markets through our ongoing analysis, reporting and recommendations.
FERC has established a variety of requirements designed to ensure the independence of all market monitors. Consistent with these requirements, DMM reports directly to the ISO Board of Governors. The ISO Board has established the DMM Oversight Committee, which includes a non-voting member of the Western Energy Markets (WEM) Governing Body, to oversee the administration of DMM’s market monitoring functions.
The Pathways Step 2 proposal notes that most stakeholders believe the current DMM structure functions well. To support further independence, it proposes that the DMM would report to both the Board of Governors and the new ROWE Board, along with their shared decision-making on upper management hiring and performance.
“The DMM team is built on over 26 years of experience, and has repeatedly demonstrated why its perspectives are highly regarded and widely sought out by those seeking to ensure that CAISO’s energy markets are efficient, competitive, and transparent,” notes ISO Board of Governors Chair Joe Eto.
“During a critical period when the Western US is transitioning to centralized electricity markets, DMM has earned the confidence of stakeholders as an objective and rigorous voice,” explains WEM Governing Body Chair Andrew Campbell.
While DMM fulfills FERC’s requirements for independent market monitoring, it operates within a broader framework of oversight and expertise established by the ISO. This framework includes the Market Surveillance Committee (MSC), the WEM Governing Body Market Expert, and the ISO’s Department of Market Performance and Advanced Analytics, all of which produce public reports and analysis across a variety of market performance and design issues. DMM regularly coordinates with all these entities, helping to ensure a comprehensive and transparent approach to market oversight.
We encourage market participants, stakeholders and regulators to explore DMM’s public reports and resources on the DMM’s website and to contact DMM management directly with any questions or for more information.
DMM looks forward to continuing to serve the public interest as our markets and regional governance framework evolve in the months and years ahead.
