Good morning, Chairman Swett and Commissioners. Today’s order rescinding the soft price cap in the Western Electricity Coordinating Council, or WECC, region, references the Commission’s robust market surveillance regime. We are pleased to present today on the Office of Enforcement and Regulatory Accounting, or Enforcement’s, monitoring and surveillance programs for the Western electricity markets to describe the capabilities that the Commission has developed over two decades to detect and deter improper activities in its jurisdictional markets. In this presentation, we will be providing an overview of how staff from Enforcement’s Division of Analytics and Surveillance, or DAS, conduct surveillance to identify potential violations, including market manipulation and how DAS staff conduct ex post reviews of transactions to identify potential exercises of market power, in the Western electricity markets.
I will begin with an overview of DAS’ electric surveillance program.
The Electric Surveillance team within DAS conducts monitoring and surveillance for potential market manipulation and other anomalous activities in both ISO/RTO and non-ISO/RTO markets. Today, I will focus on our surveillance of Western Non-ISO/RTO markets.
Since the formation of DAS in 2012, we have greatly expanded our ability to examine market participant behavior in jurisdictional electric markets. We conduct regular surveillance of trading behavior at major physical trading hubs in the West, examine electric energy transmission and interchange behavior across the footprint, and examine physical bilateral sales provided through the Electric Quarterly Reports, or EQR. We also examine physical, jurisdictional activities and compare it against potentially larger financial positions.
To do this, we routinely use many different sources of data, both public and non-public. With respect to sales at major Western hubs, such as Palo Verde and Mid-C, the Commission has continuous, non-public access to all trades of physical, next-day power on the Intercontinental Exchange (ICE). Additionally, pursuant to a Memorandum of Understanding with the Commodity Futures Trading Commission (CFTC), the Commission has access to a subset of the CFTC’s Large Trader Report, which provides data on market participants’ financial power positions at the hubs. This information is provided to the Commission on a next-day basis, giving us prompt insight into physical and financial sales activity that is particularly relevant during extreme weather events that can drive higher bilateral spot market prices.
In addition, the Commission receives market data from organized market operators, pursuant to Order No. 760, typically within one week of the relevant market activity. These submissions provide a wide range of market data from the ISO/RTO markets, including, for example, interchange data into and out of CAISO. As EDAM, RTO West, and Markets+ come online in the West, we will also receive market data from CAISO and SPP related to those new markets and develop new tools to surveil them as well. We work closely with our ISO/RTO partners to maintain our data feeds and ingest new data. We also receive e-Tag data, which is used to schedule the transmission of electric interchange in wholesale markets.
Using a portfolio of customized, non-public screens and dashboards designed by DAS staff, we constantly surveil the markets for possible violations, including market manipulation. As just one example, we monitor physical trades at hubs to determine whether any market participant may be using physical power trades in an attempt to raise or lower index prices in a manner that would benefit a larger financial position. We also screen for market participants who may be conducting circular or circuitous scheduling of transmission, which could constitute a wash trade. In addition, we surveil interchange transactions into and out of ISO/RTO markets, such as CAISO, for potentially manipulative trading strategies. Our surveillance screening is informed by past manipulations as well as analyst observations and experience.
In addition to our regular surveillance efforts in the Western markets, DAS also closely follows market conditions so that when there are disruptive events, such as periods of unusually high prices in the wholesale natural gas or electricity markets or dramatic weather events that impact those markets, DAS is prepared to conduct enhanced surveillance surrounding the events. These enhanced surveillance efforts may involve the electric surveillance team working with other parts of DAS, including the ex post or natural gas surveillance teams, to better understand the cause and impact of the event and whether market participants took advantage of the event or exacerbated the event’s impact for their own benefit. During these events, we may request additional data to augment our normal data feeds, conduct outreach to market participants, other federal agencies, or state regulators, and develop new screening methods that utilize additional data or account for the changes in the markets caused by the ongoing event.
If, through its regular surveillance screening or enhanced surveillance efforts, DAS determines that a market participant’s conduct warrants further scrutiny, DAS will refer the matter to Enforcement’s Division of Investigations to investigate whether a violation occurred, and if appropriate, what remedy to recommend.
Erin will now provide an overview of DAS’ ex post program.
Thanks, John.
The analysts on DAS’ ex post team actively monitor wholesale market activity in the non-ISO/RTO bilateral regions for the potential exercise of market power. As part of the Commission’s oversight of its market-based rate program, analysts routinely review transactions and contractual information submitted through the Commission’s EQR.
The EQR is the reporting mechanism used by the Commission to ensure that public utilities have their rates and charges on file in a convenient form and place. EQR filings are submitted to the Commission by all jurisdictional and some non-public utility sellers of wholesale power. These filings contain transaction-level sales information, including price, quantity, delivery location, and duration among other variables. As the name suggests, new data is submitted quarterly, one month after the end of each quarter.
To conduct our ex post review, analysts use this public EQR data, along with other public data sources, to create and analyze dozens of market indicators that collectively identify potential instances of the exercise of market power in each Balancing Authority Area and Hub. This ex post analysis evaluates transactions against market fundamentals at the time of execution to confirm that market outcomes are consistent with a competitive environment. For example, analysts may look at liquidity, load, weather patterns, interchange patterns, or power generation to determine whether market fundamentals support price formation. They also evaluate the markets by comparing bilateral prices to benchmarks, such as nearby liquid hubs, LMPs, or indices. When appropriate, this market analysis is combined with transmission data to evaluate whether any constraints, or lack thereof, may be impacting or alleviating market power concerns. Analysts review the data quarterly and may conduct deep dives on certain transactions, sellers, or geographic regions that appear anomalous. As part of a deep dive, analysts may conduct outreach with market participants for additional information to understand unusual market outcomes. DAS’ ex post team coordinates closely with staff from the Office of Energy Market Regulation’s market-based rates program and informs them of potential market power concerns that it identifies.
This concludes our presentation on Enforcement’s market surveillance and oversight functions in western non-ISO/RTO regions. Thank you for your time and attention. We look forward to any questions you may have.